O-I Glass, Inc. Q2 2026 Earnings Call

Thank you for standing by. My name is Gabby, and I will be your conference moderator today. At this time, I would like to welcome everyone to the O-I Glass Second Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I would now like to turn the call over to Chris Manuel, Vice President of Investor Relations. Please go ahead. Thank you, Gabby.

Good morning, everyone, and welcome to the O-I Glass Second Quarter 2026 Earnings Conference Call. With me today are Gordon Hardie, our CEO, and John Haudrich, our CFO. After prepared remarks, we will open the line for Q&A. Our press release and earnings materials are available on the company's website. Please review the safe harbor statements and disclosure regarding our use of non-GAAP financial measures included in those materials. Today's remarks do include forward-looking statements, and actual results may differ materially from our current expectations. With that, I'll turn the call over to Gordon, who'll begin on slide three.

Thank you, Chris, and good morning, everyone. Today, we will review our second quarter results, discuss market conditions, and provide an updated view of our 2026 outlook and 2027 targets. Before I begin, I want to thank our O-I colleagues around the world for their continued commitment and flexibility during a challenging operating period. Let me start with a straightforward assessment. We are clearly disappointed with our first half performance. Europe has not delivered the expected results as outlined in our investor day framework. We own those results. We are taking decisive action. We also think it is important to distinguish between a strategy that is not working and one where value realization has been delayed. We will address that distinction throughout today's discussion. With that, let me turn to recent performance.

Second quarter net sales were stable while adjusted earnings were $0.09 per share compared to $0.53 per share last year. Performance varied significantly by region. Strong Americas result helped offset substantially lower earnings in Europe, while an unusually high adjusted tax rate resulted in reduced results by $0.18 per share. In the Americas, segment operating profit increased 22% year-over-year, which we believe demonstrates strong execution of our strategy and the resilience of the business, even with one furnace event during the quarter. Europe was significantly below our expectations and prior year performance. We do not believe this is a structural issue with the business or our strategy.

Rather, we believe the shortfall reflected three main factors: elevated competitive pressure affecting selling prices, higher energy costs related to Middle East conflict, and unanticipated operational inefficiencies following restructuring across multiple EU plants along with two furnace events. We believe these issues are largely transitional and should improve as market conditions recover and we work through the remaining restructuring challenges.

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Good morning again, everybody. I'll now comment on recent performance. Second quarter net sales were stable while adjusted earnings were $0.09 per share compared with $0.53 per share last year. Performance varied significantly by region. Strong Americas results helped offset substantially lower earnings in Europe while an unusually high adjusted tax rate reduced results by $0.18 per share. In the Americas, segment operating profit increased 22% year-over-year, which we believe demonstrates strong execution of our strategy and the resilience of the business, even with one furnace event during the quarter. Europe was significantly below our expectations in prior year performance. We do not believe this is a structural issue with the business or our strategy. Rather, we believe the shortfall reflected three main factors. One, elevated competitive pressure affecting selling prices. Two, higher energy costs related to the Middle East conflict.

Three, unanticipated operational inefficiencies following restructuring across multiple EU plants along with two furnace events. We believe these issues are largely transitional and should improve as market conditions recover and we work through the remaining restructuring challenges. Global demand was also softer than expected with shipments down approximately 4.5% year-over-year. However, trends improved through the quarter and June volumes were flat with last year. Operational disruptions also limited sales opportunities and accounted for about half of that decline. We believe Fit to Win remains a key driver of value creation. We have delivered significant savings year to date despite operational disruption and inefficiencies. In light of these near-term challenges, we have adjusted our 2026 Fit to Win target, while our three-year target is now in line with our original expectations of $650 million.

Given these factors, we have updated our 2026 guidance and recalibrated our 2027 targets from last year's Investor Day. Importantly, we believe firmly in our strategy. We are realigning the timing to achieve our goals, not changing the strategy. Let's now discuss the top line on slide four. Net sales remained relatively stable in the quarter. Volume performance continued to reflect soft demand, although trends improved as the quarter progressed. As noted, global shipments declined approximately 4.5% year-on-year, while June volumes were flat with last year. Recovery has been difficult to predict, given sluggish consumer demand and customer destocking in certain markets. In the Americas, shipments were down 7%, reflecting challenging prior year comparisons, exiting some unprofitable business, and a furnace event that limited sales opportunities. In Europe, shipments declined 2%, primarily due to operational disruption that constrained sales.

Excluding that impact, underlying trends were roughly flat in Europe. We continue to see pockets of strength across the portfolio. Nonalcoholic containers remain a standout performer, and several geographies exceeded local market trends in prior year levels. The Andean group delivered double-digit growth, while Brazil was up low single digits. In fact, we outperformed the market in the majority of category and market clusters amid generally sluggish demand. We continue to expect second half growth supported by easier comparisons and new business wins while maintaining a more cautious recovery outlook. Our commercial transformation continues to gain traction. We are focused on business that generates economic profit and are applying greater discipline across the portfolio. Following strong execution in the Americas, we are starting to get more traction in Europe. New business wins represent approximately 2% of annual sales volume, with contributions expected later this year.

While the recovery remains gradual, improving momentum and portfolio optimization strengthen our confidence in delivering profitable growth. Let's now move to slide five. Fit to Win remains central to our strategy and continues to generate meaningful benefits. We believe the program is improving our cost position, strengthening our competitiveness, and building the foundation for long-term profitable growth. Since launch, Fit to Win has generated more than $400 million of net benefits. Through the first half of 2026, we delivered $85 million of benefits. This is net of $30 million of direct operating inefficiencies, and the total impact of disruption was approximately $45 million when including constrained opportunities and additional logistics costs. Phase A execution remains strong. Announced plant closures are complete, and we are advancing the final stages of organizational restructuring. Phase B continues to progress, although operational disruption has delayed COE benefits.

We are also advancing supply chain, procurement, and energy initiatives that should deliver increasing benefits over time. We have revised our 2026 and 2027 targets to reflect the headwinds discussed today. We now expect approximately $200 million of Fit to Win savings in 2026 and at least $650 million over the three-year period. Importantly, this reflects timing and execution disruption, not a change in underlying opportunity. The Americas' performance and recent customer wins are encouraging signs of improved competitiveness through Fit to Win. As execution stabilizes, we believe this can deliver meaningful value over time. With that, I'll now turn it over to John on slide six.

Thanks, Gordon, good morning, everyone. The top line was fairly stable, while second quarter results were below our expectation, given challenges in Europe. Net sales were nearly $1.7 billion, down about 2% from the prior year. Favorable currency and stable consolidated selling prices partially offset lower sales volumes. Adjusted earnings were $0.09 per share compared with $0.53 last year. Lower net price was the primary headwind. Selling prices increased in the Americas, declined in Europe amid competitive pressure. Europe was also impacted by higher energy costs related to the Middle East conflict and the one-time reset we have discussed previously. Lower sales volume was offset by favorable operating costs, reflecting Fit to Win benefits net of unanticipated costs tied to operating inefficiencies and furnace events. Adjusted earnings also reflect an unusually high adjusted tax rate driven by lower European earnings and a reduced full-year outlook.

We also recorded a significant non-cash goodwill impairment charge and increased tax valuation allowances. Both are excluded from adjusted earnings. The impairment was triggered by the decline in the company's share price during the quarter and reflects Europe's current challenges from an accounting perspective. These charges do not affect cash flow, operating plans, or Fit to Win milestones. Our priority is to bring the same discipline and execution to Europe that have improved performance in the Americas while recognizing that progress is taking longer than expected in a tough macro environment. Regarding the balance sheet, leverage is up some given lower EBITDA. Liquidity is very good at $1.5 billion. We have no maturities until 2028, we have ample headroom on our senior secured covenant. Let's turn to slide seven. Segment operating profit was $171 million compared to $225 million in the prior year.

Strong performance in the Americas was more than offset by continued pressure in Europe.