O-I Glass, Inc. (NYSE: OI) reported a first-quarter earnings per share of $0.45, with a noted decline in demand due to market downturns and production constraints. Despite the lower net price, the company is making progress with margin expansion initiatives and remains optimistic about the long-term prospects for glass demand, driven by trends in premiumization, health and wellness, and sustainability. O-I Glass has revised its full-year earnings guidance to $1.50 to $2 per share and is preparing for the launch of its MAGMA Greenfield plant in Kentucky. The company expects a gradual market recovery and has adjusted its sales volume outlook for 2024 accordingly.
Key Takeaways
- O-I Glass reported Q1 earnings of $0.45 per share.
- The company faced a decline in demand and temporary production containments.
- Margin expansion initiatives are underway, and the full-year target has been increased.
- The launch of the MAGMA Greenfield plant in Kentucky is scheduled for this summer.
- 2024 sales volume outlook has been adjusted to be flat to up low-single-digits.
- Adjusted full-year earnings guidance is now set at $1.50 to $2 per share.
- The company intends to maintain a healthy balance sheet with leverage in the low threes.
Company Outlook
- O-I Glass is focused on margin expansion and business expansion.
- The company remains confident in the long-term trajectory for glass demand.
- Strategic objectives include ESG efforts and leveraging MAGMA and Ultra technologies.
Bearish Highlights
- Market recovery is expected to be slower than initially anticipated.
- Consumer consumption patterns are improving more slowly than expected.
Bullish Highlights
- Long-term trajectory for glass demand is positive, with trends favoring the industry.
- The startup of the MAGMA Greenfield plant is a significant step forward.
- The company is confident in its strategic objectives and competitive advantage.
Misses
- Sales volume outlook for 2024 has been revised due to slower market recovery.
- Q1 earnings were affected by a decline in demand and production issues.
Q&A Highlights
- Executives discussed volume adjustments and destocking in wine and spirits.
- The competitive environment and opportunities in MAGMA were addressed.
- Focus on cost-related projects and automation to drive growth in the latter half of the year.
- Executives expect to return to pre-pandemic levels of demand.
In the earnings call, O-I Glass executives provided insights into the company's performance and future expectations. While acknowledging the current market challenges, they conveyed a strong sense of long-term confidence in the glass packaging industry. The company is adjusting its strategies to align with the slower-than-expected consumer recovery but remains focused on its key strategic objectives and the promising launch of its MAGMA technology. With a commitment to maintaining a healthy balance sheet and leveraging industry megatrends, O-I Glass appears well-positioned for future growth despite near-term headwinds.
InvestingPro Insights
O-I Glass, Inc. (NYSE: OI) has shown resilience in the face of market challenges, with a focus on strategic initiatives and long-term growth. Here are some insights based on real-time data and InvestingPro Tips that provide a deeper understanding of the company's current position:
InvestingPro Data highlights that O-I Glass has a market capitalization of $1.96 billion. The company's revenue for the last twelve months as of Q4 2023 stands at $7.105 billion, with a revenue growth of 3.63%. Despite the overall growth, the company experienced a quarterly revenue decline of -3.07% in Q4 2023. The P/E ratio adjusted for the last twelve months is 4.36, indicating a potential undervaluation compared to the industry average.
Two InvestingPro Tips that are particularly relevant to O-I Glass at this moment include:
1. Management's aggressive share buyback strategy, which could indicate confidence in the company's future and a commitment to delivering value to shareholders.
2. The expectation of net income growth this year, suggesting that the company's strategies may start to pay off despite the current headwinds.
For readers interested in a deeper dive into O-I Glass's financial health and future prospects, there are additional InvestingPro Tips available at https://www.investing.com/pro/OI. These tips could provide valuable insights for making informed investment decisions. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are a total of 9 additional InvestingPro Tips listed for O-I Glass that could enrich your investment strategy.
In light of the company's recent earnings report and the insights provided by InvestingPro, investors may find O-I Glass an interesting case of a company navigating through market downturns with strategic initiatives aimed at long-term success.
Full transcript - Owens-Illinois Inc (NYSE:OI) Q1 2024:
Operator: Hello, everyone, and welcome to the O-I Glass First Quarter 2024 Earnings Conference Call. My name is Emily and I'll be facilitating your call today. After the presentation, there will be the opportunity for you to ask any questions. [Operator Instructions] I will now turn the call over to our host, Chris Manuel, Vice President of Investor Relations to begin. Please go ahead.
Chris Manuel: Thank you, Emily, and welcome everyone to the O-I Glass first quarter 2024 conference call. Our discussion today will be led by Andres Lopez, our CEO and John Haudrich, our CFO. Today we will discuss key business developments and review our financial results. Following prepared remarks, we will host a Q&A session. Presentation materials for this earnings call are available on the company's website. Please review the Safe Harbor comments and disclosure of our use of non-GAAP financial measures included in those materials. Now I'd like to turn the call over to Andres, who will start on Slide 3.
Andres Lopez: Good morning, everyone, and thanks for your interest in O-I. Last night, we reported first quarter earnings of $0.45 per share. As expected, results were down from historically robust performance in the prior year period. Lower earnings primarily reflected softer demand due to a market downturn and temporary production containments to balance supply with lower shipments. While net price was down slightly, our margin expansion initiatives are off to a particularly good start this year. Although, slower than originally anticipated, consumer consumption patterns are gradually improving, and we are encouraged by the progress in our shipment trends since the fourth quarter of last year. As conditions gradually improve, we are focused on the factors within our control. I am proud of the continued excellent operating performance across the enterprise and we have increased our full year margin expansion initiative target as we seek to optimize our 2024 results amid a slower demand. Importantly, we continue to advance MAGMA to create a long-term competitive advantage for the company and we are excited for the startup of our first MAGMA Greenfield plant in Bowling Green Kentucky this summer. As we look to the balance of the year, we are adjusting our full year 2024 outlook to reflect a slower market recovery, which John will review a bit later. Nevertheless, we remain confident about the long-term trajectory for glass demand, as well as stronger future earnings potential as markets recover over time. Let's turn to Page 4 to discuss current market trends. While it’s still soft, the commercial environment is gradually improving. As shown on the top chart, our shipments on a year-over-year basis were down 12.5% in the first quarter, compared to the 16% decline in the fourth quarter of 2023. Additionally, April shipment show gradual improvement as demand was down about 10% from prior year on a per day basis, when adjusting for the shift in the Easter holiday between 2023 and 2024. Consistent with discussions in previous calls, inventory destocking across the value chain has been a significant driver for lower shipments this past year. Destocking is in the later stages for products with a short cycle such as beer NABs and food, while activity will likely continue for a couple of quarters for longer cycle products including the spirits and wine. Additionally, consumer patterns are improving better - at slower rate than expected as illustrated in the bottom chart. Trends improved consistently over the course of 2023, but were choppy during the first quarter this year and lagged our expectations. Softer consumption is attributed to the factors we hear about in the news every day, such as cost inflation on food and beverages products thriving price elasticity challenges, prolonged higher interest rates and consumer confidence that remains below pre-pandemic levels. Furthermore, we have seen a limited shared shift and some trade down, especially as our customers ramp up promotional activity, which tends to favor more value brands. As we look to the balance of the year, we expect shipments will improve as destocking activity drops off over the next several months. However, we have revised our 2024 sales volume outlook to reflect a more gradual improvement in demand over the course of the year as we now project a slower rate of consumption recovery than originally anticipated, which is shown in the circle in the lower chart. Overall, we now expect our 2024 sales volume will be flat to up low-single-digits, compared to our prior outlook of low to mid-single-digit growth. As markets improve, we anticipate long-term glass demand will continue to benefit from key megatrends, such as premiumization health and wellness, as well as increased interest in sustainability. Overall, we expect glass demand will substantially recover to pre-pandemic levels over time. Importantly, we are well-positioned to take advantage of the rebound as it unfolds. Now, I’ll turn it over to John, who will review our first quarter performance and updated 2024 outlook in more detail starting on Page 5.
John Haudrich: Thanks Anders, and good morning, everyone. OI reported first quarter earnings of $0.45 per share. Consistent with our expectation, results were down from historically higher earnings of $1.29 per share of last year. As illustrated, earnings primarily reflected a decline in segment operating profit, while slightly higher non-operating expense was mostly offset by some favorable effects. Additional details on non-operating items are included in this slide. Let’s turn to Page 6 and discuss recent performance across our two segments. The Americas posted segment operating profit of $102 million, which was down from $176 million last year. Net price was a slight headwind and sales volume was down 15%. Elevated operating cost reflected significant temporary production curtailment to balance supply with demand, which was partially offset by favorable margin expansion initiative benefits. In Europe, segment operating profit totaled $133 million, down from $222 million last year. Like the Americas, net price was a modest headwind and sales volumes were down 10%. Higher operating cost reflected the impact of elevated temporary production curtailments, lower JV performance, and prior year energy credits that did not repeat. These headwinds were partially offset by benefits from our margin expansion initiative program. Let's turn to Page 7 to discuss our updated 2024 business outlook. As noted on the left, we have adjusted our full year earnings guidance for few factors. Net price was stable, yet we have reduced our sales growth expectations, reflecting a longer destocking process in a more gradual improvement in consumer consumption patterns than originally anticipated. Given softer demand, we intend to take incremental production curtailments to ensure inventories remain in check. Importantly, we are accelerating our curtailment activity in the second quarter, following the softer start of the year. To help mitigate slower sales growth, we have increased our full year initiative benefit target to at least $175 million. Finally, our outlook has been impacted by unfavorable FX trends, higher interest rates, given the change in the forward curve and a higher tax rate. As a result, we now expect adjusted earnings should approximate $1.50 to $2 per share, compared to our prior outlook of $2.25 to $2.65 per share, and we have updated our view of quarterly earnings allocation. Free cash flow should range between $100 million to $150 million, reflecting lower earnings, partially offset by other favorable cash levers, including moderately lower CapEx. We intend to maintain a healthy balance sheet position and expect to end the year with leveragable in the low threes, which will naturally decrease, as volumes and earnings recover. As Andres discussed, we believe current marketing conditions are temporary, while it will likely take longer than originally anticipated, earnings should rebound when sales and production volumes substantially return to pre-pandemic levels. Now, I'll turn it back to Andres, who will provide an update on our key strategic objectives on Page 8.
Andres Lopez: Thanks, John. Despite the market downturn, we continue to execute on the five key priorities we established this year to enable our long-term strategy. We are off to a good start with our margin expansion initiatives, which are helping offset some of the current market pressures. As noted, we have increased our full year target, which includes planned restructuring activities in 2024 that are now substantially complete. We will continue to evaluate our network requirements as future market trends unfold. At the same time, we are expanding our business to enable profitable growth. As I will discuss further on the next page, our MAGMA Greenfield project remains on schedule and we continue to advance attractive expansion projects, while others remain on hold pending further market recovery. All MAGMA R&D is advancing well and we remain on track for our first Gen 3 deployment in 2026. Likewise, we recently approved two new Ultra lines in Europe to support increasing customer interest in lighter weight packaging. Our ESG efforts are progressing well and our 2024 capital plan includes all key projects that enable our long-term sustainability roadmap. Furthermore, we are excited that the US Department of Energy has selected OI to receive up to $125 million in funding over the next few years to accelerate deployment of industrial decarbonization technologies. Finally, we intend to maintain a healthy balance sheet, as John discussed. Overall, we are off to a good start this year as we advance our long-term strategy. More on MAGMA on Page 9. Our heritage network is a great feed for many of the categories that we have served for decades and will continue to serve into the future. However, markets have evolved and we now see greater brand proliferation and increased product fragmentation. MAGMA reimagines the entire glass making process to serve a more differentiated market. MAGMA is more flexible, scalable and can be more rapidly deployed. It is a smaller and will feed into an industrial warehouse, which lowers future capital intensity on operating cost. Furthermore, MAGMA can be near located or co-located to reduce logistics cost and is designed around sustainability from the ground up. In short, MAGMA is designed to meet the market requirements for today and into the future. We are nearing an important milestone and we expect to start up our first MAGMA Greenfield in the year late July or early August. Located in Kentucky, which includes nearly 100 whiskey distilleries, this new plant is an example of how MAGMA can enable profitable growth in attractive fragmented markets. Let’s turn to Page 10. We believe MAGMA and Ultra will increase OI’s right to win in the marketplace. In particular, increased flexibility and scalability and rapid deployment will create key benefits for OI across attractive differentiated markets and categories. Overall, MAGMA and Ultra together represent a major leap forward and should expand OI’s total addressable market by over 30%. We look forward to hosting investors and customers at our new Greenfield facility in the future, which will demonstrate all our innovative technologies that will create a new competitive advantage for OI, and enable glass to win in the marketplace. Please move to Page 11 for some final remarks. OI continues to navigate well through challenging macro conditions and delivered solid first quarter results, despite softer than expected shipment levels. While we have revised our current year outlook to reflect a slower than anticipated market recovery, we are taking the right steps to position the company for future success. We are properly aligning supply with lower demand and we have increased our already record high targets for margin expansion initiative benefits. Despite the short-term challenges, we remain confident in the long-term positive trajectory of glass packaging and we are well-positioned for the rebound, which should significantly improve future earnings over time. Importantly, we are excited for the startup of our first MAGMA Greenfield plant this summer, as we align our business to the future of glass packaging. Before we take your questions, I would like to end with a few reflections on my time as CEO. Over the past several years, we have significantly transformed the company and we are now a much more disciplined, agile, and capable organization. After stabilizing our operations, the team significantly enhanced our ability to execute and we have consistently delivered on our commitments. We rebalanced our network, expanding our Americas footprint and diversity in non-core for assets. We have reduced risk and improved our cash flow profile with a fair and final resolution of our legacy asbestos liabilities, and we have the best balance sheet in nearly a decade. While improving core performance and optimizing our business structure, we also developed new breakthrough technologies that will create a new competitive advantage for years to come. I'm proud of what we have accomplished and would like to thank the OI family for all that we have accomplished together. I will also like to thank each of you in the investment community for the interest in OI over the years. The rest is just to come. Speaking on behalf of Gordon Hardie, our incoming CEO, he is actively engaged in the transition. He is looking forward to joining the OI team in mid-May and meeting with the investment community in the near future. Gordon has served on the OI Board for over eight years and knows the company well. With his years of experience working in the food & beverages industry, including some of our customers is well-positioned to lead the company into the future, Thank you. And we're now ready to address your questions.
Operator: [Operator Instructions] Our first question today comes from the line of Ghansham Panjabi with Baird. Please go ahead. Your line is now open.
Ghansham Panjabi: Thank you. Good morning, everybody. And hey Anders, congrats on your retirement and also on your very impressive legacy you are leaving behind. Wish you well for the future.
Andres Lopez: Thank you.
Ghansham Panjabi: Yeah. And so, I guess, first off, in terms of the volume adjustments relative to prior guidance, are there any notable categories that are driving that sort of de-rating if you will or is it just broad based at this point?
Andres Lopez: I think it is broad based with the exception of the onion countries, which is the place where we invested on expansion that is performing quite well. And in fact, the Colombia specifically is growing year-on-year in the mid-teens. Every other market is experiencing this slowdown, which some markets having more destocking impact. For example, the spirits in North America or the spirits in Mexico, because of tequila. But for the most part, it is everywhere with exception of the onion countries and specifically, Colombia.
John Haudrich: Hey, Ghansham I would add, if you take a look on a category basis consistent with Andres said is, that we're seeing the best recovery and improvement in the beer category. And but it is choppy across the different markets as Anders mentioned on in Colombia, for example is doing quite well and some other markets, it's still kind of flattish to down a little bit. But overall, we've seen the most improvement in beer, which again is one of your shorter cycle areas that as we mentioned that we see, the destocking is substantially complete and we're seeing that improve. Yet you're still seeing that wine and spirits category stocks still kind of down in that low to mid-single-digit and with the expectation it might drag on a little bit longer given the consumer consumption in that area is softer. It might take a little bit longer for that area to destock.
Ghansham Panjabi: Got it. Thank you. And then, in terms of the destocking specific to wine and spirits, what sort of timeline as real estate does related to the destocking component? And then also just given the weakness you are seeing across the board, I know, you have a lot of contracted business, but just touch on, maybe the competitive activity across the different regions, just given sort of a lower for longer volume dynamic. Thank you.
Andres Lopez: So, with regards to the destocking, we're seeing some interesting evolution lately. Demand trends are changing as we speak. So, we’re seeing some interesting evolution. With regards to the spirits and wine, we expect this to continue through the second half improving along the way, but it should be recurring in the second half overall.
John Haudrich: As far as the competitive environment, the only thing I think we can add is, is that we are managing our businesses as we have over the last several years to really balance supply with demand. It can be very, very, very crisped on our inventory levels. So that we maintain their proper balance within our system. Really can't really comment too much on the competitors.
Ghansham Panjabi: Thank you.
Operator: The next question comes from Mike Roxland with Truist Securities. Please go ahead, Mike.
Mike Roxland: Thank you, Andres, John and Chris for taking my questions. And Andres, congratulations and best of luck in your retirement.
Andres Lopez: Thank you.
Mike Roxland: Just on my first question, in terms of the accelerated curtailment activity, is that mostly occurring in the Americas? Is there something that specifically happened, because you are always having little more confidence last quarter, you also were at a conference in late February where you reiterated your guidance. So I'm wondering if something happened between the conference or both of those quarters that where you become more cautious and I understand that the backdrop is volatile with consumers bottle, but has something really happened more recently to increase your cautiousness and maybe we expect your outlook.
Andres Lopez: So curtailments have been more pronounced in the Americas as you mentioned. Now, as we entered the year, we had an expectation with regards to the base of destocking, as well as the consumer consumption leverage. Now Q4, with all the data we have was the lowest point in the year-on-year comps for us. Q1 showed an improvement versus Q4 and April is showing an improvement versus Q1. Now, we had a pretty slow March and that's what made the Q1 so low. Now, with all that in mind and with the latest information at hand, we see destocking is taking a little longer than we originally anticipated. So we are correcting that. And consumer consumption is recovering, but it's recovering at a slower pace. Now, there are some encouraging signs. For example, when we look at the wine in Europe, wine out of Italy, the experts are growing year-on-year in the latest data that we have, for example. But then we got to see that to continue for the balance of the year. There is some positive evolution in beer and wine inside Italy. At this point, there is improved performance of beer in North Central Europe. So, all of this is unfolding as we speak and that makes it a little bit more challenging. But we believe we now corrected that volume based on the latest information we have and more in line with the actual destocking pace, as well as the level of consumer consumption.
John Haudrich: Yeah, Mike, what I would add is, if you take a look at the curtailment activity, we had about 8% curtailment in the first quarter, which was kind of aligned maybe a little higher than the sales volume decline that we were expecting in the first quarter going into the period. Obviously, the actual decline was bigger than that. So we are stepping up the curtailment activity. It'll probably beat anywhere between 10% to 12% level of our curtailment over the balance of the year with probably the peak being in the second quarter here as we catch up for, adjusting for a little bit of the slowness in the first quarter. As we look to where, as Anders mentioned, we have been most active in our curtailment in the Americas. And so, probably incrementally more curtailment will be occurring in Europe as we look to rebalance everything over the course of the year.
Mike Roxland: Got it. Thank you for that color. And then just for my follow-up, can you mention or comment on any additional opportunities you have in MAGMA that probably offset this additional demand in consumers I imagine reaching a target of total $175 million for the year, you are return with any accomplishment number of projects to achieve that target thus far. But what else can be – what above and beyond the $150 million or $135 million, do you have at your disposal to help offset some of this persistent demand weakness? Thank you.
Andres Lopez: Yeah, so, we see opportunities in multiple markets in MAGMA, given its flexibility, the scalability, time to market, and many other things, lower capital intensity, lower total cost of ownership, the ability to co-locate or near locate has many opportunities for MAGMA. So, for example, what we're doing right now in Kentucky, is to put capacity right where the demand is for this craft distilleries are making capacity available for them to be able to guarantee our supply. Like that, you will be able to map similar situations across the United States and in other markets. And there is enough - there are enough opportunities already identified to support a larger-scale deployment starting once Gen 3 is concluded. So, we mentioned here that, MAGMA is very good for fragmented premium market, which is high value. And that's where we are focusing our efforts and our plants at this point.
John Haudrich: And Mike, to your question, on what's driving the additional benefits we're looking for in the margin expansion initiatives going from $150 million to $175 million? Keep in mind, $75 million of that is related to restructuring of various facilities or SG&A reductions that we decide - made decisions on in the fourth quarter of last year. All that work is substantially done. And so, we are at the runrate of that benefit already. And so, that certainly helped us in the first quarter and it gives us the confidence. So we really are looking at another $100 million above that and if you look at historically how the company has performed on these initiatives, that's in our wheelhouse. One thing I would add and a big shot out to the operations team, we're seeing the best performance in the operations in seven years and that is providing us a backdrop of being able to drive more benefits in that regard. And we are shifting some of our capital spend a little bit less on growth right now, because of the softness in the market and a little bit more towards cost-related projects, automation, and things like that. That's sustaining additional benefits this year, but also really built the pipeline for continued benefits and continued margin expansions into the future.
Operator: The next question comes from Arun Viswanathan with RBC (TSX:RY) Capital Markets. Please go ahead.
Arun Viswanathan: Great. Thanks for taking my question. I guess, yeah, again, I just wanted to go back to the volume front. So, do you think it's possible that we revert to, say a flattish or a zero or a 1% growth the trajectory may be in the back half of this year, especially facing easy comps in Q3, Q4? And maybe some capacity additions and your MAGMA build out? And is that kind of where you place long-term glass demand? Or do you think there's been some structural weakness now that we should revert to maybe a lower growth rate?
Andres Lopez: So, our expectation is that, we will go back to pre-pandemic levels and the same is the perspective of our customers. So, every customer we talk to is planning to go back to pre-pandemic or slightly higher depending on the industry in which they are. So, now as destocking finalizes, which is being the largest driver of our sales drop and consumer comes back up, we should be able to start seeing that level of performance. Knowing exactly where that is going to fall is difficult, but our expectation is that we're going to later in the year and actually in the year will be a much different pace when compared to today.
John Haudrich: Yeah. To build off of that, Arun, I would say that, right now, we're in a mode where we are recovering to as Andres said that that pre-pandemic basis as the consumer gradually starts to improve as we mentioned. So, I think it's a little early to be able to call long-term trends, because we have to see a little bit more there. But as we look at what's driving the softness, right now, whether it's destocking or whether it's just kind of the macros and things like that, it's too early to make a statement. I’ll call if there's any change in the drivers for our business over the long-term. So we haven't really changed that perspective yet. Now, to your question about the back half of the year or two, so it's included in our materials on Page 4. We do expect things in the back half of the year to be up mid-single-digits or high-single-digits. Again, to your kind of what you're alluding to, there are easier comps. We’re down mid-teens last year. So we will be comping those to be able to give us stronger growth overall to recovering in time to pre-pandemic levels. And then we'll see the longer term trends unfold.
Andres Lopez: And everything we are describing…
Arun Viswanathan: Okay. Thank you.
Andres Lopez: Answering your question doesn't include any deployment of MAGMA.
John Haudrich: Yes, correct.
Arun Viswanathan: Oh, great. And then, just to go up quickly on price cost. So I think, you may have addressed this, but you wanted to hold on to, say, two-thirds of your pricing that was put in place over the last couple of years. Do you still feel comfortable with that cadence, especially, given that we've potentially seen some further deflation on the raw side? Or how would you kind of characterize your outlook for price cost after this report? Thanks.
John Haudrich: Yeah, well, I first say that, price cost this year were as we said it's stable with our original outlook of some pressure of, call it little over $200 million or so of price cost pressure. We have not changed that. What we've seen is a little bit of softening in cost inflation, right? And most of that's on the energy side, a little bit I raw materials and price has been adjusted a little bit primarily because, for example, the energy adjustments coming in North America get passed to our customers pretty quickly. As we look to the overall backdrop of cost inflation, we're looking again, low-single-digit cost inflation coming off a little bit of what we were thinking. And keep in mind, more than half of our business is under long-term agreements with price adjustment formulas. So, as we go into next year, there should be a natural continued recovery component of that. I think it's a little early to talk about the overall price, marketplace going forward. But I believe that if you take a look at the history of this company, over - with the exception of, with the last year or so here, we have historically been a business that's been either neutral or a little bit a positive on net price in a more balanced environment with this demand comes back into it a little bit more of normalized environment. So we believe that that's still the fundamental backdrop for our business. Of course, we just got to work through a little bit of the transition here is we are referring to on the call.
Arun Viswanathan: Thanks.
Operator: The next question comes from George Staphos with Bank of America (NYSE:BAC). Please go ahead. Your line is now open.
George Staphos: Thanks so much. Hi everyone. Good morning. Thanks for the details. Andres, again, congratulations on your retirement and everything that you accomplished at OI and the support of our research.
Andres Lopez: Thank you.
George Staphos: I guess, I want to come back from - to the extent that your customers had a view on this. What was the reason in your view that March wound up being a little bit weaker than anticipated? You're not alone in that regard, not trying to pick on OI. It seems like March was a little bit softer than expected even when adjusting four days for a lot of our companies. What was your customer base saying in that regard? And why you feel comfortable that things do in fact improve into 2Q? The second question, again related to what your customers are saying and to some degree, you already covered it, saying it's too early to call it perhaps is that, as you look out the next couple of years, what worries you most about the volume outlook? What gives you the most confidence in the volume outlook? Destocking – with the recovery from destocking, consumption and/or its recovery and/or changing consumer taste. There has been some discussion in the trade about change in consumer taste, trade down and consumers moving away from traditional spirits. What are your customers saying in that regard relative to your demand outlook? Thank you.
Andres Lopez: Okay. So, it’s difficult to know exactly what happened in March that there are some things that might be impacting the numbers. For example, customers taking the opportunity to drastically reduce inventories before quarter end. And the other thing is that some of the customers have a fiscal year that is- it was ending or about to end. So, most likely they are taking actions related to that and then will have a more normal operation going into the second half of the year. Because of the excess capacity at this point, we expect that the typical seasonal demand that we see wouldn't necessarily apply, because customers have access to product right away. So they didn't need to fill in advance or buy in advance and fill in advance to be prepared for the season. So, those are some of the reasons, but it's difficult to know. I think what’s encouraging for us is that April has been a lot better than March and certainly better than Q1 too. So that's reassuring that we are in the path at to improve. Now, obviously, we find it exactly that based on the timing is a little difficult. When we look two years out, there is some talk about changing in trends, but we still got to see that materializing. As we've seen before, some trends come up and then disappear too. They fade away. So it's a little early to talk about that. I think, what's good in our horizon is, while we are in the or in a significant volume slowdown at this point, the company is in a very good place operationally and our operating leverage upside is very large. So, as volumes come back, we're going to ride the wave. It's going to be positive.
John Haudrich: The one thing I would add and that is, when we brought this point up in the last call is our pipeline for new product development is very, very strong. So to us, that is a signal from our customers that they are looking to invigorate their brands and bring them forward and address whatever changes in consumer taste and trends that are out there. And, and like Anders said, it’s a very volatile environment and then you go back into the pandemic and people were drinking very significant amount. Now, there's a little bit of softness that you referenced and it's very difficult to find out what is a longer term trend and what is a reaction to a different environment. So, time will tell.
Andres Lopez: And that activity on NPV is in all segments, in all geographies and it’s a lot higher than we've seen in years. So, and it's both initiated by OI and initiated by the customers.
George Staphos: Thank you, John.
John Haudrich: Thank you.
Operator: The next question comes from Anthony Pettinari with Citi. Please go ahead. Your line is open.
Bryan Burgmeier: Good morning. It’s actually Bryan Burgmeier sitting in for Anthony. Thank you for taking the question. Maybe just following up on Arun’s question, if I think about OI, having maybe about 10% of capacity on the sidelines this year, when does that start to create some risk for year-end pricing negotiations in Europe? I am just thinking about sort of a historical relationship between curtailments and price and I guess, does this level of curtailments usually support flat to positive price for OI.
John Haudrich: What I would say is at the end of the day, it comes down to balancing your inventories and making sure that the inventory situation is in the right place for whatever the market conditions are. And at OI that's what we are managing to is to make sure that our inventories in the year in a reasonably snug position. And I can't speak for the broader marketplace, but we believe that that is the most important thing that we as a company can do to position the company for future success.
Bryan Burgmeier: Got it. Got it. Makes sense. And maybe, George just touched on this. But I'm just wanted to dig into the trade downs that you flagged in the prepared remarks a little bit. I'm just trying to think if it's – are you referring to people may be moving from wine to beer. Is it moving from a higher end bottle to a lower end bottles or moving from glass to a different substrate. Just any detail there. Thanks. I'll turn it over and good luck in the quarter.
Andres Lopez: Yeah. So the trade down activity is concentrated in some markets. So it's not everywhere and for the most part, it’s linked to promotional activity. So every time customers move forward with significant promotions, those are typically in a lower cost package and that's where the trade down happens. But we've seen also in some of those markets a start of a rebound and the consumption of glass, for example in April was positive year-on-year in markets that presented that before.
John Haudrich: I think we've seen some mix trends too. So for example, we've flagged this one last quarter too is that, there is some trade down effect with beer in Eastern Europe. By the same token, we're seeing very strong market share position for glass in The Netherlands and in Colombia and other marketplaces like that. So I think we got, there's no one universal answer about what's going on out there. You see it market-by-market, category-by-category.
Operator: [Operator Instructions] Our next question comes from the line of Gabe Hadji with Wells Fargo (NYSE:WFC) Securities. Gabe, please go ahead.
Gabe Hadji: Andres, congratulations. John, Chris, good morning.
Andres Lopez: Thank you, Gabe.
Gabe Hadji: Yes. Maybe much like you are focusing on the controllables, maybe focusing just on the sort of more near term outlook. It wasn't clear if April volumes, whether on a day-adjusted basis or otherwise were positive for you all in terms of shipments? And then, just confidence level in the near term kind of second quarter view that it looks like from the chart, shipments will be flattish. Maybe we will start there.
John Haudrich: Yeah, Gabe, for clarity, our actual shipments in April were up 3%, okay, that we also benefited from the timing of Easter. If you normalize for the Easter period, it was down about 10% on a per day basis. And that compares to the first quarter when things were down about 12.5%. So we have seen some, some trend in the positive. That's - but that's obviously, a little slower of an improvement than what we originally anticipated. So March was a bit softer as Anders mentioned, April was improving, but also maybe little slower than we anticipated with the backdrop of the, looking at the Nielsen data with a little bit of a slower consumer. But as we take a look at that and you see it on that Page 4, in the lower right hand corner, we have calibrated our growth expectations for each quarter of the year for a revised view of a softer consumer recovery pattern. And so, we believe, with April being up 3% on an absolute basis and then things playing out more on a normalized basis over the balance of the month, we should be in that kind of plus or minus or fairly narrow range of a breakeven in the second quarter. And then stronger volume - reported volumes in the back half as we see that gradual recovery, but also in easier comp against the prior year numbers.
Gabe Hadji: Okay. One country you had talked about the Indian region and Colombia, but we didn't hear much about Brazil. Again, a lot going on there in terms of what we're hearing from a competing substrate. It seems like aluminum is maybe better hedged this year or maybe cheaper from a sourcing standpoint. Just as that happens and we get more sanctions and things like that and cost move up. Just curious how long maybe of a lead time you have in terms of the discussions with your customers for pack mix done in Brazil? And then, just maybe current commentary on what you're seeing. Thank you.
Andres Lopez: Yeah, so the economy in Brazil has been a performing quite stable. So it didn't go through what the other economies are going through. It’s been okay. Now our performance, or that performance of glass in beer is very solid. It is driven by premium. And just to give you an idea, year-to-date first quarter year-on-year, one way growth is 5.3%, which is well ahead of growth in the other substrates. Now, it is important to take in consideration that when other substrates talk about their demand, they include carbonated soft drinks in one way, which is a segment in which we don't participate on much. So, so that's driving a lot of what they are experiencing. But for us, a very important category in the country's beer and beer is doing quite well. As we said before, the returnability improved over time after the pandemic. So, the percentage of the total volume of beer packed in return our glass increased, and it remains at.
Gabe Hadji: Okay. Thank you.
Andres Lopez: Thank you.
Chris Manuel: Okay guys that concludes our earnings call. Thank you, Emily. So that concludes our call. I would note that our second quarter call is scheduled for Wednesday, July 31st. And as a reminder, make it a memorable event by choosing safe sustainable glass. Thank you.
Operator: Thank you, everyone for joining us today. This concludes our call and you may now disconnect your line.
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