OI - NYSE

Good morning. Thank you for attending today's O-I Glass Third Quarter 2025 Earnings Conference Call. My name is Jerry, and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Chris Manuel, Vice President of Investor Relations. Please go ahead.

Thank you, Jerry, and welcome, everyone, to the O-I Glass Third Quarter 2025 Earnings Conference Call. Our discussion today will be led by Gordon Hardie, our CEO; and John Haudrich, our CFO. Following prepared remarks, we will host a Q&A session. Presentation materials for this 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 Gordon, who will start on Slide 3.

Good morning, everybody, and thank you for your interest in O-I Glass. Today, we will review our third quarter performance, examine recent market trends and highlight the progress we have made on our transformation journey. We will also share our improved outlook for 2025 and an early view on key business drivers for further improvement in 2026. Before we begin, I want to acknowledge the dedication and determination of the entire O-I team. Your commitment, teamwork and execution are the drivers behind our ongoing transformation. Last night, we reported third quarter adjusted earnings of $0.48 per share, delivering strong results that exceeded both last year's performance and our own initial plans. Our top line remained stable, supported by higher average selling prices and favorable FX, even as overall consumer demand remained subdued. We saw revenue growth in non-alcoholic beverages, food and RTDs, while beer and wine experienced declines due to softer consumer demand. Importantly, the execution of our strategic initiatives is leading to a higher quality of revenue as we strip out waste and inefficiencies, expand in growing categories and exit some unprofitable business. As a result, segment operating profit rose by more than 60% year-over-year, and margins are up a robust 570 basis points, propelled by significant benefits from our strategic program and increased production levels following last year's inventory reduction. Fit to Win contributed another $75 million in the third quarter and $220 million year-to-date. We now expect to surpass our original 2025 savings target, and this program is strengthening our competitiveness, enhancing performance and enabling durable profit improvement. Despite ongoing macroeconomic headwinds, our strategy is delivering results. We have raised our full year 2025 guidance and now expect adjusted earnings per share to nearly double versus 2024. Momentum is building, and we anticipate continued growth in adjusted earnings and free cash flow in 2026 as we advance towards the target set out at our recent Investor Day. Let's now move to Page 4. As we review our quarterly results, it is important to consider current trends within the broader market context. Packaging dynamics are evolving. short-term cyclical pressures, including inflation, consumer price resistance and elevated supply chain inventories have temporarily dampened demand. However, we anticipate these headwinds will ease over time. Longer-term factors such as lower per capita alcohol consumption and increased substrate competition will persist in certain markets, yet these challenges are expected to be offset by growing interest in premiumization and sustainability. Furthermore, rising consumer health awareness is driving growth in no, low alcohol beverages as well as food and water. These trends suggest a more balanced and sustained demand for glass over the long term. In the interim, our focus remains on eliminating waste and inefficiencies, building higher quality revenue streams, delivering a more profitable portfolio and positioning the business for future shifts in consumer demand. O-I has navigated market volatility effectively, maintaining stable net sales in recent years. As we address near-term cyclical pressures, we are carefully balancing price and volume to achieve a relatively stable top line. For the full year, we now expect pricing to be flat and sales volumes to be down about 2%, which is consistent with softer consumer demand. Despite this, our Fit to Win initiative is delivering a higher quality business mix and strengthening our competitive position, as evidenced by improved margins and segment profits. Looking ahead, we anticipate O-I will achieve 1% to 2% annual sales volume growth post 2027, as markets stabilize, strategic initiatives enhance our cost position, and we drive profitable growth in the next phase of our strategy. Let's now turn to Page 5 to review the progress of our Fit to Win initiative, which I'm pleased to report is ahead of schedule. Fit to Win is significantly reducing costs across the enterprise as well as optimizing our network and value chain to enhance competitiveness and support future growth. In the third quarter, we achieved another $75 million in savings with benefits of $220 million through the first 9 months of the year, well ahead of our initial plans. With this momentum, we expect 2025 savings will range between $275 million and $300 million, which exceeds our current year goal. So we are well on our way to at least $650 million of benefits by 2027 on a cumulative basis. We are making excellent progress in Phase A, which focuses on streamlining SG&A costs and initial network optimization actions. We've already secured $100 million in SG&A savings in 2025, and we are on track to reach our 3-year target ahead of schedule. Our network optimization is also moving quickly. We have communicated the closure of 13% of capacity to align supply with demand. 8% is now complete and all remaining actions should be completed by early next year. Phase B centers on transforming our entire value chain. The first wave of our total organization effectiveness rolled-out across 15 plants is completed, and each location has met or exceeded expectations. The second wave covering another 15 plants is in progress, and we should complete the remaining plants by the end of next year with benefits continuing into 2027 and beyond. Our teams are driving strong results in procurement and energy reduction, further boosting savings and resilience. New supplier agreements are set to enhance productivity and competitiveness over the next 3 years. Overall, the Fit to Win program is delivering results faster than planned. We are well ahead of our targets for 2025 and are positioned to unlock even greater value through 2027, despite challenging market conditions. Now, I'll hand it over to John, who will start with a review of our third quarter results on Page 6.

Thanks, Gordon, and good morning, everyone. Let's begin with our third quarter top line results. Net sales held firm at approximately $1.7 billion with modest improvements in gross price, especially in the Americas. Favorable FX provided a helpful tailwind even as consumer demand remained muted. Shipments in tons declined by 5% as modest growth in the NAB food and RTD categories was more than offset by lower performance in beer and wine. Keep in mind, this headline figure does not fully reflect underlying trends as several factors which are not indicative of actual consumption impacted volumes by approximately 3 percentage points. These factors include: a major capital project commissioning in Europe, which we discussed during last quarter's call; inventory correction in the Mexico and North America beer category related to changes in U.S. trade and immigration policies; and mix changes as we exited some unprofitable business lines, consistent with our focus on increasing economic profit as well as the ongoing trend towards container lightweighting. Excluding these factors, shipments were down about 2%, which is more in line with softer underlying consumer consumption trends. Importantly, overall volumes improved over the course of the quarter and shipments were nearly flat with the prior year in September. While revenues were stable, margins improved significantly and O-I delivered third quarter adjusted earnings of $0.48 per share, exceeding both last year's results and our own plans. This achievement was driven by favorable net price, significantly lower costs, thanks to Fit to Win initiatives and higher production levels despite softer sales volumes. A lower tax rate also benefited the bottom line. Overall, O-I has delivered strong third quarter results, outperforming expectations through disciplined execution, cost reductions and continued momentum from our strategic program, positioning the company for ongoing success. Moving to segment profit on Page 7. The momentum is clear as segment operating profit improved more than 60% from 2024 with robust gains in both the Americas and Europe. In the Americas, segment operating profit rose nearly 60%, propelled by higher net price and continued Fit to Win benefits. Volumes were down 7%. We believe underlying consumer consumption represented half of this decline, while specific factors drove the other half, namely lapping new business wins in 2024, inventory adjustments in the beer value chain across North America and Mexico as well as mix change as we exited some unprofitable business. In Europe, segment operating profit surged by 70%, reflecting contributions from strategic initiatives and higher production following last year's inventory reductions. Net price was a headwind and sales volumes dipped due to a major capital project start-up. Importantly, volumes were about flat, excluding this event. In summary, segment operating profits increased significantly with strong gains in both the Americas and Europe, reflecting the continued success and disciplined execution of our key initiatives. Now let's turn to Page 8 for our updated business outlook. Looking ahead, our outlook for 2025 has improved. Given our strong year-to-date performance and the momentum of Fit to Win, we have raised our full year earnings guidance. We now expect adjusted earnings in the range of $1.55 to $1.65 per share, nearly double our 2024 results. This meaningful increase reflects stronger initiative benefits and better net price, partially offset by slightly lower sales volume. Free cash flow is projected at $150 million to $200 million, an improvement of approximately $300 million versus last year and closer to $400 million increase prior to restructuring costs. Although the adjusted earnings outlook has improved, our free cash flow guidance remains unchanged due to higher-than-expected restructuring opportunities and the settlement of a legacy environmental liability, which together totaled more than $25 million. Higher restructuring is a result of O-I's accelerated network optimization initiatives, which are expected to deliver benefits in 2026 and beyond. Excluding these temporary and elevated charges, our free cash flow is nearing the 5% of sales benchmark, which is our 2027 target. We successfully refinanced our bank credit agreement last month at favorable economics, which also extends out maturities. Leverage improved over the last quarter, and we continue to expect our leverage ratio will land in the mid-3s by year-end. Despite a challenging macroeconomic backdrop, we are executing effectively and our self-help initiatives are delivering results that exceed our original expectations. As a result, we are increasing our full year adjusted earnings per share guidance and expect this positive momentum to continue into next year. Now let's turn to Page 9 for our early perspectives on key business drivers for 2026. Looking ahead to 2026, we anticipate continued momentum with higher adjusted earnings and free cash flow as we advance towards our 2027 objectives outlined at Investor Day. Revenue is expected to remain stable or increase modestly, supported by better mix, fairly consistent sales volume and higher gross price, reflecting the pass-through of 2025 inflation. This aligns with our strategy to maintain a stable top line while executing Fit to Win to further strengthen our competitive position and lay the groundwork for profitable growth after 2027. Adjusted earnings are projected to improve, fueled by another year of strong initiative benefits. These gains should more than offset the impact of lower net price as we reset favorable energy contracts in Europe, which are expiring at the end of this year. Free cash flow is expected to rise, driven by increased earnings and disciplined capital allocation. Cash restructuring costs should be at or below 2025 levels as we complete key initiatives by mid-2026. Our balance sheet should continue to improve with financial leverage in the low 3s by year-end 2026. With strong execution, ongoing transformation and a clear strategic direction, O-I is well positioned to deliver lasting value to all stakeholders. Now back to Gordon on Page 10.

Thanks, John. As we wrap up today's call, I want to emphasize the significant progress O-I has achieved and the solid competitive foundation we are establishing for the future. Our strong year-to-date performance driven by the ongoing success of our Fit to Win program has enabled us to raise the 2025 adjusted earnings guidance once again. Looking ahead, we anticipate continued growth in both earnings and free cash flow in 2026. We are delivering on the commitments made at our recent Investor Day, maintaining a stable top line, enhancing our quality of revenue and advancing our transformation despite a challenging environment. Our efforts to realign our network and supply chain are supporting mix improvement and positioning us for long-term profitable growth. Our cost transformation initiatives are generating substantial savings and increasing our competitiveness, and we have streamlined our organization to be more agile and focused. As a result, margins and earnings are up, free cash flow is increasing, and our balance sheet continues to strengthen. Most importantly, we are executing well, building momentum and expect to create sustainable value for our shareholders. Thank you for your continued support and confidence in O-I. We look forward to building on this momentum and achieving even greater success together. We're now happy to take any questions you may have.

[Operator Instructions] We will now take our first question from Ghansham Panjabi from Baird.

Gordon, as you think about the demand environment -- as you sort of think about the demand environment and the variability we've seen over the years, et cetera, how much of this most recent decline is influencing your view as it relates to what's actually a cyclical decline versus some sort of secular change because of changing consumer preferences and so on and so forth? Because if you go back to 2019, volumes are down roughly mid-teens, you're aligning your capacity down by pretty much a comparable amount. And I'm just curious as to what you think is the right baseline for volumes going forward or is this the new starting point?

Yes. Thanks, Ghansham. It's quite a dynamic demand environment. And depending on where -- what segments and categories you look at and what part of the world, there are probably different dynamics. I think it's fair to say that beer across the board, and wine across the board are declining. And certainly, we've seen that in most of the markets. But within beer, there's a dynamic where premium beers are showing some growth. But it's mid-tier and maybe lower equity brands, if I can put it that way, losing share to private label. So, there definitely is a piece around beer and wine that we see because consumers are challenged, right? I hear that. I'm in the market a lot. I hear that quite a bit. What we are seeing, though, is a growth in non-alcoholic beers. And interestingly, we're hearing in different markets that up to 60% of new users of the non-alcoholic category are Gen

Okay. Just one quick follow-up. On the 13% capacity cut, how does that skew between the regions? And I'll turn it over.

Ghansham, this is John. On the balance, there is probably a little bit more going on in the Americas than in Europe. But what I would say is where we stand right now, the Americas is substantially advanced, and the final stages are going to be over in Europe.

We will now take our next question from Josh Spector from UBS.

I was wondering if you could talk a little bit more about the volume kind of cadence and the results in the quarter. I think you explained a decent amount of it, particularly within the Americas between some of the beer headwinds in the quarter and the exits that you guys did. Just wondering if you could bucket those 2 pieces apart a little bit for us. So, should we expect more exits on a go-forward basis? Does that matter for profitability since there's maybe some offset there? So just helping to pick that apart would be helpful to start.

Sure. So, if you take a look at the 5%, I'd break it out about 2% is just softer consumer demand and consumers being more challenged, I think, and kind of price resistance in the market. And then between network optimization and a deliberate decision to exit volume that did not make sense for us from an EP point of view, and then also some very deliberate strategies around lightweighting, that's about 3%. So, the underlying, we think, is about 2%, right? And we probably see that holding to year-end.

Yes. I would add, just looking at the numbers here, Josh, the exiting of unprofitable business probably was 1 percentage point of that 3-percentage point that we would say is not specifically due to consumer consumption trends, and that will episodically continue for the business. I think we flagged this back at Investor Day, there is a low single-digit -- kind of mid-single-digit kind of portfolio of our business that is deeply economic profit negative. And we are either going to raise prices in that market or we're going to exit that business. And that's the process that we're going through as we go over the next year or so.

I appreciate that. And I also appreciate some of the kind of early overview here of '26. I don't know if there's -- if it's too early to frame this in a real quantifiable way. But I guess the easy math that you've kind of laid out is you expect at least a couple of hundred million benefit of cost savings. You guys earlier sized that the energy contract reset. I think it was $130 million, I guess. Correct me if I'm wrong. I guess if you think volumes are flat, is the bogey that you should have earnings up $70 million in that context if we go sideways from here? Or are there other ways that you would think about puts and takes we should be adding?

One is, we probably don't want to get into quantification just yet. We expect a nice increase next year as we move our way towards that $1.45 billion in 2027. Of course, we have to absorb that energy credit reset -- energy reset. That number, as we mentioned back even at Investor Day, is about $150 million. That still remains to be very much in line with that right now. So, as we look at the puts and takes of the business, kind of stable volume, we'll have gross price up against low single-digit kind of normalizing inflation, but then we'll absorb the energy reset, as we mentioned, that mark-to-market and then very robust -- continued robust Fit to Win benefits. But we'll come back at the end of the year with quantification, but we expect a nice bump next year.

We will now take our next question from Francisco Ruiz from BNP.

I have 2, if I may. The first one is on the restructuring, it's kind of a follow-up on the previous question. Out of the 13% capacity reduction that you are aiming, how much is already announced? And how much is pending apart from the French announcement that you made at the beginning of the year? The second question is in Latin America, more specifically in Brazil, with a very bad quarter in terms of volumes overall. Some of your competitors are increasing capacity. How do you see the area in the coming quarters?

Yes, Francisco, this is John. I'll touch base on the -- and cover the first one. On the restructuring, if we go back to 2024, we were carrying about 13% excess capacity, and that was costing us about $250 million of unabsorbed fixed costs. We have since then announced closure of 13% of our capacity, which would ultimately get us substantially out of that fixed cost absorption. Right now, as of the end of the third quarter, we have completed 8 percentage points of that 13%. And as I mentioned earlier, that is substantially more skewed to the Americas. We have a remaining 5% left to go, which will be done by the early part of next year, and that is going to be skewed towards Europe, including what we've announced in France. We anticipate restructuring charges this year of around $140 million to $150 million, a little bit on the high end of what we originally anticipated because we're moving faster in certain areas. But we anticipate a carryover of restructuring costs next year that will be at or below that level. And we should be out of that exit range of that cash activity by mid-2026. So, really, the fundamental cash flow moving -- momentum going forward in the back half of the year will be better.

Yes. Francisco, with regard to Brazil, I was actually in Brazil a couple of weeks ago and spent a week touring the market and meeting with customers. A couple of -- on the positive side, we're seeing very strong growth in non-alcoholic beverages, so waters and juices in Brazil. We're seeing strong growth in wine in Brazil and strong growth in spirits. Where the big declines came were in beer. And I know it's easy to blame the weather, but everywhere I went, people spoke about it being probably the coldest winter in 30 years in Brazil, and that's definitely had an impact on consumption, and also people being challenged in terms of spending power and a bit of trading down going on in beer for sure. What we are seeing is customers launching new offerings to the market. There were also some sizable price increases went into the market that impacted volumes, I think, in the short term. And then on the food side, for us, we saw a decline in volumes. That was very largely driven by raw material shortages, particularly kind of olives, and that impacted our business. But the main piece around beer was largely weather-driven and some mid- to-high single-digit pricing going in on shelf, which I think put a bit of pressure on consumption. That's starting to sort of come back, and we're obviously heading into the summer months in Brazil and would expect better volumes going forward.

Just another question. I don't know if you have mentioned, but as you did in other quarters, can you give an idea of the current trading in October?

Yes. I would say as we take a look at -- going back to what Gordon had indicated, we think the full year is going to be down about 2% now, consistent with that underlying consumer consumption. Fourth quarter is kind of playing out in that low single-digit territory. So, nothing particularly new against the consumer consumption trends.

We will now take our next question from Mike Roxland from Truist.

Congrats on a strong quarter in a tough environment. Can you hear me?

Yes.

Perfect. Okay, great. Just wanted to follow up on the pruning of unprofitable business. I realize you mentioned in response to an earlier question that in the Americas, that amounted to about 1%. Can you comment on what that was in Europe? Because when I look at some of your peers, your peers had volumes that increased low-single-digits. Your European volumes declined 4% in 3Q. So, I'm just wondering how much of that volume decline in Europe was you guys walking away from unprofitable business, which your peers then possibly picked up versus, let's say, underlying consumer weakness?

Yes, Mike, as we had indicated, overall, the number -- the shipments were down about 3% in Europe overall. We attribute that substantially to that major project that was underway. We talked about that last quarter. It was primarily in the spirits category. So that was the biggest impact. Yes, we were walking away from some business there, but I think it was more skewed towards that major project.

Yes. And just to add a bit of color on Europe for us, Mike. We kind of look at this in probably 3 parts. Southern Europe was very strong for us actually and strong growth in all categories and particularly waters, food, RTDs. In Western Europe, we were impacted a bit by wine with wine exports down and spirits, some of the French spirits not picking up yet in terms of shipments to either the U.S. or to China. Northern Europe was good, was strong for us across food and spirits and beer. And then, as John said, we had that commissioning, which was slower than we had anticipated. So, yes, we're pretty happy where we are in Europe, given the context there. We're very focused on improving the profitability of the volumes we have, and we're not chasing volume just for the sake of volume, and we're being very disciplined around that. As I said, there is volume out there that can destroy your margins and eat your cash, and that's not our game plan.

One thing to add, Michael, on the question about the walking away from unprofitable business, and you can see that in our revenue and earnings [ recs ]. Yes, the revenue is down as a result, but the decremental margins on the lower volumes were half of what you would normally expect. So, you see us walking away from unprofitable business, and it's very visible in the bottom line performance of the business.

Got it. Great color. Really appreciate it. And just one follow-up. Just wanted to ask you about the cost spread to aluminum cans. And given where aluminum prices are today in the U.S., where does the spread currently stand relative to the 25% you cited at your Investor Day? And do you think you could gain share next year if aluminum remains elevated and as hedges -- alumina hedges roll off? And I also realize it's early stages, but can you comment on how much your actions thus far have reduced the cost spread to cans?

Yes. Mike, I'll kick off on the first part of that is, if you take a look at the elevated cost of aluminum right now, we would say that, that has moved that cost differential, for example, in the U.S., which was between 25% and 30%, more into that zone where we believe that historically, glass can compete well, which is 15% or lower premium to aluminum. So, it's early days, obviously, and as things flush through in the system, -- but that's what we're seeing as far as the competitive position of the product.

Yes. And then, Mike, as you've said, and I think as we've said in our Investor Day, we can't be reliant on the price of aluminum to be competitive to cans. We've got to find our own path there to 15% or less spread between cans and glass, which we are focused on. But it does give us a bit of extra time if aluminum prices rise. But we've got to get there irrespective of where aluminum is over the journey between now and 2027. But just as a close out on that, the closer we are, the more competitive we are, then the more choice our customers have in which substrates to use and indeed consumers, which one they choose on shelf.

We will now take our next question from George Staphos from Bank of America.

Congratulations on the progress and on the decremental margin. It was a nice job this last quarter, guys. Three questions. I'll ask them in sequence for time. First of all, if we go to Slide 7 and your -- if you will, your bridging or waterfall chart, on the items that were controllable, where did you perform best and where did you perform least well relative to the increase in your guidance for the year? Related question, I remember from last quarter, there were some operations that you were studying when and how you might be able to close, restructure, but there were some timing factors that determined whether that would wind up remaining on the books, so to speak, in terms of downtime or whether you could actually move it to non-operating and restructure and potentially have a better result. How did that play out? Is that still playing out? Is it still downtime? And then the last question, as we look to 2026, recognizing, again, there's a lot of water that still needs to flow under the bridge, we get it. It would suggest given that you're at least expecting good results for next year, good being defined by up earnings or up cash flow, that at least your initial commercial discussions with customers on pricing resets is going favorably. Can you talk about where that process stands earlier than normal, later than normal? Any qualitative commentary would be helpful.

Yes. I might take the last question first, George, if you don't mind. I mean we're heading into that season. As John said, we would expect sort of gross pricing to probably be up. Your capacities are tight, but it's early days yet. And -- but we're focused on being very disciplined in terms of improving the profitability of the volume we have. Anything that doesn't make economic sense for us in any contract negotiations going forward, we would shift that out of the business and dedicate our assets to that volume that is delivering the kind of margins and cash targets we have.

Yes, George. And to the other questions as far as what changed in performance as we -- in the quarter and then as we look to the guidance going forward. Obviously, Fit to Win in the cost performance is exceeding our expectations. We increased our full year guidance of that by $25 million to $50 million for the full year. At the same token, you also see that net price has been positive relative to what we thought going into the year, and that has offset some of the softer sales volumes that we have. So, when we look at it, the commercial performance net-net of price and volume is right where we expected it overall, a little bit different componentry. But really the driver of increased performance in the quarter, expectation for the fourth quarter better performance and for the full year is largely driven by Fit to Win improvements, okay? On your next question, you had asked about operations and closures and restructuring opportunities. As you may recall, last quarter, we said we had announced about 10% capacity closures, and now we're at about 13%. So, we, in fact, have been able to identify those additional 3 percentage points of capacity that, again, balances supply with demand at the end of the day and are moving towards closing those out on a permanent basis. And again, 8% of it was done at the end of the third quarter. So, we were still carrying some restructuring charges, I mean -- sorry, LOB or temporary downtime charges through the quarter, and we will through the end of the year. But once we get out from underneath that in the early part of next year, that will substantially be out of the system.

John, recognizing it's the same pair of pants. It's just different pockets. Does that help the fact that you're able to close that incremental capacity help your guided EBIT and EBITDA for the year? And if so, is there a way to quantify that?

Yes. Yes, I think it is. And keep in mind, when we talk about our Fit to Win numbers and benefits, the $270 million to $300 million this year, we are taking an accounting in for their -- those permanent closures. And so, as we do better on that and make more progress on that, that is driving in part the upside of the performance on the cost performance. In addition to that, what we call Phase B, which is also doing better, which is the more accelerated total organization TOE projects and other cost-related things. So Fit to Win is going up because of a lot of things, but partly because of the ability to close out capacity. Now, keep in mind, the activity in Europe is going to shift a little bit into the early part of next year from maybe our original expectations, but we've been able to pull forward some activities into the Americas. So, net-net, we're able to backfill some of that time.

We will now take our next question from Anthony Pettinari from Citi.

This is Bryan Burgmeier on for Anthony. Just following up on maybe the volume discussion from earlier. You talked about growth in non-alcoholic beer and maybe some younger consumers staying away from wine. Just maybe from a high level, how would you frame kind of O-I's ability to maybe capture some of these new product launches? Do we expect that to maybe be more of a 2027 item once you're through Fit to win? Or are you may be seeing some early traction with new product launches and kind of new business in '25 and '26?

Yes. We actually are seeing customer's response to consumer softness by introducing new products. If I take a look at our -- or what we call our funnel, I'd say it's up about 8% to 10% this year already. And our total NPD, so that's products that are new to the portfolio or products that are renovated already in the portfolio but might be value engineered or designed to look -- stand out on shelf, they're running at about kind of 10% of our volume. So, we absolutely are seeing more NPD. And as we simplify our plants, as we make them more flexible and as we work on the strategy of best at both, which we outlined at Investor Day, we're able to respond more rapidly. We're also in the process of reshaping the NPD organization and ways of working, which was very -- I would say, it was decentralized to a point where it was wasteful. We've now reshaped that, and that new kind of NPD go-to-market organization will kick off in January. And we expect to be able to slash our time to market by at least 50%. So being able to respond more quickly to customers and their marketing teams and bringing products to market. And we see growing demand for that, particularly as new consumers kind of maybe are not engaging with older brands in the same way and there are need for new offerings. That's absolutely a feature driving the market. And I think we've -- with our Fit to Win approach and the organization being much more agile, working with customers differently and working with suppliers differently, where we've been able to ramp up the speed at which we can get to market. And again, I think there's kind of a narrative out there that Gen

I would -- building on that, I mean, even though the market has been a little soft out there, the NAB non-alcoholic beverage category in North America and Europe is up mid-single digits. And so, we are seeing a bright spot in those categories. And in particular, waters in that categories have been doing very well. And we've gotten some notable wins in those categories. We're seeing people come over to that. And it's interesting, you can even Google it. There is articles out there saying about how people go out to dinner and they might have had a glass of wine, but now they prefer sparkling water or something like that on their table. So, it's an interesting set of dynamics that are playing through that also benefit the business.

Yes. And I think glass is very well placed with these younger consumers because across the world, they are far more sustainability aware and are -- have a very, very positive view on glass packaging. And so, we're seeing that come through in these categories as well. So that's -- they're positive trends for us.

Got it. Got it. Really appreciate all the detail. It's really helpful. And then, just a quick follow-up, John. I think you mentioned a charge from an environmental liability during the quarter. I guess, is that a new item? I didn't recall hearing that before, but maybe I missed it. Just any detail you can provide on that.

Yes. I mean, we've flagged this up for the last several quarters in the 10-Q, but there was a former subsidiary that had an old paper mill that stopped operation in 1967. It's now on federal land, and we had -- there was a settlement with the federal government. So, it's something 58 years old, but we did make a payment on that in the quarter. It was a little bit over $15 million as part of that $25 million plus number that I was referring to.

We will now take our next question from Arun Viswanathan from RBC Capital Markets.

Congrats on the progress as well. I guess, I just wanted to go back to the volume and understand maybe some of the cushioning that you have. So, I think in the past, you've noted that each point of volume is maybe $0.07 in EPS, which we could potentially gross up to maybe $14 million of EBIT and each point of production is $0.13, which is maybe, I don't know, $25 million of EBIT. So, I think you went in the year expecting this year was going to be flattish on volumes. You're up low to mid-singles in the first half. I know you're up 4% in Q1, but it does look like you're now maybe down 1% on the year or so, maybe could end up the year down 2% or 3%. So, does that kind of imply that you have $40 million to $50 million of EBIT cushion within Fit to Win benefits that's offsetting that greater than expected weakness in volumes? Maybe you can just kind of frame out how you're finding extra savings to offset the volume weakness.

Yes, Arun, I'll take that one. From a commercial performance standpoint, I think we're almost exactly on where we expected going into the year, okay? So, yes, volumes are down, what we said about 2% for the year, and that has the cost that you referred to. But also, net price has been more favorable than anticipated going into the year. Those 2 have generally offset each other, okay? So, when you think of the net effect -- and Gordon had said in the prepared comments, we're really trying to manage these levers between price and volume in a pretty soft environment, right? And so, we're trying to find that balance of -- that provides the best reasonable financial outcome to the business as we try to manage a stable top line. So, with those 2 essentially offsetting each other, really the improvement in the year is Fit to Win. And that's where -- that's driving the upside, and that's driving -- this is the second time now that we raised guidance for the year, and it's really driven by the momentum on what we can control.

Yes. And just as a point on that -- sorry, go ahead.

No, that's fine. Sorry, Gordon.

Yes. No. And as I've said since the [ out start ], we're focused on better quality revenue and not chasing what I call kind of profitless prosperity volume for volume's sake. And we really are strengthening the quality of the portfolio we have and improving the returns on the portfolio we have. And you can also see that coming through in the margin expansion and obviously seeing it coming through on the cash side as well. And that's going to be an ongoing feature for us, right, really improving the quality of the revenue we have going forward.

Great. And then given this volume performance, do you think you'd have to take additional downtime as you go into '26? Maybe you can also just update us on inventory levels and -- especially related to maybe Europe and some of those wine markets and spirits and areas that you're seeing weakness. And if that -- if you do have to take that downtime, again, would you have other levers to pull on to offset those headwinds?

As far as our -- currently, I mean, we are balancing supply with demand, and we have -- we still are carrying some lack of business downtime. But keep in mind, we did increase our permanent capacity closures, which we anticipate to be done by early part of next year. As a result, we think that we are going to be reasonably balanced between supply and demand once that's done, and it will be substantially out of that LOB category for the business or the temporary downtime category for the business. As we look to the inventory management, I think we ended the third quarter in the low 50s, maybe 52 or 53 days. Our goal is around 50 days this year, which would be about a 15% decrease on a year-over-year basis. The softer sales volumes that we're seeing right now, we may end up in the 50 to low-50s-somewhere range, but very close to the overall goal that we anticipated.

So, I think we have time for one more question.

We will now take our next question from Gabe Hajde from Wells Fargo.

Two questions. I guess, looking at the model and just thinking about kind of how you're describing commercially things shaking out the way you wanted, competition a little bit different. I know you can't necessarily dictate and manage this quarter-to-quarter, but price accelerating pretty heavily in the Americas and not -- maybe I think [indiscernible] might have already answered this, but can you parse out for us maybe the intentional business moves that's flowing through on the mix side, maybe the formulary price adjustments that are flowing through in the Americas and then intentional price that you're taking in North America, if that makes any sense?

Yes, Gabe, I can take a stab at that, and Gordon can build on if he has any additional comments. Our price, gross and net price is obviously softer in the first quarter. It's better -- I mean, soft first half of the year and it's better in the second half of the year. What you are seeing in the Americas is -- keep in mind, for example, North America, we pass through energy on a monthly or quarterly basis. And so -- through the PAF process. So, you pick up a little bit more there. I would also say the Americas, from a capacity standpoint is probably in the mid-to-high 90s as far as capacity utilization. So, it's a pretty tight environment in the Americas overall as a backdrop. Compared to Europe, it is probably mid-90s to low 90s to give you just a relative comparison. But keep in mind, Europe should improve as a number of different capacity closures are completed.

And then on the portfolio piece, Gabe, I mean, we have a very clear sort of process for how we make those decisions. And I think in previous calls and certainly at Investor Day, we mentioned that we have visibility now in the business right down to SKU level on what the economic profit is by SKU in effect. And I also mentioned that there's a bunch of things you can do internally to improve the economic profit of a particular product or a particular range. And we take a look at those and we say, okay, we can get that done. Does that make sense for us? Even having done that, or even if we were to do that on some ranges, we would still need significant price increases from the customers. And some customers would say, yes, okay, the price and quality and what you give and service and so on is worth it. Some say, no, yes, that's not for me. And then we make a view that, that piece goes out because what we find as well is, those pieces of business add a lot of complexity into our supply chain. A lot -- there's a lot of hidden costs in there as well or there can be. And it brings complexity to the lines. And as part of our operation strategy of best at both, that relies on us having less complexity, particularly on the big furnaces on the big lines. And that has been a feature of the business over the years that the lines that were built for much longer runs ended up too complex. So, we're cleaning up all of that. And so, there's a very intentional process of how we do that, and we understand what the financial implications are for that. And getting that non-economic volume out of the business is good, and you can see it coming through. And then it frees up capacity for power SKUs where we make a lot more money. And that's really the thinking behind it, Gabe.

Got it. Maybe that kind of feeds into my second question. Most of the capacity adjustments, I think you talked about in the U.S. or in the Americas. By our math, maybe 0.5 million tons or so that's been identified in Europe. What about the tons and closures, and really, I think you talked about 40% of that business that gets exported out of your European operations into some other part of the world, and it's still relatively depressed. So, I guess what's enabling you to service that business as you talk about having the potential to come back with those capacity adjustments?

Yes. I think if you look at spirits largely in China, the 2 core markets for spirits out of Europe are the U.S. and China. And I think what we're going through in the U.S. with some -- I'll call them short term in the context of years, there's some pricing that consumers are coming up against. We think that's a cyclical thing. And we also think the inventory in the system will work its way out. And the U.S. will continue to take large quantities of spirits out of Europe. And China at the moment is experiencing the same thing and where demand is suppressed there. And again, we see that working its way out over time and those markets coming back. And then you see the growth of markets like India and South Korea growing strongly. We're seeing the start of green shoots in travel retail, which is up about 3% in volume year-to-date, but still not back, particularly on a value basis, to where it was pre-COVID. So, I think these are cyclical things that are going to work itself out. And we see ourselves having the capacity to match that when it comes back.

And to build on that, Gabe, yes, we are closing out excess capacity to balance supply with demand. But keep in mind, our TOE, Total Organization Effectiveness program is intended to unlock trapped capacity in the system. That will allow us to grow, and that is by far the cheapest way to get capacity within the system with great operating leverage when you enable it.

And so, getting the operations a lot fitter and then sweating them a lot harder than they were in the past, Gabe.

I will now pass the conference back over to Chris for any additional remarks.

Thank you. That concludes our earnings call. Please note, our year-end and fourth quarter call is currently scheduled for Wednesday, February 11, 2026. And remember, make it a memorable moment by choosing safe, sustainable glass. Thank you.

Thank you.

Thanks all.