Executive Summary / Key Takeaways

• O-I Glass is undergoing a profound "Fit to Win" transformation, shifting its focus from volume growth to enhancing economic profit and capital efficiency, aiming for significantly higher returns on its existing asset base.
• The company delivered strong Q2 2025 adjusted earnings of $0.53 per share, exceeding plans, primarily driven by substantial "Fit to Win" savings of $84 million in the quarter, bringing the first half total to $145 million.
• A pivotal strategic decision to halt further MAGMA development underscores a disciplined capital allocation approach, with the Bowling Green facility now reconfigured for premium, best-cost production, aligning with the "best at both" operational strategy.
• O-I has raised its full-year 2025 adjusted earnings guidance to $1.30-$1.55 per share, representing a 60-90% increase over 2024, and anticipates a $300 million year-over-year improvement in free cash flow, driven by operational improvements and lower capital expenditures.
• Despite macroeconomic uncertainties and competitive pressures, O-I's deep cost reduction initiatives, coupled with its technological advantages and market leadership in glass packaging, position it for sustainable EBITDA of at least $1.45 billion and free cash flow of at least 5% of sales by 2027.

A Legacy Forged in Glass, Reimagined for Profit

O-I Glass, Inc., founded in 1903 and headquartered in Perrysburg, Ohio, has long stood as a global leader in manufacturing glass containers for the food and beverage industries, including alcoholic beverages, soft drinks, juices, and pharmaceuticals. Its business model relies on direct sales through annual or multi-year supply agreements and a robust distributor network. Over its long history, the company has strategically evolved, notably divesting its Australia and New Zealand (ANZ) business by 2020 to sharpen its geographic focus primarily on the Northern Hemisphere.

Beginning in late 2022 and extending through 2024, O-I faced significant market headwinds. These included sluggish consumer demand, macroeconomic uncertainties, elevated in-home spirits inventories (particularly in the U.S.), and overcapacity in certain European markets, which collectively pressured net pricing. The anticipated U-shaped market recovery gave way to a more gradual L-shaped improvement. In response, O-I initiated aggressive inventory management, curtailing 18% of its production in Q3 2024 and approximately 17% in Q4 2024 to rebalance stock levels. This challenging period underscored the urgent need for a fundamental transformation, leading to the rapid implementation of its "Fit to Win" program in 2024.

The "Fit to Win" initiative represents a strategic pivot, designed to radically reduce the company's total cost base, enhance its competitive position, and drive economic profit. This program is foundational to renewed competitiveness, aiming for a step-change improvement in profitability and cash flow generation. Management explicitly states that this strategy is not dependent on a market recovery or incremental volume, but rather on improving the profitability of the existing volume and achieving higher returns on invested capital. This disciplined approach includes intentionally exiting unprofitable business to maximize economic profit.

Technological Edge and Strategic Evolution

O-I's competitive strength is rooted in its proprietary glass manufacturing technology and continuous innovation. The company's advanced furnace designs are a key differentiator, achieving 15-20% higher energy efficiency, which translates to a 10-15% reduction in manufacturing costs and enables 20% faster production cycles compared to some competitors. This technological edge contributes to superior gross margins and fosters recurring revenue from loyal customers. Beyond the core, O-I is actively pursuing several strategic technological and sustainability initiatives.

The company's proprietary ULTRA technology aims to reduce the weight of its glass containers by up to 30%, a significant step towards lightweighting and material efficiency. In sustainability, O-I has made remarkable progress, achieving its 2030 targets for renewable electricity and greenhouse gas emissions six years ahead of schedule. This was bolstered by a successful biofuel trial in Harlow, UK, where 100% biofuel replaced natural gas in the glassmaking furnace. Furthermore, a partnership with Linde (LIN) is set to install OPTIMELT™ Thermochemical Regenerator (TCR) technology at O-I's Holzminden, Germany, plant, projected to reduce fuel consumption by up to 30% and lower Scope 1 carbon dioxide emissions by approximately 4,000 tons annually. These advancements not only enhance O-I's environmental footprint but also contribute to operational cost efficiency.

A critical strategic decision in Q2 2025 was the halting of further MAGMA development and operations. While earlier stages of MAGMA yielded meaningful technical advancements, the platform ultimately did not meet O-I's stringent operational or financial return requirements for broader rollout. This decision reflects a disciplined approach to capital allocation, ensuring that investments deliver a minimum WACC plus 2% return. Consequently, the Bowling Green, Kentucky, facility, initially intended for MAGMA, will be reconfigured into a "best cost premium focused operation." This aligns with O-I's "best at both" strategy, aiming to drive significantly higher premium output at lower operating cost and capital intensity than MAGMA would have realized. This strategic pivot reinforces O-I's commitment to economic profit and capital discipline, focusing resources on proven pathways to profitable growth.

Competitive Arena: O-I's Position in a Shifting Landscape

O-I Glass operates in a dynamic rigid packaging market, competing directly with other glass manufacturers like Ardagh Group (ARD) and with producers of alternative materials such as Ball Corporation (BLL) for metal cans, Amcor (AMCR) for plastics, and Crown Holdings (CCK) for metal cans. O-I holds an estimated 15-20% aggregate market share in global glass packaging.

Compared to its peers, O-I excels in several key areas. Its glass products offer superior performance metrics, including 10-15% higher durability in pharmaceuticals and 20% better preservation for perishable goods compared to plastic alternatives. Glass also provides 50% less oxygen permeation than metal, reducing spoilage. Furthermore, O-I's products benefit from a 15% higher perceived quality among consumers, aligning with the premiumization trend. The company's long-term customer contracts provide a stable revenue base, differentiating it from more volatile models. O-I also boasts the largest glass network in the U.S., positioning it favorably to capitalize on any shift towards domestic products.

However, O-I faces notable competitive challenges. Its SG&A as a percentage of revenue, at approximately 8%, is higher than many competitors who operate at 5% or below, indicating a significant area for cost reduction. The company also contends with supply chain dependencies that can result in 10-15% higher raw material costs per unit, impacting margins. Historically, older machinery in some facilities has led to 20% higher energy consumption, a vulnerability O-I is actively addressing through its "Fit to Win" initiatives and technology upgrades like OPTIMELT™.

A critical competitive dynamic is the cost gap between glass and cans. O-I acknowledges a historical 35% cost premium for glass over cans, which has led to market share loss. Its strategic objective is to reduce this premium to 15-17%, a level at which historical data suggests a reverse flow from cans back to glass. The recent availability of glass for RTDs (Ready-to-Drink beverages) in 12-ounce formats, a market growing in mid-teens year-on-year, presents a significant new opportunity for glass volume growth. O-I's "Fit to Win" program is designed to close this cost gap, making its glass solutions more competitive and enabling it to capture a larger share of growth across various categories.

Operational Discipline and Financial Resilience

O-I's Q2 2025 financial performance demonstrates the early impact of its strategic transformation. Adjusted earnings per share reached $0.53, surpassing both internal plans and the $0.36 reported in Q2 2024. This improvement was largely driven by the robust execution of the "Fit to Win" program. For the first half of 2025, adjusted EPS was $0.13, down from $0.81 in H1 2024, primarily due to significant restructuring and asset impairment charges totaling $191 million year-to-date, including $104 million related to the MAGMA program halt.

Consolidated net sales in Q2 2025 were $1,706 million, a slight decrease of 1% from Q2 2024, reflecting lower average selling prices and sales volumes, partially offset by favorable foreign currency translation. Year-to-date net sales were $3,273 million, down 2% from H1 2024. Segment operating profit for Q2 2025 was $225 million, a 3% decline from the prior year, primarily due to lower net prices and sales volumes, though partially offset by lower operating costs.

The Americas segment showed significant strength, with net sales increasing 4.9% to $943 million in Q2 2025 and segment operating profit surging 27.4% to $135 million. This was fueled by a 4% increase in shipments, particularly in beer and spirits, and lower operating costs due to "Fit to Win" benefits. In contrast, the Europe segment faced headwinds, with net sales declining 7.6% to $741 million and segment operating profit dropping 29.1% to $90 million in Q2 2025. This was attributed to lower net prices, softer volumes (down nearly 9% in Q2), and temporary production curtailments, though "Fit to Win" savings partially mitigated these impacts.

Inventory management has been a key operational focus. O-I reduced inventories by approximately $160 million compared to the prior year, putting it on track to meet or exceed its year-end 2025 target of fewer than 50 days of inventory supply. This aggressive inventory reduction, coupled with the streamlining of SG&A (targeting $100 million in savings for 2025 and less than 5% of sales by 2026), underscores the company's commitment to improving working capital and overall cost structure.

Outlook and the Path Forward

O-I Glass has raised its full-year 2025 adjusted earnings guidance to a range of $1.30 to $1.55 per share, representing a substantial 60% to 90% improvement over 2024. This optimistic outlook is primarily driven by the accelerating benefits of the "Fit to Win" program, with at least $250 million in savings anticipated for 2025 and a cumulative target of at least $650 million by 2027.

The company projects full-year 2025 volumes to remain stable with 2024 levels, with both the Americas and Europe segments expected to be generally stable year-over-year. This cautious commercial outlook acknowledges ongoing macroeconomic uncertainties and potential volatility from global trade policies. Net price, net of cost inflation, is expected to remain a headwind in 2025, particularly due to competitive pressures in Europe, though the impact is expected to moderate in the second half.

From a cash flow perspective, O-I anticipates a significant rebound. Cash provided by operating activities is expected to approximate $600 million for 2025, contributing to a projected $300 million year-over-year improvement in free cash flow. Capital expenditures are slated to be between $400 million and $450 million, a reduction from prior years, reflecting a more disciplined, economic profit-driven approach to capital allocation. The company expects to be free cash flow positive in 2025.

The quarterly earnings cadence for 2025 is expected to follow typical seasonality, with the third quarter generally consistent with first-half trends. The fourth quarter, however, is anticipated to be softer due to seasonality, potential for increased temporary downtime in Europe (as network restructuring takes longer than initially expected), and the disproportionate impact of a higher effective tax rate on lower earnings levels during that period. Global shipments in July 2025 were down mid-single digits, reflecting continued soft conditions and some customer order rephasing, resulting in flat year-to-date shipments through July.

Navigating the Currents: Key Risks and Challenges

Despite the positive momentum from "Fit to Win," O-I Glass faces several material risks. The ongoing conflict between Russia and Ukraine continues to impact the global natural gas market, increasing volatility and posing a risk to energy supply and costs in Europe. While O-I has long-term supply arrangements, there is a risk that suppliers may be unable or unwilling to deliver at agreed prices, potentially leading to significant increases in operating costs or even temporary cessation of operations.

Global trade policies and tariffs introduce considerable uncertainty, which could affect future demand and have a material negative financial impact. The company is also subject to anti-competitive investigations in Italy, France, and Ecuador, with potential for material fines if violations are found. Furthermore, income tax examinations in various jurisdictions, with potential assessments exceeding established reserves, present a financial risk. Macroeconomic uncertainty and soft consumer demand, particularly regarding in-home pantry stock levels for spirits, remain a challenge, requiring close collaboration with customers and enhanced predictive analytics. Finally, delays in completing network optimization and restructuring activities in Europe could necessitate further temporary production curtailments, impacting profitability.

Conclusion

O-I Glass is in the midst of a profound transformation, strategically repositioning itself for sustainable, profitable growth. The "Fit to Win" program, with its relentless focus on cost reduction, operational efficiency, and disciplined capital allocation, is the bedrock of this turnaround. The decisive move to halt MAGMA development and reconfigure the Bowling Green plant for premium, best-cost production exemplifies a commitment to economic profit over unproven ventures.

While the company operates in a challenging macroeconomic environment with persistent competitive pressures, its deep-seated technological advantages in glass manufacturing, coupled with a renewed emphasis on efficiency and strategic market positioning, are expected to drive significant financial improvement. The raised 2025 guidance and ambitious 2027 targets for EBITDA and free cash flow underscore management's confidence in these self-help initiatives. For discerning investors, O-I Glass presents a compelling narrative of a legacy industrial leader shedding inefficiencies and leveraging its core strengths to unlock substantial value, making it a noteworthy consideration in the packaging sector.