Executive Summary / Key Takeaways

• O-I Glass's Fit to Win program is delivering a 60% surge in segment operating profits despite a 5% volume decline, proving that self-help cost transformation can overwhelm weak market conditions and create a more durable earnings base.

• The company is systematically closing a 25-30% cost gap with aluminum cans through network optimization and lightweighting technology, positioning glass to recapture share in categories where sustainability concerns are shifting consumer preferences.

• Full-year 2025 guidance implies adjusted earnings will nearly double to $1.55-1.65 per share, driven by $275-300 million in Fit to Win savings, though execution risks intensify as European restructuring accelerates and energy contracts reset in 2026.

• Tariff policy uncertainty and persistent overcapacity in European markets represent the primary external threats, while internal risks center on whether cost savings can fully offset a $150 million energy headwind and continued volume pressure in beer and wine categories.

• Trading at 6.55x EV/EBITDA with free cash flow turning positive in 2025, the valuation reflects a reasonable execution premium for a turnaround story that could re-rate higher if glass achieves cost parity with cans in key applications.

Setting the Scene: The Glass Industry's Existential Cost Challenge

O-I Glass, founded in 1903 and headquartered in Perrysburg, Ohio, stands as the world's largest glass container manufacturer with roughly 1.7 times the volume of its nearest competitor. This scale advantage has historically been offset by a cost structure that made glass 25-30% more expensive than aluminum cans, ceding market share in beer, ready-to-drink beverages, and food packaging over the past decade. The industry's dynamics shifted dramatically post-COVID, as elevated in-home spirits inventories in the U.S. and severe overcapacity in European markets compressed pricing power just as inflationary pressures peaked.

The company entered 2025 facing a perfect storm: macroeconomic headwinds dampening consumer demand, inventory corrections across the Mexico and North America beer value chain, and aggressive competition from can manufacturers who had narrowed the cost differential. Management recognized that incremental improvements would not suffice—glass needed a fundamental cost reset to remain relevant. This realization birthed the Fit to Win program in the second half of 2024, a comprehensive initiative targeting at least $650 million in cumulative savings through 2027 by eliminating redundant capacity, streamlining SG&A, and optimizing the entire value chain.

Technology, Products, and Strategic Differentiation

O-I's competitive response centers on two technological pillars: the ULTRA lightweighting program and the Total Organization Effectiveness (TOE) initiative. ULTRA technology reduces glass container weight by up to 30%, directly attacking both material costs and shipping expenses while enhancing sustainability credentials. This matters because it addresses the primary customer objection to glass—cost—without sacrificing the premium positioning that commands higher prices in spirits and wine categories.

The TOE program represents the operational backbone of Fit to Win, unlocking trapped capacity across the manufacturing network. The first wave covering 15 plants has already met or exceeded expectations, with a second wave of 15 plants currently underway. This approach delivers the cheapest possible capacity expansion by improving throughput and yield at existing facilities, generating operating leverage that competitors building new furnaces cannot match. Management's decision to halt the MAGMA program in Q2 2025—taking a $104 million charge—demonstrates capital discipline, as the experimental technology failed to meet operational or financial return thresholds.

The reconfiguration of the Bowling Green facility from a MAGMA showcase to a "best cost premium focused operation" encapsulates the strategic pivot. Rather than chasing unproven technology, O-I is focusing on premium spirits opportunities in the U.S. where glass commands pricing power, targeting returns of WACC plus 2% with significantly lower capital intensity. This shift from innovation for innovation's sake to ROI-driven investment signals a mature approach to capital allocation that should improve returns on invested capital.

Financial Performance & Segment Dynamics: Evidence of Transformation

Third-quarter 2025 results provide compelling evidence that Fit to Win is fundamentally altering O-I's earnings power. Americas segment operating profit surged 59% to $140 million despite flat sales of $940 million, as higher net prices and $35 million in Fit to Win benefits more than offset a 7% volume decline. The decremental margins on lower volumes were half of what would normally be expected, indicating that exiting unprofitable business is improving mix quality even as absolute volumes fall.

Europe delivered even more dramatic results, with segment operating profit jumping 70% to $95 million on a 2.5% sales decline to $688 million. The key driver was $25 million in Fit to Win benefits combined with a $7 million favorable adjustment to carbon emission liabilities and higher production volumes following prior-year inventory reductions. This performance is particularly noteworthy given that net selling prices fell $15 million due to competitive pressures, proving that cost reduction can overwhelm pricing headwinds.

At the corporate level, retained corporate costs dropped 16% to $26 million in Q3, reflecting $15 million in Fit to Win savings. Cumulatively, the program has delivered $220 million through the first nine months of 2025, putting the company on track to exceed its $275-300 million target for the full year. SG&A as a percentage of sales is expected to land between 7% and 7.5% in 2025, with a goal of reducing it below 5% by 2026—an annualized savings of $200 million compared to 2024.

The balance sheet shows meaningful progress in working capital management, with inventories down approximately $160 million compared to the prior year. This reduction is critical because excess capacity had created $250 million in unabsorbed fixed costs in 2024, a drag that management expects to halve to $125 million in 2025 through permanent closures and better inventory management. The exit run rate for carrying excess capacity is projected at $75 million by year-end, representing a $175 million improvement that flows directly to cash flow.

Outlook, Management Guidance, and Execution Risk

Management has raised full-year 2025 guidance, now expecting adjusted earnings of $1.55 to $1.65 per share—nearly double the $0.81 earned in 2024. This implies confidence that Fit to Win benefits will more than offset a 2% volume decline and flat pricing environment. The guidance assumes $275-300 million in program savings, with Phase A (SG&A and initial network optimization) ahead of schedule and Phase B (value chain transformation) showing early success across 30 plants.

Free cash flow is projected at $150-200 million for 2025, a $300 million improvement versus 2024's $128 million use of cash. Excluding temporary restructuring charges, free cash flow is approaching the 5% of sales benchmark that represents the company's 2027 target. This turnaround is achievable only because capital expenditures are dropping to $400-450 million from elevated levels in 2024 that included the Bowling Green expansion.

The 2026 outlook includes a significant headwind as favorable European energy contracts expire, creating an estimated $150 million cost increase. Management expects this to be offset by continued Fit to Win benefits and disciplined capital allocation, but the magnitude of the energy reset creates execution risk. Discussions with European Works Councils regarding additional capacity closures and SG&A position eliminations were substantially completed in October 2025, with charges of $200-225 million expected in Q4 2025. The majority of cash expenditures will be paid out over several years, creating a multi-year drag on free cash flow conversion.

Risks and Asymmetries: What Could Break the Thesis

The central risk is execution failure on Fit to Win's most complex elements. While early results are impressive, the program's $650 million cumulative target requires sustained operational discipline across dozens of plants and multiple geographies. If TOE implementation stalls or European restructuring encounters labor resistance, the cost savings may not materialize as planned, leaving the company exposed to competitive price pressure without a margin cushion.

European overcapacity presents a structural challenge that cost reduction alone may not solve. Verallia (VRLA.PA) and Ardagh maintain significant capacity in the region, and Vidrala (VID.MC)'s ultra-light bottle technology (260 grams for 75cl) shows competitors are also innovating on cost. If industry rationalization proves insufficient, net pricing could remain a headwind beyond 2025, compressing margins even as operating costs fall. The company's 13% capacity reduction may not be enough if demand continues to soften, particularly in wine and spirits categories that represent 62% of the portfolio.

Energy volatility remains a critical vulnerability, especially given the Russia-Ukraine conflict's impact on European natural gas markets. While contracts are secured through 2025, the $150 million reset in 2026 assumes market prices remain elevated. If energy costs spike beyond current forecasts, the incremental expense could overwhelm a significant portion of Fit to Win savings, particularly in Europe where the company lacks the energy cost advantages of some competitors.

Tariff policy uncertainty creates near-term shipment volatility, though management estimates total exposure at only $10-15 million—manageable through accelerated initiatives. The bigger unknown is how elevated market uncertainty impacts consumer demand elasticity, particularly in beer and wine categories already showing structural declines from health consciousness trends. While non-alcoholic beverages and food categories are growing mid-single digits, they represent just 38% of the portfolio and may not offset alcohol weakness quickly enough.

Competitive Context and Positioning

O-I's scale advantage—1.7 times the volume of its nearest competitor—creates procurement and logistics efficiencies that smaller rivals cannot replicate. However, this scale has historically been a liability, supporting a bloated cost structure that made glass uncompetitive. The Fit to Win program is directly addressing this weakness, with the goal of making O-I as competitive as, or more competitive than, its rivals throughout the cycle.

Ardagh Group's diversified metal and glass portfolio provides a natural hedge against glass-specific headwinds, but its Q3 2025 results show deepening losses despite 4.7% revenue growth, suggesting its cost structure is also under pressure. Verallia's European focus and expertise in custom food jars give it strength in regional niches, but its revenue declined 2.8% in Q3, indicating it lacks the scale to offset macro pressures. Vidrala's ultra-light bottle technology and 29.3% EBITDA margins demonstrate superior operational efficiency, but its geographic concentration limits growth opportunities.

The critical competitive dynamic is the cost differential between glass and cans. Historically, when glass reaches within 15% of can costs, a measurable shift back to glass occurs. O-I's cost reduction initiatives are specifically targeting this threshold, with management stating they "can't be reliant on the price of aluminum to be competitive" and must "find our own path there to 15% or less spread." If successful, this would unlock the cheapest capacity expansion available—recapturing market share in 12-ounce RTDs and other categories where glass has been absent for over 20 years.

Valuation Context

At $14.42 per share, O-I Glass trades at an enterprise value of $6.78 billion, representing 6.55 times trailing EBITDA. This multiple sits modestly above Ardagh (5.07x) and Verallia (5.55x) but in line with Vidrala (6.39x), reflecting the market's recognition of the turnaround progress. The EV/Revenue multiple of 1.05x is depressed by the company's 16.84% gross margin, which remains well below Vidrala's 57.16% due to O-I's higher cost structure and beverage-heavy mix.

Free cash flow valuation metrics show improvement, with price-to-operating cash flow at 4.31x versus 8.46x for Ardagh, suggesting O-I is generating more efficient cash conversion as working capital improves. The price-to-free-cash-flow ratio of 32.20x appears elevated only because 2025 represents the first year of positive free cash flow after 2024's $128 million outflow; on a forward basis, this should compress significantly if management delivers the $150-200 million target.

The balance sheet carries elevated leverage with debt-to-equity at 3.48x, though this is improving as EBITDA expands and absolute debt levels remain stable. The company's successful refinancing in October 2025 extended maturities and improved economics, with $1.15 billion in unused revolver capacity providing liquidity to execute the restructuring. Net debt to EBITDA is trending toward the mid-3s by year-end 2025 and low-3s by 2026, positioning O-I for potential re-rating as the turnaround matures.

Conclusion

O-I Glass is executing a self-help transformation that is fundamentally altering its competitive economics. The Fit to Win program's $650 million cumulative savings target is not merely a cost-cutting exercise—it is rebuilding the company's cost structure to make glass competitive with cans at the 15% price threshold that drives substrate switching. Third-quarter results provide tangible proof, with segment operating profits surging over 60% despite volume headwinds and pricing pressure.

The investment thesis hinges on two variables: successful execution of European restructuring in the face of overcapacity, and management's ability to offset the $150 million energy contract reset in 2026 with continued operational improvements. If O-I can deliver the 1-2% annual volume growth projected post-2027 as markets stabilize, the combination of cost leadership and scale will create a durable competitive moat in sustainable packaging.

Trading at 6.55x EV/EBITDA with free cash flow turning positive, the valuation reflects a reasonable execution premium for a company that is no longer accepting its historical cost disadvantage. For investors, the key monitorables are Fit to Win's progression toward the $650 million target and evidence of glass recapturing share in RTDs and other growth categories as the cost gap narrows. The story is not without risk, but the margin inflection is real—and in packaging, cost competitiveness is the ultimate moat.