Dive Brief:
- O-I Glass expects that its Fit To Win business strategy will generate at least $650 million in savings by 2027, up from a previous estimate of $300 million, per an investor day presentation last week.
- The company also highlighted plans for geographic expansion and growing in “attractive categories,” including a long-term increase in the “premium” share of its portfolio from 27% to about 40%. O-I also noted growth potential through M&A, saying it may eye “small bolt-on opportunities” while highlighting its history of strategic joint ventures.
- O-I Glass reaffirmed its 2025 financial guidance as well as 2027 financial targets, and it added new 2029 targets around earnings and free cash flow. Its objectives following 2027 include achieving organic growth of at least 1.5% each year, increasing its premium portfolio to about 40%, and reducing unit cost by at least 20% in key mainstream markets.
Dive Insight:
Fit To Win benefits are expected to grow significantly this year. The company noted $11 million in benefits from “initial network optimization” in 2024 and projects $100 million in 2025 as part of “Phase A” of the initiative, which focuses on cost reduction.
Last October, the company said it was evaluating the closure of at least 7% of its total capacity by mid-2025. “Phase B” is slated to focus on cost transformation and organizational effectiveness.
Michael Roxland, senior paper and packaging analyst at Truist Securities, noted in a memo to investors on Monday that O-I’s cost reset “should allow it to become more competitive and allow it to compete more effectively against other substrates such as beverage cans, particularly in mainstream markets.”
O-I notes that 38% of its portfolio currently competes with aluminum cans. The role of glass has declined in the North American beer market given that a glass container’s unit cost is 20% to 30% higher than a can’s unit cost. In the EU, however, beer glass share is higher and “fairly stable,” with a lower unit cost, similar to that of cans in North America, O-I reported.
Part of O-I’s vision involves shifting mix to more premium products like spirits or ready-to-drink cocktails, which offer higher margins than products like mass beer.
“To accomplish this, the company intends to further realign its assets and specialize its plants as ~20-30% of plants currently are hybrid producing both premium and mainstream, resulting in numerous changeovers and elevated costs,” Roxland noted.
O-I touted a new plant in Bowling Green, Kentucky, strategically located around the “Bourbon Trail” to create premium spirits bottles. But after opening in the second half of last year, startup has been slower than expected, the company reported.
