Shifting Trends And Rising Energy Costs Will Crush Glass Margins

Key Takeaways

• Fundamental shifts toward alternative packaging and increased buyer power threaten O-I Glass's market share and pricing ability, putting long-term revenues and margins at risk.
  
• High energy costs, regulatory demands, and expensive modernization expose O-I Glass to escalating expenses, limiting operational flexibility and long-term shareholder returns.
  
• Focused cost reduction, modernization, and premium product strategies are improving margins, operational efficiency, and long-term profitability while strengthening market resilience and sustainability.

Catalysts

Through its subsidiaries, engages in the manufacture and sale of glass containers to food and beverage manufacturers primarily in the Americas, Europe, and internationally.

• The rapid growth of e-commerce and on-the-go consumption is driving a sustained shift toward lighter, more shatter-resistant packaging alternatives like cans, PET, and flexible packaging, which puts glass at a long-term disadvantage. This fundamental shift threatens O-I Glass's ability to maintain market share, placing future revenues under persistent pressure as demand for traditional glass packaging stagnates or declines.
  
• Heightened energy costs and evolving international carbon emissions standards are expected to disadvantage energy-intensive glass production relative to alternative materials. O-I Glass will likely face upward pressure on production costs, as well as potentially significant future capital expenditure requirements for decarbonization and compliance, which will directly erode net margins and weigh on long-term earnings.
  
• O-I Glass's decision to halt development of the MAGMA technology removes a key lever for future operational flexibility and margin improvement. Without this innovation, the company must rely on more traditional, capital-intensive approaches to plant modernization, which exposes O-I to greater cost escalation risk, hampers efficiency gains, and constrains its ability to adapt to emerging demand trends-ultimately threatening margin improvement and capital returns targets.
  
• An aging and increasingly suboptimal plant infrastructure across O-I's global network will require sustained, high-cost upgrades and restructuring. This necessity for continual large-scale capital investment is likely to depress free cash flow, restrict the pace of transformative modernization, and limit the company's ability to increase or even sustain long-term earnings and returns for shareholders.
  
• Intensifying competition from alternative packaging providers combined with consolidation among major consumer packaged goods customers is shifting greater pricing power to buyers. O-I Glass will increasingly struggle to maintain premium pricing and favorable contract terms, resulting in compressed margins and diminished profitability over the long run.

O-I Glass Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on O-I Glass compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming O-I Glass's revenue will decrease by 0.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -3.9% today to 6.2% in 3 years time.
• The bearish analysts expect earnings to reach $407.0 million (and earnings per share of $2.71) by about September 2028, up from $-255.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 6.6x on those 2028 earnings, up from -7.6x today. This future PE is lower than the current PE for the US Packaging industry at 22.0x.
• Analysts expect the number of shares outstanding to decline by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.62%, as per the Simply Wall St company report.

O-I Glass Future Earnings Per Share Growth

Risks

• The Fit to Win program is delivering substantial cost reductions across O-I Glass's entire value chain, with first half savings of $145 million and an increased 2025 target of at least $250 million, which is driving improved margins, rising adjusted earnings, and structurally lower operating costs in the long term.
  
• O-I's customer relationships and new product development pipeline remain strong, with a 35% increase in new product development projects and sustained demand for premium, sustainable glass packaging-especially amid long-term regulatory and consumer shifts toward sustainability-supporting revenue and market share resilience.
  
• The company is undergoing network optimization and plant modernization, including major restructuring actions in both the Americas and Europe, which are designed to permanently lower cost base, enhance automation, and improve EBITDA margins, boosting future earnings power.
  
• O-I Glass's strategic focus on higher-margin, premium segments in wine, spirits, and specialty beverages, reinforced by reconfiguring assets such as Bowling Green for cost-effective premium production, is expected to drive profitable revenue mix and increase overall profitability over time.
  
• Despite halting MAGMA development, O-I is leveraging proven operational practices (like TOE) to increase flexibility, efficiency, and premium output with lower capital intensity, which is anticipated to yield a more sustainable improvement to return on invested capital and long-term free cash flow.

Valuation

• The assumed bearish price target for O-I Glass is $13.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of O-I Glass's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $21.0, and the most bearish reporting a price target of just $13.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $6.6 billion, earnings will come to $407.0 million, and it would be trading on a PE ratio of 6.6x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of $12.63, the bearish analyst price target of $13.0 is 2.8% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.