Fit To Win And Sustainable Packaging Will Secure Premium Performance

Key Takeaways

• Ongoing cost reduction and network optimization efforts are strengthening margins, supporting stronger free cash flow, and setting up for improved long-term earnings.
  
• Growing demand for sustainable, health-focused packaging positions O-I for premium revenue opportunities and greater market resilience in key food and beverage segments.
  
• Halting MAGMA innovation, persistent demand weakness, operational inefficiencies, mounting substitute competition, and reliance on cost-cutting threaten O-I Glass's competitiveness and long-term growth prospects.

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.

• Significant cost reduction initiatives through Fit to Win are driving substantial SG&A and value chain savings, which are expected to improve net margins and deliver higher future earnings, as evidenced by upgraded guidance and ongoing productivity gains.
  
• The ongoing shift by global brands and governments toward more sustainable, recyclable packaging is increasing demand for glass containers, allowing O-I to benefit from resilient end-market demand and potentially support revenue and pricing over the long term.
  
• Heightened consumer interest in health, safety, and chemical-free packaging continues to underpin demand for glass over plastics, keeping O-I well positioned for steady, premium revenue streams from food and nonalcoholic beverage categories.
  
• Strategic network optimization and divestiture of non-core assets, alongside reduced inventories, are lowering operating costs and capital intensity, directly supporting stronger free cash flow and an improved earnings profile going forward.
  
• The company's focus on capital discipline and premiumization, particularly reconfiguring facilities like Bowling Green to target high-value spirits and beverage segments, is anticipated to drive higher-margin growth and enhance future profitability.

O-I Glass Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming O-I Glass's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.9% today to 5.7% in 3 years time.
• Analysts expect earnings to reach $385.1 million (and earnings per share of $2.47) by about August 2028, up from $-255.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.8x on those 2028 earnings, up from -8.3x today. This future PE is lower than the current PE for the US Packaging industry at 22.5x.
• Analysts expect the number of shares outstanding to decline by 0.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.25%, as per the Simply Wall St company report.

O-I Glass Future Earnings Per Share Growth

Risks

• The decision to halt further MAGMA development removes a potential avenue for digital manufacturing, flexible, smaller-batch production, and innovation, potentially reducing O-I Glass's competitiveness versus alternative packaging and innovation-focused rivals over the long term, impacting future growth and margin expansion.
  
• Persistent volume softness, especially in mature and slow-growing European markets, with ongoing consumer weakness in key end segments like wine and spirits, suggests geographic and customer concentration risk that could constrain revenue growth for O-I Glass if these trends persist.
  
• Temporary production curtailments and delays in completing facility reconfigurations-especially in Europe due to lengthy works council consultations-highlight ongoing challenges in aligning capacity to demand, leading to excess capacity, higher operating costs, and pressure on net margins if industry overcapacity remains unresolved.
  
• The company's outlook depends heavily on aggressive cost-cutting (Fit to Win) and operational efficiency to sustain profitability, but lack of significant volume growth, continued price headwinds, and macroeconomic uncertainty mean net earnings improvements may not be sustainable if cost reductions plateau or input costs (like energy) escalate.
  
• The glass packaging industry faces long-term substitution pressure from lighter, more recyclable, and lower-carbon materials (aluminum, paper, advanced plastics) that are increasingly favored by consumers, e-commerce, and regulators, which could erode O-I Glass's addressable market, weaken long-term revenue, and compress margins as glass becomes less competitive.

Valuation

• The analysts have a consensus price target of $16.9 for O-I Glass based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $6.8 billion, earnings will come to $385.1 million, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 10.2%.
• Given the current share price of $13.67, the analyst price target of $16.9 is 19.1% higher.
• 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.