Thank you for standing by. My name is Jessie, and I will be your conference moderator today. At this time, I would like to welcome everyone to the OI Glass third quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I would now like to turn the call over to Chris Manuel, Vice President of Investor Relations. Please go ahead.

Thank you, Jesse. Good morning, everyone, and welcome to OI Glass third quarter 2026 conference call. Joining me today are Gordon Hardie, our CEO, and John Haudrich, our CFO. Following prepared remarks, we will open the line for questions. Our earnings release and presentation are available on the company's website. Please review the Safe Harbor comments and disclosures regarding use of our non-GAAP financial measures included in those materials. Today's remarks include forward-looking statements and actual results may differ materially from current expectations. With that, I'll turn the call over to Gordon. We'll start on slide three. Thank you, Chris.

Good morning, everyone. Today, we will review our third quarter results, update our 2026 outlook, and share an initial view of the key business drivers for 2027. Before I begin, I want to thank all our OI colleagues for their focus and commitment. Our teams acted with urgency to navigate a difficult environment, particularly in Europe, while continuing to serve customers across challenging markets. Our third quarter results reflected three key trends. Net sales were stable and year-over-year shipments continued to improve. Adjusted EBITDA declined from last year. Results were stable in the Americas but significantly lower in Europe, where higher-than-anticipated energy and freight costs drove performance below our expectations entering the quarter. Adjusted EPS was down, reflecting lower operating margins and an unusually high tax rate. Europe remains our largest opportunity to improve financial performance, but progress has been slower than expected. These results are unacceptable and we are acting with urgency to address the issues weighing on earnings. As I will discuss shortly, we have sharpened our focus on our four priorities to restore European margins to competitive levels. In the Americas, our team delivered another solid quarter, demonstrating the impact of disciplined execution, fit to win, and close collaboration with customers. This performance also reflects the broader impact of fit to win, which continues to strengthen our cost base and has delivered $135 million of year-to-date benefits. At the same time, energy, freight and demand headwinds require us to update our 2026 guidance. While these pressures weigh on the near-term outlook, demand trends are gradually improving and actions underway should position us for improved adjusted earnings, cash flow and profitability in 2027. Against this backdrop, our priorities are clear. execute the Europe Recovery Plan, sustain momentum in the Americas, and capture the remaining fit-to-win opportunity to strengthen performance and grow the value of Hawaii. Let's now turn to slide four and discuss the top line. As noted, net sales were relatively stable at approximately $1.6 billion, as favorable currency translation largely offset modest declines in selling prices and volume. Thank you very much. Thank you very much. For the fourth quarter, we expect enterprise shipments to range from flat to up low single digits, supported by new business wins and easier prior year comparisons. For the full year, we expect sales volume to decline 3-4% from 2025. Looking ahead, we expect gradual sequential improvement to continue, supported by new business wins representing approximately 4% of annual sales volume. Now let's turn to slide five. Thank you very much. We also recently initiated a process with employee representatives regarding the proposed permanent closure of an additional European plant. Going forward, our focus is shifting to Phase B execution, including total organization effectiveness, procurement, energy and supply chain optimization. The Americas demonstrate how Fit2Win can strengthen competitiveness and resilience when paired with consistent execution, even in a challenging macro environment. Europe is earlier in that progression. We intend to build on initial gains in plant efficiency and establish a stronger foundation for future benefits. We now expect $180 million of net benefits this year, reflecting the time required to address supply chain challenges in Europe. The deferred benefits will shift into next year and we continue to target at least 650 million of cumulative fit to win benefits by the end of 2027. The remaining opportunity is substantial, particularly in Europe, where successful execution of the recovery plan should strengthen operating stability and contribute to higher adjusted earnings and free cash flow. I will return to this shortly. With that, I'll turn the call over to John on slide six.

Thanks, Gordon, and good morning, everyone. Net sales were generally stable, but adjusted results declined from 48 cents per share of profit in the prior year to a loss of 9 cents per share. Lower net price was the primary headwind. Average selling prices declined just under 1% overall, as improvement in the Americas was more than offset by declines in Europe. Thank you for watching. As in the prior quarter, adjusted earnings also reflected an unusually high tax rate, primarily due to lower earnings in Europe. Turning to the balance sheet, net leverage increased modestly due to lower earnings. We continue to maintain ample headroom under our senior secured leverage covenant, and liquidity remains strong at $1.5 billion. Let's turn to slide seven and review segment performance. As shown on the left, enterprise-adjusted EBITDA and segment profit declined year over year. Performance continued to differ sharply by segment, with solid results in the Americas and continued pressure in Europe. In the Americas, net sales increased more than 3% from the prior year period to $970 million. A volume decline of approximately 1% was more than offset by a selling price increase of just over 1.5% in favorable currency translation. Segment operating profit declined approximately 2% to $137 million. Favorable operating costs and currency translation largely offset slightly lower volume in net price. The year-over-year comparison did include a $6 million one-time insurance recovery in the prior year that did not repeat. In Europe, net sales were $634 million, down approximately 8% from the prior year period. Selling prices and sales volume each declined nearly 4%, and currency translation was also unfavorable. Europe's earnings remained under significant pressure. Segment operating profit was $2 million, compared to $95 million in the prior year period. Unfavorable net price was the largest driver, reflecting competitive pricing pressure. Elevated energy and freight costs were approximately $15 million above our expectations for the quarter. Lower volume was also a modest headwind, while operating costs benefited from greater plant efficiency following post-restructuring disruption in the first half. Now let's turn to page eight. We are updating our 2026 outlook and providing an initial view of the key levers and business drivers for 2027. As shown on the left, we now expect 2026 adjusted EBITDA of $925 to $950 million and free cash flow usage of approximately $300 million. We expect year-end leverage ratio will range from four and a half to five times. The revised earnings outlook reflects lower sales volume, including the estimated impact of the U.S.-Canada trade dispute, higher energy and freight costs, and lower fit-to-win benefits, primarily due to the slower pace of Europe's recovery. Importantly, we have secured coverage for 100% of our fourth quarter European natural gas needs. Barring extreme price spikes or supply disruption, this coverage should significantly limit further changes in direct gas costs for the remainder of the year. In addition to lower operating income, free cash flow will be affected by higher inventories resulting from softer sales and cash used to strengthen our 2027 energy risk management position. We expect 2026 results in the Americas will be nearly 50% above 2024 levels, driven by record performance in Latin America. However, earnings in Europe will likely remain under pressure through the first quarter of 2027 due to peak energy inflation and normal seasonality. We believe this outlook appropriately reflects current operating conditions and our expectations for the remainder of the year. Thank you for watching. Thank you very much. We expect stable sales volume with new business wins offsetting sluggish demand. Demand will likely remain subdued until affordability pressures ease. Operating costs should improve, supported by at least $170 million of fit-to-win benefits. This would enable us to meet or exceed our three-year target of $650 million. The chart provides additional details. These are our current planning assumptions. We intend to provide 2027 guidance at our next earnings call. Now I'll turn it back to Gordon on slide nine.

Thanks, John. Europe remains our key focus and largest opportunity for value creation. The segment has significantly underperformed our expectations this year. Commercial pressures and elevated energy and freight costs created a difficult backdrop, while internal supply chain challenges amplified the impact. Our recovery plan focuses on four priorities within our control. Strengthen commercial performance to improve net price, improve energy procurement, risk management and usage, drive profitable volume growth by strengthening competitiveness, and deliver greater end-to-end supply chain productivity and performance. We advanced each priority during the third quarter. As noted earlier, we expanded our 2027 European energy coverage at rates favorable to current market prices and secured new business wins representing 4% of annual sales volume. We also improved plant pack-to-pull by 1% and identified significant additional opportunities to strengthen logistics performance. Our focus now is to translate this progress into stronger financial results. We expect these actions to deliver meaningful improvement and ultimately restore margins. We will continue to track and report our progress with more detail to come when we provide our 2027 guidance on our next earnings call. Let's now move to slide 10. Before we close, I want to connect the near-term actions discussed today with our broader value creation opportunity. Our first priority is to improve materially business performance by executing Europe's recovery plan and capturing the remaining fit to win opportunity. Beyond that, we continue to pursue profitable growth opportunities that strengthen capacity utilization and earnings power across the portfolio. Finally, we are evaluating opportunities to create long-term shareholder value by optimizing our portfolio, strengthening our position in the value chain, and expanding our strategic flexibility. Our near-term focus remains firmly on execution while we continue to advance initiatives that create value over the longer term. With that perspective, let's now turn to slide 11 for concluding remarks. The Americas delivered another solid quarter, demonstrating the power of discipline fit to win execution. Our immediate priorities are to execute Europe and the recovery plan, sustain momentum in the Americas, and capture the remaining fit to win opportunity. Demand trends are gradually improving and we expect shipments to be stable to modestly higher in the fourth quarter. While a revised 2026 outlook reflects incremental pressure, we expect stronger earnings and cash flow in 2027. Thank you for your time. We will now take your questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up and ReQ for any further questions. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Gancham Punjabi with Baird. Your line is open. Please go ahead.

Hey, guys. Good morning. This is actually Josh Spetzley. I'm for Gancham. Thanks for taking my questions. Maybe, guys, if we can just Hey, morning. Maybe if we could just dig into the recovery plan in Europe a little bit, and maybe specifically on the commercial performance aspect of it. I'm just curious if you could give us some specifics on how the commercial execution at OI has underperformed over the last few years relative to your expectations, kind of what needs to be done to address these issues, and how OI expects to kind of target those going forward.

Sure. Let me take that, Josh. So, you know, as I outlined in previous earnings calls, we have reconfigured or reorganized how we're going to market in each market in Europe. So, you know, how we structure the sales force behind the different categories, different groups of customers, and also how, you know, that sales force is managed on a daily, weekly, monthly basis. and we're starting to see that come through in terms of forward visibility, where the leakage is on performance or price, for example. So we've made a lot of progress in this quarter, tightening up and executing the system that we had envisaged. There's no doubt, but there is opportunity for us to execute commercially more effectively, to negotiate our PAFs in a way that capture the costs in a more timely fashion. Thank you very much. We've also brought in some new talent and we've structured the teams in a way that there's much more focus on commercial improvement. And we see that coming through in a number of wins, both in Europe and also in the Americas. And those wins are now totaling up to 4% of our annual volume. If I give you some detail, for example, where we're most ahead in Europe, for example, in our northern region, our beer sales were up almost 4.5% in the quarter, while the beer category we estimate in that region was probably flat, so we outperformed. Our food business in that northern region was up 36%. I beg your pardon, up 9%. So we're seeing the benefits of both the stability of the supply chain platform coupled with the improved commercial execution pay dividends. Now, the northern region is where we're farthest ahead on that. We still have work to do in the southern regions. So, as I said, it's a major area of focus for us, and we see improvements coming through, and we see it coming through in the business winds, Josh.

Great. That's awesome, Gordon. Thank you. Yeah, maybe just another one in sticking on Europe here. I just wanted to quickly ask on the competitive intensity in the region, and obviously that's been a call out for the broader industry this year. Just maybe kind of what are you seeing now, if it's kind of troughing, if it's getting worse, and how do you think about that dynamic into 2027, just given what's going on from a geopolitical point of view and consumers just continuing to stress from affordability issues? Thanks.

Are you talking across the entire fleet or just Europe, Josh?

I was talking specifically about Europe, but both would be great.

In Europe, as we came into this year, we estimated that the industry capacity utilization was in the low 90s. In fact, in wine, probably in the high 80s, so quite a significant amount of spare capacity that drove competitive intensity and impacted pricing, I think, as the year rolled through and the ability to recapture some of the excessive inflation that's been there due to the energy spike. Thank you very much. Thank you very much. You know, we've driven a lot of productivity to cover a lot of the costs. But I think as we look forward, it's going to be important that we pull all the commercial levers at our disposal, PAFs. procurement initiatives and so on to recover what is excessive cost increases this year. If we look to the Americas, capacity is tight throughout Latin America. Maybe I would say touching in the mid to high 90s. If I look at Central America, particularly Mexico, probably mid 90s. and then in North America, you know, capacities are pretty tight. So that's a kind of a capacity overview, but happy to take any follow-on on that.

That's perfect. Thank you, guys.

Your next question comes from the line of George Staffos with Bank of America. Your line is open. Please go ahead.

Hi, everyone. Good morning. Gordon, John, Chris, hope you're doing well. So I want to peer a bit more into 27 if possible. And if you can, even though you don't have a 27 target currently, could you give us at least directionally which way the target would have gone relative to what you previously had and what the we have fit to win what you're looking for I guess the 180 million dollars but what the other buckets look like such that you're still looking to an up year in EBITDA the related question you talk about being hedged right now on energy in Europe and that's terrific Can you give us some way of dimensionalizing what the cost increases, 26 to 27, on energy based on your hedge position?

Yeah, George, this is John. I'll take, I'll take, I'll at least start with that, those questions. So we take a look at 2027. Obviously, we had a target out there, you know, before, and we've pulled that for now and going and replace it with urine guidance in the next call, as we indicated. The key challenge is that the base for 2026 has softened, right? And so instead of believing that the floor was about a billion dollars, we're looking, you know, the 925 to 950. So that made those previous targets particularly challenging in that regard. And so the first piece there is the base is softer by that, you know, call it 50 to 75 million dollars. And that's a challenge. So now if we look at the various different pieces of the pie, and I'm looking at page eight here, and just thinking first on more focusing on the EPADA, you know, we do indicate net price is going to be up. That's the hardest one to get a particular beat on. We understand our inflationary view right now, but of course, with two-thirds of our business being open market, it's harder to get a read on that. Of course, as we indicated, we expect positive net price against an inflation environment that is clearly going to be still elevated, but not what we experienced this last year. So we were coming off of a crest of cost inflation. We're behind a big bubble of cost inflation, and we believe that that cost inflation environment peaks, especially on the energy side in the first quarter, and then starts to comp and move in the right direction. And I'll touch your base on your other one here in a moment. But then you have the stable net sales. You have about $170 million or more of fit-to-win benefits. We do believe that there will be some cost offsets to that. and other cats and dogs we're working through like maintenance and things like that that we're still refining through the budgeting process. But those are the big pieces, the big open element obviously being the commercial element, as you know, which is in front of us at this point in time. When it comes to on the energy side, you know, we have revamped our energy management practices. OK, we as you know, we benefited from a five year contract, very favorable rates that expired at the end of 2025. Then we kind of have a bit of a mark to market this year in a big, big bubble there. Now we take a five year approach instead of a three year approach on energy management. and in the past where we would look to be substantially hedged going into the next year, for example, we look to be 100% covered on a rolling 12-month basis. And then obviously it stair steps down as you look into the future. So we're trying to take that approach to minimize the volatility that we see. And we also use various tools. Thank you very much. The rates at which we have right now are definitely favorable to the forward curve that you see in the TTF right out there. George, I can't give you specifics on this because it's a competitive element going into the next year, but we believe our energy cost inflation will have crested, and then we will be getting back into what we believe would be Very competitive and relative to the marketplace of energy costs going forward. Okay.

Hey, John, just one follow on there. Just since so much rides on, and we understand we've covered the industry a long time, on the pricing and the commercial development from November through February, what gives you the confidence that you'll be up next year in total, given how significant it is? Thank you, and I'll turn it over.

I'll just build on the comment that Gordon said. You compare last year's market conditions and the pricing environment at that time relative to what we believe is shaping up. Last year, we had low capacity utilization, and obviously, we internally had some struggles with some of the execution elements that was talked about earlier. and many more. Thank you very much. Your next question comes from the line of Anthony Petinari with Citi. Your line is open. Please go ahead.

Hi, good morning. This is Brian Bergmeier on for Anthony. Thanks for taking the question. Just a press release, you pointed to free cash flow being up in 27 relative to 26. I'm just wondering if you can try to Put a finer point on that. Just curious if you expect positive free cash flow next year and if you could maybe try to size some of the impact from things like cash restructuring costs or you said cash to secure your energy position, working capital, anything like that. Thank you.

Thanks for the question. We intend to drive to positive free cash flow next year. Obviously, we are looking at the major drivers to the business. We are looking for higher EBITDA. We can't quantify that just yet because of the last discussion we had on the commercial aspect of the business, but we're looking to drive the various different levers of the EBITDA in the right direction. CapEx should be a little bit lower. We've got $400 million there, and we intend to be very conscious and with a lot of capital discipline. We want to make sure that we're maintaining our operations, but we want to be lean on the capital side. We are looking at lower restructuring costs. The restructuring costs are going to be north of $150 million, close to $160 million this year. A normal year for us is $25 to $50 million, but we did include it in the announcement. We did indicate that we're working through the process of another furnace closure, and there would be some additional cash being built on top of that, but significantly down on a year-on-year basis. One of the challenges we had in the back half of this year with the sales volume being softer in the back half than anticipated is the inventories are higher than we anticipated. So that has been an element working against us on cash flow next year. We look to address that next year to be able to get neutral positive working capital. But we're still working through all those details. Those are the biggest moving pieces right now.

Thanks for those details. Just one follow-up. I appreciate the headwinds you cited around the earthquake in South America, North American trade dispute. Just curious if there's any impact in France from some of the social unrest in the country. Broadly, it maybe seemed like European demand wasn't too far off from what you were expecting, but any details there would be great. Thanks. I'll turn it over.

With regard to the Americas, despite those headwinds in the Andean, for example, and the energy issue in the Andean, that business performed very strongly with non-alcoholic beverages up about 18% and beer up about 11%. I think demonstrating the power of execution around fit to win and working closely with the customer across the chain and likewise in Brazil, we had a standout performance where beer was up nearly 30% for us, about three times the market growth and our NAB, non-alcoholic beverages, was up about 18% where the market we estimate was up about 12%. So again, I think we're demonstrating the power of fit to win when it's properly executed despite tough macro environment. With regard to France, a lot of our reorganization this year was in that region, and it proved more difficult than we had planned. Anything like social unrest, while it's not good for society in general, it also makes doing business tougher and it also impacts consumer sentiment. So I would say overall it's a negative, but hopefully we'll get through it and things will settle. but yeah it's not a positive obviously very hard to quantify and it depends how long it goes on but our job is to overcome that and we are you know very focused with a lot of the you know our best resources you know focused on Europe to improve the results there which I said are unacceptable to us.

I can build on a few specifics here. who knows how long that will endure, but that's probably the impact from a little bit in the third quarter to the fourth quarter of the year. I did check that we do not have any operational impact as a result of the France upset, but we have tapped down, as Gordon said, the commercial outlook of the business because of factors like the tariffs and also the social unrest.

Your next question comes from the line of Arun Vishwanathan with RBC Capital Markets. Your line is open. Please go ahead.

Great. Thanks for taking my question. I guess maybe I could try the 27 initial framework again. So it sounds like you have a little bit more than 170 coming from Fit2Win. and you've kind of framed out positive net price and stable volume. I guess what's kind of getting you to that stable volume outlook? Because it seems like there's continued pressure from inflation. I think China is also consuming less wine and maybe spirits as well. There's some headwinds there as well as potentially some headwinds in Latin America. Maybe you can just kind of frame that out a little bit for us. So you expect kind of that to offset most of the $107 million of fit-to-win benefits, or would you still expect to be up next year? And if you could put a finer point on price as well, because you've been giving back price now for a couple of years. So that'd help out too. Thanks.

Thank you for having me. So at this point in time, we believe that the benefit of those new wins will essentially offset probably the core soft consumer. And even our prepared remarks indicated that until the affordability issues change that you're alluding to, you're probably looking at core software demand. Overall, we think that that sales volume is kind of a neutral on a year-over-year basis, so don't think that there's something necessarily working against it. Of course, we continue to fine-tune this through a year and when we give guidance. On the net price, to your point, yes, if you look over the last several years, there was a period of significant price increases in sales. and Glass in Europe in particular. And then there's been some, you know, adjustments to that over the last few years. You know, that was kind of a super cycle moving through the beginning of the Ukraine war and the energy at that time and then normalization. So, you know, that's probably played its course. But now we have another bubble of cost inflation. And as we've experienced this year, and as you know, and we talked about a little earlier here, we recover our costs on arrears through other mechanisms and stuff like that. So that's the process that we're working through. This is a historic process that we go through. And with an improving backdrop of supply and demand, we feel confident that that will drive into a positive net price environment and we'll get more specific here.

Just to build on that, with regard to Europe, we missed significant sales this year due to our supply chain issues as we reconfigure the network. We obviously don't expect those to occur again. That coupled with our fit-to-win improvements in the European plants and improving the Thank you very much. With regard to the Americas, you know, our business in Brazil continues to power ahead. We're actually going to bring on a new furnace this year, the capacity of which is, when I say this year, going into 2027, correct that. and, you know, most of that volume we believe has a home already and we continue to see our Brazilian business execute strongly in beer, in NAB. We expect some upside in spirits as well. Likewise, in the Andean region, we, you know, the market overall is growing at about 7% for beer. We've consistently outperformed that market and we... You know, see no reason why we can't do that, you know, in 2027. And also, you know, from a couple of years decline in Mexico due to, you know, export tariffs of beer into the US and tequila into the US, we've turned that business around and are now growing volumes both domestically and in export. And we expect that to continue. With regard to North America, while our financial performance was solid there, our volume was impacted by the tariffs as John alluded to, but we also had two significant furnace rebuilds that we don't expect to happen next year. And there's no doubt that during that process, we lost volume there and we don't expect that to occur. Thank you very much. that we feel may soften certainly on the supply chain side for us next year. So you put all that together, that gives us a solid footing to deliver on the volume numbers that John mentioned.

Great. Thanks for that. And just as a follow-up, I think you mentioned something like 85% to 90% utilization rates. I don't know if that's – maybe you can just elaborate – It would seem like with the energy pressures and the volume declines that the industry would be in a position where it would need to maybe shut down some capacity. Would you agree with that, especially just given this most recent bout of inflation and volume performance? Maybe just give us your assessment on where global supply-demand stands. Thanks.

I'll clarify on that point. We believe that Europe, based upon the information that we have, is in the mid-90s, not mid-80s. For clarity, we believe the utilization rate has definitely improved. We entered the year more like 90-ish, and then through a number of the actions we did and what we understand is going across the marketplace, it has improved. and to your point, we included in our announcement that we're working to do a closure on one additional furnace over in Europe. That factors into our position. We believe our system is in the mid to upper 90s. So we're working to improve the utilization rates within our system in Europe. and the Americas, we're in the very high 90s. We're basically 100% in Latin America and in the very, very high 90s over North America too. So we believe that our system is getting in pretty good shape. Of course, we always look at supply and demand and what's going on in the marketplace to assess other decisions. But we've done a lot of work over the last two years and the network is looking pretty lean. Thanks.

Your next question comes from the line of Francisco Ruiz with BNP Paribas. Your line is open. Please go ahead.

Hello. Good morning. I have a quick question, if I may. Sure. Hi, how are you? So the first one is on the pricing for next year. I mean, taking into account that you have much higher visibility right now on your course base, And you are guiding for net pricing, which is flat or increasing in 2027. What would be the price level that you need in order to offset this inflation?

Yeah, I would just say for competitive purposes, we can't go there. So that's all in front of us. But when we do our guidance at the next quarter, we'll be right in the midst of all the activity and we'll be able to provide that specific guidance.

Okay, thank you. The second question is on the restructuring plan in Europe. I don't know, correct me if I'm wrong, but it looks like a 3-2-2-2 In my opinion, what do you think that this is going to work? And don't you think that there's something underlying on the asset base in Europe that may be more difficult to expand the profitability of the business, contrary to what happened in North America?

So a couple of things. Paco, as you know, it takes longer to get to an agreed plan for any sort of significant change in Europe. You can execute that a lot faster in the Americas. So when we announced the plan, between announcing it and executing it, it was the guts of 15 months. by which time the actual environment had changed, and particularly the supply chain environment had changed. And so when we executed and we shut facilities and we moved certain portions of volume into new facilities, that required a rewiring of supply chain, freight lines, customer reconfiguration, and so on. and a lot of the businesses that we work with in that area also experienced fairly explosive energy inflation and that drove pricing. Some of the freight capacity that we would have envisaged to help us in that reconfiguration actually left the markets. and so there was actually a supply chain squeeze, if I can put it that way. But not walking away from our own accountability there, we didn't execute that as effectively as we could have. We understand at a very granular level what the root causes are and we've Thank you very much. We know how to execute things across the business. Thank you very much. and it just hasn't come as fast this year given all of the market volatility. So that's how we think about that Paco.

One thing I would add there is because of the disruption that we had from the post restructuring in Europe, We actually put on hold some of our fit to win related initiatives, whether it's plant efficiency, procurement initiatives, things like that. The last thing we wanted to do was layer on another thing on the plants while they're trying to unravel some of the supply chain challenges. So we included in our comments, we've deferred some of these projects, and that's why you see some of it shifting into next year. So we're not changing our objectives. In fact, some of these we haven't even launched. So it's a timing and sequencing with the extra disruption that we've had for the time being.

To give you kind of a detail on that, like seven of our highest opportunity plants in Europe haven't gone through fit to win or TOE yet. Okay, so that's all to come in Europe. So, you know, we know there's much more earnings power in this business. We have a clear plan. We're executing that plan. And we commit to update on those four levers that we've outlined in the setup here this evening or this morning to the market as we go forward on each earnings call.

Thank you for that, Spencer. Can I make another question which is how worried you are about the current leverage of the company and are you thinking on different initiatives apart from or beyond the organic leveraging that you are mainly guiding for 2027 to reduce the debt?

Thanks for the question. Obviously, the leverage is getting higher. Our overall objective doesn't change. We believe that the business should be around 2.5x leverage. At 4.5x leverage, we are clearly outside of that range. Keep in mind, we believe that the factors that are driving that higher leverage are somewhat temporary in nature, not necessarily structural. And while it might take us a little bit longer to be able to right the ship and improve the core performance and restore the profitability in Europe, that's exactly the plan that we're trying to do to get us back into something that naturally delivers the organization. The good news is, you know, we We've got plenty of room on our covenants. We've got great liquidity in the business. We intend to be opportunistic on dealing with any near-term maturities and things like that to make sure that we have good runway in the business. And as we indicated in our strategy, our strategy is fit to win, then it's profitable. Thank you very much.

Your next question comes from the line of Michael Roxland with Truist Securities. Your line is open. Please go ahead.

Thank you, Gordon, John, Chris, for taking my question. Good morning. Gordon, realizing that market forces work against you to some degree during the quarter and really for a large part of the year, Can you provide some more color on what you're doing internally to improve results or better manage expectations or uncertainty? I mean, you mentioned upgrading the European team, upgrading resources, but do you have any more color about what's actually being done internally to improve results and how you intend to manage expectations, street expectations, investor expectations relative to what you're looking to accomplish?

Yeah. So, you know, I think it's contained really in In the deck, and we alluded to it already, the first thing we are focused on doing is strengthening the commercial performance. We're well ahead in the Americas on that, where we still have opportunities to deliver on that in Europe. So that's first and foremost, is turning the competitiveness and many more. So working more effectively with probably a wider range of suppliers that can bring different offerings to us to risk management. So a much better grasp on forward curves, how they operate. Thank you very much. Thank you very much. We have a dedicated energy management team that look at energy every week and work with the plants and provide resources to improve energy. The third one is turning the emerging competitiveness into profitable growth. And we really are demonstrating that in the Americas. We've had very, very significant wins of new business that is starting to flow in the second half and will flow through next year. are currently equating to 4% and a significant pipeline ahead of us yet to convert. And finally, there's no doubt our supply chain in Europe and our supply chain capability in Europe was undercooked. And it was found out when our restructure met a very intense energy crisis Thank you very much. How well we're already executing those in the Americas and the results coming through. It really is an execution focus for us in Europe. And I'm committed to that. I'm spending a lot of my time there as CEO. And, you know, it's no more difficult than that, Michael, to be honest. Yeah. There was a second part to your question, Michael. Did I miss the second part of your question?

Oh, yeah. Well, the second one, I guess, you know, just following up, I guess the follow-up would be, you know, how central is Europe to your strategy overall? I realize, you know, it's been a decent business up until this year, but even in prior years, you know, you guys have led your competition with respect to volumes, margins. Is there really a strategic benefit in having Europe? Are there synergies between Europe and other regions? And if not, you know, why hold on to it?

Look, it's the largest profit pool for glass in the world. And if you want to be a central player in the glass industry, then I think you have to be in that market. Thank you very much. That's not a reason for us to leave that market. We have a clear path, we have a clear plan, and we believe that can be a very profitable, high-returning business for us as we look forward. We're disappointed with the result. We own that result, and we have to fix it. And as CEO, I'm committed to doing that. So, no, I think it's central to our platform, Michael.

Thank you and good luck in the quarter. Yeah, thanks.

Your next question comes from the line of Josh Spector with UBS. Your line is open. Please go ahead.

Hi, good morning. It's Anoja Shah sitting in for Josh. Hi. I just want to go back to this 2027 EBITDA directional points that you're giving. If I think about the inventory levels this year, and I know you're pointing to stable volumes for next year, but could you still have a negative EBITDA impact from underabsorption as you continue to work down the inventories next year? Or do you expect production to match shipments after Q4?

As we look at it right now, we entered 2026 at about 56 days IDS. This is an enterprise number.

I'm just using an enterprise number.

We had expected through the actions we were taking, through the restructuring, through growing the business, etc., that we would end up at about 50, 52 days IDS. Unfortunately, with the softness in the back half of the year, we're going to end up about 60 days. So that's why you see that working capital change flushing through the outlook in the back half of the year. As we go into next year, keep in mind, we have been restructuring over the course of the year with another one that we're talking about right now and a network that is in the mid to high 90s in utilization rate. Assuming a stable background in the marketplace, that's an environment where we can continue to chip away at inventory, but we'll give specific information about that at year-end. You almost have to understand Thank you for watching.

Okay, thank you. And then my other question, CapEx has been below depreciation this year and last year, and your guide of 400 sort of implies the same for next year. And you've had a few furnace events this year. Are you worried about the risk of underinvestment generally, or are you comfortable with this level of spend? And thanks, I'll turn it over.

We need about $350 million of CapEx to maintain our operations on a If you look on the last, you know, previous years, last year or so, he's been in the low 400s or so. But there were some years we were in the 600s. We were building out capacity given the signals that we saw earlier in the decade to grow the business. We are not making those investments anymore, right? So we believe we're properly maintaining the business and we are doing selective investments such as that furnace expansion in Latin America that Gordon referenced earlier. So at that point in time, I don't believe the asset events that we had have anything to do with the nature of the spend. You always have the question in trying to understand what's going on inside of a furnace that's 3,000 degrees. You can never completely get that down to a perfect science. But at the end of the day, we believe that the spend is appropriate and we're maintaining our assets.

Just to build on that, Anusha, as we go through the TOE program in the plants and focus on improving the pack-to-melt and the pull rates, there's still latent capacity in the network that needs to be freed up or we will free up. We're seeing that coming through, as I said, in the Americas very strongly where we've executed TOE exceptionally well. We've seen a release of capacity that we've been able to convert into new business and grow the earnings in those markets. We still feel there's, between what John has said and the ability to extract more capacity out of the network as is, that we're well covered for the next couple of years.

Great, thank you.

There are no further questions at this time. I will now turn the call back over to Chris Manuel for closing remarks.

Thanks, Jessie. That concludes our call today. Two notes. Our year-end call is scheduled for Wednesday, February 3rd, 2027. And with the transition to 23 by 5 trading, please note our future earnings materials will be released morning of the call rather than evening before. and in conclusion, remember to make it a memorable moment by choosing safe, sustainable glass. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.