Good day. My name is Jack and I will be your conference operator today. At this time, I would like to welcome everyone to O-I's First Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Now I would like to turn the call over to the presenter for today, David Johnson, Treasurer and VP of Investor Relations. You may begin your conference.

Thank you, Jack. Welcome, everyone, to O-I’s earnings conference call. Our discussion today will be led by Andres Lopez, our CEO; and Jan Bertsch, our CFO. Today, we will review our financial results for the first quarter of 2017, discuss key business developments and walk you through a few trends affecting our business. Following our prepared remarks, we’ll host a Q&A session. Presentation materials for this earnings call are available on the Company’s Web site at o-i.com. Please review the Safe Harbor comments and disclosure of our use of non-GAAP financial measures included in those materials. Unless otherwise noted, the financial results we are presenting today relate to adjusted earnings, which exclude certain items that management considers not representative of ongoing operations. A reconciliation of GAAP to non-GAAP earnings can be found in our earnings press release and in the appendix to this presentation. Now, I’d like to turn the call over to Andres.

Thank you, Dave and good morning. Let's start with an overview of our results on Slide 3. I am very pleased to report that our business is performing as planned, growing our top line, expanding our customer relationships, reducing structural cost, operating effectively and efficiently and exceeding our guidance. Revenue was up 2% as volume growth more than offset a modest currency headwind and essentially glass pricing. Shipments were up nearly 3% year on year, led by Europe and Latin America. And we are starting to see some of our commercial efforts driving new business development. Higher segment profit partially viewed to the benefit of our strategic initiatives helped expand margins by 20 basis points compared with prior year and both corporate costs and interest expense were better year on year. As I think about the guidance we gave you on your last earnings call, the key point is that we delivered solid business performance plus we saw a better incremental help from taxes and FX. Taken together, adjusted EPS of $0.58 was up 21% compared with prior year. And this is the fifth consecutive quarter we have met our guidance by consistent performance since our investor day in early 2016. For the year, we are on track to hit all of our company financial targets, volume growth, margin, adjusted earnings, cash flow and deleveraging. No doubt it takes a strong dedicated team to deliver these achievements. So I would like to recognize all the members of the O-I team on their dedication and high commitment to driving shareholder value. Let's now dig deeper into our key strategic initiatives on Slide 4. I am very excited about what we are doing in the commercial space and how we are interacting with our customers. We continue to retain the key account…

Thank you, Andres. Let's turn to Slide 9 and focus on segment operating profit compared with the prior year. The sum of the parts that Andres discussed led to segment operating profit of $218 million in the quarter. I am happy to say that at the enterprise level currency was quite manageable. The year on year devaluation of the euro was partially offset by the strength of the Australian dollar. The Mexican peso was also a substantial headwind but other currencies in Latin America largely offset that. As Andreas already mentioned, price was a tailwind in the quarter. The year over year dollar impact of sales volume gains was approximately $8 million with more than half of that coming from Europe. Our ongoing end to end supply chain strategic initiatives are ramping up and we are seeing good gains from our cost containment effort. While these were more than offset, like cost inflation in the second quarter that Andres mentioned, we expect improvement in operating cost in subsequent quarters. We continue to focus on margin improvement. We reported a 20 basis point expansion in the first quarter with gains in three of four regions. As Latin America turns the corner in the second quarter and beyond, we feel very comfortable that we will achieve our full year margin expansion target of more than 40 basis points. Turning to Slide 10. Let me connect a few dots that we have already touched upon. While currencies continue to be ever changing, the year on year impact on EPS was negligible. The euro was worse, the Australian dollar has strengthened and within Latin America, the movements essentially offset one another year on year. Segment operating profit, which I just reviewed, was the key driver for the improved results, adding about $0.04 to earnings.…

Thanks, Jan. Turning to Slide 13. O-I is in the midst of a comprehensive transformation to drive higher value for shareholders, customers and employees. We know what our ambitions are and we are making consistent progress towards it. A glass container company that is the preferred supplier, the most cost effective for user, and a company that successfully expands in attractive segments and margins. Our mindset has changed substantially and continues to evolve. We are one team highly committed and aligned to improve performance. One enterprise making decisions best for the while and executing on one plan across the enterprise, leveraging scale and with very clear shared deliverables. I mentioned on the last earnings call that we have moved from a stability phase to the agility phase of our transformation. Again, we expect a noticeable difference in our behaviors and actions to effect the plan to deliver results. I want to take a moment to highlight an area that is foundational to ensuring focus and effective execution. We have a single set of management incentive targets across the company, so as to ensure alignment and deliver results. Today, we all contribute to enterprise EBIT irrespective of where a certain geography will benefit. And this changes the mindset of our people as we work together better to solve the challenges facing us. We are focused on improving customer experience and giving priority to mutually beneficial long-term partnerships. We are addressing a structural cost across the end to end supply chain. We are simplifying the organization across the world and elevating productivity in everything we do. We are making solid progress on becoming a flexible and nimble company, able to more effectively and more quickly adapt to changing conditions. In the end, we are results driven to add value for our shareholders, customers and employees. And now we will open the lines for your questions.

[Operator Instructions] Your first question comes from Mark Wilde with BMO Capital Markets. Your line is open.

I wonder, Andres or Jan, if you can help us a little bit with the North American margin improvement. That 180 basis point. Is it possible to kind of parse out how much of that came from the inclusion of the JV earnings versus the improvement in the legacy ops and the cost improvement.

Sure, Mark. It's Jan. A substantial percent of the 180 basis points came from the JV. I would say on a year over year basis we are probably looking at a few million dollars in the quarter. The balance of that of course came from what we just had referenced in the script with the performance, especially the total systems cost front, where Andres mentioned that of the $8 million that primarily came from Europe and North America.

Your next question comes from the line of Anthony Pettinari with Citi. Your line is open.

Andres, I think you indicated that in Brazil, you expected the second half, maybe you did comparables in the second half of 2015. So I am just wondering if you could remind us what level of volume growth on a percentage basis that would imply and what gives you confidence in that kind of recovery in the second half given the volatility that we have seen in Brazil in the last few years.

Okay. So when I look at Brazil, we are looking at a market in which we serve beer, wine, food, spirits and NAB. So we normally hear quite significantly about beer but we don’t hear about the other categories. With that said, we are expecting growth which is mid to high single digits for the country with all categories growing through the year. We had obviously had a slow start and unfavorable comparison for the first quarter but we are expecting that to improve starting second quarter and into the other quarters. Now, a general information for you is, it's very important to have in mind that beer for us in Brazil is about 35% of the total sales volume for the country. So the other categories have a significant influence in this business. Now something we are seeing in this market is that our customers and in particularly when we talk here, the three largest players in the markets are putting significant emphasis on returnable glass containers. And they have made public the information about their emphasis on putting returnable container in off-premise channels. And the largest player in the country as an example is now up to 23% of the on-premise channel in returnable glass. And this is coming from zero. So it is a significant change in the Brazilian market moving towards returnable containers. And then the other thing that we are seeing is the emphasis on premium, which has been taking place in the last three years and in those three years, this being the third one, one way glass has been fastest growing package in the market in total, in all substrates. So we are very comfortable that Brazil, as the economy recovers, will offer a fairly positive scenario for glass and for O-I. One single date point is, coke is back in one way glass in Brazil. We have that same product in Mexico and is quite successful. So we are looking forward to the evolution of this product in the market.

Your next question comes from the line of Scott Gaffner with Barclays. Your line is open.

Jan, you mentioned that you debated the merits of raising the guidance and Andres said, the volume forecast for the full year is now still just 1% after 3% plus volume growth in the first quarter. Can you talk about where the reluctance is on to get excited about the volumes? Whether that’s channel fill for the new business or is it extra shipping day or something in particular that keeps you muted on the volume forecast side.

Well, thanks for the question. We had a strong Q1, as you say, and we are seeing at this point in time there are signals of improving demand in some of the markets we serve. We are also seeing our initiatives progressing quite well and ramping up. We are expecting them to gain momentum as we go into the year. However, there are some external factors that even though they are showing some signs of improvement, it is still very early for us to conclude that those improvements are going to stay. So as you see, for example, we had some favorable movement of the FX late in Q1 and then as we got into early Q2, they just reversed. And then very lately in the last couple of days, another change in the other direction. So it's still to be confirmed. So we preferred to wait, look at this closely. And as we did last year, if we see enough evidence of changing conditions, we are going to move forward and review our guidance.

Your next question comes from the line of George Staphos with Bank of America Merrill Lynch. Your line is open.

Thanks for all the details. I guess my question is around Europe, Andres and Jan. can you talk about the changing environment. What's causing it in terms of price cost, moving from a negative to being a neutral. And given that neutral is better than negative, are there any conditions, anything that you can look towards in the next couple of years that might make for, in fact some margin recovery from that positive price cost? And related to that, how does the volume and macro situation support or not support your comments here? Thank you.

Thank you, George. When we look at price cost, the first effect that we see in the first quarter is coming from the long-term contracts and the pass-through or [PAF] [ph] provisions that those contracts have. And because of that, we are passing through deflation, which is what we had last year. Now we begin through the negotiation season in the first quarter and we expect those new prices to kick in starting second quarter. So the unfavorable part of the spread for the region is really behind us. It was in the first quarter and is going to improve going forward, going into the second quarter and the other quarters in the year. With respect to the margins, as we said back in I Day, we work to have a very strong focus and continued focus on margin improvement. And we have been doing that. As you see, we had a good margin improvement year on year in 2016 for the company as well as in Europe. We are at this point in time comfortable that we are going to be able to have a 40 basis points margin improvement for the company or more in this year. Europe being a good contributor of that. So our focus on increasing margins in this region would continue. We talked before about the closing of Schiedam, which is part of that effort. Our initiatives are both driving revenue, top line and cost, translating all of them to right on line in Europe or all underway. So we are very confident that we are going to continue seeing margin improvement over time this year and the following years. When it comes to volume, we saw a positive environment in beer, in wine, and spirits in this quarter. Overall, we are seeing the region stable in its demand. We see that the premium products are gaining traction in Europe. Which is a territory for glass and we are also seeing the emergence of craft beer gaining popularity and traction in the region. So we are tracking that closely. But overall, we are very pleased with the Q1 performance and we are looking forward to the evolution of this quarter to see what are signs of changes in dynamics in the regions we see.

Your next question comes from the line of Ghansham Panjabi with R.W. Baird. Your line is open.

Just following up on George's European question, Andres, and your comments. Just in terms of the comments in your Slide deck about exports in the regions from Europe improving. Can you just give us some more context on that? Is that just a function of your customer mix and do you have a sense as to which specific markets perhaps those exports are actually improving towards? Thanks.

Yes. This is primarily related to wine. So wine exports have been quite positive. Obviously that drives glass containers consumption. So that’s what the comment referenced.

Your next question comes from the line of Adam Joseph with KeyBanc. Your line is open.

Jan, just a two part question. On the guidance side, I think you have about a $0.07 FX cushion relative to your previous full year guidance on account of FX. So can you just talk about why, all else equal, why you wouldn’t have boosted your guidance appreciating that it's still early in the year. And just the other part is the, lower management incentive accruals in the quarter of $4 million, what was that related to and was that embedded in your previous guidance. Thank you.

Yes. Thank you, Adam. First question related to FX. I think you have it pretty right there. $0.07 FX, $0.02 was from the first quarter. Probably about a nickel going forward based on our calculation. I think Adam really it's nothing more than the fact that we think it's early in the year and this currency environment has been highly volatile and so we want to be cautious here not to pull the trigger too early. We will make an assessment I think later in the second quarter and will come back and talk to you about guidance again. With the management incentive accrual, yes, that was in the guidance on the first quarter.

Your next question comes from the line of Philip Ng with Jefferies. Your line is open.

Volumes were very strong in Europe in the quarter. You cautioned not to extrapolate that into the full year and that there was an impact of a shipping day. But it seems that trends are coming in stronger than expected. What should we be extrapolating for the year? What's the reasonable expectation now at this level if you kind of factor out all the moving parts?

So I would say that at this point, with the information we have, it will be fair to consider up to a 1% growth for the year for Europe.

Your next question comes from the line of Chip Dillon with Vertical. Your line is open.

One thing I noticed on the slides, if you can just a little bit about the volume. On the press release it looks like the volume change or volume mix was plus 1.7 and you mentioned three. So I guess if you could just illuminate that. Does that mean mix was negative? Why is your difference in the Slide is just 3% and the dollar amount of volume in fact being 1.7. And then secondly, could you talk maybe more broadly about where you see the whole company's volumes year-over-year in '17 versus '16. Thanks.

So let me start with the volume question first. So overall we had a good quarter. We just talk about Europe. We are seeing growing focus in this region in the premium market and we have seen craft beer emerging. Mainstream beer, wine and spirit, they continue to perform and they are driving most of the performance that we saw at this point in Q1. When we look at Latin America, we are seeing a very strong demand out of Mexico and this is driven by beer, by NABs and by spirits. In the case of NABs, they are driving returnable glass containers consumption which is good for us. In the case of the spirits, these tend to be a premium segment, so it also drives glass primarily. When we look at the Andean countries, they are performing well. Beer is quite strong in those countries as well as NAB. And again, in the case of NABs, is returnable glass containers. Then we are expecting that premium beer is going to be an opportunity going into the future for the Andean countries because this segment is underdeveloped in the countries. Just to make a comparison, the size of the growth rate of this -- the share of this category in Brazil might be ten times what it is in the Andean countries. So there is a significant upside as those markets update more in line with the markets around them. When we look at Brazil, I just made comments before. We are seeing a significant emphasis and returnable glass by the largest players in beer. We are seeing good growth in all the categories we serve. Remember beer is one but we also serve wine, food, spirits and NABs in these countries. When we look at North America, the same…

So Chip if I just summarize. I think the difference is mix, it's really North America like Andres mentioned in the script. Where the bulk shipments are up but the cartons are down. So sales volumes down about 2% but in the end the shipments in North America are quite flat.

Your next question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is open.

I just had question on Latin America. It looks like the pricing was a little bit below. Was that kind of a deflationary issue, or FX, or what happened there? And then how that does translate to the margin performance and your outlook for the year. Thanks.

So when we look at Latin America, the Q1 is really the negotiation season also for prices. So we are not seeing prices flowing through the Q1 numbers in Latin America. Starting in Q2, we are going to see those price increases taking place and with that and the spread for the region is going to move into flat territory. And so for all purposes, the largest part of the unfavorable spread for Latin America is behind us is what took place in Q1.

Yes. This is Jan. And I would just add a little bit on the margin front. We anticipated and talked about the expectation that the margins would be down towards Latin America in 2017. On the other side, Andres has mentioned previously that European margins would continue to expand and in fact I think they will end up outpacing the company average for the full year. North America should be about 100 basis points improvement year-over-year and Asia Pacific significantly higher, based on their 2016 performance. So all in all, a good year on the margin front and we should exceed our 40 basis point target for the full year.

Your next question comes from the line of Brian Maguire with Goldman Sachs. Your line is open.

Just a question on Mexico. You have obviously been making a lot of capital investments in new glass capacity there. You got a competitor now building a glass bottle facility in Mexico as well. Just wondered if you are seeing or would you worry about any impact on pricing, probably down the road question but as some of these contracts get reset, demand has been strong today. But do you have any concerns about pricing down the road in the country or any worry about over capacity in the region. Thanks.

Thank you, Brian. The information we have is imported beer which is really what is relayed at primarily to this capacity you are talking about. It's really the segment driving the beer market in the U.S. It's presenting a very healthy growth and in our case, the capacity that we have in our JV is under a long-term contract and the capacity is fully solved. As we mentioned before we are at this point in time, building a third furnace, which is going to go into operation at the end of the year. So we are very comfortable that this demand will be there. Our pricing is secure for this contract. We don’t have any concern with regards to volume coming out of this JV. So for our purposes we are very pleased with the performance of this segment in Mexico and we see a very positive outlook for that.

Your next question comes from the line of Mark Wilde with BMO Capital Markets. Your line is open.

Just a couple of follow-ons on volume. One, in Asia Pacific, you guys had picked up a new beer contract I thought last year and about the third quarter, but you are pointing to kind of weaker volumes, sounds like in the second quarter. So I wonder if you can just help us reconcile that.

Yes. So we have those contracts are in place at this point in time. We don’t see any changes in the Australian market. The volumes are being primarily impacted by China decreasing. So the volume decrease you see is really related to China, not to the APAC demand.

Your next question comes from the line of Scott Gaffner with Barclays. Your line is open.

Just had a follow-up on working capital and really the two impacts. One, the impact of raw material inflation and the other really around better volumes and new business wins. I mean do you think with those two items that you can still generate $50 million of positive working capital from inventory in 2017.

Yes. Hi, Scott, Jan. Yes, we do. I mean the most impact that we are going to see on working capital is this year is as expected in our improvement in our inventory. Clearly the raw material is a headwind but on a net-net basis, I think we are going to improve working capital by about $50 million for the year.

Your next question comes from the line of George Staphos with Bank of America Merrill Lynch. Your line is open.

Thanks for taking my follow on. Andres, as we come back to Europe in terms of our questions, can you talk about what you think supply demand looks like in the region? And do you think as contracts come up for renewal and volumes hopefully improve, does the opportunity to build into your next adjust there is some improvement in margin beyond cost, or at this juncture do you think just keeping flat with inflation is the best we should expect. Thanks and good luck in the quarter.

Thank you, George. So we see a situation in supply and demand in Europe the same as we have seen that one in 2016. There is a little bit of over capacity. As you know, we are moving forward to shut down one factory in Netherlands. That is going to help that situation. And in our case, the case of why we are thoroughly balanced we do that. So we don’t have an imbalance in our system. We see a more constructive pricing environment in the region. As we see those contracts coming up, we are going to know more about those dynamics that lately we see stable conditions. That’s why we can see at this point.

Your next question comes from the line of Chip Dillon with Vertical. Your line is open.

I just had a quick follow up on two things that you could help us with. One is, are there more debt new financing opportunities. I know you have done a pretty solid job in the last year. I don’t know if there is any particular obvious callable bond say in the next year or two that you are eyeing right now. And then secondly, just on the asbestos front. I know you are calling it for to be down 10 million to 15 million this year and yet it was up a million in the first quarter. You might have addressed that but I just didn’t know if you still expected that to, the payout to be 10 million to 15 million and if you are still comfortable with the 600 million kind of present value number you put out at the end of last year.

Yes. Hi, Chip, it's Jan. On the debt financing piece, your know your next large slug of debt really becomes due in 2020. So there is probably not as much as we can do at this moment. However, just in general, on de-risking of our balance sheet, this has become a very important part of what we are looking at on a day by day basis here. So not only you know the recent bonds that we called, the refinancing we did last year which didn’t do a lot for interest rate improvement but actually slopped floating into fix at a very attractive interest rate and then helped with our distribution of debt on a currency basis. We continue to look for opportunities all the time. We are focused very heavily on continuing to de-risk our pension funds. So we might see a little bit more activity on that front this year. Like we have done in the past, structures that are good for the company, good for our employees, we are continuing to look at that. So a lot of focus on the de-risking front. Related to asbestos, we feel comfortable in the $10 million in to $15 million reduction that we had planned for in the year as well as our remaining liabilities that we have on our books. We recently in the fourth quarter did a very exhaustive analysis of that, like we will continue to do at the end of this year as well or before if there is any reason to do that.

Your next question comes from the line of Adam Josephson of KeyBanc. Your line is open.

Jan, just a quick follow up for you. How much are you investing in the Constellation JV this year versus last and what do you expect your dividend to minorities to be this year. Thank you.

Last year, I believe we contributed near $55 million to the JV. This year we are focused on about $40 million. And last year we received $8 million earnings and this year about $16 million earnings. Last year of course was more heavily weighted to the later part of 2016.

The final question comes from George Staphos with Bank of America Merrill Lynch. Your line is open.

One last one. Andres, can you talk a little bit about the supply chain cost initiatives that you are finding fruit with in North America and kind of key buckets and sustainability over the rest of the year. Thank you again and good luck in the quarter.

Thank you, George. So we continue to ramp up our initiatives, as we talked last year we work to implement global supply chain. We did it. It is now operating and is helping us across the company. So in North America specifically there is a strong focus on warehouse and delivery, improvement we are seeing some positive evolution in that front but we are also improving how the demand planning and supply planning in the company across the enterprise. So I am very pleased with the progress in supply chain. Not only in North America but in Europe and across the company. And I think this is an area where we are expecting a good upside this year, obviously as we continue to ramp up but also going into the following years.

So, thank you everyone. That concludes our earnings conference call. Please note that our second quarter conference call is currently scheduled for August 1. As you know we appreciate your interest in O-I and remember to chose glass. It's safe, it's sustainable and it's well loved by choosing consumers. Thank you.

This concludes today's conference call. All participants may now disconnect.