Andres Lopez: Thanks.
Mike Roxland: Just wanted to get your thoughts on glass fundamentals. I think in the last call, you mentioned the fundamentals were as strong as you’ve seen in 20 years. Obviously, there’s a little bit of a break here, whether its due to destocking, slower consumer and whatnot. But you’re still guiding to at least on a normalized basis, growing glass demand. So can you walk us through some of the things that you’re doing internally, checks and balances, just to make sure the company is not getting ahead of its skis, given currently favorable industry dynamics?
Andres Lopez: Yeah. We think the glass fundamentals that we’ve been describing remain valid. Obviously, at this point in time, we’re seeing these macro dynamics that will create a pass. We might see a little bit of trading down by consumers that is very typical of a recession. But once the economy bounce back then the consumers move up the ladder again. So what we see is a temporary pause. And then the fundamentals will kick in again because they’ve been responding to the evolution of the consumer taste, what their preferences are, and they will continue influencing our demand.
John Haudrich: And one thing to add to that, Mike, is if you take a look at our capital expansion program that we have underway right now, the amount of growth of that enables is still, frankly, below our market share position of the expected market growth over the next few years under those set of assumptions. So as far as concerned about getting ahead of ourselves under skis, we’re still — our investment still is below our market share position of that growth.
Mike Roxland: Sorry.
Andres Lopez: Go ahead, sorry.
Mike Roxland: No, please go ahead, Andres. My apologies.
Andres Lopez: Sorry, Mike, I think we lost you there didn’t hear
Mike Roxland: Okay. I was — I guess, the question is I mean anything that you’re doing internally to stress test on the forecast. Your customers forecast and the like to make sure that what their forecast is actually going to material because some of your peers as you — in different substrates, a little aggressive in their forecast. And I’m wondering, just given that you just so a turn in the dynamics here, whether you’re doing anything internally to make sure that your forecasts are accurate and appropriately stress test.
Andres Lopez: I would say that we got a pretty advanced business intelligence capability where we were able to forecast and look at all the different many, many variables in the business. And that does point to, hey, if we wanted to understand the recessionary impact of our business, and I said this before in the past, it could be down 3% or so, that seems to be the sensitivity to it. But if we take a look at all of those fundamental dynamics, they still point to continued growth of our business in a more normalized environment. But I would also go back as what are we doing? Well, one of the things we did do is we secured this growth through long-term agreements. So in that sense, I don’t think that we’re going over our SKUs or going beyond what the customers are willing to commit to.
Mike Roxland: Got it. And just one quick follow-up. Just in terms of the MEI initiatives, obviously, you’re targeting $100 million plus for this year, for the next couple of years. I believe in the last few years to focus on price and revenue optimization. Could you just expand on other opportunities that you’re pursuing, whether we see like SG&A reduction lowering costs in the cloud. So some of those things you may have seen that is — that will be responsible for getting you to that $100 million for the next few years?
Andres Lopez: Yeah. Yeah. I would say the benefits this year are pretty balanced. We’ve got revenue optimization, which is more contract compliance and value-based pricing, factory performance, which is looking for productivity. And our cost transformation program is SG&A type of reduction that we’ve been doing for a few years. What I would say is that if you take a look at this year, we got a really good, as we said, on the front end here, very good operating performance of the business. So we’re looking for good benefits out of that. I mean, we did some restructuring that — we took out two underperforming furnaces last year that we’re getting the benefit on, and we’ve got a pretty comprehensive program around things like labor, energy reduction, automation, logistics and network optimization, and working on PTP and speed improvements.
And finally, maybe the most incremental important part is what we’re doing in North America right now, and that is — that’s very holistic too. As I mentioned before, we got a very good start to our contract renegotiations there, and that was a clear benefit in the first quarter, as well as a wide spectrum of operating elements and other factors within that business.
Mike Roxland: Got it. Thanks very much and good luck for the balance of the year.
Andres Lopez: Thanks.
John Haudrich: Thank you.
Operator: Thank you. Our next question comes from Mike Leithead of Barclays. Mike, your line is now open. Please go ahead.
Mike Leithead: Great. Thank you. Good morning and congrats on nice start to the year. So my first question is just on European EBIT margins. They were 28% this quarter, I’m assuming inventory reval added a few points there. But just — how sustainable do you think underlying margins are in say, this mid-20% range or so, sort of, double what you historically ran at before last year. But, obviously, you’re taking cost out as well. So just how sustainable do you think these current margin levels are?
John Haudrich: Yeah. Well, clearly, let me first take a crack at that one. Clearly, the first quarter was very strong. Let me just step back and talk about margins overall where we think this year and where we think that they’re going to go as a company in the major segments. So this year, we would expect our overall segment profit margins to be in the mid-teens, which should be pretty much in line with pre-pandemic basis if you go back to 2017 and 2018, that’s exactly where the margins were. In the Americas, it’s probably going to be in the lower teens, and Europe, it should crack 20%. So — but if we take a look a little bit further into the future with some of the things that we’ve been talking about during this call and the activities we’re doing, we think overall segment profit margins in the next year or two should be more like in the mid to high teens.
And so that would bring the Americas up from potentially low up to mid-teens, especially with the margin recovery in North America, and then continue something 20% or higher over in Europe. And, of course, then we continue to build from there. So hopefully, that gives you some insights on a more normalized view and we’re trying to take the company.
Andres Lopez: Yeah. And I would like to highlight that the margin improvement in Europe has been a multiyear dynamic. We started to improve back in 2016, and we’ve been improving year after year since then.
Mike Leithead: Great. Thank you. And then second, just a little housekeeping. I think you bumped full year EBITDA by about $100 million, free cash flow moved higher by about $25 million. So is there a working capital offset, or John, maybe you can just help parse out any other moving pieces there?
