Sealed Air Corporation Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Organizational Changes: Reorganized into Food and Protective verticals. Hired new leaders like Byron Racki for Protective and Steve Flannery for Food. Enhanced Board with appointment of Tony Allott. Aligned operating units, innovation, customer service, and automation functions within each vertical.
• Hurricane Impact: Hurricane Helene impacted plants in South Carolina and Western North Carolina, but the team mobilized to take care of employees and restore operations.
• Early Successes: Food business delivering above-market growth due to commercial excellence, new product launches, and share gains. Protective gaining traction with sustainable packaging solutions, e.g., partnership with Best Buy for recycled content products.

Segment Performance

• Food: Third quarter net sales were $898 million, up approximately 1%. Lower pricing was offset by positive volume growth in all regions. Food adjusted EBITDA was $206 million, up 6% with margins at 22.9%, up 120 basis points compared to last year. Volume growth and net price realization drove the increase.
• Protective: Third quarter net sales were $447 million, down 8%. Industrial portfolios remained weak, and volume in fulfillment portfolio declined. Protective adjusted EBITDA was approximately $75 million, down 21% year-over-year with margins at 16.9%, down 260 basis points. Lower volume and unfavorable net price realization impacted results, partially offset by productivity benefits.

Guidance

• Expect Q4 sales to be approximately $1.3 billion, consistent with midpoint of sales guidance. Volume performance for both businesses to improve slightly sequentially.
• Adjusted EBITDA expected to be in line with midpoint of guidance range, driven by cost control actions.
• Raising midpoint of adjusted EPS to higher end of previous range due to lower interest expense, effective tax rate, and depreciation/amortization expense.
• Raising midpoint of free cash flow guidance to $400 million reflecting continued improvement in working capital.

Risks

• Market Dynamics: Uncertainty in Protective volumes due to continued portfolio challenges and overall market dynamics. Volatility in protein markets affecting Food business.
• Sustainability Pressures: Challenges in transitioning to fiber-based products in Protective, with ongoing weakness in industrial sector and lower automation sales impacting results.

Question and Answer Q: George Staphos asked about Protective volume trends, sequential changes, and growth between fiber and poly.

A: Dustin Semach responded that Protective will step up sequentially, driven by seasonality, and fiber is performing better than poly but not compensating for broader portfolio declines.

Q: Anthony Pettinari inquired about when Protective volumes might flatten, void-fill shrinkage, and automation growth.

A: Patrick Kivits and Dustin Semach discussed ongoing efforts in fiber transition, upcoming insights in February, and better book-to-bill ratio in 2025 benefiting automation.

Q: Ghansham Panjabi asked about the historical context of the vertical structure shift and expected positive changes.

A: Patrick Kivits explained the shift back to verticals, focusing on go-to-market and portfolio shifts, with Dustin Semach adding on innovation and customer service reorganization.

Q: Stefan Diaz asked about CTO2Grow initiative update and cost takeout actions.

A: Dustin Semach stated they're on track for $90 million cost takeout, reevaluating for next year with at least $50 million baked in, more focused on Protective.

Q: Mike Roxland asked about vertical separation and Food margin progression.

A: Patrick Kivits discussed organizational effectiveness and clear accountabilities, Dustin Semach explained Food margin benefit from volume growth and expected low 20s margins in 4Q.

Q: Edlain Rodriguez asked about guidance uncertainty.

A: Patrick Kivits and Dustin Semach noted uncertainty in Protective volume development, Food strength hedged, and Q3 meeting expectations with bottom-line benefits from leverage.

Q: Phil Ng asked about price/mix in 2025 and competitive landscape in Protective.

A: Dustin Semach said pricing dynamics more favorable in 2025 for both segments, with Food having some industrial pressures and Protective seeing narrowed price pressures.

Q: George Staphos asked about Instapak importance, sustainability affinity variation, and pricing competitiveness with fiber.

A: Patrick Kivits discussed Instapak's role in industrial space, differences in sustainability affinity by product touch points, and importance of becoming subsidy agnostic with fiber-based products