Sealed Air Corporation Q4 FY2024 earnings call

Management Statement and Operational Highlights

• CEO Transition and Strategy: New CEO Dustin Semach emphasized the strategy remains unchanged, focusing on executing plans, stabilizing the business, and transforming into market-focused segments. He acknowledged the recent CEO transition but assured the strategy continues.
• 2024 Performance: Sealed Air exceeded Q4 expectations with adjusted EBITDA, EPS, and free cash flow above guidance midpoint, consistently delivering against expectations for six consecutive quarters.
• 2025 Focus:
  • Food: Aimed to drive mid-single-digit earnings growth with a focus on Case Ready and Fluids solutions, leveraging volume growth and new innovations.
  • Protective: Targeted stabilization with a second-half volume inflection, focusing on commercial execution, product portfolio shifts (e.g., auto bag, fiber mailers), and streamlining the go-to-market approach.
• Cost Structure: Streamlining the cost structure, with plans to close two plants by the end of 2025 to optimize the footprint.
• Macro Environment: Addressed tariffs, noting most business is domestic but potential impacts on trade with Mexico, Canada, etc., would be mitigated by supply chain shifts and customer partnerships.

Segment Performance

• Food Segment: Fourth quarter food sales were $923 million, up 5% organically due to volume growth in all regions, driven by strength in the shrink bag business and continued share gain in Case Ready solutions. Food adjusted EBITDA was $208 million, up 7% with a margin of 22.5%. Food sales contributed approximately 65.9% of Q4 net sales ($1.4 billion).
• Protective Segment: Fourth quarter net sales were $450 million, down 7% from the prior year. Protective adjusted EBITDA was $67 million, down 26%. Protective sales contributed approximately 32.1% of Q4 net sales ($1.4 billion).

Guidance

• Net Sales: 2025 net sales expected in the range of $5.1 billion to $5.5 billion, with a midpoint growth of 1% excluding a 2% FX headwind. Food is expected to have 2% constant dollar sales growth (largely from price). Protective is projected to have a full-year decline of approximately 2%, with a second-half volume inflection.
• Adjusted EBITDA: Expected to be in the range of $1.075 billion to $1.175 billion, representing approximately 1% year-over-year growth midpoint with a margin of ~21%. Constant currency midpoint growth is ~3.5%.
• Adjusted EPS: Expected to be in the range of $2.90 to $3.30 per share, with the midpoint reflecting 2% constant currency growth.
• Free Cash Flow: Projected to be approximately $400 million in 2025.
• Q1 2025: Net sales are expected to be around $1.26 billion, adjusted EBITDA around $260 million, and adjusted EPS between $0.65 and $0.70 per share, impacted by FX headwinds, protective selling pressures, and the North American beef market.

Risks

• Macro Volatility: Uncertainty around global trade, tariffs, input costs, and foreign exchange movements posing risks to customer demand and supply chains.
• Protective Business Challenges: Slower-than-expected ramp-up of fiber mailer and auto bagging, continued volume weakness in the first half, and increased competition in certain portfolios.
• Tariff Impacts: Potential impacts on trade with Mexico, Canada, etc., requiring supply chain adjustments and possible cost pass-throughs to customers.

Question and Answer

• Q: Assuming protective volumes remain negative in the first half, any parts of the business more significant drag? A: Dustin Semach mentioned similar trends to 2024, including an industrial portfolio down mid-single digits and fulfillment down high single digits, with the Amazon hangover and customer churns contributing to the weakness.
• Q: Sensitivities to tariffs in different regions? A: Dustin Semach noted most business is domestic, but North American trade with Mexico and Canada could be impacted, with supply chain shifts and potential cost pass-throughs to customers as mitigation strategies.
• Q: Initial priorities for the new CEO? A: Acceleration of customer focus, accelerating cost takeout efforts, and adjusting leadership to ensure the right people are in the right positions to drive success.
• Q: Protective back half ramp, pricing, and fiber mailer scaling? A: First half weakness in protective is a mix of underperformance, Amazon hangover, and customer churns. Pricing has some pressure but expectations are to take more price. Fiber mailer scaling is focused on accelerating entry into multiple US markets.
• Q: Earnings power of businesses in 2026 and beyond? A: End markets are expected to have low single-digit volume growth, with expectations of low to mid-single-digit earnings power based on portfolios and footprint, though longer-term guidance has not been issued yet.
• Q: Visibility of food price growth? A: Formula pricing and pass-throughs from resin synergies in North America are driving 2% growth, with modest price increases reflecting underlying inputs.
• Q: Automation as a growth vector? A: Automation is important as an enabler of material sales, with optimism around net new placements in both food and protective, focusing on substrate-agnostic auto bagging and hybrid solutions.
• Q: Progress of culture shift in protective? A: Protective has faced more complex business structure and dynamics, hindering faster culture shift compared to food, but the North American go-to-market transformation is moving in the right direction.
• Q: Protective 2024 growth split and COGS reduction? A: Protective split 60% industrial and 40% fulfillment in 2024, with industrial down mid-single digits and fulfillment down high single digits. COGS reduction was due to sales alignment, raw material pricing favorability, and $89 million in cost takeout in 2024.
• Q: Drivers of guidance range and potential for upper end? A: The upper end of the guidance range could be driven by better-than-expected food performance, faster protective volume inflection, and additional cost savings beyond the $90 million mentioned.
• Q: Plant closures, product mix, and innovation trade-offs? A: Closures are for network optimization, not reducing specific product line contribution. Trade-offs are weighed to maintain growth in metropolitan markets while optimizing costs.
• Q: Outlook for global protein markets in 2025? A: North American beef cycle pressure, but other markets (dairy, smoked food, poultry) have slight upsides, benefiting Case Ready and fluids solutions.
• Q: E-com competitor investment, M&A, and cost out upside? **A: E-com competitor investment doesn't change strategy; focus remains on fiber mailers and auto bagging. Cost out of $90 million in 2025 includes $65 million in cost takeout and $25 million in productivity savings, with flexibility for further optimization throughout the year.