SEALED AIR CORP/DE Q4 FY2023 earnings call

• Reorganized commercial teams by reestablishing food and protective operating units within each region to improve customer proximity and commercial effectiveness. - Shifted innovation focus from laboratory to field, aiming to leverage customer voice to prioritize and shape innovation pipeline, with plans to introduce new recycle ready products, full automation solutions in case ready, and expand applications in fluids and liquids. - Continued portfolio optimization, investing in core growth products and deprioritizing those not aligning with strategy. - Cost reduction initiatives within CTO2Grow progressing, with $65 million in annual run rate savings in 2023 and aiming for $90 million in 2024, including plant closures and rightsizing Argentina operation.

In the fourth quarter, net sales were $1.4 billion. Food net sales were $893 million, down 3% organically, with adjusted EBITDA of $195 million, down 3%. Protective net sales were $485 million, down 10% organically, with adjusted EBITDA of approximately $90 million, down 12%. Liquibox contributed 5% to total company sales or approximately $70 million in Q4. For the full year, net sales were $5.5 billion, with Food net sales up 9% in constant dollars and Protective net sales down 15% in constant dollars.

• Expect L-shape recovery through 2024 and into 2025. Net sales expected in range of $5.2 billion to $5.6 billion. - Adjusted EBITDA expected in range of $1.05 billion to $1.15 billion, midpoint in line with 2023. - Full year adjusted EPS expected in range of $2.65 to $3.05 per share. - Q1 2024 net sales and adjusted EBITDA expected around $1.3 billion and $240 million respectively, with earnings per share between $0.50 and $0.60.

• Challenging protein cycles and trade downs in food business. - Muted fourth quarter seasonal pickup in protective segment. - Sustainability pressures and new business models reshaping e-commerce packaging choices. - Pricing pressures from competitors. - Economic instability in Argentina impacting operations. - Regulatory changes affecting product offerings.

Q: Hey, guys. Dustin, if I hear you correctly, you're guiding to $240 million of EBITDA for 1Q. That implies a pretty steep year-over-year decline. So help us kind of think through what's driving, perhaps, a bigger hit to start the year? Certainly, volumes are an element of it. And the shape of the year, do you expect EBITDA to inflect positively by one would be helpful. And any color by segments would be helpful in terms of the shape of the year.

A: Phil, this is Dustin speaking. Again, I appreciate the question on Q1. A couple of comments I want to make. One is, you hit it nail on the head relative to volume, right? So volume in Q1 is going to be down a couple of points, and that negative leverage is impacting the EBITDA for the quarter. That's being partially offset by some of the cost takeout program, but that program is going to ramp across the quarters. That's really what's going to drive the sequential improvement as we go throughout Q1, Q2, Q3, Q4 in terms of approving from here. And so then coupled with that, the pricing actions that we talked about in terms of some of the pricing flow through from the prior year coming across 2024 is also going to impact Q1, right? So the expectation from here is that we're going to improve EBITDA sequentially quarter-to-quarter-to-quarter, right coming from the $240 million that we mentioned for Q1. And then we'll -- and then obviously, when we get to roughly Q3 and Q4, going back to the mass recoveries in the second half volumes, we'll see that inflection point begin and it'll point towards EBITDA growth.

Q: Hi, good morning ,everyone. This is Mac Rigor sitting in for Ghansham this morning. So I was just hoping that you could provide us with some added detail on how volumes trended throughout the quarter on a monthly basis? And then given that we're essentially finished with the first two months of the first quarter here, how has 2024 kicked off for each segment from a monthly volume cadence as well? Any details there would be super helpful.

A: Matt, this is Dustin speaking. I'll kick it off. And again, I appreciate the question. So if you go back to the fourth quarter, and we'll start with Food, as we mentioned, underlying volumes throughout the entire year have been trending slightly kind of low single digits. Q4 was no different, with the exception of our automation sales, which we pointed to during Q3 that we expected that the impact of lower bookings throughout the year due to the capital constraints of our customers really impacted our equipment sales in the fourth quarter. However, we still achieved over $500 million of sales and we are kind of ahead of our own expectations. So when you shift to Protective. Protective ended where we set expectations around mid-single digits, right? That's obviously a big improvement coming off of the prior three quarters that we're in the teens up to almost 20% starting in Q1. So throughout 2023, volumes in that business, I would say, improved sequentially, slightly and wrapped around the prior year. What's important about both businesses that's different in Q4 of '23 versus '22 is that we saw the actual seasonal pickup in volumes, right, in the fourth quarter. And so -- in both businesses, this is Food and Protective. Now, as you move into Q1, right, January is coming in slightly ahead of expectations, and there's a number of different reasons for that, and this is really across both businesses, so both Food and Protective have performed quite well in January. And then in February, it looks to be in line. And this is obviously embedded in the current guide that we have for Q1.