SEALED AIR CORP/DE Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Market and Business Update:
  • Food segment saw low single-digit volume growth across regions, driven by shrink bag business and new customer wins. Addressed PVdC regulatory challenges, offering alternatives and working with stakeholders to mitigate food waste.
  • Protective segment revenue in line with expectations, faced volume declines in industrial portfolios, ongoing sustainability pressures, and organizational changes to refocus on channel and direct customers.
• Financial Performance:
  • Total sales were $1.33 billion, adjusted EBITDA was $278 million. Food growth offset Protective declines.
  • Free cash flow was positive $78 million in Q1 vs. negative $13 million in the prior year quarter, driven by higher earnings, better working capital management, and lower incentive compensation payments.

Segment Performance

• Food Segment: Net sales were $868 million, down 1% organically. Adjusted EBITDA was $190 million, down 3% with margins at 21.8%. Contributed approximately 65.26% to total net sales ($1.33 billion). Drove low single-digit volume growth across regions, benefited from shrink bag business and new customer wins, and addressed PVdC regulatory challenges with alternative solutions.
• Protective Segment: Net sales were $461 million, down 7% organically. Adjusted EBITDA was approximately $90 million, up 11% with margins at 19.4%. Contributed approximately 34.74% to total net sales. Faced volume declines in industrial portfolios, ongoing sustainability pressures, and organizational changes to refocus on channel and direct customers.

Guidance

• Reaffirmed full-year 2024 outlook. Anticipated a slight sequential decline in Q2 sales, with net sales expected to be around $1.3 billion, adjusted EBITDA ~$260 million, and adjusted EPS ~$0.64. Focused on executing transformation, achieving CTO2Grow savings, and deleveraging the balance sheet.

Risks

• Regulatory risks related to PVdC in the Food segment, with no immediate alternative matching its performance.
• Continued weakness in Protective segment industrial portfolios, sustainability pressures, and uncertainties around China's economic recovery impacting Asia electronics sector.

Question and Answer

Q: Ghansham Panjabi on Food segment trends and upside in Q1 A: Emile Chammas stated market trends align with initial expectations, with North American cattle cycle slightly better than anticipated, and strength in Q1 from carryover holiday demand and new customer wins across sectors

Q: George Staphos on sustainability transition in Protective A: Dustin Semach mentioned the intention to round out and complete the fiber portfolio, with examples like paper coilers, and noted customer reception of new programs, though details on cost and volume uptake were ongoing

Q: Matthew Roberts on Q2 guidance and cost takeout A: Dustin Semach explained Q2 decline was due to FX, price, and volume factors, with CTO2Grow program driving cost savings momentum baked into guidance

Q: Jeffrey Zekauskas on PVdC risks A: Dustin Semach and Emile Chammas discussed PVdC regulatory landscape, California bill AB 2761, and efforts to advocate for PVdC's role in mitigating food waste, with multiple solutions offered to customers

Q: Michael Roxland on Food momentum and digital/automation strategy A: Dustin Semach highlighted Food bag business momentum, and Emile Chammas discussed digital commerce (22% sales through channel) and upcoming digital printing technology for flexible materials

Q: Edlain Rodriguez on future concerns A: Dustin Semach addressed cost structure improvement, commercial reorganization progress, and portfolio completion efforts as key areas of focus and optimism

Q: Anthony Pettinari on net pricing outlook A: Dustin Semach updated net price realization to be ~$80 million negative for full year, with Q1 ~$20 million drag, driven by pricing pressure offset by cost benefits

Q: Philip Ng on Protective volume and margin outlook A: Dustin Semach discussed EMEA Protective weakness improvement, sustainability pressure acceleration, and expectation of cyclical rebound, with portfolio work to offset headwinds

Q: George Staphos on customer needs in Protective A: Dustin Semach noted larger distributors offer full portfolio, smaller distributors vary, with focus on broadening fiber footprint and technical service as competitive differentiators

Q: Gabe Hajde on automation strategy A: Emile Chammas mentioned Food automation sales up double digits in Q1, book-to-bill ratio at 1, and optimism on cyclical recovery driving future automation growth