Sealed Air(SEE) - 2023 Q4 - Annual Results

Q4 & Full Year 2023 Results and 2024 Outlook This section provides an overview of the company's financial performance for Q4 and full year 2023, along with its strategic outlook for 2024 Q4 & Full Year 2023 Key Results SEE reported a 2% decline in Q4 net sales to $1.4 billion and a 3% decline for the full year 2023 to $5.5 billion, with mixed results in net earnings and Adjusted EBITDA Q4 2023 vs Q4 2022 Performance | Metric | Q4 2023 | Change (YoY) | | :--- | :--- | :--- | | Net Sales | $1.4 billion | -2% | | Net Earnings | $125 million | +32% | | Adjusted EBITDA | $274 million | -8% | | Diluted EPS | $0.86 | +32% | | Adjusted EPS (Diluted) | $0.88 | -11% | Full Year 2023 vs Full Year 2022 Performance | Metric | Full Year 2023 | Change (YoY) | | :--- | :--- | :--- | | Net Sales | $5.5 billion | -3% | | Net Earnings | $339 million | -31% | | Adjusted EBITDA | $1,107 million | -9% | | Diluted EPS | $2.34 | -30% | | Adjusted EPS (Diluted) | $3.18 | -22% | - Full year 2023 free cash flow was $467 million, excluding $195 million in payments for prior year tax matters, representing a 24% increase compared to the prior year[1][19] Management Commentary Management acknowledged that Q4 results met expectations despite continued weakness in end-markets, focusing on strategic initiatives and an anticipated market recovery - The company is ramping up its CTO2Grow initiatives to enhance business competitiveness and counteract persistent weakness in end-markets[2] - Management delivered strong free cash flow and made significant progress in deleveraging the balance sheet[2] - The 2024 outlook assumes end-markets are stabilizing, with an expected recovery in the second half of the year[2] - The CEO search is in progress and is targeted for completion in the coming months[2] Detailed Financial Analysis This section provides an in-depth analysis of the company's Q4 2023 business segment performance, U.S. GAAP and Non-U.S. GAAP financial results, and cash flow position Business Segment Performance (Q4 2023) In Q4 2023, the Food segment's net sales grew 2% to $893 million, aided by the Liquibox acquisition, though volumes declined 3%, while the Protective segment's net sales fell 9% to $485 million due to volume and pricing pressures Food Segment The Food segment's Q4 net sales increased by 2% to $893 million, primarily driven by the Liquibox acquisition, which offset a 3% decline in volumes, leading to a 3% decrease in Adjusted EBITDA Food Segment Q4 2023 Performance | Metric | Q4 2023 | Change (YoY) | | :--- | :--- | :--- | | Net Sales | $893 million | +2% | | Constant Dollar Sales | - | +5% | | Volume | - | -3% | | Adjusted EBITDA | $195 million | -3% | | Adjusted EBITDA Margin | 21.8% | -130 bps | - The Liquibox acquisition contributed $70 million, or 8%, to net sales[5] Protective Segment The Protective segment's Q4 net sales decreased by 9% to $485 million, driven by a 5% drop in volumes and a 5% unfavorable price impact, resulting in a 12% decline in Adjusted EBITDA Protective Segment Q4 2023 Performance | Metric | Q4 2023 | Change (YoY) | | :--- | :--- | :--- | | Net Sales | $485 million | -9% | | Constant Dollar Sales | - | -10% | | Volume | - | -5% | | Price | - | -5% | | Adjusted EBITDA | ~$90 million | -12% | | Adjusted EBITDA Margin | 18.7% | -50 bps | U.S. GAAP Financial Results On a U.S. GAAP basis, Q4 2023 net earnings increased to $125 million due to a significantly lower effective tax rate, while full-year 2023 net earnings decreased to $339 million, impacted by acquisition and restructuring costs Fourth Quarter 2023 (GAAP) In Q4 2023, net sales decreased 2% to $1.4 billion, while net earnings rose to $125 million primarily due to lower tax expense from the resolution of IRS matters - Q4 net sales decreased 2%, with a 9% increase in APAC, a 3% decrease in the Americas, and a 6% decrease in EMEA[7] - Net earnings increased to $125 million, primarily due to lower tax expense associated with the resolution of tax filing positions with the IRS Independent Office of Appeals[8] - The effective tax rate was (7.8)% in Q4 2023, a significant drop from 47.2% in Q4 2022, due to the resolution of certain tax matters[9] Full Year 2023 (GAAP) For the full year 2023, net sales decreased 3% to $5.5 billion, and net earnings fell to $339 million due to $122 million in unfavorable Special Items, despite a lower effective tax rate - Full year 2023 net sales decreased 3%, with the Americas down 4%, EMEA down 1%, and APAC remaining essentially flat[10] - Net earnings fell to $339 million from $491 million, impacted by $122 million in Special Items related to the Liquibox acquisition, restructuring, and foreign currency losses[11] - The full-year effective tax rate was 21.0% in 2023, compared to 32.6% in 2022, benefiting from the resolution of the same IRS matters that impacted Q4[12] Non-U.S. GAAP Financial Results On a non-GAAP basis, Q4 2023 Adjusted EBITDA was $274 million, down from $297 million, and full year 2023 Adjusted EBITDA was $1,107 million, a decrease from $1,210 million, both primarily due to lower volumes Fourth Quarter 2023 (Non-GAAP) In Q4 2023, Adjusted EBITDA fell to $274 million from $297 million due to lower volumes, and Adjusted EPS decreased to $0.88 from $0.99 due to lower Adjusted EBITDA and higher interest expense - Adjusted EBITDA was $274 million (19.9% margin) in Q4 2023, down from $297 million (21.1% margin) in Q4 2022, primarily due to lower volumes[14] - Adjusted EPS decreased to $0.88 from $0.99, attributed to lower Adjusted EBITDA and higher interest expense[15] Full Year 2023 (Non-GAAP) For the full year 2023, organic net sales fell 6%, Adjusted EBITDA was $1,107 million, down from $1,210 million, and Adjusted EPS decreased to $3.18 from $4.10, primarily due to lower volumes and higher interest costs - Full year 2023 organic net sales decreased 6%, with volumes down 7% and price up 1%[16] - Adjusted EBITDA was $1,107 million (20.2% margin) for 2023, compared to $1,210 million (21.5% margin) for 2022, with the decrease largely due to lower volumes[17] - Adjusted EPS fell to $3.18 from $4.10, primarily due to lower Adjusted EBITDA and higher interest expense[18] Cash Flow and Net Debt For the full year 2023, free cash flow was $467 million (excluding tax payments), up 24% year-over-year, while net debt significantly increased to $4.3 billion due to the Liquibox acquisition, raising the net leverage ratio to 3.9x Cash Flow and Debt Metrics (Full Year 2023 vs 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Cash Flow from Operations | $516 million | $613 million | | Free Cash Flow (as reported) | $272 million | $376 million | | Free Cash Flow (ex-tax matters) | $467 million | $376 million | | Net Debt | $4.3 billion | $3.2 billion | | Net Leverage Ratio | 3.9x | 2.7x | - The company had approximately $1.35 billion of available liquidity as of December 31, 2023, comprising $346 million in cash and $1.0 billion in unused credit facilities[21] - In Q4 2023, SEE issued $425 million in senior notes due 2031 to repurchase notes due in 2024 and repaid an additional $175 million of other debt[22] 2024 Outlook This section outlines the company's financial projections and strategic guidance for the full fiscal year 2024 Full Year 2024 Guidance SEE projects 2024 net sales between $5.2 billion and $5.6 billion, Adjusted EBITDA between $1.05 billion and $1.15 billion, Adjusted EPS between $2.65 and $3.05, and free cash flow between $325 million and $425 million Full Year 2024 Financial Outlook | Metric | 2024 Guidance Range | | :--- | :--- | | Net Sales | $5.2 billion to $5.6 billion | | Adjusted EBITDA | $1.05 billion to $1.15 billion | | Adjusted EPS | $2.65 to $3.05 | | Free Cash Flow | $325 million to $425 million | | Capital Expenditures | ~$230 million | - The Adjusted EPS forecast is based on approximately 146 million shares outstanding and an anticipated Adjusted Tax Rate of 26% to 27%[24] Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated statements of operations, balance sheets, and cash flows for the company Condensed Consolidated Statements of Operations For the year ended December 31, 2023, SEE's net sales decreased to $5.49 billion, gross profit fell to $1.64 billion, and net earnings from continuing operations declined to $339.3 million due to increased interest and other expenses Statement of Operations Highlights (Full Year) | (In USD millions) | 2023 | 2022 | | :--- | :--- | :--- | | Net sales | $5,488.9 | $5,641.9 | | Gross profit | $1,641.3 | $1,772.9 | | Operating profit | $754.6 | $944.8 | | Interest expense, net | $(263.0) | $(162.3) | | Net earnings from continuing operations | $339.3 | $491.3 | | Diluted EPS from continuing operations | $2.34 | $3.33 | Condensed Consolidated Balance Sheets As of December 31, 2023, total assets increased to $7.20 billion, primarily due to the Liquibox acquisition, while total liabilities rose to $6.65 billion driven by increased long-term debt Balance Sheet Highlights (Year-End) | (In USD millions) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $1,963.3 | $2,116.8 | | Goodwill | $2,892.5 | $2,174.5 | | Total assets | $7,200.6 | $6,214.7 | | Total current liabilities | $1,509.0 | $2,081.8 | | Long-term debt, less current portion | $4,513.9 | $3,237.9 | | Total liabilities | $6,651.1 | $5,870.6 | | Total stockholders' equity | $549.5 | $344.1 | Condensed Consolidated Statements of Cash Flows For the full year 2023, net cash provided by operating activities decreased to $516.2 million, while net cash used in investing activities significantly increased to $1.38 billion due to acquisitions, resulting in a net decrease in cash and cash equivalents Statement of Cash Flows Highlights (Full Year) | (In USD millions) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $516.2 | $613.3 | | Net cash used in investing activities | $(1,378.2) | $(243.0) | | Net cash provided by (used in) financing activities | $755.7 | $(446.7) | | Net change in cash and cash equivalents | $(110.0) | $(104.9) | | Free Cash Flow | $272.0 | $376.0 | Non-GAAP Reconciliations and Supplemental Data This section provides reconciliations of U.S. GAAP to Non-U.S. GAAP financial measures and supplemental data on sales changes by segment and region Reconciliation of Net Earnings to Adjusted Net Earnings For the full year 2023, U.S. GAAP net earnings of $339.3 million were adjusted for $122.0 million in special items, resulting in Non-U.S. GAAP adjusted net earnings of $461.3 million and an Adjusted EPS of $3.18 FY 2023 Reconciliation of Net Earnings to Adjusted Net Earnings | (In USD millions) | Net Earnings | Diluted EPS | | :--- | :--- | :--- | | U.S. GAAP | $339.3 | $2.34 | | Special Items | $122.0 | $0.84 | | Non-U.S. GAAP Adjusted | $461.3 | $3.18 | Components of Change in Net Sales by Segment For the full year 2023, total company organic sales declined 6.0%, primarily driven by a 15.0% organic decline in the Protective segment, while the Food segment saw a slight organic increase of 0.3% FY 2023 Net Sales Change by Segment (vs. FY 2022) | Segment | Price | Volume | Organic Change | Acquisition | Total Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Food | +2.1% | -1.8% | +0.3% | +8.6% | +6.1% | | Protective | -1.0% | -14.0% | -15.0% | 0.0% | -15.3% | | Total Company | +0.8% | -6.8% | -6.0% | +5.1% | -2.7% | Components of Change in Net Sales by Region For the full year 2023, organic sales declined across most regions, with the Americas down 7.4% and EMEA down 5.2%, resulting in overall reported sales decreases after accounting for acquisitions and currency effects FY 2023 Net Sales Change by Region (vs. FY 2022) | Region | Organic Change | Acquisition | Currency | Total Change | | :--- | :--- | :--- | :--- | :--- | | Americas | -7.4% | +5.5% | -1.9% | -3.8% | | EMEA | -5.2% | +4.4% | -0.1% | -0.9% | | APAC | -0.5% | +3.9% | -3.7% | -0.3% | | Total Company | -6.0% | +5.1% | -1.8% | -2.7% | Reconciliation of Net Earnings to Adjusted EBITDA For the full year 2023, Consolidated Adjusted EBITDA was $1,106.6 million, a decrease from $1,210.2 million in 2022, with the Food segment's Adjusted EBITDA increasing while the Protective segment's fell significantly FY 2023 Adjusted EBITDA by Segment (vs. FY 2022) | (In USD millions) | 2023 | 2022 | | :--- | :--- | :--- | | Food Adjusted EBITDA | $775.0 | $755.1 | | Protective Adjusted EBITDA | $361.8 | $465.6 | | Consolidated Adjusted EBITDA | $1,106.6 | $1,210.2 | - To arrive at the Non-U.S. GAAP Consolidated Adjusted EBITDA of $1,106.6 million for 2023, adjustments to U.S. GAAP Net Earnings ($339.3M) included adding back net interest expense ($263.0M), income tax ($90.4M), depreciation & amortization ($239.6M), and pre-tax special items ($174.3M)[54]