Sealed Air(SEE)2024-11-07 21:32Financial Data and Key Metrics - Q3 2024 sales were $1.35 billion, down 3% YoY [24] - Adjusted EBITDA was $276 million, down 3% YoY, with margins at 20.5%, down 10 basis points [24][27] - Adjusted EPS was $0.79, up 3% YoY [25] - Free cash flow year-to-date was $323 million, significantly higher than $183 million in the same period last year [38] - Net leverage ratio stood at 3.7x, with total liquidity at $1.4 billion [40] Business Line Performance - Food segment net sales were $898 million, up 1% YoY, driven by volume growth in all regions [29] - Food adjusted EBITDA was $206 million, up 6% YoY, with margins at 22.9%, up 120 basis points [32] - Protective segment net sales were $447 million, down 8% YoY, with adjusted EBITDA of $75 million, down 21% YoY [33][35] - Protective volumes declined 10% in the fulfillment portfolio, while APAC volumes grew 1% [33][34] Market Performance - Americas sales were down 2% organically, with volumes down 1% [36] - EMEA sales declined 6% organically, driven by lower pricing and volume declines in Protective [37] - APAC sales were up 3% organically, supported by the Australian cattle cycle and fulfillment automation gains [37] Strategy and Industry Competition - The company reorganized into two verticals: Food and Protective, to enhance customer focus and drive growth [8][16] - New leadership was appointed for both verticals, with a focus on commercial execution and sustainable portfolio shifts [11][12] - The company is accelerating cost takeout initiatives to improve profitability, particularly in the Protective segment [21][44] - Sustainability efforts include partnerships with large retail customers like Best Buy to reduce virgin plastic usage [18][19] Management Commentary on Operating Environment and Outlook - Management highlighted the impact of Hurricane Helene, which affected operations in South Carolina and Western North Carolina but was managed effectively [22][23] - Q4 2024 sales are expected to be approximately $1.3 billion, with adjusted EBITDA in line with guidance [42][43] - The company is confident in achieving a net debt to adjusted EBITDA target of below 3.5x by the end of 2025 [40] Other Important Information - The company improved working capital, with a 120 basis point YoY improvement in working capital as a percentage of sales [39] - A new director, Tony Allott, was appointed to the board, bringing extensive packaging industry experience [15] Q&A Session Summary Question: Protective segment performance in Q4 - Protective volumes are expected to improve sequentially in Q4, driven by holiday seasonality, but will still be down 6% YoY [48][49] - Fiber-based products are performing better than poly, but only account for 15% of the Protective business [51] Question: Timeline for Protective segment recovery - Management expects to provide a clearer outlook for Protective in February 2025, with improvements in void-fill and automation expected [58][61] Question: Impact of vertical reorganization - The reorganization aims to enhance operational effectiveness and focus on growth strategies, with early successes seen in the Food segment [64][70] Question: Cost takeout initiatives - The company is on track to achieve $90 million in cost savings in 2024 and is evaluating additional savings for 2025 [72][73] Question: Strategic focus on Protective segment - Management is focused on operationalizing the Protective vertical and improving its performance, with no immediate plans for divestments [78][80] Question: Food segment margin performance - Food margins benefited from volume growth and higher utilization, with expectations to remain in the low 20s [86] Question: Food volume trends and protein market dynamics - Food volumes grew 2.4% in Q3, driven by competitive wins and strong protein demand, with similar performance expected in Q4 [89][93] Question: Pricing dynamics in 2025 - Pricing dynamics are expected to improve in 2025, with better price/cost relationships in both Food and Protective segments [113][118] Question: Fiber product development and investment - The company is focusing on improving fiber-based mailers and void-fill products, with prototypes already in development [121][126] Question: Instapak and sustainability trends - Instapak remains an important part of the Protective portfolio, with sustainability trends varying based on whether products touch consumers or industrial markets [129][132]