Sealed Air Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the third quarter 2020 Sealy-Aired Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to one of your speakers, Ms. Lori Chapman. Ma'am, please go ahead.

I hope you and your family are healthy and staying safe. Before we begin our call today, I would like to note that we have provided a slide presentation to help guide our discussion. Please visit our website where today's webcast and presentation can be downloaded from our IR site at stillthere.com. I would like to remind you that statements made during this call stating management's outlook or predictions for future periods of forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in the section entitled Forward-Looking Statements in our earnings release and slide presentation which applies to this call. Additionally, our future performance may differ due to a number of factors. Many of these factors are listed in our most recent annual report on Form 10-K and has revised and updated on our quarterly reports on Form 10Q and current reports on Form 8K, which you can also find on our website at fieldair.com or on the SEC's website at sec.gov. We also discussed financial measures that do not conform to U.S. GAAP. You will find important information on our use of these measures and their reconciliation to U.S. GAAP in our earnings release. Included in the appendix of today's presentation, you will find U.S. GAAP financial results that correspond to the non-U.S. GAAP measures you referenced throughout the presentation. I will now turn the call over to Ted Rahimi, our President and CEO. Ted?

Thank you, Lori, and thank all of you for joining our third quarter 2020 earnings call. I hope you and your families are staying healthy and safe. As the pandemic continues, our customers are counting on us to get things done. Our employees are delivering, and I couldn't be prouder of their efforts. We're focused on zero harm in everything we do, supporting our customers, executing on our reinventing business transformation, and becoming a stronger and better company. On today's call, I'll recap our third quarter results. I'll share how we're growing in an uncertain environment, and how our global markets continue to evolve. I'll share how our growth strategy is centered around automation, sustainability, and digital. Jim will review our financial results in more detail, and then I will close with a reiteration of how our four Ps of reInvent-C are guiding us in this journey. We will end the call with Q&A. Let's turn to slide three for a recap of our third quarter results compared to last year. Adjusted EBITDA increased 8% on sales growth of 2%. Adjusted earnings per share increased 28% to 82 cents, and in the nine months ending September 30th, we generated $292 million in free cash flow as compared to $110 million in the same period last year. We had a solid third quarter. For the first time in six quarters, Protected delivered year-over-year organic volume growth attributable to strength in e-commerce, fulfillment, and automated equipment. Growth in protective was offset by a modest volume decline in food, which was largely attributable to labor challenges at meat packaging plants and the lagging recovery in food service. Based on our execution, results achieved to date and improved demands in protective We're raising our full year 2020 guidance across all key financial metrics. Let's turn to slide four, which we call our movie reel slide, illustrating our diverse end market exposure and the breadth of our solutions that are supported by our powerful brands. You can see a play button on the slide, which is to encourage you to visit our website, where you'll find several videos demonstrating the value created by our platforms. In the first nine months of the year, approximately 64% of our sales were derived from packaging fresh and frozen proteins, as well as other foods and fluids and goods for the medical, life sciences, and pet care industries. There continues to be an imbalance across the food industry with higher demands in the retail channel, including e-food and e-grocery, offset by restrictions and heightened safety concerns across the food service sector. Also, while many meat packaging plants around the world are up and running, they are not operating at full production rates and are managing labor shortages. We saw an increase in equipment sales in the quarter as a result of our focus on our automation strategy, which I'll highlight on the next slide. These favorable trends were not enough to offset the labor challenges in the food service slowdown at large venues, supporting events, hotels, and restaurants. As we plan for a new normal, we're confident that our focus on automation and sustainability will improve the growth trajectory of our food business and drive sales for our high-performance materials. We see an increasing opportunity to grow food equipment and services, which year-to-date accounted for approximately 7% of the segment sales. We're already working with our customers to optimize their plans with automated solutions that improve productivity while keeping people out of harm's way and addressing sustainability requirements. Approximately 14% of our sales were derived from consumer, retail, and third-party logistics, most of which are goods shipped through e-commerce channels. Demand for our mailers, automated equipment, and inflatables, including our bubble wrap on demand, were exceptionally strong in the first nine months of the year. The surge in e-commerce continues to create demand for our products and services. Our solutions are designed to minimize waste, reduce carbon footprint, increase speed to pack, while at the same time drive to zero harm and address labor scarcity. We are taking our digital printing capabilities to the next level by enhancing our packaging materials, which is important for the at-home buying experience. We continue to shift our portfolio to address the ever-changing needs of the e-commerce channel, which will be a key element of our protective growth strategy. The remaining 22% of our sales serve industrial, transportation, and consumer electronic segments. While these segments improved more than expected in the third quarter, they're still below prior year levels. Now turning to slide five. you can see how we are accelerating our C automation solutions to meet the demand for a touchless environment. This is driving growth for the next phase of our re-invent C business transformation. We have a plan in place to triple the size of our equipment sales, which is now estimated to be 200 million in 2020 to over 500 million by 2025. You can see on this chart how the pull through Our multiplier on services and materials over the life cycle of equipment sales creates tremendous value. We modeled a conservative 3X solutions multiplier to illustrate the $5 billion plus potential opportunity over the 10-year equipment life cycle. With C-Automation, we're taking our integrated solutions approach by eliminating waste, increasing productivity, and keeping people out of harm's way. Our targeted savings for our customers of greater than 30% will ensure an attractive payback for our systems. The implementation of our C-SMART services will enable connectivity to our customer systems and give us the opportunity to proactively and remotely optimize our installed base and machines. Our high-performance materials integrated with automated equipment and services provide a compelling value proposition to the packaging industry. Let me now turn to slide six and give you an update on our leadership actions. We are fully committed to zero harm for our employees, and we're working diligently to ensure strong alignment with our customers, suppliers, operations, and the communities where we live and work. Our local, regional, and corporate crisis management teams remain proactive, and our business continuity plans are still in effect. We've had numerous challenges to overcome, but the disruption to our operation has been minimal, and our global scale has mitigated business continuity risks. We recognize our new normal will be here for the foreseeable future and have been improving productivity across our geographies, supply chain, and product portfolio. We are investing in e-commerce and digital platforms and capabilities to ensure connectivity. We believe these investments will be a growth engine for us in the future. I'll now pass the call to Jim to review our results in more detail. Jim? Thank you, Ted. Let's turn to slide seven for a review of our year-over-year net sales by region. In the third quarter, net sales totaled $1.2 billion, up 2 percent as reported, and up 3 percent in constant dollars. In constant dollars, North America Our largest region, representing 60% of our sales, increased 3%. Asia Pacific was up 1%, and EMDA was flat. South America was up 13% due to U.S. dollar index pricing. On slide 8, here you see our organic sales volume and pricing trends by segment and region. In the third quarter, Volume overall increased 1%, with 4% growth in protective and a 2% decline in food. By region, North America was up 2%, APAC was up 1%, and EMEA and South America were down 2% and 3%, respectively. Volume in protective was driven by strong growth in e-commerce and fulfillment of about 15%. partially offset by a 2% decline in industrials, both of which exceeded our expectations. North America and APAC delivered 6% and 8% volume growth, respectively. This was partially offset by a 5% decline in EMEA, where we have more exposure to the industrial sector, particularly automotive. In food, volume declined in all regions. North America declined 2 percent, EM, EA, 1 percent, and both South America and APAC were down 4 percent. While equipment was strong, labor challenges in meat packaging plants and the slow recovery in food service weighed on our volumes globally. South America was also impacted by the soft economic environment in the region. reducing local consumption of fresh red meat. And APAC, herd rebuilding on Australia impacted volumes as well. On slide nine, we present our year-over-year consolidated sales and adjusted EBITDA bridges for the third quarter and first nine months of the year. Organic sales in the quarter were up 1%. with higher volume contributing $8 million to the top line. Acquisitions added $24 million, or 2%, which was the month of July sales from automated packaging systems. This acquisition closed August 1, 2019, so sales for the months of August and September 2020 are included in our organic results. negatively impacted sales in the quarter by 12 million, or about 1%, mostly due to year-over-year declines in the Argentinian peso, Brazilian real, and Mexican peso, partially offset by a stronger euro. Adjusted EBITDA of 259 million increased 18 million, or 8%, compared to last year with margin up 120 basis points, to 21 percent. Reinvestee benefits totaled $32 million in the quarter, $29 million in operating cost savings, and $3 million in price-cost spread improvements. Operating costs in the quarter included labor and other non-raw material cost inflation of about $13 million and higher incentive-based compensation of $6 million. We also incurred $4 million of incremental spending related to COVID-19, which was offset by lower travel expense. Adjusted EBITDA continued to benefit from favorable price-cost spread movements this quarter by $9 million. However, with resin prices increasing, we expect this trend to change in the fourth quarter. The automated acquisition contributed 4 million of adjusted EBITDA in the month of July. The integration of automated has gone very well, and sales and cost synergies realized since completion of the acquisition are ahead of plan. The adjusted EBITDA impact from prior volume on a consolidated basis this quarter was negative 7 million due to the sales mix between reporting segments. Adjusted EPS in the third quarter was 82 cents compared to 64 cents in the third quarter of 2019 due to higher adjusted EBITDA, lower net interest expense, and lower taxes. The adjusted tax rate in the quarter was 20.6%, down from 28.5% in the third quarter of 2019. This year's lower tax rate favorably impacted by the recently issued U.S. GILTI regulations. Turning to slide 10, here we provide an update on reInvent-C, which continues to progress in earnest and is driving structural operating leverage in the business. Our reInvent commercial work stream is progressing with targeted growth achieved in automation and sustainability, which is helping alleviate pandemic-driven weakness in some end markets. The commercial strategies, capabilities, and governance processes implemented with this new reInvent Workstream are robust and provide a solid platform for driving revenue growth in the markets we serve. In 2020, we are now expecting to realize approximately $120 million of year-over-year re-invent seed productivity benefits to adjusted EBITDA. This is up 10 million from our previous guidance. In 2021, we continue to estimate over 50 million of additional year-over-year productivity benefits as re-invent seed transitions from restructuring to our ongoing continuous improvement operating system. Cash restructuring payments associated with Reinvent-C were $59 million in the first nine months of the year and are now expected to be about $85 million for the year, with an estimated $40 million carryover into 2021. The total cash cost of Reinvent-C is still expected to be approximately $215 million, and this amount has not changed since the transformation was publicly announced in December 2018. Turning to segment results on slide 11, starting with food. In the third quarter, food net sales of $705 million declined 3 percent as reported and 1 percent in constant dollars. Equipment, parts, and service sales currently represent about 7% of the segment. We're up over 15% year-over-year due to strength in North America and EMEA. In North America, most of the equipment sales were replacements and upgrades to help improve our customers' plant productivity. In EMEA, we delivered a new pork automation solution which will drive incremental material sales in the future. BrioVac materials, which comprise the remainder of the food segment sales, were down about 3% as a result of labor challenges in the meat processing plants around the world and the slow recovery in food service. Shrink bags and vertical pouches, which are disproportionately sold into the food service channel, together were down about 5 percent and accounted for nearly 50 percent of food sales. Adjusted EBITDA in food declined 7 million, or 5 percent, to 152 million, with margin down 30 basis points at 21.6 percent. Lower sales volume, unfavorable product mix, and currency were partially offset by re-invent seed benefits favorable price-cost spread. In the fourth quarter, for food, we expect constant dollar sales to be down about 1% on a year-over-year basis and the adjusted EBITDA margin to be roughly in line with the third quarter. We anticipate improvements in product mix and operating costs, which will largely mitigate the projected decline in price-cost spread. On slide 12, we highlight results from our protective segment. In the third quarter, protective net sales of 533 million were up 44 million, or 9%, as reported. Organic sales were up 3%, with volumes up 21 million, or 4%. Automated packaging systems made a strong organic growth of 7% in the quarter. demonstrating the value proposition of its work cell automation, sustainability portfolio, and our sales synergy efforts. With the spike in e-commerce shipments, we are experiencing strong demand for our automated equipment, discrete and automated mailers, and inflatables. From an end market or customer segment perspective, e-commerce and fulfillment account for approximately 45% of our protective sales. The remaining 55% of sales are industrials, where trends are improving, but still below prior year levels. Adjusted EBITDA of $109 million increased $25 million, or 29%, and the margin expanded 320 basis points year over year to 20.4%. Growth in adjusted EBITDA was attributable to higher volumes, reinvent C benefits, lower operating costs, and contribution from the automated acquisition. Lower operating costs in the quarter were partly driven by a $7 million of inventory step-up charge reported in the third quarter last year as part of the automated acquisition, and as well as the realization of cost synergies associated with the acquisition. In the fourth quarter, we expect protective volumes to be up year over year at a lesser rate compared to what we experienced in the third quarter. This outlook is based on continued strength in e-commerce and automation in North American and APAC, partially offset by weak economic conditions in EMEA. Now let's turn to free cash flow on slide 13. Year-to-date, we generated $292 million of free cash flow, compared to $110 million in the same period in 2019. The $182 million year-over-year improvement was largely driven by higher adjusted EBITDA, the impact of the NOVA PACS legal settlement in the same period a year ago, more CapEx due to pandemic-related project delays, and lower reinvent restructuring payments. Trade working capital was a use of cash in the first nine months of 2020, which is a typical seasonal pattern for the company. Our underlying working capital metrics remain well-controlled, and we do expect working capital to be a source of cash in the fourth quarter. Overall, for the full year 2020, we are raising our free cash flow guidance to approximately $450 million from our previous range of $350 to $375 million due to higher expected adjusted EBITDA and lower cash outflows with taxes, reinvency restructuring, and CapEx. Lower tax payments are largely from an approximate $30 million refund expected in the fourth quarter associated with the retroactive application of the revised U.S. GILTI regulations back to 2018. Slide 14 highlights our leverage, liquidity, and debt maturity profile. We ended the quarter with net leverage at 3.3x which is down from 3.4x in Q2 and 3.8x at this time last year. The deleveraging accomplished in the third quarter included 20 million of share repurchases. Our priority is to continue to delever, and we do expect our net leverage to come down further by the end of the year. As a reminder, Leverage covenant in our credit facility has a maximum ratio of 4.5x, and the covenant calculation at the end of the third quarter is 2.8, which is lower than our reported net leverage ratio due to certain allowed favorable EBITDA adjustments in the credit agreement. So with significant cushion against our financial covenant, over $1.4 billion of liquidity and no debt maturities until August 2022. We have good financial flexibility. On slide 15, we outline our capital allocation strategy. We continue to take a disciplined approach to strengthen our balance sheet while driving attractive returns on invested capital. We are investing in growth markets, and disruptive products and technologies. Approximately 40 percent of our organic CapEx is currently focused on growth, including breakthrough production processes, product innovation, and automation. Maintenance and cost productivity projects comprise the remaining 45 percent and 15 percent of our organic CapEx, respectively. Regarding shareholder returns, for the time being, we are maintaining our dividend at current levels. And in the context of our overall leveraging objective over the next several quarters, we expect to continue opportunistic share repurchase activity. Turning to our 2020 outlook on slide 16, we are raising our consolidated net sales outlook to be up about 1 percent as reported for approximately $4.85 billion. This compares to our previous estimate of net sales in the range of $4.725 to $4.775 billion. On a constant dollar basis, net sales are now expected to increase approximately 3%, which compares to our previous guidance, constant dollar growth in the range of 1 to 2%. A higher sales growth is driven by protective, which is now expected to increase approximately 7% in constant dollars as compared to our previous estimate of up approximately 3%. We continue to expect food deliver approximately 1% constant dollar growth. We now expect a negative impact from currency translation on sales of approximately $90 million for the full year. For adjusted EBITDA, we are revising our outlook to approximately $1.4 billion, which is $20 million above the midpoint of our previous range. This implies an adjusted EBITDA margin of approximately 21.4% for the year, which would be an improvement of 130 basis points from 2019. Unfavorable currency translation is now expected to be approximately $20 million on adjusted EBITDA, which compares to our previous currency forecast of a negative $25 million. we are increasing our guidance for adjusted EPS to approximately $3.05 from $2.85 to $2.95. Our outlook for adjusted EPS is based on approximately 156 million diluted shares outstanding. The adjusted tax rate in 2020 is now expected to be approximately 26% reflecting the benefits of the recently revised U.S. GILTI regulations. As previously mentioned, we are raising our free cash flow guidance to approximately $450 million. Our adjusted EBITDA to free cash flow conversion is now expected to be over 40% in 2020. Let me pass the call back to Ted for closing remarks. Ted? Thanks, Jim. Before we open up the call for questions, turning to slide 17, I wanted to reiterate our four Ps of reInvent-C. We always start with our purpose statement. We are in the business to protect, to solve critical packaging challenges, and to leave our world better than we found it. Our performance continues to improve as we are progressing towards world class. We're keeping people out of harm's way. while strengthening our business through the crisis. By operating as 1C culture, we are enabling fast decision-making. Our strategy to deliver the best systems at the right price and make them sustainable is working. Our broad and innovative product portfolio, global scale and agility has enabled us to address the evolving customer needs across our end markets and geographies. Our 1C operational excellence processes are driving flawless quality, world-class productivity, and yield improvements, as well as customer service enhancements that are creating customer references. You can see the structural changes of reInvent-C reflected in our operating leverage so far in 2020, with more to come. Sustainability is in everything we do, fueling our growth, and in this pandemic, still top of mind. We're enhancing our portfolio and innovating to meet our 2025 sustainability pledge and drive a circular economy for plastics. I'm excited to share that since announcing our investment in Plastic Energy Global, we collaborated with Plastic Energy, SABEC, Bradbury's Cheese, and Tesco to lead by example where we've been able to create a micro-circular loop for food-grade packaging We are embedding our environmental, social, and governance in diversity and inclusion priorities into our core business strategy and values. We will continue to proactively manage ESG and diversity and inclusion risk and leverage opportunities to drive success. This is reflected in our culture and our purpose. We've delivered three solid quarters in a very challenging and unpredictable environment. A reinventing business transformation is our operating engine driving profitable growth above inflation. We are reinventing everything we do, from how we innovate to how we solve our customers' toughest challenges with the power of one sealed air. I'm proud of how our people continue to execute through this pandemic, and I want to thank all of our employees and our plants and our innovation centers out in the field and working remotely for their dedication and commitment to business continuity. Finally, I would like to highlight we have Carl Diley on the call with us. Earlier today, we announced that Carl is planning to retire in April 2021. Carl has had an incredible 40-year career at Sealdare and has held many leadership roles along the way. Most recently, he took on the role as Chief Commercial Officer and has been instrumental to the success of our re-invent seed business transformation and closer to home, reinventing our iconic Cryovac brand. For me personally, Carl has been a tremendous partner and I'm grateful for his tireless efforts to transform our business from the best in packaging to world class. We've been so fortunate to have Carl as a part of the Sealed Air family. He has made Sealed Air a special company. We all wish Carl the very best in his retirement and look forward to a smooth transition with him in his advisory role. With that, I now open up the call for questions. Operator?

Thank you, ladies and gentlemen. If you have a question at this time, please press star then one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from the line of George Stepos with Bank of America. Your line is open. Please go ahead.

Hi. Thanks for taking my call. And, Carl, congratulations. We knew this was coming at some point. Thank you for all your help with our research over the years. Remember the first time you spoke at our conference with Dermot Beck, while ago best of luck to you I guess my question really is on food you know we knew that there was a supply glut of animals at least we thought there were that we're ultimately going to you know come to slaughter and we're just questioning why you know we heard you know some of the reasons but why we're not seeing more of a translation of that into volume and food for the third quarter in the fourth quarter And the related question, as we get into 21, Ted, do you expect that sustainability and reinvent will be accretive to volume in food and, for that matter, protective in 21, as you had at one point? I'm recognizing you've got a lot of challenges right now with COVID. Thank you, guys.

Thanks, George. And I apologize if everyone on the call hears there's a rainstorm going on in Charlotte right now. So we'll hopefully talk through that. But, George, for the first part, I'm going to turn that over to Carl to give you the detailed answer of what's going on with food.

Yeah, thank you, George, for the kind words. And also, I think you have to look a little bit deeper at what's going on in the market. And, you know, slaughter has been tracking slightly below prior year in the third quarter and almost 4% in beef below prior year for the year to date. As they've tried to work through the backlog and get their processes up and running, without some of the skilled labor and still high issues with absenteeism, they've gone to a simpler product mix. We've seen a very, very slow recovery there. and the food service part of it. Both of those have translated to lower volume levels and a little bit of a negative mix. We're still performing above what the market is, but it is dilutive and is something we're definitely keeping our pulse on daily.

Okay, great, Carl. And, George, I'll take the second part of the question where you're asking about reInvent taking us into 2021 in sustainability to drive growth. And with reInvent going into 2021, as you saw on the chart, if we looked at it, we have savings coming into. We think we have a built-up pipeline. We feel pretty good about that. Just so you know the detail that we manage this, we have over 2,500 projects that we're tracking right now, anywhere from $5,000 to multi-million. So we do feel like we've got a good pipeline, and so we think reInvent will continue to be strong and we'll look for opportunities. Some of those opportunities tie into the second point on sustainability as well. Sustainability in both the food and the protective business. On the food side of the business, we're developing some pretty innovative solutions that tie into automation and what we're doing in our factory automation that we think we could bring to new meat processing plants as we make them much more efficient, improving their labor shortages, et cetera. On the sustainability side, and as we mentioned, we invest in plastic energy, as we now are going circular, There are certain parts of our materials in the bags, such as PVDC or chlorine, we've developed already rapidly in less than 12 months, chlorine-free bags coming in the sustainability side that we see as a growth opportunity there as well. On the protective side, we're definitely seeing sustainability with our e-commerce boom. And how do we make our products recyclable, sustainable? The recycled bubble wraps already coming out into our product lines. Our mailers, not just the plastic mailers with the bubble, but also paper. And our paper business is growing quite nicely, and we expect more coming into 2021. The challenges will continue. We're thinking this pandemic environment is continuing, so we feel pretty good. Both re-invenC and our new product development will help us. The other piece I'll probably talk about again with the question is what we think automation can do to fuel our growth going into 2021. Okay. Operator, next question.

Our next question comes from the line of Anthony Petraneri with Citi. Your line is open. Please go ahead.

Good morning, and best wishes to Carl on his retirement, and thanks for all the help over the years. Just a quick question on product care. It sounds like industrial and e-commerce outperformed expectations in 3Q. Just curious if that continued in October. And when you look at the contribution margin for that business in 3Q, do you expect that to improve? Are there any kind of drivers of improvement that we should think about there?

Good question. Obviously, in 3Q, October, which was nice how you snuck that in. That's in the fourth quarter. So we see the trends basically continuing. I'll share that. On the e-commerce side, what we see the shift in the portfolio, if you look at slide four that we talked about, moving really to be a market-driven company with these great product lines, The largest product line and the most profitable in our protective is our Instapack, which is definitely hit with what's going on in the industrial. So actually, using our leverage language, that's been a major deleverage on the portfolio. So actually, the performance on all those different product lines and being lifted by e-commerce has really helped that business not only grow but had significant margin expansion. Seeing some of that get not as bad on industrial in the third quarter, we anticipate that going through in the fourth quarter, but we still think it's going to be a drag year over year. So shifting the portfolio very, very fast to mailers or bubble wrap on demand, and not only can we get the volume, but can we get continued margin expansions? And where we're really seeing the engine work, if we get that volume, we're seeing that leverage come in very, very nicely. So we think we definitely have some challenge continuing in the fourth quarter, but we plan to fight through that. Now through the fourth quarter, we're spending most of our attention right now is taking that momentum into 2021. Okay, next question, Alfredo.

Our next question comes from the line of Josh Spector with UBS. Your line is open. Please go ahead.

Yeah, hi, and thanks for taking my question. I guess in terms of your 2025 equipment target and, you know, more than doubling your sales versus 2020, what are the biggest factors that get you there? And, you know, is this more of a replacement cycle that peaks and then declines? Or do you see e-commerce growth and automation driving sustainably higher level equipment sales? Thanks.

Good. And Josh, welcome to our coverage. Glad to have UPS back and you personally, so great question. With the automation, we actually see that growth in both those areas you identified. Part is replacement. We have an extremely large fleet of equipment. If you look at slide five, we say out there there's thousands of machines. So as we're driving automation, it's taking care of that installed base, the parts, the service, the upgrades. And as we go digital, we think that is a significant opportunity to stay connected to that installed fleet of equipment. We think we have some improvement opportunities there. On the new equipment, and that's what we focused on. If you noticed, we actually have taken this number up already from 2020 when we first announced this. At the investor conferences last quarter, we were at 175. So we already have visibility that this is moving quickly in this environment, developing new products and new systems as we help to automate our customers' facilities, such as meatpacking plants. We're working with many of the majors right now of how we can pack that meat faster, safer, and do it in a remote environment, keeping people out of harm's way. On the e-commerce side, that's where we're seeing a lot of benefits, especially changing the model from how we did in the past. Both our food and protective models where we used equipment to actually subsidize to get more materials, and what we're finding is is that actually focusing on what the equipment can do to help on labor, to help on productivity, to help on safety, that we could actually have multiple opportunities, not only for the equipment that are in our portfolio, but working with other potential suppliers of equipment in branding it. So we see lots of opportunity to keep that growth. As you can imagine, going from 200 to 500, that's a pretty aggressive growth target. And as always, our internal targets are much more aggressive than what we're sharing externally. Okay. Next question, operator.

Our next question comes from the line of Gashan Panjabi with Barrett. Your line is open. Please go ahead.

Yeah, thank you. Good morning. And, Carl, congrats again. You're living as a legend in the industry, so very respectful of your career over time. So congrats. Thank you. I guess, you know, first off, you know, Ted, you know, obviously we're seeing real-time headlines of lockdowns in Europe, some parts of the U.S. as well, some extent of pantry loading, again, you know, in the U.S. starting in October. How do you think this most, this upcoming sort of paradigm impacts your portfolio versus maybe what you experienced in the first part of this year? And then a separate question maybe for Jim, in terms of the price-cost evolution over the next few quarters, How should we think about that $35 million price-cost spread you've benefited from so far this year changing as we cycle into 2021? Thank you.

Okay, good. Thanks, Gancham.

Do you want to go first on yours, and then I'll – Sure. Gancham, this is Jim. So we did talk in our comments that we do expect – price-cost spread to turn a little bit in the other direction starting in the fourth quarter. You know, we have had some benefits there year to date. Keep in mind, a fair amount of that is from reInvent, which we think is sustainable and not just going to be given back, if you will, when the market turns. We continue to do a really good job buying materials and doing what we can to position our materials globally in a way that we could, you know, avoid a lot of the inflation. So, you know, you see the headlines in North America around the low-density polyethylene and the big increases that we see there. But you've got to remember, we buy globally. We buy a lot of different resins and we buy chemicals. And if you look at the mix of all that, you know, it's not as severe as one might think. when they look at the headline market changes in certain of the resins so i think that's the good news i think again i think we'll do better than the market in terms of our buying and we'll also start to see the formulas kick in uh you know there's a bit of a delay in the formulas but we'll we'll get those kicking in next year so we are contemplating in our guidance that that will turn a bit in the fourth quarter, but I think with some pricing action, some of which we can do just on the basis of value contribution and some that's based on formula, and probably some mitigation of overall as we transition into 21. I think we feel like over the course of the year, it's very manageable. We may not have the tailwind that we had in 19 in the first three quarters, but I think we've got a lot of actions in place, including, you know, keeping that reinvent engine driving above inflation, which will help.

And to the first part of your question, Gancham, obviously watching the news and because we're directly connected also with our customers around the world, the announcement that just came out about France going into a shutdown. Um, we've been connected just like when this all started, if, you know, it seems like a long time ago, but it was just January when our team was talking about what was going on with China, with our facilities of how we put them into lockdown immediately. So we've heard what's going on around the world. Um, We are in crisis situation, crisis management, not only with our customers, with our people and our facilities. So how do we see that affecting our portfolio? We think it will be a little bit different when this first hit because what happened, if we look at the first quarter going into the second quarter, we built up inventory with our customers, and we did it simultaneously. So a little bit of what's even going on with the food business right now is burning some of that inventory off that we had, what they had, and working very, very closely together to make sure that we keep our production levels going with our customers. The shift in the portfolio is we got to look at that with what's going on with restaurants. Will they reopen? Will they not reopen? What's going on with our portfolio with, you know, whether it's the bags or whether it's our Darfresh? So we're looking at those very carefully with our customers to But we also think, again, on automation, we can be in there helping them deliver safely and supply the world. So don't have a perfect answer other than we're getting pretty used to how do we handle the crisis and stay connected. So we actually do think our very, very diverse portfolio will help us fight through this situation. And as early as the first quarter were our first challenges that we're trying to solve right now. Next question, please.

Our next question comes from the line of Adam Josephson with KeyBank. Your line is open. Please go ahead.

Thanks. Good morning, everyone. Hope you and your families are well. Jim, just a clarification on guidance. You mentioned you expected protective volumes to be up in the fourth quarter, albeit not to the same degree that they were up in 3Q. I don't think you commented on food volumes. I think you said food organic sales would be up, but I don't think you commented on volume. So bearing in mind they were down 2% in each of the past two quarters, can you talk about what your volume expectations are for the quarter, for the total company? Do you expect volume to be up or down? And then any preliminary thoughts on next year in that regard? Thank you.

Sure. Let me stick to this year first and maybe clarify a little bit of the guidance around the segment. So With food, as you mentioned, our volume was just shy of 2% down year over year. I do think as we transition into the fourth quarter, we expect that to still be down year over year very modestly. But overall, if you look at the full year, we do expect... constant dollar food to be, you know, up 1%. So a little bit of a drag in the back half of the year there. But, you know, consistent with the third quarter, probably a little bit better maybe. On protective, the protective growth assumption in the guidance is positive. We were up 4% in the third quarter. The guidance would imply a little bit less than that on a volume basis. And I think the thing we're a little bit cautious of there, even though the trends around e-commerce remain very robust, I think we're a little bit cautious about the economy in Europe in particular and maybe seeing a little bit of back off there in that region in particular. But overall, you know, we do expect favorable year-over-year volume growth in that segment as well. As we transition into next year, it's an open question. Obviously, we've got a lot to learn here over the next three months in terms of how the COVID environment will hopefully stabilize and we can get back to more normalized levels with food production growing and us beating the market. As Ted talked about earlier, the real headwind for us is And protective is still the industrials business, and it's improving. But hopefully we can get to the point where we can start to grow that part of the portfolio. And when we do, you're going to see the margins there really improve as well.

Next question, operator.

Our next question comes from the line of Phil Englund. Jeffrey, your line is open. Please go ahead.

Hey, guys. I'm curious on how you're thinking about the pace of recovery in your industrial business. Are you kind of envisioning this as a multi-year recovery? And I guess on a separate note, just given the strength you're seeing in e-comm and automation, I was just wondering do you have enough capacity to service that demand and your ability to kind of scale up that business on the protective side of things? Next slide.

Just what you said, the pace, was that – that didn't come through clear on the industrial pace of recovery?

Yeah.

Is that the question? Yeah.

Yes, the first part was the pace of recovery on the industrial side. I mean, the last downturn took a few years to kind of get back to previous levels, so I'm just trying to get a better handle on how you kind of envision your industrial business recovering, the pace of that recovery. And the second part is just the strength you're seeing in e-commerce mobility kind of scale up.

Good questions. The pace on the industrial, that downturn's been pretty dramatic. One of the largest segments of industrial that we look at as automotive. We thought we saw automotive coming back, but now we have a start and stop, and we keep talking about Europe again, where we have a really strong base with industrial, with, again, our Instapack. So seeing what's now happening and that potential slowdown again. We definitely think the industrial will come back. We've got to move our portfolio. If it doesn't come back, we've got to move the products to what is growing, again, really where we want to push this product line to be market-driven. So the second, can we keep up with the pace of the e-commerce? That's a great question because if you just go back a couple of years and where we were going with mailers, that is, you know, full... full force with our team and our supply chain and leveraging our plants around the world, you know, actually expanding our capacity and moving resources. So it's a good problem to have in the portfolio, but we're definitely, those products that are getting hit by e-commerce, we're moving our production to keep up with the pace. If you look again at slide four, just to give you an example, is we're, really moving the whole company to be an e-commerce company. And we're internally working on a plan to do that. Once you go online, you're no longer what region are you in. If you look at that example where you can see where we actually have our CoreView product now doing spirits, which is actually way up. Well, that was actually launched by one of our large freight forwarder companies, and they put it on the Internet. With us, side by side, well, the hits on that product line were showing up in Australia and now in the U.S. So we're moving the whole company to fully e-commerce. So we've got to be prepared to move when those markets that pull through comes. So great question. E-commerce is here. It's to stay. And we're moving our whole portfolio, our whole business, to be able to support that. So it's going to be some challenges, but those are the good challenges we're looking for, and we think we can handle that challenge to have the capacity ready to serve those markets. Okay. I think we have a chance for one more question, operator.

Our next question comes from the line of Jeff Zakoskis with J.P. Morgan. Your line is open. Please go ahead.

Thanks very much. In your product care business, I think last quarter you thought that the trends would improve but that the volume would still shrink in the third quarter, but organically it grew 4%. Is it possible to pinpoint why the growth was stronger than you expected?

I'm trying to think. All the product lines were up on e-commerce. The biggest ones that were up were Our bubble wrap on demand, more than we thought. The core view product line, way up, higher than expected. And I would say on the industrial side, we saw that not as bad as we're thinking, but I'm trying to think if – I don't want to admit that we didn't predict this, but we obviously didn't –

When we came out of the second quarter, this is Jim, we thought that we were looking at mid-single-digit declines in the back half of the year with industrials and high single-digit decline and the rest of the portfolio low single-digit. And as we mentioned, we were surprised to the upside on both of those. And I think... Really, you know, industrials coming off a real almost stop across the world in the second quarter really ramped up very nicely. And, you know, obviously we're well positioned with the products that we have. If the markets are moving, we're going to be there. And they move pretty fast, sequentially Q2 to Q3. And then the same thing on e-commerce. We just continue to see... a lot of the in-home buying, and, you know, our position is global. So as Ted, you know, talked about, you know, the supply side of this is pretty challenged, you know, when you're seeing that kind of demand run your way. So fortunately, with the global footprint, we were able to serve the needs of the market. But, you know, it didn't happen on its own. It was a tremendous effort. on the part of our supply chain team to make that happen. So I think we see it continuing, as I said, into the fourth quarter, especially in e-commerce. But I think, again, the pause we're taking is on industrials in Europe and maybe even a little bit on e-commerce in Europe.

Yeah, and just one, I had to look at the picture to, I guess, the most obvious thing that's exceeding our expectations, what's happening with our automated equipment. that the automation side, and, you know, we launched it. We went public on what our strategy is up double-digit, APS. And I recall I keep giving a shout-out to our APS team. That was up significantly in the quarter. And it makes sense. As more stuff is coming through e-commerce platforms, And how do we get those fulfillment centers? How do they pack quicker, faster, and safer? And now having a product line that can meet that demand, that one is probably the number one significant upside for the quarter, and we've got to do more of it going forward.

They're very capable to pivot from industrial to e-commerce to fuel that added growth. And to food.

We even had a good point. Carl's excellent comment, putting food into our automated packaging system. And we'll close on that as the message. There's more good things to come. I want to thank everybody for the call. That wraps it up for today. I hope everybody stays safe and look forward to connecting with everyone next quarter. Thank you, Operator. That's it for us today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.