Sealed Air Corporation

during our third quarter call. We will continue to focus on our core business and customers, restore underlying fundamentals, and position ourselves for accelerated growth in 2025 and beyond. I will now share some updates across our transformational initiatives. First, as we previously mentioned, we recognize the need to reallocate global resources back into our regions to enhance customer proximity and improve commercial effectiveness. As part of our reorganization efforts, we also determined that blending the protective and food commercial teams contributed to a loss of customer centricity and reduced commercial rigor. Consequently, we have reorganized our commercial teams by reestablishing food and protective operating units within each region and shifted global resources to our regional teams. This is an initial step in our broader transformation to improve our commercial execution and capture incremental market share as conditions improve. Second, with sustainability as an accelerating megatrend in both food and protective, now more than ever, innovation will play a critical role in driving outside market growth. To maximize our opportunity, we are shifting our innovation focus from the laboratory to the field. What does this mean? We have a strong material science research and development capability, but we need to take the next step forward by better leveraging the voice of the customer to help prioritize and shape our innovation pipeline. Making this shift combined with our scale will allow us to outpace our competition, ultimately improving time to market and the commercial success of our new products. Throughout 2024, we will be introducing new recycle-ready products at an accelerating rate, bringing to market full automation solutions within case-ready, and expanding applications within our fluids and liquids businesses. Moving to slide four, you can see a practical example of where sustainability pressures driven by new regulations and consumer preferences are driving an unprecedented shift in the protein trace market. In response, We recently introduced the first bio-based, industrially compostable tray for protein packaging. These trays provide comparable performance and stability to traditional expanded polystyrene trays, allowing us to gain share in an estimated $5 billion tray market while supporting our customers' sustainability goals. Next, we have continued our portfolio optimization efforts. investing in core growth products while deprioritizing those that no longer align with our strategic objectives. We have made a lot of progress in redefining the long-term strategy for our portfolio of solutions. In large part, getting back to see differentiated material science, automation, and service expertise. As our transformation takes hold and markets recover and financing environment improves, we will be in a much stronger position to take actions to drive further shareholder value. Meanwhile, our primary focus remains on making improvements we can drive regardless of the operating environment. Finally, our cost reduction initiatives within CTO2Grow are progressing as planned. In 2023, we drove actions culminating in an annual run rate savings largely in 2024 of $50 million up from $40 million at the end of the third quarter. As part of the effort, we have completed three planned closures in 2023 and are in the process of closing four additional sites as part of our footprint rationalization efforts with more sites under review. In addition, we are right-sizing our Argentina operation given recent regulatory and economic instability. With the actions we have driven so far, we are currently at a total of $65 million in annual run rate savings. Building upon this momentum, we are confident in our ability to achieve $90 million in year-over-year cost savings in 2024. Moving on to updates in our food and protective segments, we observed ongoing challenges in the food segment where volumes declined year-over-year. However, Sequential performance improved in Q4 due to increased holiday demand. The challenges we faced in the fourth quarter stem from multiple factors, including the rebuilding of the cattle herd in North America, shifts in the European protein production and consumption, and consumer trade-downs in retail food. The depressed cattle cycle coupled with higher interest rates negatively impacted our equipment business as customers scaled back their capital expenditures to preserve cash. We expect these trends to continue to 2024. For protective, 2023 was a turbulent year. Real industrial production contracted year over year in most advanced economies. High inflation and the subsequent drag on real income continued to squeeze household spending power and is reducing the demand for consumer goods. Additionally, sustainability and new business models like shipping your own container and buy online, pick up in store, continue to reshape e-commerce packaging choices and demand. Pricing pressures have intensified as competitors step up to address weak market demand. On a positive note, the destocking of downstream inventories is largely complete. Different from previously expected, while market indicators are signaling an improving 2024, we have not yet seen this translate into improving demand for our customers' businesses and subsequent restocking or uptake in volumes for our packaging solutions. While we do not see an immediate near-term market catalyst, we are anticipating a gradual recovery in our end market throughout 2024, with volume lift towards the end of the year and continuing into 2025. As our markets recover, our focus on innovation and sustainability, coupled with our CTO to grow and strategic commercial initiatives, gives us confidence in CEE's continued recovery. Now I'd like to turn it over to Dustin to review our financial results. Dustin?

Thank you, Emil, and good morning, everyone. Moving to the fourth quarter and full year results, let's turn to slide five. Net sales were $1.4 billion in the quarter, flat on a constant currency basis, and were $5.5 billion for the full year of 2023, down 1% at constant currency. Adjusted EBITDA on the quarter was $274 million, down 8% compared to last year. For the year, adjusted EBITDA was approximately 1.1 billion, down 9%. Volumes have improved sequentially in Q4 as holiday demand drove a low single-digit seasonality pickup. As reported, adjusted earnings per share in the quarter of 88 cents were down 11% compared to a year ago. Our adjusted tax rate was 18% compared to 26.1% in the same period last year, driven by one-time benefits due to the reversal of liabilities related to uncertain tax positions. We did not repurchase any shares in the quarter. Our weighted average diluted shares outstanding in the fourth quarter of 2023 was $144.9 million. For the year, adjusted earnings per share of $3.18 was down 22%, primarily driven by lower adjusted EBITDA and higher interest expense, partially offset by lower tax expense. Turning to slide six, in Q4, LocalBox contributed 5% to total company sales, or approximately $70 million, but was offset by lower pricing and protective and lower volume in both businesses. The volume declines were driven by continued market pressures and protective, lower automation sales, as well as continued weakness in food, retail, and markets. Fourth quarter adjusted EBITDA of $274 million, which included $15 million contribution from local box, decreased $23 million, or approximately 8%, compared to last year, with margins of 19.9%, down 120 basis points. This performance was mainly driven by lower volumes within both segments, offset by contributions from local box.

Moving to slide seven.

In the fourth quarter, food net sales of $893 million were down 3% on an organic basis, primarily due to the volume declines driven by lower automation sales as customers enforced tighter controls on capital expenditures and by continued weakness in retail demand. Food adjusted EBITDA of $195 million in the fourth quarter was down 3%, with margins at 21.8%, down 130 basis points compared to last year. The decrease in adjusted EBITDA was mainly driven by higher operating costs and lower volumes, partially offset by contributions from local box and favorable net price realization of $10 million. Protective fourth quarter net sales of $485 million were down 10% organically, driven by lower pricing and volume declines in Americas and EMEA from continued market pressures in the industrial fulfillment markets. Protective adjusted EBITDA of approximately $90 million was down 12% in the fourth quarter, with margins at 18.7%, down 50 basis points. The decrease in adjusted EBITDA was driven by unfavorable net price realization in lower volumes, partially offset by favorable productivity benefits. On slide 8, we review our fourth quarter net sales by segment and by region. In constant dollars, net sales were flat with 5% growth in food, mainly driven by the local box acquisition, while protective was down 10% due to weak in-market demand. By region, Asia-Pac grew 5% organically driven by a strong Australian cattle cycle. America's was down 6% due to lower automation sales, a weak U.S. cattle cycle, and lower pricing in protective. EMEA declined 11% on challenging market conditions across both segments and continued destocking within protective. In constant dollars, full year net sales were up 9% in food, while protective was down 15%. By region, we were up 3% in Asia-Pac, offset by declines of 2% in Americas and 1% in EMEA. Now let's turn to free cash flow and leverage on slide nine. Through the fourth quarter, excluding the impact of the payments and deposits related to the resolution of certain prior tax matters, free cash flow was $467 million compared to $376 million in the same period a year ago, representing an increase of 24% year-over-year. The primary driver of this improvement was significant inventory reduction, partially offset by lower earnings and higher interest costs. Since the peak in the second quarter of 2023, we have reduced total debt by approximately $280 million, exiting the year with a net leverage ratio of 3.9 times down from 4.1 times in the third quarter. Our total liquidity position was $1.3 billion, including $346 million in cash and the remaining amount in committed and fully undrawn revolvers. We will continue to focus on driving net debt to adjust EBITDA to below 3.5 times over the next two years. Let's turn to slide 10 to review our 2024 outlook. We expect an L-shaped recovery through 2024 and into 2025. As a result, we expect net sales to be in the range of 5.2 to 5.6 billion, which at the midpoint assumes a 2% decline in organic growth with flat volume growth offset by negative pricing. Portfolio exits represent half a percent lower volume in both segments. While the global protein end markets continue to be challenged, our food volume is expected to grow approximately 1%, driven by competitive wins in our core businesses, momentum in our fluids and liquids businesses, including LiquiBox, and our new product launches, offset by price declines of 2%. Our work on integration and operational momentum at LocalBox is taking hold, and we expect the business to continue to improve across 2024, further supported by a positive outlook for the food service and markets. We see a slower market recovery in protective than previously anticipated, with a full year volume decline of approximately 1%. Pricing pressures have increased. further reducing top line by 3% as the competitive landscape has intensified in a lower volume environment. Protective volumes are expected to recover toward the end of 2024 as our new commercial model gains traction and market dynamics improve. We expect full-year adjusted EBITDA to be in the range of $1.05 to $1.15 billion, which assumes adjusted EBITDA margin of approximately 20% at the midpoint. This outlook is lower than our soft guide provided during our Q3 earnings call, mainly driven by lower volume expectations. We anticipate continued softness in the first half of 2024 as volume reaches the trough and gradually improves as the market conditions and seasonality improve in the second half. We remain disciplined to drive the necessary cost actions to offset further volume weakness. The midpoint of our adjusted EBITDA guidance is in line with 2023. with $90 million year-over-year cost savings offsetting flattish overall volumes, negative net price realization, and restoring bonus pools. Full-year adjusted EPS is expected to be in the range of $2.65 to $3.05 per share. The lower 2024 adjusted EPS is largely driven by higher depreciation, interest and tax expense, with an assumed tax rate of 26% to 27%. We expect full year 2024 free cash flow in the range of $325 million to $425 million. At the midpoint, our free cash flow conversion as a percent of adjusted net earnings is expected to be 90%. We are assuming approximately $80 million in restructuring charges and approximately $20 million incremental cash interest payments offset by favorable working capital of roughly $30 million. Lastly, for the first quarter of 2024, we expect net sales and adjusted EBITDA to be ranged around 1.3 billion and 240 million, respectively, with earnings per share between 50 and 60 cents. Our ranges and outlook reflect the dynamic environment we continue to operate in. As we gain more visibility throughout the year, we will be able to adjust and update expectations accordingly. Turning to slide 11. We closed out the year in line with our expectations and remain committed to executing against or costing up the growth efforts. While our expectation for 2024 has reduced to a weaker and longer recovery period for our end markets, we are encouraged by the feedback from our customers and our distributors that the stocking is largely behind us and are more confident in a second half modest recovery in volumes. We are focused on driving a transformation at sea in 2024, improving commercial execution, and restoring business fundamentals. We expect 2025 to be the year we return to a normal growth trajectory and where our cost reduction operational excellence initiatives will position us well to return to adjust EBITDA growth in 2025 and beyond. Lastly, I'd like to close by thanking the Global C team who are at the center of our transformation for their efforts solving our customers' most critical packaging challenges day in and day out. With that, Emil and I look forward to your questions. Operator, we would like to begin the Q&A session.

Thank you. Ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again. As a reminder, given time constraints, please limit yourself to one question only. Please stand by while we compile the Q&A roster. Now, first question coming from the lineup. Bill Ng with Jefferies. The line is open.

Hey, guys. Dustin, did I hear you correctly? You're guiding to 240 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 is an element of it, and the shape of the year. Do you expect EBITDA to inflect positively by 1 to be helpful? And any color bisegments would be helpful in terms of the shape of the year.

Hey, Phil. This is Dustin speaking. Again, I appreciate the question on Q1. A couple of comments I would make. You know, one is you hit it nail on the head relative to volume, right? So volume in Q1 is going to be down a couple points, and that negative leverage is impacting the EBITDA for the quarter. That's being partially offset, you know, 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. So the expectation from here is that we're going to improve EBITDA sequentially, quarter to quarter to quarter, coming from the 240 that we mentioned for Q1. And then, obviously, when we get to roughly Q3 and Q4, going back to the MOS recoveries in the second half volumes, we'll see that inflection point begin, and it'll point towards EBITDA growth.

Thank you. And our next question, coming from the lineup, Grincham Punjabi from Bear Dealers is open.

Hi. Good morning, everyone. This is Matt Krieger sitting in for Ganshin this morning. So, you know, 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, you know, 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.

Matt, this is Dustin speaking. I'll kick it off. And again, 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, you know, have been trending, you know, slightly, you know, 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're kind of ahead of our own expectations. When you shift to protective, protective ended where we set expectations around mid-single digits. That's obviously a big improvement coming off of the prior three quarters that were in the teens up to almost 20% starting in Q1. 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 the Q4 of 23 versus 22 is that we saw that actual seasonal pickup in volumes in the fourth quarter. And so in both businesses, this is food and protective. Now, as you move into Q1, 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, you know, obviously embedded in the current guide that we have for Q1.

Thank you. And our next question coming from the lineup, George Tafis with Bank of America Securities. Your line is open.

Yeah. Hi. Good morning. This is actually Cashin Keeler sitting in for George. He's traveling for our conference. So, Dustin and Emil, you talked to it a little bit in your prepared remarks, but perhaps can you get a little bit more specific on what commercial and sales tactics you've changed in each segment since taking over and what the competitive response might have been in each business at this juncture?

Hi, good morning. Thank you for the question. This is Emil speaking. So, in terms of the commercial transformation that the we've undertaken and recently announced so you know we recognize that in the old structure that we had combining both food and protective commercial teams that really contributed to a loss of customer centricity and reduced our commercial rigor so so to solve this we've recently announced that we've reorganized our commercial teams within food and protective operating units within each region now these units are not just sales units But they're units combined with sales, marketing, and dedicated support functions, including R&D representation, finance, and operation. The other pieces that we talked about in terms of our plans and that we've now implemented is the old structure really had shifted the resources from the regions into the global centers. And really, that put the voice of the customer even further away from the decision-making process. So as part of this reorg that we've announced, we've reallocated those resources from the global teams back to these operating units. So inherently, the new design is better in terms of us being faster in the market, in terms of being closer to the customers. But just as important around that, we're driving the whole culture and the culture of discipline and performance in terms to better execute in the marketplace. And to support that, we've realigned the incentives of everybody to be more localized, closer to the markets, as well as in terms of our global goal alignment.

And the only two points I'll add on to what Emil said, which was, is really, if you go back to the why, the why in terms of both food and protective is that those end markets and those customers are very different in terms of needs from a packaging solution, service, you know, capability, right? So that one is recognizing that those are two very unique segments in markets, customers, et cetera, is one of the primary, you know, kind of motivations in terms of making that overall decision.

Thank you. And our next question coming from the line of Jeb Sakakos from J.P. Morgan. Your line is open.

Thanks very much. Can you talk about how your industrial packaging business did in 2023 and how it's beginning the year in 2024? And can you talk about what your expectation for automation volumes are this year? And then lastly, in your compostable product that you feature in your slides, it has 54% bio-based content. What's the other 46%? Okay.

So I'm going to start with the overall industrial question, right? So if you think about 2023, and I think one of the comments that Emil, this is Dustin speaking, by the way, one of the comments that Emil made, which is really important, is around, you know, the fact that if you really look at PMI, or you look at PMI equivalent across most of our overall you know, advanced economies, right? What you see is a contraction, right, in industrial activity. And as a result of that, our businesses, our industrial packaging, think of this as like Instapack and, you know, industrial inflatables and so on and so forth, perform poorly. And you're looking at, if you look at overall, you know, impact for 2023, you're looking at volumes that were down in the low teens, right? And so, and then it kind of in line with what's your expectation in terms of double digit for that kind of contraction you would have seen in industrials. An encouraging sign is kind of coming into 2024 is that it's beginning to point towards growth. It's modest growth in 24 relative to industrials, but it is growth. It is more second half weighted. And we've seen those businesses already begin to perform better. And if you look at even Q4, it's embedded in that number, which is mid single digit decline in volumes in the fourth quarter. You're seeing it open up well in the first quarter and continuing. So we see it as optimism in terms of showing signs of stabilization. As we said earlier, there are signals, right, relative to, you know, signals that are more positive for the year, but they haven't translated yet, largely because we think it will take time to work through the system in the first half, and then we'll begin to reflect, you know, more importantly in the second half.

Let me maybe jump in, Dustin, on some of these other points on the biobased, right? Sure. So, as you mentioned, we've We've recently introduced the new bio-based tray. And really, this is around addressing the market needs that is moving away from expanded polystyrene. And as you mentioned, 54% of the tray is from cellulose renewable sources. And the other portion of the polymers are acetic acid and other processing aids. So really, in terms of the tray, it's not only the sources of it that are renewable, but the fact that it's industrially compostable certified, so it can go into the industrial recycling streams and fully decompose into those natural components. And I just want to add a point on the automation piece in terms of where that's headed. So despite the external uncertainties in terms of our customers being slow in terms of triggering a new capex span based on the inflation, the interest rate environments, as well as muted end markets, we do forecast it to be flat year on year. And as part of that, we've also expanding our offerings. So automation is still a critical part of our total solution sales. So we've signed recently some partnership agreements in the protective space to complement our box right-sizing capability. And we are actually going commercial, and we have orders of those based on that new partnership in the Asia-Pacific region. And we just recently signed the IPPE show, a new partnership in terms of expanding our automation capabilities in our consumer-ready space. So we'll be announcing that publicly soon. And again, so automation continues to be a big part of our capabilities. We're all about total solutions and materials equipment as well as service. And we're expanding and filling the portfolio gaps that we have with those external partnerships.

And Bill, another final point on that question, I'll just say that as a reminder, we kind of closed the year out around $500 million, half a billion in automation sales in 2023, which is a peak for us. And to Mill's point, we expect to be flat next year, despite the challenge.

Thank you. And our next question coming from the lineup, Anthony from Citi.

Good morning. Looking at the 24 guidance, can you just help us quantify the impact to EBITDA from lower net pricing for the year? I think you talked about that on the bridge, but I just want to make sure I got that right. And then when you think about pricing potentially stabilizing maybe in the back half of the year, I mean, is that just a function of volume recovery, volume stabilization, or is there sort of anything else going on in the market or what you're doing internally that you would expect to help out?

Yeah, absolutely. So, great question. This is Dustin speaking. So, a couple comments I would make. If you think about net price realization for fiscal year 2024, we're expecting it in the neighborhood of about down $60 million. So if you put that in the context of a flat EBITDA guide year over year, really it is this $90 million or so of cost takeout benefits that we're driving offset by a negative net price realization of $60 million and an additional, you know, and then this restoration of our overall bonus pools. And so that kind of is what net net gets you back to a flat guide. And so the only other piece in just terms of the price component, if you break down that price realization, just to give you some of the specifics, it's really a net negative of about 120 million being offset by an equivalent of benefits and direct materials. And then if you think about a net down on kind of labor, inflation on labor and non-labor, which you will notice is more muted in the past, which we do see continuing to normalize kind of out of post-COVID because it was at a historic high in 2024, or excuse me, 2023. Then if you think about the pricing environment in general, you know, if you think about last year, there's like three components in our pricing that are affecting us. One is concessions that were given last year as part of contract rules, et cetera, that we talked about in terms of, you know, putting a big piece of our business underneath that we renewed. The other piece was formula pricing, because if you think about in the second half of 23, a lot of resident costs came down. So formula pricing, as a reminder, that tracks with you know, indices, you know, began to kind of come into effect at the beginning of really of 2024. And then the third piece is obviously just the pricing environment. That's if you decompose that 120. And if you think about the second half, that's where we, you know, there may be areas of opportunity, because right now, if you look at it, your resident prices have kind of stabilized, and we see them maybe slightly inflationary in the second half. And this is, when I say inflationary, I mean sequentially as you move throughout the year. you know, still obviously net down from 2020, you know, 2023.

Thank you. And our next question coming from the line of Matt Roberts with Raymond James.

Your line is open. Hi. Good morning. Discuss the new product focus. So could you maybe quantify a little bit? What type of addressable market do you think these new products represent? In which segments are they prioritized? And in that regard, how much of this is a new opportunity versus substitution of some of your existing sales? Thanks for taking the question.

All right, Matt, yeah, great question, and I appreciate you raising it. So I'll go ahead and start, and then Emil will follow on. If you go back to kind of the prepared remarks we talked about in the prior questions where we talked about the compostable tray, and that for us is, you know, if you go back a number of years, we used to actually produce trays. And over the past couple years, we haven't. And, you know, we sell them as part of a package solution when we think about, you know, think of our overwrap film, the tray, as well as the equipment. You think about those three pieces of the solution. Think of it as a poultry application. And so we're actually, for us to go back into the trade business, which is really what this is in terms of compostable trays, our step back into manufacturing it, that overall addressable market is about $5 billion. And what's really exciting about it is it's not just that we're entering a market, because if you think about that market overall, it's a relatively low growth in market. But it's going through an unprecedented shift, right, where you're seeing, you know, whether it's consumer preference, very similar to fiber and protective. It's that same shift in the protein trade market where consumers prefer to move out of expanded polystyrene. And as well as the market in terms of regulations are coming to effect, which you've already seen in a number of states in the United States as well, across Europe, et cetera, which is presenting this opportunity where you need to have a new alternative. relative to that. So this is a great opportunity there to take a big share in that market and we're heavily invested in it. And then I'll let Emil kind of jump on to some of the other areas that we're focused on.

Yeah, thank you for the question and again give us a chance to talk about some of these growth areas across multiple segments. So let me hit kind of through some of the key areas. So on protective, a couple of areas. I did mention that new partnership in terms of expanding our capabilities and portfolio gaps around 3D box right-sizing. So again, that is commercial. We have our first orders and we have a pipeline. Two is it will be small impact this year, but we did mention in our past call that we were slow in terms of the shift of the market in protective to fiber. We are introducing, again, it will be small impact this year, but on the auto bag, in our auto bag segment, we are introducing a paper auto bag solution, as well as driving some more sustainability pieces around high recycled content in our protective businesses. Let me talk about fluids, because that didn't come up so far. So fluid is actually a key part of our growth this year, both in our cryovac fluids business, as well as on liquid box. So again, on our traditional cryovac liquids, we continue to drive penetration around a flex prep solution. And beyond that, we are introducing later this year further expansion of that capability attacking the rigid squeeze bottle market and we'll be bringing that to an initial customer later on this year on the protein side Dustin and I mentioned the compostable tray we have launched based on customer voice of the customer new capabilities around our chill tunnels which are in markets right now and there also we are producing a whole host of second-generation, recycle-ready, flexible materials across the markets where our customers demand them. Now, finally, maybe just the other piece, tagging in on the innovation question and back into the trade. If you think about our trade launch beyond that, it's a great product responding to the market. In terms of how we did it, we did it in a record time. It was really in terms of how we partnered strongly on that innovation together with our critical partners, both on the supply side and the customer side. And this is when we talk about our commercial transformation and how do we drive that capability to accelerate our innovations. This is really the model we're trying to reapply. It's not doing innovations internally and then going out there trying to sell them. It's really bringing in those customers in, those early adopters, and partner with them and our supply base to get to the market faster with more relevant innovations that will drive commercial success.

Thank you. And our next question coming from the lineup, Edlan Rodriguez from Mizuho Group, Yolanda Sopin.

Thank you. Good morning, everyone.

So as you look past 2024 and into 2025, How do you see the volume power of the portfolio? If you no longer have this stocking going on and demand is gradually picking up, what does volume look like on a normalized basis in 2025, 2026? It's a great question.

I'll make a couple comments. Going back to the prepared remarks, this is Dustin speaking, by the way. One is Look, we still continue to operate in a very limited visibility environment, right? Our guidance reflects that. And some of the progression of the next two, you know, kind of two halves reflect that. So the reason I say that is just take that into account. Because one of the expectations, too, once we get to a place where demand picks back up, there is an opportunity potentially for some restocking, right, which will also create an outside, at least even if it's transitory, uptick in overall volume. But if you think about a normalized basis, if you think about the end markets we serve, and I'll break it down into three categories when I give this perspective. One is in our food markets, on a normalized basis, i.e., you're not winning more business than you're losing. Think of it as a net churn perspective. You're looking at low single-digit volume growth, right? And so your opportunity set in that, if you're performing well commercially, is GDP plus, right? Very similar if you look at protective. I put it in that same kind of category, slightly ahead of food, but again, you know, low single digit volume growth. Now in our fluids and liquids business, It's different in the sense, very similar to the comments we made about trades, where you have an opportunity for mid-single-digit, high-single-digit growth because you are shifting other applications into that particular space. It's not just underlying demand, because those markets are also very similar in terms of the end markets, in the worst food service would be low single-digit growth. But because you're disintermediating rigids and converting them into flexibles, you can see an uptick that will be there for quite some time as that market continues to shift into the fluids and liquids space.

Thank you. And our next question coming from the lineup, Kurt Woodward with UPS.

Yeah, thank you. Good morning. I was hoping you could unpack a little bit more of, I guess, some of the structural dynamics at play in fulfillment. You talked about fiber taking share as well as, you know, companies seeking more optimization of pack type or changing the way they're kind of going to market. Is that Yeah, how structural do you view some of those trends? And then what's your opportunity to maybe pivot more into fiber-based solution?

So I'll start with some of the market trends, and then I'll have Emil kind of jump on to some of the other fiber-based pieces from a portfolio perspective. So if you start with a trend, there's really, you know, there's an obvious, and when I speak about this, I'm speaking really, which is a portion of the protective overall, which really serves that fulfillment, you know, kind of e-commerce and markets, right? Because industrials behave, you know, very differently. It's actually quite unique in 2023 that they both behave very similarly. So when you think about, you know, kind of fulfillment e-commerce is really, you know, a very huge positive up and then a net down, right? And the net down is the items we mentioned, which is, If you think about overall e-commerce, it continues to, you know, it's kind of back on its normalized growth trajectory, right? So it went through a transitory phase during COVID where it picked up dramatically, fell back in line with historic growth rates, but it's still, you know, continuing to grow in this kind of mid-single digit, high single digit, you know, kind of structural growth rate that continues to move, right, which obviously drives, you know, more consumption around our packaging solutions, right? If you think about void fill, right, the air pillows that go into the box, if you think about whether it's flexibles and or fiber-based solutions, if you think about mailers and so on and so forth. Now, what comes off that growth rate, right, is the shift to fiber, which we have not done a great job of capturing in the past that we're looking to accelerate and make sure that we participate, you know, in the marketplace going forward. And the second piece, which is shipping on container, and, you know, kind of buy now and then pick up at the store. And so both those pieces net it down, but we still see it as a low single-digit growth once you net that down, right? And so that's the opportunity set in it, within it, with the exception of the moves that we need to make in the fiber place to make sure we participate.

Go ahead, Emil. Yeah, and I'll just add a couple of pieces to that. So obviously, you know, fiber is one piece of it, right? And we are late to the game, but we are introducing there both in terms of the mailer with our paper bubble mailer on our autobag platform, which is a great platform because not only it addresses the shipping needs, but also the automation benefits. And there we're just coming out with our first generation of paper autobag. But also in terms of addressing the sustainability trends, we are launching our high recycled content for void fill as well as for cushioning solutions. And we have in our But these are early in our R&D pipeline in terms of new paper forming capabilities that we are trying to develop. On the automation side, so that's why I mentioned our partnership there around the box right-sizing. So today we have a 2D box right-sizing capability in our B-plus platform. And we signed there a partnership to expand the capability to bring in that 3D right-sizing piece. So again, depending on the customer and the markets, there are different needs there, and we are actively working to address them, either through recycled content, recyclability, as well as further accelerating our capabilities in fiber and automation.

Thank you. And our next question coming from the line of Michael Moxlin with Truist Securities. Your line is open.

Thank you, Dustin, Emile, Brian, and Louise for taking my questions. Congrats on a nice finish to the year. Thank you. My question is, can you talk about the competitive advantage you have in protein and why your peers may not be able to compete as effectively as you can? Is it due to equipment? Is it due to service? Is it only in roll stock where there's less differentiation, or are there other parts of the business, too, where you have more competitiveness relative to your peers? Thank you.

Hey, Max. This is Dustin speaking. I'm going to start off, and I'll give Emil an opportunity to jump in. But first, thank you for the comment on finishing the year. Jumping into your question, the heart of it, which is what is our competitive differentiation within the protein space? you actually nailed two legs to the stool already, right? So if you think about those three legs, it really is, it starts with differentiation in materials, right? So we do, we still believe we're best in class relative to competition in terms of our differentiated material science and our ability to produce those films that help, you know, increase the shelf stability of the proteins that they're packaged in. The second piece, which you mentioned already, is the automation capability, right? And then the third is service. And it's really those three aspects that are best in class each on their own, but then when they come together, they really truly create that differentiated solution set that really puts a competitive moat around that particular business. Now, when I say that business, I'm really specifically talking about in a lot of ways fresh red meat. If you think about other applications, whether it's poultry and so on and so forth, and think about it as going back to roll stock, whether it's film, overwrap film, or if you think about different roll stock applications, We are working to continue to build those three legs of the stool. What Emil alluded to in a prior conversation, which is we're working to build that complete solution set. And one of the differentiated approaches that we're taking, he alluded to it with the partnerships and even in protective in the 3D box right-sizing, as well as you think about the solutions in roll stock, is that in the past, we haven't had that full solution where, in an example, when you did a sale, an equipment manufacturer may be coming in and bringing the thermoformer or whatever type of roll stock type equipment, and then we're bringing in the materials, and someone's particularly bringing the service. We are now building those partnerships, which is great because it's an asset-light approach from a capital allocations perspective to build those solutions and going to market with those three legs of the stool in other areas. So we're replicating the strength of what we already have in our street bag business in other areas of the portfolio.

Yeah, and you said it very well, Dustin, just complementing to that. So again, on the road stock side, we were playing in the consumer-ready space in a niche area in terms of those very high value added, and we were only selling the materials science space. So again, there in terms of going after that market, which is a much larger market than today we play in, is about bringing more materials innovation, again, The compostable tray is one example. So two is those equipment partnerships so that we can leverage the equipment, but also our services in there. And then certainly a piece, you know, we haven't talked about because again, it will not have much impact yet in 2024 is the work we're doing on the digital printing side for consumer ready. We are still ahead of the game in terms of what the capability is in the market in terms of introducing high-speed economical digital printing capability to the consumer-ready market. But that's going to be more of an end-of-24, end-of-25 impact.

Thank you. And our next question, coming from the line-up, Lawrence Demaria from Real Employer, you let us open.

Thanks, Kimoni, everybody. I know you discussed some of these things, but I wanted to just dial down on, you know, where are we really with on e-commerce side on paper mailers and the ability to drive some more specifically with e-commerce? And secondly, you know, there's a lot of pressure with Amazon and Walmart to reduce void fill. I know you have some automation there. Is there any traction with that automation or is that more, you know, later 24, 25? Can you just talk about some of the commercial opportunities in those specific lanes? Thank you.

Hey, Larry. This is Dustin speaking. So, a couple things. You know, we discussed last year in 2023 that, you know, we began to really step into kind of bringing paper mailers to market, right? And one of the things that if you think about 2023 is, in a lot of ways, there's introduction of some of our fiber solutions. And if you think about 24, it's about scaling, right? And what I mean by that is that, you know, even if you say, hey, I have paper mailers, it's not just It's the combination of the equipment, it's the combination in terms of how many different sizes, how well you can print on it. And so those aspects of it we're beginning to bring up in a more scaled up way in 2024. However, it's still a small part of our overall portfolio, right? So having a meaningful impact to the business is really, if you think about it, in 25 and 26, relative to be able to do that. Now, on the flip side, as Emil related to the partnership in 3D box rightsizing some of the automation opportunities, We see those as opportunities, whether it's big boxes like you talked about, Walmart. We are seeing traction in that space. It's still performing quite well. The backlog in that business is still strong relative to where we're at in terms of equipment that we deliver. So it's a bright spot in the automation portfolio that customers are still buying, I would say, despite some of the capital constraints. Part of it is the cost of solution, where some of our solutions that are obviously that capital constraint goes up as you tend to buy higher pieces of equipment. And so that's

Let me give you some of the detail there.

Thank you. Now, next question coming from the line of Adam Samuelson with Goldman Sachs. Your line is open.

Yes, thank you. Good morning, everyone. So I guess my question, I think, Dustin, in your prepared remarks, you alluded to about 50 basis points of lower volumes in each segment related to product exits. We're just hoping for a little bit more context on that And I guess specifically in protective, where you're seeing some different substrate shifts that are moving, you've been maybe a little slower to adapt to, and you're also seeing more pricing pressure in pockets of that portfolio. As we sit here today, I know the company's been taking a closer look at this. How would you size the protective portfolio and the proportion of the business that you really think is seen more commoditization over the last couple of years and maybe has more diminished growth prospects than it would have five years ago or pre-COVID.

Great question. Can you go back to just the first part of the question, that piece that didn't come through clearly?

Sure. Just any color on the product line exits that you think talk about 50 basis points in each segment. impacting volumes, just any clarity on that, what you're actually moving out of?

Yeah, absolutely. So, you know, a lot of this, I'm really glad you raised that question because a lot of it relates to things that we've already announced, right? So we talked about the exit of our chemothermal system you know, temperature assurance business in 2023, right? Just as a reminder, those are those refrigerated kind of panels that would be used to keep refrigeration around things like COVID vaccines. That business performed very well during COVID and then trailed off, you know, post-COVID. And so we exited that business. So it's having a follow-on impact from a volume perspective because a lot of these businesses exited towards the end of 2023 or candidly even in the beginning. So that's the first one to protect it that's by far having the biggest impact. The second piece in protective is there's some other, you know, some other reductions that we have, you know, smaller pieces that we're trimming relative to our IFSs, our fabrication business that we have. A little piece of this in the EMEA region right now that we're trimming back on. It's not a whole scale in terms of different areas, but very regionally specific and where some of the solutions we've seen what we see to be a permanent drop off in demand. Then if you shift to our overall food business, the first piece is it takes back to the plant-based roll stock that we talked about exiting during Q3. That business really is beginning to at this point in time, really. So once we announced it, you begin the ramp down. That ramp down is really concluding now at the beginning of kind of right now around January, February. And you're seeing now the impact full year to food volumes as a result of that. And the only other piece that we really discussed today for the first time You know, it's our overall Argentinian business today. And thinking about it, you're looking at, you know, it's kind of low, you know, kind of low double digits relative to revenue impact there, relative to specific pieces related to business that we're importing into Argentina that due to some of the effects issues as well as economic instability, it doesn't make sense at this point in time to continue to pursue that business that we're exiting going forward. And that primarily impacts food. And then going back to your point about protective in terms of commoditization, if you think about it, we've talked consistently around this 30 to 40% of the overall portfolio. Where are you seeing pricing pressure? It's what we call our utility business. And you think about lightweight foam, if you think about bubble wrap, so on and so forth, that's where you're seeing the most pricing pressure. And going back to your question about substrate transfer, it really goes back to some of the prior questions that we had. And where you're seeing it most predominantly is and void fill, right? So you think of it as the air pillows continuing to shift into paper, which is also being disintermediated by shipping in own container, right? So the removal of all secondary packaging and shipping in just primary packaging, right? And then the second is, even when you don't have a box that's an overwrap, that secondary packaging becomes a mailer, and there's a big shift, obviously, from flexibles or hybrids into pure fiber-based mailers, right? And those are the two areas that we're, we have paper systems today that compete directly, as an example, with the RAMPAC, and then on the void-filled side, and then on the paper-mailer side, as we talked about earlier, you know, really, we have, you know, products in market, but it's about scale, right, in terms of how broad that offering set is and how many different businesses you can actually work with and that our solutions can actually fit within those business models. And again, 2024, 2023 is a year of introductions, and 2024 is a year of scaling in those particular areas.

Thank you. And our next question, coming from the lineup, Arun Viswanathan from RBC Capital. Marcus, your line is open.

Great. Thanks for taking my question. Congrats on finishing the 2023 year. Yeah, just following up on that last point, you know, I guess I can appreciate that you are pursuing the fiber-based solutions and the compostable tray now. You know, we did see a little bit of a reduction on the automation side. So I guess, you know, another way to think about the volume growth opportunity is exiting these businesses that continue to be a drag. If you look over the last couple of years, you've had kind of minus 20% volumes when you stacked the last couple of years in protective. So, you know, with these product exits, would you say that you've somehow or at least addressed maybe the larger pieces of those volume drags? Or is there more to do there? And is there, you know, any timeline on maybe, you know, exiting some of those, you know, lingering negative headwinds? Thanks. Sure.

I appreciate the question and recognize the point that you're making in terms of multi-stacking protective and seeing it net down. We fully recognize where that business is at, but I'll reiterate one point, which is that you're kind of coming, a lot of that's obviously declined and really has happened over the past, think of it as 18 months in terms of where you've seen a hard step down in that whole portfolio holistically. And part of what we're seeing today, if you look at Q4, is a positive sign, right? You've seen those volumes wrapping, beginning to stabilize, and you're down mid-single digits. And so a lot of what we're doing across this year is, you know, we mentioned kind of, you go back to Emile's remarks is that we've kind of recognized those areas of portfolio that we do longer term that we say don't necessarily fit with strategically. Do we have pieces a day still within that portfolio? Absolutely. Right. But right now is not the time to take action on those businesses. So what we're focused on, because there's a couple of things as we go up this year, they'll become more clear. One is, you know, we feel like we're hitting a trough. We're coming out of the cycle. We'll have a better understanding how those businesses are going to perform longer term, right? And then as Emil mentioned in the comments, right, the financing markets improved. Outlook improves holistically, and then we'll better understand this fundamentals in this business as time goes on, and we'll continue to reevaluate that. But with that said, right now, if you take that and put it to the side, our primary focus, going back to the main part of the content today, was around really what we're doing to transform that business, because there's another element of if we are more commercially effective, what does that do from a performance standpoint? And so there's a lot of focus and energy going into that right now in terms of our overall transformation.

Thank you. And our next question coming from the line of Gabe Hutchison from Wells Fargo, your line is open.

Neil, Dustin, thanks. Uh, try to be brief here. The, the protective L shape recovery and maybe a little bit worse than what you were expecting. Um, can you kind of bifurcate for us between market related and competitive landscape? I know it's sort of tough. And then, um, I guess key learnings that you've had thus far in evaluating, you alluded to it here in the last question, but just, you know, reviewing some parts of the portfolio and strategic optionality there. It sounds like timeline may be pushed out a little bit, but still a lot of work being done. I just want to make sure we're clear there. And then reinstituting the incentive compensation. I think it's 30 million that you talked about. Is it more pronounced in any specific quarter? Just curious if that's depressing Q1 at all. relative to the rest of the year. Thank you.

Gabe, I just missed the first part of that question. If you don't mind, if you can come back to the first part.

You talked about an L-shaped recovery in protective, and I'm just curious if you can ascribe, you know, more of that weakness to market conditions or, you know, a more intensive competitive landscape more recently.

Yeah, no, understood. And great question. What I would tell you is, kind of was going into the, so I go back to the positive note, right? Q4 came into that mid single digit range relative to volume. But again, when we talked about it, we're optimistic that we'd have even a stronger seasonality in terms of a quarter, which is really a good indication of how you're going to come out the year. So From our perspective, it doesn't seem from a competitive dynamics in the sense of customers you're able to win in the marketplace, turn that you're having in the business. We see that, obviously, if you go back to the past two years, there was a step up, but you've seen that normalized out kind of even across 2023. So if you look at the business in protective, it's somewhat sequentially trended along in 2023 and was wrapping around and showing, obviously, very negative comps, going back with Q1 being down almost 20%, and then kind of mid-teens for Q2 and Q3, now mid-single digits. Holistically, we feel very good about, you know, kind of coming out the gate, right, relative to, you know, in terms of our overall profit. But if Q4 was stronger, it would have pointed towards a much stronger kind of full-year guide. And that's really where, you know, and then candidly, we're also just being cautious because we're operating in a limited visibility environment. So that's point number one. Going to your question around The next point around the overall executive kind of our bonus pools and the restoration of those bonus pools, obviously we had a very challenging year in 2023. As you can imagine, our incentive compensation came down as a result of that. Now, as you think about this year and executing against our plan, in terms of where that pronouncement is, it's more of an impact to the overall second half than in terms of first half, right? In the sense that if you look at 2023, the second half benefited more from that reduction in compensation pools because as you went through 23, as we all know, our guidance came down, we missed our internal plan, and that was more pronounced in the second half than it was in the first half, right? So you have a bigger hill to climb as you go throughout this year. And then on your last point around in terms of portfolio optimization, there's nothing really further additive to say than yes, you know, to your point, there's still a lot of work going on, but really now it's not the right time. And so what do you do? We don't want that to necessarily be a distraction relative to, so that work is progressing, but we're really focused on, again, going back to that commercial transformation, restoring underlying fundamentals, right, and improving underlying business performance.

okay and with that we're on top of the hour and uh would like to thank everyone for their time today we are excited about the opportunities ahead for sea and we look forward to updating you on the progress of our transformation when we speak together in may thank you ladies and gentlemen that doesn't call conference for today thank you for your participation you may now disconnect you Thank you. Thank you.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Sealed Airport Quarter 2023 Earnings Conference Call. At this time, all participants are on the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Brian Sullivan, Head of Investor Relations. Please go ahead.

Thank you and good morning, everyone. With me today are Emil Shamas, Interim Co-CEO and COO, as well as Dustin Simak, Interim Co-CEO and CFO. Before we begin our call, I would like to note that we have provided a slide presentation to supplement the call. Please visit sealedair.com, where today's webcast and presentation can be downloaded from our investor relations page. Statements made during this call stating management's outlook or estimates for future periods are 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, filed or to be filed with the SEC, and as revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K. we discussed financial measures that do not conform to US GAAP. You will find important information on our use of these measures and their reconciliation to US GAAP in our earnings release. Included in the appendix of today's presentation, you'll find US GAAP financial results that correspond to the non-US GAAP measures we referenced throughout the presentation. I'll now turn the call over to Emil and Dustin. Operator, please turn to slide three. Emil?

Thank you, Brian. And thank you for joining our fourth quarter and year-end earnings call. Today, Dustin and I will review SEAS financial performance, provide updates on the markets we serve, discuss relevant trends, and highlight the significant progress made on the transformational actions discussed on our previous call. Lastly, we will conclude with our 2024 outlook before opening the call for questions. We closed the quarter with sales of $1.4 billion, and delivered $274 million in adjusted EBITDA in line with our expectations. Our fourth quarter results reflected the continued impact of challenging protein cycles and trade downs in our food business, as well as a muted fourth quarter seasonal pickup in our protective segment. For the full year, we finished with $5.5 billion in sales and $1.1 billion of adjusted EBITDA, slightly above the midpoint of our guidance. Through the laser-focused efforts of our global team, excluding payments and deposits related to the resolution of certain prior year's tax matters, we delivered $467 million of free cash flow, well above our guided estimate. Dustin will provide a more comprehensive overview of our financial performance shortly. Now, let us move on to our 2024 market and business update. While our end markets in 2024 should be better than 2023, we expect at best an L-shaped recovery with no near-term growth catalyst. We are continuing the transformational actions that we detailed during our third quarter call. We will continue to focus on our core business and customers, restore underlying fundamentals, and position ourselves for accelerated growth in 2025 and beyond. I will now share some updates across our transformational initiatives. First, as we previously mentioned, we recognize the need to reallocate global resources back into our regions to enhance customer proximity and improve commercial effectiveness. As part of our reorganization efforts, we also determined that blending the protective and food commercial teams contributed to a loss of customer centricity and reduced commercial rigor. Consequently, We have reorganized our commercial teams by reestablishing food and protective operating units within each region and shifted global resources to our regional teams. This is an initial step in our broader transformation to improve our commercial executions and capture incremental market share as conditions improve. Second, with sustainability as an accelerating mega trend in both food and protective, now more than ever, innovation will play a critical role in driving outsized market growth. To maximize our opportunity, we are shifting our innovation focus from the laboratory to the field. What does this mean? We have a strong material science research and development capability, but we need to take the next step forward by better leveraging the voice of the customer to help prioritize and shape our innovation pipelines. Making the shift combined with our scale will allow us to outpace our competition, ultimately improving time to market and the commercial success of our new products. Throughout 2024, we will be introducing new recycle ready products at an accelerating rate, bringing to market full automation solutions within case ready and expanding applications within our fluids and liquids businesses. Moving to slide four, You can see a practical example of where sustainability pressures driven by new regulations and consumer preferences are driving an unprecedented shift in the protein trays market. In response, we recently introduced the first bio-based, industrially compostable tray for protein packaging. These trays provide comparable performance and stability to traditional expanded polystyrene trays allowing us to gain share in an estimated $5 billion trade market while supporting our customer sustainability goals. Next, we have continued our portfolio optimization efforts, investing in core growth products while deprioritizing those that no longer align with our strategic objectives. We have made a lot of progress in redefining the long-term strategy for our portfolio of solutions, large part getting back to see differentiated material science automation and service expertise as our transformation takes hold and markets recover and financing environment improves we will be in a much stronger position to take actions to drive further shareholder value meanwhile our primary focus remains on making improvements we can drive regardless of the operating environment finally Our cost reduction initiatives within CTO to Grow are progressing as planned. In 2023, we drove actions culminating in an annual run rate savings largely in 2024 of $50 million, up from $40 million at the end of the third quarter. As part of the effort, we have completed three plant closures in 2023 and are in the process of closing four additional sites as part of our footprint rationalization efforts with more sites under review. In addition, we are right-sizing our Argentina operation given recent regulatory and economic instability. With the actions we have driven so far, we are currently at a total of $65 million in annual run rate savings. Building upon this momentum, we are confident in our ability to achieve $90 million in year-over-year cost savings in 2024. Moving on to updates in our food and protective segments, we observed ongoing challenges in the food segment where volumes declined year over year. However, sequential performance improved in Q4 due to increased holiday demand. The challenges we faced in the fourth quarter stem from multiple factors, including the rebuilding of the cattle herd in North America, shifts in the European protein production and consumption, and consumer trade downs in retail food. The depressed cattle cycle coupled with higher interest rates negatively impacted our equipment business as customers scale back their capital expenditures to preserve cash. We expect these trends to continue to 2024. For protective, 2023 was a turbulent year. Real industrial production contracted year over year in most advanced economies. High inflation and the subsequent drag on real income continued to squeeze household spending power and is reducing the demand for consumer goods. Additionally, Sustainability and new business models, like shipping your own container and buy online, pick up in store, continue to reshape e-commerce packaging choices and demand. Pricing pressures have intensified as competitors step up to address weak market demand. On a positive note, the destocking of downstream inventories is largely complete. Different from previously expected, While market indicators are signaling an improving 2024, we have not yet seen this translate into improving demand for our customers' businesses and subsequent restocking or uptake in volumes for our packaging solutions. While we do not see an immediate near-term market catalyst, we are anticipating a gradual recovery in our end markets throughout 2024, with volume lift towards the end of the year and continuing into 2025. As our markets recover, Our focus on innovation and sustainability, coupled with our CTO to grow in strategic commercial initiatives, gives us confidence and sees continued recovery. Now, I'd like to turn it over to Dustin to review our financial results. Dustin?

Thank you, Emil, and good morning, everyone. Moving to the fourth quarter and full year results, let's turn to slide five. Net sales were $1.4 billion in the quarter, flat on a constant currency basis, and were $5.5 billion for the full year of 2023, down 1% at constant currency. Adjusted EBITDA in the quarter was $274 million, down 8% compared to last year. For the year, adjusted EBITDA was approximately $1.1 billion, down 9%. Volumes have improved sequentially in Q4 as holiday demand drove a low single-digit seasonality pickup. As reported, adjusted earnings per share in the quarter of 88 cents were down 11% compared to a year ago. Our adjusted tax rate was 18% compared to 26.1% in the same period last year, driven by one-time benefits due to the reversal of liabilities related to uncertain tax positions. We did not repurchase any shares in the quarter. Our weighted average diluted shares outstanding in the fourth quarter of 2023 was 144.9 million. For the year, adjusted earnings per share of $3.18 was down 22%, primarily driven by lower adjusted EBITDA and higher interest expense, partially offset by lower tax expense. Turning to slide six. In Q4, LocalBox contributed 5% to total company sales, or approximately $70 million, but was offset by lower pricing and protective and lower volume in both businesses. The volume declines were driven by continued market pressures and protective, lower automation sales, as well as a continued weakness in food, retail, and markets. Fourth quarter adjusted EBITDA of $274 million, which included $15 million contribution from LocalBox, decreased $23 million, or approximately 8%, compared to last year, with margins of 19.9%, down 120 basis points. This performance was mainly driven by lower volumes within both segments, offset by contributions from LocalBox.

Moving to slide seven.

In the fourth quarter, food net sales of $893 million were down 3% on an organic basis, primarily due to the volume declines driven by lower automation sales as customers enforced tighter controls on capital expenditures and by continued weakness in retail demand. Food adjusted EBITDA of $195 million in the fourth quarter was down 3%, with margins at 21.8%. down 130 basis points compared to last year. The decrease in adjusted EBITDA was mainly driven by higher operating costs and lower volumes, partially offset by contributions from local box and favorable net price realization of 10 million. Protective fourth quarter net sales of 485 million were down 10% organically, driven by lower pricing and volume declines in Americas and EMEA from continued market pressures in the industrial fulfillment markets. Protective adjusted EBITDA of approximately $90 million was down 12% in the fourth quarter, with margins at 18.7%, down 50 basis points. The decrease in adjusted EBITDA was driven by unfavorable net price realization in lower volumes, partially offset by favorable productivity benefits. On slide eight, we review our fourth quarter net sales by segment and by region. In constant dollars, net sales were flat with 5% growth in food, mainly driven by the local box acquisition, while protective was down 10% due to weak in-market demand. By region, Asia-Pac grew 5% organically, driven by a strong Australian cattle cycle. America's was down 6% due to lower automation sales, a weak U.S. cattle cycle, and lower pricing in protectives. EMEA declined 11% on challenging market conditions across both segments and continued destocking within protective. In constant dollars, full year net sales were up 9% in food, while protective was down 15%. By region, we were up 3% in Asia-Pac, offset by declines of 2% in Americas and 1% in EMEA. Now let's turn to free cash flow and leverage on slide nine. Through the fourth quarter, excluding the impact of the payments and deposits related to the resolution of certain prior tax matters, free cash flow was $467 million compared to $376 million in the same period a year ago, representing an increase of 24% year-over-year. The primary driver of this improvement was significant inventory reduction, partially offset by lower earnings and higher interest costs. Since the peak in the second quarter of 2023, we have reduced total debt by approximately $280 million, exiting the year with a net leverage ratio of 3.9 times, down from 4.1 times in the third quarter. Our total liquidity position was $1.3 billion, including $346 million in cash and the remaining amount in committed and fully undrawn revolver. We will continue to focus on driving net debt to adjust EBITDA to below 3.5 times over the next two years. Let's turn to slide 10 to review our 2024 outlook. We expect an L-shaped recovery through 2024 and into 2025. As a result, we expect net sales to be in the range of 5.2 to 5.6 billion, which at the midpoint assumes a 2% decline in organic growth with flat volume growth offset by negative pricing. Portfolio exits represent half a percent lower volume in both segments. While the global protein end markets continue to be challenged, our food volume is expected to grow approximately 1%, driven by competitive wins in our core businesses, momentum in our fluids and liquids businesses, including LiquiBox, and our new product launches, offset by price declines of 2%. Our work on integration and operational momentum at LocalBox is taking hold, and we expect the business to continue to improve across 2024, further supported by a positive outlook for the food service and markets. We see a slower market recovery in protective than previously anticipated, with a full-year volume decline of approximately 1%. Pricing pressures have increased. further reducing top line by 3% as the competitive landscape has intensified in a lower volume environment. Protective volumes are expected to recover toward the end of 2024 as our new commercial model gains traction and market dynamics improve. We expect full-year adjusted EBITDA to be in the range of $1.05 to $1.15 billion, which assumes adjusted EBITDA margin of approximately 20% at the midpoint. This outlook is lower than our soft guide provided during our Q3 earnings call, mainly driven by lower volume expectations. We anticipate continued softness in the first half of 2024 as volume reaches the trough and gradually improves as the market conditions and seasonality improve in the second half. We remain disciplined to drive the necessary cost actions to offset further volume weakness. The midpoint of our adjusted EBITDA guidance is in line with 2023. with $90 million year-over-year cost savings offsetting flattish overall volumes, negative net price realization, and restoring bonus pools. Full-year adjusted EPS is expected to be in the range of $2.65 to $3.05 per share. The lower 2024 adjusted EPS is largely driven by higher depreciation, interest and tax expense, with an assumed tax rate of 26% to 27%. We expect full year 2024 free cash flow in the range of $325 million to $425 million. At the midpoint, our free cash flow conversion as a percent of adjusted net earnings is expected to be 90%. We are assuming approximately $80 million in restructuring charges and approximately $20 million incremental cash interest payments offset by favorable working capital of roughly $30 million. Lastly, for the first quarter of 2024, we expect net sales and adjusted EBITDA to be ranged around 1.3 billion and 240 million, respectively, with earnings per share between 50 and 60 cents. Our ranges and outlook reflect the dynamic environment we continue to operate in. As we gain more visibility throughout the year, we will be able to adjust and update expectations accordingly. Turning to slide 11. We closed out the year in line with our expectations and remain committed to executing against our caustic up to grow efforts. While our expectation for 2024 has reduced to a weaker and longer recovery period for our end markets, we are encouraged by the feedback from our customers and our distributors that the stocking is largely behind us and are more confident in a second half modest recovery in volumes. We are focused on driving a transformation at sea in 2024, improving commercial execution, and restoring business fundamentals. We expect 2025 to be the year we return to a normal growth trajectory and where our cost reduction operational excellence initiatives will position us well to return to adjust EBITDA growth in 2025 and beyond. Lastly, I'd like to close by thanking the Global C team who are at the center of our transformation for their efforts solving our customers' most critical packaging challenges day in and day out. With that, Emil and I look forward to your questions. Operator, we would like to begin the Q&A session.

Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 1-1 again. As a reminder, given time constraints, please limit yourself to one question only. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Bill Ng with Jefferies. The line is open.

Hey, guys. Dustin, did I hear you correctly? You're guiding to 240 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 is an element of it, and the shape of the year. Do you expect EBITDA to inflect positively by 1 to be helpful? And any color bisegments would be helpful in terms of the shape of the year.

Hey, Phil. This is Dustin speaking. Again, I appreciate the question on Q1. A couple of comments I would make. You know, one is you hit it nail on the head relative to volume, right? So volume in Q1 is going to be down a couple points, and that negative leverage is impacting the EBITDA for the quarter. That's being partially offset, you know, 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 this 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 ebada sequentially quarter to quarter to quarter right coming from the 240 that we mentioned for q1 And then, obviously, when we get to roughly Q3 and Q4, going back to the MOS recoveries in the second half volumes, we'll see that inflection point begin, and it'll point towards EBITDA growth.

Thank you. And our next question, coming from the lineup, Grincham Punjabi from Barry Dillon is open.

Hi. Good morning, everyone. This is Matt Krieger sitting in for Ganshin this morning. So, you know, 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, you know, 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.

Matt, this is Dustin speaking. I'll kick it off. And again, 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're kind of ahead of our own expectations. When you shift to protective, protective ended where we set expectations around mid-single digits. That's obviously a big improvement coming off of the prior three quarters that were in the teens up to almost 20% starting in Q1. 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 the Q4 of 23 versus 22 is that we saw that 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, you know, obviously embedded in the current guide that we have for Q1.

Thank you. And our next question coming from the lineup, George Tavis with Bank of America Securities. Your line is open.

Yeah. Hi. Good morning. This is actually Cassian Keeler sitting in for George. He's traveling for our conference. So Dustin and Emil, you talked to it a little bit in your prepared remarks, but perhaps can you get a little bit more specific on what commercial and sales tactics you've changed in each segment since taking over and what the competitive response might have been in each business at this juncture?

Hi, good morning. Thank you for the question. This is Emil speaking. So in terms of the commercial transformation that the we've undertaken and recently announced so you know we recognize that in the old structure that we had combining both food and protective commercial teams that really contributed to a loss of customer centricity and reduced our commercial rigor so so to solve this we've recently announced that we've reorganized our commercial teams within food and protective operating units within each region now these units are not just sales units but they're units combined with sales, marketing, and dedicated support functions, including R&D representation, finance, and operation. The other pieces that we talked about in terms of our plans and that we've now implemented is the old structure really had shifted the resources from the regions into the global centers. And really, that put the voice of the customer even further away from the decision-making process. So as part of this reorg that we've announced, we've reallocated those resources from the global teams back to these operating units. So inherently, the new design is better in terms of us being faster in the market, in terms of being closer to the customers. But just as important around that, we're driving the whole culture and the culture of discipline and performance in terms to better execute in the marketplace. And to support that, we've realigned the incentives of everybody to be more localized, closer to the markets, as well as in terms of our global goal alignment.

And the only two points I'll add on to what Emil said, which was, is really, if you go back to the why, the why in terms of both food and protective is that those end markets and those customers are very different in terms of needs from a packaging solution, service, So that one is recognizing that those are two very unique segments in markets, customers, et cetera, is one of the primary kind of motivations in terms of making that overall decision.

Thank you. And our next question coming from the line of Jeb Sakakos from J.P. Morgan. Your line is open.

Thanks very much. Can you talk about how your industrial packaging business did in 2023 and how it's beginning the year in 2024? And can you talk about what your expectation for automation volumes are this year? And then lastly, in your compostable product that you feature in your slides, it has 54% bio-based content. What's the other 46%? Okay.

So I'm going to start with the overall industrial question, right? So if you think about 2023, and I think one of the comments that Emil, this is Dustin speaking, by the way, one of the comments that Emil made, which is really important, is around, you know, the fact that if you really look at PMI, or you look at PMI equivalent across most of our overall you know, advanced economies, right? What you see is a contraction, right, in industrial activity. And as a result of that, our businesses, our industrial packaging, think of this as like Instapack and, you know, industrial inflatables and so on and so forth, perform poorly. And you're looking at, if you look at overall, you know, impact for 2023, you're looking at volumes that were down in the low teens, right? And so, and then it kind of in line with what's your expectation in terms of double digit for that kind of contraction you would have seen in industrials. An encouraging sign is kind of coming into 2024 is that it's beginning to point towards growth. It's modest growth in 24 relative to industrials, but it is growth. It is more second half weighted. And we've seen those businesses already begin to perform better. And if you look at even Q4, it's embedded in that number, which is mid single digit decline in volumes in the fourth quarter. You're seeing it open up well in the first quarter and continuing. So we see it as optimism in terms of showing signs of stabilization. As we said earlier, there are signals, right, relative to, you know, signals that are more positive for the year, but they haven't translated yet, largely because we think it will take time to work through the system in the first half, and then we'll begin to reflect, you know, more importantly in the second half.

Let me maybe jump in, Dustin, on some of these other points on the biobased, right? Sure. So, as you mentioned, we've We've recently introduced the new bio-based tray. And really, this is around addressing the market needs that is moving away from expanded polystyrene. And as you mentioned, 54% of the tray is from cellulose renewable sources. And the other portion of the polymers are acetic acid and other processing aids. So really, in terms of the tray, it's not only the sources of it that are renewable, but the fact that it's industrially compostable certified, so it can go into the industrial recycling streams and fully decompose into those natural components. And I just want to add a point on the automation piece in terms of where that's headed. So despite the external uncertainties in terms of our customers being slow in terms of triggering a new capex span based on the inflation, the interest rate environments, as well as muted end markets, we do forecast it to be flat year on year. And as part of that, we've also expanding our offerings. So automation is still a critical part of our total solution sales. So we've signed recently some partnership agreements in the protective space to complement our box right-sizing capability. And we are actually going commercial, and we have orders of those based on that new partnership in the Asia-Pacific region. And we just recently signed the IPPE show, a new partnership in terms of expanding our automation capabilities in our consumer-ready space. So we'll be announcing that publicly soon. And again, so automation continues to be a big part of our capabilities. We're all about total solutions and materials equipment as well as service, and we're expanding and filling the portfolio gaps that we have with those external partnerships.

And Bill, another final point on that question, I'll just say that as a reminder, we kind of closed the year out around $500 million, half a billion in automation sales in 2023, which is a peak for us, and to Mill's point, we expect to be flat next year, despite the challenge.

Thank you. And our next question coming from the lineup, Anthony from Citi. Your line is open.

Good morning. Looking at the 24 guidance, can you just help us quantify the impact to EBITDA from lower net pricing for the year? I think you talked about that on the bridge, but I just want to make sure I got that right. And then when you think about pricing potentially stabilizing maybe in the back half of the year, I mean, is that just a function of volume recovery, volume stabilization, or is there sort of anything else going on in the market or what you're doing internally that you would expect to help out?

Yeah, absolutely. So, great question. This is Dustin speaking. So, a couple comments I would make. If you think about net price realization for fiscal year 2024, we're expecting it in the neighborhood of about down $60 million. So if you put that in the context of a flat EBITDA guide year over year, really it is this $90 million or so of cost takeout benefits that we're driving, offset by a negative net price realization of $60 million, and then this restoration of our overall bonus pools. And so that kind of is what net-net gets you back to a flat guide. And so then the only other piece in just terms of the price component, if you break down that price realization, just to give you some of the specifics, it's really a net negative of about 120 million being offset by an equivalent of benefits and direct materials. And then if you think about a net down on kind of labor, inflation on labor and non-labor, which you will notice is more muted in the past, which we do see continuing to normalize kind of out of post-COVID, because it was at a historic high in 2024, or excuse me, 2023. Then if you think about the pricing environment in general, you know, if you think about last year, there's like three components in our pricing that are affecting us. One is concessions that were given last year as part of contract renewals, et cetera, that we talked about in terms of, you know, putting a big piece of our business underneath that we renewed. The other piece was formula pricing, because if you think about in the second half of 23, a lot of resident costs came down. So formula pricing, as a reminder, that tracks with you know, indices, you know, began to kind of come into effect at the beginning of really of 2024. And then the third piece is obviously just the pricing environment. That's if you decompose that 120. And if you think about the second half, that's where we, you know, there may be areas of opportunity, because right now if you look at it, your resident prices have kind of stabilized, and we see there may be a slightly inflationary in the second half. And this is, when I say inflationary, I mean sequentially as you move throughout the year. you know, still obviously net down from 2020, you know, 2023.

Thank you. And our next question coming from the line of Matt Roberts with Raymond James. Your line is open.

Hi, Justin. Good morning. Discuss the new product focus. So could you maybe quantify a little bit? What type of addressable market do you think these new products represent? In which segments are they prioritized? And in that regard, how much of this is a new opportunity versus substitution of some of your existing sales? Thanks for taking the question.

All right, Matt, yeah, great question, and I appreciate you raising it. So I'll go ahead and start, and then Emil will follow on. If you go back to kind of the prepared remarks we talked about in the prior questions where we talked about the compostable tray, and that for us is, you know, if you go back a number of years, we used to actually produce trays. And over the past couple years, we haven't. And, you know, we sell them as part of a package solution when we think about, you know, think of our overwrap film, the tray, as well as the equipment. You think about those three pieces of the solution. Think of it as a poultry application. And so we're actually, for us to go back into the trade business, which is really what this is in terms of compostable trays, our step back into manufacturing it, that overall addressable market is about $5 billion. And what's really exciting about it is it's not just that we're entering a market, because if you think about that market overall, it's a relatively low growth in market. But it's going through an unprecedented shift, right, where you're seeing, you know, whether it's consumer preference, very similar to fiber and protective. It's that same shift in the protein trade market where consumers prefer to move out of expanded polystyrene. And as well as the market in terms of regulations are coming to effect, which you've already seen in a number of states in the United States as well, across Europe, et cetera, which is presenting this opportunity where you need to have a new alternative. relative to that, and so this is a great opportunity there to take a big share in that market, and we're heavily invested in it, and I'll let Emil kind of jump on to some of the other areas that we're focused on.

Yeah, thank you for the question, and again, give us a chance to talk about some of these growth areas across multiple segments. So let me hit kind of through some of the key areas. So on protective, a couple of areas. I did mention that new partnership in terms of expanding our capabilities and portfolio gaps around 3D box right-sizing. So again, that is commercial. We have our first orders and we have a pipeline. Two is it will be small impact this year, but we did mention in our past call that we were slow in terms of the shift of the market in protective to fiber. We are introducing, again, it will be small impact this year, but on the auto bag, in our auto bag segment, we are introducing a paper auto bag solution, as well as driving some more sustainability pieces around high recycled content in our protective businesses. Let me talk about fluids, because that didn't come up so far. So fluid is actually a key part of our growth this year, both in our cryovac fluids business, as well as on liquid box. So again, on our traditional cryovac liquids, we continue to drive penetration around a flex prep solution. And beyond that, we are introducing later this year a further expansion of that capability attacking the rigid squeeze bottle market, and we'll be bringing that to an initial customer later on this year. On the protein side, Dustin and I mentioned the compostable tray. We have launched, based on customer, voice of the customer, new capabilities around our chill tunnels, which are in market right now, and there also we are introducing a whole host of second-generation, recycle-ready, flexible materials across the markets where our customers demand them. Now, finally, maybe just the other piece, tagging in on the innovation question and back into the trade. If you think about our trade launch beyond that, it's a great product responding to the market. In terms of how we did it, we did it in a record time. It was really in terms of how we partnered strongly on that innovation together with our critical partners, both on the supply side and the customer side. And this is when we talk about our commercial transformation and how do we drive that capability to accelerate our innovations. This is really the model we're trying to reapply. It's not doing innovations internally and then going out there trying to sell them. It's really bringing in those customers in, those early adopters, and partner with them and our supply base to get to the market faster with more relevant innovations that will drive commercial success.

Thank you. And our next question, coming from the lineup, Edland Rodriguez from Mizuho Group, Yolanda Salfin.

Thank you. Good morning, everyone.

So as you look past 2024 and into 2025, like how do you see the volume power of the portfolio? You know, if you no longer have this talking going on and the man is gradually picking up, like what does volume look like on a normalized basis in 2025, 2026?

So it's a great question and I'll make a couple of comments, right? Going back to the prepared remarks, this is Dustin speaking by the way. So one is, Look, we still continue to operate in a very limited visibility environment, right? Our guidance reflects that. And some of the progression of the next two, you know, kind of two halves reflect that. So the reason I say that is just take that into account. Because one of the expectations, too, once we get to a place where demand picks back up, there is an opportunity potentially for some restocking, right, which will also create an outside, at least even if it's transitory, uptick in overall volume. But if you think about a normalized basis, if you think about the end markets we serve, and I'll break it down into three categories when I give this perspective. One is in our food markets, on a normalized basis, i.e., you're not winning more business than you're losing. Think of it as a net churn perspective. You're looking at low single-digit volume growth, right? And so your opportunity set in that, if you're performing well commercially, is GDP plus, right? Very similar if you look at protective. I put it in that same kind of category, slightly ahead of food, but again, you know, low single digit volume growth. Now in our fluids and liquids business, It's different in the sense, very similar to the comments we made about trades, where you have an opportunity for mid-single-digit, high-single-digit growth because you are shifting other applications into that particular space. It's not just underlying demand because those markets are also very similar in terms of the end markets in the worst food service would be low single-digit growth. But because you're disintermediating rigids and converting them into flexibles, you can see an uptick that will be there for quite some time as that market continues to shift into the fluids and liquids space.

Thank you. And our next question coming from the lineup, Kurt Woodward with UBS.

Yeah, thank you. Good morning. I was hoping you could unpack a little bit more of, I guess, some of the structural dynamics at play in fulfillment. You talked about fiber taking share as well as, you know, companies seeking more optimization of pack type or changing the way they're kind of going to market. Is that Yeah, how structural do you view some of those trends? And then what's your opportunity to maybe pivot more into fiber-based solutions?

So I'll start with some of the market trends, and then I'll have Emil kind of jump on to some of the other fiber-based pieces from a portfolio perspective. So if you start with a trend, there's really, you know, there's an obvious, and when I speak about this, I'm speaking really, which is a portion of the protective overall, which really serves that fulfillment, you know, kind of e-commerce and markets, right? Because industrials behave, you know, very differently. It's actually quite unique in 2023 that they both behave very similarly. So when you think about, you know, kind of fulfillment e-commerce is really, you know, a very huge positive up and then a net down, right? And the net down is the items we mentioned, which is, If you think about overall e-commerce, it continues to, you know, it's kind of back on its normalized growth trajectory, right? So it went through a transitory phase during COVID where it picked up dramatically, fell back in line with historic growth rates, but it's still continuing to grow in this kind of mid-single-digit, high-single-digit kind of structural growth rate that continues to move, which obviously drives more consumption around our packaging solutions. If you think about void fill, the air pillows that go into the box, if you think about whether it's flexibles and or fiber-based solutions, if you think about mailers, and so on and so forth. Now, what comes off that growth rate, right, is the shift to fiber, which we have not done a great job of capturing in the past that we're looking to accelerate and make sure that we participate, you know, in the marketplace going forward. And the second piece, which is shipping on container, and, you know, kind of buy now and then pick up at the store. And so both those pieces net it down, but we still see it as a low single-digit growth once you net that down, right? And so that's the opportunity set in it, within it, with the exception of the moves that we need to make in the fiber place to make sure we participate.

Go ahead, Emil. Yeah, and I'll just add a couple of pieces to that. So obviously, you know, fiber is one piece of it, right? And we were late to the game, but we are introducing there both in terms of the mailer with our paper bubble mailer on our autobag platform, which is a great platform because not only it addresses the shipping needs but also the automation benefits. And there we're just coming out with our first generation of paper autobag. But also in terms of addressing the sustainability trends, we are launching our high recycled content for void fill as well as for cushioning solutions. And we have in our But these are early in our R&D pipeline in terms of new paper forming capabilities that we are trying to develop. On the automation side, so that's why I mentioned our partnership there around the box right-sizing. So today we have a 2D box right-sizing capability in our B-plus platform. And we signed there a partnership to expand the capability to bring in that 3D right-sizing piece. So again, depending on the customer and the markets, there are different needs there, and we are actively working to address them, either through recycled content, recyclability, as well as further accelerating our capabilities in fiber and automation.

Thank you. And our next question coming from the lineup, Michael Moxlin with Truist Securities. Your line is open.

Thank you, Dustin, Emil, Brian, and Louise for taking my questions. Congrats on a nice finish to the year. Thank you. My question is, can you talk about the competitive advantage you have in protein and why your peers may not be able to compete as effectively as you can? Is it due to equipment? Is it due to service? Is it only in roll stock where there's less differentiation or are there other places, other parts of the business too where you have more effectiveness in terms of competitive effectiveness relative to your peers? Thank you.

Hey, Max. This is Dustin speaking. I'm going to start off and I'll give Emil an opportunity to jump in. But first, thank you for the comment on finishing the year. Jumping into your question, the heart of it, which is what is our competitive differentiation within the protein space? you actually nailed two legs to the stool already, right? So if you think about those three legs, it really is, it starts with differentiation in materials, right? So we do, we still believe we're best in class relative to competition in terms of our differentiated material science and our ability to produce those films that help, you know, increase the shelf stability of the proteins that they're packaged in. The second piece, which you mentioned already, is the automation capability, right? And then the third is service. And it's really those three aspects that are best in class each on their own, but then when they come together, they really truly create that differentiated solution set that really puts a competitive moat around that particular business. Now, when I say that business, I'm really specifically talking about in a lot of ways fresh red meat. If you think about other applications, whether it's poultry and so on and so forth, and think about it as going back to roll stock, whether it's film, overwrap film, or if you think about different roll stock applications, We are working to continue to build those three legs of the stool. What Emil alluded to in a prior conversation, which is we're working to build that complete solution set. And one of the differentiated approaches that we're taking, he alluded to it with the partnerships and even in protective in the 3D box, right sizing, as well as you think about the solutions in roll stock, is that in the past, we haven't had that full solution where, in an example, when you did a sale, an equipment manufacturer may be coming in and bringing the thermoformer or whatever type of roll stock type equipment, and then we're bringing in the materials, and someone's particularly bringing the service. We are now building those partnerships, which is great because it's an asset-light approach from a capital allocations perspective to build those solutions and go into market with those three legs of the stool in other areas. So we're replicating the strength of what we already have in our street bag business and other areas of the portfolio.

Yeah, and you said it very well, Dustin, and just complementing to that. So again, on the roll stock side, we were playing in the consumer-ready space in a niche area in terms of those very high value added, and we were only selling the materials science space. So again, there in terms of going after that market, which is a much larger market than today we play in, is about bringing more materials innovation, again, The compostable tray is one example. So two is those equipment partnerships so that we can leverage the equipment but also our services in there. And then certainly a piece we haven't talked about because, again, it will not have much impact yet in 2024 is the work we're doing on the digital printing side for consumer ready. We are still ahead of the game in terms of what the capability is in the market in terms of introducing high-speed economical digital printing capability to the consumer-ready market. But that's going to be more of an end-of-24, end-of-25 impact.

Thank you. And our next question, coming from the lineup, Lawrence Demaria from Real Employer. You'll let yourself in.

Thanks. Good morning, everybody. I know you discussed some of these things, but I wanted to just dial down on you know where are we really with on e-commerce side on paper mailers and the ability to drive some more specifically with e-commerce and secondly you know there's a lot of pressure with Amazon and Walmart to reduce void fill I know you have some automation there is there any traction with that automation or is that more you know later 24 25 can you just talk about some of the commercial opportunities in those specific lanes thank you

Hey, Larry. This is Dustin speaking. So, a couple things. You know, we discussed last year in 2023 that, you know, we began to really step into kind of bringing paper mailers to market, right? And one of the things that if you think about 2023 is, in a lot of ways, there's introduction of some of our fiber solutions. And if you think about 24, it's about scaling, right? And what I mean by that is that, you know, even if you say, hey, I have paper mailers, it's not just It's the combination of the equipment, it's the combination in terms of how many different sizes, how well you can print on it. And so those aspects of it we're beginning to bring up in a more scaled up way in 2024. However, it's still a small part of our overall portfolio, right? So having a meaningful impact to the business is really, if you think about it, in 25 and 26 relative to be able to do that. Now, on the flip side, as Emil related to the partnership in 3D Box, right-sizing some of the automation opportunities, we see those as opportunities, whether it's big boxes, like you talked about Walmart, we are seeing traction in that space. It's still performing quite well. The backlog in that business is still strong, you know, relative to where we're at in terms of equipment that we deliver. So it's a bright spot in the automation portfolio that, you know, that customers are still buying, I would say, despite some of the, you know, capital constraints. Part of it is the cost of solution, you know, where some of our solutions that are obviously that capital constraint goes up as you tend to buy higher pieces of equipment. And so that's,

Let me give you some of the detail there.

Thank you. Now next question coming from the line of Adam Samuelson with Goldman Sachs. Your line is open.

Yes, thank you. Good morning, everyone. So I guess my question, I think, Dustin, in your prepared remarks, you alluded to about 50 basis points of lower volumes in each segment related to product exits. We're just hoping for a little bit more context on that And I guess specifically in protective, where you're seeing some different substrate shifts that are moving, you've been maybe a little slower to adapt to, and you're also seeing more pricing pressure in pockets of that portfolio. As we sit here today, I know the company's been taking a closer look at this. How would you size the protective portfolio and the proportion of the business that you really think is seen more commoditization over the last couple of years and maybe has more diminished growth prospects than it would have five years ago or pre-COVID.

Great question. Can you go back to just the first part of the question, that piece that didn't come through clearly?

Sure. Just any color on the product line exits that you think talk about 50 basis points in each segment. impacting volumes, just any clarity on that, what you're actually moving out of?

Yeah, absolutely. So, you know, a lot of this, I'm really glad you raised that question because a lot of it relates to things that we've already announced, right? So we talked about the exit of our chemothermal, you know, temperature assurance business in 2023, right? Just as a reminder, those are those refrigerated kind of panels that would be used to to keep refrigeration around things like COVID vaccines. That business performed very well during COVID and then trailed off, you know, post-COVID. And so we exited that business. So it's having a follow-on impact from a volume perspective because a lot of these businesses exited towards the end of 2023 or candidly even in the beginning. So that's the first one in protective that's by far having the biggest impact. The second piece in protective is there's some other, you know, some other reductions that we have, smaller pieces that we're trimming relative Our IFS is our fabrication business that we have a little piece of this in the EMEA region right now that we're turning back on. It's not a whole scale in terms of different areas, but very regionally specific and where some of the solutions we've seen what we see to be a permanent drop-off in demand. Then if you shift to our overall food business, the first piece is it stakes back to the plant-based roll stock that we talked about exiting during Q3. And that business really is beginning to at this point in time, really. So once we announced it, you begin the ramp down. That ramp down is really concluding now at the beginning of kind of right now around January, February. And you're seeing now the impact full year to food volumes as a result of that. And the only other piece that we really discussed today for the first time You know, it's our overall Argentinian business today. And thinking about it, you're looking at, you know, it's kind of low, you know, kind of low double digits relative to revenue impact there, relative to specific pieces related to business that we're importing into Argentina that due to some of the effects issues as well as economic instability, it doesn't make sense at this point in time to continue to pursue that business that we're exiting going forward. And that primarily impacts food. And then going back to your point about protective in terms of commoditization, if you think about it, we've talked consistently around this 30 to 40% of the overall portfolio. Where are you seeing pricing pressure is what we call our utility business. And you think about lightweight foam, if you think about bubble wrap, so on and so forth, that's where you're seeing the most pricing pressure. And going back to your question about substrate transfer, it really goes back to some of the prior questions that we had. And where you're seeing it most predominantly is and void fill, right? So you think of it as the air pillows continuing to shift into paper, which is also being disintermediated by shipping in own container, right? So the removal of all secondary packaging and shipping in just primary packaging, right? And then the second is, even when you don't have a box that's an overwrap, that secondary packaging becomes a mailer, and there's a big shift, obviously, from flexibles or hybrids into pure fiber-based mailers, right? And those are the two areas that were, we have paper systems today that compete directly, as an example, with the RAMPAC, and then on the void-filled side, and then on the paper-mailer side, as we talked about earlier, you know, really, we have, you know, products in market, but it's about scale, right, in terms of how broad that offering set is and how many different businesses you can actually work with and that our solutions can actually fit within those business models. And again, 2024, 2023 is a year of introductions, and 2024 is a year of scaling in those particular areas.

Thank you. And our next question coming from the lineup, Arun Viswanathan from RBC Capital Markets. Your line is open.

Great. Thanks for taking my question. Congrats on finishing the 2023 year. Yeah, just following up on that last point, you know, I guess I can appreciate that you are pursuing the fiber-based solutions and the compostable tray now. You know, we did see a little bit of a reduction on the automation side. So I guess, you know, another way to think about the volume growth opportunity is exiting these businesses that continue to be a drag. If you look over the last couple of years, you've had kind of minus 20% volumes when you stack the last couple years in protective. So, you know, with these product exits, would you say that you've somehow or at least addressed maybe the larger pieces of those volume drags? Or is there more to do there? And is there, you know, any timeline on maybe, you know, exiting some of those, you know, lingering negative headwinds? Thanks.

Yes. I appreciate the question and recognize the point that you're making in terms of multi-stacking protective and seeing it net down. We fully recognize where that business is at, but I'll reiterate one point, which is that you're kind of coming, a lot of that's obviously declined and really has happened over the past, think of it as 18 months in terms of where you've seen a hard step down in that whole portfolio holistically. And part of what we're seeing today, if you look at Q4, is a positive sign, right? You've seen those volumes wrapping, beginning to stabilize, and you're down mid-single digits. And so a lot of what we're doing across this year is, you know, we mentioned kind of you go back to Emile's remarks is that we've kind of recognized those areas of portfolio that we do longer term that we say don't necessarily fit with strategically. Do we have pieces a day still within that portfolio? Absolutely. Right. But right now is not the time to take action on those businesses. So what we're focused on, because there's a couple of things as we go up this year, they'll become more clear. One is, you know, we feel like we're hitting a trough. We're coming out of the cycle. We'll have a better understanding how this business is going to perform longer term. Right. And then as Emil mentioned in the comments, right, the financing markets improve. Outlook improves holistically, and then we'll better understand the fundamentals in this business as time goes on, and we'll continue to reevaluate that. But with that said, right now, if you take that and put it to the side, our primary focus, going back to the main part of the content today, was around really what we're doing to transform that business, because there's another element of if we are more commercially effective, what does that do from a performance standpoint? And so there's a lot of focus and energy going into that right now in terms of our overall transformation.

Thank you. And our next question, coming from the line of Gabe Hutchner from Wells Fargo, your line is open.

Neil, Dustin, thanks. Try to be brief here. The protective L-shaped recovery may be a little bit worse than what you were expecting. Can you kind of bifurcate for us between market-related and competitive landscape? I know it's sort of tough. And then... I guess key learnings that you've had thus far in evaluating, you alluded to it here in the last question, but just, you know, reviewing some parts of the portfolio and strategic optionality there. It sounds like timeline may be pushed out a little bit, but still a lot of work being done. I just want to make sure we're clear there. And then reinstituting the incentive compensation. I think it's 30 million that you talked about. Is it more pronounced in any specific quarter? Just curious if that's depressing Q1 at all. relative to the rest of the year. Thank you.

Gabe, I just missed the first part of that question. If you don't mind, if you can come back to the first part.

You talked about an L-shaped recovery in protective, and I'm just curious if you can ascribe more of that weakness to market conditions or a more competitive landscape more recently.

Yeah, no, understood. And great question. What I would tell you is, kind of was going into the, so I go back to the positive note, right? Q4 came into that mid single digit range relative to volume. But again, when we talked about it, we're optimistic that we'd have even a stronger seasonality in terms of a quarter, which is really a good indication of how you're going to come out the year. So From our perspective, it doesn't seem from a competitive dynamics in the sense of customers you're able to win in the marketplace, turn that you're having in the business. We see that obviously if you go back to the past two years, there was a step up, but you've seen that normalized out kind of even across 2023. So if you look at the business and protective, it's somewhat sequentially trended along in 2023 and was wrapping around and showing obviously very negative comps going back with Q1 being down almost 20% and then kind of mid-teens for Q2 and Q3 and now mid-single digits. Holistically, we feel very good about, you know, kind of coming out the gate, right, relative to, you know, in terms of our overall profit. But if Q4 was stronger, it would have pointed towards a much stronger kind of full-year guide. And that's really where, you know, and then candidly, we're also just being cautious because we're operating in a limited visibility environment. So that's point number one. Going to your question around The next point around the overall executive kind of our bonus pools and the restoration of those bonus pools, obviously we had a very challenging year in 2023. As you can imagine, our incentive compensation came down as a result of that. Now, as you think about this year and executing against our plan, in terms of where that pronouncement is, it's more of an impact to the overall second half than in terms of first half, right? In the sense that if you look at 2023, the second half benefited more from that reduction in compensation pools because as you went through 23, as we all know, our guidance came down, we missed our internal plan, and that was more pronounced in the second half than it was in the first half, right? So you have a bigger hill to climb as you go throughout this year. And then on your last point around in terms of portfolio optimization, there's nothing really further additive to say than yes, you know, to your point, there's still a lot of work going on, but really now it's not the right time. And so what do you do? We don't want that to necessarily be a distraction relative to, so that work is progressing, but we're really focused on, again, going back to that commercial transformation, restoring underlying fundamentals, right, and improving underlying business performance.

Okay, and with that, we're on top of the hour, and I would like to thank everyone for their time today. We are excited about the opportunities ahead for SEA, and we look forward to updating you on the progress of our transformation when we speak together in May. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.