Sealed Air Corporation

Good day and thank you for standing by. Welcome to the first quarter 2024 Sealed Heirs Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Sullivan. Please go ahead.

Thank you and good morning, everyone. With me today are Emil Shamas, Interim Co-CEO and COO, and Dustin C. Mack, 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 sealedheir.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 of forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in this 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 as revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K. We discuss financial measures that do not conform to US GAAP. You will find important information on our use of these measures and the reconciliation to US GAAP in our earnings release. Included in the appendix of today's presentation, you will find US GAAP financial results that correspond to the non-US GAAP measures we referenced throughout the presentation. I will 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 first quarter earnings call. Today, Dustin and I will review SEAD's 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 calls. Lastly, we will conclude with our 2024 outlook before opening the call for questions. We closed the quarter with sales of $1.33 billion and adjusted EBITDA of $278 million, delivering strong results despite the continued challenging market dynamics in the protective segment. Our first quarter results reflected for the first time since quarter four 2021, year over year volume growth across all regions of our food business, continued volume stabilization and protective, and strong execution related to our CTO to grow initiatives. Through the focused efforts of our teams around the world, we delivered positive free cash flow of $78 million in the first quarter, compared with a negative $13 million in the same period a year ago. Dustin will provide a more comprehensive overview of our financial performance short. Now, let us move on to our market and business update. During the first quarter, our food segment delivered low single digit volume growth across all regions, primarily driven by our shrink bag business, which benefited from the carryover momentum of enhanced holiday demand, and new customer wins from the fourth quarter. In the US, beef production was down low single digits year over year for the first quarter. For the rest of 2024, US slaughter rates are expected to decline at a more rapid pace in the uplying quarters. In South America and Australia, cattle cycles are at their peaks, driven by robust domestic consumption and heightened export activities. Against the flat global proteins market in the first quarter, we drove volume growth, gained share, and delivered double digit growth and automation. Following its successful launch last quarter, our new compostable tray continues to gain traction in the market. Additionally, we are actively engaged in the development and introduction of more sustainable packaging solutions, such as recycle-ready barrier display films, poultry bags, and post-consumer recycled trays to address evolving market needs and support food processors and retailers in meeting their sustainability goals and regulatory requirements. The regulatory landscape concerning plastics continues to evolve rapidly with recent legislative attention being directed towards polyvinylidene chloride, or PVDC, due to chemical similarity to PVC. PVDC is used as a very thin barrier layer and multilayer films within our protein shrink bags. Our shrink bag business that contains PVDC is approximately one-third of our food seconds. This barrier material plays a vital role in preserving the quality of fresh proteins, extending shelf life, enabling global distribution, and minimizing food weights and its environmental impact on greenhouse gas emissions. Currently, there is no alternative to PVDC that matches its performance level. Through close collaboration with our suppliers, customers, industry associations, and government agencies, we actively advocate for the essential role packaging plays in mitigating food waste and ensuring safe, affordable food on a global scale. For decades, we've been assisting our customers in adapting to the changing regulatory environment and safeguarding their food supply chains. We already provide alternative barrier layers to PVDC, such as EVUH among others, particularly for applications with lower performance requirements. As the market leader in shrink bags, we continue to be best positioned to help food processors navigate the evolving regulatory landscape and deliver market-leading solutions that combine world-class material science, equipment, and technical services. Transitioning to protective, revenue performance in the first quarter was in line with expectations. Industrial portfolios continue to be under pressure across all regions, contributing to a low to mid-single digit -over-year volume decline for the segment. As discussed on our last quarter's call, the pricing environment remains pressured as we compete in a low-volume, low-visibility environment. In the Americas, volume growth was less than 1% as growth in box right-sizing solutions and recovery in retail and fulfillment sectors were offset by industrial weakness. EMEA experienced continued double-digit volume decline, primarily driven by intensified sustainability pressures across all portfolios and the stocking from our APS product line. The electronic sector in Asia is improving from last year. However, uncertainties around China's economic recovery continue to temper short-term regional growth expectations. Consistent with our previous discussions, we still anticipate an L-shaped recovery across the protective segments. The organizational changes implemented in February, which established dedicated commercial teams for both foods and protective, are beginning to gain traction. The renewed focus on our protective channel and direct customers has created positive momentum internally and has well been received by our customers. Similar to food, we strive to protect products in transit in a sustainable way. Our strategy entails a -or-pronged approach. First, within our flexibles portfolio, we are continuously increasing the level of recycled content in our product lines. Second, we are in the process of adding more fiber solutions to our portfolio, which will enable us to fully serve our channel partners and all segments within our markets. As an example, we are expanding our paper mailer offerings with various sizes to match the versatility traditionally associated with plastic and hybrid mailers. Moreover, we've developed more resilient paper coilers as a sustainable cushioning solution to address demands of protecting high-value, heavyweight products. Additionally, we are introducing fiber alternatives within our APS solutions, enabling substrate agnostic capabilities for our automation portfolios. This approach ensures that existing equipment installations can accommodate both substrates, providing our customers with enhanced flexibility in their distribution processes. The transformation outline in previous quarters continues at sea. We are focused on improving underlying business fundamentals by improving our commercial effectiveness, innovation processes, and overall talent. Overall portfolio footprint optimization continues to progress with three planned closures last year and another four in process in 2024. Throughout the first quarter, we continued to wind down pieces of the portfolio announced last year and we continue to evaluate the rest of the portfolio and footprint for further opportunities. As mentioned earlier, we continue to accelerate our cost takeout initiatives and it is driving improvements to our bottom line. With the actions implemented so far, we have achieved an annual run rate savings of $78 million. Continuing with this momentum, we are confident in our ability to achieve approximately $90 million in -over-year cost savings in 2024. Finally, we are in the process of pivoting our digital and automation strategies and we'll have more to share in subsequent calls. 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 first quarter results, let's turn to slide four. Net sales were $1.33 billion in the quarter, down 1% on a constant currency basis. Adjusted EBITDA in the quarter was $278 million, up 4% compared to last year. Volumes were flat -over-year for the quarter with growth in the food segment across all regions, offset by declines in protective, primarily in EMEA.

As

reported, adjusted earnings per share in the quarter of $0.78 were up 5% compared to a year ago. Our adjusted tax rate was .9% compared to 24% in the same period last year. The increase in the tax rate -over-year was driven by discrete impacts related to our share-based compensation. Our weighted average diluted shares outstanding in the first quarter of 2024 was $145.4 million. Turning to slide five. In Q1, inorganic growth from Local Box contributed 2% to total company sales, or approximately $23 million. As anticipated, we saw lower pricing across both the food and protective segments, primarily in the Americas and EMEA regions, following the reduction of resin costs from the post-COVID peak in 2022 to the middle of 2023. -over-year volume improved in the food segment across all regions through carryover momentum from last year's holiday season and new customer wins. Protective volumes were down 4% -over-year, driven by a rebound in Americas, more than offset by declines, primarily in EMEA. First quarter adjusted EBITDAV $278 million, which included $4 million inorganic contribution from Local Box, increased $11 million, or approximately 4% compared to last year, with margins of .9% up 110 basis points. This performance was mainly driven by accelerated savings from our cost-naked -to-grow and productivity efficiencies,

partially offset by unfavorable net price realization. Moving to slide six.

In

the first quarter, food net

sales of $868 million were down 1% on an organic basis, primarily due to declines in price, partially offset by positive volumes led by carryover holiday benefits within our food business, solid equipment performance, cattle cycle tailwinds in Asia-Pac and Latin America, along with share gains of our case-ready solutions in the poultry market. Food adjusted EBITDAV $190 million in the first quarter was down 3%, with margins at .8% down 100 basis points compared to last year. The decrease in adjusted EBITDAV was mainly driven by unfavorable net price realization of $10 million, partially offset by higher volumes. Protective first quarter net sales of $461 million were down 7% organically, driven by lower pricing in Americas and EMEA and volume declines, primarily in EMEA where both industrial and fulfillment in markets remain soft and sustainability pressures are accelerating. America's volume rebounded with strong automation solutions offsetting continued industrial weakness. Protective adjusted EBITDAV approximately $90 million was up 11% in the first quarter, with margins at 19.4%,

up

320 basis points. The increase in adjusted EBITDAV was driven by cost control actions, which included CTO to grow savings, partially offset by unfavorable net price realization of approximately $10 million in lower volumes. On slide seven, we will review our first quarter net sales by region. On an organic basis, Americas was down 2% primarily due to lower pricing. Volume turned positive year over year for both segments for the first time since the end of 2021, with robust equipment placements in both businesses and strong volume within food. EMEA declined 7% organically on lower pricing, persisting market softness and sustainability challenges in the protective segment, while food volumes grew mid-single digit. Asia-Pac was flat organically as tailwinds from Australian cattle cycle and improving electronics performance were offset by continued weakness in the industrial markets.

Now let's turn to free cash flow and leverage on slide eight. Through

the first quarter, we generated strong free cash flow of $78 million compared to $13 million use of cash in the same period a year ago. The primary driver of this improvement was higher earnings, lower incentive compensation payments, and better working capital management. The second quarter was partially offset by higher interest costs. During the first quarter, we further reduced our total debt by $28 million, ending the quarter with a net leverage ratio of 3.9 times flat from the end of 2023. Our total liquidity position was $1.4 billion, including $353 million in cash and the remaining amount to committed and fully undrawn revolver. We continue to focus on driving net debt to adjust EVA-DA to below three and a half times by the end of 2025. Let's turn to slide nine to review our 2024 outlook. We are pleased with the strong finish to the first quarter and encouraged by the momentum that is building in parts of the business. The strength of the first quarter is giving us more confidence in our full year guidance. We continue to operate in a low visibility environment, especially in protective, and we have better visibility into how this momentum translates into the second half during our next call. For now, we are reaffirming our full year 2024 outlook. Looking ahead to the second quarter, we anticipate a slight sequential decline in sales, reflecting the dynamic low visibility environment and subsiding holiday demand from last year. As a result, second quarter net sales, adjusted EVA-DA and adjusted earnings for our share are expected to be ranged around $1.3 billion, $260 million,

and $0.64 respectively. Turning to slide ten. We remain committed to restoring underlying

fundamentals by executing in the market, progressing our transformation, delivering CTO to growth savings, and de-leveraging the balance sheet. Lastly, I'd like to close by thanking the Global C Team. We're at the center of our transformation for their efforts in solving our customers' most critical packaging challenges day in, day out. With that, Emile and I look forward to your questions. Operator, we would like to begin the Q&A session.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. We ask that you please limit yourself to one question. One moment while we compile our Q&A roster. Our first question is going to come from the line of Ganshan Panjavi with Baird. Your line is open. Please go ahead.

Hey guys, good morning.

Hey

Ganshan. I guess, good morning. Emile, I guess, you know, in your characterization of the food segment as relates to the various trends across your geographies as you look at for the rest of the year,

is

that pretty much in line with your initial view coming into the year, especially as it relates to the North American cattle cycle? And then related to that, what drove the upside specific to food in the first quarter? A lot of companies have called out, at the customer level, called out, you know, timing of Easter, etc. Do you think that played a role as well? Thanks.

Thank you Ganshan. Thanks for your question. Overall, in terms of the underlying market trends, they're more or less in line with our initial expectations. Although the, if you look at the North American cattle cycle, even though it's down year on year, it's slightly better than initially thought. We have strength in the other two regions in Latin America in terms of their cycle as well as in Australia and New Zealand where the market is up double digits. And as in our prepared remarks, you know, we did highlight, you know, the strength in Q1 came from a couple of pieces. One is carryover in terms of the holiday demand, but also in terms of new customer wins across several sectors. And so we're very encouraged in terms of the momentum of that business.

And Ganshan, the only thing I would follow on there too, it was a broad base, you know, as Emil alluded to in terms of overall regions, but also across many of our portfolios, right? Which was well received, obviously, for the first quarter and demonstrating some of the strength and not just our strength back to business, but across the board of Rollstock as well.

Thank you. And one moment for our next question. And our next question is going to come from the line of Adam Samuelson with Goldman Sachs. Your line is open. Please go ahead.

Adam, are you on mute?

All right, we can move to our next question. And our next question is going to come from the

line of George Stethos with Bank of America Securities. Your line is open. Please go ahead.

Thanks, everyone. Good morning. Thanks for the details. I guess my question centers around sustainability, the transition that you're trying to achieve, particularly within protective. So I guess the question is this. Sielder has always had fiber based solutions and protective packaging. You know, what factors to the extent relevant in terms of the going forward model allowed you to to some degree, maybe fall behind in terms of share and lose share and fiber based? What's it going to cost to bring out these these new programs and new SKUs? And, you know, what's the uptake been as you've been talking about this with your customers? So differently, you know, how much is it going to cost and how much volume do you think you can regain as you bring out these new products? And are you seeing more demand for this from your larger or smaller customers in protective packaging? Thank you guys.

All right, George, this is Dustin. And again, appreciate the question. So a couple of comments I would make going back starting with, you know, why haven't we been able to kind of gain share with lost share of fiber considering our portfolio? So you're correct. That in many cases, we already have a very strong portfolio in fiber and the statements that Emil alluded to earlier today is that our intention is to really round that out, complete it and to make it more fulsome across the board. He alluded to the paper boiler as an example, as well as continue to extend our fiber based mailers in terms of sizes, etc. So going back to the past, we talked about this a little bit on the kind of towards the end of last year around this commercial reorganization. So if you go back three or four years ago, we really consolidated ourselves into regional teams and as a part of that lost some focus on our overall protective business, right? Being, you know, roughly 35% versus food being more dominant in terms of the total portfolio. And so part of that reorganization was really to drive that focus, that intentional focus on the protective business holistically. And so right now our customers as well as our internal teams, because for them, they're really excited about, you know, the dedicated marketing teams, a rededicated focus on I&D. And so just being more intentional about driving that business forward. The second piece is from a customer reception, they're noticing it as well. So we, you know, Mila and I have had an opportunity to sit down with some of our distributors, direct customers, and they're noticing the difference in terms of just focus. And they're very excited that, you know, kind of our recommitment on some of these different offerings, again, to advance that portfolio. And, you know, it's more of a timing for us in terms of we bring it up to market. In terms of cost, you know, think of it as right now in terms of our guidance, our cap allocation from a capex, etc. That's all really today fully baked into our overall guidance and encapsulated in our kind of total top line and bottom line.

Thank you. And one moment for our next question. And our next question is going to come from the line of Matt Roberts with Raymond James. Your line is open. Please go ahead.

Hey, good morning, Emil Dustin. Thank you for the time. I think last year, you previously expected Evita to sequentially improve throughout the year, I believe. Now, I know one queue impressively came in higher, partially due to some holiday carryover. Could you quantify that holiday carryover or any of the cost takeout acceleration in the decline now expected again in two queue? Is that more volume related or have any of the price flow through expectations changed and any put stakes there would be helpful? Thank you.

Yeah, yeah, this is Dustin. I'll take this one. And so a couple comments I would make. One is we are continuing to accelerate our cost to go to grow program. We're really excited about mostly the improvements we've made. We talked about the 78 million in terms of a run rate. We're already on and the confidence that gives us at this point in time really being at the end of queue one and being able to achieve that full 90 million and candidly, we're not going to stop there. Right? I mean, in general, I think driving that cost conscious mindset into the organization is driving benefits. The bottom line and you're seeing some of that that a lot of that is going to be continued momentum, right? That's kind of baked into the forward looking guidance. But when you go to queue to write, there's really two impacts. I would say more broadly overall. One is you have effects coming down roughly the US dollar strengthening. So some of that decline is just purely effects for probably roughly about 10 million dollars. The rest is – there's a little bit of price in terms of sequential pressure, but it's relatively small. Think of it as roughly 5 million and then on volume, it's about 15 million. That's really the subsidization of the holiday demand kind of subsiding from queue one, which was stronger than we really originally expected. However, baked in in that is also the momentum of the gains that you saw. So you go back to queue one, it was a mix of that carryover, but also a number of gains, particularly in poultry. They're really excited about that continue to ramp throughout the rest of the year, which is again going to continue to drive some of that. If you kind of get beyond queue two, then you get into queue three, queue four, you're going to see food continue to ramp and kind of be in this low single digit range from a volume perspective with pricing subsiding as we go throughout the year in terms of an impact.

Thank you. And one moment as we move on to our next question. And our next question comes from the line of Jeff Sakowskis with JP Morgan. Your line is open. Please go ahead.

Thanks very much. You were talking earlier in the call about the risks connected with PVDC. Is the issue, the bill in California, that being weighed or is it a European issue? Have your competitors already changed over to a different material? Do you feel like you're lagging behind in technology? Are there particular dates that it may be good to be aware of in terms of when this packaging may or may not be used?

All right, Jeff. Thank you for that question. I'll try to be as comprehensive as possible. So when we're addressing PVDC, there's a couple comments I'll make. We've talked about a third of the overall business in food specifically being PVDC, but another point is about a third of it is also EVOH. And to hit your question directly, are we lagging behind? Absolutely not. And ten of the conversation is to really demonstrate one is that our offerings, because these really – the PVDC specifically, our shrink bag business is really around three pieces. It's the strength of the material science, and that can be whether it's PVDC or EVOH. We offer both today as well as the technical services capability, and then you combine that with our automation. That's really the strength that was driven us to become the market leader in that segment and will continue to be. And so we're continuing to navigate that landscape and make sure that whether it's our manufacturing footprint or other aspects, we're able to candidly do both. And that's generally the way you would update the technology across our manufacturing footprint. And as it relates to your specific question around California itself, at this point in time, there's no specific dates. California recently in roughly Q1 of this year, earlier than Q1, kind of announced what's called AB2761, which is a bill related to – it's really a toxins bill broadly that speaks to both PFAS, which we've already eliminated within our food packaging, and then as well as PVDC. And the broader comment is we're continuing to work. At this point in time, that bill is not in a place where it's enacted, and we're continuing to make sure that we advocate with agencies and our coalition to make sure people understand the impact that you have more broadly with how PVDC plays an important role in mitigating food waste across the globe.

Maybe I'll just jump in to add a couple of pieces. So one is ultimately we offer our customers what they would like, and in many cases we help them in terms of coming up with different solutions to address any potential regulation. So we approach it multi-front, right? One in terms of working with industry associations to make sure the legislators understand the benefits of the different packaging. PVDC in this example, it is the best barrier layer out there. Two is within our portfolio, we are offering multiple solutions, both on the food and the non-food side. We talked earlier about the fiber part of the portfolio. So – and then finally, in some cases, you know, customers are reaching out to us to solve problems that were not in our portfolio. We gave the example of the compostable fiber tray that we launched last quarter. So again, this was in response to specific customer coming to us and asking us to help them solve their problem with the EPS challenge. So really approaching it from end to end and tackling those issues.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Michael Roxlin with Trua Securities. Your line is open. Please go ahead.

Thank you, Dustin, Emil, Brian, and Luis for taking my questions. You already touched a little bit in terms of momentum building in the business. You already spoke about food in terms of new customer wins, especially around poultry. Any other pieces that you can comment on that have inflected or are that doing better? And then secondly, Emil, you mentioned pivoting your digital and automation strategies, and you said, you know, you'll comment – you'll have more comments later on on future quarters. But can you get a sense of what's happening there? What are you reevaluating? Any comment you can provide about what other strategy around digital and automation?

Yeah, thank you. And I'll take the first part, and then Emil's going to take the second part of that question. So just in terms of kind of what's doing better and underlying, I would tell you in general across the business, particularly within food, bags specifically, right? So if you think about – despite some of the issues that you're having in the overall protein cycles that we talked about holistically, our bags business – so think of it as poultry is more on the overwrap, and then think of it as in our roll stock portfolio. If you think about our bags business, we're really firing on all cylinders across all three regions. And so that's really the momentum. And I think what's happening is what you've seen is it's no – it's obviously no surprise to anybody in terms of where protein cycles around – particularly around beef are. But what you're still seeing is strong retail demand. And so you're seeing a lot more exporting activity right now happening across the globe as a result of that as you think about the major industrial food processors trying to make sure that they're getting the right supply to where the strongest demand is. And so we're obviously helping them through that. So I would say that's the biggest area. And as you go back to protective, talking about some of the areas that were better in Q1, really strong around our APS offerings where we talked about a lot during 2023, some of the destocking activities that happened. There's still some of that in EMEA, but in general, we talk about strength in Americas as well as Asia-Pac. Again, APS plays a part in that. Our box rep sizing solutions performed very well. But we also have pockets of green shoots, and think of it as the strength films, inflatables, and a couple other areas that we're inflecting back to positive volume. So again, we're remaining cautiously optimistic. If you look at kind of the outline periods for protective, you're going to see volume kind of improve. Q2 will be very similar to Q1, but then Q3 and Q4 are our expectation right now that business will continue to inflect. And on food, Q2, you're looking at a little bit of flattish volume, going back to the reasons we discussed earlier, but then that Q3 and Q4 will be strong, kind of low single digit volume growth driven off the back of those winds and just the momentum that's building in that broader business.

And then jumping in on the digital automation, again, as we said, we will talk more about this in future calls, but let me just hit a couple of those highlight points to you, things that we already started discussing in the last quarters. So first one on automation. So if you think about our business, where we build strength is where we have superior materials, technology to offer to our customers, accompanied by strong automation solutions as well as service. And that's been the drive. And we mentioned the last call that where we have gaps in that portfolio is in a couple of areas. One, if you think on the protective side, we've announced partnerships around getting the 3D right box solution, and we are starting to get some gains from that partnership. Second, we announced recently in one part of our road stock portfolio where we've announced a partnership around trades and overwrap, and we are working there with more partnerships to come to complete that offering. But also on the fluid side, on the liquid box automation sales are a very small percentage in terms of the overall portfolio. And there we're working on a couple of partnerships, which we hope to announce in the next couple of quarters around being able to offer full automation solutions. So again, if you think about it, our approach to the market is superior materials, automation, accompanied with service. Then jumping in on digital, again, two pieces there that we're going to be exploring further in the next upcoming calls. One is on the digital commerce. So today we have about 22% of our sales that are going through that channel. And as we talked in the past, we pivoted from just continuously investing in more capabilities in terms of using the investments we've made to drive into commercial success, both from the top and bottom line. And then the second piece that we've talked about, which will come to market in the back half of the year, is around our digital printing technology, where we're introducing for flexible, shrinkable materials, the first commercial scale digital printing capabilities with water-based inks. So again, more to come, but those are two key pillars in terms of our growth strategies.

Thank you. In one moment, as we move on to our next question. Our next question is going to come from the line of Edline Rodriguez with Mizzouho Securities. Your line is open. Please go ahead.

Thank you. Good morning, everyone. So Dustin and Emil, just kind of looking ahead like the next two, three years, just wanted to get a sense of what keeps you awake at night? Like what do you see that has the most opportunities and what concerns you the most? Like when you're thinking about the business portfolio, it's like what keeps you awake at night? Or do you sleep like a baby? I

appreciate the question. So I would say a couple things. It's well worth really talking about our call today. A lot of things that we're working on is part of our overall transformation, really to address those, really maximize the opportunities we have and minimize the risk that we see ahead of us. And if you really think about that and break it down a number of different areas, one is we recognize kind of coming off the volume losses in 2022 and 2023, that there was work to be done with the overall cost structure. We feel like we have that well underway. And the 78 go into the 90. The second piece is around the commercial reorganization, where there was a sense that we had lost some focus on the overall protective business. We completed that reorganization in the first quarter of the year in February. We're really excited about the traction that's gaining, but that work will be ongoing in terms of us continuing to drive commercial execution, commercial excellence. And so those areas, it's too early to call in terms of the intangible benefit that we'll get relative to driving overall growth, but we're quite optimistic already as we sit here in April, just a few months away from that initial organization. The second piece is around the overall portfolio, right? And I think that area, as we've talked about, we're excited about some of the things we're building to drive in 2024, but that work will be ongoing. And as you think about completing the portfolio from an overall fiber, it's not just the fiber piece. Going back to the earlier question I believe George had, it's also about making sure that we can commercially execute well in that area, not just across our direct customers, but our channel partners. We're continuing on that work, and then we feel incredibly well positioned, as we mentioned earlier about some of the sustainability challenges that we're facing on with food and protective, the fiber and protective, and on food, as we talked about earlier today around PBDC and focused on certain plastics. But we feel incredibly well positioned, but we'll have to also continue to manage that transition from here on.

Thank you. In one moment as we move on to our next question. And our next question is going to come from the line of Gabe Hodge with Wells Fargo. Your line is open. Please go ahead.

Good morning, Emil and Dustin. I have one confirming question for us non-material scientists on the call. So this PBDC discussion, to be clear, it's a middle layer within a multi-layer 911 layer film with no direct food contact. And more importantly, yeah, prevent contamination, food waste, and you can today change the formulation at your customer request, although it may compromise some of these, again, extended shelf life attributes.

Gabe, to answer that question. Sorry, go ahead.

Apologies.

Go ahead.

Yeah, so thanks for that question. The answer is yes. It is a thin barrier level that manages oxygen transmission rate within our multi-layer films. To be clarifying, we already offer both today, right? And it's really based on customer preference, market need. And so at any point, if something changes from a regulatory environment, we'll be well positioned to manage that transition. But it's already offered today. It is that there's no food contact

associated with it. And it's obviously fully FDA compliant.

Thank you. And one moment as we move on to our next question. And our next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open. Please go ahead.

Yes, thank you. I appreciate you guys getting me back in the queue. I guess I wanted to just get an update on price cost. Certainly, there is still pricing pressure in protective as well as food. But if I'm looking at the business of the quarter, price cost seems like it was a much smaller drag on the business year on year than maybe had been previously contemplated. And maybe put another way can help us bridge some of the year on year margin expansion in the protective business. And just help us think about where volumes are still negative. Help us think about how you got that much kind of leverage and even the expansion in the on protective side. Thank you.

Adam, great question. I'll start with just kind of giving you a bridge holistically around net price realization. So I appreciate the question. And just to start there, we expect net price realization to be in the order of magnitude around $80 million negative year over year. Right. That's about $140 million of price offset by benefit and direct materials of about $100 million and then offset by some of that inflationary, albeit much smaller than prior years around – think of it as labor and non-material cost as well. So it's about negative 40. It gets you to that negative 80. That's actually about $15 million worse than we originally anticipated. And a lot of that's coming from a little bit of – let's say increased price pressure that we see overall. And that's being offset by the productivity benefits more broadly than the business. Because keep in mind, while we're driving our Cost Takeout to Grow program, which is restructuring holistic business, we're always continuously driving productivity in the underlying business. And a lot of what you're seeing in protective, if you go back to that Cost Takeout program and you go back to Q1, which keep in mind was a very low quarter in 2023 for Q1 specifically for protective, that a lot of the actions that we've been taking in terms of cost control, productivity, footprint rationalization, SG&A optimization have all really been targeted in that protective business. And that's why you're seeing some of the benefits you're seeing today.

Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of Christopher Perkinson with Wolf's Research. Your line is open. Please go ahead.

Great. Thank you so much. Can you just take a step back and just looking at some of the businesses that you're referencing and the movement in food and improvements, can you just take a step back and talk about a little bit more how you are thinking about your product portfolio, what you're seeing by geography. Obviously, there's been a lot of noise across protein markets the last few years. It seems like things are turning generally for the positive, but I'd love to hear your perspective on how confident you are to fully benefit from these improvements or at least stabilization, let's say, for the balance of 24. Thank you.

Yeah.

Thank you, Chris. And so I'll start with food, then I'll move to protective. And so we feel really strong about food holistically, going back to where our strength is, where we continue to be the market leader in our overall bags business, continue to gain share. We're really good about that outside of kind of the market ebb and flows on global proteins, particularly as it relates to fresh red meat, specifically beef. And in this note, we talked about the fact that this year is obviously a down year in the cattle cycle, and it's going to take a couple years to work through that. But we feel really good about our placement from a portfolio perspective. And again, it's that combination that drives it around material science, automation, as well as technical service. So, you know, when you think about it, when we talked about in Q1, excuse me, during Q4 earnings call, and what we're still focused on in a meal alluded to a little bit earlier is really rounding out our roll stock portfolio. We see that as an area of continued growth. We're not the market leader in that space today, and that's part of what creates a much larger market as well, much more fragmented. And so we feel, you know, our focus from a portfolio perspective is continuing to round out that offering set and make sure that's competitive in the marketplace. And so we're targeting specific applications that we're going after. And, you know, an example would be today, the strength of our poultry business, they extended that into other areas. Then when you move to another third piece, just from a category perspective, is the trades, right? We see a huge opportunity. Think about sustainability themes around EPS, you know, that kind of the bands coming in place for that. Composable trade relaunch, but there's many other formats from a trade perspective that we're working on that we're excited about. And so we can see that as a potential opportunity to just true net new growth going forward. And think of that as multi-year beyond just 2024 but into 2025 and 26, right? And then as you shift gears and you go to protective and you think about the portfolio there, it really is that completion of completing the overall fiber-based portfolio and continue to extend some of the automation capabilities that we have. And, you know, the focus there, and Mel alluded to it earlier, around the paper mailers, which is huge opportunities. You think about the e-commerce trends around a shift away from boxes into mailers more broadly. If you think about, you know, we talked about 2D right sizing that we already have today, 3D that we're beginning to generate sales on that will come into play in the second half of the year. It's those areas that give the optimism, the area that we're still looking at and cautiously optimistic about is the rest of that broader portfolio. Think of his utility. I think this is classically bubble wrap, foam, etc., where you still see kind of weakness in Q1. And a lot of the channel checks we're doing and talking to our distributors kind of as you think about the rest of the back half of the year, they continue to be no different than we talked about in Q4, optimistic about the second half, but no one at this point in time has true line of sight, right? So that's the area that we're continuing to work and gain momentum. And I'm going to turn to Mel.

Yeah, just to add one area that, you know, we haven't talked a lot about the last month, but it's on the fluid segment as well. We continue to be excited about the fluid segment and the growth there, be it through some other innovations around FlexPrep for the food service area. But also, if you think about it holistically with all the sustainability and recycling pressures out there, there's going to be more and more pressure for people who are in the rigid business, be it plastic or non-plastic. To go towards flexible. So we're well positioned in terms of not only driving growth through our own innovations, but also how do we take advantage of the sustainability trends to penetrate further in terms of rigid flexible conversion.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Anthony Petunari with Citi. Your line is open. Please go ahead.

Good morning. Dustin, on the last call, you talked through the net pricing outlook for 24. And I'm just wondering if there's any update on those items. I think you talked about 60 million negative net price and with some moving pieces from raw material prices and the bonus pool restoration. So I'm just wondering if there's any material changes there. And then the 20 million EBITDA drag from net price in one queue. Was that in line with your estimates? Better, worse? Any thoughts there?

Yeah, great question. So I mentioned a little bit earlier and I'll break down kind of where we're at today. We're about $15 million worse, 15 to 20 year over year, our net price realization is driven primarily by the increase in pressures a little bit from a pricing standpoint. We're roughly negative 140 million in price offset by $100 million of benefits of direct material costs. And then that's being offset by inflationary pressure and non-material, non-labor costs as well as labor costs. And that kind of brings you back down to roughly a net $80 million number for the full year. Q1 was really driven by – so that's net price realization. We feel good about that for the remainder of the year as we kind of manage throughout this. And again, we're obviously really focused on cost control right now. When you think about Q1, the benefits in a lot of ways was kind of the performance from a volume perspective, the leverage that drives the business. We've talked about it, but not enough in the sense that as volume comes back and is restored, particularly you see the food in Q1, but you're seeing it even somewhat in protective as that business is stabilized, is that you're seeing the ability for the business to drive leverage in it, operating leverage. And then that's also benefiting from just continued focus on CTO to grow, being cost-conscious, broader productivity benefits in the business, and you're saw that materialized in Q1. And so from the bonus restoration perspective, it's really just in line right now for the full year. So we're still driving towards – you still have that impact. That impact is already embedded in everything that we just talked about in our guidance as well.

Thank you. And one moment for our next question. And our next question comes from the line of Yaron Biswan Nathan with RBC Capital Markets. Your line is open. Please go ahead.

Great. Thanks for taking my question. I guess I just wanted to come back to a similar line of questioning around the bridge. So my understanding was you're expecting about plus $90 million from cost takeout to grow, and it sounds like you're now expecting minus $80 million for net price cost. So that's a plus 10 net. And then you have the minus 60 for incentive comp, and so that's a minus 70 net. And so when you think about volume, it looks like if you think about flat volume, really it would be kind of negative volume that would get you to that kind of flattish EBITDAI year on your outlook. So could you just update on how you guys think volume should progress from here? I know food outperformed a little bit, but protective is still down. Looks like it's down about 22% on a two-year stack. So does that kind of flatten out as you move forward, or how do you think about volume and relate that to the bridge? Thanks.

Sure. Yeah. So I'll come back to the bridge as a last point. But just talking about volume progressions throughout the year, if you look at the total company level, right, and you think about how volume is going to continue to progress, if you think about right now today, we drove about half a point of growth in Q1. And then if you think about as you go to Q2, we're down about a point and a half, and then you're going to expect the rest of the second half of the year, really, in this, think of it as a total around .5% per quarter. That drives you to about a point of volume growth in the full year. It's really being driven all by food. So if you break it down by overall businesses and you go back to food for a second, food volume, you're looking at 3%, and that's the strength that we talked about earlier today at length. If you think about Q2 is flattish for the reasons that we've already outlined, and then those wins coming through in the broader business, you're looking at low single-digit growth that gets you to about 2% to 3% for the full year. And then if you go to protective, Q2 is going to be a similar result. It's improved year over year from Q4. So if you think it was down five, now you're down four. If you continue to be down four in Q2, then as you get to the second half of the year, it begins to improve. And we talk about that to where we think that it will inflect kind of during the Q4 timeframe. So if you think about bridging for the full year holistically, that net price realization of about negative 80 million, then we talked about the plus 90 million. Then you have a negative 40 million roughly raised to the bonus restoration and a positive 20 related to volume, and these are all, again, rough numbers.

Thank you. And one moment for our next question. Next question comes from the line of Sillengi with Jeff Rees. Your line is open. Please go ahead.

Hey, guys. Congrats on a strong coordinate and choppy environment. I guess my question is on protective. Looks like volumes have stabilized, but you did call out perhaps EMEAs a little weaker, seeing some destocking and sustainability pressure. Is that a material risk and how to think about your demand profile this year? Appreciating comments around being refocused on the commercial team on protective and kind of driving fiber on the protective side. How does that margin profile look and aspiration when we think about 2025, give us some perspective is how big this could be. And when we look at the recovery next year, are some of these headwinds that you've called out limiting your ability to grow or we should see a typical cyclical recovery in that business like we've seen in past cycles?

Yeah, so a great question. And I'll start with the EMEA comment, and you're right, we did rightly call that out. It was down significantly in Q1. And really that's an extension coming out of 2023 where I would say you go back to 22 where the volume really came down that business. You know, EMEA came a little bit later in that cycle in terms of actual volume decline. And it's kind of, you know, kind of think of it as last in and last out relative to as we progress, we see Q1, we see that business to substantially improve as we go to Q2, Q3, and Q4. The sustainability pressures are still being overall. We did make the comment around the acceleration, and that acceleration is that shift of fiber where you see it more quickly happening within the EMEA business than you see it relative to our Asia PAC or obviously our US North American business or Latin American business. And, you know, right now we don't see that because keep in mind, our EMEA, you know, protected businesses, you know, I want to say roughly 20% of the total protective business that we see. One, the work that we're doing from an overall portfolio perspective will allow us to begin to participate in a more meaningful way in the growth and that transition, which will help offset some of the sustainability pressures that we just discussed. And then more broadly, we still believe that business is set up for a cyclical rebound. I go back to we're anticipating an L-shaped recovery. We're still expecting that throughout this year. A lot of that will be dependent on how we perform in the second half. And as we mentioned on the kind of prepared remarks, you know, obviously we're looking forward to come back into that discussion in August. I'll give you more clarity because, again, we still are operating in a low visibility dynamic environment. But there's nothing from our point of view as we think about the underlying market growth trends that come with a rebound that we should be able to participate in that, albeit, and EMEA as an example, maybe at a slightly lower rate until we get our portfolios out where we need it to

be. Thank you. And one moment for our next question. Our next question is a follow-up question from George Duffos with Bank of America Securities. Your line is open. Please go ahead.

Thanks so much. Hi, guys. I just want to come back to my earlier question, and it's really around, you know, what are your customers asking you in particular in both segments relative to your product offerings? I know it's kind of a broad question, but within Protective, do you see any difference between what your smaller distributor customers are asking for from Sealed Air relative to the larger ones? You know, so for example, are the larger ones really more focused on fiber and the smaller guys are really more focused on pricing or service? Is there a way to differentiate and in turn, you know, kind of, I know it's in your guidance, but what's it costing you? And then when you get that fixed, maybe piggyback a little bit on what Phil was getting at, what's the uplift? When you get that resolved, what does that mean in terms of revenue and earnings? Similarly in food, we know you have the product offering that you think you need. We know that customers basically dictate whether they want PVDC or EVOH or any other barrier layer in their bags or whatever. Do you have given your portfolio right now, basically offer whatever the customer needs. If they want to pivot to some other structure, you are not constrained from the supply chain standpoint. You can offer whatever they want and not have it impact your earnings or would it? Thanks. And I'll turn it over and good luck in the quarter.

Yeah, yeah. Thank you, George. So to come back to the point about Protective, I would say that keep in mind, you know, when you think about our distribution footprint, your larger distributors tend to, you know, kind of offer the full breadth and depth of the entire portfolio where you could have reasonable distributors, you know, offering different pieces of it, not holistically. So some of the needs are dictated by obviously the pieces of the portfolio that they all collectively sell. And I would tell you in general, there is a desire to have a broader fiber footprint, which is what's leading to us. It means obviously that customer feedback, whether it's directs or within our distribution, they're leading us to kind of think about and shape our overall portfolio. Where are they seeing demand where we don't have it right now more broadly? And so I think that that's really been the focus area. And going back to your question around then tangibilities, you know, and I just want to hit you on that. And I think it comes back to that one point. So you also made a comment about is service different, etc. It depends. It really depends, again, on the portfolio of those sell because the service models that you have are really structured around those individual areas where if somebody is selling a lot more of an automation portfolio, you're also going to have a lot more technical services that relates to services and machines. But it's really dependent on that portfolio mix. So what we're focused on is getting that optimum mix in each individual distributor. And then the rest of it will kind of follow suit. I mean, again, our technical service has always been a bright spot in terms of competitive differentiation, and it continues to be in our distribution as well as direct customers recognize that. When you think about our overall food business more broadly, I think that a couple comments I would make. The answer is yes. We obviously offer both today. And I think our customers dictate what they want in that portfolio. We feel really good about – because specifically the question you're asking about really relates to our shrink bag business, and we feel well positioned to continue to offer either type of materials or bags that they would like at any given point in time. And so we're in constant dialogue, no different than when our distributors were in constant dialogue. I know myself with our direct customers, our largest customers, to really understand what their needs are, how sustainability pressures are shaping their thinking around their overall needs in terms of what's also important for their supply chain. Because I'll tell you that's the most important part. A lot of those discussions are less about sustainability and more about performance, and we continue to be well positioned there. And then, again, we're really excited about the play that we have with our fluids and liquids business and the opportunity that presents to continue to displace ridges from an application perspective. And so I feel really well positioned there. Right now, going back to your question about cost, it is embedded, and there's nothing in our portfolio. Just think about it over time. This isn't the first time that we've had some type of pressure or we've shifted our portfolio or navigated these types of scenarios. It's embedded in our current capital outlay for 2024 and is part of our broader – as we think about it kind of getting to where we need to from a deleveraging standpoint in 2025, it's embedded in that as well.

Thank you. And one moment for our next question. Our next question is a follow-up question from Gabe Hodgy with Wells Fargo. Your line is open. Please go ahead.

Thank you for taking the follow-up. We didn't spend a whole lot of time talking about automation. Amelia kind of teased out that you guys would be, I guess, updating us in the second half in terms of strategy or resources there. But was that a drag here in the first half? We're reading a lot about delayed capex projects from just industrial companies in general, lack of visibility, higher costs, financing costs, et cetera. And then just kind of what the -to-bill ratio has been trending like. And then could that be things normalized in 2025? I think on the food side, your customers are pretty well-incented to use your equipment. Could that be kind of an incremental tailwind for you in 2025? Thanks.

Yeah. Thank you for that question. So actually, you know, we did say in our prepared remarks actually in the first quarter we saw in the food business our automation sales up double digits. But for the year, we're still in line in terms of where we got it. It is going to be flat-ish driven by all those factors that you highlighted in terms of -to-bill ratio. We're at one, right? So some of that is burning through some of the backlog. So again, there are hesitations out there in terms of triggering investments from our customers. But if you look at our customers' profitability profiles, it is significantly improving. So we are still optimistic about the future. But this business, as you can imagine, is lumpy in terms of when exactly it comes, when you install, when you can recognize the revenue. So again, our outlook on automation for this year has not changed. We're off to a good start. And we do believe that cyclicality will come back and we're going to be ready to take advantage of that.

Thank you. I would now like to hand the conference back to Emil Sharma for closing remarks.

I'd like to thank everyone for their time today. And just to reiterate, we are pleased with the first quarter results. And we're excited about the momentum building in the business and the progress we are making on transformation. And we look forward to speaking to all of you again in August. Thank you. Yeah, thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.