The speaker of the Q2 2023 Sealed Air Earnings Conference Call, Brian Sullivan, welcomed all participants to the call and introduced the other executives present. He noted that a slide presentation with enhanced visuals was available to download from the company's Investors page. Sullivan also warned that any forward-looking statements made during the call were based on information available at the time and that future performance could differ due to a variety of factors. He also mentioned that non-U.S. GAAP measures would be discussed and that their reconciliations to U.S. GAAP could be found in the earnings release and appendix of the presentation.

The company launched the Reinvent SEE program in 2018 in order to address major challenges and improve their stock price. This program focused on automation, digitalization, and sustainability, resulting in annual savings of over $300 million, margin expansion, and 5% top-line growth. In 2020, the COVID-19 pandemic caused demand surges in e-commerce and food retail, as well as supply chain disruptions, inflation, product shortages, and overstocking. Ted is now introducing a new program called Cost Take-Out to Grow as part of their Reinvent SEE 2.0 program to return to growth and take out costs in this challenging post-COVID environment.

Reinvent SEE is evolving their Cost Take-Out and productivity program to $140 million to $160 million of annual savings in order to become world-class. They are transforming their go-to-market team to an efficient and effective solutions-focused organization, driving automation, launching new product innovations, and optimizing their supply chain footprint. They are targeting low single-digit growth and margin expansion, and their digital online transactions have grown to 16% of total company sales.

The Protective Solutions business, which represents over 50% of total revenue, saw a low single digit decline in volume in the second quarter due to inflation and consumers trading down from premium to lower-priced proteins. Automation solutions for proteins grew approximately 40%, and Fluids and Liquids experienced mid-single-digit growth. The U.S. cattle cycle is expected to be a headwind, while the Australian herd cycle has already positively impacted the business. Automation is expected to continue to be a secular driver across all markets. Medical is being brought into the Fluids and Liquids business to capture the synergy between CRYOVAC Material Science and Liquibox fitment and attachment technologies.

SEE Automation Solutions saw a 20% increase in growth during the second quarter, with food automation being particularly strong. Digital solutions saw significant milestones, such as the introduction of the prismiq digital printer unit, and transactions on the MySEE platform surpassed $1 billion in annual run rate. The company is focusing on expanding its Automation capabilities and fiber-based solutions, as well as increasing engagement through MySEE. Additionally, they are performing a strategic review of their protective portfolio to optimize and unlock value.

SEE has implemented an Online Design Studio to provide customers with faster web-to-print solutions, streamlined graphics processes, and reduced print lead times. They have also improved their MSCI and Sustainalytics ratings, and have partnered with ExxonMobil Australia to avert 900 tons of plastic waste annually. They have also introduced a combination of CRYOVAC auto pouch equipment, Liquibox dispensing technologies, and prismiq digital connectivity to bring value and create customer returns. This has enabled over 2x operational efficiency, over 30% waste reduction, improved speed of service, reduced storage requirements, and enhanced safety. It has also resulted in over $10 million in operational savings for customers, and a prefilled fresh lemonade bag in the box solution to replace rigid plastic jugs for quick service restaurants.

In the second quarter of 2023, net sales were down 1% and adjusted EBITDA was down 5% compared to the same period the previous year. Adjusted earnings per share were down 22% due to lower volumes within Protective and an adjusted tax rate of 26.9%. Liquibox contributed 5% to top-line sales of $75 million, but this was offset by organic declines. There was no share repurchase in the quarter and the weighted average diluted shares outstanding was 144.8 million.

In the second quarter, food net sales were up 3%, while protective net sales were down 18%. Food adjusted EBITDA was up 16% with margins at 21.7%, while Protective adjusted EBITDA was down 24% with margins at 19.2%. Net sales in constant dollars were down 1%, with 12% growth in Food and a decline of 2% in the Americas. Free cash flow was a use of cash of $130 million compared to a source of cash of $94 million in the same period a year ago, due to improved working capital.

The company anticipates a V-shaped recovery in the second half of 2023, however due to continued end market demand weakness and destocking, they are revising their guidance to an L-shaped recovery through 2023 and into 2024. They expect net sales to be in the range of $5.4 billion to $5.6 billion, adjusted EBITDA to be in the range of $1.075 billion to $1.125 billion, adjusted EPS to be in the range of $2.75 to $2.95, and free cash flow to be in the range of $325 million to $375 million.

In the third quarter of 2023, net sales are expected to be between $1.360 billion and $1.380 billion, adjusted EBITDA between $260 million and $270 million, and earnings per share between $0.60 and $0.64. To restore earnings and volume growth in 2024 and beyond, the company has launched Cost Take-Out to Grow as part of Reinvent 2.0. For the second half of 2023, the company is expecting a slowdown in food and Packaging volumes.

Dustin Semach answers a question about the volume run rates of the businesses during July. He explains that the U.S. cattle cycle is causing a shift in volume in the second half of the year, which is being partially offset by the Australia herd cycle. In the Protective business, there is end market weakness and destocking causing high single-digit volume declines in the second half. He is then asked about the volume declines in terms of market declines, switching share losses, and trade downs. He explains that the longer the demand in their end markets is weak, the more the destocking cycle will be extended into the third quarter.

Dustin Semach and Edward Doheny discussed how volume and price had changed in the Food and Protective segments of their business. Food had seen a 4% decrease in volume and a slight uptick in price due to year-over-year comparisons. Protective had seen a 3% decrease in price and a high single digit decrease in volume, with half of that being due to market slowing, a quarter due to destocking, and the rest due to share loss. Automation was driving growth, and Food had a strong backlog.

The company is expecting a 40% increase in part shortages in the food business, and they are working on new products in the automation business. They are seeing reduced destocking in the protective side, but they are still expecting more of it in the second half of the year. They are also expecting more opportunities in the protective side from their e-commerce platform, fiber-based solutions, and automation. They expect the first half of the year to be tough, but expect the second half to stabilize and build into next year. Additionally, they are expecting $140-160 million in savings from CTO2Grow, but this is dependent on the volume outlook.

Edward Doheny and Dustin Semach answer a question about Sealed Air's need to get closer to its customers in order to have a better view on the volume outlook and how that will affect savings and cadence. Semach explains that Sealed Air is committed to $140-160 million in savings over the next couple of years, with 60-70% appearing in 2024 and the remaining portion in 2025. He also mentions that the teams are actively engaged and executing on the plan.

George discussed the pressure the company is feeling in the Food sector due to reduced demand, and the need to adjust for the second half of the year. Automation has been a strong point for the company, and they have been reducing bookings while still maintaining a strong pipeline. The company is confident that they can hit their Automation goals for the end of the year and into 2024. In Fluids, progress has been made in regaining lost Food volumes from last year, and the company has a go-forward approach for the Food sector.

Edward Doheny states that the company is confident in their customer relationships and automation capabilities, which have allowed them to take market share. They are also actively engaging with customers to regain business they lost five years ago, and have new designs in place to help them compete with larger competitors. The company also believes they have the best products, equipment, and sales and service team, which will help them gain market share.

Edward Doheny was asked about the growth side of their restructuring efforts. He said that they had redirected resources to take care of the COVID period and had to redesign products. He is confident that they can get back to low single-digit growth and their internal plans are above that single-digit growth. He said that they have committed to low single-digit growth and they will continue to under promise and over deliver on their savings. He mentioned Liquibox as an example of an inorganic growth strategy.

Dustin Semach answers a question about CTO2Grow, which they believe will enable them to achieve low single-digit volume growth. He also mentions that they expect to achieve 5-7% sales growth, which includes gross price and acquisition-related growth. He also states that Liquibox revenue will be $50 million lower than expected, but will come back in 2024 and beyond.

The company is focusing on Cost Take-Out to Grow, which is projected to yield $140 million to $160 million of annual savings through 2025, while expecting low single-digit growth during that period. In the short term, the company is focused on deleveraging and net price realization is expected to be negative. In the long term, the balance sheet will be further leveraged, markets will be in a different place, and the company will be able to get back to its SEE operating model. Regarding the Liquibox, the company is addressing operational and quality issues, adjusting rates, and communicating with customers to take advantage of opportunities.

Dustin Semach discussed the cost savings that will be focused on the Protective segment in the second half of the year, due to the volume stabilization. He also mentioned that the cost control and Cost Take-Out to Grow initiatives will benefit in the second quarter and beyond, with Protective in-house performance in the first half of the year being the best of 2022.

Edward Doheny and a company representative answer Arun Viswanathan's question about Protective's growth next year. They explain that they are planning to have margin expansion in the second half of the year due to a shift in product mix and new products coming in. They also suggest that they will be able to return to the SEE operating model growth level of EBITDA in the mid- to high upper single-digit range.

Arun and Edward discuss the importance of volume growth in restoring earnings for the upcoming year, and the Cost Take-Out to Grow program is expected to drive earnings growth ahead of top-line growth. The plan is to beat the $150 million cost target, and growth initiatives must be implemented to add a percent or two to the model for 2024-2026.

Edward Doheny is discussing how the company is undergoing a portfolio review to determine which products fit into their strategy of automation, digital and sustainable solutions. They are pruning or shrinking products that don't fit in, such as the reflective business and Kevothermal. They are aiming to replace these with newer, higher-margin business.

Edward Doheny discusses the company's Automation strategy, which involves growing their product lines and reaching more customers with their Automated Protective Solutions portfolio. He also mentions that their bookings were too high last year due to an inability to ship, but they have been able to work that down in the first half of the year. Lastly, he mentions their digital transformation and MySEE, which they hope will grow in the intermediate term.

Edward Doheny discussed the challenge of balancing the reduction in demand and CapEx spending with the need to turn the pipeline into bookings in the second half of the year. He also discussed the progress of MySEE, Protective's Digital solution, which is helping with interactions between customers and factories, as well as the implementation of Online Design Studios to help customers design products quickly and scalably. He thanked everyone for their time and concluded the conference.

The speaker expressed excitement for the opportunities ahead for SEE and thanked everyone for participating in the conference call before concluding the call.

This summary was generated with AI and may contain some inaccuracies.