The operator introduces the Sealed Air Fourth Quarter 2023 Earnings Conference Call and reminds participants that the call may be recorded. Brian Sullivan, Head of Investor Relations, introduces the speakers and notes that a slide presentation is available for download. He also mentions that statements made during the call are forward-looking and subject to certain factors. Emile Chammas, Interim Co-CEO and COO, and Dustin Semach, Interim Co-CEO and CFO, will be presenting.

In the fourth quarter and yearend earnings call, SEE's financial performance and market updates were discussed. Sales and adjusted EBITDA were in line with expectations, but there were challenges in the food and protective segments. The company delivered strong free cash flow and is focused on transformational actions to improve fundamentals and position for future growth. This includes reallocating resources to enhance customer proximity and commercial effectiveness.

The company has reorganized its commercial teams to improve customer centricity and increase market share. They are shifting their focus to innovation and leveraging customer feedback to drive their innovation pipeline. They plan to introduce new sustainable products and have already introduced a bio-based compostable tray for protein packaging. This will help them gain share in the protein trays market and support customer sustainability goals.

The company has been focusing on optimizing its portfolio by investing in core growth products and deprioritizing others. They have made progress in redefining their long-term strategy and are focused on making improvements regardless of the operating environment. Cost reduction initiatives are also underway, with a goal of achieving $90 million in year-over-year cost savings in 2024. In the Food and Protective segments, there have been ongoing challenges, but sequential performance improved in Q4 due to increased holiday demand. These challenges were attributed to factors such as the rebuilding of the cattle herd in North America, shifts in European protein production and consumption, and consumer trade down in retail food.

The depressed capital cycle and higher interest rates have negatively impacted the equipment business, and these trends are expected to continue into 2024. 2023 was a difficult year for Protective, with a contraction in industrial production and high inflation affecting consumer spending. E-commerce packaging choices and demand are being reshaped, leading to pricing pressures and intense competition. While market indicators suggest an improving 2024, there has not yet been an uptick in demand for customers' businesses. However, a gradual recovery is anticipated in 2024 and 2025, supported by innovation and sustainability initiatives. In the fourth quarter, net sales were flat and adjusted EBITDA was down 8% compared to last year.

In the fourth quarter, adjusted EBITDA for the year was down 9%, with volumes improving sequentially due to holiday demand. Adjusted earnings per share were down 11% compared to last year, with a lower tax rate due to a one-time benefit. No shares were repurchased in the quarter. Liquibox contributed 5% to total sales, but was offset by lower pricing and volume in both businesses. Food net sales were down 3% on an organic basis, primarily due to volume declines. Food adjusted EBITDA was down 3%, with margins at 21.8%.

In the fourth quarter, adjusted EBITDA decreased due to higher operating costs and lower volumes, but was partially offset by contributions from the Liquibox acquisition and favorable net price realization. Net sales for the Protective segment were down 10% due to weak market demand, while net sales for the Food segment were flat. By region, Asia Pac saw growth, while Americas and EMEA experienced declines. For the full year, net sales were up in the Food segment but down in the Protective segment. Free cash flow increased by 24% compared to the previous year, primarily due to inventory reduction.

In the second quarter of 2023, the company reduced their total debt by $280 million and had a net leverage ratio of 3.9x. They had a total liquidity position of $1.3 billion, with $346 million in cash and the rest in committed and fully undrawn revolver. The company plans to continue reducing their net debt to adjusted EBITDA ratio over the next two years. For their 2024 outlook, they expect a slow recovery in the global protein market, resulting in a 2% decline in organic growth. However, their food segment is expected to grow by 1%, driven by competitive wins and new product launches. The company also expects to see improvements in their Liquibox business and a recovery in their Protective segment towards the end of 2024. They anticipate full year adjusted EBITDA to be between $1.05 billion to $1.15 billion, with an adjusted EBITDA margin of approximately 20% at the midpoint.

The company's outlook for 2024 is lower than previously expected due to lower volume expectations in the first half of the year. They will continue to focus on cost-cutting measures to offset the volume weakness. The adjusted EBITDA guidance is in line with 2023, but adjusted EPS is expected to be lower due to higher expenses. Free cash flow is expected to be between $325 million to $425 million, with a conversion rate of 90% compared to adjusted net earnings. The first quarter of 2024 is expected to have net sales of $1.3 billion and adjusted EBITDA of $240 million, with earnings per share between $0.50 and $0.60. The company will continue to adjust their expectations as the year progresses.

The company's expectations for a recovery in 2024 have decreased, but they are seeing signs of improvement in their end markets. They are focused on driving transformation and improving business fundamentals in 2024, with a return to growth expected in 2025. The CEO thanks the team for their efforts and the Q&A session begins. The first question is about the steep decline in EBITDA for the first quarter and the shape of the year. The company attributes this decline to lower volumes, but expects it to be partially offset by cost reduction initiatives.

The company expects sequential improvement in EBITDA throughout 2024 due to pricing actions and mass recoveries in the second half. Volumes in the fourth quarter were slightly lower than the previous year, except for automation sales which were impacted by capital constraints. Sales in Food exceeded expectations at over $500 million.

The company has seen improvement in their Protective business, which has helped to increase their overall performance. They have also made changes to their commercial and sales tactics in both the Food and Protective segments, which has resulted in a more customer-centric approach and increased commercial rigor. The reorganization of their commercial teams within each region has also contributed to these improvements.

The company has restructured its units to include sales, marketing, support, and R&D functions. This change allows for a faster response to customer needs and a focus on performance. Resources have been reallocated from global teams to operating units to better serve the markets. The decision to split the Food and Protective segments was driven by their unique needs. The company's Industrial Packaging business had a strong year in 2023 and is starting well in 2024. The company expects growth in automation volumes this year. The company's compostable products have 54% biobased content, with the remaining 46% being undisclosed.

Dustin and Emile discuss the overall industrial question and how it has affected their business. They note a contraction in industrial activity in 2023, resulting in poor performance for their industrial packaging products. However, they are optimistic about the future as they have seen signs of stabilization and modest growth in 2024. They also mention the positive signals for the year, but believe it will take time to fully translate. Emile adds that they will also address the biobased aspect of their business.

Emile Chammas discusses the introduction of a new biobased tray made from renewable sources and certified as industrially compostable. He also mentions the company's focus on automation and partnerships in the protective and consumer-ready spaces to expand their capabilities and fill portfolio gaps. Dustin Semach adds that the company closed the year with $500 million in automation sales in 2023, which was a peak for them.

The speaker explains that despite challenges, they expect the company's performance to remain flat next year. They also address a question about the impact of lower net pricing on EBITDA, stating that they anticipate a decrease of $60 million. This will be offset by cost takeout benefits and restoration of bonus pools. The speaker also breaks down the price realization, mentioning a net negative of $120 million offset by benefits in direct materials. They also mention that labor inflation will continue to normalize post-COVID. Overall, there are three components affecting pricing for the company.

Dustin Semach discusses the new product focus for the company, which includes a compostable tray. This tray is part of a package solution that also includes overwrap film and equipment, and is primarily used for poultry applications.

The company is expanding into the compostable tray market, which has an addressable market of $5 million and is experiencing a shift away from expanded polystyrene. They also have a new partnership for 3D box rightsizing and are introducing a paper AUTOBAG solution and increasing sustainability efforts in their protective businesses.

The company's fluids business and Liquibox are key drivers of growth this year. They are focusing on expanding their FlexPrep solution for liquids and targeting the rigid squeeze bottle market. They have also launched a compostable tray and introduced second-generation recycle-ready flexible materials in response to customer demand. The company emphasizes the importance of partnering with customers and suppliers to drive innovation and accelerate market success. Looking ahead, they are confident in the volume power of their portfolio beyond 2024.

Dustin Semach, speaking in a limited visibility environment, expects low single-digit volume growth in the Food and Protective markets and mid to high single-digit growth in the fluids and liquids market. He also mentions the potential for restocking to create a temporary increase in overall volumes.

The food service industry is expected to experience low single-digit growth, but the shift towards more flexible packaging for fluids and liquids could lead to an uptick in demand. In a recent earnings call, executives discussed the structural dynamics at play in fulfillment, including the trend of companies seeking more optimization and the opportunity for the company to pivot towards fiber-based solutions. This trend is seen in both the e-commerce and industrial sectors.

The packaging industry has seen a mid to high single-digit growth rate, driven by increased consumption due to COVID. The company is focusing on capturing the growth in the shift to fiber packaging and the trend of buying online and picking up in-store. They are also introducing new sustainable paper packaging solutions and developing new paper forming capabilities.

The company has a partnership to expand their 2D box rightsizing capability to include 3D rightsizing. They are actively working to address the needs of customers in terms of recycled content, recyclability, and fiber capabilities. In the protein space, the company's competitive advantage is due to their differentiated materials and automation capabilities.

The third aspect of a differentiated solution is service, which, when combined with best-in-class products and technology, creates a competitive advantage. This is especially true in the fresh red meat market, but the company is also working to expand this approach to other applications, such as poultry and roll stock. Through partnerships and an asset-light approach, the company is building a complete solution set for these markets. In the past, the company only provided materials for roll stock, but now they are also offering equipment and services, replicating the success of their straight bag business in other areas of their portfolio.

The company plans to expand into the larger market by introducing more materials innovation, forming equipment partnerships, and developing digital printing capabilities. They have already begun to introduce paper mailers and plan to scale up in 2024. The company also hopes to address the pressure to reduce void fill in e-commerce through automation, but this may not have a significant impact until 2024 or 2025.

The speaker mentions that in 2024, they will focus on certain aspects of their portfolio to have a bigger impact on their business. However, this is still a small part of their overall portfolio. They also mention that there is still traction in their automation business, despite capital constraints. The next question is about lower volumes in each segment related to product exits, with a focus on the Protective portfolio and its potential for commoditization and diminished growth prospects.

Dustin Semach responds to a question about the impact of product line exits on the company's volumes. He explains that the exit of their chemothermal temperature assurance business in 2023 has had the biggest impact, followed by smaller reductions in their IFS fabrication business. In the food segment, the exit of their plant-based roll stock business is also contributing to a decrease in volumes. These exits were announced in 2020 and are now coming to fruition.

The company discussed their Argentinian business and stated that due to economic instability, they will no longer pursue certain business imports. They also mentioned that their Protective business is facing pricing pressure in their utility sector, such as lightweight foam and bubble wrap. They attribute this to the shift towards paper-based packaging and the trend of shipping in primary packaging only. They also mentioned competition with another company, Ranpak, in this area.

The speaker discusses the company's plans for growth in the coming years, specifically in the areas of void fill and paper products. They acknowledge the decline in volume in the Protective segment but note that it has mostly happened in the past 18 months and that there are positive signs of stabilization in the most recent quarter. They also mention their focus on introducing new products in 2023 and scaling them in 2024.

The company is focusing on transforming its business and improving its commercial effectiveness. They are also evaluating their portfolio and considering strategic options, but the timeline may be pushed out due to a slower-than-expected recovery. The main factors affecting the business are market conditions and competition.

The speaker is asking for clarification on the reinstitution of incentive compensation, which is worth $30 million. They are wondering if this will have a significant impact on the first quarter compared to the rest of the year. The response explains that the business in Protective has been showing positive trends, with a mid-single-digit growth in volume. However, there is limited visibility in the market, so they are being cautious in their projections.

The executive discusses the impact of the challenging year on the company's bonus pools and how it will affect the second half of the year. They also mention that portfolio optimization is still ongoing but not a priority at the moment, as they are focused on improving business performance and undergoing a commercial transformation. The call concludes with the executive expressing excitement for the future and looking forward to updating investors in May.

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