The paragraph is an introduction to the Sealed Air Q1 2025 Earnings Conference Call. The operator starts by explaining that all participants are in listen-only mode and that the call is being recorded. Mark Stone, Vice President of Investor Relations at Sealed Air, welcomes everyone and states that he is joined by Dustin Semach, President and CEO, and Roni Johnson, Interim CFO. He mentions that a slide presentation is available on their website to supplement the discussion and reminds listeners that forward-looking statements may be made. These statements are based on current information and can differ due to various factors, as detailed in their SEC filings. Non-GAAP financial measures will also be discussed, with reconciliations available in their earnings release and slide presentation. Mark then hands the call over to Dustin Semach.

The article discusses the progress of a company's transformation and its response to current market conditions, including changes in global trade policies. The company has reorganized into two market-focused businesses, Food and Protective, and integrated their supply chains to better serve customers amidst market volatility. This reorganization allows each business to quickly adapt to market dynamics, with improvements in accountability, leadership, and alignment towards growth. The company remains well-positioned against direct tariffs due to its largely domestic production and exemptions under USMCA, as the U.S. shifts its trade focus globally.

Since November, the company has been reviewing its supply chain and optimizing production to manage potential tariffs and inflation. Any unmitigated exposure is being addressed through pricing actions, mainly in the Food sector, which is relatively resilient. The company is observing market trends, particularly in consumer and industrial sentiment, to adapt to changing demands. They are working with key customers and partners to navigate market volatility and assess the impact of evolving trade policies. The firm is considering current tariffs and anticipates slight volume softness due to customer caution but is offset by an improved foreign exchange outlook. Additionally, cost control and productivity measures are planned for the second half to counter potential challenges and enhance operational leverage.

The company is cautiously maintaining its full-year guidance while monitoring trade policies, market demand, and mitigation efforts. In the first quarter, the Food segment experienced modest growth, focusing on capturing market share in retail as consumer preferences shift towards at-home consumption and fresh foods. This trend is expected to continue, delivering strong performance in the year's second half. Industrial food processing markets remained steady, with South America's cattle cycle strong and Australia's near peak, anticipated to continue until 2027. In the U.S., a slightly improved beef market is offset by weaker pork and turkey markets, with potential future changes in consumer spending possibly influencing demand and herd rebuilding.

The paragraph discusses the company's strategic focus and market trends. They aim to expand their fluids business, especially in the dairy sector in Europe, Australia, and New Zealand. Their Food business remains stable outside China and the U.S., though there's potential for changes to cheaper meat options in the U.S. due to trade volatility. They emphasize their readiness to adapt with a diverse product range, including CRYOVAC's offerings. The Protective division's performance met expectations, with steady order patterns despite cautious industrial markets and weakening fulfillment market sentiment.

In the first quarter, Flocks experienced a decline in shipments in the U.S., but progress in its Protective turnaround is visible. The reorganization of the North American go-to-market team has positively impacted customer relationships, reducing churn and strengthening market position. Despite potential market headwinds, the company sees opportunities to regain lost market share, leading to better year-over-year comparisons by the second quarter of 2025. The company plans to extend these successful strategies to other regions and aims for increased efficiency and operational leverage by the second half of 2025. Additionally, the Protective business remains sensitive to global trade dynamics, but efforts are focused on controlling what they can and improving business fundamentals.

The paragraph discusses the financial performance of Sealed Air in the first quarter. Despite a 2% decrease in net sales on a constant currency basis, the company reported a 2% increase in adjusted EBIT and a 4% rise in adjusted earnings per share. The adjusted tax rate slightly decreased from the previous year. Volumes declined by 2%, mainly due to decreases in the Protective segment, though slight growth was seen in Food. Prices remained flat overall. Adjusted EBITDA was marginally down, but increased on a constant currency basis, with improved margins driven by cost reductions and productivity improvements.

In the first quarter, Food net sales increased by 1% on an organic basis to $852 million, driven by pricing strategies and slight volume growth, with improved performance in case-ready solutions. Despite flat protein markets and a mixed regional performance with growth in EMEA, Latin America, and Australia, North American and Asian volumes saw declines. Food adjusted EBITDA rose by 7% (10% in constant currency) to $203 million due to productivity and cost savings, though negatively impacted by net price realization. The Protective segment experienced an 8% organic net sales decline to $420 million, mainly due to a 6% drop in volumes, with declines in North America outweighing growth in Asia and Latin America. Protective adjusted EBITDA fell by 18% (16% in constant currency) to $74 million, with a margin decrease of 180 basis points. Despite challenges, EMEA showed signs of stabilization. The company aims for North American improvement through ongoing transformation efforts.

The paragraph discusses the company's financial performance and outlook. There was a year-over-year decrease in adjusted EBITDA due to lower volumes and unfavorable pricing, partially offset by productivity and cost savings. However, margins improved on a sequential basis due to continued productivity efforts. Free cash flow decreased from a source of $78 million to a use of $12 million due to increased incentive compensation and tax payments. The company has a total liquidity of $1.3 billion and aims to reduce its net debt to adjusted EBITDA ratio to 3.0 times by 2026. Despite operating in a low visibility environment, particularly in the Protective segment, the company reaffirmed its 2025 full-year outlook. A softer volume outlook is expected to be balanced by improved foreign currency conditions, with headwinds now anticipated to be 1% better than previously expected.

The article discusses expectations for the second quarter, anticipating a rise in sales across both segments due to improvements in the Protective portfolio and a better outlook for turkey and pork. The company projects net earnings and sales of approximately $1.3 billion, with adjusted EBITDA of $270 million and adjusted earnings per share of around $0.71. The focus is on restoring fundamentals, progressing transformation, managing trade policy changes, and reducing debt. During the Q&A session, Ghansham Panjabi inquires about the progress in the Protective segment, noting a decline in volumes since the first quarter of 2022. Dustin Semach explains that volumes were down about 6% in Q1, referring to the impact of customer churn that has mostly run its course.

The paragraph discusses a company's efforts to minimize customer churn since Q1 2024, resulting in improved performance metrics. While regions like Asia and Latin America are showing growth, and EMEA is stabilizing, North America remains the focal point for improvement. Positive feedback from distribution partners and major customers highlights the benefits of a reorganized go-to-market strategy aimed at enhancing customer relations and service levels. This strategy is reflected in improvements seen in Q2 guidance, with the industrial portfolio outperforming the fulfillment portfolio.

The paragraph features a discussion during a conference call where George Staphos from Bank of America Securities questions Dustin Semach about how they measure and improve customer satisfaction while reducing costs. He inquires about the use of tools like Net Promoter Scores and how they manage the balancing act of enhancing customer relationships while potentially reducing staff. George also seeks insight into the company's performance, specifically asking if the Protective division is doing better than expected relative to the Food division. Dustin acknowledges the importance of customer satisfaction and begins to address George's questions, emphasizing their positive outlook and progress.

The paragraph discusses the efforts of a company to improve customer feedback and engagement by going out in the field and involving the executive team more than before. This approach, combined with an analytical aspect, has led to improvements, though more work is needed. The company is also balancing effectiveness and efficiency with growth, questioning their organizational and process effectiveness. Recently, they have invested in expanding their protective sales force in North America, as part of a strategic initiative that began in Q4 and continued through Q1, marking a step towards restoring previous levels of engagement.

The paragraph discusses a company's strategy to improve efficiency without negatively impacting growth by shifting certain operations, like back-office work, to more cost-effective locations such as Manila. This allows savings to be reinvested into field operations, enhancing organizational agility and decision-making. The company reports that its Protective and Food business segments are performing as expected, with ongoing transformational efforts in the Protective segment showing progress. Recently accelerated initiatives in these efforts are expected to yield benefits in the second half of the year, aligning with the company's strategy of urgency and rapid execution.

In this segment of the call, Matt Roberts from Raymond James asks about any changes in pricing and competitive landscape within the company's segments, particularly regarding Protective and Food. Dustin Semach responds, indicating that while the net price is relatively unchanged, there have been slight improvements in their pricing guidance. Specifically, the negative price realization mainly impacts the Protective segment due to a prolonged low-volume environment and competitive pressures. This pressure was exacerbated when Amazon exited the market, causing a surplus supply and pricing challenges. These dynamics are consistent with prior expectations, and there have been no significant shifts in material inflation.

The paragraph discusses the polyethylene (PE) market and recent changes in tariffs, particularly in China, which have allowed for PE to be traded without tariffs. Currently, the PE market appears stable, though there are still inflationary pressures for the year overall, which are accounted for in pricing formulas. Despite concerns about a potential oversupply in the U.S. market, no significant impact has been observed. There is some pressure in specialty products, which are often sourced from outside the U.S., possibly leading to indirect inflationary effects related to tariffs, though these have not yet been felt in the second quarter. Additionally, the question from Jeff Zekauskas of JPMorgan is addressed, noting that despite a decrease in sales year-over-year, gross margins have improved due to productivity initiatives and cost reductions.

The paragraph discusses how the company was previously on track to exceed their cost takeout program goals of $150-$160 million, and is currently on track for $90 million in cost savings. Efforts over recent quarters have focused on optimizing production, scheduling, and negotiations with suppliers to reduce costs, particularly in the cost of goods sold. The company is exploring additional opportunities for cost savings beyond what is currently projected, involving activities like network optimization. The outcomes of these efforts have been positive, and the speaker expresses satisfaction with the progress. The paragraph then transitions to a Q&A session, where Phil Ng from Jefferies congratulates the company on a solid quarter and inquires about order patterns and visibility in the Food and Protective segment.

The paragraph addresses the performance of Food and Protective industries in Q1, indicating that results largely met expectations, with some areas even exceeding them. As April is on track and May is too early to determine, there is attention on potential trade downs in the U.S. beef sector. Despite the positive outcomes, there's caution about the second half, especially concerning industry impacts, demand, and geographical considerations. Both distribution partners and the company are focused on monitoring these elements to gain better visibility and prepare for future developments.

In the paragraph, Michael Roxland from Truist Securities poses questions to Dustin Semach regarding the timeline and strategy for the turnaround of the Protective business. Roxland seeks clarity on how long the transformation might take, considering a year has already been spent on it, and whether it could be completed in 9, 12, or 18 months. He also asks if it's feasible to separate non-core portfolios without harming the business. Dustin responds that the focus has been on accelerating transformation programs since his transition to CEO, emphasizing the need to balance urgency with ensuring the right changes are made, amidst various macroeconomic factors.

The paragraph discusses the company's strategic initiatives, focusing on expanding the North American market strategy to other regions and improving operational efficiency with a cost-effective model that supports growth. It highlights enhancements in leadership and mentions ongoing portfolio optimization efforts, particularly in the fiber and APS businesses. The company feels positive about the progress in becoming more substrate agnostic and anticipates further advancements in the next few months.

The paragraph discusses the company's current financial performance and strategic focus. It highlights a slight decline in revenue over recent quarters but emphasizes improvement in the EMEA region and growth in Asia. The company aims to enhance performance in North America while maintaining its position as the largest Protective Packaging business globally. The focus is on optimizing the existing portfolio rather than making large shifts, especially given the current M&A environment. Smaller business areas have been trimmed, but no significant changes in the portfolio are anticipated at this time. The paragraph ends with an introduction to a question from Josh Spector at UBS regarding the Protective business.

In the dialogue, Dustin Semach addresses Josh Spector's questions about volume assumptions and potential tariff impacts on their equipment business, specifically within the Protective segment. Semach clarifies that their volume in Protective is down by about one point in the second half. Regarding tariffs, he notes that USMCA exemptions have significantly reduced their risk, and any remaining impacts are considered immaterial and manageable through supply chain adjustments. He reassures that their equipment business aligns with expectations, with an even split of around $0.5 billion between equipment sales and parts and service. Additionally, their first-quarter order intake is strong, with book-to-bill ratios over 1 in both businesses.

In the paragraph, Gabe Hajde from Wells Fargo asks Dustin Semach about the company's margins, noting that they performed better than expected, particularly in the Food segment. Dustin responds by stating that the company is currently performing in line with expectations and anticipates maintaining a 23-point margin range for the Food business. He emphasizes that there is no unusual factor affecting this performance in the first half of 2025 and the focus remains on growth rather than margin expansion. In contrast, he notes that there is more potential for margin growth in the Protective business segment.

The paragraph discusses the company's strategy for growth ahead of 2024 and 2025, focusing on enhancing productivity and reducing costs to maintain market growth rates. Currently, their net price realization is low, helping manage the business amidst inflation. Subsequently, Stefan Diaz from Morgan Stanley asks about the expected recovery in Protective volumes despite earlier customer churn and geopolitical tensions. Dustin Semach responds, acknowledging volume pressure in Protective, and indicates that their outlook for the year already accounts for these challenges.

The paragraph discusses the company's financial outlook amidst current market uncertainties. Despite a slight decline in volume, this is counterbalanced by favorable foreign exchange (FX) rates, although with a moderated outlook. The company anticipates that currencies like the euro may strengthen against the U.S. dollar. Protective packaging and food sectors face some challenges due to market uncertainties and potential reductions in Chinese imports to the U.S. The business largely relies on domestic production and consumption, limiting exposure to tariffs and international trade fluctuations. As of now, there have been no significant changes in buying behaviors or inventory decisions.

The paragraph discusses market trends in the red meat industry, highlighting notable differences between international and U.S. markets. It mentions a focus on understanding backup and visibility issues in Protective and notes the importance of geographic and product diversification. Christopher Parkinson from Wolfe Research asks about red meat market trends and their impact on competitive positioning. Dustin Semach responds by saying that market expectations have remained stable since February, except in the U.S., particularly regarding the U.S. beef cycle. In Q1, U.S. beef performed better than anticipated, with industrial food processors capitalizing on pricing by maintaining low herds but increasing slaughter rates. However, this was offset by changes in turkey and pork markets.

The paragraph discusses the market outlook and strategy for a food company, particularly in the beef sector. It mentions that despite potential consumer pressure on premium beef purchases in the U.S., the company is well-positioned to maintain market share across different product lines. The U.S. market remains a focus, as it constitutes around 65% of the company's food business. However, there's an observation of reduced U.S. beef exports to China, with Australia and Brazil picking up the demand. International markets, like Australia and Latin America, show strong performance, but they can't fully offset the U.S. market. The speaker then addresses Arun Viswanathan from RBC Capital Markets, noting his congratulatory remarks on a successful Q1.

In the paragraph, Dustin Semach addresses concerns about potential slowdowns in food volumes and whether guidance has been adjusted to account for uncertainties. He notes that there was minimal pull-forward in the first quarter, particularly in the Canadian market, due to concerns over tariffs. There hasn't been a significant slowdown in the business overall, except for a recent hesitation around premium beef cuts. Semach emphasizes that while the business has been performing as expected in the first quarter and into April, attention is focused on potential economic challenges in the second half of the year and how to mitigate them. The operator then introduces the next question from Edlain Rodriguez of Mizuho Securities.

The paragraph discusses the impact of tariffs and the company's ability to manage associated costs. Due to the USMCA exemption, the exposure to tariffs is minimized, especially in the Protective segment, with slightly more exposure in the Food segment. The company believes they can address these costs through pricing and supply chain strategies already in place since November. They are also exploring alternate sourcing options to reduce reliance on affected areas. Additionally, they are monitoring how residential market changes will unfold over the year and looking for opportunities to source specialty items and equipment parts from different countries to mitigate tariff effects.

The speakers discuss their confidence in adapting to evolving trade policies and market conditions, emphasizing that they don't need increased volume to remain competitive. The operator indicates no more questions, and Dustin Semach concludes by expressing gratitude to participants and the Sealed Air team for their resilience and focus on delivering results despite challenges. The conference then ends.

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