Sealed Air(SEE) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In the second quarter, net sales were $881 million for the food segment, up 3$191 million, up 16% in constant dollars compared to last year [8][29] - Overall, adjusted EBITDA for the second quarter was $280 million, down 5$0.80, down 22% year-over-year but up 8% sequentially [29][75] - The company closed the second quarter with a net leverage ratio of approximately 4.1x and expects to use free cash flow generation to de-lever throughout the year and into 2024 [9][31] Business Line Data and Key Metrics Changes - Automation grew approximately 20% in the second quarter, with food automation particularly strong, increasing by about 40% year-over-year [6][72] - Protective solutions saw net sales of $500 million, down 18$300 million in sales for 2023 [31][75] Market Data and Key Metrics Changes - The APAC region grew by 6%, while the Americas declined by 2% and EMEA was flat [30] - The company anticipates continued retail softness in the U.S. and a headwind from the U.S. cattle cycle, partially offset by tailwinds from the Australian herd cycle [5][13] Company Strategy and Development Direction - The company is focusing on a Cost Take-Out to Grow program as part of Reinvent SEE 2.0, targeting annual savings of $140 million to$160 million by the end of 2025 [10][71] - The strategic pillars include Automation, Digital, and Sustainability, aimed at addressing customer packaging challenges and driving profitable growth [6][49] - The company is actively reviewing its protective portfolio to optimize and unlock value, including the closure of non-core businesses [73][116] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the global economic outlook and the lingering impact of inflation, while remaining confident in the Cost Take-Out to Grow program to restore earnings growth [78][110] - The company expects an L-shaped recovery through 2023 and into 2024, reflecting a post-COVID lower growth environment [57][110] - Management highlighted the importance of getting closer to customers to better understand volume outlook and address their needs amid changing market conditions [19][87] Other Important Information - The company reported a free cash flow use of $130 million in the second quarter, compared to a source of cash in the same period last year, primarily due to a$175 million IRS deposit [76] - The digital online transactions grew to 16% of total company sales, reflecting the rapid growth of the company's digital transformation efforts [52][54] Q&A Session Summary Question: Can you provide detail on volume expectations by segment for the second half of 2023? - Management indicated a shift in the U.S. cattle cycle impacting food volumes, with expectations of a 4% decline in volume for the second half [13][15] Question: What are the expectations for margins in the Protective segment? - Management expects margin expansion in the Protective segment due to cost control and a shift in product mix [102][105] Question: How does the company plan to address increased competition in the food packaging market? - Management emphasized strong product offerings and a focus on automation to regain market share lost to competitors [21][116] Question: What is the outlook for Liquibox's contribution to sales? - Liquibox is expected to contribute approximately $300 million in sales for 2023, although operational issues have led to a downward revision of expectations [31][99] Question: How confident is management in returning to growth in 2024? - Management expressed confidence in achieving low single-digit growth in 2024, supported by the Cost Take-Out to Grow program and new product introductions [78][110]