sealed air corp. (see) ceo ted doheny on q4 2018 results - earnings call transcript
Results of ETCompany Q4 2018 earnings call at 10: 00 a. m. on February 7, 2019-
Doheny, Vice President of Investor Relations-
Bill Stiehl, president and chief executive-
Senior vice president and chief financial officer attending the meeting
Buckley what gan
Mark Wilder, Bank of America Merrill Lynch
Bank of Montreal-Anthony
Citigroup Brian Maguire
Daniel Rizzo, UBS
Jefferies Neil Kumar
Vertical Research Center
Ladies and gentlemen, welcome to the fourth quarter earnings conference call.
At present, all participants are listening-only mode.
We will have a question later-and-
Answer sessions and instructions will be followed at that time. [
At the same time, I would like to remind you that this conference call is being recorded.
At this point, I would like to transfer the call to your host, Lori chartman, vice president of investor relations.
Thank you all. good morning, everyone.
Before we start our conference call today, I would like to point out that we have provided a slide presentation to help guide our discussion.
This demo can be found on today\'s webcast, or it can be downloaded from our IR site in sealedair. com.
I would like to remind you that the statement made at this conference call sets out management\'s outlook or forecast for the future period --
Look at the report.
These statements are based entirely on the information we can now obtain.
We encourage you to review the information in the section entitled \"forwarding\"
Check the report in our earnings release and slide presentation, which works for this call.
In addition, we may perform differently in the future due to multiple factors.
We have recently listed many of these factors in the annual report in table 10
K and our revisions and updates to the Quarterly Report on Form 10
Q and Current Report on Table 8
K, you can also find it on our website or on the website of SEC. gov.
We also discussed financial measures that are not in line with the United States. S. GAAP.
You may find important information about our use of these measures and their reconciliation with the United States. S.
In our earnings report.
Included in the Appendix to today\'s presentation, you will findS.
GAAP financial results corresponding to some non-accounting standardsU. S.
The GAAP indicator we refer to throughout the demo.
Now I want to transfer the call to Ted Doheny, our President and CEO. Ted?
Thank you, Lori.
Thank you for joining us for the fourth quarter and year-
End of Conference Call
Let me review our 2018 results first.
I will then go into more detail about our progress in reinventing SEE.
I will also highlight our commitment to lead the packaging industry towards a more sustainable future and our recent commitment to join the coalition to end plastic waste.
Bill will then expand his financial performance this quarter and this year.
I will provide our outlook for 2019 and then we will ask a question --and-answer session.
When we entered the year
Finally, we focused on executing the stranded cost savings program and implementing the new reinvention SEE vision we announced in December.
These efforts enable us to achieve our 20% operating leverage commitment of 2018 or even higher ratio of 31% in the fourth quarter, despite currency resistance and high input costs. For the full-
This year, adjusted EBITDA sales rose 7% to 6%.
The higher the adjusted EBITDA, the lower the tax rate and stock repurchase, the earnings per share are $2.
50, an increase of 38% over 2017.
As Bill will discuss soon, free cash flow is lower than expected due to the performance of working capital.
Overall, we are making progress and we will continue to build on reinventing SEE.
We are reshaping the company and taking us to the world.
Reshaping SEE is a catalyst for transformation that drives growth beyond the markets we serve.
We will embed our Sealed Air operations excellence throughout the company.
We will improve the way we innovate, buy, make and sell.
To ensure our successful execution, we are addressing the following key areas.
First of all, accelerate the speed of listing in innovation.
Our investments in technology and resources are mainly focused on
Growth market for sustainable solutions.
We expect our innovation rate to double in the next five years, which will reward us for profitable growth in new and existing markets.
Promote channel optimization while improving customer experience.
We will implement value capture pricing to reduce profit leakage and increase sales efficiency.
We will leverage our extensive dealer network to better align with our growth strategy in changing terminalsMarket dynamics.
We are investing in digital customer service systems and processes to enhance the customer experience, shorten the cycle and make every customer a reference.
Another area is product cost efficiency.
We are looking for opportunities in procurement, conversion cost productivity, material production, SKU rationalizing and network efficiency.
Finally, increase the productivity of SG & A by simplifying our structure and operating as A sealed air.
We are creating a more flexible and efficient organization that will drive new innovation and more effective global development. to-
Further enhance the customer experience.
A key step in achieving this is to form a business team for our two departments under Karl Deily, and I am pleased to be the chief commercial officer for a sealed air.
Our sealed air strategy is to grow faster than the market we serve, to provide profitability with more than 40% of operational leverage, and to develop a disciplined capital allocation strategy to drive economic value.
Now, let me turn to an important topic of our strategy, sustainability and how we can have a positive impact on our society.
Last quarter, I introduced you to our new sustainability and plastic commitment to providing 100% recyclable or reusable products and 50% recyclable content by 2025.
We are accelerating innovation to achieve this commitment.
We also work with partners around the world to improve recycling and re-utilization.
Since then, we have united our innovation and sustainability teams to drive the necessary actions beyond our goals.
We recently became a member of the end plastic waste Alliance, which was first launched in January.
The alliance\'s goal is to help end plastic waste in the environment over the next five years.
We will work with value chain members from material suppliers to waste management companies to jointly develop solutions to minimize and manage plastic waste, and promote a more effective way to use the power of plastic recycling economy.
I will now review our results in more detail via Bill\'s call. Bill?
Thank you, Ted.
Let\'s start with slide 6 reviewing our net sales by region.
Sales in the fourth quarter were reported to have increased by 3%, up 7% in the same dollar.
We have achieved sustained dollar growth in all regions, 7% in North America, 2% in EMEA and 4% in Asia. Pacific.
In Latin America, the continued growth of $ 17% was driven primarily by the United States. S. -
Pricing based on USD.
Volume in Latin America fell slightly for the first time in five quarters, mainly due to the difficult situation this yearover-
Annual compensation for food care.
Due to a 4% increase in quantity and a favorable price mix trend of 2%, North American food care grew by 2% in the same dollar.
Driven by the Agence France-Presse acquisition, product care in North America increased by 12%.
Excluding acquisitions and currencies, product care in North America grew by 4% and the number increased by 3%.
At EMEA, we experienced positive sales trends in Germany, France and Russia.
Advantages of Asia
Growth in Australia, New Zealand and Japan has driven growth in the Pacific to a large extent.
Slide 7 shows full-by-region-year.
As food care grew by 6% and product care grew by 3%, the fixed dollar in North America grew by 9%.
Excluding acquisitions, product services in North America grew by 5%.
Due to good trends in the UK, Italy, Germany and Russia, EMEA increased by 3%. Asia-
Due to the acquisition of product care, increased demand for packaging proteins in Asia and the high slaughter rate associated with weather conditions in Australia, the Pacific region grew by 12%.
In Latin America, the dollar continued to grow by 17% as positive prices offset currency depreciation and 6% volume growth.
The increase in sales in the first nine months of this year is related to the recovery of the protein market.
Won new customers.
Slide 8 highlights the trend of combining quantity and price by department and region.
In the fourth quarter and throughout
On a global basis, we offer a 3% discount price combination and a 2% increase in sales.
Due to the previously announced price increases, the price mix is advantageous in terms of food care and product care
Continue to shift to value-added solutions.
Food and health care increased by 2% to 3% in the whole year.
With the growth of value, the number of product care is relatively stableadded e-
Business Solutions are our non-
Starting from 2019 in the first quarter, we will report on pricing
Separately, we will enter the volume mixing.
This change will give us a better understanding of business demand trends and the progress of our pricing strategy.
In Slide 9, we show the sales and EBITDA bridges for the fourth quarter.
I introduced sales trends in the last two slides.
So my review will focus on EBITDA performance.
The adjusted EBITDA was $0. 248 billion, an increase of 9% on the basis of the same dollar.
Profit margins rose by 30 basis points and 19 basis points respectively. 7%.
We offer a $15 million portfolio and price cost distribution, as well as sales growth of $5 million.
We achieved $13 million in restructuring savings, offsetting $11 million in operating costs.
Our efforts to eliminate the cost of retention are now basically behind us and are being re-invented to boost productivity.
The unfavorable currency is $12 million.
Despite the currency headwinds and higher input costs compared to last year, we offer 31% of operating leverage, or the profit-to-growth ratio we define.
Adjusted earnings per share are $0.
On average, 75 Diluted shares of 0. 156 billion shares have been issued.
In the fourth quarter, we adjusted the tax rate to be 29%.
Slide 10 shows our sales and EBITDA bridgeyear.
As shown on the net sales Bridge, our top-level growth is driven by favorable volume and price mix trends and product care acquisitions.
This was offset by the $44 million currency headwinds that affected our performance in the second half of the year.
The results of EBITDA are driven by higher volumes, favorable combination and price cost distribution, and restructuring savings that are partially offset by higher operating costs and currencies.
Adjusted earnings per share are $2.
50 based on the average diluted shares of 0. 16 billion issued shares.
In 2018, we bought back 15 million shares worth $0. 651 billion through the open market and the completion of the accelerated share repurchase program.
According to the current board mandate, there is still $0. 775 billion.
Our adjusted tax rate for 2018 is 27. 5%.
By contrast, our adjusted tax rate in 2017 was 30%.
For 2019, we expect the adjusted tax rate to be reduced by 150 basis points to 26%.
The expected decline in our adjusted tax rate is related to our later optimization.
Differences in the structure of legal entities at home and abroad.
Now, let\'s discuss our results by department.
In Slide 11 we show Q4 and full-
Annual results of food care.
In view of the currency headwinds, we are very satisfied with the performance of the food and health company in the fourth quarter.
Sales of $0. 772 billion continued to grow by 6% for 2% of sales and a 4% discount price combination.
The Adjusted EBITDA grew by 18% to $0. 162 billion in the same dollar.
Profit margins increased by 210 basis points to 21% of net sales. For the full-
In fixed dollar terms, the food care company achieved a 10% Adjusted EBITDA growth in sales growth of 5%.
Profit margins increased by 80 basis points to 20% of sales.
Due to faster sales growth, food care has played a strong operational leverage during the quarter and year, and we strive to eliminate the cost of retention and reshape the actions that are already underway.
The global protein market is rising at a low level.
Single digits in the fourth quarter and throughout the quarteryear.
Due to the increased demand for our core portfolio and the continued market penetration of our new innovations, global food care volumes grew by 2% to 3% throughout the year.
By region, sales in North America grew by 1% in 2018, compared to 9% in 2017, which was impressive.
We have also achieved 6% growth in Latin America and 4% growth in Asia --
2% of the Pacific Ocean and EMEA.
We continue to benefit from the global penetration of our cases.
In the incremental sales of all protein and fluid markets, we are ready to replace rigid containers with sustainable flexible materials.
Throughout Europe and most recently in North America and Asia, our demand for the Darfresh eco portfolio, which aims to provide sustainable solutions for all proteins, including seafood, is growing.
This product complements the continued growth of our sustainable pallets and covers that extend the shelf life and enhance the appeal of consumers.
We expect this trend to continue in the future.
Our successful penetration of the fluid market is directly related to our innovative vertical bag packaging platform, which includes FlexPrep solutions for our integrated equipment, materials and distribution technologies.
We believe that while driving strong operational leverage, food care will continue to grow above market growth in the top markets.
In slide 12, we highlight the results of our product service department.
In the fourth quarter, net sales of product care were $0. 489 billion, up 7% in fixed dollars.
Excluding acquisitions, sales of product care increased by 1% under a stable sales volume and favorable price combination.
We are pleased to see that sales in North America grew by 3% due to the strong growth of our inflatable foam packaging platform, paper products and automation systems.
Although North America\'s trading volume has increased, UK and China\'s trading volume has declined mainly due to macroeconomic factors.
Britain is in an uncertain economic environment. China is facing both the challenge of a trade war and the challenge of declining productivity.
The adjusted EBITDA is $85 million or $17.
Thanks to the restructuring savings and the contribution of the AFP acquisition, 5% of sales increased by 6% over last year. For the full-
In fixed dollar terms, Product Care achieved a 8% adjusted EBITDA growth in 10% of sales growth.
As mentioned earlier, our first-line growth is driven by acquisitions and a favorable price mix.
Profit margins are basically the same as at 17: 00 last year. 5%.
The business benefits from advantageous portfolio and price cost distribution, restructuring savings, and acquisition contributions. In e-
The demand for our inflatable foam packaging, paper, korrjv and automation solutions is constantly increasing, all in order to minimize waste and help our customers achieve sustainable goals.
We are accelerating our investment to re-invent 100% recyclable and automated mail, blank fill, and box elimination solutions.
We are working with our B2B customers to revise their packaging to meet new industry expectations that their products are ready.
This trend will accelerate the growth of our portfolio of professional industrial applications, including our integrated manufacturing, professional foam, and Instapak products.
We saw that by optimizing our go-to-
Market strategy and business simplification to better align with changing end market dynamics.
Now let\'s go to 2018 free cash flow on slide 13.
We created $0. 311 billion in free cash flow in 2018, which is indeed less than the $0. 35 billion we recently predicted.
As many of you know, the seasonality of our liquidity has a big impact on our yearend.
In the last few weeks of this year, our working capital performance did not meet our expectations. In particular, with respect to accounts payable, while inventory levels did decline from third quarter of 2018 to the fourth quarter, this decline was not sufficient to offset our performance in respect of accounts payable.
Capital expenditure was $0. 169 billion or $3. Net sales of 5%.
Interest payments after deducting interest income amounted to $0. 176 billion.
The cash tax paid was $0. 155 billion.
Restructuring payments for our core business amounted to $12 million.
At this point, I will turn the phone back to Ted to discuss our outlook for 2019.
Thank you, Bill.
Talking about the overall prospects of our company 2019.
Net sales are expected to be around $4.
An increase of 8 billion or 2% is reported.
Adverse currencies are expected to have a negative impact on sales of $0. 13 billion.
On the basis of the unchanged US dollar, net sales are expected to increase by 5%, food care will increase by 4%, and product care will increase by 5. 5%.
Excluding the Agence France-Presse acquisition, net sales of organic products are expected to grow by 3% and product care by 1%.
Fully adjusted EBITDA
It is expected that there will be about 0. 925 billion to $0. 945 billion this year, an increase of about 4% to 6%.
Our operating leverage is expected to reach the target of 40% by 2019.
It is estimated that the currency has an adverse effect on the $25 million EBITDA.
We estimate that the restructuring will save $70 million, which will help offset the adverse effects of money and inflation.
Adjusted earnings per share are expected to be within $2. 65 to $2.
75, an increase of approximately 6% to 10% over the previous year.
This forecast assumes that there will be no additional stock buybacks in 2019. For the full-
This year, we expect about $0. 25 billion in free cash flow, $0. 115 billion in restructuring payments and $0. 2 billion in capital expenditures.
As part of reinventing SEE planning, we identified and prioritized high-return investments that align with our growth strategy and productivity plans.
Cash taxes are estimated at $0. 13 billion and net interest income is projected at $0. 19 billion.
Once our restructuring efforts are lagging behind, we expect our EBITDA free cash flow conversion to increase by more than 40%, capital expenditures to account for about 4% of net sales, and the speed of working capital will also increase.
In slide 15, we provide more details on the restructuring project.
The focus of our existing projects is to complete our efforts to eliminate the cost of retention.
This work is expected to be basically completed in the first half of 2019.
As part of our re-inventing the SEE strategy, the new projects we announced are already in progress and are expected to be completed by the end of 2021.
As I mentioned earlier, in 2019, we expect savings of approximately $70 million for our existing and new projects.
A cash restructuring of $0. 115 billion is expected.
At 2020 and 2021, we expect an additional savings of approximately $100 million, with cash restructuring benefits ranging from $0. 11 billion to $0. 14 billion.
These payments will be made mainly in 2020.
As we start the new year and execute our reinvention strategy, you will see us continue to reach new levels of performance on our journey around the world --class.
We want to double our operating leverage or profit-to-growth ratio to 40%, and accelerate capital expenditure investments to improve manufacturing efficiency and release the long-term
Long-term growth opportunities.
With SEE, we believe that Sealed Air will achieve organic growth on top of the market we serve, drive profit growth and produce industrial products
Leading returns for shareholders.
We look forward to introducing you to the progress of our re-invention of SEE throughout the year.
With this, I will start asking questions now. Question-and-
Thank you, sir. [
Our first question came from Scott Gaffner at Barclays.
Good morning, Bill. ted. Lori.
Ted, I just want to talk about some of the SG & A productivity plans that you \'ve implemented, just trying to build productivity plans relative to some of your peers.
I believe you have done some benchmarking in this regard.
Is there anything, whether it\'s R & D or the way the company is, the entities are separated, and before that, the headquarters of these departments are located in different places, this has made it historically impossible for companies to achieve SG & A productivity with their peers.
Also, as part of that, can you talk about opportunities in food care and product care? Thanks.
Ted DohenySure, I will try to box it up
If you look at it from a historical point of view, we are three departments, and now we are two departments.
Part of it is to focus on each individual person, not the fact that we think we have more opportunities if we look at it as a whole.
So, part of a sealed air method that we announced, there is a sealed air business organization that we think will allow us to simplify some of the layoffs that we have when we enter the market, definitely pay more attention to the market we serve, reduce Division, and overlap functional areas.
So we think we have a chance.
For your question about comparing it and benchmarking, yes, we looked at this and we looked at where our SG & A ratio is compared to our peers.
By contrast, we have been using the theme of the world --
Where do we think it should be in class.
We are also back in the past, looking back at history, we are very harsh on ourselves, we said that in the past five years, we have opened Diversey, we have seen, the sales are quite stable, we added 100 basis points for SG &.
So we have a lot of data to say that we know we can be more effective, so let\'s look at it as a whole and see what we can do to be more effective.
New tools are available today.
You know, we \'ve been working on some digital systems in the background to see how we can be more effective, how we can work with each other, and how we can work and get into the channel market.
So we think we have a great chance there.
I\'m happy to have Carl there to help bring this together and bring the sales teams around the world together.
We also see our clients United.
We saw e-
Buy groceries with our customers.
In five to eight years, the grocery stores we all shop here will be very different.
We will put food and dry goods in the same package, so we see this example all over the world.
So our customers can see our value as a whole.
So it will appear in SG &.
This is also interesting in terms of innovation.
We pack the material, whether it is to put the turkey into the bag or put the technical product into the foam bag, how can we efficiently pack the material, what material we use, plastic, paper, foam, etc.
So we see our innovations come together and how we automate the process, and I will give you an example related to our plastic commitment.
We can deal quickly with the waste we get from food care, which is the raw material for product care, and if we can crack the code and turn that waste into recyclable products, I think we can conquer it, which is a good synergy.
This is just an example of working together as a company.
I think there are some important opportunities ahead of us.
As you have noticed, on SG & A, Bill stillso, many of our activities in 2017 and 18 are focused on reducing our cost of retention, because of the separation of Diversey Care, we focused a lot on the company\'s expenses to reduce the size of the company.
Now, we are working on the functional support needed in SG & A field to support integration of food care and product care, we are working on issues such as span and hierarchy, the number of direct reports, we have implemented these operations in January.
Lori Chatman operator, how about the next question?
The next question comes from Ghansham Panjabi of Baird.
First of all, Ghansham PanjabiI speculated, just back to the fourth quarter.
On the 3Q earnings report, you basically re-directed the 4Q.
So I guess, first of all, what\'s your surprise about the rise relative to your initial guidance for the fourth quarter?
Secondly, in relation to this, how will the restructuring savings flow by sector in 2019?
According to the rhythm of saving every quarter, anything you can share will be very helpful. Thanks.
So, thank you very much for this issue, and as you know, as a result of our expectations for third quarter performance, we have put forward a profit warning and we are happy to be able to exceed that, I would say, congratulating Ted and the management team on seeing the results, taking a look at our current projections, and taking the necessary actions to drive the reduction in business costs to achieve the fourth-quarter results we were able to achieve, to $0. 89 billion.
In fact, we were able to quickly implement a number of reinventing SEE actions, and we saw some improvement in profit and loss as some of those actions were reflected in our results for the fourth quarter of 2018.
In the future, we will continue to keep product care and food care separate in the market segments that can be reported.
And we have no immediate plan to change that.
K for 2018 will be submitted within two weeks or in our quarterly financial report to be released on 2019, we expect to introduce outside parties to the operational results of food care and product care as we have done in the past.
Our next question comes from George staforth of Bank of America.
Good Morning, everyone, George stampsh.
Thank you for your details.
Guys, I have two questions.
First of all, congratulate Carl on his new position.
So far, what have you found out from all the business activities under the combined Karl, how do you apply them to the combined R & D, the synergy or leverage between the two, if you wish?
And then in terms of sustainability, Ted, you talked about all the opportunities and initiatives for your most important product, and I realized it was a bit subjective, which products do you think are most sustainable towards your goals and which are more challenging?
You know, I\'m thinking about Instapak, and maybe it\'s a bit difficult under the umbrella of sustainability. Thank you. Ted DohenyOkay.
There are two questions you always ask very well, George.
I think there are multiple, but I will try to divide it into two.
Thank you, George.
Ted DohenyFirst, we\'ll start with Karl and get excited about Karl and his work to help speed this up.
At this point, it is linked to SG & A, but what we have learned is that our markets in different countries may be the largest.
When we were formed by the department, we entered these countries with the full strength of the company, we invested all the money, we joined all the different functions, before the business opportunity arrived, we have built functional structures for this country and how we will best achieve this.
Our analysis of national analysis, where we are as a company, where our business is, where our resources are, how we take care of our customers, how we get our service capabilities, how we get the lowest, instead of the lowest most effective cost, so learning has always been good and we have more to do.
In terms of R & D, as I mentioned earlier, it\'s actually looking at the process of what we do.
We pack everything and the direction of the industry is automation.
So how do we get our packaging to answer some automation questions for our customers and how do we look at them through one lens.
This has to do with what you call the most challenging third point.
Let me say another chance, if we look at the movie we put into the ubiquitous bubble pack, why can\'t we recycle it completely.
We challenged our research team and we said, you see, we want to fully recycle by 2025.
So we turned the equation over, and we said, how did you do it now?
What do we need to do to get the fully recycled material into the foam package?
We think we have a technical solution now and we have a proprietary solution.
Now we have to achieve this and we will definitely do it at a speed of over 2025, but it\'s a cross
The functional research team that completes this action.
So the internal process is that we use a lens to see the opportunity, use a lens to see the product, and use a lens to see the opportunity. In the past, there was a part that would go to Diversey, and I think that would add a better acceleration to the fastest opportunity to seize the maximum.
In your comments on Instapak, this is part of us and it\'s a huge solution for us, so it\'s in line with sustainability.
So our researchers will have to find out.
I don\'t have that answer yet, but we will continue after that.
Lori Chatman operator, how about the next question?
Our next question is from Mark Wilder at the Bank of Montreal.
Good morning, Ted.
Mark, Ted DohenyHi
Mark wildeed, I was wondering if you could add a little color to some of the market channel shifts that you\'re working on?
Ted DohenyWell, what if we look at our market channels first?
We enter the market directly through our dealer base.
One of them, actually we are introducing and talking about more, we would like to have an electronic
The business portal of the market.
So, if we do marketing in these three ways, let\'s just say that.
As part of us, I have been working in this industry for a year now and it is very important because I can reach out directly to our customers so that we can really solve their problems, they know how we can help.
So direct access is very important.
It is still important to use this efficiency when we go to distributors, but what we are looking at is how to increase loyalty through our distribution network.
So the team has been working hard to look at our distributors and see where we are most effective to add value to our distributors who are loyal to us and loyalty means exclusivity.
Therefore, we have developed a plan to develop a loyalty plan for our distributors and reward this loyalty by the full access and strength of the Sealed Air.
So in progress.
We think we will see more entry into 2019.
So, from a direct point of view, we are thinking about how to provide more effective services to our customers.
What\'s interesting now is that we go to the market and we cover two terminals.
May be the user of the food processing machine.
So we are packing there, how the main meat producers are packing in our big bags, but we are also connected to the retail market to make sure we understand where and then repackage in the store, what is the appearance of the package.
Therefore, how can we provide services effectively and serve these two customer groups as effectively as possible.
Again, around the world, I think we sometimes repeat the cross-regional efforts I mentioned earlier.
So I think we have some opportunities to be more efficient, maybe the answer we can follow is too long --up on later.
Lori Chatman operator, how about the next question?
The next question comes from Citi\'s Anthony pitinari.
Please continue. Q -
Good morning, Anthony pittinich.
Ted, in your opening remarks you talked about pursuing value capture pricing and I was wondering if you could provide any details of the category or the final price
The market is probably right.
I think this is what sealed air has talked about in the past, how would you compare the things that have been done and the opportunities in front of you?
Ted DohenyWell first of all, I used the term value acquisition because I don\'t like to call it pricing because our customers are always listening and our customers are paying for value, we can get a very high price.
We must have the right cost, but we will be paid if we can solve their problems.
So I don\'t like to put the price on your face, so I call value.
So it\'s our burden to save money.
Let me give you a tactical example.
We are rewarding the top two sales professionals who save the most money for our customers.
So, we show them how much money you can save customers and we will recognize that you are the best and that\'s what I mean.
So, this will force us to continue to look at how to save their money.
Well, behind the scenes, there\'s something tactical, and by the way, the subject is, it\'s a good business and we\'re going to take it to the world --class.
OK, let\'s take a look at our pricing scheme based on the actual profit margin of the product, which is a detailed analysis of our experience.
We found that we had some SKUs that we sold at the wrong price.
We have some SKUs and we can do different things in a higher or lower way.
So it puts more automation discipline into this and places some tools in front of our trading desk so they have that information.
We just gave a tactical example and we found out why if the customer didn\'t call us back?
We found that if we called the customer within 30 days just to check in but we did have a problem we could get that customer back.
If we don\'t call that customer back, you will lose a customer if you wait another six months.
Two examples of tactics.
In addition, we are considering optimizing our sales and incentive structure for our sales staff to see the price leak, as Ted points out, trying to eliminate some SKUs with lower margins.
Another part of this price leak analysis is to build a more solid customer discount guide and these pre-
Lori Chatman operator, how about the next question?
The next question comes from Brian Maguire of Goldman Sachs.
Good morning everyone, Brian MaguireHi.
Good morning, Ted DohenyGood.
I asked Brian MaguireTwo two questions, one about restructuring savings.
Obviously, whether you split them as a percentage of revenue or as a percentage of EBIT, they are important.
Just wondering if you can provide more details about the bucket.
I know this is a sensitive topic, but what are you looking forward to about layoffs?
Or is the factory rationalized, or is it just a more specific indicator that we can expect to figure out if these cost savings are reasonable?
Then, the second related issue is that most of the restructuring gains have been offset by OpEx inflation over the last few years, and I think the average annual inflation rate is about $50 million, some years are a little bit more and some are a little younger, but it seems to be the correct number if you take out the acquisition contribution there.
When you think about the future, what we should consider is the correct number, so that in the three-
You may have $0. 15 billion in operating expenses to offset some $0. 25 billion in restructuring savings?
Ted dohenyok, okay, how about we tag the team?
This is Ted. I\'m leaving first. we\'re going back and forth with Bill.
We do have something tangible in terms of restructuring, we are shutting down and the facilities will be there.
We launched a voluntary exit plan in the fourth quarter, with about 200 people.
So tactically, we have barrels, and when we look at our restructuring, we actually have four barrels that I have described to you.
We actually have 9 internal workflows that we are working on.
I don\'t know, Bill, if you want to pass?
So when we look at this, there are a few workflows.
We have I & D productivity, focus on purchasing parts for direct materials, indirect materials, we focus on production improvement, operational productivity and SG & A we mentioned, followed by pricing and channel efficiency.
In some of the reorganisation we have looked at, we announced that we closed a factory in Chile and extended it to operations in Brazil and Argentina.
We announced the closure of the Norwegian product care plant merged with Sweden, and we are also looking for a product care plant in Texas.
As Ted points out, the first phase of the layoff is the voluntary resignation plan, and the P & L does reflect some savings associated with this, and we have not yet announced any additional layoff that is involuntary
There was a previous question about the distribution of our restructuring savings in 2019, and we are identifying the projected restructuring savings of $70 million, which will allocate about 60% food care and 40% product care.
Again, these savings actions will really spread across all parts of the profit and loss
We are focused on pricing, SKUs, sourcing, operations, not just traditional restructuring plans that affect G & A, we are keeping A close eye on the savings situation, this will give us greater confidence in our quarterly forecasting process, we are managing any possible reinvestment in a retaliatory manner, and we are considering wage inflation of about $35 million per year, those adverse factors will be greatly offset by our restructuring savings.
Lori Chatman, operator.
Ted dohenyeah, Lori, can I have a follow-up?
Next, we will communicate in the seven workflows described by Bill, and we will add two more workflows.
And then, just to give you an idea of what our operational excellence means, after this restructuring, we developed this productivity engine that covers wage inflation.
That way we have a productivity that can handle $35 million to $40 million a year. over-
This is the goal of our re-invention.
Lori chamander, I will soon add to the I & D that Bill mentioned, innovation and development.
Operator, please answer the next question.
Our next question comes from Edlain Rodriguez from UBS ).
In this regard, there is about 45 minutes and there is no question about the cost of the resin, which is good.
The cost savings are very fast for you, especially in terms of the operating ratio, and you quickly achieve 40%.
With the acceleration of cost savings, can this ratio increase as we enter 2020, 2021?
First of all, thank you for your comments on the resin.
So we are no longer considered a chemical company or a resin converter, but yes, 40% of what we have is a target.
As you will do, you will see how we are driving these savings, Bill and I are very nervous to hold the restructuring bucket.
So you will see this, but you will also see the money saved.
So, when we finish this project, we will be in our 40% s.
You will definitely see it.
But when we go through it, we\'re going to go through the period of inflation that we talked about earlier, and that $35 million will come up overnight, and we\'re not going to let it go, but that\'s part of the process.
So for all of these people in the 40% plus, we will continue to work on it, but I would like to stress again that we put the discipline barrier into the business.
We have the PG ratio, you see we stick to it, we stick to it, but we also have the ROIC behind the scenes, and we already have it as a shadow indicator that we \'ve been trying to run.
This will keep us focused on this award, so we look at this award very carefully with our capital expenditures.
One of the reasons we have increased our capital expenditure is that we have seen a number of ROIC opportunities that will drive a significant improvement in our operational performance, especially in the automation area of our facilities.
Therefore, I believe that discipline will keep us moving forward and ensure that we achieve the value of our commitment.
Lori Chatman operator, please answer the next question.
Our next question comes from the point of view held by Daniel Zuo.
Good morning, Daniel ritzogwood.
As you mentioned, we talked a lot about innovation and focus, does that mean you will be using the Vitality Index?
If so, do you have such a goal?
Ted DohenyYes, we have been in a dynamic index for a while.
The definition of the vitality index is that in the past five years, new products have emerged in our sales, so sales have started in five years.
Therefore, the revision of the vitality index also includes our mergers and acquisitions.
If we can buy innovative products, that\'s the pressure we put on the team.
We have established some partnerships with some major technical universities so that we can learn about some of the incubation techniques.
Therefore, the Vitality Index will receive credit for this.
So where did it go?
In 10% to 11% between so we announced as an A team to development this engine we want to it from 10% increase a times in the next five years 11% to 20%, that\'s what we are concerned about, but part of the assessment of our re-invention is that we re-invent development and see it as a company, but what other projects are not progressing.
We do have a long time.
We focus on sustainable development, but we must also put pressure on the pace of development.
So if it doesn\'t move, these projects will be replaced by what is already in possession and we can see in the next five years that this will push our bottom line.
Lori Chatman operator, please answer the next question.
The next question comes from Neel Kumar at Morgan Stanley.
Good morning, Neel KumarHi.
In the organic growth of product care 1%, which is expected to grow by 2019, can you talk about what kind of growth you expect in your utility portfolio compared to your automation solution?
Bill StiehlWe expects a relatively steady increase in product care in 2019 compared to 18 years.
Due to the increase in shipping and labor costs, we will see some prices.
Ted has talked about some of our channel optimization and the opportunities we have to incorporate value capture, value creation pricing in our export care and food care business.
But again, we see that the number of product care years is very, very flat. over-year.
Lori chaiman operator, please continue with the next question.
Our next question comes from the chip Dillon for vertical research.
Guys, the savior.
This is the chip filled with Benito Tiano. How are you? Ted DohenyGood.
Dragon pigeon savior
So my first question is 2019 of the capital allocation.
You didn\'t buy back any shares if I understood correctly, if you can confirm if this is related to the announced restructuring plan.
Again, at the time of our survey last year, do you think that the pace of repurchase will be significantly slower due to the increase in restructuring costs?
Or, can we still see a lot of repos in the deleveraging process? Bill StiehlYes.
So we don\'t actually guide the level of stock buybacks we plan for next year.
In the past, we have taken the opportunistic approach to repurchase, and we expect to continue to do so.
But I think that without taking into account the entire capital allocation factors associated with mergers and acquisitions, our internal capital expenditures, the discussion of stock repurchase is incomplete, the payment of dividends, and so on.
Therefore, compared to what we have done in the past at this time of the year, we do not expect to make any special guidance changes to stock buybacks.
The last point is about working capital, what kind of assumptions do you make in the free cash flow Guide.
Is there anything compared to $0. 25 billion, the resin was raised, but the problem has actually happened, so what are the benefits of the recent decline in resin prices that we can see from you? Bill StiehlYes.
Obviously, resin is a problem that we often discuss and it is difficult to predict.
Let me give you an example. We saw a [indiscernible]
Resin fell in October in 2018 and again in December in 2018, but we have heard and we were told to announce the price increase in 2019.
So we actually use it from a 2019 point of view of guidance, which is a very, very flat approach.
We expect the price of resin to remain stable throughout 2019.
Compared to free cash and how we can come up with $0. 25 billion, this figure has increased as you can see.
I and Ted and Emile chammas are very excited we of supply chain superior vice president will 2019 the capital expenditure from 18 years of 0. 159 billion beauty increased to 19 years of 0. 2 billion beauty yuan initiative.
Okay, I want to confirm bill.
I don\'t want to scare people who are excited to spend capital expenditures, maybe we will put it into work.
So we have [indiscernible]
My finance team believes that we will be there to speed up our work if we notice some liquidity.
That\'s how fast it is.
Speed is what we emphasize and we think we have the opportunity to be in stock.
Because we think we can improve our speed.
Timely delivery, reduce inventory.
Inventory is the last three years on a flat hand.
I think when we re-invent our process, we have the opportunity to talk about four things.
I think when we go to automation, improve our process efficiency, and improve our cycle, we have an opportunity there, when we go to a higher level of automation, you will see in working capital that this is another way of cash generation for the business, cash generation business.
Bill StiehlOn inventory, inventory actually fell from the third quarter of 18 years to the fourth quarter of 18 years.
They did rise slightly this year. over-
This year, when we look at our acquisition of AFP and consider improving our on-
Delivery time statistics for the first half of 2018.
We expect inventories to be a source of working capital in 2019.
Ted DohenyI thinks we\'re not happy with that.
We want to do better.
Operator, I think we still have time to ask the last question. OperatorOkay.
The last question comes from Arun Viswanathan of RBC Capital Market.
Guys, Alan weiswana tanahi. Good morning.
Just a simple question about food care maybe you can talk about what you think about the beef cycle, what do I think about North America next year, and then if you can talk about trends in Brazil, Australia, New Zealand? Thanks.
I mean, in the beef cycle, the future of Bill stillso in terms of food care shows that the herd expansion we have experienced in the past has begun to slow down, but during 2021, this is still positive.
When we look at the prospects of 2018, our food care sales guidance will increase our food care sales by 4%, mainly from quantity.
We have seen some strong results in several major beef producers, but the US and Brazil are leading the way.
We saw some declines in Australia.
The export market is still strong and we expect Australia\'s export market to be strong.
The situation in Australia is interesting.
They did have some weather problems, the ranch was in poor condition and eventually forced them to slaughter some cattle.
So when we get into \'19\' they\'re going to be in the rebuilding heard mode and that\'s what we expect from Australia.
But we do believe that beef production will increase elsewhere in the world, and we will benefit from it, and then we continue to infiltrate our core products in some new markets.
So, we have seen some opportunities in Asia, a lot of unpacked meat is turning to packaged meat, so we benefit from it again, in our case preparation platform, we continue to see opportunities where our sustainability films have performed very well in the UK, especially throughout Europe, and have entered North America and parts of Asia.
So we are very satisfied with this.
Ted, do you have any concluding remarks?
Ted DohenyNo, I want to thank you all for your time and keep an eye on it as we re-invent the sealed air. Thank you.
Thank you all. Operator?
Thank you for attending today\'s meeting.
This is the end of the program.
You can all disconnect. Good day.