sealed air\'s ceo discusses q4 2010 results - earnings call transcript

Sealed Air (NYSE:SEE)
Q4 2010 earnings call at 11: 00 a. m. on January 24, 2011
David Kelsey, Director of Investor Relations-
William Hickey, chief financial officer and senior vice president
Chief Executive Officer and Managing Director
Barclays Capital
Wells Fargo Securities (LLCGhansham Panjabi )-Robert W. Baird & Co.
Intecatedalex Ovshey-
Goldman Sachs Group LimitedAlbert Kabili -
Macquarie Institute
Ingles and Snyder
Jefferies & Company, Inc.
Gilbert AlexandreGeorge StaphosChristopher Manuel-
Capanke capital market CO. , Ltd. Chip Dillon -
Credit Suisse bank
Good Morning, everyone, welcome to The Sealed Air conference call to discuss the company\'s performance for the fourth quarter and 2010. [
Operation instructions]
Today we have William V.
Shiki, president and chief executive; and David H.
Senior Vice President and Chief Financial Officer Kelsey.
They will answer questions after the management has prepared their opinions. [
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Now, at this time, I want to transfer the call to Amanda Butler, director of investor relations.
Madam, please continue. Butler.
Thank you all. good morning, everyone.
Before we start our conference call today, I would like to remind you that the statement made at this conference call illustrates the management\'s vision or forecast for the future --
Look at the report.
These statements are only based on the information we can now obtain, and due to some factors our future performance may vary, many of which are listed in our most recent table 10 annual report
K, you can find it on our website. com.
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 reconciliation with the United StatesS.
GAAP is included in our earnings report today.
Now, I\'m transferring the call to our CEO, Bill Hickey. Bill?
Thank you, Amanda. good morning.
At today\'s conference call, I would like to discuss our business performance of 2010 and then discuss our outlook for 2011 and outline our strategy to achieve sustained growth.
Once Dave and I summarize the comments we have prepared, we will be happy to answer questions from phone lines and webcasts participants who can use textin questions.
This morning, we released adjusted earnings of $1 per share for the whole of 2010. 60.
This figure does not include some of the items that we highlighted in our press release.
The 11% growth in our adjusted earnings was driven primarily by the number of strong 5%-year growth, achieving $100 million in productivity benefits by leveraging our world\'s various global supply chain initiatives --
First-class manufacturing practices and our global manufacturing strategic plan, as well as strict cost control.
In the second half of this year, unit sales were particularly strong for us. we achieved the highest daily sales rate in the fourth quarter, and sales increased by 7% in the fourth quarter.
This led to an annual sales increase of 6% to $4,500,000,000.
As a quick review of the year marking our 50 th anniversary, we have positioned ourselves for future growth and put forward some strategic and operational objectives, including long-term ones
Sales have a long-term target of organic growth of 5% to 6% and have recovered to a 15% Operating profit margin during the 2012/2013 period.
In the process of driving these goals, we focus the top 2010 targets on cash flow and improving return on assets, continue to innovate and speed up product listings, optimize processes and operations, to accelerate our growth in India and China, to develop our people, and finally to expand our sustainable development plan.
I am pleased to report that we have surpassed our goals in many of these areas and I would like to talk about a few highlights.
In the field of innovation and commercialism, I am pleased that we have launched more than 55 new solutions this year, compared to about 25 new solutions in 2009.
This represents about 20% of sales for new products or solutions in 2010.
We have expanded the new CT series shrink film to further commercialize our newly patented manufacturing process and we are working to expand other product lines and further drive the difference and efficiency of our core portfolio
We are actively participating in the pilot testing of our new patented Cryovac 360 shrink sleeve solution, which represents our first entry into a new market segment for Sealed Air.
We have expanded our portfolio with alternative raw material components, including our new Instapak RC45 foam-in-
Use a place system of up to 25% organic content.
In December, we obtained a 100% natural biodegradable plant.
Based on the floating film material we just launched called Pak Nature [ph].
We continue to expand our equipment solutions in each business area and benefit from ongoing customer investments. Company-
Extensive equipment sales rose 17% in 2010, indicating continued strong orders in 2011 and strong order base.
We added services. on-service-Based on the solution.
This includes the introduction of PakFormance remote repair diagnostic services that support our equipment systems, and we have further expanded our I-
Providing packaging and Ultipack automation services for high volume fulfillment customers is a growing area of our protection packaging business.
From our focus on developing regions that accelerate growth in China and India, we specifically appointed a key executive in 2010 to lead growth in the region.
Although we are in the early stages of implementing a new strategic plan in these countries, we have created about 30% sales growth in the business included in the plan.
From the perspective of the overall development area, we reported a 10% increase in sales, including a 6% foreign exchange discount.
We saw several strong areas in the fourth quarter, including 23% sales growth in Brazil, including 15% favorable foreign changes.
In addition, sales in China increased by about 9%, and sales in Southeast Asia increased by 16%, including 8% of foreign exchange concessions.
Commercially, protective packaging led the world\'s developing regions with a growth rate of 21%, including 7% favorable foreign exchange.
Throughout 2010, developing regions accounted for 16% of total net sales.
A key factor in stabilizing profitability performance is the productivity gains achieved by our supply chain organizations.
This includes incremental gains of $10 million from our GMS project, as well as some $90 million from our records --
Maintain a high level of performance in terms of quality, safety and material production and continuously improve labor and asset productivity.
These increases in productivity largely offset the incremental raw material costs that we generated this year of around $0. 13 billion.
As we saw in 2008, the average cost of our raw materials per pound is almost the same as the cost of the resin.
Before I continue to focus on the areas of focus, we have launched an important global company --
Brand SmartLife is the overall approach to our sustainable development strategy.
SmartLife embodies our diversity in the workplace and suppliers, governance, health and safety in the workplace and how we design our products and services to minimize our carbon footprint throughout the life cycle concept
All of this is to save resources and maximize material efficiency and use efficiency.
I am happy when we continue to make plans on smart life projects.
We will launch this product in 2011 and discuss it with you when they go public.
Spend a little time on the highlights of our business area.
Their main achievement was solid top performance, which led to strong performance in the fourth quarter for all businesses and all regions.
The main driving force for sales growth in the fourth quarter is: first, in our food packaging business, 6% of the sales growth reflects both seasonality, it also reflects incremental sales of new customers and new contracts in several regions, including expanded operations in Asia, Middle East Europe and the Middle East.
Volume also benefited from the strong US market. S. -
Based on fresh red meat exports and strong global demand for equipment systems, it grew by 30% in the quarter.
We did experience some weakness in Australia because the appreciation of the exchange rate hindered the export market in the region and the adverse weather slowed down the production of customers.
Unfortunately, the recent flooding in Queensland seems to have affected the production sites of our customers, and we are currently evaluating what impact this may have on our Australian production in early 2011.
The quarterly performance of the protective packaging business is very strong, due to the strength of industrial production and the development of e-commerce, mainly in North America and Europe produced a 8% growth.
Business and fulfillment
Applications for these regions. The high-
The growth rate not only reflects the continued recovery in the number of units, but also reflects the strong acceptance of our new products among new and existing customers, which is beyond the targets of several regions.
We have achieved strong unit volume growth on products such as Instapak foamin-
Our products include our next generation of inflatable bubbles, or I. B. Express system.
Our food solutions business grew by 6% this quarter, thanks in large part to Europe\'s 11% growth.
This strong growth not only reflects the stability of the region\'s economic situation, but also reflects the continued growth of our ready-made meal solutions, as well as our new off-the-shelf solutions (such as Darfresh and mir due to their successful launch of ongoing projects throughout the year.
The business also achieved good performance in rigid containers used in cooked salad applications.
Asia is also a dominant area due to the volume growth of over 20%, mainly from our ready-to-eat food and vertical bag packaging solutions.
Our other Category achieved a 8% growth in sales this quarter, mainly due to a 16% increase in sales in Europe, where our medical and specialty materials business achieved in the fourth quarter
I would like to detail the results of the price mix we reported for this quarter.
Our business has benefited from their various pricing actions, and we did achieve a favourable contract adjustment for the business throughout the fourth quarter.
However, the selective pricing cuts related to the higher volume commitment of customers, including items such as bulk rebates, and the transfer of sales to lower specifications, adversely affect the price we reportmix results.
Also, as we mentioned in our press release, in some of our international operations, we adjust prices to maintain margin performance against volatile foreign currencies. As price-
Hybrid performance remains a key indicator for our management team, and we are carefully balancing our efforts to accelerate sales growth with the need to restore higher input costs through price increases, input substitution and productivity gains.
Today, most of our business has implemented price increases that take effect on January 1 or take effect on February.
We are still continuing our productivity improvement program and we have shown measurable results.
Now, I\'m going to transfer the call to our CFO, Dave Kelsey, to discuss the financial results for the fourth quarter in more detail. Thank you, Bill.
I would like to provide some details about our operating expenses first, then some other matters, and finally our Key balance sheet and liquidity program.
I will then transfer the call back to Bill to discuss our guidance on 2011.
First look at our profit and loss statements for the fourth quarter and you will find that marketing, administrative and development costs have dropped by $14 million to $0. 198 billion or $15. Net sales of 7%.
This decline is mainly due to lower variable incentive pay expenditures, as we have only partially achieved our performance targets for the full year of 2010.
Also, as you can see in our press release, we confirm the restructuring and other costs of $10 million, of which $7 million relates to the closure of a small plant in Europe, $3 million is related to our global manufacturing strategic plan.
After several years of investment, adjustment and launch
I am pleased to announce that this marks the completion of our GMS project.
In the last five years, listeners who are not very familiar with GMS, we have invested about $0. 155 billion in factories and equipment and generated about $80 million in related expenses.
With the completion of the project, we repositioned the supply chain platform in order to achieve more profitable growth in developing regions, while realigning our core manufacturing locations to improve operational efficiency.
Overall, the project to make up for GMS achieved an annual benefit of $55 million in 2010.
These benefits are expected to continue over the next few years, and projects provide the basis for generating additional benefits.
Keep dealing with other things.
In the fourth quarter, we sold all the remaining auction rate securities investments and earned $6 million.
Now, I want to turn your attention to some key balance sheet and liquidity items.
As at December 31, 2010, cash and cash equivalents amounted to $0. 676 billion, a decrease of $19 million from December 31, 2009.
We are very satisfied with this achievement because we have used more than $0. 37 billion of available cash in a year to redeem 1/2 of our 12% senior notes, capital expenditures, fourth-quarter dividends and $10 million share buybacks.
As sales increased, our accounts receivable increased by $30 million from December 31, 2009.
Based on an analysis of our outstanding sales days (DSO) and past aging balances due, the quality of our accounts receivable remains good and continues to improve.
Inventory investment increased by $27 million over December 31, 2009.
Excluding the increase of US $10 million due to foreign currency conversion, our inventory increased by US $17 million, and the growth rate was lower than income, resulting in a decrease in inventory investment days.
Look at our liquidity.
As of December 31, our net debt was $0. 754 billion, down $72 million from September 30, 2010, reflecting our strong cash flow in the fourth quarter.
In addition, at any time in the fourth quarter, we do not have any outstanding amounts under the promised credit line.
As of December 31, our commitment to borrowing capacity was approximately $0. 75 billion.
All in all, we still have enough money to prepare. to-
Daily work and W to be processed. R.
Although we did not determine the date of when to donate, we agreed.
Now, I would like to transfer the call to Bill to discuss our 2011 guide.
As you can see in your press release earlier today, we expect to maintain the volume momentum of 2011 that we generated in the second half of 2010.
This is reflected in our guidance on sales growth of $2011, which is 5% to 7% per cent compared to the previous year.
As our volume seems to continue to be strong, it seems to be a good start to the month of 201-1.
This higher volume of sales, coupled with a more streamlined cost structure, continuous productivity gains and stable control of costs, is leading the EPS range for the full year of 2011 to $1. 75 to $1. 90.
As part of our guidance, we assume that as low as single per year
The number of resin prices has increased, and we expect it to be higher in a year --over-
The annual base for the first quarter, then moderate in the second and third quarters, and then may rise again at the end of the year.
As we pursue our growth goals, we will continue to carefully manage the distribution of cost and price.
Now let\'s take a look at our expectations for organic growth in the future.
Over the past 12 to 18 months, our businesses have been developing growth strategies centered on innovation and geographic expansion.
All of these initiatives take advantage of four growth drivers, including the newly patented technology platform, our entry into the new market, and our expansion into unpenetrated applications and services --
Based on solutions and accelerating our growth in developing regions, we have always emphasized the growth of China and India.
Long-term growth opportunities.
We believe that by successfully implementing our strategic plan, we will generate an average annual organic sales growth rate of 5% to 6% by 2013, coupled with the benefits we expect from the ongoing economic recovery.
We expect that by 2013 we will generate about $0. 75 billion in higher revenue, 1/3 of which may come from our expansion in the core market.
For example, develop our existing Mirabella and Darfresh solutions in the United States. S.
In non-users and low
In our current customer base, penetrate users or expand our equipment through automated sales.
We expect that the remaining 2/3 growth will come from new product sales and our opportunities to enter the new app and new terminal market.
Example of new product sales will be new shelves
Stable solution including sterile format, new automatic fulfillment packaging system, use our new ETHAFOAM high-
Family of regenerative foam.
New market entry targets include building a sustainable position in the $1 billion shrink sleeve market through our new Cryovac 360 sleeve, and other development areas include bags-in-
Box applications and extended presence in air applications.
As you can see, the way we grow is diversified, which minimizes risk and increases the growth opportunities that all of our businesses use.
In addition to these organic growth, we will carefully assess M & A opportunities as an additional source of growth.
But by its very nature, acquisitions are opportunistic, so we will discuss any particular activity in due course.
To support our higher growth, we raised our guidance on capital expenditure to $0. 15 billion to $0. 175 billion in 2011, of these, approximately $100 million of capital is used for global growth and cost reduction for the remaining amount of capital expenditure maintenance projects.
Key growth projects include investing in developing regions, such as providing equipment for our new plant in Brazil, which will serve food packaging customers and our new technology platform.
These investments should make our capital expenditure more consistent with our Depreciation and amortization levels of about $0. 15 billion a year, which we expect to maintain over the next few years, to support a higher level of growth in the number of units, using new technology platforms and non-
Core applications.
A key component of our long history
The long-term goal is to return to a 15% Operating profit margin by 2012 and 2013.
A good example of our progress in this area is that, if you note in the fourth quarter, our food packaging business actually achieved operating profit of 14.
Fourth quarter 7%.
Another key factor in achieving this is the operational leverage generated by higher unit volume growth, which I have mentioned before.
In order to achieve our profit target, the projects we are working on are designed to increase the productivity of our platform and actively deploy coststo-
Provide services to initiatives that focus on product and customer profitability and process simplification.
We continue to work to manage our expenses and redeploy key resources into our growth plans.
So when we achieve growth, we are confident in our ability to continue to create solid incremental profits.
We have taken note of the other assumptions of our guide 2011, which you can find in our press release.
But what I would like to point out is that our 2011 EPS guide continues to exclude payment for W. R.
Grace settlement and the impact of the future, because the exact time of settlement is unknown.
We estimate that the settlement amount paid to EPS is expected to increase by about $0. 12 to $0.
14 each year, after the payment date, assume that the payment is made using a large portion of our cash balance.
Now, operator, I would like to turn on the phone for any issues with the participants, and we will follow up on the text issues with the Webcast participants as well. Question-and-
[Answer]
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Your first question comes from George Staphos of Bank of America.
Your first question, Bill.
There are all sorts of factors that you mentioned, I think, including mixing-
This is my wording, not yours, but the price is compressed.
Mixed results for the quarter.
Is there a way to break down the average price change as much as possible in your various products and what is the effect of mixing?
Compared to what these sources say is the increase in resin costs in the fourth quarter, this seems to be a very low number.
William Hickey
You\'re right, George, we spent quite a bit of time trying to break it down and that complexity continues to overwhelm us.
Dave Kelsey and I spent a lot of time on it and we\'ll spend more time on it in the next few days to see if there\'s a way to break it down.
I will give you an example when we introduce CT
301 of the film, they use 30% of the resin to make the shrink film.
Now we sell at a lower price.
We keep our profits, we keep our profitability, but the fact is that it is replacing a name called D-
955, with a higher price.
It\'s a fact, just an exchange.
Then, when we get new customers who are not in our base customer base, the higher number is the second combination as you roll out the product line.
So it\'s quite complicated and you have the monetary factor.
If you review in the footnote attached to the press release regarding the price quantity combination, you will find about half of the $30odd-
Millions of dollars this year, the same quarter, which is related to foreign exchange.
So this is a swamp. we need to drain better, George.
I mean, I know where you\'re from.
I do the same thing here every day.
The next time you go out to meet us, you can ask my colleagues to find a way to solve this problem.
So the answer is there\'s a lot of this number, this price-
George, we\'ll try and see if we can break it down.
Follow-up to George Stapp
Soon, there are two parts, $30 million in foreign exchange, why not capture it in foreign exchange, not in pricing?
Again, if you just look like-for-
Like a product without a replacement, maybe a flawed premise, you are constantly trying to develop your product line, but nonetheless, for the product you like --to-
Like comparison, what will be the price change?
All we want to do is William Hickey.
As far as forex is concerned, why is it not forex and is actually the amount equal and offset in the forex column.
This is related to our historical practice in pricing commercial food to Latin American countries that are affected by exchange rate fluctuations and we are pricing products in the United StatesS. dollars.
But the customer pays us in local currency so the customer bears the exchange rate loss.
In terms of the number of countries in Latin America, the exchange rate has changed, so they actually pay the same amount of dollars, but there are fewer local currencies.
So it is considered a lower price.
We will try to do better, George.
Your next question will come from the route of Robert W. Gansham PanjabiBaird.
Panjabi-Robert W. Baird & Co.
Intecateda made some comments about bulk rebates in your press release, which seems to be relative to the previous new project.
Is the customer trying to advance
Buy those rebates in the fourth quarter?
Maybe you can comment on whether this is supported in December.
William hickno is very interesting.
Ghansham, I am following this very closely, which is why I am careful to tell you in the script that the promise of the volume continues until January. So [indiscernible]
The first good start in January.
So there are always customers, Ghansham, who are on the edge and may order more to reach the rebate level.
But I think the main thing is that the point we are trying to make is that the price effect has declined.
For example, in a customer, we get a fair amount of new business.
In order to ensure the security of the new business, we basically have to apply for rebates on the basic business of the new business.
So this is a factor, and we\'re trying to say gracefully that there are some selective pricing actions in order to get a new commitment from the customer.
Panjabi-Robert W. Baird & Co.
Like a follow-up
At the last conference call, one of your protective packaging competitors is talking about their lower-than-target price increase plans in North America and Europe.
They point out that there is insufficient market support, just curious if this is consistent with what you see.
William HickeyWell, I haven\'t met a customer who likes to raise prices yet, Ghansham, so I\'ll leave it there.
Your next question is from Philip Ng of Jefferies. Philip Ng -
Jefferies & Company, Inc.
Just a short question on pricing.
I mean, obviously you guys are a bit aggressive, but what do you expect for 2011 when you expect to reach the price cost parity?
Can you say the last part of that question again? Philip Ng -
Jefferies & Company, Inc.
Yes, I just want to get a better idea of the 2011 price you expect to achieve from a percentage perspective and when you expect to reach the price cost parity.
William Hickey Dave, would you like to give it a try?
I mean, things are changing a lot here, so it\'s hard to say what\'s going to happen next month.
But let Dave try it.
David KelseyWe usually don\'t give a striker.
Look for guidance on pricing actions.
I think Bill summed up the comments in the press release on top revenue growth of 5% to 7%.
This reflects the price factor and we continue to focus on recovering higher costs through a combination of price increases.
Considering today\'s resin environment, we have recently launched some markets.
William HickeyYes, I think, you listen to me, probably in my comments, we can get the price increase in January 1 in some businesses in other businesses in February, so we are raising prices on the street now. Philip Ng -
Jefferies & Company, Inc.
In the case of a 2011 increase in capital expenditure, how many of them have been secured by contract or new business?
Or do you just fill the capacity because you expect faster growth?
David KelseyWell, as you appreciate, you need to increase the capacity before you record sales.
Our time is not long. term take-or-
Pay commitment for our products.
But when we see sales grow 5% to 7% in 2011, we have the same expectation before that, and we think we can maintain this level of organic growth in the future, we obviously need to increase the incremental capacity.
Also, since some of the new platforms we are developing have been commercialized, we need to add new capacity.
But we do need a trigger event in which we can predict enough time for the next two years --
Ensure these production units are in place according to the customer\'s needs.
I would point out that, unlike capital-intensive industries, if we need to start adding a greenfield facility, such as the Brazilian factory we invested in 2010, we can put in some high quality production units for millions of dollars, which could reach between $20 billion and $30 billion.
But instead of putting $0. 15 billion all into one or two factories, we are gradually completing as demand increases.
The next question comes from Tim Thein of Citigroup. Timothy Thein -
Citigroup\'s first question is about some of your profit growth, and as you mentioned, Bill, when you look at 2011, food packaging is gradually reaching the 15% target you set for the company, but it\'s obviously protective.
I know there is some seasonality here, but protection has dropped this quarter.
When you look at 2011, where do you think the biggest advantages are, and on the contrary, where do you think you face the biggest challenges in terms of profit margins by segment?
William Hickey I will tell you that actually a little better than I originally expected is the food solution at 11.
I\'m looking at 10 more numbers.
As a result, they did a good job in Food Solutions and raised their profits to £ 11.
Protection should usually take place in 12 to 13 years, so I might expect it to be in protection if I look for the biggest improvement in 11 years.
Of course, the key thing when you really see where we are is to really turn the other category around.
Because if you remove another category, I think our operating margin will look a little better. Timothy Thein -
Also, when you make a comment in the developing region, I think you mentioned a 10% increase in sales, but 6% of that comes from forex.
Is that right what I heard?
Second, what do you think in the long run?
Obviously, what you\'re talking about is expanding the presence in these markets.
In terms of growth in 2010, would you call for something unique or special?
Because I think it may be organic, higher than 4% or 5%.
It\'s actually William hicwell.
If you look at our emerging market business, including China, Brazil, India, but we also have, if you put our medical business really slow by 2010, by more like 13%.
So it sounds right.
I think if you only consider China, you hear us say that the Chinese economy has grown by about 30%, excluding the medical business.
The next question comes from Rosemary Morbelli Ingles & Snyder, the OperatorYour line.
Rosemarie Morbelli-
In fact, as Dave mentioned, Ingalls & Snyder LLCBill and Dave expect sales to continue to grow by 5% to 7% in 2011, which will include pricing.
Single unit, what 6.
7% in 2010, so you really don\'t expect to get that much from the sales growth.
What did I miss?
Will you, William Hickey Dave? . .
David KelseyI is completely uncertain.
Rosemarie Morbelli-
If you have sales of 5% to 10%, including the price of 1% to 2%, then the volume will be much lower than your unit growth of 6.
Fourth quarter of this year 7%.
This year, our sales volume has increased by 5%, a five-fold increase.
The most rapid growth of 9%.
So what we\'re really talking about is the same range of top growth as this year.
Given that some of our price increases were in the fourth quarter, we are looking forward to getting more than 2010 in 2011.
We expect less foreign exchange support for us and we have had a favourable impact from foreign exchange in 2010.
We expect a slight negative impact in 2011.
So when we look at the projected figures for 2010, the sales growth is not inconsistent with the sales growth we achieved in 2011, Rosemary.
Rosemarie Morbelli-
This is helpful, but if I push it a little, you add manufacturing facilities and you add production lines.
The global economy, including the United States, is recovering. S.
Europe in mature regions.
Shouldn\'t your unit grow more than you expected?
David KelseyWell, it does grow a lot in terms of protecting the business.
The number of our protective business units grew by 9% to 2010, but still did not return to pre-recession levels.
So we do see some opportunities to protect the business that can go back to these
The level of the recession and contributed to this top growth in 2011.
Then we\'re over 2011 when we expect to see some of these new platforms and some of the new technologies that Bill mentioned in his speech continue to drive organic growth after the economy returns to the previous stage.
Degree of recession.
Rosemarie Morbelli-
Are both Ingalls & Snyder LLCThis for the protection company or is it for the company? Extensive business?
David kelsey\'s protection side is mainly broad-oriented-based cross-
Industrial and retail customer departments.
So this is much bigger than the food industry\'s recovery from the recession.
The next question comes from Chris Manuel of KeyBanc Capital Markets.
Christopher Manuel
Capanke capital market CO. , Ltd.
My first question is actually a follow-up to the last caller\'s question.
When you see this protective business, you have some very good numbers, both quarterly and throughout the year.
But when we look for contributions from those contributions, it seems that if we focus only on 4Q, the profit margin is basically flat on some pretty good upswings.
Is there something missing inside?
Can you expand a little bit on the contributions or things we are missing?
One thing to keep in mind, Chris, is that we were responsible for the restructuring of the closing of European factories in the fourth quarter.
So you want to make sure you look at the adjusted margin numbers for the quarter.
I think it\'s about $7 million.
Christopher Manuel
Capanke capital market CO. , Ltd. Yes.
So I think it will be 13% in 4Q and 12. 9% last year.
So a little bit better, but I think your sales are up 9% to 8%?
David KelseyYes, I think, as I mentioned earlier this year, our sales grew by 9%.
Christopher Manuel
Capanke capital market CO. , Ltd. Right.
So my question is, we shouldn\'t expect--
Basically, it does not translate from a higher volume to a larger profit.
But what is the normal marginal contribution in that industry?
Maybe I should ask this question.
David KelseyA normal operating margin, I think this is the 13% figure we mentioned earlier-12%, 13% range. So I think --
I am not sure if I fully understand your question.
Obviously, the resin content of the protective enterprise is higher as a percentage of its income compared to our food enterprise, the food enterprise uses more special resin and has more knowledge in the product portfolio
Therefore, resin cost recovery is undoubtedly a factor affecting the protection business throughout the year.
But overall, I think the gains we get from the increase in the amount of protection are generally consistent with our expectations.
Christopher Manuel
Capanke capital market CO. , Ltd.
Then my second question around the GMS project.
So you\'re basically done.
I think in the press release to be released this year, you said you have a $55 million running speed.
In addition to what you harvest in 2011, what is the incremental benefit of the harvest in 2010?
Or is there anything extra to come?
The last time David kelsey added benefits was in 2010, about $10 million.
Therefore, on a future basis, we do not expect any incremental returns from the initial capital and related expenditures.
But as I mentioned, it does create a very effective global factory network so that when we do something like increasing the incremental capacity of capital expenditures that we have been talking about, we can do so on a more productive basis than five or ten years ago.
So these are the benefits that we will see on the basis of the future, as we have spent five years carefully studying the details of our global manufacturing strategy.
Your next question comes from the chip Dillon of Credit Suisse. Chip Dillon -
Credit Suisse bank AGI noticed you quoted $100 million in productivity for $2010 and I just thought--
A few questions, would like to confirm that $55 million of GMS project is confirmed or not included.
Can you give us an idea? Do you see that both of these people are likely to contribute in both \"11\" and \"12\", including productivity and GMS?
David Kelsey of the Greater Mekong Subregion is quite direct.
As I mentioned to previous callers just now, the GMS project received incremental benefits of $10 million in 2010.
As a result, $10 million of $100 million will be related to GMS.
In addition to this, there are a variety of activities that can help increase productivity.
Just as we talk about our activities in resin procurement and increasing production, resin accounts for only about half of the goods and materials we buy that involve the cost of goods sold from third parties, we are trying to purchase these consumables more effectively.
Our supply chain team launches hundreds of factory workshop projects every year to contribute to the remaining $90 million productivity growth.
So there are a lot of things that can help drive this saving.
On a future basis, we do not want to add any GMS-related increments.
But, as I said to previous callers, it does provide a platform for our future productivity growth.
There are no specific numbers in our guide.
But when you accept this guidance and work with your model, I am sure you will see what factors are the increase in profit margins in the range of income guidance we have given this year. Chip Dillon -
Credit Suisse bank as a quick follow-up
OK, let\'s say you even take up the high end of this range, at least it\'s hard for me to start north from 13% of the clip itself.
Until Line 12.
You did 1% in 2010.
This will infer that you have quite a jump in 12 years and/or 13 years in order to reach the 15% target.
Is there something? -
First of all, is my logic the same as what you plan?
Secondly, can you tell us something? Can we expect that higher exposure to emerging markets or new products, or more productivity, will allow you to reach 13% in two years from below 15% this year?
David KelseyI believes all of this will be contributors, with an adjusted percentage of operating income of 12 in 2010. 2%.
Obviously, in order to reach the 15% target we have discussed for a while, we need to add 100-
In addition, in the next few years, there is a basis for operating income every year, which is part of the plan we are working on.
Your next question is from Al Kabili at Macquarie. Albert Kabili -
Macquarie Research wants to make another round of price costs.
If I look at the gross profit figures for the fourth quarter, it looks relatively flat compared to last year.
If I look at EBIT, it looks relatively smooth if I adjust some of the things that motivate comp and SG &
I know there are a lot of factors you\'re talking about, but is there a way to help us solve the temporary resin headwind problem that you think you\'ll be back in the next few quarters?
William Hickey I would say that most of the price cost is against the wind.
I mean, we did it. -
We have basically achieved the price now and the price is very close when higher costs go up but you always have customer orders and you have stock turnover so there is a catch up
I think this is the main factor. Albert Kabili -
Is there a way Macquarie research can help us quantify how much you think is a temporary headwind, and you\'ll catch up considering discounts and some other factors. . .
We think the funding for the fourth quarter is about $25 million.
The fourth quarter was the cost of resin-yes, about $25 million, and $30 million in the fourth quarter, and it was clear that the price increase in December 1 had increased in part by not picking everything up
Prices rose in January and in February.
So I mean, it\'s a process.
As I have said over the years on these phones, if the resin remains stable, you will see things more clearly, but it fluctuates up and down, fluctuates up and down, and introduces some kind of noise in the system.
I really appreciate that it\'s harder for you guys to understand.
But what you can be sure of is that we\'re following. Albert Kabili -
Macquarie Research tracking
The Up issue is the profit of some of the new businesses that you are focusing on, just like the expansion of sterile products and some new initiatives that you expect in the next few years, these initiatives will account for 2/3 of your growth.
Helping us understand the profit profile of these new expansions, William Hickey asked me to say quickly, in general, that most of them are higher, some slightly lower, compared to the existing business, but they complement our work.
But for now, improvements over other categories will be a big help, because if you only accept low orders
The digital gains and losses of other businesses reach a reasonable positive number, and you will see that it will move the total number quite a bit.
The next question comes from Richard Skidmore of Goldman Sachs. Alex Ovshey -
Goldman Sachs Group Limited
This is actually Alex Ovshey who represents Rick.
First of all, under the guidance of my outlook, sales growth of 4% or 5% to 7% or total growth of fixed dollar sales, what does this mean for the actual dollar amount?
In dollar terms, the contribution to the EBIT line rose from 5% of sales to 7%?
Can you share this number with us?
William Hickey, I mean, I just have to count. I\'ll really tell you, but go ahead, Dave.
Bill, that\'s what David Kelsey would say.
We will not give granular guidance on EBIT dollars or EBIT profits.
We will have to let you make a judgment in order to complete this part of the work. Alex Ovshey -
Goldman Sachs Group Limited
I think what I really want to do is, how do we look at the incremental profit of organic volume growth in the business?
William HickeyI would say that the incremental profit margin is higher than the existing profit margin, that is, the existing company.
The increment is basically additive.
So it should be the last caller. -
The increment should be the value-added to the operating profit. Alex Ovshey -
Goldman Sachs Group Limited
Then just a question about free cash flow, can you talk about the priorities of free cash flow in 2011, and W. R.
Grace, if this will have an impact on the way you think about cash flow usage in 2011?
David KelseyWell, our view of free cash flow has not changed much.
The most important thing is to reinvest the business, obviously, in order to support the organic growth opportunities we see in the future.
We do expect to increase capital expenditure to the extent that we believe there are commercially viable projects to be launched.
In terms of balance sheet management, we have no debt due in the near future except for potential settlement by Grace, so this is not a cash requirement.
We did buy back a small stock in the fourth quarter and continue to pay more than $80 million a year in dividends. Therefore, the return of capital to shareholders will continue to be a key factor in our use of cash in 2011.
As Bill mentioned, we are opportunistic in terms of acquisitions.
We are also patient and we will tell you anything we think is valuable
Increase access when appropriate.
Your next question comes from Peter Ruschmeier of Barclays Capital.
Peter lushmaier
Barclays CapitalI is curious, do you see a meaningful mix to lower-priced products, such as products per unit area, but with a higher marginal contribution?
For example, I\'m really thinking about some of your thinner shrink films?
Yes, Peter, I think you got good grades there.
This is the price-
The mixed problem we talked about before.
We saw the growth of the CT series.
We have now launched three films from the original CT. 301.
These are going well.
Our business continues to shrink. -
In fact, the first year of these new products performed well, the price was lower, the resin was less, and our profit was also very good.
So I think you\'re right.
Peter lushmaier
What percentage of Barclays Capital and-
If you are energised, I think the proportion today is relatively small, but what is the percentage of these new products, shrink film products, as a percentage of total sales?
What\'s important is, three to five years from now, where will this go?
Is this a meaningful step change, or is the increment of the edge larger?
William HickeyWell, I don\'t want to add a number to it because we are testing the technology on a variety of products.
We see it commercially demonstrating its work on standard shrink films, and we are also experimenting with some other structures and other films that we have.
So I don\'t want to put a number that is very inappropriate at the current time there.
But if you ask questions for the next quarter, we can keep you updated because I think this is a real big breakthrough in technology, but it hasn\'t been proven commercially.
Peter lushmaier
May I ask David a clarification question?
According to the $0. 145 billion D & A guidance, I think it was $0. 176 billion in 09 and $0. 155 billion in 10.
Could you please elaborate on the $0. 15 billion guidance and related interest expense guidance without Grace settlement?
David kelsey\'s interest payments are not settled by Grace, but do include half the impact of retirement on 12% bills in the fourth quarter.
In terms of D & A numbers, there are two things about D & A, one is the traditional Depreciation and amortization of our capital equipment, in which we still have about $30 million, on behalf of the amortization of our shares --
Based on compensation.
So the $0. 145 billion figure is factory equipment. related number.
Your next question comes from Sara Magers at Wells Fargo Securities. Sara Magers -
Wells Fargo Securities, llc is just a clarification, and I\'m sorry, I know you guys have talked a lot about pricing, but you mentioned the pricing plans that are being implemented in January and February.
Can you find out more specifically what market segments they are?
William HickeySara, they have different prices in different market segments.
I think some of the food was in January and I think it was in February.
They\'re all in the middle.
One digit range, which is probably the best flavor I can give you.
I mean, the price is up so you might get more details.
This is not to say that it is not public.
Just I don\'t have all the details here in front of me. Sara Magers -
Wells Securities follow up, you made some good progress on the price in the third quarter
In the fourth quarter, the mixed side and variety came back a bit.
This is just a higher quantity of low profit products, is it the price?
I\'m just wondering how we will get a more positive contribution from this price --mix component?
William HickeyWell, I guess the simple answer is that it takes a little bit of time because I mean, the raw material has been moving up and down significantly.
If you remember, they really fell down in 2009.
So, what happens is that you have some prices and contracts, even though the raw materials are up this quarter and those prices and contracts are not up and reset.
So I mean, the easiest thing I can say is a little bit of time and hopefully keep some stability before everyone catches up.
Otherwise, we will continue to move the price with the cost and catch up.
It only takes a little time.
Your next question is from Gilbert Alexander of the Dafer society.
It makes sense that your gross margin may be close to 28.
5% this year, or am I pushing too much?
I \'d love to see 30%, but I\'m 28.
5% is also good.
We are looking for something higher than today.
Gilbert Alexei and my followers
The question is, when you look at your operating profit margin for protective packaging, you will see that the company\'s operating profit margin is 15%, will the operating profit margin for protective packaging reach 14%?
Or high?
William hickgill, if you go back, this is 2008, I think, and the protection is 16% of the operating profit.
I think the number is correct.
We can make sure, but I think about 2008 is 16%.
So it\'s not out of reach.
This is not beyond what we do.
This is not to say that we are going to climb a mountain that we have never climbed before.
We just need to stay ahead of the more volatile price-cost curve that most of us have seen over the years than I think.
You have a following.
From the question of Bank of America George staforth.
George StaphosTwo\'s question for you, first, maybe you mentioned it earlier, but if you can give us some guidance on the impact of the tax rate for next year, what led to the mixing of one way or another.
Then I have a question, and once you answer the first question about capital intensity or capital expenditure turnover, I will ask again, at least what is implied in your figure.
I know that our vice president of taxation has done a lot of work here recently.
Let me ask Dave to try and tell you about it.
According to David KelseyI, George, the 27% tax rate is the starting point for our guidance over the past few years, and then whether it is --
A time event like the major impact of the United StatesS.
12% bills for early retirement or failure of government agencies to restore the expected tax benefits.
These have led to changes in real interest rates over the course of the year.
But as we enter 2011, based on our best knowledge of the domestic and foreign income mix, and the tax system we have built around the world, that\'s how we get back to that 27% figure.
George StaphosAnd, Dave, follow up quickly before I start answering another question, so in the fourth quarter, what pushed this?
Is that the bill for early retirement?
David KelseyYes, that\'s why interest rates have fallen to lower teens this quarter, because we have a lot of losses in the United States. S. to record.
The same is true of America, of course. S.
In the country where we do business, the corporate income tax rate is the highest.
George stamp my other question is, if I go back about a year ago, the company\'s view of capital expenditure is, I think, based on the growth you saw at the time, you will maintain a range of $80 million to $100 million over the next few years, or similar, and you will need about 2% to 3% as part of your memory.
2010 is at 5%.
Your guidance has also reached 5% this year.
I think, for this increment, it ended up earning about $0. 3 billion in the structure of the 10 to the estimated 11 years achieved, you have to raise your capital expenditure of $50 million to $75 million, which is not a bad turnover rate.
So, is your investment income contribution to these new projects twice that of yours?
Should we look forward to the future?
William Hickey George, I really think it\'s more than double.
I mean 2x is probably the floor.
To be honest, my goal is 2. 5 to 3x.
But these numbers are connected.
As Dave said earlier, we will only spend money if we get this project to justify it.
David KelseyYes, I would also like to point out that George, some of the $0. 15 billion, or actually a large part, did not actually drive the growth we expected in 2011.
It will provide us with the capacity to grow by 2012 and 2013, which we expect to see.
George StaphosBut, according to this math, the leverage you get is quite important. David Kelsey.
I think people in the company know me very well.
If they bring in a project, they have to have at least two-plus x.
You also have a follow-up operator
Questions at the Commonwealth Secretariat Morbelli Ingles & Snyder.
Rosemarie Morbelli-
Can you give us a better feel for the investments you mentioned in other categories?
If, in 2011, you see a specific area of black, the loss of the fourth quarter?
Rosemary, William hickyyes, has several initiatives in this regard.
There are actually four of our so-called strategic investments.
One is an additional investment in our medical business, which we hope should be positive this year.
We have also invested in the nature of Pakistan that we are going to invest in.
I think this is very positive not only in 11 years but also in 11 years because I believe it is a truly revolutionary product.
The other two technologies we are investing in have applicability in several businesses and we really believe that these technologies can help multiple parts of the company.
When they are more mature and ready for prime time, we will give you more information about them.
Rosemarie Morbelli-
If I can, if you cancel these investments, can you share with us the profits of professional materials and medical applications? I think only these two make money?
Yes, both medical and professional are making money.
They are making money.
They made a lot of money.
Their profit margins are comparable to the rest of the company.
That\'s what I\'m talking about, what we\'re talking about internally, the new venture capital category, and that\'s the four technologies that we think have the future in our field.
Rosemarie Morbelli-
Ingles & tesllcso when you say similar companies, what we\'re talking about is 12% if I take part of the profit Operating margin only for medical and specialty materials and eliminate recent investments?
William HickeyI think, yes.
If you want to separate it, you can say that you have about 11, 12 in professional materials and medicine, and the balance of the new business minus millions of dollars.
Operator your last question comes from Chris Manuel of KeyBanc Capital Marketsup.
Christopher Manuel
Capanke capital market CO. , Ltd.
Bill, I know you don\'t like to look too thin. by-
But when we think about the cost price of 2011, as the price of 1Q you announced here goes up, I think it will take time to fix it, I think in Qs one, you may be a little behind again, probably catching up in the second and second quarters.
Then you say you think the resin will start to drop in the second quarter, three months.
So can you talk about your assumptions about the cost price for the whole year of 2011?
I\'m assuming it\'s neutral, or how would you imagine what\'s going to happen this year?
William HickeyYes, due to the extreme volatility of the resin, we stopped our quarterly guidance a few years ago.
I mean, it could go up in a month and drop unexpectedly next month, I\'m just not a good forecaster.
So all we have to do is manage communication.
Christopher Manuel
Capanke capital market CO. , Ltd.
So, given the increase in this spread, I assume it means 1Q, would it be fair that you are going to lag a little bit behind again?
That\'s probably fair, William Hickey.
Christopher Manuel
Capanke capital market CO. , Ltd.
I have a second question when we think about other questions ---
Your target is 15% profit, it depends mainly on your other half-
Does the professional business reach the other level of the company, or do you also think that your food business and protection business will reach or exceed 15% on its own?
William Hickey I think all of this.
I mean, tracking food for years.
I think it\'s worth tracking food.
I tell you, 14.
In the fourth quarter, the business made 7% good progress, which is a very mature business.
When you start to see the opportunity to balance the price cost and service level ratios around the world.
These are the things we do in every business, and they are a new technology. Okay.
Operator, let\'s try and finish here.
I would like to thank you all for your participation.
Express our gratitude and appreciation to our customers, employees, shareholders and partners, and everyone who helped us celebrate our 50 th anniversary, and thank you for your continued support as we look forward to 2011.
We are very excited about the momentum this year, January looks good two weeks ago, we will continue to focus on the future of Sealed Air, our customers and global consumers.
Thank you for taking the time to listen to our speech today.
Thank you for attending today\'s meeting.
This is the end of the speech.
You can disconnect now.
Have a good day.