sealed air\'s (see) ceo jerome peribere on q1 2015 results - earnings call transcript

Sealed Air (NYSE:SEE)
At 8: 30 a. m. on April 30, 2015, 2015 earnings call in the first quarterJerome A. Peribere -
President, President and DirectorLowe -
Kenneth P, chief financial officer and senior vice president. Chrisman -
George L, president of product analysis divisionStaphos -
Bank of America Merrill Lynch Research Department john P. McNulty -
Credit Suisse bank, Research DepartmentKabili -
Macquarie ResearchGhansham Punjabi-Robert W. Baird & Co.
James Armstrong-
Longitudinal research partner, LLCAlexander Hart-
Jefferies LLC, Research DepartmentHajde -
Wells Fargo Securities Co. , Ltd. research on DivisionMark Wilde-
Stock Research alex Ovshey-BMO Capital Market
Goldman Sachs Group Limited
Anthony pitinari\'s Research Department
Brian Lalli, Citigroup Research-
Ladies and gentlemen, Barclay Capital, Research Department operators, hello everyone, welcome to the 2015 quarter Sealed Air earnings conference call.
My name is Mark. I will be your operator today. [
Operation instructions]
Remind that this call is being recorded for replay purposes.
I want to transfer the call to Lori chartman, vice president of investor relations.
Please continue, madam.
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 the management\'s vision or forecast for the future and is moving forward --
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\"
Look for reports in our earnings release, this applies to 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 revised and updated in our Quarterly Report on Form 10
Q, you can also 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 their reconciliation with the United States. S.
We listed the GAAP in the earnings report.
Please note that we will close the call by 9: 30 today.
Now I am transferring the call to our President and CEO Jerome Perry Bell. Jerome? Jerome A.
Thank you, Lori. good morning, everyone.
At this point, I am sure you have the opportunity to review our press releases and revenue results for the first quarter.
I have to say that I am very satisfied with our results and we have had a good start this year.
We have maintained discipline throughout the quarter, and despite the severe monetary resistance, we have achieved our goal.
Net sales were $1.
7 billion fell 4.
Net sales were reported to be $ 4%, but in the same dollar, net sales increased by 3.
Compared with the first quarter of last year, growth of 5%.
Continuous delivery by division and region-
Dollar sales growth and good price/combination.
A combination of favorable prices/combinations and lower input costs, gross profit margin increased by more than 200 basis points and performed well in Food Care and product care.
For the adjusted EBITDA, we delivered $0. 284 billion or $16.
Despite the unfavorable currency translation of $ 3%, it still accounts for 22 million of net sales.
This is a 260basis-
Compared with last year\'s performance, point profit increased by 22% in the same dollar.
The adjusted EBITDA is 21.
7%, EBITDA is 20% after Product Care adjustment.
Diversey Care was most hit by the currency, but still achieved an adjusted EBITDA growth of 6% in the event of sustained growthdollar basis.
I will leave the details of the financial and business trends to Carol and our guest executive speaker, Ken Christman, who is the president of our product care division.
Before I transfer the call to Carol and Ken, I want to highlight a few projects.
As we have communicated many times, we are very committed to a disciplined approach to portfolio management with a focus on innovation and becoming knowledgebased company.
Based on this strategy, we are acquiring assets from Intellibot Robotics, a US startup. S. -
A private company has pioneered the development of robotic commercial floor cleaners.
Intellibot is actually the only company currently selling advanced robotic floor care machines outside the consumer market.
These smart machines are equipped with sensors for navigation and are also connected to the cloud for data monitoring, optimization, trouble shooting, service, and upgrade software.
Robot technology is unknown to different types of sensors, which will allow new features to seamlessly integrate into the platform when they come on the market.
The combination of expert knowledge of intelligent robot robots and TASKI mechanical cleaning leadership of Diversey Care will accelerate the development of the internet of things in robot technology and floor cleaning market.
In the cleaning and sanitation industry, we are still in the early stages of robotics and automation, and we are pleased to bring the first team of AI experts from smart robots to Sealed Air diversion care.
In early April, we completed sales of the North American pallet and pad business, a non-core asset in our food care unit.
While we have become a global leader in food grade absorption pads, the business is rapidly commoditizing and is under tremendous competitive pricing pressure.
The profit margin of the business is less than 10%, and sales of the North American pallet and pad business is about $0. 2 billion-
Sales in 2014 amounted to approximately $50 million.
I would also like to share two important organizational decisions.
First, we decided to build and own campus in Charlotte, North Carolina. -
For economic reasons, we decided to build and own a campus in Charlotte, North Carolina.
After extensive financial analysis, having a campus and signing a long-term agreement
The lease period is the most economical. This new state-of-the-
The arts global headquarters is not only home to the headquarters of our three divisions, but also home to our largest R & D center.
Sales of our pallet and pad business and sales revenue of our buildings in Racine will fund approximately 2/3 of this capital investment.
As a result of this decision, we increased our capital expenditure budget from $0. 18 billion to $0. 21 billion in 2015.
Secondly, we made a decision in April, and we will re-adjust the countries of Asia, the Middle East, Africa and Turkey that we call the AMAT region.
We will also adjust the regions of Japan, Australia and New Zealand and look forward to the future. we will report to Europe, China
East, Africa and Turkey are EMEA regions.
The rest will include Asia, Australia, New Zealand and Japan and will be reported as Asia-Pacific.
We believe that this adjustment will increase local focus and give more accountability to regional and departmental leaders to create greater cross-cutting
Cross-departmental sales opportunities, especially faster decisionsmaking process.
In today\'s discussion, as these changes occur, the results of the first quarter appear under the historical region.
We will provide you with sales trends through new regional adjustments on analyst day on June 18 and second quarter earnings call on July 30.
So let\'s start an overview of our financial results. Carol? Carol P.
Thank you, Jerome.
In Slide 4, we show first quarter performance by region.
I will continue to emphasize sales trends.
Unless otherwise stated, the dollar base is compared to last year.
In the first quarter, Latin America and regions including Japan, Australia and New Zealand were our fastest --
Growing regions
The dollar grew by 7% and 5%, respectively.
Both regions are reported to be declining. single digits. Constant-
Dollar Growth in Latin America and Japan/ANZ is driven by the strength of our food care business, with increased demand in Argentina, Mexico and Australia.
The AMAT region grew by 3% this quarter, with positive trends in food care and diversified care in India and Africa.
Sales in North America grew by 3% compared to last year, and sales in each of our departments grew by 3%.
It is reported that the dollar in Europe also rose 3% this quarter, but fell 13%.
We delivered 7%.
Sales growth in the US dollarK.
Spain\'s economy is growing by 1%.
France, Italy, Germany and Switzerland were flat, down 1%, and the Netherlands were falling. single digits.
The seven countries I just mentioned accounted for about 20% of combined sales in the first quarter.
Russia and Poland are strong, and Russia\'s performance continues to last nearly 50%.
Poland achieved 7% growth.
Steering slide 5.
Let me show you our net sales and adjusted annual EBITDA performance --over-year basis.
We paid $1.
Sales were 7 billion, up 3 year on year.
The $ 5% remained unchanged and the adverse currency conversion had an impact on net sales of $0. 146 billion or $ 8%, mainly due to the fall in the euro and the Russian ruble.
Net sales on-
The basis for the report declined by 4. 4%.
The price/combination of the offer is 3.
Turnover rose slightly at $ 2% or $58 million.
Adjusted EBITDA increased 13% year on yearover-
$0. 284 billion or 16. Net sales of 3%.
For the company as a whole, the increase in the Adjusted EBITDA is mainly due to a good combination and a price/cost distribution of $56 million.
Cost synergies also made a positive contribution of $17 million this quarter.
SG & A and other expenses have increased by $18 million, and the increase in wages is our biggest driver.
As a reminder, our annual salary increase is in April 1 of each year.
Adverse currency translations have had an impact on the Adjusted EBITDA of $22 million.
We delivered 210. basis-
Adjusted gross profit margin and 260-basis-
The adjusted EBITDA margin improved compared to the previous year. On a constant-
Based on the monetary base, our Adjusted EBITDA grew by 22% compared to last year\'s results.
Adjusted earnings per share for the quarter were $0.
Compared to 54, $0.
There were 33 in the first quarter of last year.
The negative effect of money on earnings per share is $0. 05.
The tax rate of 2015 in the first quarter was 25%, and the tax rate of 21% in the first quarter was 2014.
We re-purchased about 1 in the first quarter.
4 million shares worth about $64 million.
As we communicated at our last earnings call, our EBITDA leverage ratio target is 3. 5x to 4x.
We believe this is the best leverage ratio for our company.
We are currently evaluating options that will allow us to increase shareholder returns while maintaining target leverage.
In Slide 6 we outline our price/mix, quantity trends and sales growth
Dollar base by sector and region.
As you can see, we have been
The price/combination of USD sales growth and offers per department and per region.
This is the fourth quarter in a row that we have completed at least 3%.
Despite our global efforts to rationalize, US dollar sales are still growing.
I will now transfer the call to Ken, who will provide you with more detailed product care reviews and highlight the performance of Diversey Care and food care. Ken? Kenneth P.
Thank you, Carol.
Slide 7 highlights the results of our product service department.
Before entering this quarter, I would like to briefly discuss the organizational changes we have made in terms of product services, which we believe will accelerate growth and drive operational excellence.
Since January 1, we have re-adjusted product care to global performance packaging, which accounts for about 40% of product care sales, and global general packaging accounts for about 60% of product care sales.
Global Performance Packaging includes our differentiated proprietary platform with a focus on Buffering and reducing damage such as Instapak, automation systems, core views, and specialty foam.
Universal packaging worldwide is derived from our highly distributed solutions such as our utility products, including bubble packaging and batteries-
Aire bubble and our superiors
Growth products including Mail, inflatable bubbles and paper systems.
We have also set up a dedicated global sales team focused on fast-growing e-commerce.
Our automation system. Our end-to-
Combined with our packaging design expertise and global reach, the ultimate innovative product offering provides us with a significant competitive advantage across multiple industries including e-commercecommerce.
Through this adjustment, we are confident to make the most of our growth opportunities in the future.
One thing to keep in mind is that when we focus on growth opportunities, we are still committed to providing quality of revenue and our customer and product rationalize efforts are in progress.
Let\'s take a look at our first quarter performance.
Net sales rose slightly in fixed dollar terms.
You can see that our price is very favorable.
The decline was 4%. 3%.
The favorable price/combination is a direct result of our successful transfer of our business to a higher area
Performance Packaging and our ability to maintain pricing discipline.
The number in the first quarter was affected by the efforts to rationalize general packaging in all regions.
We go to the adjusted EBITDA.
In the first quarter, Product Care achieved an adjusted EBITDA profit margin of 20%, or $76 million.
Favorable prices/combinations, lower input costs and cost synergies offset the foreign exchange disadvantage, resulting in an 9% increase in adjusted EBITDA over 2014 in the first quarter.
The Adjusted EBITDA grew by 16% in fixed dollar terms.
In terms of product services, we will achieve EBITDA growth and profit expansion in 2015.
Slide 8 highlights the results of our division of Diversey Care.
Diversey Care net sales, ongoing-
The monetary base rose 1.
First quarter 5%.
With positive trends in all regions, favorable prices/portfolios have risen by nearly 2%.
The volume is relatively flat.
AMAT sales rose 4% in the same dollar. single-
China\'s economy is growing at double digits
India has achieved digit growth.
North American sales grew by 3% per cent, up only 2% per cent, the fifth consecutive quarterly increase in North American sales.
Sales in Latin America and Australia/New Zealand rose slightly, while there was basically no change in Europe.
Sales in the United States have risen in Europe. K.
France and Italy.
From a global end market perspective, our strongest industry this quarter was construction service contractors, hotels and healthcare.
On February, we announced that we signed 5-
Annual global contract with Carlson Rezidor Hotel Group, 4-
EMEA contract.
For those who did not see this press release, our contract with Carlson included more than 1,300 hotels across 105 countries and regions.
In addition to Jerome\'s emphasis on the acquisition of smart robots, Diversey Care has launched a revolutionary small robot.
Tanski 2100 micro washer with Smart Track, GPS-
Remote monitoring devices are enabled for TASKI machines.
Diversey Care offers an adjusted EBITDA of $41 million or $8.
Net sales for the quarter were 8%.
As we expected, currency translation had a negative impact on our performance this quarter.
Excluding foreign exchange, the Adjusted EBITDA is up 6% from last year.
In addition, it is important to note that while the top line in Europe is relatively flat, our EBITDA profit margin in this region has set a record.
In addition to foreign exchange, we continue to invest in R & D, sales and marketing to drive future growth, which offset the profit growth we achieved in Europe.
Nevertheless, we continue to estimate
EBITDA growth and profit margin expansion throughout the year.
In Slide 9, we highlight the performance of our food care unit, which has an excellent quarter.
In the first quarter, sales of food care increased by 5.
$ 8%, discount/mix 3.
8%, the volume of transactions increased by 2%. Our fastest-
The growing countries are Australia and the United States. K.
Russia, Mexico and Argentina have both achieveddigit growth.
Developing regions, including Latin America, AMAT and Eastern European countries, grew by 15% per cent, Latin America by 12% per cent and AMAT by 5% per cent.
Both Europe and JANZ grew by 7% and North America by 3%.
In addition to AMAT, the price/combination is favorable for each region, and AMAT has dropped slightly due to the unfavorable combination.
In terms of quantity, we have a positive trend in every region except Latin America, because the devaluation of the currency leads to pricing adjustments.
In Europe, our performance is superior to the protein market, which is in low single digits due to a more favorable combination driven by demand for our new products and ongoing pricing discipline.
We have double.
Sales of equipment solutions achieved digital growth this quarter.
In North America, although cattle production has fallen by nearly 6%, our sales have grown in single digits.
Despite the unfavorable market trend of cattle, due to the adoption of new products and our continued focus on value sales, we still experienced an increase in demand for fresh red meat.
For the rest of the year, we expect these markets-
Continue to decline, but at a slower pace than we have experienced in the last 6 to 9 months.
In addition, our sales of tobacco, bacon and processed meat and poultry are also strong.
The two markets rose about 4% to 5% in the quarter.
While we expect these trends to continue in pork, we are closely monitoring the poultry market due to the recent bird flu outbreak.
From a product point of view, what I would like to emphasize is that in the first quarter, our Darfresh On Ray received the highest achievement award for the 59 annual awards and innovation presentation of the Flexible Packaging Association.
Darfresh on pallets increases the visibility of the product and extends the shelf life of consumers and retailers, although processors benefit from a sustainable operational efficiency increase in throughput and a 40% reduction in top-tier films, however, there is no material loss in EBITDA performance after food care adjustment.
The adjusted EBITDA is $0. 191 billion or $21.
7% of net sales, up 20% from last year.
This increase is mainly due to improved combination of premium products, pricing plans and cost synergies.
Looking ahead, in 2015, we expect to continue to benefit from further adoption of our new products and continue to focus on value sales, which will be partially offset by currency headwinds and formula pricing.
However, I would like to point out that we are on track to achieve adjusted EBITDA growth and profit margin expansion.
Now, let me transfer the call to Carol and review our cash flow and prospects. Carol? Carol P.
Thank you, Ken.
Turn to slide 10.
Free cash flow for the first three months of this year was $63 million.
Excluding the $0. 235 billion tax refund received in connection with Grace settlement, compared to the $31 million used in the 3 months ended 2014 due to increased revenue and improved working capital management.
As many of you know, the company focuses its management of operating working capital on 13-
Average monthly targetFor the 13-
During the month ended March 31, 2015, working capital averaged 16% per cent of net sales.
This is a 230basis-
Compared with March 31, 2014, there has been an improvement.
Capital expenditure was $21 million, and the cost of a three-month cash restructuring in the 22 million quarter was $2015.
Slide 11 reflects our update prospects for 2015.
We now expect net sales to be around $7.
1 billion compared to the $7 guidance we provided earlier. 4 billion.
Compared to our previous guidance of approximately $ 9% or $0. 7 billion, the adverse currency is expected to be approximately $ 7% or nearly $0. 55 billion.
Our current expectation is the euro exchange rate of $1. 10.
In addition, our previous outlook included sales of approximately $0. 2 billion for the pallet and pad business.
According to the accounting rules, this disposition does not meet the processing conditions of the discontinued operation.
As a result, 2015 will continue to include North American pallets and pads in the first few years and quarter, but we will not benefit from this business.
Excluding the effects of divestiture and currency headwinds, we expect organic growth to be around 3%.
This is compared to our previous guidance of about 2. 5%.
The adjusted EBITDA is now expected to be within the $1 range.
Between $14 billion and $1.
16 billion, compared to our previous $1 guidance.
Between $15 billion and $1. 18 billion.
This reflects a slight reduction in the removal of the pallet and liner business, as well as an increase in foreign exchange headwinds.
Compared to the approximately $100 million we had previously predicted, the currency is now estimated to have a negative impact on the Adjusted EBITDA of approximately $80 million.
If you exclude the foreign exchange disadvantage and $15 million impact of our pallet and pad business divestiture, the adjusted EBITDA guide will be higher than our previous high end.
Adjusted earnings per share is expected to be within $2. 08 to $2.
15 compared with the adjusted earnings per share of $1 in 2014. 86.
It is expected that the currency will have a negative impact on earnings per share of about $0. 35.
Our fixed-currency earnings per share are about $2. 43 to $2. 50.
Compared to the $2015 we had previously predicted, our 0. 245 billion interest expenditure is now projected at $0. 255 billion.
We expect our tax rate to be around 25% in 2015.
We revised the free cash flow guide from $0. 575 billion to $0. 6 billion to reflect the lower and higher capital expenditure forecast for the adjusted EBITDA, partially offset by lower cash interest payments.
The free cash flow outlook does not include the $0. 235 billion tax refund we received in the first quarter related to Grace settlement.
As Jerome mentioned, instead of signing a long-term agreement to own Charlotte\'s campus
The lease period is the right economic decision.
This decision resulted in an increase in our capital expenditure budget from the initial $0. 21 billion to $0. 18 billion, of which approximately $75 million relates to these restructuring activities.
While the revenue from the sale of the pallet and liner business and the sale of our Racine facility is not part of the free cash flow, in fact, these revenues generate cash income.
These proceeds will be reflected in the investment activities on our cash flow statement, which is lower than free cash flow.
We entered a crossroads this quarter.
Currency swap in the United StatesS. -
Euro-based debt
Increase our Euro-
The risk of underlying debt increased from the previous level of 14% to 4%.
This transaction, coupled with a higher cash balance, has reduced our cash interest payments to $0. 24 billion this year compared to the $0. 255 billion we had previously expected.
Other key elements of our free cash flow have not changed.
Cash restructuring costs, excluding restructuring capital expenditures, are expected to remain at $0. 12 billion.
We are on track to achieve $50 million in cost synergies through restructuring efforts in 2015.
This concludes my prepared statement.
But before I start asking questions, I would like to remind you that our second-quarter earnings call is tentatively scheduled for Thursday, July 30, at 8: 30. m.
We will also hold analyst day in New York City on Thursday, June 18.
I look forward to seeing you on our analyst day and talking to you again in the future.
With this, operator, can you turn on the problem phone? Question-and-
[Answer]
Operation instructions]
Your first question comes from George Staphos of Bank of America. George L. Staphos -
I think my question is, Jerome, will be about Diversey Care and the progress you think it is making, especially if you think you will be able to maintain sales growth and profit growth in the future.
What are the hardest areas for you to do now? Jerome A.
Very good question, George.
First of all, we all know that with the scale of our business outside of the USS.
At Diversey Care, this is the department that has suffered the most money damage.
At the sales level in the first quarter, we had a negative translation of 9%, or $45 million, which obviously suffered the most damage.
So the highlight of this quarter\'s Diversey Care is that we are now maintaining and accelerating US growthS.
You have seen 4% sales growth, which is very good and we will continue to make progress in this important big market.
We have been very strong in the global hotel market.
Our healthcare market in North America has been very, very strong. The --
Where Are We Now?
The term difficulty may be in some parts of Russia and the Middle East, as Russians travel a lot and spend a lot of money on hospitality.
Given the political and economic situation on the ground, you will reduce it a little bit, for example, which affects Dubai as well as tourism in Russia.
This is a short one.
Because we believe it will improve.
About China, in the first quarter, we havedigit growth --middle-single-
Diversey Care\'s digital growth in China is a bit disappointing as we are used to double the growthdigit growth.
But this is mainly because we have--
Due to the real estate crisis in China, the opening of new hotels is much slower than in the past.
We have grown very well in the fast service of restaurants and local chains.
Some international chains have been hurt recently, but we also expect it to be better.
Brazil is the region where the results of the whole company and the whole economy have been hurt, including Diversey Care.
Again, you know the economic environment there and the very strong devaluation.
All of this, though, made me very positive.
We achieved 6% growth in fixed currency EBITDA at Diversey Care.
We have a lot of innovation.
As a startup, Intellibot will not affect sales, but it will have a huge mid-term benefit to our business and we are developing where we really want to develop.
For us, hotels, healthcare, etc are a very important part.
Your next question comes from John McNulty of CS. John P. McNulty -
The first question that Credit Suisse\'s research department will answer is resin.
I think there are a lot of people who are worried that you may have to start giving back the price as the price of resin or oil goes down, which looks like it\'s really not a big problem this quarter.
Now, in some cases, we \'ve started to see the resin push higher back.
So I guess you can tell us how the conversation with the client is going around this topic? May also tell us how to consider the price and raw material mix for the next few quarters? Jerome A.
I\'ll start with that, John. good morning.
You have seen what we have done in terms of price/mix, and these departments are very easy to access resin, which is food care and product care.
But we did. -
We did 2 in food care.
The price/combination for the first quarter was 8%.
Most of it, most of this 2. 8% is price.
You have seen what we have done in terms of product care and we have been doing 3.
Overall 4%--
Sorry, I was wrong.
In North America, our price/combination is 2 in terms of food care. 8%.
Throughout the company, our global food care price/portfolio is £ 3. 8%. In --
Similarly, the vast majority are in price.
On a global scale, it is 3 in terms of product care. 4%.
It is 4 in North America. 2%.
So we are very positive in price.
The reason is that I have been saying that our customers accept that when we talk, we have a good conversation about the value we create, in most cases, our packaging costs, there is a negative cost in product care or food care.
The negative cost I am talking about is the cost of food waste caused by the product being destroyed in product care or due to shelf life, etc, which is much higher than the cost of packaging.
So it\'s not about reducing our package cost by $0. 01, $0.
02, wait, wait;
This is to reduce food waste and damage.
This is a serious conversation we have with our customers, which allows us to price value, which is very important there.
Maybe Ken can add something here and give some color. Kenneth P.
Thank you, Jerome.
From the perspective of product care, we see 4.
2% growth price/combination in North America.
This is actually the result of good pricing discipline in the general packaging aspect of our business.
As Jerome emphasized, the dull weight played a role in North America in an unprecedented way.
Our ability to convey the value of the package is in play ---
Great pressure on prices is being eased.
There is some pressure on the price, but we have solved the problem by clearly communicating our value.
When we take the time to work in a higher direction, we also see a very favorable mix shift
Performance solutions in our performance packaging portfolio.
So in the first quarter, this combination is certainly in our favor, and we would like to see that combination play a role in our progress.
Your next question comes from the Al Kabili series at Macquarie. Albert T. Kabili -
Macquarie Research I just wanted to follow up on John\'s question, the previous one.
Ken, perhaps in terms of product care, there has recently been a considerable expansion of resin in Europe, which historically is one of the most difficult areas of product care to operate.
While you have the ability to handle this, I would like to see how you handle it.
If I can, I would like to see how the performance packaging is performing within a 2% drop in volume range. Kenneth P.
ChrismanAl, thank you for your question.
In the first quarter, we saw a 2 increase in overall price/mix in Europe. 4%.
Unlike North America, most of the prices in Europe are mixed.
So a lot of action.
We do want our prices to continue to improve in Europe, but the benefits we see in our European business are mixing, upselling, selling value.
So our profitability is growing rapidly there.
Overall, we are still going through some customer and product rationalize, but overall, the effect of some new products and good combinations is driving our success in Europe.
Your next question is from Ghansham Panjabi, Robert W. Baird.
Panjabi-Robert W. Baird & Co.
The research department hopes to see robots acting at analyst meetings. Jerome A.
You will.
Panjabi-Robert W. Baird & Co.
I think my question is: given all the changes in your portfolio over the last 3 years, asset sales, customer rationalized plans, and so on, can you tell us how to look at your current volume baseline, and what do you think is the standardized level of each segment?
Maybe we can start with the protective packaging just put your guest speakers there. Kenneth P.
ChrismanSo we think about our volume, what is working now-
This is a good question.
New product--
Our overall investment in business in innovation is the source of growth we want to see.
As a result, as we are constrained in price, we see a growth in sales.
We are now beginning to see how we will ensure continued sales growth.
This is because of the new product, this is because of the product mix.
We have the most powerful new product portfolio we \'ve ever seen in Performance Packaging Product Care.
We do expect this to drive our portfolio forward.
In addition, professional sales team in the field of e-commerce
Business is also an important driving force.
When we look at the market, the biggest change in product care is
Emphasis on products, emphasis on the market.
So when we look at e-Third, business
We have invested more energy and resources in these areas, and they have grown faster than the market.
We also say that this affects the quantitative trends we report, but it is important to note that we are experiencing a healthy single life in addition to the rationalized efforts
Increase in quantity. Jerome A.
In terms of food care, our sales growth in the first quarter was very good.
Interestingly, this is also the result of Australia\'s sales growth of about 12% in the first quarter, but this is not sustainable.
At this time, the mortality rate of cattle is very high, and this rate will have to drop in the next few quarters. -
This will have a slight impact on our sales there.
But in general,-
We are very satisfied with the chicken market in North America.
We have been doing very well and we have grown very well.
But we also have a lot of new products.
We have Darfresh [ph]
Launched very successfully in Europe and will be launched in North America in the second quarter.
We have launched our Optidur series in Europe and we will speed up our--
We will invest more in the United States. S. soon.
In a very difficult environment, our market penetration in Russia is very good, and so is in Eastern Europe.
So we are very happy about this, but overall we look forward to seeing a slight increase in volume in the second half of this year compared to our number today.
Operator your next question comes from the Chip on Chip series, a vertical research partner.
James Armstrong.
James Armstrong of LLCIt is responsible for the vertical research partner of the chip.
My problem is capital expenditure.
It\'s up about $30 million, according to slide 11.
Can you help us with the total cost of Charlotte campus and how this expenditure will flow?
Offset this, what is the revenue from the sales of construction in Racine, Wisconsin, and the pallet/pad business? Carol P.
LoweSo we will not disclose the tray/pad business at this time.
We think about $25 million in the cash flow statement, so this will be--
This is what broke out.
In addition to that, there are some additional amounts that are hosted when we vacate the building later this year, so--
But about $25 million.
The total value of the Charlotte campus is estimated at approximately $0. 12 billion, some of which will be paid in 2015 and the rest in 2016.
The next question is Philip Ng from Jefferies.
Alexander Hutt
This is what Alex Hutter has for Phil.
In product care, can you talk about the general difference between profit margin and performance?
Maybe it can help us quantify.
Then, how do you think about 60-
When you go for a longer period of time, the 40 points you talk about --
Term margin target? Kenneth P.
Good question.
I would say that performance packaging has better profit performance than general packaging, which is why we emphasize this space.
We are investing more resources globally for our performance packaging business to drive its growth, and we are working to rationalize our general packaging business, to make sure we have the right Total cost we have the best cost of service in this market.
In addition, through this strategy, we are able to focus on the key growth sectors of e-commerce
Commercial, third party logistics and electronic products.
Some of them do boost the general packaging, but as our system solutions, paper systems, inflatable bubbles increase, it boosts the growth portion of the general packaging
The value system of general packaging.
The next question comes from Chris Manuel of Wells Fargo. Gabe S. Hajde -
The research department of Wells Fargo Securities Co. , Ltd. , which is actually Gabe on.
Carol, I think the issue is for you, it\'s a housekeeping in terms of capital expenditures. If there\'s --
I think how much of the capital expenditure guidance reflects ---
Or the new Charlotte factory?
Then, if I subtract $75 million from the restructuring expenditure of $0. 21 billion, I will come up with $0. 105 billion.
What is the maintenance of capital expenditure?
And then it\'s implied that this would be some kind of return-
Facing capital.
Can you tell us where you spent some money? -
USD by region or product line? Carol P. LoweYes.
Thank you, Gabe.
So basically, capital spending has increased from our previous $0. 18 billion to $0. 21 billion, all driven by Charlotte\'s new campus.
So this is the cost. -
About 2015 pounds spent.
I would like to point out that one of the reasons this decision makes sense from an economic point of view is that Jerome emphasized: The campus includes our largest R & D center.
Compared with ordinary office buildings, the cost of R & D centers is very different.
More than twice the cost.
We will get the value of this investment, but it is difficult when you try to do triple net lease or standard lease.
No lessor would want to finance this because it is not necessarily transferable to others if you vacate the building.
Therefore, even if there is an interest burden, the cost we pay on a net lease basis will be significantly higher than our cash cost.
At the end of the lease term, we end up with nothing, and we will have this asset, as a company, attracting talent and supporting the innovation and growth of the company is very valuable for our future.
In terms of maintenance capital expenditure, it has a lower operating cost, just under $100 million.
So everything you see between $100 million and $0. 18 billion this year, including restructuring investments, has a very positive return for the company.
Therefore, in addition to maintaining capital expenditure, we have been investing in improving the quality of our products.
We are investing in capital to help us innovate, such as producing Darfresh on pallets.
We are also investing to ensure that our assets are located in the right area of our growth.
Therefore, we have indicated that we expect our growth in developing regions such as Asia to be substantially higher --
It includes the Pacific and Eastern Europe, as well as Latin America.
So this is the focus of our investment.
The next question comes from Mark Wilde of BMO Capital Markets. Mark Wilde -
BMO Capital Market stock research Carol, I\'m just curious about the situation of capital expenditures.
As growth continues to accelerate overseas and some of these emerging markets, do you need to increase your capital budget to fund the growth of new sites? Carol P. LoweNo.
Thank you, Mark. good morning.
Actually, we think-
We have been saying that we hope that our capital will run around $0. 2 billion a year, providing enough space for our maintenance capital expenditure, quality investment and innovation investment, we do not expect this to change.
We will be a little taller next year--
Since we have communicated the restructuring, we will have higher capital expenditures, which will also include the remainder of the Charlotte campus.
But we believe that, based on the current business, $0. 2 billion is enough to fund us.
In fact, if you look at our consumption trend, we will usually be far below this trend, without any restructuring expenditures, and we have a very healthy investment from an innovative perspective.
It is a reminder that the capital strength of the Diversey Care business is very low.
In addition, if you look at our investment requirements for capital expenditures, our investment requirements for Total operating costs are much lower than those of our peers, however, we have created some of the highest returns in this industry.
So in terms of getting value from our capital, I put us at the top of the list.
The next question comes from Alex Ovshey of Goldman Sachs. Alex Ovshey -
Goldman Sachs Group Limited
If you haven\'t mentioned this before, Research Department Jerome, a couple of questions.
First, can you tell us what is the EBITDA for the pallet business for sale? Carol P.
Alex, what we\'re sharing is--
Jerome noted in his comments at the beginning of the conference call that the business is facing a lot of competitive pricing pressure due to certain low
The value of the market.
As a result, the business is expected to have a full-burden EBITDA profit margin of less than 10%.
Its performance is higher than in the past, and what we share in our guidance is that the removal of pads and pallet business resulted in a decrease in our EBITDA estimates, and our adjusted EBITDA estimates, about $15 million for the year. Jerome A.
The reason for this tendency is quite obvious.
This is not the kind of company I want or the portfolio I want.
If you produce these pallets, you must be in conditionof-the-
We don\'t have the art manufacturing equipment, you have to have a very lean company, no R & D, no service.
That\'s not who we are.
We are moving fast in the direction of knowledge.
A company based on sales value.
That\'s why, interestingly, what you see in the same quarter is the disposition of the product and the acquisition of technology.
You\'ll see the same trends in future acquisitions, startups, or specific technologies that will help us become the people we want to be.
Your next question comes from Anthony pitinari at Citi.
Anthony petelli
Citigroup, the research department may just be a follow-up.
Prepared for Ken, refer to the dedicated e-
Business sales team.
I would like to know if it is possible to give any color from the level of growth you see in e-commercecommerce.
I think on analyst day, you\'re talking about email.
Business sales account for about 12% of market segment sales.
With the growth you see there and the rationalizing of generic packaging, is there a way to determine the percentage of product care
Business in the next few years? Kenneth P.
This is a great question.
Well, we\'re trying to determine exactly how big e-commerce is. commerce is. It\'s such a --
We have some challenges in ensuring that it is properly defined.
Many people claim they are electronic.
Not business.
We\'re really looking for something of value.
Increased warehouse and distribution, and companies that are performing their duties can take advantage of our small package packaging solutions.
We have dedicated resources in North America, Europe and China, especially in the area of e-commerce.
Because it develops so fast.
But what we see is not just rapid growth, it is getting more and more complicated.
In the past, the requirements for packaging were the lowest.
They only need cost packaging.
Now, it\'s really becoming an extension of the retail experience.
That\'s why we put more resources into space.
It is growing faster than the base market, so it is worth considering from this perspective.
But now the e-commerce market
Business is moving towards maturity, and our value stories and Performance Packaging solutions are starting to resonate, and historically we have encountered some challenges in getting some traction.
That\'s why we put a lot of resources into this market.
The last question came from Brian Lalli of Barclays. Brian Lalli -
Barclays Capital Research-part question.
In your cash flow statement, you show that you purchased 69 million of the shares throughout the quarterend.
I believe this gives you about 20 million capacity for the rest of the year.
I think, first, at this stage, is it safe to assume that you have exhausted most of the remaining capacity in April?
Secondly, I think, will it change your idea of refinancing costs to the point where the repurchase capacity is limited in the end? Notes --
I think, in September next year, I think maybe how you measure it. -
Alternatively, how does the board weigh the potential opportunity for delay between this cost and deploying excess cash and keeping leverage between 3. 5x to 4x? Carol P.
Thanks, Brian.
So at this point we use almost all of our restricted payment baskets.
As I indicated in my prepared statement, we are committed to these three areas.
5x to 4x lever target.
We think this is the best level.
Based on our cash flow guidance and our strong cash flow
Production capacity, we will look for options to return shareholder value.
As we have shared in the past, we look at the impact of the net present value from a refinancing perspective.
When we\'re in about 50 minutesbasis-
Point difference, knowing that interest rates can move in one way or another, we will have a slight negative impact.
And interest rates are very attractive, so we will look for opportunities more often to create value for our shareholders.
Hello everyone, thank you for joining us today.
Operator, I\'ll transfer the phone to you now.
Thank you for attending today\'s conference call.
This is the end of the speech.
You can disconnect now.
Have a good day.