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sealed air (see) q2 2018 results - earnings call transcript

by:KK INFLATABLE      2020-05-30
Sealed Air Company(NYSE:SEE)
On the morning of August 2, 2018, 2018 quarter earnings callChaitman -
Sealed Air CompanyEdward L. Doheny II -
Sealed Air CompanyWilliam G. Stiehl -
Sealed Air Company
Analyst Pettinari
Citigroup Global Markets Ltd. Scott L. Gaffner -
Barclays Capital Limited
Panjabi-Robert W. Baird & Co. , Inc.
George Leon stafu
Bank of America Merrill Lynch
Goldman Sachs & Co . )
Rizzo-
Jeffrey LLCAdam Jesse Josephine
Capanke capital market CO. , Ltd.
Allen in Vistula Nathan
Royal Bank of Canada Capital Market
LLCGabe S, a vertical research partner. Hajde -
Wells Fargo Securities
Capital market (United States)
Ed Lan Rod Ritz
Ladies and gentlemen, LLCOperatorGood day, UBS Securities, thank you for your support and welcome to the 2018 Sealed Air revenue conference call in the second quarter.
At this time, all the participants were listening. only mode.
We will have a question later-and-
Answer sessions and instructions will be followed at that time.
As a reminder, this meeting may be recorded.
Now I am happy to hand over this project to Lori chartman, vice president of investor relations.
The floor is yours. Lori C. Chaitman -
Sealed Air Company
Thank you all. good morning, everyone.
Before we start our conference call today, I would like to point out that we have provided a slide presentation to help guide our discussion.
This demo can be found on today\'s webcast, or it can be downloaded from our IR site in sealedair. com.
I would like to remind you that the statement made at this conference call sets out management\'s outlook or forecast for the future period --
Look at the report.
These statements are based entirely on the information we can now obtain.
We encourage you to review the information in the section entitled \"forwarding\"
Check the report in our earnings release and slide presentation, which works for this call.
In addition, we may perform differently in the future due to multiple factors.
We have recently listed many of these factors in the annual report in table 10
K and our revisions and updates to the Quarterly Report on Form 10
Q and Current Report on Table 8
K, you can also find it on our website.
Or on the website of SEC. gov.
We also discussed financial measures that are not in line with the United States. S. GAAP.
You may find important information about our use of these measures and their reconciliation with the United StatesS.
In our earnings report.
Included in the Appendix to today\'s presentation, you will findS.
GAAP financial results corresponding to some non-accounting standardsU. S.
The GAAP indicator we refer to throughout the demo.
Now, I\'m transferring the call to Ted Doheny, our President and CEO. Ted? Edward L. Doheny II -
Sealed Air Company
Thank you Lori, and thank you for your interest in sealed air.
Welcome to our 2018 conference call for the second quarter.
First of all, I will make some brief comments on our financial results and highlight recent internal and external investments that drive high quality growth.
Bill will then conduct a more detailed review of our financial position.
I will end with our 2018 outlook, which is the main driving force for the second half of the year and where we are making progress over a longer period of time --
Long-term growth opportunities and operational efficiency.
So let me start looking back at our performance in the second quarter.
We achieved good results for the second consecutive quarter.
Net sales rose 8% to $1.
2 billion, the adjusted EBITDA increased by 11% to $0. 218 billion.
EBITDA deposit 18.
8% increased by 50 basis points compared to last year, operating leverage or profit-to-
The growth rate of 25%.
Our performance has benefited from strong top-level growth, cost reduction and pricing actions.
Adjusted earnings per share are $0.
64, almost twice what we delivered in the same period last year. This year-over-
This year\'s growth has benefited from profit growth, stock buybacks, and more favorable tax rates. Year-to-
We bought back $0. 53 billion or 20 million shares.
According to our current mandate, we still have about $0. 9 billion.
Although the currency is not good for our forecast for the second half of the year, we expect to achieve our target for the full year of 2018.
Compared to our previous forecast 4, our sales outlook means a 7% increase in fixed dollar. 5%.
This revised outlook assumes a higher growth in our core business over five months of operations, with sales of about $50 million from the AFP acquisition announced this morning.
We continue to benefit from fresh food and electronics.
Business market, we see an increase in demand for our basic and high demand
Implement packaging solutions that extend shelf life, reduce waste and increase customer productivity.
We are also implementing our target acquisition strategy.
Continued dollar sales growth, combined with additional cost reduction actions and continued productivity gains, will enable us to achieve operational leverage above our target of 20% this year.
We expect the Adjusted EBITDA reported to be in line with our previous guidance even in the event of a foreign exchange disadvantage.
Before we provide more details about our results and prospects, I would like to take a few minutes to find out about our acquisition of AFP and the Kuraray factory --
Resin agreement announced on June.
AFP, a privateheld U. S. -
Headquartered in the United States, it is a leading supplier of professional custom engineering packaging.
Agence France-Presse generated $0. 125 billion in sales in 2017, with 260 employees and operating six facilities across the United StatesS.
Further business in Asia and Mexico.
We see the growth synergies with the Agence France-Presse acquisition and our recent acquisition of Fagerdala, which expands our ability to prefabrication design in the electronic, transport and industrial markets.
Agence France-Presse and Fagerdala align with vessels in their own containers in the SIOC trend of e-commercecommerce.
This trend is changing e-commerce.
As more and more distributors want manufacturers to prepare their main packaging packages, commercial packaging.
Just last week, in support of Amazon\'s SIOC program, we announced our participation in the Amazon packaging support and supplier network, which certified Sealed Air for testing to design and supply packaging worldwide, no additional testing or documentation is required from Amazon.
Agence France-Presse and Fagerdala also provide us with an expanded platform to expand the application of our awards
Win a sustainable ecological solution.
EcoPure is made of plants.
We can now integrate it into a completely manufactured solution.
We announce Kuraray, a Japanese materials company, to enable us to provide food packaging materials derived from its factorybased resins.
The agreement expands our portfolio of sustainable solutions, enabling us to offer renewable packaging options as higher barrier protection and compete for costs with traditional roll-on films.
We will invest in our own development and production capacity using Kuraray\'s factory
Based on resin, we will expand the application of materials in our terminal market.
We will continue to lead sustainable solutions and packaging including renewable, recyclable, reusable and recyclable applications.
Let me now provide more details of our second quarter results through Bill\'s phone call. Bill? William G. Stiehl -
Sealed Air CompanyThank you, Ted.
Go to slide 4 and let\'s start by reviewing our net sales by region.
Net sales for the second quarter were $1.
2 billion, the dollar is growing by 7% as all regions grow.
In North America, sales increased by 4%, product care increased by 6%, and food care increased by 2%.
Europe, the Middle East and Africa (EMEA) grew 4% this quarter.
Our biggest and fastest growing countries in EMEA are the UK, Italy, Germany, Spain and Russia.
It is reported that the Asia-Pacific region has grown by 22% and 20% in the same dollar.
Excluding sales from Fagerdala, the Asia-Pacific region grew by 5%, mainly due to higher slaughter rates in Australia, increased demand for packaging proteins in emerging markets, and strong e-commercecommerce.
Latin America is reported to have grown by 7% per cent and the fixed dollar by 19% per cent.
Sales in Latin America have increased by 12%, thanks to increased demand in Brazil, Argentina and Mexico, and we have benefited from the victory of new customers.
In Slide 5 we showed our first half performance.
Sales rose 9% year on year
The basis of the report and $ 7% have positive trends in all regions.
Slide 6 highlights the trend of combining quantity and price by department and region.
Globally, we offer a 4% discount price combination.
Due to the previously announced price increases, the price mix is advantageous in Food Care and product care
Constantly shifting to value
All of this offset higher input and freight costs.
We have achieved positive prices in Latin America to offset the impact of currency depreciation.
Excluding the acquisition of Fagerdala, global sales increased by 1%.
In addition to North America, food care in all regions increased by 2%, showing a positive trend.
Sales in Latin America grew by 12%, Asia-Pacific by 6%, and EMEA by 1%, reflecting the success of new customers and good market conditions.
The number in North America fell by 1%, as growth in materials was offset by a decline in equipment sales due to the timing of installation and strong performance in the previous year.
Orders increased in the first half compared to last year as our customers invested in replacement equipment and capacity for new applications.
Therefore, we do expect growth to resume in the second half of 2018.
Excluding the impact of Fagerdala, the volume of product care rose slightly during the quarter.
EMEA increased by 4% and APAC increased by 3%, which was offset by a 2% drop in North America.
In North America, demand for our differentiated portfolio in the e-commerce sector has increased
The decline in our utility products, including traditional foam packaging and shrink film, offset the commercial and industrial markets.
In Slide 7, we show sales for the second quarter and EBITDA bridges.
I \'ve covered sales trends in the last two slides, so my current review will focus on EBITDA performance.
The adjusted EBITDA rose 10% at a fixed dollar to $0. 218 billion, or 18. Net sales of 8%.
The adjusted EBITDA growth is attributable to the transaction volume of $5 million, the preferential mix and price/cost distribution of $20 million, and the restructuring savings of $10 million.
This was partially offset by $15 million in operating costs related to wage and wage inflation and investments in our global business to support existing and future growth.
The currency is $2 million.
Adjusted earnings per share are $0.
64. The average diluted shares have been issued for 0. 161 billion shares.
In the second quarter, our adjusted tax rate was 23%, which was related to discrete projects and income portfolios.
We are now revising our estimated adjusted tax rate for 2018 to 28% from the previous 29% to reflect the lower tax rate for 2018.
We will continue to assess opportunities to further optimize the tax situation.
Slide 8 shows our sales and EBITDA bridges for the first half of the year.
If we focus on EBITDA in the first half of the year, you will see higher volumes, favorable combinations, price/cost distribution and restructuring savings offset higher operating costs.
The currency had a favorable impact of $8 million.
Regarding our results by department, in slide 9 we show the results for the second and first half of food care.
In the second quarter, net sales of food care increased by 5% in the same dollar to $0. 713 billion due to favorable price/mix and positive volume trends.
The Adjusted EBITDA grew by 3% in fixed dollars to $0. 135 billion, or 19% of net sales.
Due to the time when the contract passed, the favorable combination and price/cost distribution became positive during the quarter
Non-delivery and global pricing behavior
Recipe customer.
We expect this trend to continue for the rest of the year.
The increase in operating costs is mainly related to wage and wage increases and operating investments that support growth.
This was partially offset by the $7 million saved by the restructuring.
We are pleased that food care services have made good progress in unforeseen macro events, including truck transport strikes in Brazil and currency depreciation, we want to see more operational leverage from 5% of sales growth.
We have invested throughout the organization to meet the growing demand for our core products, in particular our case --ready platform.
We have also invested in the ability to support a powerful pipeline of new innovations, including our FlexPrep solution for the fluid market.
These operational investments will increase our manufacturing efficiency and will help increase leverage in the coming quarters.
In slide 10, we highlight the results of our product service department.
Net sales of product care rose 11% in the second quarter to $0. 442 billion.
Excluding Fagerdala, sales of product care increased by 5%.
The adjusted EBITDA rose 11% at a fixed dollar to $79 million or $17. Net sales of 8%.
Good mix and price/cost distribution and restructuring savings drive this performance.
Our pricing actions are taking the lead and we see more profitable business portfolios, especially in the area of e-commerce
Business and fulfillment.
The increase in operating costs is mainly related to wage and wage increases, offset by revenue acquired by Fagerdala.
Now let\'s take a look at the free cash flow for six months in slide 11.
Free cash flow for the six months ended June used $5 million in cash, including $42 million
We paid the time payment of January to the external engineering company in 2018 in lieu of certain future royalties.
Capital expenditure was $74 million.
After deducting interest income, interest payments were $86 million and cash tax payments were $97 million, including $20 million in transition tax payments related to US tax reform.
Throughout the year, we continue to expect capital expenditures to reach $0. 16 billion.
Interest payments after deducting interest income amounted to $0. 175 billion and cash tax payments amounted to $0. 145 billion.
Cash restructuring excluding payments related to retention costs is expected to be approximately $20 million.
Now let me turn the phone back to Ted and review our 2018 outlook. Ted? Edward L. Doheny II -
Sealed Air CompanyThank you, Bill.
With regard to our overall outlook for 2018 of the company on slide 12, net sales are expected to be around $4.
7 billion, an increase of 6. 5% on an as-reported basis.
We now predict that the currency will have a negative impact on net sales of $20 million.
This latest forecast assumes that, due to exposure in Europe, Latin America, Australia and New Zealand, currency headwinds are mainly concentrated on food care outcomes.
For food care, we expect US dollar sales to grow by about 4% throughout the year.
This is 100 basis points higher than our previous forecast.
We continue to see accelerated adoption of our innovations globally, including case studies.
Ready, highabuse bags.
We provide healthy equipment order channels for customers who are upgrading aging assets and investing in new application capabilities.
The bull market in Latin America has rebounded and we have gained a share.
In Australia, due to the dry weather, we have benefited from the soaring rate of slaughter.
While we do not expect this level of production to continue, the cattle cycle is bottoming out and we expect moderate growth this year --end.
For product care, we now expect fixed dollar sales to grow by 11% for the full year, including approximately $0. 12 billion in incremental sales from Fagerdala and AFP.
Excluding these acquisitions, our outlook means sales will increase by about 4%.
We expect new innovations in our portfolio of products and services to continue to grow strongly.
As our customers recognize the savings we bring to their operations, this will drive higher quality growth.
Our outlook for the adjusted EBITDA remains unchanged at $0. 89 billion to $0. 91 billion, which means a profit margin of 19%.
Compared with our previous outlook, this outlook now assumes negative currencies of $5 million, while our previous outlook was positive currencies of $20 million.
It is expected that the improvement of operating leverage in the second half will offset the currency\'s headwinds.
We reiterate the adjusted earnings per share and the prospect of free cash flow.
Earnings per share are expected to be within $2. 45 to $2. 55.
Higher D & A and net interest expenditure offset our lower estimated tax rate.
We do not undertake additional share buybacks in our guidance.
We will provide about $0. 4 billion for free cash flow.
Because we only see 2018 to 2019 and 2020, our opportunities will be expanded to higher returns.
We are looking for more productivity opportunities, and with smarter investments and jobs we can do more at less cost.
Over the past three years, we have spent an average of about 70% of our money on maintaining our network, restructuring activities and investing in new corporate parks.
We are moving capital to productivity growth driven by ROIC.
We are improving the process of the existing network as well as new capacity and high
Closer to the growth area of customers.
To create profitable growth, we are accelerating the adoption of our innovative solutions.
Focus on the growth market.
We constantly invest and commercialize new solutions and leverage our strong brands around the world.
We have and will continue to complement core growth with value-added M &.
Our goal is to acquire, which is not only the core of our existing business, but also our
We are stepping up our entry into the neighboring market.
We use ROIC as a guide to our investment, how we allocate capital and increase free cash flow.
Our focus is on opportunities to drive revenue growth and long-term growth.
Long-term value of customers, shareholders and employees.
Now, let me transfer the call to Lori and let\'s answer the question. Lori? Lori C. Chaitman -
Sealed Air CompanyThank you, Ted.
Please mark your calendar for our third quarter 2018 earnings call on Thursday, November 1.
Operator, we want to start the Q & A session. Question-and-
Thank you.
We would like to answer any of your questions at this time.
For the benefit of time, we ask you not to ask one more question or any more, please reply again
Line up and allow as many questioners as possible when time allows.
It looks like the first question we have in line will come from a line at Citi\'s Anthony pitinari.
Please continue.
Your line is now open.
Anthony petelli
Citigroup Global Markets Ltd. Good morning.
You talked about the sales contribution of AFP.
I\'m sorry if I missed this, but can you talk about the contribution of EBITDA, or just the EBITDA profit profile for the industry and the purchase price, where you canEdward L. Doheny II -
Sealed Air Company
We do not share the EBITDA or the purchase price.
We did share about $0. 125 billion in sales, which would be value added, but we didn\'t actually share profitability due to competition.
This is similar to what we bought at Fagerdala.
Margins are lower than our core, but we are excited about the synergies, especially with the growth synergies that Fagerdala has with the business. Lori C. Chaitman -
Sealed Air Company
Anthony, do you have any other questions?
Operator, let\'s go to the next question. Anthony will be back. . . OperatorOkay.
The question of our next queue will come from Scott Gaffner at Barclays.
Please continue.
Your line is now open. Scott L. Gaffner -
Barclays Capital LimitedThanks. Good morning. Edward L. Doheny II -
Sealed Air CompanyGood morning. Scott L. Gaffner -
Barclays Capital Limited
Ted, I just asked a question about product care.
If I look at it, the volume for this quarter is slightly different from what we expected.
There was some consolidation in the market this quarter and I think Pregis bought FP International and I think there is another Polyair that was acquired this quarter.
Do you see anything in the competitive environment of product care that keeps you on your toes on the go
Can you see the front there? Edward L. Doheny II -
Sealed Air Company
Our acquisition of FP is very clear.
In fact, we are watching ourselves.
However, in our product care business, we actually see a strong, actually double
Digital growth has been achieved in our inflatable foam packaging, korrjv, and some automated products, even our mail business.
What we do not see in growth is that we do eat up some of our legacy foam packaging and shrinkage, but are also aware of this (23:57)
It is very sensitive to the price of the market.
So, actually, we\'re excited about some of the things we\'re doing in terms of product care and some of the latest sustainable solutions that we\'re developing in the future.
So this is not a concern about future growth, but a slight increase in volume.
Most of our growth in the second quarter will be in the price mix. Lori C. Chaitman -
Sealed Air CompanyThanks, Ted.
The next question is the operator?
Definitely an operator.
Our next question will come from Ghansham Panjabi and Baird.
Please continue.
Your line is now open.
Panjabi-Robert W. Baird & Co. , Inc. Hey, guys. Good morning.
I guess, just step back and, first of all, Bill, also congratulate you on your permanent role.
But in the second quarter, did the sales of food and product care reach what you expected?
In connection with this, does the tariff have any effect on any part of the product portfolio, food or product care?
Can you tell us about the tariff that has been implemented and the portfolio risk associated with the tariff that is being considered? Thanks so much. Edward L. Doheny II -
Sealed Air Company
First one. do you want it? William G. Stiehl -
Sealed Air CompanyYeah.
So, in terms of volume, yes, I think we are very happy with the volume.
You noticed some weakness in the food care equipment industry.
We think this is the time.
We are very pleased with the level of orders currently received in our food care North American business and equipment, and we certainly expect this quantity to follow.
We are also satisfied with the quantity of product care.
As Ted points out, we do get some softness in the traditional foam packaging and shrinkage.
Some shrinkage deterioration is actually in the mature market, around the shrink packaging of things like CD, DVD, magazine, etc.
Therefore, some deterioration is really expected.
Because of the tariff related, a lot of things happened in the tariff.
Of course, we are paying close attention to the political environment.
With respect to import tariffs, we think it\'s like we might absorb and have to absorb an increase in shipping rates, and then we pass the increase in shipping rates to our customers.
I think Ted will comment on export tariffs. Edward L. Doheny II -
Sealed Air CompanySure.
On the device, there is also a comment on food care.
As Bill emphasized in the speech we prepared, we had a lot of comparability in the second quarter compared to the strength of the equipment a year ago.
However, this does give us confidence in the second half of the year as we can see orders that will be converted into sold equipment.
That\'s part of our confidence in the second half.
Just added the tariff bill, and we \'ve been watching the news because everyone is talking about what\'s going on with the tariff, what can be applied, what can\'t be applied, but it looks-there\'s a lot of conversation with our customers as well.
So, first of all, for our customers and where we export, or where our customers produce in the United StatesS.
We do have access to markets that will be affected externally.
If U. S. prices go up, Latin America, Brazil and Argentina could go up a bit. S.
We are in a good position on a global scale and can deal with this problem all over the world.
As Bill has stressed, in terms of tariffs, we have seen some pressure this quarter and we expect to see that pressure on our products-the materials we ship outside the US.
Our plan is to pass on the price.
Our competitors have seen the same thing.
So we need to be firm in ensuring that --through price.
Thank you.
It looks like our next question in line will come from George staforth of Merrill Lynch.
Please continue.
Your line is open.
George Leon stafu
Hello everyone, Bank of America Merrill Lynch.
Thank you for answering my question.
Thanks for all the details.
Ted, my question is about what is expected for this quarter, including the relative performance of the two parts.
In food, you mention that you don\'t have the operational leverage that you think you will have, but you also mention the investments that are going on within the business, presumably, you will know to enter this quarter.
So, in any case, help us or help me understand how food is done relative to your expectations and your normal operational leverage goals.
Then, with regard to expectations of product care, you talked a lot about the installation of machines in food, but how your machines are installed in some higher value product care --
Add the product line you are trying to market? Thank you. Edward L. Doheny II -
Sealed Air CompanyOkay.
The second short answer about product care is that net expectations, the real problem you do find in Food Care is some of the investments we are making for additional capacity and new products.
So the direct answer to this question is not what we expect.
We are making these investments.
We spent more in the quarter than we got. It\'s a long-
So we will see this in the future.
We will increase some of this to 2019.
So we are trying to improve our efficiency. William G. Stiehl -
Sealed Air CompanySo one follow-
The comment on this is that when you see the comments you made, and the comments we reiterated on the phone about the food care PG ratio, it may be a bit disappointing for us, you can understand some of them by looking at our device business.
We have pointed out that this is a bit lagging in the second quarter. That\'s high-
Our margin business.
Therefore, PG ratio will lag due to equipment lag.
However, our PG ratio, we expect to double the head office at 2017.
When these equipment orders are converted to delivery and signing --
We want food care companies to make profits from customers. to-
Growth increased over the third quarter. Lori C. Chaitman -
Sealed Air CompanyThanks. Operator?
Yes, madam.
The next question in line will come from Brian Maguire of Goldman Sachs.
Please continue.
Please answer your question. Brian Maguire -
Goldman Sachs & Co . )LLCHey.
Good morning, congrats on the progress of price and cost.
My question is the headline news we \'ve seen about plastic, which is a quasi-star in a bunch of consumer trends.
I know you don\'t do much on singles.
Service side, but just wondering if you see a customer preference for plastic packaging.
I know that the collaboration with Kuraray seems to be in line with the direction of these trends.
But overall, did you see a lot of activities today? Or is this deal with Kuraray in preparation for what may happen in the future? Edward L. Doheny II -
Sealed Air CompanyYes.
We will definitely see plastic problems in front of our customers.
Last quarter, we actually had two majors talking to us about what we could do.
When we introduce renewable materials, our customers are definitely very interested.
But our focus on plastics, even on our film business, is what our scientists call skin, and our plastics are used for critical-
The use of the app can both protect the packaging, save a lot of waste, and can be used for food, extend the shelf life, bring fresh food to the place and bring positive benefits there.
We will continue to invest there.
We shared an organizational change over the previous phone call.
We integrate the concept of sustainability into our innovation team and we will continue to invest in products, people and processes.
But this is definitely the idea of our customers and we will keep working hard to see what we can do to improve our sustainability efforts.
In fact, the word we use internally is to lead with our customers in the process.
Thank you.
Our next line-up question will come from the team of Daniel Rizzo and Jeffries.
Please continue. Daniel Rizzo -
Jeffery Company
Regarding the freight or treating the tariff as the freight, you simply said it.
I\'m just wondering what your expectations are for the second half of the year for shipping and input costs? Edward L. Doheny II -
Sealed Air CompanyThe pass-
We actually mentioned the pass.
Pass tariffs.
But we are behind in shipping.
In the first half of the year, our shipping cost has gone up, but our plan is to pay the shipping cost together with our customers.
But the second factor, the shipping cost actually gives us a chance to sit down with the customer.
What can we do to help them reduce the shipping cost?
So, this is an opportunity.
As I mentioned, our partnership with Amazon, what can we do to help prove that our package is suitable for the Amazon system, which is a big problem.
We have three new centers in this regard.
So, on the resin that we put in the highest cost, we also saw the growth in the first half of the year.
The trend between the first quarter and the second quarter is still flat.
Growth was 15% in the first quarter and about 10% in the second.
We saw and looked forward to the resin situation in the third quarter and our guidance was flat.
This could drop some chatter and noise.
We heard it again last quarter.
We don\'t see it.
Therefore, our guidance is that the cost of resin input should be flat and a slight increase. William G. Stiehl -
Sealed Air Company
So, specifically to your question about shipping costs, product care companies were able to launch a very successful price increase covering a variety of input costs in North America in April 1, and shipping costs are an important part of these costs.
These price increases have been well received.
As we have pointed out, they have persisted.
We also stated that if we increase our freight rates in the future, we are also fully intending to pass the increase in freight rates to our customers. Lori C. Chaitman -
Sealed Air CompanyOperator?
Yes, madam.
The next issue in the queue will come from Adam Josephson and KeyBanc.
Please continue.
Your line is now open.
Adam Jesse Josephine
Capanke capital market CO. , Ltd. Thanks.
Good Morning, everyone.
Under your guidance.
You mentioned that better operating leverage is expected in the second half of the year to offset the incremental foreign exchange drag of $25 million throughout the year.
Can you help me understand where the better operating leverage is expected to come from?
In particular, just considering the size of a better operating lever of $25 million, it seems to have a lot to do with what you expected three months ago.
I don\'t think AFP will make much contribution to your EBITDA this year.
In connection with this, your foreign exchange assumptions for the second half of the year are related to the guidelines.
I appreciate it. Edward L. Doheny II -
Sealed Air Company
Do you want it? William G. Stiehl -
Sealed Air CompanySure.
So on this issue35:59)
I would like to say that we are very, very satisfied with the final price mix in Food Care and product care.
Product Care entered a positive price mix in the first part of the second quarter, and food care entered a positive price mix in the middle of the second quarter.
We expect both of our businesses to maintain a positive price mix for the rest of the year.
This will help us improve the operational leverage we expect for the rest of the year.
You are right, even if our acquisition is value-added, they will not necessarily increase our operating leverage in the first year after the end of the transaction.
But we see an improvement in the price structure.
I have mentioned before the sales of food care equipment, and as we develop in the second half of 2018, sales will increase.
Then you also notice the forex movement appropriately.
Our previous guidance on foreign exchange and EBITDA sales had a positive impact of $0. 11 billion to $20 million.
As you can see, sales of our new guide are negative $20 million and EBITDA is negative $5 million.
In fact, the biggest impact on us is our food care business.
The specific currencies involved are the euro, the Brazilian real, the Argentine peso and the Australian dollar.
These currencies also represent a large part of our sales.
The biggest one I mentioned, the euro, which accounts for 14% of our total sales. Lori C. Chaitman -
Sealed Air CompanyOperator?
Yes, madam.
The next question comes from Arun Viswanathan of RBC Capital Market.
Please continue.
Please answer your question.
Allen in Vistula Nathan
Royal Bank of Canada Capital MarketThanks. Good morning.
Just raised a question about the quantity and price situation in the second half of the year.
In the range of 4% to 6%, you do face some relatively difficult competition in food care and product care.
Your price is actually higher than ours this quarter.
So, what is the prospect of a price mix trend from here?
I mean, should we stay in the range of 4% to 6% and then the volume should fall back in the range of 1% to 2%?
Or you think you can be in the middle.
The single digits of those stronger competitors in the back half? Thanks. Edward L. Doheny II -
Sealed Air CompanyYes.
In the second half we still thought the situation would be the same.
Its price combination will be more than the quantity.
We think our sales will rise slightly, but we will do so mainly in the price mix.
In terms of food care, we think our shrink bags still have a chance and we think we have a chance there for top products.
As we have always stressed, what we did not get in terms of food care in the second quarter was equipment.
We think we have a chance to go through this process and have a good profit.
We also believe that some of our new products already have a very good channel, especially in the liquid, which we think is an opportunity for the second half of the year.
In terms of product care, we still see some of our new products, our korrjv, e-
Business is still strong.
Yes, of course, we think we have the right price mix in this regard.
We expect that we will not make progress on price issues in traditional foam packaging and film, but in the second half we do have tough competitors.
Now, it looks like this will be the price mix to be experienced in the second half of the year. Lori C. Chaitman -
Sealed Air CompanyOperator?
Our next queue problem will come from the Dillon chip for vertical research.
Please continue.
Your line is open. God\'s savior
Guys, LLCHi, a vertical research partner.
This is the chip filled with Benito Tiano. How are you? Edward L. Doheny II -
Sealed Air CompanyGood. God\'s savior
LLCGreat, a vertical research partner.
So my question has to be helpful with the acquisition of the entire list (40:12)plastics.
So, first of all, I think, you seem to be expanding to others.
Plastic resin area.
You mentioned Agence France-Presse that they use different types of raw materials.
I would like to know how you see the challenges in plastic in the field of product care packaging.
For example, you mentioned that foam packaging, shrink film face some challenges in this quarter.
While some of them are eating people, do you see any future concerns that some customers may want to move from bubble packaging to more sustainable packaging?
Are you making these acquisitions to solve these problems? Edward L. Doheny II -
Sealed Air CompanyYes.
Well, first of all, in the Agence France-Presse acquisition, we\'re actually-we\'re going to take our ecosystem to this line, this is a cane --based resin.
So this is actually our current portfolio that will help the synergies there.
However, in terms of M & A, some of the acquisitions we are considering are in the technical field, which will help us to carry out the product care business.
So, as far as the plastic push we \'ve talked about, we\'re definitely seeing the problem there.
But sustainable, reusable products, we still see this as an opportunity for growth, especially in bubble packaging and e-commerce
Business, sustainability issues, we are changing our products.
We are replacing polystyrene, which is foam.
We are reducing the number of packaging materials.
Therefore, our traditional bubble packaging has a lot to gain in terms of sustainable development.
So we think this is still an opportunity for growth.
Actually, the inflatable foam package is double-packed.
We expect this growth to continue. Lori C. Chaitman -
Sealed Air CompanyOperator?
The next question comes from Gabe Hajde of Wells Fargo Securities.
Please continue.
Your line is open. Gabe S. Hajde -
Good morning, Wells Fargo Securities.
Thank you for answering this question.
I really kind of thought about your portfolio of capital expenditures, you talked about putting more emphasis on some restructuring efforts and keeping the business going, and looking forward to moving to more growth/returns --type projects.
Can you talk? I mean, you mentioned ROIC as a framework.
What kind of barrier rate or target do you look for in these projects and where are they likely to be concentrated? Edward L. Doheny II -
Sealed Air CompanyYeah.
We are using-basically looking at ROIC could be more than our cost of capital, which is very interesting if we look at the $0. 16 billion expenditure in capital, and where is this return.
I mentioned food care in the second quarter and we are investing in some new technologies and as we move into new markets we can offer to look for ladder function changes in our productivity.
So looking at the capital expenditure barrier rate, we \'ve been cleaning up what we\'re looking for, can we do 20%, 30% ROIC in some of our existing facilities? Maybe from a different point of view, we can get fully automated facilities, not today, we have a lot of batch processing in our facilities.
So I think we have a chance.
Part of the 70% expenditure in the past was for various reasons.
We have no reason for the future.
So I think there are some important opportunities for internal investments in our capital expenditures, especially in the productivity of our facilities around the world, to increase productivity and drive growth. Lori C. Chaitman -
Sealed Air CompanyOperator?
The next question will come from Anojja Shah with BMO Capital Markets.
Please continue.
Please answer your question? Anojja Shah -
Capital market (United States)Hi. Good morning.
My question is about the allocation of capital and how you prioritize the main assets.
I know you. -We talked a lot about capital expenditure.
Then you have a $0. 9 billion share buyback.
Obviously, you are interested in M &.
So have any feelings about your priorities there, which one do you focus most on, or have any comments on that? Edward L. Doheny II -
Sealed Air Company
Well, again, it has to do with using it-our returns, and where we can provide the most returns for the business.
So when we share M & A opportunities, see where we can incorporate growth into our existing footprint, our existing markets, and where we can get a higher return on growth.
So, we\'re pretty-but using ROIC as a guide, and we don\'t want to overspend on that either, which is why ROIC is a good guide for us.
We also hope that we will not give up our core competencies.
So, this is the guide to mergers and acquisitions.
As I mentioned internally, the allocation of internal capital, I think we have some opportunities on the facility and have our internal capital expenditures get a higher return.
Then the third part of the stock repurchase.
Put these three factors together, in the case of an increase in stock repurchase, we can create the highest return, we look very carefully, $100 million, if we do mergers and acquisitions, that will definitely exceed the return on stock buybacks.
So, we are looking at it very carefully. Lori C. Chaitman -
Sealed Air CompanyOperator?
The next question in line will come from Edlain Rodriguez at UBS.
Please continue.
Your line is open.
Ed Lan Rod Ritz
UBS Securities Co. , Ltd.
In the collaboration with Amazon, there is only one quick collaboration, such as how does it really help you?
I mean, does this have an impact on finance?
Does it help you develop the product care business?
I mean, if you can explain it in detail. Edward L. Doheny II -
Sealed Air Company
This is a good question.
It allows us to use our-we have three certification facilities where we can certify these products, similar to getting an approval stamp, similar to what you do in the field of equipment, there you will be approved by UL.
This will be an Amazon approved SKU with packaging materials that will help them use in the distribution center and in the packaging.
You can pay a fine if you don\'t have this symbol.
What does this mean for us, for our three facilities, we have one in the US. S.
This is certified, one in Europe, one in Asia, and we charge for it.
This is an opportunity for Amazon to work together and our brand will mean it\'s Amazon-
Our own products should grow through Amazon. Lori C. Chaitman -
Sealed Air CompanyOperator?
Yes, madam.
We did follow up.
Scott Gaffner\'s question at Barclays.
Please continue.
Your line is open. Scott L. Gaffner -
Barclays Capital LimitedThanks. Yeah.
Just a few quick follow-up-
Ups, first of all product care, I think you will-the company has acquired or partnered with an alternative product care company a few years ago
Based on packaging, can you update us on the situation?
And then, Ted, just focused on-I mean, you kind of made fun of 2019-
2020. it sounds like there\'s still a lot to come.
But when we see what you call capital expenditure moving towards growth capital expenditure, should we expect the quantitative trend to accelerate relative to the market you are involved in? Thanks. Edward L. Doheny II -
Sealed Air CompanyOkay.
Scott, I don\'t want to say, your first question, I don\'t know the answer, so if we canup on that one.
For at least nine months, I am sorry that I did not know the answer to this question.
But in terms of capital expenditures, first of all, just to make sure, look at the capital expenditures that we describe that are appropriate to the cash flow target, but, yes, I believe to make our facilities more efficient and the network more efficient, can help our growth expectations reach 2019-2020 and beyond.
So some of the neighboring markets next to us want our products and there are bottlenecks in our portfolio today, which I think will help drive our future growth.
We will follow up on your other question after the call. Lori C. Chaitman -
Sealed Air CompanyOperator?
Yes, madam.
Our next.
The problem will come from the chip Dillon series of vertical research.
Please continue.
Please answer your question. God\'s savior
Vertical research partner LLCHi, guys, Salvator Tiano is coming again. Just a follow-
I don\'t know if I missed it, but I don\'t think Brazil has been discussed in detail.
I know, obviously, it\'s not a big problem for you because your sales growth in Latin America is double-digit.
But what is the impact of the strike on there?
As we have seen in some of our peers, has it affected your sales growth in any meaningful way? Edward L. Doheny II -
Sealed Air CompanyYeah.
Brazil is actually a highlight of our quarter.
As you stressed, the truck strike actually slowed us down in the first half.
We have had some problems with Brazil in the past year, but in fact Brazil is a bright spot for us for a lot of reasons.
First, our team had some big wins this quarter and did a good job there.
We also see Brazil as our growth.
Most of the fresh red meat shipped from Brazil-its export capacity will increase-is frozen.
But from the changes in fresh red meat, we are related to this.
Again, if this tariff does hit the U. S.
Brazil\'s growth in protein demand in Europe and Asia will accelerate.
So, we see an ongoing opportunity.
So, to answer the first question, yes, this part, our strong growth in this quarter, we are looking for continued strong growth in Brazil in the future. Lori C. Chaitman -
Sealed Air CompanyGreat. Thank you, Ted.
I think, operator, is there a problem in the queue?
This is correct. Absolutely.
We still have time to answer another question.
The last question we have in line will come from George stapos and his party at Merrill Lynch.
Please answer your question.
George Leon stafu
Hello everyone, Bank of America Merrill Lynch.
Thank you for your attention.
Ted, can you talk about what you think about foam? in-Place the package?
And then more broadly, in the field of product care, recognizing the quantitative loss of some of the more mature product lines, which you think is due to food and pricing behavior, but from your work for nine months, what do you hear from your colleagues, anything in this regard-in terms of economic prospects or purely economic prospects, the number of these categories is weak-
Strategy?
Thank you all. good luck for the quarter. Edward L. Doheny II -
Sealed Air CompanyThanks.
The question is actually very good.
In fact, we will not specifically share some of the M & A opportunities we are looking.
But look at the product service area, the area where we are interested in this integrated manufacturer, and we learn from Fagerdala that these areas have direct access to these growth markets, where, we see integrators moving into electronics, especially some back in the US. S.
With some people in America. S. manufacturing.
So we see an opportunity there, so some of our other growth opportunities in terms of product services are internal developments in the automation space.
In my nine months, our customers are looking for help with automation in their facilities.
We have products today, but we see sustained growth.
We are developing our own products internally, but we are looking for product care opportunities and we can help our customers automate the packaging process.
So we saw some opportunities. Lori C. Chaitman -
Sealed Air Company
Thank you, George. thank you, Ted.
Operator, this is the end of our call. thank you for joining us today.
OperatorThank, host, thank you to all the participants for attending our meeting today.
We hope that your meeting today will be informative.
This will end the project.
You can now disconnect and have a great day.
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