Good day, and thank you for standing by. Welcome to the first quarter of 2023 Sealed Air Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question-and-answer session [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand over the conference to our speaker today, Brian Sullivan.

Thank you, and good morning, everyone. With me today are Ted Doheny, our CEO; Dustin Semach, our CFO; and Susan Yang, our VP of Automation Finance and Treasurer. Before we begin our call, I would like to note that we have provided a slide presentation with enhanced visuals to illustrate who we are, what we do and where we're going. Please visit sealedair.com where today's webcast and presentation can be downloaded from our Investors page. Statements made during this call stating management's outlook or predictions for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in the section entitled Forward-Looking Statements in our earnings release and slide presentation, which applies to this call. Additionally, our future performance may differ due to a number of factors. Many of these factors are listed in our most recent annual report on Form 10-K and as revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K, which you can also find on our Web site or on the SEC Web site. We discuss financial measures that do not conform to U.S. GAAP. You will find important information on our use of these measures and their reconciliation to U.S. GAAP in our earnings release. Included in the appendix of today's presentation, you will find U.S. GAAP financial results that correspond to the non-U.S. GAAP measures we reference throughout the presentation. I will now turn the call over to Ted. Operator, please turn to Slide 3. Ted?

Thank you, Brian, and thank you for joining our call. Today, we'll discuss our first quarter results, provide an update on Liquibox integration, our new corporate brand and our continuous journey to reinvent SEE. After that, we'll open up the call for your questions. Starting with Slide 3, I'm excited to share that as part of our Reinvent journey, we are changing our corporate brand to SEE. Our new SEE brand brings clarity to our markets, customers and people of who we are, what we do and where we are going. We are a market-driven, customer-first solutions company. The new logo unites automation, digital and packaging, with the full circle representing SEE's Net Positive Circular Ecosystem and our purpose to make our world better than we find it. We enter a new phase in our journey to lead the industry by redefining what packaging does and can do. The new brand positions SEE as a world-class, high-quality growth company solving critical packaging challenges unlike anyone else. Whenever our customers have a packaging [issue] or opportunity, we will be at the table in top of mind. Now moving to Slide 4. We'd like to share how we are creating high quality growth. We break down our growth by geography, market, product and MySEE, our online digital platform. In the first quarter, our digital online sales grew to 14% of total company sales, representing a sequential increase from 5% in Q3 and 10% in Q4 of 2022. This rapid growth reflects the speed of our digital transformation and our ability to adapt to the changing needs of our customers. You can see our top 13 markets. We continue to reinvent the company from product based to a market-driven, customer-first solutions company. The fastest-growing markets was Fluids and Liquids, which grew double digits…

Thank you, Ted, and good morning, everyone. Today, I will go over a couple of opening remarks before moving to the first quarter results and our outlook for 2023. First, I'm really excited to be joining SEE at a pivotal time during its transformation. I'm impressed by what Ted and the rest of the management team have been able to accomplish over the past few years. I see the market opportunity ahead of us and look forward to leveraging my background in digital to help accelerate our journey to becoming a world-class market-driven automation, digital and sustainable packaging solutions company. Now moving to first quarter results. Let's turn to Slide 9. In the quarter, on a constant currency basis, net sales were down 2% and adjusted EBITDA of $267 million was down 17% compared to a very strong first quarter last year. Adjusted earnings per share in the quarter of $0.74 were down 33% compared to a year ago on a constant currency basis. On Slide 10, we review our first quarter net sales by segment and by region. In constant dollars, net sales were down 2%, with 9% growth in Food while Protective was down 17%. By region, we grew EMEA by 4%, offset by declines in Americas of 4% and APAC of 1%. On Slide 11, we summarized the first quarter performance. Liquibox contributed 4% to top line sales or approximately $57 million, but was more than offset by organic declines driven by the recessionary market backdrop and continued destocking in Protective as well as some weakness in food retail end markets. First quarter adjusted EBITDA of $267 million, which included $13 million contribution from Liquibox, decreased [$60 million] or 18% compared to last year with margins of 19.8%, down 330 basis points. This performance was mainly driven…

Thanks, Dustin. In summary, we had a tough quarter and expect market softness to continue through the first half. We're staying the course on our strategy, driving automation, digital and sustainable packaging solutions now under SEE, our new corporate brand. For the year, we have a strong growth and cost actions in place to deal with the current recessionary environment. Our Liquibox performance is on track to exceed expectations to drive growth for the business in 2023. With that, I'll open up the call for questions. Operator, we'd like to begin the Q&A.

[Operator Instructions] Our first question comes from the line of Adam Samuelson of Goldman Sachs.

So I was hoping to maybe just get a little bit more color on the volume trends kind of by region, by end market as you think about the balance of the year. Appreciate that the comps get considerably easier as you move into the second half, but help us think about the kind of visibility you have today from backlog, from kind of orders and customer activity that's really pointing to an improvement in acceleration and in volumes and obviously that drives to the bottom line, so that's -- what’s driving a big step-up in profitability.

Let me first give you some numbers that we outlined in our guidance there, then Ted can jump in to give some color on the business side. You specifically ask for volume and wanted the color on the region-wise. Q1, we definitely see a very tough quarter there with Food overall volume down 3% and the volume down is driven by the weak retail markets, which we see across the board globally. EMEA particularly is harder than the rest of the region there. In APAC, we all know China through the lockdown and opening up has been chaotic. There's also an impact there. On the Protective side, our volume for Q1 is negative 18% compared with the negative 20% in Q4. This was also in line with the end market performance we're seeing. Of course, destocking is a big part of it. And the destocking, very heavy in Americas for the e-commerce fulfillment segment, but overall, the weak overall market is across the board on all regions as well. So Ted, maybe you wanted to talk a little bit on the results.

Just to add in some more color behind the numbers. So basically, start with Food. If we look at, again, how we're framing up first half to second half, as Susan highlighted, we have seen Food flat. And on the second half, what we're actually in the guide, we see Food to be up slightly. And where we're getting that is we definitely see -- with we have, still the issue with our specialty resins, getting that share back. We've gotten some but that will probably go through the year with most of that gain back coming in the first half, but we still have some more to do in the second half. We have seen on the Food, the Automation in the first quarter actually up double digit in the first quarter, so we see continued gain and also the market share gain coming through. And then the last piece of seeing Liquibox really making a stronger impact on the numbers in the second half. On the Protective side, that's the area and that's where I went into the detail on the turnaround. Really, the heavy destocking, we actually -- we saw this starting last year when we saw the volumes in the third quarter, fourth quarter. That's going to be working its way through the quarter. Some of the markets there that we're really seeing the hit, Susan mentioned China, but also the electronics markets. We see that as a recovery, again, on the second half, the comps are going to be much easier, and we also see the automation coming in to help our second half. We went back and we looked at five years on this. We said, hey, with pre-COVID, what do the volumes look like on the Protective? And so in '19, actually on the second half, we see in our numbers to get the materials back to where we were in '19, that's what's in the guide. And then adding in the automation and our new products, we feel that, that second half is doable. It's going to be a double digit growth in the second half. Still Protective will be slightly negative, though, for the year. Okay. Next question?

Our next question comes from the line of George Staphos of Bank of America Securities, Incorporated.

This is actually [indiscernible] sitting in for George this morning. We had conflicting conference calls. So I appreciate you covered this in the prepared remarks and a little bit on the last question. But I guess just in terms of automation, what are you seeing in terms of marginal trends there, particularly given the weak macro? And are you seeing any difference in trends as it relates to Food or Protective on the automation front?

The automation definitely is where we're driving the business. And between the two, as I highlighted on the Food side, we actually see it up 13% in the quarter. We have a lot of projects in place. On the Protective side, we actually -- the first quarter was flat. We had the issue with our APS business, which was booming last year. We have some that also got hit by the destocking. We see, though, the growth on the automation on the Protective side recovering in the second half. With the automation, we're also struggling right now a little bit with the customers right now in the recessionary environment holding CapEx, so we're fighting through that. But we're actually going to see our customers talking through. This is where we can really help our customers the most right now in automation. So we still think the automation growth for the year will be quite strong. And again, mentioning on the Liquibox, we see the opportunity on the Liquids business. More on the traditional CRYOVAC liquid side of the business on automation but we're seeing actually orders progressing right now in the first quarter, more coming in the second quarter and the second half. So the automation on the Liquid side is actually a real strong positive for us.

Just to add on, even though Ted talks about seeoing some customers are pulling back on CapEx project, in Q1, we continue to see bookings over pacing the revenue, and we are on track to hit the $525 million for the full year.

Thank you, Susan. Next question, please.

Our next question is from the line of Ghansham Panjabi of Baird.

This is actually Matt Krueger sitting in for Ghansham. I guess I just wanted to expand on the prior question. So given the shift in the operating backdrop towards a more recessionary outlook, can you talk a little bit more about how this has impacted equipment sales, customer willingness to invest? I know you mentioned kind of a hold off in CapEx spending. Maybe can you quantify the impact there on the quarter? And then does it have any impact on premium product sales across your portfolio or any trade-down impact? That detail would be helpful.

Matt, it's kind of -- that conflicted couple of points, so let me just give that more summary on the automation. And then if we want to talk a little bit about the market on the trade down, and that's probably where you're addressing in the meat business. But as far as the CapEx piece, we're actually not seeing that slow down because where we have automation, we're really driving just significant savings for our customers. So they're running through cost issues, they're running through labor issues, so the automation is still quite strong. A little bit of the slowdown is our backlogs were so high on the Protective side. For instance, our Auto Boxing, we had almost 50 week lead time. AUTOBAG was up to months. Those lead times are now down as part of the destocking and maybe the over buy, so we still see the demand very, very strong in our automation. To the second part of your question when you were talking about what's going on with the markets, we are seeing some downgrading especially in the meat market right now. With the inflationary pressures, we are seeing the meat moving to lower cost cuts on the meat. We are seeing the poultry business, actually for us, picking up. We think that's part of that recessionary environment. But as far as the automation side, we actually see on the meat side, on the protein side quite strong, and we expect it to be even stronger in the second half. Next question, operator?

Going to our next question. Our question comes from the line of Christopher Parkinson of Mizuho Securities.

Obviously, there's -- I just want to close the loop on customer destocking, especially just given the trends in Protective over the last several quarters, which seems to have obviously affected 1Q numbers fairly significantly. But at the same time, it seems like you're pretty confident in the $350 million to $380 million for the year. Perhaps could you just comment on kind of some additional thoughts on the destocking trends and whether or not you think those are entirely complete? And then perhaps the two to three things that kind of give you the confidence for increasingly better performance for the balance of the year to reach, let's just say, hypothetically, the midpoint of guidance?

I'll answer the question on the destocking, and then Ted can add comments on the second half confidence there. In the destocking in Q1, we certainly have seen a very fair amount very similar to Q4. I would estimate out of the 18% volume decline in Q1 in Protective, about one third is roughly destocking. And at this point, we're in close contact with our major channel partners. The channel partners destocking is largely over. We are anticipating still other parts of the business, smaller customers and then APS portfolio, in particular, having destocking continue into second quarter. Similar situation as Q1. But those fulfillment segments while destocking should be over around mid-year.

And then to add to that, then the confidence on the second half. So part of what we've been doing also is working on and directly talking to our customers and our channel partners. And as I mentioned earlier in the prepared remarks, moving our business online is really giving us better visibility. And as we move the business online, we're getting visibility to smaller customers, broader reach. So we actually think in the recovery, we can actually come out stronger, also on the cost side. So going through this, we definitely think as we talked about Reinvent 2, we looked at our leverage and actually our deleverage in the quarter on the Protective side. We think that's actually an upside opportunity as we continue to get more cost efficient, get the system in line, get our businesses in line, become more online, available to our customers and our channel partners, we can be more effective and efficient. And that our upside leverage on that positive volume in the second half, that's what's giving us confidence to hold our guidance for the year. Next question, please.

Getting to our next question. Our next question comes from the line of Anthony Pettinari of Citi.

This is actually Bryan Burgmeier sitting in for Anthony. Two questions on the full year outlook. On the last quarter's call, you talked about maybe 46%, 47% of total company earnings landing in the first half and then you also guided to kind of low single digit volume growth in Food. Are either of those still intact? And if not, what are the offsets that you found to sort of make up for those in the second half potentially?

We're holding our full year guidance, so we're seeing ourselves playing into the same range here. Around first half, second half, from an EBITDA perspective, we're anticipating roughly between 43% to 45% in EBITDA hitting Q1, if you're taking the full year -- midyear midpoint of guidance there. And in terms of specific volume growth for the segments, for Food, we're roughly anticipating 1% uptick in overall for full year volume and for Protective, down 2% to 3%.

Our next question comes from the line of Josh Spector of UBS.

Just curious if you could talk about Fluids broadly, including Liquibox. What was organic growth in those combined businesses for the quarter? And is that playing out generally as you expected? I think some of those markets might be more consumer sensitive. Are you seeing any declines there or new wins offsetting that?

Josh, I'll break it up into our organic business, what we had in Fluids and Liquids, and then separate conversation on what we're seeing on Liquibox with two months. So on the Fluids and Liquids business for us in the quarter, we actually up -- were up double digit. And we are seeing that business move especially as we're offering, where I gave the example, in the fluid space. It's a significant cost advantage for is we're converting the rigid container market. So in the quarter, strong on the equipment side of the Liquids business as well as the pull-through for the existing business, and we expect that to continue through the year. On the Liquibox side and it's been two months as we've worked with the teams together. It's actually been quite good, seeing the two cultures come together, their business heavy on the foodservice side of the business. They are seeing pressure from a recessionary environment, but we are seeing growth there. We're seeing -- our first piece is on the synergy side. We think we're well ahead on the synergies that we committed to and we said $30 million in the next three years, we think. If you broke that down $10 million, $10 million, $10 million, we think we're well on our way to hit that synergy side in year one. So, so far after two months, we're excited about what that Liquibox can be, Fluids and Liquids. And as I highlighted, Fluids and Liquids is our fastest growing higher margin business. It's also part of the EBITDA story for the second half. This business leverages higher than our existing business, leveraging it actually 40% versus 30% in our model. So it's also part of our second half recovery.

Our next question comes from the line of Angel Castillo of Morgan Stanley.

I was just hoping we could dive in a little bit deeper into the Protective segment margins. It seems like the decremental or the operating leverage hit a little bit of a tipping point in terms of how much weaker the quarter was. So could you just break that down a little bit more, give us a bit of a sense for exactly, I guess, what some of the factors were in the first quarter? And then as you look at the second half, I'm curious what the type of incremental margins you would kind of anticipate or kind of the margin trajectory based on what's kind of assumed? And in particular, I'm just, I guess, a little bit surprised just given that digital seems to be a little bit of a margin enhancing strategy that you were just seeing a little bit more benefit, given that that went to 14%. So comments on that would be helpful as well.

Angel, I'll talk a little bit of the Q1 margin and then Ted can jump into the Q2 part of it. Q1 EBITDA margin of Protective is around 16.2%, certainly is on the low end. And if we dive into detail, really, it's a volume story. For the volume, we have been down 18%. It's been down for a while. And then overall, the decremental leverage for volume is roughly between 40% to 45%, so you can see the magnitude of that from the overall margin profile there. And we do believe this is a transient move. It's not permanent. It's not a reflection of the business fundamentals as volume turned back on in the second half, the leverage will definitely improve.

And building on what Susan said on the second half, the incrementals being at 30% with us getting our costs and even on the Protective side on the turnaround, we anticipate to have strong, incremental margins north of 30%. To your second part of your question where you would expect to see more of the cost improvement on digital, that's in the transitory phase right now on lower markets. Right now, we're going -- moving business online but we're doing that very carefully with our customers. So seeing the cost benefit of that, that's going to take time. But on the second half, that should be a benefit and for sure, a benefit going into '24 and '25. So again, higher incrementals going forward with increased volume as we move more and more of the business online. Next question?

One moment for our next question. Next question comes from the line of Jeffrey Zekauskas of JPMorgan.

Can you talk about the trends in the industrial market in Protective, what you expect for the first half, what you expect for the second? And can you talk about your overall price, raw material balances?

We'll go first on the industrial side, which touches our products and our portfolio on Protective, that's our Instapak, that's our shrink, the BUBBLE WRAP on demand. The markets on the industrial side that actually got hit the most, and we saw this actually started at the end of last year was actually in the electronics industry, so we're seeing the significant market pressure there. We saw third quarter again, fourth quarter, first quarter, second quarter. We see that turning in the second half and be more than double digit actually for growth on the comps as well as penetration with actually some share gains, because we have some new products going in there into that space. The second part of the question, I'll let Susan go.

Yes, I'll talk about the second part of the question on price [resin] and costs, et cetera. So on the full year guidance we are expecting roughly 1% up on pricing, and that's coming from the carryover pricing from prior year. And from a year-over-year perspective, it's primarily hitting this first half. On the full year guidance of net price realization, which includes not only the resin cost but also labor and nonlabor inflation, we're anticipating a negative $40 million to $50 million in total, which is primarily driven by the high labor and non-labor [indiscernible] of approximately $150 million. On the direct material side, we do anticipate resin on a year-over-year basis to be favorable, particularly on the commodity resin side. We're thinking commodity resin is a 10% down year-over-year with especially resin up 5%. And overall, from a dollar perspective, roughly, say $45 million to $50 million is favorable on the direct materials for the full year.

And just one -- and tying the two together, having the material available is going to be a difference to help us with that second half performance over last year, because part of our last year's performance, we didn't have material available to go get the business. So though we see a mixture of the materials going down, the best thing for us is we'll have material availability to go get the business in the second half.

Going to our next question. Next question comes from the line of Phil Ng of Jefferies.

Dustin, looking forward to working with you and appreciate the help going forward. I guess for me on the questions I guess…

Phil, you got to give a direct question to Dustin.

I'll leave that for you, Ted. But maybe this is for Dustin, I guess. My question is really on the margin side for Food. It's kind of -- was lighter than I would have expected, volumes were not materially different than the last few quarters. And typically, you see quarter-over-quarter, margins are pretty flat, so surprised by declines. So kind of help us think through what drove that shortfall, does that dynamics change a little bit in 2Q? And separately, you talked about recapturing share in Food, now that material availability has improved. How does that impact your mix, is that pretty neutral or is that a good guide going forward?

If I jump in for Dustin there, that's not fair, Phil, on that first one. If we look at Food and what's going on in the quarter, let's talk first about the share gain. There's two elements of the share gain which were share loss in the past because we just didn't have the materials, so we see that playing out in the quarter. So actually, we think we got a percent of it back. But the real issue in share gain is we had a major customer engagement that came back for us on a share gain. Also, we talked about in the fourth quarter but we also saw it coming in the first quarter, and that also showed up in automation. So that's in Food being up double digit. So the second part of your question, how do we see that playing back in the second half of the year. We think we could get more and actually, it's going to show up the margin where we get volume. Having Food being down, you would actually have decrementals. But as we bring the volume in on that business, we leverage on Food very, very nicely, actually much higher than our 30% target. So that's an opportunity for the second half. We got to go get the business, we got to get the share back. We're still going to have some of those issues where we were short of those materials, because once the customers made a decision, it's more difficult to go get it back but that's what we're focused on. And again, automation is how we're going to get it back quicker. The second point. When we get the business back in the Food, we'll leverage very nicely in the second half.

And just a quick follow-on point. When you look at Q1, it's 22.8%. When you look at the prior year, you're coming off a very tough comparable where last year, we benefited from net price realization and you see some volume declines. So you see that that our Q1 is very much in line with the full year and you'll see that nicely steadily increase from here and show favorable comps year-over-year going forward. Next question?

One moment for our next question. Our next question comes from the line of Arun Viswanathan of RBC Capital Markets.

I just wanted to ask again on the volume outlook for the rest of the year, especially in Protective. I know there's been some persistent destocking. And I guess, what are you hearing from your customers as far as their inventory levels, have you kind of reached a level where that should start to subside maybe in Q3 and that's what drives your back half?

From the inventory level of customer, we've been in direct dialog with our major channel partners, and they have started destocking actually last year. And at this point in Q1, they are largely over through destocking at their target level. The piece of the business, APS and also some smaller customers, the destocking continue. We do anticipate that go through Q2 and will be more or less over around midyear.

Arun, just to add a little bit of color on that. Just the same question you're asking, what's going on with the destocking, are you losing share? We're actually highly engaged and use this as an opportunity to meet with our customers, meet with our channel partners. And actually, our major channel partners now are in process to go fully online with us with MySEE. So it's given us great visibility to see what they have, where the inventory is, what are they overstocked in, how do we work that out better. But it's also giving us the opportunity, how can we help? How we not just help our channel partners but in there directly with our customers, and are there new solution opportunities for us? So it's -- be a net positive and that's what's also giving us our confidence on that second half recovery to go get it on the Protective side.

Getting our next question. Our next question comes from the line of Samuel Ohiomah of William Blair.

It's Larry De Maria, I think I jumped down the wrong one there. So obviously, you're already seeing recessionary conditions and volume, especially in Protective and benefiting from price, which is sort of decelerating of tough comps. So can you discuss your ability and thoughts and expectations around the ability to drive both price and volume as we head to '24 in both segments and potentially, obviously, a broader recession? In other words, why is price not going to be under more pressure into '24 and what confidence do you have to keep it positive while also driving volume? And obviously, automation is part of that, but curious your thoughts.

So Larry, the question obviously is out there with price, with our customers right now. But I just want to highlight, the inflation is still out there and the conversations that we're having with our customers, we're still not through the total inflation. As Susan highlighted, even what's going on with our commodities, we still have inflationary pressures out there and so do our customers. So we're addressing this head on with our customers on what can we do to help them reduce their total cost, and that's opening the door for us to talk about automation. How can we go in there and save them actually millions in their operations through an automated system and solutions but also on the per product base, looking at our different alternatives, what do we have in the product line. So right now, we're using this as an opportunity to address it head on. So right now, we don't see that as an issue in the conversations. And the ones even that I've been directly involved with our customers, they're still under major pressure right now in what's going on in their operations, and automation continues to be the number one answer to help. Also, I just want to highlight the digital. How can we be easier to do business with? Moving our customers online, not just our distributors but the direct customers online is how can we lower their cost to do business with us and with the marketplace. So we're still very aggressive on how we can lower their costs, which will pull through our products and we think that's still an opportunity. And what we're looking for is just a net slight positive price realization, we're not looking to bring too much price over our cost. One of the big cost drivers that went away was the freight surcharges, that's the big deal right now in the quarter, that going away. But net-net, it's all about automation. Next question? Operator, I think this will be the last question or no more questions…

No question in the queue.

Okay. Well, thank you then. We'll bring the call to a close. And I would like to thank everybody, especially our SEE employees for their tireless efforts in really a tough market. And I'd like to also thank our investors for their -- our investors for the time today. We're excited about the opportunities we have ahead and how we will accelerate our growth for the future, and we look forward to speaking again in August. Thank you. Operator?

This concludes today's conference call. Thank you for participating. You may now disconnect.