Sealed Air - Earnings Call - Q2 2016
July 28, 2016
Transcript
Speaker 0
Good day, ladies and gentlemen, and welcome to the Second Quarter twenty sixteen Sealed Air Earnings Conference Call. My name is Chantalay, and I will be your facilitator for today's call. At this time, all participants are in listen only mode. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms.
Laura Kaifman, Vice President of Investor Relations. Please proceed.
Speaker 1
Thank you, and good morning, everyone. Before we begin our call today, I would like to note that we have provided a slide presentation to help guide discussion. This presentation can be found on today's webcast and can be downloaded from our IR website at sealedair.com. I would like to remind you that statements made during this call stating management's outlook or predictions for the future 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, 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 ks and as revised and updated on quarterly reports on Form 10 Q, which you can also find on our website at sealedair.com. We also discuss financial measures that do not conform to U. S.
GAAP. You may find important information on our use of these measures and their reconciliation to U. S. GAAP in the financial tables that we have included in our earnings release. Included in today's presentation on Slide three, you will find U.
S. GAAP financial results that complement some of the non U. S. GAAP measures used throughout the presentation. Now I will turn the call over to Jerome Parabere, our President and CEO.
Jerome? Jerome
Speaker 2
Thank you, Laurie, and good morning, everyone. I'm sure that you had the time to review our second quarter earnings results, I will keep my comments brief and then pass the call on to Carol Lowe, our CFO and Doctor. Ilham Khadri, President of our Diversity Care division to provide a more detailed review of our second quarter performance and full year outlook. Our second quarter results were in line with our expectations in each of our three divisions. We knew from the onset of the year that our growth in the first half would be muted.
Food Care, Diversity Care and Product Care capitalized on growth opportunities in targeted countries and end markets, which offset other areas challenged by economic uncertainties, political unrest and a weak industrial environment. Overall, I am pleased with our adjusted EBITDA results of $3.00 $6,000,000 or 17.7% of net sales, which includes about $7,000,000 of reimbursement related to environmental expenses on a slight increase in organic net sales. Excluding this reimbursement, we had a very solid adjusted EBITDA margin performance of over 17% of sales. Product Care delivered over 21% margin, Food Care over 20 and for the first time Diversity Care delivered 15% margin excluding the environmental reimbursement. As we look to the second half, and as previously communicated, we expect stronger performance, primarily driven by volume acceleration.
In Food Care, dark fresh entree continues to penetrate the market in Europe, and we are in successful trials with two large retailers in North America. Diversicare is enjoying new customer wins across its portfolio and our robotic startup Intellibot delivered record sales in May and June. In Product Care, our innovation pipeline and customer installs are building as we prepare for a seasonally strong year end. This momentum coupled with an improved protein market and accelerated growth in e commerce and fulfillment gives us the confidence in our second half growth trajectory. For full year, our outlook is within the range of our previously provided guidance.
Currency headwinds are not as high as we anticipated, but this benefit is being offset by our assumptions on raising costs and the related impact on Food Care's formula pricing. Additionally, we anticipate the recent geopolitical events in Europe and The Middle East to have an impact on our business in the coming months. Overall, our strategy is clearly working. Our market differentiation of revolutionary innovation is gaining significant traction in each of our divisions. In Food Care, customer interest continues to increase for our next generation barrier technology, OptiDir.
Diversicare's disruptive and innovative technology, including the Internet of Clean platform and digitally enabled solutions are increasing our sales opportunities in a meaningful way. In May, we received the top innovation award at the ISSA InterClean trade show in Amsterdam, and Product Care has reshaped its entire portfolio and go to market strategy with dimensional weight, fulfillment velocity and consumer experience solutions. I strongly encourage all of you to attend two upcoming trade shows, the ISSA Interclin in late October and PACK EXPO in early November, both of which are being held in Chicago. At PACK EXPO, Product Care will showcase more commercialized innovation than they ever have in the history of Shield Air. So with that said, let me now pass the call on to Carol and Ilham to get into more details by division and our outlook, and then we will answer any questions that you may have.
Carol?
Speaker 3
Thank you, Jerome. On Slide five of our presentation, you can see our performance by region for the second quarter. Let me start with EMEA, where we had 2.5% organic growth and positive sales across our three divisions. Food Care sales increased 3%, Diversity Care increased 1% and Product Care increased 5%. On a by country basis, EMEA was led by double digit growth in Russia and high single digit growth in Spain and Holland.
We also experienced positive sales in Germany and Sweden. Asia Pacific was up 1% in constant dollars. India was up 12% led by double digit growth in Diversity Care and Product Care. In China, Diversity Care delivered high single digit growth and Product Care's business returned to growth in the quarter. Our largest markets in Asia Pacific are Australia and New Zealand and combined they account for 6% of our total net sales and just over 10% of Food Care sales.
In Food Care, sales in Australia and New Zealand were essentially flat compared to last year. In Australia, adoption of our advanced product portfolio and new customer wins are helping to offset the double digit declines in slaughter rates and the export of live animals. In New Zealand, our business continues to be impacted by the ongoing weakness in the global dairy market. Latin America was hit the hardest by currency devaluations and socio and political instability. On a reported basis, Latin America was down 11%, which translates into constant dollar growth of 8%.
Despite the current environment in Latin America, Food Care experienced positive sales growth in Brazil and Mexico on an as reported basis. This translates into nearly 20% growth in both countries on a constant dollar basis. Brazil and Mexico each account for approximately 4% of Food Care sales. Let's move to Slide six and look at trends in North America. Overall, North America sales were down 2% on an organic basis due to unfavorable price mix of 3%, partially offset by 1% volume growth.
Food Care delivered healthy volume growth of 3%. This was more than offset by unfavorable formula pass through. Diversicare's North America business returned to growth in the second quarter with positive price mix and volume trends. Product Care's volume and product mix were negatively impacted by the ongoing weakness in the industrial market, particularly in manufacturing and electronics. Volume was also impacted by our rationalization efforts.
Excluding rationalization, volume would have been positive in the quarter. Turning to Slide seven, let me walk you through our net sales and adjusted EBITDA performance on a year over year basis. Starting with the net sales, you can see that we delivered $1,700,000,000 Volume contributed $9,000,000 to top line growth and favorable price mix contributed $7,000,000 Unfavorable currency translation was $59,000,000 and the impact from divestitures was 15,000,000 On Slide eight, you can see that our adjusted EBITDA was $3.00 $6,000,000 or 17.7% of net sales. Mix and price cost spread was $9,000,000 favorable and positive volume contributed $4,000,000 We had $9,000,000 in restructuring savings. Operating expenses of $12,000,000 is net of the $7,000,000 environmental reimbursement Jerome mentioned in his comments earlier.
Salary and wage inflation of $17,000,000 currency was negative $9,000,000 and divestitures were 3,000,000 Adjusted earnings per share was $0.65 in the second quarter. Our adjusted tax rate in
Speaker 4
the quarter was 29%. For the full year, we continue to expect our tax rate to be approximately 24%. Let me now turn the call over to Ilham to go through our results by division. Ilham? Thank you, Carol.
Slide nine highlights the results of our Diversicare division. Diversicare net sales on a constant dollar basis were up 2.4% in the second quarter. We had positive sales growth in constant dollars in all regions. Asia Pacific was our fastest growing region with 7% constant dollar sales growth. In North America and Europe, constant dollar sales were up 32.4% respectively.
If you look at our adjusted EBITDA excluding the environmental reimbursement, we delivered $80,000,000 or 15% of net sales. Volume, pricing and cost management all contributed to our strong EBITDA performance. It's worth noting that in the last two point five years with the exception of one quarter, we delivered positive constant dollar sales and adjusted EBITDA growth every quarter. I am particularly proud of the performance in North America and Europe over this time period. Remember that when we reorganized this business back in 2013, both Europe and North America had many years of declining sales and deteriorating margins.
Whereas Middle East, Africa and Latin America increased sales on a constant dollar basis this quarter, we are seeing a slowdown in our business due to political unrest in The Middle East and economic weakness in Argentina. Middle East Africa and Latin America combined represents 15% of our sales. Looking ahead, we are confident the momentum in North America, Europe and Asia Pacific will continue. We are rolling out new customers and adding to our list of strategic wins across all sectors, including facility management, retail and healthcare sectors. Customer feedback on our robotics and Internet of Clean platforms has been extremely positive.
And as a result we are accelerating our go to market strategy. For the full year, we expect constant dollar adjusted EBITDA growth and margin expansion. The third quarter will experience a decline versus quarter two as we step up our implementation of new sites related to recent customer wins and the significant slowdown in hospitality in Middle East Africa. We expect our fourth quarter adjusted EBITDA to be stronger given the timing of new customer rollouts and product and regional mix heading into year end. Let's now turn to Slide 10 and review Food Care results.
Food Care sales increased 1% on an organic basis driven by a combination of higher volumes and favorable price mix. By region, Latin America was up 11% and EMEA increased 3%. Asia Pacific was essentially unchanged and North America declined 3%. Adjusted EBITDA was $163,000,000 or 20.3% of net sales. Positive volume in North America and EMEA is largely a result of our case ready platform including Darfresh Entre.
Also our next generation barrier technology traction with successful trials in North America, Asia Pacific and Europe. In Hygiene, we continue to improve both sales trends and profitability. We are also investing in new solutions including our recent acquisition of Finland based CCS SiPEC, a leading clean in place systems optimization company. This acquisition complements our expertise in remote monitoring and data analytics and enhances our knowledge based service offering. In the second half of the year, Food Care organic sales growth is expected to accelerate primarily driven by increasing sales volume in North America and Europe.
Both regions will benefit from higher protein production levels as well as continued adoption of advanced products. We also believe our packaging business in Brazil is beginning to stabilize with 4% volume growth in the second quarter. These positive trends will be partially offset by declines in Australia and New Zealand and North America formula pricing. On the bottom line, we continue to expect sequential growth in absolute dollars in the third and fourth quarter resulting in full year organic EBITDA growth and margin expansion. As Jerome noted, Food Care EBITDA will be negatively impacted by our assumption of raw material costs heading into year end.
Let's turn to Product Care results on Slide 11. Product Care's net sales in constant dollars were down 1.5% due to a 4% decline in North America, partially offset by mid single digit growth in EMEA. We continue to experience strong growth in e commerce and fulfillment in the first half of the year on a global basis. In North America, this was more than offset by ongoing weakness in the industrial sector. Also keep in mind that we divested $15,000,000 of annualized sales in North America in January and another $12,000,000 of annualized sales in Europe in May.
Excluding these divestitures, global volume trends would have been stronger and we would have delivered a slight uptake in North America. In the second half of the year and more so in the fourth quarter than the third quarter, we expect our constant dollar growth rate to accelerate. Demand continues to increase for our Inflatable Bubble, Curfew, Fill Air, D plus and Fluorop equipment platform. This level of demand is translating into strong double digit growth in equipment sales and installments. For the full year 2016, top line growth coupled with our focus on pricing and cost discipline will drive constant dollar EBITDA growth and margin expansion.
Now let me pass the call back to Carol to review our free cash flow and our outlook for 2016. Carol? Thank you, Ilham.
Speaker 3
Turning to Slide 12, Free cash flow was a source of cash of $68,000,000 in the first half of the year. CapEx increased to $114,000,000 as compared to $58,000,000 during the same period a year ago, of which $40,000,000 was related to our Charlotte campus. Working capital and other assets and liabilities were a use of cash of 165,000,000 Operating working capital as a percent of net sales based on a thirteen month average is relatively the same since year end at 14.3%. As compared to June year, we improved 130 basis points. Now turning to outlook on Slide 13.
Net sales are expected to be approximately 6,850,000,000.00 The impact from the Food Care divestitures on 2016 net sales is $102,000,000 of which $82,000,000 impacted the first half of the year. Currency is expected to have an unfavorable impact on sales of approximately $275,000,000 Our outlook for adjusted EBITDA is now at $1,170,000,000 to $1,180,000,000 The impact from the Food Care divestitures on 2016 EBITDA is $21,000,000 of which $17,000,000 impacted the first half of the year. Currency is expected to have an unfavorable impact on EBITDA of approximately $45,000,000 As Jerome mentioned earlier, we are expecting accelerated EBITDA growth in the second half of the year and anticipate that the fourth quarter will be our strongest quarter of the year. Strength in the fourth quarter will be driven by higher Food Care volumes, our customer rollout schedule in Diversity Care and seasonal strength in Product Care. Our medical and corporate expenses are expected to be a net expense of $90,000,000 for the full year 2016.
Our interest expense for 2016 is estimated at two twenty five million dollars Depreciation and amortization is forecast to be approximately $280,000,000 Adjusted earnings per share is expected to be at the high end of our previously provided range of $2.52 to $2.6 We are maintaining our free cash flow target of approximately $550,000,000 CapEx is expected to be $275,000,000 which includes approximately $125,000,000 related to the investment we are making in our Charlotte campus and other capital restructuring activities. Excluding these items, maintenance and growth CapEx combined is estimated to be approximately $150,000,000 For the full year, we continue to expect working capital and other assets liabilities to be a source of cash of approximately 100,000,000 Cash restructuring payments are estimated to be $110,000,000 and we expect to realize restructuring savings of approximately $30,000,000 Cash interest payments are expected to be $220,000,000 and cash tax payments are estimated at $125,000,000 As we head into year end, we will focus on what we can control and look for opportunities that will help mitigate the potential impact of the macro environment. We will continue investing to support our future growth opportunities. Our focus on execution and delivering profitable growth is embedded in our winning culture.
Before I open the call to questions, I would like to remind you our third quarter earnings call is tentatively scheduled for Thursday, October 27. We've invited Ken Christmann, President of Product Care to join Jerome and I on that call. With that, operator, can you please open up the call for questions?
Speaker 0
Your first question comes from the line of Scott Gassner of Barclays. Please proceed.
Speaker 5
Thanks. Good morning. Morning. Hey Jerome, Carol, Ilham. I just wanted to look at the EBITDA guidance.
So it comes down to 1,170,000,000.00 to $1,180,000,000 looks like down $10,000,000 And yet currency is better. You had a better than expected first half and you're talking about accelerating EBITDA growth in the second half. What is it that's maybe below expectations for the full year now that caused that reduction in the EBITDA guidance?
Speaker 2
So let me first say that I'm really counting on the acceleration that I talked about back in February. I said from the very beginning that the first half was going to be really muted and that we were going to see business acceleration. What I also said was that this was going to grow mostly with volume. What I didn't think was going to happen to the was the assumptions that I have put that we have put on resin prices. And they have been lower than what we thought.
That is having an impact on our formula pricing. You know how important they are. And we were thinking at the time that those formula pricing in Food Care in North America were mostly going to be in the first half and not in the second half. Well, because of what raising prices are and we anticipate they're going to be, we are going to have negative formula pricing in the second half. And that's basically how we are seeing the situation today.
Having said that, our global price mix in Food Care and price mix versus cost spread will be positive for the full year, but not as positive as we had originally forecasted. So that's basically the slight difference. This is impacting sales growth because of the net sales as a result of the lower resin prices. But what we're doing here is that we're narrowing the the range that we're having, and that's mostly what we're doing here. And keep in mind that pricing drops straight to the bottom line.
So that's that's great. The important thing to remember here is the volume trend. And the volume trend is really as per what we were expecting. And why are we seeing good volume trends? It is very clearly the impact of our innovation is kicking in.
Speaker 1
Operator, next question please.
Speaker 0
Your next question comes from the line of George Staphos of Bank of America. Please proceed.
Speaker 6
Hi, everyone. Good morning. Thanks for the details and discussion. I guess I wanted to ask a two part question. One just tying maybe a bow on Scott's question and then I had a question on volumes relative to CaseReady and the new products.
So with EBITDA coming down relative to your prior guidance and we understand the reasons why, your EPS guidance is towards the higher end of the range. Is there some sort of non cash driver of that or what reconciles that? And then on Optidor, what's the risk of cannibalization around existing films? And with Darfresh Entre, what's so positive about that now versus prior case ready offerings? Thank you, guys.
Speaker 2
Okay. So I will answer the prior questions. The EPS is going to go to Carol. Let me just talk about Optiura and our first entree. Optiura, when it is fully launched, which means as it is as it will have ramped up, will have cannibalization effects.
But it will also have a strong margin improvement effect. And but this is going to be call it a four year program. We have several generations of OptiDose products. We have and the first one right here that we're introducing for obvious reasons is mostly new business. And this is at this point in time in Europe, we have run trials in plants in North America, all extraordinary successful between you and me, highly compelling products, products actually.
And therefore, overall, in time, it's going to be quite a lot of sales cannibalization, but dramatically improved margin expansion for all kinds of reasons that we already have talked about and stuff. With regards to DAPHECHANTRE, the value selling proposition is several forms. Number one, you have vacuum skin packaging, which is improving shelf life and this has value for the retailer. It also has value for the producer because of the shipping time, etcetera. And it has value for the consumer because he can keep the product freezer ready, keeps the product longer in his fridge, etcetera, etcetera.
For then in the production, the equipment runs extremely fast. And also for the production, the producer, you also have no film waste on the top lid because of the way the machine works versus about 20% to 40% waste on the lid. On the EPS, Karen, George, some
Speaker 3
with EPS, one of the changes is the slight decrease in depreciation and amortization of about $5,000,000 Also, our share count as we're exiting Q2, we're at approximately 197,000,000 shares outstanding. We're seeing benefit from share repurchases going into the weighted average calculation from the first quarter where we spent about $32,000,000 to buy almost 700,000 shares back in Q2. We spent approximately $20,000,000 to buy an additional $4.35 shares back. So year to date, we're at 1,130,000.00 shares with a spend of $52,000,000 I'll remind everyone we still have $832,000,000 available under our July 2015 Board authorization and managing within our targeted leverage range of 3.5 to four times. We would expect to return value to shareholders as we consistently messaged as we move forward throughout the year, again maintaining within our leverage.
Speaker 1
Operator, next question please.
Speaker 0
Your next question comes from the line of Ghansham Panjabi of Baird. Please proceed.
Speaker 6
Morning, Hi, Ghansham.
Speaker 7
Yes, good morning, guys. I guess sticking on the growth question, can you just give us your view on second half end market growth for your three segments across the various regions? Obviously, it's a very complicated backdrop. And then also how much in total do you think your new growth initiatives will add to that growth rate? Thanks so much.
Speaker 2
Okay. So I can detail you the what the growth initiatives are going to give right away. But as I said, starting with Food Care, our growth is led by innovation. We are in trials with Doctor. Chantry with two large retailers.
Things are going extremely well. It takes time to ramp all of this and then to have the full adoption, etcetera, because all of these weak ones investments. But what I would say, if you just go back to our Investor Day of exactly a year ago, it's all happening and better. When you look at Product Care, and I will let then Ilham comment on Diversicare, we you absolutely need to come to VACExpo this autumn, as I mentioned in my prepared remarks, you will see Sealed Air as the booth with the highest innovation. And that is what is driving our growth.
Our e commerce business is going extremely well. What is the issue in Product Care? It's one and simple. It's that the industrial GDP is not good. Well, if you look at the gas index, which is the truck and rail freight index, it is at the lowest since 2010 right now.
So can't pretend that the economy, the industrial economy is doing really well because it doesn't. But when you look at at ecommerce and when you look when you look at how we are doing in that environment, actually, we clearly are partnering with our customers, fulfillment companies, three PLs to join them in the growth they are expecting and in the growth plans. We have multiplied by 2.5 the installs of our small equipment in North America. We have done the same, but we have increased by 15% the install of our small equipment in EMEA and almost 30% in Asia. So this tells you that the consumables are going to come during the year.
Some comments on Diversicare, Ilham?
Speaker 4
Yes. So Ghansham, on Diversicare, I think you've seen the numbers. I'm extremely proud of the hard work done by the Diversicare team and all supporting sanctions who delivered the report EBITDA. Give you some colors on regional performance, Europe was extremely strong showing continued momentum since we start transforming this business back in 2013. We've got nice growth rates above markets in South Europe, in Germany.
We are winning new customers like in The UK where we are rolling out and will start kicking in by the end of the year. In North America, North America returned to growth as we told you in quarter two, thanks to our Healthcare business doing extremely great with our unique sustainable technologies there as well as we are rolling out large customers in facility management. We are rolling out as we speak and we have implemented and kudos to the team half of the 50,000 sites in record timing and we are tracking ahead of time. And last but the least in APAC, we have a good momentum there as well. We are growing above the industries we serve with 4% out of the six in Diversicare coming from volumes.
At Tildare level, as we told you, China is growing high single digit and India mid double digit, just to highlight few leading and strategic economies for our still there economy. What
Speaker 2
should make us a little bit careful in the second half is what you and I read in the newspapers, which means that in Diversicare, for example, tourism which is strongly impacted in Europe. You have tourism down and some hotel chains have published some results and you can see that. Tourism down in France, tourism down in Belgium, down in Morocco, dramatically down in Turkey, somewhat down in The Middle East. In Egypt, the capacity hotel capacity utilization is at 55% and is at 50% in Turkey. So you just can't dream of a perfect world because it is not.
That is going to because two things are going to impact a little bit Diversicare in the third quarter and be favorable in the fourth. What One I just talked about in the third quarter. Remember that tourism is right now, it's big season right now. And the second one is that because of our customer wins, we have a lot, a lot, a lot of installs and that requires resources, which are being deployed exactly now and we're going to benefit from those sometimes next year. And generally speaking, overall on the net sales growth, it is the pricing and the formula pricing of resins, which is impacting the dollar sales growth, but definitely not the momentum.
Speaker 1
Operator, next question please.
Speaker 0
Your next question comes from the line of Arun Viswanathan of RBC Capital Markets. Please proceed.
Speaker 8
Great, thank you. Could you just discuss
Speaker 9
your outlook on the resin price environment? And I guess maybe some of the actions that you take to mitigate the volatility that you see there?
Speaker 2
Okay. So I'm not going to go in details not to signal too much to our competition, but on what we are doing. But we are a large buyer and you should rest assured that we take we do what it takes to stay very highly competitive. With regards to the resin, they have actually, that's what I said before. Entering entering, the year, I said in the February call that, we were seeing the the residents being weak and staying weak for the year.
And they haven't been that weak because you have had these price increases in March and you have had these price increases in April. And whereas one could anticipate that they wouldn't hold for a long time, so far so good for the producers, they have helped quite a lot. So therefore, this has had and will have in the second half a negative impact, which is in fact eliminating the positive impact that from lower from better currency movements that we were anticipating. So we're going to have a negative formula pricing there. And we and and I just don't know what to tell you because I didn't think that resin prices would be where they are.
I I wouldn't have said they would be at the beginning of the year where they are right now. So, yes, capacities are gonna come in next year and so on. And the whole thing will very much depend on hurricanes. We're entering the hurricane season. So some people are wishing for lots of hurricanes, some others for nothing, etcetera.
So it's it's fairly difficult to predict one. If you have one or two hurricanes hitting, Texas, I tell you, the this is gonna change the game.
Speaker 1
Operator, next question, please.
Speaker 0
Your next question comes from the line of Philip Ng of Jefferies. Please proceed.
Speaker 10
Hey guys. Should we expect the product rationalization on Product Care largely behind you at this point? And will that help firm up demand despite some of weakness you're calling in the industrial economy and stabilize or kind of firm up pricing in the back half? I would have thought that given some of mix improvements you're doing on e commerce that would have kind of helped some pricing. Thanks.
Speaker 2
Hi, Keith. Good questions. The so some comments on on the economy. Our industrial part is today more important than the e commerce parts. The e commerce and 3PL is growing and it's growing very nicely, but it is still at about 30% and so, and and this is where our growth is going to be.
We anticipate that the that we're going to take full advantage of our equipment and our consumables in that market sector. We are completely reinventing this division, and it is going absolutely fabulous. I told you I told you, at the very beginning of this year, I told you at the end of last year that you will be surprised with our innovation momentum and customer people pick up over time and starting in the second half. We have all the time to confirm that this is going on. So now rationalization.
I told you also in January that we had just divested from a product line in North America in The U. S. With $15,000,000 of sales. I told you that we were going to be closing in the second quarter on on the plant and the product line in France. And I I think I told you that was about 12,000,000.
So to your question, yeah, we believe that this is basically over in terms of product rationalization there. We have then you go and look at Brexit, and the Brexit is having an impact on our translation cost. We have a strong business in Product Care, in Food Care also, in Diversity Care also. In The UK, so what we have been clearly doing here is that we have announced for a 6% to 8% price increase effective September 1 later, sometimes earlier, in order to capture the transaction cost that we are suffering from in from the UK pound. And that is, what I would say, embedded in our culture now.
We just don't take those kind of things and absorb it because we're not in that business. So we have communicated that to our customers. We're moving on. And actually, between you and me, we have been a little bit surprised by how easy this is going through because everybody understands that this is the way it's supposed to be.
Speaker 3
And Phil, I think it's also important just and it's on our slides, but just to highlight for Products here, the continued strong improvement in margins. So for the second quarter, an improvement of 40 basis points over a year ago on our adjusted EBITDA and for the full half, a 60 basis point improvement. And when you look at the challenges with the industrial market that Jerome has highlighted, I think that's just very, very strong performance by the team.
Speaker 1
Operator, next question please.
Speaker 0
Your next question comes from the line of Adam Josephson of KeyBanc. Please proceed.
Speaker 6
Thanks. Good morning. Jerome or Carol, just one clarification on organic sales growth. I think last quarter you stopped disclosing a growth target and there was some weakness in Brazil and Venezuela that you called out. Now I think Jerome you're saying that the impact of lower resin prices is having a profound impact on your organic net sales dollar sales.
You're also talking about global economic weakness as evident in industrial conditions, tourism, etcetera. So I'm just trying to understand exactly what the puts and takes are in terms of your organic sales forecast now compared to where it was six months ago? It'd be really helpful. Thank you.
Speaker 2
Yes, good question. So what did I say at the beginning of the year? Said about 3.5%. And what you're seeing is that it's going to be slightly less than three. And that is not because of volume.
It is because of resin prices and little bit of weakness in the sectors on hospitality that I just talked about. But those kind of things and situations are happening every single day. Every single day, we have positives and we have negatives. So if resin prices have would have gone up another 10%, you would have seen our sales growth go up more than what I would have said at the beginning of the year and three and three and a half percent. And there is a lag on those kind of things because of the pricing.
So the the the real question to see to say is that so you were saying three and a half. You're saying slightly less than three. Is there a problem? Well, no, it's it's basically when you have a raw material, which is a part of your cost base and when you have formulas, which in time correct for your overall pricing without impacting your margin, you have you booked slightly less dollar sales. If we have resin prices going up or doubling in the next five years, what you're going to see are proportionate improvements, was not necessarily the case under a few years ago, but you're to see a proportionate increase in our top level sales.
So just to separate what is an external environment, which impacts potentially your net sales, but not your margins internal issues. Let me confirm to you point blank very clearly. We are ahead of everything we said we would be doing in our Investor Day, our innovation is kicking in better, and this is what is going to fuel our margin and our business in the future.
Speaker 1
Operator, next question please.
Speaker 0
Your next question comes from the line of Chris Emanuel of Wells Fargo. Please proceed.
Speaker 8
Good morning. And I just want to kind of follow-up here because I'm still a little bit confused on a couple of topics. Look, think coming into the year, to kind of come back to Adam's point, you guys were anticipating a point or I think it was three ish plus percent growth with two of it being organic and one being price. And now as material costs are falling, mean, understanding was for a lot of your formulaic pass throughs that it's basically passing through and that
Speaker 2
it
Speaker 8
doesn't have a dollar impact to Sealed Air. It sounds now like maybe Jerome, what you're saying is that while you're still on track to get volume growth through the back half of the year to make up that piece, that the revenue growth might not be there because some of the mechanisms are lowering price. Is there something perhaps different in the competitive landscape today that's not enabling you to, or that's cutting price perhaps more than just what the formulas are moving that's impeding your ability to kind of work on the net price side? What's changed perhaps from a quarter or so ago to today or as this has progressed?
Speaker 2
Okay. Well, Chris, I don't know how to say that. I told you nothing. I told you that we had 3% growth in Food Care in North America in the second quarter. Not bad, actually.
We had in the second quarter 3% growth. I told you that we had slightly less than 6% negative growth in Latin America. If you take out Venezuela, again in Food Care, if you take out Venezuela, we would have had volume growth in Latin America. So things are stabilizing. We're very happy with what's going on in Brazil, way our management, local management has turned things around and very key.
We're doing well in EMEA. This is all about Food Care and we have about the same in Product Care and Diversity Care. So what I was what I'm telling you here, we have given you a guidance 100
Speaker 0
of about 6,050
Speaker 2
for the total year in total sales. We have benefits on currency on one side and what I just talked about a few minutes ago is giving you the answer on the net selling price, which is impacted by the raising cost and the formula pricing. So you were referring to competition. Well, look at our competition and look at what we how we are growing our volume compared to how our competition is growing volume. Product Care is growing fabulous.
Food Care is growing fabulous and we're doing very well. We had a bumper year, a record year in Diversity Care at the very same time.
Speaker 1
Operator, next question please.
Speaker 0
Your next question comes from the line of Chip Dillon of Vertical Research Partners. Please proceed.
Speaker 8
Yes, good morning. Jerome, could you give us a quick view of how the beef business is looking for you guys in Food Care around the world and how things may have changed since the last call?
Speaker 2
Okay. So let me start with good news, which is that Australia beef cycle is stabilizing. It's only down 0.5%, which is better than originally anticipated. Remember that it was exactly twelve months ago going gangbusters with a 10% growth in the slaughter rates, which was clearly unsustainable. And then it went down over the fourth quarter and first quarter.
Now it seems that it is stabilizing there. You have the volumes in North America and which have been going up. And now you're going to see there's nicely going up in the second quarter. It seems to be a sign for a very slight pause in the third quarter, but that's going to be because of the very heavy second quarter harvest. But overall, it is anticipated to increase by over 3.5%.
So that trend is on and it's moving. And you know that over the cycle, we're going to move from about 22,000,000 heads loaded to 27, 28 by the end of the decade. That is on its way. When then in you look at the situation in Russia, which is which is developing its herd, etcetera, things are positive. By the way, our business down there is doing absolutely wonderful.
And when you look at how our local business is going, Russia is up by 15%, Spain is up by eight and the exports of meat out of Brazil are started to improve and things are going better. So I would say that what we were anticipating is really happening. And I can once again assure you that we have a high share in that business and we continue to gain share, thanks to our Bags business and thanks to our Doffers, Chantry and Optidere.
Speaker 1
Operator, next question please.
Speaker 0
Your next question comes from the line of Mark Wilde of BMO Capital Markets. Please proceed.
Speaker 6
Good morning, Jerome. Good morning, Carol. Just a follow on Chip's question there, Jerome. Is it possible for you to give us some sense of the size of your North American Beef business versus the size of your Beef business in all of those offshore markets?
Speaker 2
No, we don't publish. We don't cut that. But we have given indication of the overall market and the impact. Globally, Our our fresh and red fresh red meat market is about 30% of our total sales, and and that's as much as we as we give. But I have given indications in the previous earnings call about how to size this kind of business.
Speaker 5
Operator, I think we have time
Speaker 1
for one or two more questions, please.
Speaker 0
Your next question comes from the line of Jason Fruchtel of SunTrust. Please proceed.
Speaker 11
Hi, good morning. This is Jeff Stanchell sitting in for Jason Fruchtel. My first question is when do you expect to be able to quit making restructuring payments? Are you still anticipating generating $775,000,000 in free cash flow by 2018? And on top of that, how should we see CapEx trending over the next few years?
Speaker 3
Okay. Morning, Jeff. So I'll take that. With respect to the guidance that we've provided, just as a reminder, the expense that we'll see this year to hit the P and L is estimated the cash related to that at approximately $110,000,000 And we also within CapEx activities for our new campus and other restructuring investment of around $140,000,000 If we look at the cash flow as we move forward, that approximately restructuring cash payments for 2017, we previously stated around $95,000,000 and then some will trail into 2018. But we should be substantially done in 2017.
We always remind everyone, though, that it's not as easy to forecast as it relates to certain actions we take in various countries. And some of our restructuring is also related to our footprint optimization for supply chain and the timing of some of that spend capital and related expense can be very lumpy.
Speaker 1
Operator, next question please.
Speaker 0
Your next question comes from the line of Anthony Pettinari of Citi. Please proceed.
Speaker 6
Good morning. Just going back to the discussion of weaker hospitality demand in Middle East and I think you mentioned Europe as well. Is it possible to size how much of a hit that was in the second quarter or maybe how much of a hit you might have baked into second half guidance? Or maybe what percentage of your hospitality demand in Diversey is in these regions where you've seen some impact from macro events?
Speaker 4
So I can take it. On Diversity Care, as you know, Q2 is our strongest quarter historically and the results are in line with that. Quarter three is hospitality quarter, right? It's seasonal business. Although hospitality is only 10% to 12% of our business globally through the year.
And as you know, are weakening in Europe, Middle East and Africa because of the political unrest. You heard me say it's tough, but in fact, we did okay in quarter two and you are all familiar what's going on. So tourism suffering and will suffer from all of this. Therefore, we will experience a slowdown and that's why, you know, in quarter three you will see a slowdown of the pace of the growth in Diversity Care. I remain confident longer term about the, you know, the regional promise and the sector promise as we went through this several times in our lives, right, and the business is extremely resilient.
We have very good people there. They have been through turbulences several times and the fundamentals longer term are extremely good. Anything to add, Jerome?
Speaker 2
No, I would say that this explains now we like to be fairly transparent on all of those things. It doesn't mean that it has a huge impact. What we're saying is that we had as a result of all of the good initiatives that we've taken, we had a bumper, a fabulous quarter in the second quarter in Diversity Care, and it's not going be another record quarter ever in the third quarter. But we are pretty confident on our growth. We have had a companion annual growth rates in the last three years of our OIBDA line of about 12% in constant currency and we are very optimistic that this is going to continue.
Speaker 3
And before we go to a last question, Laurie cut me off before I could answer Jeff's question on the 2018 target. So just to go quickly back to that with respect to free cash flow. We're continuing to drive towards the targets that we shared in June 2015 at our Analyst Day, focusing on profitable growth and remain confident in the business' ability to deliver on the growth rates and profitability improvement. We have always been a strong free cash flow generator and expect to be as we move forward. Obviously, the risk relates to currency, and that's something that's out of our control, but we always do our best to mitigate that.
And Jerome talked about our actions from a pricing standpoint when we see devaluation.
Speaker 1
Thank you. Operator, I'm not sure if there's one more person in the queue, but otherwise I think we actually have hit our time.
Speaker 0
Yes, you do have one final question from Brian Maguire of Goldman Sachs. Please proceed.
Speaker 1
Thank you.
Speaker 9
Thanks for squeezing me in. Jerome, I just wanted to ask you about dimensional pricing for a minute. Just curious how the customer adoption on that has gone so far. And I know you signed some strategic partnerships during the quarter. Just wondering if you could expand upon what those will allow you to do that you couldn't do on your own?
And then just finally, when do you think we'll start to see this kind of move the needle on the volume or price numbers for the Product Care segment? Thanks.
Speaker 2
So as I mentioned, weight and pricing is a big boost to our business, thanks to our D plus and ProWrap technologies, etcetera. Our new CoVue innovation are also providing all of this. So just to answer very short your question, you're going to see all of this in the third and especially in the fourth quarter because Q4 is an e commerce quarter and all the cards are set for a bumper quarter there. And I can't be more pleased with the transformation of that division. I have made no mystery that that we're just completely revolutionizing this industry.
Our customers And not only they're responding to dim weight, but they're responding to something which is very, very new, which is that they now start to understand that the packaging look that the how you how you present your products through ecommerce packaging is very important. We have all kinds of studies, and we're continuing them, and we're gonna publish them at Pack Expo are showing that the image of the retailer or of the e commerce company is dramatically conveyed through the packaging, is, by the way, something that you could very instinctively understand. And as a result of this, our new core view line is going it is actually getting a lot of traction. So come to Pack Expo, you'll be very positively surprised.
Speaker 1
Operator, I believe there's one question in the follow-up queue. It looks like George Staphos is trying to ask a follow-up question. If you see him in
Speaker 5
the queue, can you please open his line?
Speaker 4
Yes.
Speaker 0
Mr. Staphos, your line is now open. And Mr. Staphos has just disconnected his line. Okay.
Speaker 1
Alright. Thank you very much for everybody joining us today. And if you have any follow-up additional calls, please reach out to myself and I will be happy to follow-up. Thank you. Thank you.
Speaker 0
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.