Sealed Air - Earnings Call - Q2 2017

Transcript

Speaker 0

Good day, ladies and gentlemen, and welcome to the Q2 twenty seventeen Field Air Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms.

Lori Chapman, Vice President of Investor Relations. Ma'am, you may begin.

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 our discussion. This presentation can be found on today's webcast and can be downloaded from our IR Web site 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 our quarterly reports on Form 10 Q and current reports on Form eight ks, which you can also find on our website at sealedair.com or at the SEC's website at sec.gov. 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 the reconciliation to 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'll turn the call over to Jerome Perraver, our President and CEO. Jerome?

Thank you,

Speaker 2

Laurie, and good morning, everyone. We will cover our second quarter and first half results, key drivers for the second half and how we are executing on our strategy. We will also provide an update on our sale of Diversity to Vein, use the proceeds and our share buyback program. And as we review our quarterly results and near term business trends, you will see that our long term profitable growth strategy is coming to fruition, presently led by volume growth. You are now seeing renewed top line growth as a result of our change again execution.

In Product Care, our stated strategy to disproportionately grow our e commerce and 3PL business and progressively transform it with automated fulfillment solutions that will over time give us equivalent margins to our industrial business. In Food Care, we are benefiting from our focused efforts to deliver unique differentiated case ready applications that are aligned with protein processors productivity imperatives and retailers and consumers demand for longer shelf life and waste reduction. Our execution on our growth initiatives will continue to gain momentum. We are making the right investments and taking the correct actions where needed to drive additional and sustainable EBITDA growth. During our Analyst Day scheduled for the week of December 4, we will provide an update on our strategy and 2018 outlook and longer term financial objectives.

In reviewing our second quarter for continuing operations, sales of $1,100,000,000 were up 4% in constant dollars after delivering a 3% increase in the first quarter. Food Care sales were up 3% and Product Care sales were up 6%. The acceleration in both divisions was led by outstanding results in North America with growth of 9% in constant dollars on the yield of 6% growth in Q1. This is the highest level of growth we have delivered in North America since 2010. Adjusted EBITDA of $196,000,000 increased from $182,000,000 in the first quarter.

Our divisions performed in line with our expectations, particularly in light of higher raw material costs and increased freight surcharges. In Product Care, we were faced with increased cost of olefins, nylon, MDI and paper. And the price increases that we announced in the spring did not produce the yields that we were expecting. Therefore, we announced the second price increase effective September 1. Also, we have a temporary unfavorable mix impact in Product Care due to higher sales of utility products to our e commerce and fulfillment operations.

With that said, I cannot be more pleased with the execution of our automated solutions portfolio and the value it is bringing to our customers. Sales already increased more than 10% in the first half and the pipeline continues to expand globally. In Food Care, we continue to see increased market penetration for our proprietary case ready solutions and we are capitalizing on the North American beef cycle. To be fully transparent, we have been surprised by the magnitude of the impact on our business from the beef inspection scandal in Brazil. And as you all know, we have been faced with higher resin costs, which takes time to recover given our formula pricing.

We just started to see a turnaround in formula late in the second quarter. But for 2017, we are committed to achieving our financial objectives and expect sequential EBITDA growth in both divisions in Q3 and Q4. Our second half results will benefit from a combination of higher sales of our differentiated solutions as well as our price and cost actions. With regards to our diversity, our sales to diversity to bank is on track to close and we are committed to a successful separation. When we announced the sale in late March, we also increased our share buyback program to address the dilution of the transaction.

Following our May 9 earnings call and through August 1, we repurchased 6,500,000.0 shares for $285,000,000 using the combination of open market repurchases and accelerated share repurchase program. We have approximately EUR 1,900,000,000.0 remaining under our existing program. And once the transaction closes, we will have more flexibility with share repurchases, targeted M and A opportunity. And as previously discussed, we also plan to pay down our debt. Let me now turn to Slide five and briefly review our regional performance for Sildare for the second quarter.

North America accounted for 55 of our net sales and as I noted, delivered impressive growth of 9% in constant dollars. Europe, Middle East, Africa, which accounted for 22% of our total net sales, had food care sales in EMEA declined 1% year over year as positive sales trends in France, Italy and Spain were offset by weakness in The UK, Russia and Germany. Product Care was down 2% primarily related to rationalization efforts in France and the softness in the industrial sector in The UK. Excluding this rationalization, Proilcare sales in EMEA were would have been down less than 1% and this is by the way the last quarter that we will report a year over year impact from rationalization. Asia Pacific represented 14% of net sales.

In Food Care, APAC sales declined 7% due to the Australian beef market down cycle, which was partially offset by an increase of 11% in New Zealand and 6% in China. Product Care delivered double digit growth in APAC led by 15% growth in Japan and 11% in China. And Latin America, which accounted for 9% of net sales, declined 4% in constant dollars. Food Care was badly hit by Brazil and to a lesser extent, the economic weakness in Argentina. On the contrary, Mexico was our fastest growing country in LatAm with 9% growth.

Turning to Slide six, which highlights volume and price mix trends by division and by region. You can see that this slide from this slide that on a global basis volume trends were up 4% in the second quarter led by 9% volume growth in North America. Price mix was essentially neutral to our overall sales performance. In Food Care, I want to highlight that for the first time since the 2015, North America delivered a favorable price mix due to the continued adoption of our case ready platform and the timing of raw material cost pass through. And in Product Care, unfavorable price mix in North America was partially offset by the positive impact of our rationalization in on product mix in EMEA.

And now let's turn to Slide seven and review Food Care results in more detail. Food Care delivered $680,000,000 in net sales in the second quarter and adjusted EBITDA of 146,000,000 or 21.5% of net sales. As illustrated in the EBITDA bridge provided on this slide, higher volumes and cost management were offset by a negative price mix and price cost spread. Strength in North America was driven by improved protein production in all market segments led by the beef sector with a 5% increase in slaughter rates and the adoption of case ready applications across all proteins. And looking ahead to Q3 and Q4, we expect North America to be our fastest growing region, yet at a slightly more moderated pace.

Keep in mind that our second half is facing tougher comps as cattle production started its increase in the second half of last year. Therefore, the industry is forecasting production to be at a more measured rate of 3% to 4%. EMEA accounted which accounted for 22 of Food Care sales was essentially flat compared with last year as follows a soft first quarter. Food Care Equipment sales returned to growth one quarter earlier than anticipated. And I would add that the pipeline for both materials and equipment is nicely improving.

Market penetration for our case ready solutions, including our DAFresh platform, ready meals and ovenables, which continue to increase. This is the primary driver for higher equipment sales and our anticipated improved performance in EMEA in the second half. APAC accounts for 14% of Food Care with Australia and New Zealand accounting for close to 70% of our sales in this region. Beef production in Australia was down approximately 12% in the second quarter as cattle farmers continue to be building their herds. We have easier comps heading into the second half.

However, we are not anticipating growth in this region until late twenty eighteen. Latin America represents the remaining 12% of sales with Mexico, Brazil and Argentina accounting for approximately 75% of Food Care sales. Our business in Mexico increased 9% in constant dollars as we continue to penetrate the market with our advanced solutions. Despite the current events in Brazil and the economic situation in Argentina, we continue to view LatAm as a region with significant growth potential. And as such, we recently closed the acquisition of Delta Plan, which is a $25,000,000 net sales Brazilian manufacturer of flexible packaging.

Delta Plan utilizes superior extrusion technology to create recyclable high barrier solutions And this acquisition strengthens our position in Latin America, expands our portfolio of consumer unit package solutions and extends our reach into several new market segments. For the full year of 2017, we expect Food Care to increase sales 3% in constant dollars led by North America and improving trends in EMEA. We expect sequential growth in EBITDA in Q3 and Q4 largely due to timing of our raw materials cost pass through. Slide eight highlights results for our Product Care division. Product Care net sales were three ninety one million dollars and adjusted EBITDA was $77,000,000 or 19.7% of net sales.

Similar to Food Care, you can see in the EBITDA bridge that higher volumes and cost management were offset by negative mix and price cost spread. North America and EMEA accounts for approximately 85% of Product Care sales. E commerce and fulfillment are our fastest growing sectors in both of these regions and we are starting to see a rebound in some areas with the industrial segments. Sales in APAC were up 10% in constant dollars led by Japan and China where we are experiencing increased demand for our differentiated solutions portfolio including fill air, inflatable and automated equipment. We are increasing our market presence in this region and have expanded our local manufacturing capabilities to support that growth.

For the full year 2017, we continue to anticipate top line sales growth in the range of 3% to 4%. We expect sequential EBITDA improvement in Q3 and Q4 as a result of cost management coupled with pricing actions. And as compared to last year, our third quarter is expected to be flat to down with year on year growth returning in the fourth quarter. For the full year 2017, we expect adjusted EBITDA in Product Care to be essentially in line with 2016 as a result of segment mix and the timing of recovery of raw material costs. Let me now call pass the call to Carol to review our net sales and adjusted EBITDA, free cash flow and our outlook for 2017.

Carol?

Speaker 3

Thank you, Jerome. Let's turn to Slides nine and ten, which provide the sales and EBITDA bridges for Q2 and the first half twenty seventeen. Jerome has provided comments on our sales trends in the quarter and first half of the year. So my comments will focus on the bottom of Slide nine, which highlights our second quarter adjusted EBITDA from continuing operations on a year over year basis. Adjusted EBITDA was $196,000,000 Volume contributed $19,000,000 in Q2, which was offset by unfavorable mix and price cost spread of $20,000,000 Operating expenses decreased $5,000,000 and restructuring savings were $2,000,000 Currency had an unfavorable impact on adjusted EBITDA of $2,000,000 Unallocated costs were $3,000,000 in the second quarter twenty seventeen as compared to $4,000,000 in the second quarter twenty sixteen.

Adjusted earnings per share from continuing operations were $0.35 in the second quarter compared to $0.37 in Q2 twenty sixteen. Our adjusted tax rate for continuing operations in Q2 twenty seventeen was 39% compared to 32% in Q2 twenty sixteen. The adjusted tax rate in the second quarter twenty seventeen was impacted by our mix of earnings in higher tax jurisdictions. On Slide 10, we present our first half sales and EBITDA bridges. Higher volumes in the first half of the year were essentially offset by unfavorable mix and price cost spread.

On Slide 11, free cash flow is presented on a consolidated basis, which includes results from continuing and discontinued operations. For the six months ended June 30, consolidated free cash flow excluding payments related to the sale of Diversey was a source of cash of $93,000,000 CapEx was $93,000,000 cash interest payments were $105,000,000 and restructuring costs were 33,000,000 Aligned with our typical free cash flow seasonality, working capital and other assets and liabilities were a use of cash of 110,000,000 Payments related to the sale of Diversey were $45,000,000 of which $33,000,000 relates to a cash tax payment that secured certain benefits enabling us to divest Diversey in a tax efficient manner. This cash tax payment was included in our gross to net proceeds calculation, which we estimated cash tax payments in the range of $250,000,000 to $275,000,000 Turning to our outlook on Slide 12. We are on track to achieve approximately $4,300,000,000 in net sales or more than 3% constant dollar growth. This forecast assumes increases of 3% in Food Care and 3% to 4% in Product Care.

We expect our top line performance to

Speaker 1

be

Speaker 3

driven largely by volume in both divisions. 2017 adjusted EBITDA from continuing operations is expected to be in the range of $825,000,000 to $835,000,000 as compared with our previous guidance of approximately $825,000,000 Corporate expenses are now expected to be $125,000,000 which includes $20,000,000 of unallocated costs related to discontinued operations. As a reminder, these unallocated costs consist of functional support and related expenses previously allocated to Diversity Care and Hygiene Solutions that do not qualify for discontinued operations. Our net interest expense for 2017 is estimated at $190,000,000 with the assumption that we pay down $1,100,000,000 of debt in 2017. Depreciation and amortization is forecast at $160,000,000 We continue to expect our adjusted tax rate to be 28% for the full year 2017.

Adjusted earnings per share is expected to be in the range of $1.75 to $1.8 compared to our previous guidance of approximately $1.7 Our adjusted earnings per share outlook is based on 193,000,000 shares, which reflects the weighted average full year effect of share repurchases through August 1. Currency is not expected to have a material impact on net sales, adjusted EBITDA or adjusted earnings per share for the full year 2017. Our major currency exposures include the euro, which was approximately 13% of net sales in Q2 Australian dollar, 5% and the Mexican peso, British pound, Canadian dollar and Brazilian real were each approximately 3% of net sales. Turning to Slide 13, we will review our outlook for free cash flow. Our forecast for free cash flow in 2017 is approximately $400,000,000 This forecast excludes cash payments related to the sale of Diversey.

To calculate our free cash flow outlook, we started with an estimated consolidated adjusted EBITDA of approximately $1,000,000,000 which includes our full year 2017 outlook from continuing operations plus $215,000,000 from the first eight months of discontinued operations assuming a September close. We anticipate cash interest payments to be $200,000,000 and cash tax payments to be $160,000,000 Restructuring cash costs, excluding efforts dedicated to reducing unallocated and stranded costs are estimated to be $50,000,000 Capital expenditures are forecast to be $175,000,000 of which $165,000,000 represents Sealed Air continuing operations. Restructuring related CapEx is expected at $25,000,000 in 2017 and it is included in the $175,000,000 total CapEx estimate. Working capital and other assets and liabilities is expected to be a use of cash of approximately $65,000,000 As you know, a large portion of our free cash flow is typically generated in the second half of the year with the fourth quarter being our strongest quarter for cash generation. This concludes our prepared remarks.

Before I open the call to questions, I would like to note that our third quarter twenty seventeen earnings call is tentatively scheduled for Wednesday, November 8. With that operator, can you please open the call for questions?

Speaker 0

Thank you. And our first question comes from the line of Ghansham Bajabi from Robert W. Baird. Your line is open.

Speaker 4

Hi, good morning. This is actually Mehul Dahlia sitting in for Ghansham. How are you all doing?

Speaker 1

Good. How are you, Mehul?

Speaker 5

Good morning.

Speaker 4

Great. Why do you think the previous price increase didn't yield the amount it should have? And I guess what gives you confidence on your September 1 price increase that you've recently implemented?

Speaker 2

Very good question. You can go and say competitive forces, etcetera. I think that the more important thing was the importance of the price increases. We tend to talk about polyethylene and so which year to date went up 7%. We are not so much opening open on the price increases on nylon, which were very, very hefty between the fourth quarter last year and now about MDI for our polyurethane forms, which has doubled in China, for example, in the period of twelve months and paper and for example, corrugated OTC went up 79% since July.

So they were very hefty, very big. We tried to pass important price increases and some of that got passed, but not enough. So this is not very different than what happens from time to time. We had that three years ago, where we had to go back. We did, we're going back and we are just going to execute that on September 1.

Speaker 1

Thank you, Jerome. Operator, next question please.

Speaker 0

Thank you. And our next question comes from the line of George Staphos from Bank of America Merrill Lynch. Your line is open.

Speaker 6

Thanks. Hi, everyone. I hope you can hear me well. Yes, George. Good morning.

Morning. Congratulations on the progress. I just wanted to piggyback on the question of pricing and margin conversion. So Jerome, is it fair to say that in your view, the pricing efforts maybe not being where you had expected them to be was more a function in terms of their conversion to margin, the pace of the increase in input costs or in fact was it more competitive activity? And as you looked overall at the quarter, you had very strong volume growth in North America, congratulations on that.

We would have expected more conversion in margin. What were the keys in terms of margin conversion relative to volume? Was it really the pace of inputs? Was it competition? What would you single out?

Thank you very much and good luck in the quarter.

Speaker 2

Thank you, George. All in all, actually I'm really happy with what's going on. We had a strategy, is about differentiating ourselves from competition and introducing our Change the Game strategy. This is clearly ongoing because actually it shows in our product mix. New products don't necessarily have the margins that we'll have when they reach bigger volumes and things like this.

New product introduction can be somewhat costly. But at the very same time, you're seeing this volume growth and these trends, which are very, very different from what you are seeing in the industry. And as a result of that, you've got to ask yourself what's going on. What is going on is that the evolution of our portfolio is ongoing and that we are passing cost increases our cost increases. And this is something that we know how to do.

And when we're not 100% successful, we just come back later on. And it's not so much about pricing of competition, it is about the execution on our strategy. Some are tactical things and if we don't get it right away, we just come back. The reality is that in Food Care, our case ready applications are ongoing everywhere. This is not the North American phenomenon and we're seeing this through our equipment sales.

Our equipment sales are strong and our orders booked is very strong. This is going to happen later in this year and this is also going to continue next year. And what we're seeing there is that the it's about replacement equipment and it's also about new installs. This is not in North America only. This is in North America as there is a need for automation and newer and more performing equipment.

This is the case in Latin America, which is making us also very positive about the fact that there are long term strengths here to come. This is also in Australia, New Zealand. So what you're seeing is our customer investing in new type of equipment. It can be Dogfresh on trade, it can be Dogfresh VSP technologies, etcetera. This is a very strong trend.

What you're also seeing in Product Care is that we are going through a tremendous evolution of our portfolio and our segment sales. E commerce and 3PL is here to grow. It is for us a very important segment. And we are seeing equipment in production again all over the world, replacing equipment in Japan. We saw tremendous growth in China, in North America.

The orders booked in Europe is also very strong. And this is something which is a fundamental trend in our portfolio. Short term, the numbers I gave you, 79% increase in the last twelve months on paper. MDI, 30% up in Europe, 2x in China versus last same time last year. Nylon doubling and things like this almost, are things that are short term headwinds, but we know how to deal with that.

We have proven to you over the past few years that we deal properly and we pass our cost increases.

Speaker 1

George, do

Speaker 0

have

Speaker 6

you got two parts there. I appreciate it.

Speaker 1

Okay, great. Thanks. Operator, next question please.

Speaker 0

Thank you. And our next question comes from the line of Edlain Rodriguez from UBS. Your line is open.

Speaker 2

Thank you very much. Good morning to all. Quick one on Product Care. I mean, you've talked in the past, I think you mentioned that today, shorter term, like lower margins in e commerce and PPLs versus the segment margin, like how quickly you believe you can close that gap? So the pace is going to depend on our placement of new equipment and our reducing manufacturing cost of those equipment as we produce as we go through mass production.

There is a trend in e commerce. And this trend is that corrugated cardboard prices are going up dramatically. And that as a result of that, you are going to see more and more pouches, which are enabling lower dimensional weight costing for shipping and lower cost of packaging. This is a trend. We have two very strong offering here.

For boxes, our iPaC and EQ product line improves dimensional weight costing. And our TENSWAP and flow wrap equipment and the generations to come, which we are going to present at Pack Expo later in the year, are tremendous substitute for boxes. So we have a huge momentum in e commerce 3PL. And this is therefore accelerating our sales growth in Product Care. Yes, we are because of the cost increases, we are having a slightly lower margins.

But as I said, we're dealing with those. So how quickly? We're going to show you during our Investor Day week of December 4, we're going to show you our three year targets and plan. And you will see that what I said earlier in my prepared remarks, which with regards to margins in that segment, you'll see that we intend to recoup and have similar margins than in the rest of the portfolio over the next three years.

Speaker 1

Operator, next question please.

Speaker 0

Thank you. And our next question comes from the line of Anthony Pettinari from Citibank. Your line is open.

Speaker 7

Hey, good morning. Just following up on the previous question, the $20,000,000 EBITDA hit you saw in the quarter from mix and price cost spread, is it possible at all to say roughly what portion of that was mix shift and what portion is price cost that, I guess, at some point you might get recovered?

Speaker 3

So we don't break out between mix and price cost spread. It's a combination of both, Anthony. So we do expect, as Jerome has highlighted, to see improvement sequentially in our EBITDA growth as we move through the balance of the year and we started to see the turn from the formula pricing for Food Care at the end of the second quarter. And we'll expect to have positive trends from that, obviously, on how resins play out for the second half of the year and the price increases being implemented for the Product Care division will also favorably impact our improvement sequentially in our EBITDA margins as well as our overall EBITDA growth.

Speaker 2

We are in a specialty business. You don't shovel your price increases onto your customers. You collaboratively work to introduce those solutions and so on. At the very same time, you have to pass your costs. We understand that.

And it's just a question of time. It would have been faster if those cost increases would not have been that important. So have we absorbed a little bit of those? Yes, we have. But our customers know that we are passing them.

This is why we are we have announced our September 1 price increase. And this is we have announced those in North America, we have announced those in Europe. So it's ongoing. In the end, we have a lot of momentum with our customers because they know that in both of those divisions, we are the innovator. And this is what allows us to work collaboratively positively with them.

Speaker 1

Anthony, do you have a follow-up question?

Speaker 7

No, no, that's helpful. I'll turn it over.

Speaker 1

Okay, great. Thank you. Operator, next question please.

Speaker 0

Thank you. And our next question comes from the line of Arun Viswan from RBC Capital Markets. Your line is open.

Speaker 8

Great, thanks. Thanks for all the detail. Congrats on the progress here. So especially on the volume side, just trying to understand the guidance for the rest of 2017. So you increased the EBITDA range to $8.25 to $8.35 from $8.25 but you also lowered the FX headwind to $0 from $5 and you had other lower costs as well in Q2.

I'm just trying to understand, is the guidance bump from the lower FX headwind and lower stranded costs? Or are you actually more confident in the Food Care and Product Care segments?

Speaker 2

So what you're seeing is that there are a few bubbles in the air right now. The FX is more favorable than anticipated at the beginning of the year. Where is it going to be three or four months from now? I don't know. You just pick the euro.

In January, the euro was at $1.03 It is at $1.18 today. And nobody would have thought in January that it would be at $1.18 today. So I'm not going to go and anticipate, but at this point in time, there is a positive bubble in the year, which is related to currency and that's one thing we have as a positive. On the possible as a possible positive, as a possible negative, we're a bit concerned with polyethylene prices. We were anticipated that they were going to start to come down in September.

And right now, we have some producers who are already just talking about price increases on the heels of possible hurricane. I mean this is the last this is the most fun thing that you can hear, but there is a bit of momentum there. You have some producers who have announced price increases for July. This did not happen. They've been announced for they've been pushed to August.

And then you have some more announcement, which have been done for September. So you've got some of those gains going on right now. But we are a bit concerned that as a potential negative, we would not have what we were expecting in terms of raw materials on polyethylene for September to December. So that's why we're seeing that. And next to that, we are our we're very determined to get our price increase through and we might suffer a little bit from volume in some more commoditized segments in there.

So that's what we're doing. Overall, these are short term tailwinds or headwinds, very short term. We believe that our fourth quarter is going to be very strong. And the most important thing is to see that this changed the game, which was in doubt in 2016 that we were believing was coming is definitely coming. This is why we're having that growth momentum right now, which we didn't have in 2016 and which in general the industry doesn't have.

Speaker 1

Operator, next Go ahead Arun, sorry about that. Go ahead. Operator, can you open up back the line or we'll bring him back after. Do you want to go to the next question?

Speaker 0

Our next question comes from the line of Adam Josephson from KeyBanc Capital Markets. Your line is open.

Speaker 5

Hi, thanks. Good morning, everyone.

Speaker 2

Good morning, Adam.

Speaker 5

Jerome, two questions. First is just aside from paying down debt and buying back shares to offset the dilution once the deal closes, what is your overarching strategic plan for the new company? Do you eventually plan to grow by acquisition? Or what exactly do you have in mind? Obviously, EBITDA over the last eight quarters or so has been kind of flat to down.

It's just been hard to generate organic EBITDA growth. So what do you have in mind longer term post the deal closing?

Speaker 2

So we did not have growth in 2016, sales growth. And therefore, EBITDA, we are in transition. And we said that several years ago, there was a get fit and there was a change again. It is very important to understand who we are. We're not a simple packaging company.

We are solutions driven and our margins will expand as we expand the value of our solutions to our customers. That is very clear and there is a fundamental megatrend in the way we're working with our customers. They respond. We are the very big player in the sectors of protein and in the sector of protective packaging through our solutions. We are that is the way we're going.

So we're not going to only buy back share and pay down debt. We are starting to look at some potential acquisition targets. Multiples are very high. Generally speaking, acquisitions do not return shareholder value traditionally or most of them don't. The vast majority of acquisition do not generate shareholder value in general.

And when you look at the multiples right now, you have to be careful. The Delta plan very small acquisition is a very good example of a small acquisition in a given country where we do believe that there is potential. It was the right time at the right price with the right equipment and technology. They have fabulous equipment and that is going to be a very nice little acquisition. We're looking at some others.

At the very same time, you have to understand that we've been very, very busy with the separation of diversity. Therefore, we're not going to rush into things right away. We are working diligently and with discipline on the next step. But yes, we are going to be doing acquisitions over time.

Speaker 5

Thanks, Jerome. And just one follow-up. You talked about acquisition multiples being quite high. I know you're buying back your stock just to offset dilution, but you guys are, call it, at twelve, thirteen times EBITDA once you get the proceeds. I mean, do you think your stock is undervalued here?

And if so, kind of can you explain why you think that?

Speaker 2

Well, you're not going to take me there. Do I personally think our stock is undervalued? We're looking at the Investor Day as it is coming in our numbers. So you will judge in December whether you think that our stock is overvalued or undervalued. I have my own opinion on those kind of things.

We are determined to become a value add company to our customers with new solutions. We happen to invoice packaging, but our number one asset is to add value to our customers because of longer shelf life, because of the very differentiated equipment that we're bringing and with regards to Protective and the e commerce and industrial, the dim weight cost increases are important and they become as e commerce is growing very rapidly, you are seeing the absolute needs of optimizing e commerce packaging and we are in a tremendous position to do that. So we are specialty of specialty. This is the way you are going to see us over time.

Speaker 1

Operator, Thank next question

Speaker 0

you. And our next question comes from the line of Tyler Langton from JPMorgan. Your line is open.

Speaker 5

Yes, good morning. Thank you.

Speaker 3

Could you

Speaker 5

just, I guess, talk a little bit about the type of volumes that you're seeing on the industrial side of Product Care? I mean, are you seeing growth there? Or is it really mostly from the e commerce and fulfillment?

Speaker 2

We're seeing growth in industrial sector. I'm not going to tell you that we're seeing huge growth, but it has bottomed last year, and it is the second quarter that where we're seeing some volume some dollars and volume growth, I would call that in the range of 2%, 2.5%, which is quite good. Not everywhere, it is country by country. But we're seeing in China, we're seeing industrial growth. In some West European countries, seeing industrial growth.

In The U. S, we're seeing a little bit of industrial growth. In The U. K, we're not. So we really you read the GDP and you see what's going on.

But we're doing quite well there.

Speaker 1

Tyler, do you have a follow-up?

Speaker 5

Yes. I guess, Carol, just on the corporate expense, I think the previous targets were to get rid of the $40,000,000 of stranded costs, eliminate 50% in two years. And then on the unallocated was eliminated by 2018. I guess those unallocated are a little bit lower. But has anything sort of materially changed with those targets?

Speaker 3

No. We're still on track for that. The $20,000,000 unallocated that was revised down from $25,000,000 should not have any negative impact on 2018. We are already starting activities to address the unallocated as well as stranded costs. So we're confident that we'll be able to stay on plan, if not outperform what's been previously communicated.

Speaker 2

Great.

Speaker 1

Thanks. Operator, next question please.

Speaker 0

And our next question comes from the line of Vinoja from Shaw from BMW Capital. Your line is open.

Speaker 9

Good morning. Just wanted to go back to Brazil. Did we actually get the Or can you just give us a little more flavor on what happened in the quarter in Brazil? And then secondly, I think you were embedding some recovery in the second half for Brazil.

Is that still the case? And if so, some idea of how much?

Speaker 2

So in Brazil, you you could see, if you look at the detail, that charcoal consumption went down 11% in the second quarter and that local meat consumption is down about 20% in the second quarter as a result of the inspection scandal saga and the related items in the production of fresh red meat. This has been much the impact has been much bigger than anyone could anticipate. The exports have been impacted also. Our view is that this is temporary. We're seeing that it's stabilizing.

We're seeing that you have equipment being sold and placed and ordered by red meat producers. And we are I was in Brazil three weeks ago and talking to all of those customers and they believe that the slower rates are going to start to increase sometimes in the third quarter and into the fourth quarter. So this is not a long term trend. This is specific to Brazil given the scandals that have happened. Then you look at Argentina and Argentina is seeing its consumption go up by 2%, which is very little.

And you see the exports going up nicely at increasing in year to date by 38%, except that Argentina is not a big meat producer anymore. It is the number 17 meat exporter, sorry, not producer exporter. It is the seventeenth largest exporter of meat and much smaller than it was a decade ago. That is for Argentina and Brazil. You are seeing we're seeing some positives in other countries, very strong business in Mexico where we have extraordinary positions.

I was there last week, I can assure you that the trends are very, very positive there. We're seeing nice trends in the second quarter in Chile for fish production where we participate very nicely there. So all in all, total Latin America is negative as a result of the weight of Brazil, but we believe that this is temporary.

Speaker 1

Operator, next question please.

Speaker 0

Thank you. And our next question comes from the line of Brian Maguire from Goldman Sachs. Your line is open.

Speaker 10

Hi, good morning. Just had two questions, one following up on the last one. Just wondering if you could parse out if any of the strength in the non Brazil Food Care business you think might have been benefiting from some of the reduced exports out of Brazil as some of that had to come from other regions? And then as a second question, Jerome, just wondering if you could comment on the e commerce margins, been weak for a couple of quarters. I think a couple of people were alluding to it.

But just wondering how you see the margins on some of the new product offerings. Can they be in that 20% plus range that you've been in, in the past once they start to get a little bit more scale and maturity? Thanks.

Speaker 2

So starting with the exports, yes, The U. S. Is dramatically benefiting from beef exports. You saw what happened in the first quarter. If I remember well, the April exports were at over 30 growth out of The U.

S. So what Brazil did not export and given the cycle in negative cycle in Australia, The U. S. Has been a huge winner in this. And you are seeing right now that prices of U.

S. Beef are very high, but this did not affect the export and exports have been fresh and frozen and could be for the month of June have been almost 12% higher than a year ago. So this is very strong. It's positive also for us because all of that is packed with our bags and we are really happy going to see what's going on there. With regards to e commerce, yes, have product mix, very nice.

We have segment mix, which at this point in time is negative. We made no mystery about that already last year. What we were not seeing is the growth that we're seeing. But what you have to understand is that we're having positions, we're building with our new business with our customers. And what I talked about last quarter is something that we is happening, which is that it takes time to go and sell equipment.

It is a capital spending for our customers. This is not a consumable. So on one side, you have margin squeeze a little bit to the very strong and steep increases of raw materials, paper, polyethylene, nylon, etcetera, which are ingredients, which are raw materials for our mailers, for our phones, for our bubble wrap, etcetera. And but we're to get over that. And next to that, you have this capital equipment.

The very strong sign is that our sales of equipment in Product Care year to date are up 10% compared to last year, knowing that we had some self wrap and flow wrap and also made it core view, which were equipment which were prototypes shown in at PACK EXPO last year, we're seeing a very nice momentum in there that's going to accelerate. So we're producing a few of those machines. And when that accelerates also, we're going to see margin expansion.

Speaker 1

Operator, we are time for one more question please.

Speaker 0

Thank you. And our next question comes from the line of Jason Frenchill from SunTrust. Your line is open.

Speaker 11

Hey, good morning. Thanks for taking my question. I think it would be helpful to better understand your intended pace of share repurchases versus other uses of capital. Following the completion of the Diversified Care divestiture, should we expect to see a larger purchase in September? Are there any limitations of repurchasing shares in 2017 aside from the size of your share repurchase program?

And I think you touched on this, but how do you think about the trade offs of mitigating near term dilution through share repurchases versus creating shareholder value through other uses of capital? Thank you.

Speaker 3

So Jason, I'll start, and then Jerome may want to address the very last part of your question. But we there's nothing that would restrict us from being very active in the market following the close of the Diversey transaction. We have communicated previously that it is our intent to address the dilution. It will take some time. It won't all be done by the 2017.

And addressing that dilution includes not only the share buyback, but also improvement in our EBITDA as we move forward. So we do plan to be active in the market. We plan to continue to use a combination of tools such as the OMR as well as the ASR as we move forward. We model the share price based on our strategic plans and working with the Board set levels of that share price that we feel is a fair value for that share buyback.

Speaker 2

And I made comments earlier about our discipline. In the years to come, we are going to be bigger through acquisitions also. We're not going to rush into it. We're going to make sure that we add shareholder value. This is a fundamental approach of this management team, and we pursue innovation and strategy execution along the lines that we have already announced.

You are going to see during Investor Day early December, how disciplined we are and the importance of this innovation. These are going to be complemented by regional bolt ons in very strategic places where we believe that we can add tremendous value to deploy our technology. You are going to also see over time that we're going to reinforce those two divisions and be very focused in making sure that we are the specialty of the specialty company that we say we are becoming and that we are already announced that we are going to become as a result of our change in application. We're just not we're not seeing ourselves as just simple normal packaging company. We are solutions driven oriented there.

Our automation is a big part of our offering with the razor razor blade and you're going to see more of that as the years are coming.

Speaker 1

Operator, that concludes our call.

Speaker 0

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.