Sealed Air - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 net sales were $1.373B, flat year over year (+0.9% constant currency), with Food up 3% and Protective down 7%; Adjusted EBITDA was $271M (19.7% margin) and Adjusted EPS was $0.75, both above internal guided midpoints per management commentary.
• GAAP diluted EPS was $0.00 due to a one-time deferred tax asset write-off that drove a 100.5% effective tax rate; Adjusted tax rate was 28.1% (vs 18.0% LY), pressuring EPS despite lower interest expense.
• Food delivered 5% constant-currency sales growth on 5% volume gains and 7% Adjusted EBITDA growth; Protective declined 7% constant currency with Adjusted EBITDA down 26% on lower volumes and unfavorable price realization.
• 2025 guidance: net sales $5.1–$5.5B, Adjusted EBITDA $1.075–$1.175B, Adjusted EPS $2.90–$3.30, FCF $350–$450M; Q1 2025 guide calls for net sales ~$1.26B, Adjusted EBITDA ~$260M, and EPS $0.65–$0.70.
• Transformation catalysts: CEO transition to Dustin Semach, $89M 2024 cost takeout, net leverage reduced to 3.6x; management targets a Protective volume inflection in 2H 2025 while continuing Food momentum and deleveraging toward ~3x by end of 2026.

What Went Well and What Went Wrong

• What Went Well

  • Food segment strength: $923M sales (+5% constant currency) and $208M Adjusted EBITDA (22.5% margin), driven by case-ready and fluids share gains across regions.
  • Discipline and cash generation: operating cash flow $728M and non-GAAP FCF $508M (adjusted FCF $454M), with net leverage down to 3.6x and liquidity ~$1.37B.
  • Execution commentary: “We exceeded our expectations across Adjusted EBITDA, Adjusted EPS and Free Cash Flow… and are targeting growth and margin expansion in 2025” — CEO Dustin Semach.

• What Went Wrong

  • Protective pressure: $450M sales (-7% constant currency), volumes -5%, Adjusted EBITDA $67M (14.8% margin) down 26% on unfavorable pricing and volume, with continued weakness in industrial and fulfillment portfolios.
  • Tax and special items: effective tax rate 100.5% from a discrete deferred tax asset write-off; Special Items $110M in Q4 vs $3M LY, driving GAAP EPS to $0.00 despite underlying profitability.
  • Price realization headwinds: company-wide unfavorable net price realization impacted margins despite productivity gains; management expects pricing pressure to persist in Protective into 2025.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Q4 2024 Sealed Air Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mark Stone. Please go ahead.

Mark Stone (VP of Investor Relations)

Thank you, and good morning, everyone. Before I begin our prepared remarks, I'd like to introduce myself. I am Mark Stone, Sealed Air's new Vice President of Investor Relations. Brian Sullivan now serves as our company's treasurer. I'm glad to be here this morning and look forward to engaging with our investor community. With me today are Dustin Semach, our newly appointed President and CEO, and Roni Johnson, our recently named interim CFO. Before we begin our call, I would like to note that we have provided a slide presentation to supplement the call.

Please visit sealedair.com, where today's webcast and presentation can be downloaded from our Investor Relations page. Statements made during this call, stating management's outlook or estimates for future periods, are forward-looking statements. These statements are based solely on information that is now available to us.

We encourage you to review the information in the section entitled Forward-Looking Statements in our earnings release and slide presentation, which applies to this call. Additionally, our future performance may differ due to a number of factors. Many of these factors are listed in our most recent annual report on Form 10-K, as revised and updated on our quarterly reports on Form 10-Q, and current reports on Form 8-K. We discuss financial measures that do not conform to US GAAP. You will find important information on our use of these measures and their reconciliation to US GAAP in our earnings release.

Included in the appendix of today's presentation, you will find US GAAP financial results that correspond to the non-US GAAP measures we referenced throughout the presentation. I will now turn the call over to Dustin and Roni. Operator, please turn to slide three. Dustin?

Dustin Semach (President and CEO)

Thank you, Mark, and thank you for joining us for our fourth quarter earnings call. Before we begin, I'd like to address the recent CEO transition. Let me start by saying I am very grateful for the opportunity and privilege to be Sealed Air 's CEO, and I couldn't be more excited about our future. I recognize that quick changes at the CEO level can raise concerns for all of our stakeholders. Let me assure you, our strategy has not changed. We continue to execute against the plans developed under my leadership as co-CEO and president, and those initiatives are already taking hold. Over the past two years, we have stabilized our business performance, rebuilt our leadership team, strengthened our balance sheet, and transformed back into two market-focused business segments, Food and Protective.

While we have made significant progress, there is much work ahead of us to improve outcomes for our customers and shareholders, and we plan to accelerate the pace of execution from here. I am partnering with our board, segment presidents, and the rest of the Sealed Air team to meet these challenges head-on with urgency as we continue our transformation journey. With that, I'm excited to give an update on how we closed out 2024 and provide insight into our ongoing transformation in 2025.

We exceeded our expectations in the fourth quarter, including coming in higher than our guided midpoint across adjusted EBITDA, adjusted EPS, and free cash flow, and driving constant currency sales growth. We have now consistently delivered against expectations for six straight quarters, reflecting improved discipline and fundamentals and better commercial execution. The strength of our Food business more than offsets the challenges in Protective throughout 2024.

Excluding the restoration of our incentive compensation pools, we drove mid-single-digit Adjusted EBITDA growth despite a sales decrease of 2%. During the fourth quarter, we accelerated the operationalization of our food and protective businesses. We have now fully integrated our commercial, innovation, and supply chain teams into each respective segment. As we completed the full reorganization, we continue to streamline our cost structure to improve organizational agility and our cost positions.

We are getting closer to the markets we serve and our customers by reducing silos, complexity, and bureaucracy while building a culture of accountability and ownership. Roni will give more detail on our fourth quarter performance in a few minutes, but first, let me shift to 2025. Our focus this year is to further unlock the underlying potential in each business based on the respective end markets and portfolios. Both businesses' end markets support consistent low single-digit volume growth.

With the leverage across our footprint, our strategy is to drive mid-single-digit earnings growth and deliver high cash flow conversion on an organic basis over the long term. Over the next two years, we are targeting to leverage the balance sheet to three times. Once that is accomplished, we will be able to return to a more balanced approach to capital allocation, including disciplined M&A and a return of capital to our shareholders.

As we are now organized by segment, we have more visibility into the cost structures of each business, the resources devoted to each portfolio, and the impact of capital allocation, giving us more levers to help each business achieve their potential. More importantly, we are instilling an end market and customer focus throughout each business, which will guide our allocation of resources, innovation, and capital toward the portfolios that drive the most long-term customer value.

While the shift in investment strategy will take time to yield results, we are in parallel actively improving commercial execution and service levels across the business. Shifting our culture to become high-performing, engaged, empowered, and accountable is at the center of our transformation within the company. We continue to strengthen the end market leadership teams and, in parallel, push decision-making further down in the organization to empower our field and supply chain teams to own their customer outcomes.

While we made progress over the last year, especially in Food, we will continue to adjust until we have the right talent in our most critical positions and fully make the shift in our culture.

We have been operating in a dynamic macro environment where we have increased volatility due to uncertainty around global trade and its potential impact on our customers' demand patterns and supply chains, input costs, and foreign exchange movements. On the potential tariff impacts for most of our businesses' domestic production for domestic consumption, we do have trade with countries which could be impacted by the tariff discussions. This time, we plan on mitigating tariff impacts through changes in our supply chain and by passing through additional costs to our customers if necessary.

More importantly, we are partnering with our customers and helping them navigate the potential impacts to their business, which is much more difficult to predict at this stage. Our outlook only contemplates tariffs that are currently in effect.

With the foundation of each business now fully built, it's all about unyielding focus and execution within the markets our Food and Protective businesses serve. I will now dive into each business's outlook in 2025. Food is coming off a strong 2024 where we are able to grow volumes to mid-single digits and gain share. Over the past year, we refocused on the core values that made Cryovac into the brand it is today, servicing our customers day in and day out and keeping them up and running with the best packaging solutions.

Our world-class engineering and manufacturing capabilities enable us to create unmatched packaging solutions that improve our customer outcomes by improving their processing yields and throughput while extending shelf life, ensuring safety, and enhancing brand image of their products.

While industrial fresh red meat end markets ended 2024 in a better position than we originally anticipated, we see compression in the North American beef cycle increasing as we progress through the year, which will put pressure on our shrink bag volumes. The situation is dynamic as the cost of feedstock has increased significantly over the last couple of quarters, putting pressure on our customers' businesses. However, with the breadth of our portfolio, we are focusing on higher growth businesses such as Case Ready and Fluids, whose end markets are less volatile and represent a growth opportunity this year and beyond.

The share gains made in these portfolios in 2024 will continue to ramp this year, giving us positive momentum right out the gate. Food's growth will be further supported by new innovations in automation and sustainable offerings.

Leverage across the footprint, combined with our recently streamlined structure, will drive the business to a projected mid-single digit earnings growth in 2025. While we expect Foods and markets to be more dynamic this year, I'm confident this business is on the right trajectory, and we are well-positioned to fully achieve its underlying long-term potential. I'm now going to shift to our Protective Segment. While we made progress last year in repositioning this business by refocusing on our customers' end markets, there is more work ahead of us to stabilize the business and drive an inflection point in volumes.

We have completed several transformation programs initiated last year to restore customer focus. First, we reorganized our North American go-to-market team to simplify our coverage and minimize customer touchpoints internally.

As part of the reorganization, we strengthened our relationships with our distribution partners by aligning our field to theirs to ensure we are going to market together. Lastly, we implemented many commercial excellence initiatives, including streamlining our pricing approach to improve time to quote and implementing a more simplified growth-oriented incentive program for our field, among many others. The combination of these market-oriented actions has laid the foundation to give us more flexibility and control over the mix of products we sell into the market. We will focus on shifting our portfolio over time to the solutions that deliver the most customer value, like AutoBag and Instapak. Beyond a focus on the go-to-market approach, we continue to shape the solution portfolio by becoming more substrate-agnostic in the portfolios that are sold into consumer-facing end markets, like e-commerce.

Our immediate focus is on commercializing the fiber mailer offerings we have previously discussed and bringing to market our hybrid AutoBag offerings. While we have made progress on our mailer development with the second iteration of our fiber mailer, now called the Jiffy Embossed Mailer, we have been slow to fully industrialize and bring to market. We plan to accelerate the expansion by moving into multiple markets within the U.S., giving us the ability to serve local as well as national accounts. Market traction with customers and distribution partners has been strong following the product launch at Pack Expo last November.

Total mailers market represents more than $3 billion, with fiber offerings outpacing their flexibles and hybrid counterparts.

As we scale up our offerings in our mailers and AutoBagging, we will be able to fully participate in the underlying growth in e-commerce, where we have been losing the most share over the past few years. Our current outlook is targeting a second-half inflection in volumes in protective. We believe we are taking the right actions to stabilize the business and ensure we are participating fully in the markets we serve. So it's not a matter of if, but a matter of when we inflect our performance.

While it's difficult to predict the exact timing, we are focused month to month on improving our win rates, reducing customer churn, and improving service levels, as well as taking a more proactive approach to our cost structure. As we continue to see the actions we are taking make an impact on our performance, our confidence on timing will improve.

We will continue to give you updates throughout the year as we make progress. Finally, as I mentioned earlier, the reorganization by segment has provided us more clarity on Protective's support structure, giving us the ability to set the right level of resourcing tailored to each segment. We are leveraging this visibility to ensure we are maximizing productivity in the field and within our production facilities. As a part of our ongoing cost takeout efforts, we will close two plants by the end of the year to further optimize our footprint.

When you pull all of this together, we are returning to top-line growth on a Constant Currency basis with continued momentum in Food, partially offset by challenges in our Protective business. When you combine the cost actions at the end of last year with ongoing productivity initiatives throughout 2025, we are targeting mid-single digit EBITDA growth at Constant Currency.

We will continue to drive strong free cash flow conversion and strengthen our balance sheet through debt paydown. With uncertainties around tariffs, their impact on our customers' business, and unfavorable FX movements, we are staying focused on controlling the controllable, ensuring we are taking care of our customers, taking a proactive approach to our cost structure, and increasing the pace of execution. I am excited about where we are taking this business and the benefits we will drive over time for all stakeholders.

Before I turn it over to Roni to give a more detailed update on our fourth quarter and full year 2024 results and 2025 outlook, I want to first welcome her in her new position as our Interim Chief Financial Officer. Roni, over to you.

Veronica Johnson (Interim CFO)

Thank you, Dustin, and good morning, everyone.

It's a privilege to step into this interim CFO role, and I look forward to engaging with you all. Let's turn to slide four to review Sealed Air's fourth quarter performance. Net sales were $1.4 billion in the quarter, up 1% on a constant currency basis, and were $5.4 billion for the full year, down 1% at constant currency. Adjusted EBITDA in the quarter was $271 million, down 1% compared to last year as reported. For the full year, adjusted EBITDA was $1.11 billion, relatively flat with prior year. As reported, adjusted EPS in the quarter of $0.75 was down 15% compared to a year ago.

Our adjusted tax rate was 28% in the quarter compared to 18% in the same period last year, which benefited from the reversal of liabilities related to uncertain tax positions. We did not repurchase any shares in the quarter.

Our weighted average diluted shares outstanding was 146 million. For the year, adjusted EPS of $3.14 was down 1%, primarily driven by higher tax expense, partially offset by lower net interest. Turning to slide five, reported sales were flat in the quarter as volume growth was negated by FX headwinds. On a constant currency basis, sales were up 1% on higher volumes, reflecting strength in food, partially offset by continued declines in protective. Fourth quarter adjusted EBITDA of $271 million decreased $3 million, or 1% compared to last year, with a margin of 19.7%, down 20 basis points.

Adjusted EBITDA performance reflects positive volume and productivity benefits, including cost takeout actions offset by the restoration of our incentive compensation pools and unfavorable net price realization. Moving to slide six.

Food sales of $923 million for the quarter were up 5% on an organic basis, primarily due to volume growth in all regions driven by strength in our shrink bag business and continued share gain in Case Ready solutions. In the fourth quarter, the industrial food processing end market outperformed our expectations, coupled with volume growth within our fluids business. Food adjusted EBITDA of $208 million in the fourth quarter was up 7%, with a margin of 22.5%, up 70 basis points. Productivity benefits and volume growth more than offset the impact of higher incentive compensation and unfavorable FX.

Transitioning to the protective business, fourth quarter net sales were $450 million, down 7% from the prior year and up slightly on a sequential basis. Protective sales continue to be impacted by weakness in certain industrial portfolios and pressure within our void-fill product lines.

Protective adjusted EBITDA of $67 million was down 26% in the fourth quarter. The decrease in adjusted EBITDA was mainly driven by lower volumes and unfavorable net price realization. On slide seven, we review our fourth quarter net sales by segment and region. On a constant dollar basis, Americas was up 1%, driven by strength in food, partially offset by continued softness in protective portfolios. Constant dollar growth of 1% in EMEA was driven by solid volume performance in food. Constant dollar growth of 1% in APAC was driven by strong Australian cattle and lamb cycles, offset by continued weakness in Asia protective applications.

With the reorganization behind us, starting in Q1 2025, we will no longer report sales by region, focusing only on our segments to better reflect how we manage the business. Now let's turn to free cash flow and leverage on slide eight.

We consistently generated Free Cash Flow throughout the year, which totaled $454 million compared to $467 million a year ago when adjusted for the impact of the resolution of certain prior year's tax matters in both years. This was particularly strong cash flow conversion, considering our restructuring and associated payments increased to $58 million from $19 million a year ago as we accelerated our Cost Takeout actions. We maintained our capital allocation discipline through a focus on deleveraging the balance sheet and ended 2024 with a Net Leverage Ratio of 3.6 times compared to a peak of 4.1 times in the second quarter of 2023.

We are well on track to exceed our previously communicated target of 3.5 times net debt to Adjusted EBITDA by the end of 2025.

Our total liquidity position was $1.4 billion, including $372 million in cash and the remaining amount in a committed and fully undrawn revolver. We are now committed to bringing down net debt to Adjusted EBITDA to approximately 3 times by the end of 2026. Let's turn to slide 9 to review our 2025 outlook. As Dustin mentioned, several internal initiatives are underway to drive low single-digit top-line growth. Some of these actions will take time to materialize. As a result, we expect net sales to be in the range of $5.1-$5.5 billion, which assumes 1% growth at the midpoint, excluding the impact of FX, which we expect to represent a 2% headwind for the year.

Within food, we expect constant dollar sales growth of 2%, primarily from price. Within protective, we project full year sales to be down 3% year over year.

We expect challenges in the first half to continue and are targeting an inflection in volumes in the second half, which will result in a full year decline of approximately 2%. We expect pricing pressures to persist, further reducing top line by 1%. We expect full year Adjusted EBITDA to be in the range of $1.075 billion-$1.175 billion, representing approximately 1% year over year growth at the midpoint, which assumes a margin of approximately 21%. FX is expected to be 2%, approximately $25 million, unfavorable on Adjusted EBITDA. On a constant currency basis, the midpoint of our guidance assumes year over year growth of approximately 3.5%.

The midpoint of our Adjusted EBITDA guidance includes $90 million year over year cost savings, more than offsetting negative Net Price Realization and FX headwinds.

Full year adjusted EPS is expected to be in the range of $2.90-$3.30 per share, with the midpoint representing constant currency growth of 2%. The adjusted EPS guide assumes an adjusted tax rate of approximately 27% and relatively consistent year over year net interest expense. We expect full year 2025 free cash flow to be approximately $400 million, reflecting continued strong cash generation while absorbing higher restructuring payments associated with our cost takeout actions.

Our capital expenditures are expected to be approximately $220 million. For the first quarter of 2025, we expect net sales and adjusted EBITDA to be ranged around $1.26 billion and $260 million, and adjusted EPS between $0.65 and $0.70 per share.

Our Q1 expectations reflect FX headwinds of approximately 3% on the top and bottom line, continued volume pressures in protective, and downward pressure in the North American beef market impacting our shrink bags business. Our ranges and outlook reflect the dynamic environment we continue to operate in. As we gain more visibility throughout the year, we will adjust and update expectations accordingly. Turning to slide 10, we closed out the year ahead of our expectations and have built a strong foundation for further growth in 2025. While uncertainty and limited visibility remain, we are executing well within Food, and we are accelerating our efforts to stabilize our Protective business. This year represents an important milestone as we return back to sales and Adjusted EBITDA growth, with a longer-term focus on outperforming the markets we serve.

Our leadership, organizational structure, and strategy are in place, and we are now focused on executing in market, helping our customers navigate this dynamic environment and driving returns to our shareholders. With that, Dustin and I look forward to your questions. Operator, we would like to begin the Q&A session.

Operator (participant)

Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We will allow one question and one follow-up per participant. Please stand by while we compile the Q&A roster. Our first question comes from Anthony Pettinari of Citi. Your line is now open.

Anthony Pettinari (Managing Director, Senior Equity Analyst)

Good morning. Dustin, assuming protective volumes remain negative in the first half, are there parts of that business that you expect to be maybe a significantly larger drag on volumes than kind of the segment average? Or conversely, are there kind of parts of the business that are already seeing a volume inflection?

Dustin Semach (President and CEO)

Yeah. So, Anthony, again, thank you for the question, and a couple of comments on that. If you actually looked at the past year, it's very similar trends that we talked about in 2024 as you're going into 2025. If you think about in 2024, our industrial portfolio was largely down in kind of the mid-single digits perspective from a volume, and there were some bright spots in there, largely our shrink films, and then in fulfillment, it was down in the high single digits.

That was really the areas we've talked about historically around a poly void fill, as well as our poly mailers being a pressure point on the fulfillment side, being offset by our APS business, which again was positive volumes in 2024. When you think about 2025, we expect those similar trends to continue with one major difference, which is part of what you're experiencing in the first half relative to having lighter volumes. We kind of see the first half being in that, the first quarter being the high single digit, and you're looking at the mid-single digit range in the second quarter, and then evening out in the second half.

What you're doing there is lapping some of the large churn we had in the prior year. These are the items we discussed publicly around some of the Fill-Air business, particularly from Amazon, that we lost as they converted into fully paper void fill.

Anthony Pettinari (Managing Director, Senior Equity Analyst)

Okay. That's very helpful. Then just switching gears, I think in your guidance, you said that you're only contemplating tariffs that have been enacted. And I guess there's all kinds of scenarios we could imagine. But can you talk about maybe just some of the sensitivities in terms of what regions are you moving product cross-border, or maybe customers have specific sensitivities? Or I mean, when you look at Mexico, Canada, Europe, China, where is the potential impact to Sealed Air?

Dustin Semach (President and CEO)

Sure. And so, Anthony, keep in mind, I'll go back to some of the frame of the script, which is the comments we made around the tariffs aren't in effect.

This is largely the new Chinese tariff that was put into effect by about 30 days ago, which we don't see as having any material impact on our business. This is a small portion of protective that we import into the U.S. As it relates to the broader comments I made, which is most of our business is domestic production for domestic consumption, which really prevents that issue holistically. But in our North American business, we do trade both with Mexico as well as Canada, which is where you would see the most pronounced potential impact for us.

And I say potential because, again, if you go back to the comments in the script, right now, at this point in time, we're making shifts in our supply chain to accommodate that as well. And then, obviously, if we need to pass through costs to our customers, we will do that if necessary.

Anthony Pettinari (Managing Director, Senior Equity Analyst)

Okay. That's helpful. I'll turn it over.

Operator (participant)

Thank you. For our next question, we have Ghansham Panjabi of Baird. I want to reiterate we will allow one question per participant.

Josh Vesely (Research Analyst)

Hey, everyone. Good morning. It's actually Josh Vesely on for Ghansham. Thanks for taking my question. And Dustin, congratulations on the new role. Maybe Dustin, and I know you gave some detail in the prepared remarks, but if you could just, from a high-level standpoint, give us some additional color on what your initial priorities will be for the company's CEO, whether that might be potentially right-sizing any recent changes within the organization, maybe an acceleration in cost outs, etc. Just any color there would be great.

Dustin Semach (President and CEO)

Hey, Josh, of course. And thank you for the question and the congratulations.

So a couple of comments I'll make, and I go back to what we discussed earlier, which is really I break it down into three buckets. The first being this acceleration around our customer focus. And again, I go back to the comments we made, which is what's been great in the fourth quarter is we finally brought to market fully our Food and Protective business and operationalizing both those businesses in terms of fully integrating our commercial innovation supply chain teams. As I think about the priorities going forward, it's about this relentless focus on the customer. I talked about some of the initiatives in Protective that were already in place.

And for Protective, it's largely about executing against those initiatives now that they're fully kind of implemented. Within Food, specifically, we talked about the fact that we see some pressure in shrink bags, largely due to our exposure to the industrial protein markets. And our focus is really on case-ready and food solutions because the retail and markets they serve represent higher growth for us. But to do that effectively, you have to rethink your go-to-market. You have to rethink innovation. And that's in combination with the work that we're doing with Steve. We're working through that process now. We expect that to yield results in 2025.

So first, acceleration is really making those two pivots, the higher growth areas for Food, and then as well as Protective, continuing to stabilize that business. The second piece, as we mentioned in the script as well, is really around your point around accelerating cost takeout.

One of the really positives about going to this new operating model is it gives us more visibility to the cost structures of each business. So we're more intentional now going forward, but again, trying to be proactive, particularly in Protective, where you may see more volume weakness as we go and making sure that we're getting ahead of that going forward in combination with the cost takeout that we took in the fourth quarter as well. The third piece and the last comment I'll make is around, again, this piece around leadership. Really pleased where we're at from total company leadership as well as some of our end market teams.

But we're going to have to, as we go forward throughout this year, we're going to continue to make those adjustments and make sure we have the right people in the right positions to ensure that we're successful going forward and largely thinking around having that kind of growth-oriented mindset.

Operator (participant)

One moment for our next question. Our next question is for Phil Ng of Jefferies. Your line is now open.

Philip Ng (Managing Director, Senior Equity Research Analyst)

Hey, guys. Congratulations, Dustin, Roni, and Mark in your new respective roles. And good luck with that. My question is on Protective. Dustin, I guess you're calling for a back-half ramp-up. Volume's a little more pressure in the first half. Is the weakness in the first half largely the Amazon hangover, or you're seeing more pressure in certain pockets? It just feels like demand's been a little choppier.

And then on the pricing side too, what are you seeing on that front? Are you seeing more competition? And then lastly, you talked about scaling up AutoBag and your fiber mailer. That process has been probably a little slower than I would have expected. How do you kind of see that ramping perhaps as you're going to 2026?

Dustin Semach (President and CEO)

All right, Phil. I appreciate that. And I'll break down your question into three parts you kind of laid out. The first one is just kind of the first half in Protective. And it is. It's a mix of continued, I would say, underperformance, but split between the underperformance and the business that we're experiencing kind of in Q4, as well as the hangover from Amazon, but also a couple of other customer churns that we had in Q1.

And I think the really important point to leave you with there is that going into this year, we're in a better position from a churn perspective than we have been in the prior two years, right? So on a positive note, particularly as it comes to more material customers. And so that's been a positive piece. And then the second piece is we talked about that change in the go-to-market model, particularly in North America, and some of the changes we're making. And it does take time to work through that transition. So we expect some choppiness as we continue to work through that in the first quarter. And then you expect the benefits starting in the second quarter.

So you'll benefit from those initiatives kind of fully in motion, coupled with the fact that you're kind of fully wrapped now on the churn that happened last year.

As it relates to the fiber piece of it, or excuse me, I'll go to the pricing piece first, so pricing overall, as you know, holistically, from a resin perspective, you're seeing resins slightly inflate right now. Competition in Protective, particularly in our fulfillment areas where competition is still, if you think about the pressure you have on poly void fill, you're seeing more pressure there from competition, but everywhere else, if you think about this kind of lower-for-longer volume environment in Protective, you still feel that, but I wouldn't say it's a difference from 2024,

and with resins now beginning to slightly inflate, you're expecting the ability to potentially take more price in the market, and it's reflected in our guidance in both Food and Protective.

The second piece and the last part of your questions around the fiber mailer, I acknowledge the fact that we've been slower, even ourselves, and we're not happy with where we're at relative to the scale-up. But on a positive note, the market is receiving the mailer very well. We talked about some of the wins in the fourth quarter. And those were largely just demonstrating that we have those proof points now, not just from local customers, but also large national accounts. And so the focus, when I go back to acceleration, the pace of execution, which you've seen in the script and the press release, really what I'm talking about is areas like this where we can increase that scale-up.

We have the product. The innovation portion of it's done. It's really about implementing the lines and getting out in the market and filling them up. That's what we're focused on.

Operator (participant)

One moment for our next question. Our next question comes from Edlain Rodriguez of Mizuho. Your line is now open.

Edlain Rodriguez (Managing Director, Senior Equity Research Analyst)

Good morning, everyone. Again, congrats, Dustin. I think in the prepared remarks, you've talked about enhancing the profitability of each business. In your view, what is the earnings power of each business in terms of volume and margins as we look into 2026 and beyond?

Dustin Semach (President and CEO)

Hey there. Again, appreciate the congratulations. I'll start here. There's a couple of comments I would make. One is we have not issued longer-term guidance for both individual segments, right? That's something that, as a leadership team, we're working through in terms of how we see the business shaping up over the next two to three years.

But what I will tell you and what we put in the script is around the fact that in both businesses, the end markets that we currently serve are in the low single-digit range. And that is from a volume perspective. And if you think about pricing over time being somewhat linear. And what you would expect on that is the ability to drive low single-digit and mid-single-digit kind of earnings power, both based on where they're at today from the markets they serve, the portfolios we have, as well as the footprint we have right now and the capacity within that footprint.

Longer-term, so if you think about the first phase, and I think what we talked about in 2025 is really we need to fully realize that. We recognize that if you look at our food business, very positive, the performance we had in 2024.

We're expecting another strong year in that similar vein in 2025. For our protective business, we're still obviously working through the turnaround, trying to stabilize it and get it back to a place where it's really achieving its underlying potential before we enhance it further with further capital deployment as well as innovation. And there'll be more to come on those topics as we progress throughout the year.

Operator (participant)

Thank you. Our next question comes from Josh Spector of UBS. Your line is now open.

Josh Spector (Senior Equity Research Analyst)

Yeah. Hi. Good morning. I wanted to ask on the pricing within food. I think from your comments earlier, you said 2% growth and most of that price. I'm just curious about the visibility of that, either through contracts or pass-throughs, or if there's anything unique that's happening to drive pricing up. I mean, I know resins are up a little, but not a ton.

And that seems about a point better than what I typically assume for that segment. So if you could unpack that a bit, that'd be helpful. Thank you.

Dustin Semach (President and CEO)

Hey, Josh. This is Dustin speaking. So a couple of comments I would make on that is we are already benefiting from formula pricing heading into the year. So just keep in mind, we've talked about this in the past, but a big portion of this is in our North American business, where you have the pass-throughs. And really, based on how resins and those indices have moved in the back half of 2024, you'll see that benefit now heading into 2025, right? And if you expect resins to continue to inflate, there's a lag, but that lag will continue to drive. Beyond that, we have been able to take price in that business.

Again, it's very modest, but in reflecting some of the underlying inputs we have, and it really speaks to the value proposition of the portfolios, but it's really a mix, a mix of those two dynamics sitting within that business today that's driving that outcome, and I think that also the point I would leave you with is that for the first time heading into 2025, we're operating in a more stable environment where you've kind of, while you have some inflation in resins, it's more fully wrapped than you experienced all the volatility from kind of think of it as pre-COVID all the way to 2024.

Operator (participant)

One moment for our next question. Stefan Diaz of Morgan Stanley, your line is now open.

Stefan Diaz (Equity Research Analyst)

Hi, Dustin, Roni, and Mark. Thanks for taking my question. And congrats on the new roles. Maybe, Dustin, can you let us know how much automation revenue you had in 2024? And then maybe what your expectations are for this part of the business in 2025? For example, are you seeing any green shoots or any conversation changes with customers given the increased focus on nearshoring? And then maybe longer-term, are you still thinking about this part of the business as a material growth vector for Sealed Air going forward? Thanks.

Dustin Semach (President and CEO)

Hey there. I appreciate the comments and the questions. So I'm going to start with kind of your second question first, just to frame it up. Look, automation continues has been historically and continues to be an incredibly important part of the business. But again, I go back to it.

One of the three legs of that total stool between material science, service, as well as the equipment offering or the automation offering itself is really that combination that creates the strength of the value proposition to our customers for our packaging solutions. And so it's continued to be that way. And I know in the past, there's been maybe a focus on potentially on that particular piece. But the way we see it is really it's an enabler of, again, pulling through material sales. And we've talked about over the past couple of years where the parts and services of the business have continued to perform really well, but the actual equipment sales have declined.

Historically, that's been driven by some of the capital constraints of our customers in terms of where we're at in terms of the investment cycle.

And what I would tell you is going forward, we're actually optimistic. Break it down, because really, talking about it together, it really is more meaningful as you think about it between Food and Protective. When you think about Protective overall, holistically, you're looking at a business that we're really expecting to drive equipment growth going into 2025. And that's really coming off the back of our renewed focus on our auto bagging equipment. We talked about it in the script a little bit about the new hybrid auto baggers, which are really substrate agnostic, allowing it to run poly as well as fiber with really limited changeovers.

Same thing on the Food side, where I would say we still see some pressure in that business. But again, it's more reflective of the dynamics of the industry and less about the strength of their portfolio.

And in both of them, we're really focused on net new placements. So as you think about each, it's more around new customers, new placements that drive new material sales rather than think of it as replacing older equipment. So that's kind of our focus right now. But again, all in the spirit of driving more material sales longer-term.

Operator (participant)

Thank you. Our next question comes from Michael Roxland of Truist Securities. Your line is now open.

Michael Roxland (Managing Director, Senior Equity Research Analyst)

Yeah. Thank you, Dustin, Roni, and Mark for taking my questions. And congrats on your new role. In terms of, Dustin, you mentioned shifting the culture to become high-performing and engaged and accountable and want to push decision-making down into the organization. The comment that you ended it with is that you made progress last year, especially in Food. So it sounds like progress in protective was more muted.

So I'm just wondering, did anything occur that hindered more notable progress in Protective that you're trying to address currently?

Dustin Semach (President and CEO)

Great question, Michael. And a couple of comments I would make as part of this. One is this is really important. And I want to leave you with that over the past two years, we've been on a journey in this area. And every step that we've taken relative to leadership, structure, strategy, at the center of that is really making sure that we're enabling this culture. Because longer-term, we really need all 16,000-plus of us to really be rowing in the right direction. And the comment I made specifically in food is it was not intentional in the sense of the way it kind of came to be. But we really got to the structure in Food much more quickly than we have yet in Protective.

It's really also a statement about the complexity of Protective as a business. We've talked about this in the past. Albeit it's 30%-40% of the overall business, it is a very complex business with multiple portfolios operating across many geographies. So it's more of a statement about the complexity of the business and how you navigate that. As we think about the structure of the company at the very top, there's a lot more work as you kind of work it down all the way down to the field. Again, really positive step. I would say the North American go-to-market transformation that was put into place at the beginning of the year is material.

We've gotten really positive feedback from our end customers as well as our distribution partners. So it's moving in the right direction. There's just more work ahead of us to tackle, not just to make sure that piece of it's actually working and you're seeing the results, but the rest of it's actually in a similar place.

Operator (participant)

Thank you. Our next question comes from Jeffrey Zekauskas of J.P. Morgan. Your line is now open.

Jeffrey Zakauskas (Senior Equity Research Analyst)

Thanks very much. Can you talk about the Protective Segment in 2024? That is, what the growth rate was on the industrial side and what the growth rate was on the e-commerce side and maybe what the split is now between those two businesses. And then for Roni, cost of goods sold was down about $80 million year over year. Can you talk about what was behind that? Was that raw materials or cost reduction? Or how do you analyze that?

Dustin Semach (President and CEO)

Okay. So, Jeff, great question. Thank you for that.

If I go back to some of the earlier questions around this particular piece of it, if you looked at the split between the two is roughly 60% industrial, 40% fulfillment. That's what's in the Protective Segment right now relative to 2024. As I mentioned earlier, our industrial portfolio was down from a volume perspective in kind of that low single-digit, kind of mid-single-digit range. Then on the fulfillment side, it was a step higher on the other side of it, which was down in the mid-single-digit to high single-digit range, depending on the portfolio. Now, in both areas, there were bright spots. To give you an idea, in a couple of areas, you had shrink film as an example.

We've called out, we've talked about our inflatables. We've also talked about our Auto Bagging equipment and material sales, which were all very positive.

Veronica Johnson (Interim CFO)

Yeah. From a cost of goods sold perspective, as a percentage of sales, we do see correlation in the reduction of cost of sales aligning with the overall sales reduction. However, that is combined with a little bit of favorability on the raw material pricing side.

Dustin Semach (President and CEO)

Yeah. And then, Jeff, just to complement, keep in mind too that we talked about the cost takeout and actions that we took last year. We started out the year talking about roughly $90 million. We ended the year at $89 million. A significant portion of the cost takeout, as well as other productivity, is also hitting the cost of goods sold lines.

Operator (participant)

Thank you. Our next question comes from Arun Viswanathan of RBC Capital Markets. Your line is now open.

Arun Viswanathan (Managing Director, Senior Equity Research Analyst)

Thanks for taking my question. Congrats on the new role as well, Dustin, and Roni, and Mark.

So I guess just wanted to understand the guidance ranges a little bit more. So it looks like you're up about 3.5% for EBITDA, the midpoint, 2.5% for EPS. And what would really drive you to the upper end of your range? Is that kind of very macro-dependent? Is it maybe continued outperformance in Food and maybe the stoppage of underperformance in Protective? Or how should we think about attaining that range? Or is the midpoint really more what you have line of sight towards? Thanks.

Dustin Semach (President and CEO)

Hey, Arun. It's Dustin speaking. And I will tell you, I'll break it down into three individual components. So the first in our food business, as we kind of alluded to, if you go back to last year, we entered the year thinking that the North American beef cycle would be a headwind to the business.

And we were down probably in the 4% range, at least at the beginning of the year. And we ended up being flat and even benefited the fourth quarter. As we think about next year, we're in a similar position, right, where the herd hasn't been rebuilt. And so what you're hearing, at least in initial thinking, is that you're down 3%-4% again going into the full year. To your point about macro-dependent, I think one of the areas that gets you to the higher end of the range is if the Food business, if you see that actually become much better for the full year, which is always a possibility. Again, well, I'll just caveat it being that we're in a dynamic environment.

The second piece on Protective is, to your point, is the acceleration of and dependent on when can we inflect volumes.

As I mentioned in the script, the timing is difficult to predict. That's part of the reason you're calling a second half inflection point. We do believe that we're taking the right actions in the business to make that happen. It's just at what rate and pace of speed do you actually see that improvement? Right. Then the third piece is, as we alluded to in the script, we're still thinking through while we're already committing to roughly $90 million of cost savings in 2025.

We're really now taking a look at both businesses and making sure that their cost structures are fit for purpose, which could obviously yield, going back to the EBITDA line, not necessarily on the sales side, that gives you potential further lift as we think about the back half of 2025.

Operator (participant)

Thank you. Our next question comes from Matt Roberts of Raymond James. Your line is now open.

Matt Roberts (Research Analyst)

Hey, Dustin, Roni, Mark, good morning. I'll let go of everyone else's sentiments. Dustin, you know that there are two plants closing, I believe, by year-end. Are there specific product lines that you're reducing the contribution mix from in those closures? And maybe when you think about that portfolio rebalance or the complexity in the Protective segment that you discussed, when you look at the facility footprint, is there major overlap in terms of assets or sales functions or even resins from underperforming lines versus areas that are not structurally challenged?

Basically, when you think of facilities in relation to the total portfolio, how do you weigh trade-offs in either maintaining the underperforming assets versus investing in areas of innovation that you discussed? Basically, wondering if there are potentially more closures coming with cost takeout or how you weigh the trade-off there. Thank you for taking the question.

Dustin Semach (President and CEO)

Matt, great question. And that was a very complex one. And I appreciate you asking because it's very thoughtful. And what I would tell you is that as it relates to the two specific ones, this is around specifically network optimization. We've put it in reference largely to Protective, and it's largely consolidation. It's not reducing contribution from an individual product line. It's all about improving your cost position relative to those particular products, which is what largely most of our network optimization has been done. As it relates to thus far, we're down about, I want to say, kind of mid-single digits in terms of facilities over the past two years.

And so, as it relates to your question around, as you think about kind of going forward and how you weigh these options, largely, and specifically as it relates to Protective, we feel good about keeping in mind. I'll go back to that domestic production for domestic consumption. And if you really take Protective, you get the metropolitan market. And so what's important as we evaluate those things is largely which geographic markets you want to go into and then which metropolitan markets you want to serve within the countries that we operate in today, which is obviously sprawling and broadly international. And so we feel good about the footprint we have.

And in terms of where we're at today, there's always potential for more network optimization. And we're very thoughtful about how we evaluate that.

Those are very big decisions that we spend a lot of time really thinking through. And that's part of the reason today we're not announcing that. And again, I go back to it's not just from the lens of cost takeout for cost takeout's sake. It's got to create longer-term value. So again, when you think about a Protective market, the last thing you want to do is exclude yourself from a metropolitan market that you think may have longer-term growth because you have short-term challenges. And so as I've mentioned beforehand, we feel really good about the portfolio we have in Protective.

It's largely right now focusing on commercial execution as we move forward and making sure that we obviously put volume back into our plants so we can benefit from the other side of this and the incrementals going all the way up versus the deleveraging we've experienced. That's where our head's at today.

Operator (participant)

Thank you. Our next question comes from Chris Parkinson of Wolfe Research. Your line is now open.

Christopher Parkinson (Managing Director, Senior Research Analyst)

Great. Thank you so much. Can you just talk a little bit more about global protein markets and kind of what you expect in 2025, what's embedded in your guidance, just given some of the noise on the red meat side as well as potential headwinds to poultry, just any dynamics that you think are worth noting would be very helpful. Thank you.

Dustin Semach (President and CEO)

Sure, Chris. A great question.

Again, kind of piggyback off the comments that I made earlier, if you think about particularly, I would say our Latin American and Australian cycles are kind of around the peaks. Then if you think about our North American cycle, that's the area that last year we thought was going to be three to four down, and then now it ended up being flat. Now we're kind of looking at this year, and it's three to four down is kind of what's baked into our current outlook.

The flip side is that when you go back to last year and you look at most of the markets, whether it was dairy, smoked and processed, food service, even poultry, they were slightly down for us globally. Now, keep in mind, I'm beyond North America now.

As we go into next year, those areas have slight upsides, which is really playing in well to the strategy. I go back to we had very strong gains in our portfolios outside of shrink bags. Going into next year, those markets, which in many cases actually lend themselves more to retail end markets versus industrial Food processing kind of end markets, it presents more opportunity.

We see those being positive, even poultry, because largely what most people are referring to in poultry, there's concerns around is largely turkey, where we have less exposure. That's really tied to the avian flu. I think that for us, we still see poultry, poultry consumption moving up. It plays well into our strategies around case ready.

We see that as a long-term source of growth, not just in the short term in 2025, but in 2026 and beyond.

Operator (participant)

Thank you. Our final question comes from Gabe Hajde of Wells Fargo. Your line is now open.

Gabrial Shane Hajde (Executive Director, Senior Equity Analyst)

Good morning. I will echo the congratulations from everyone. Two hopefully quick ones, Dustin. First, the large player in e-com made an investment in one of your pure-play kind of fiber-based competitors. I think this move is pretty unique, at least relative to what we've observed historically. So two questions. Does this change your view at all on how to maximize value out of maybe the Protective Segment? And are you seeing increased activity in the M&A world in either the food or protective segments? And second, you called out $89 million, I think the cost out in 2024. I think Roni mentioned $90 million was embedded in the outlook.

I don't know if you're specifically ascribing all, call it 180, to cost out to grow, but I think you were initially targeting 150. Where's the upside coming from? And then maybe if you're willing to quantify what that runway looks like. Thank you.

Dustin Semach (President and CEO)

Thank you, Gabe. It's a great question. So I'm going to start with talking about, and specifically Ranpak, which I believe is what you're referring to. And then I'll turn it to Roni to not only walk you through the cost out to give you clarity there, but walk you through kind of the EBITDA bridge for the year, and then talk you through a little bit about net price realization that plays into that EBITDA bridge as well. So when you think about, I go back to the comment around Ranpak specifically in Amazon.

While it's unusual for Amazon to operate this way, I would say with their industrial partners on the retail side, it's actually quite common on how they operate this way on their AWS, their cloud service, or cloud infrastructure business with their services partners. So it's very similar. If you go back to it, really what we see from this is that one is continuity of supply, but also from Ranpak specifically, and this goes back to the business they won last year on the paper side, which is paper void fill, but a much more simplified version of that in terms of how they're offering it to Amazon.

If you're talking about our natural reaction to it, keep in mind that paper void fill today is a relatively small part of our overall portfolio.

Where we see growth from a fiber perspective, and particularly in fulfillments, is less around the box and how you solve for void fill in the box. It's more around the actual packaging formats, particularly on the mailers, which is the reason why we talked about doubling down on the fiber discrete mailer itself, as well as our Auto Bagging equipment, which is in itself a form of a mailer, right, which we've already had a lot of success with. And so we don't see it as unusual, what they're doing.

Now, what it does do for us is it could potentially create an opportunity relative because just kind of publicly doubling down and strengthening their relationship, which gives us an opportunity for others that may not respond well to it. But it doesn't change our strategy.

It doesn't change our thinking about how the opportunity we see in that business. We believe in what we're doing. We believe it will yield results. And then going back to your question around the cost out, I think I'll clarify one point. The 89 versus the 90 in 2024 was just talking about where we set out in the beginning of the year and where we landed. I'm going to turn it over to Roni to talk about an EBITDA bridge for the full year because it's similar. I think that may create some of the confusion and then talk about net price realization.

Veronica Johnson (Interim CFO)

Yeah, thanks, Dustin. Thanks, Gabe, for the question. From an EBITDA bridge perspective, as you are aware, we are facing FX headwinds of roughly $25 million. And combined with that, we are seeing unfavorable net price realization of roughly $65 million.

This is split or this is driven rather by an increase in cost of $105 million due to inflation, offset by price increases of roughly $40 million. The combination of FX and net price realization are effectively offset by the $90 million of savings that we referenced in the script. The $90 million of savings can be split between $65 million of cost takeout actions and $25 million of productivity efficiencies. When we think about the CTO program, we set out to achieve the $140-$160 million of savings. As you had mentioned, through 2024, we did realize $100 million of CTO savings, and the incremental $65 million will bring us to the high end of that range.

When it comes to the productivity savings, Dustin talked a little bit about plant optimization, etc. The $25 million is largely driven by that.

From a comparative perspective, it's generally difficult to guide on because it's heavily contingent on what we do within the plant.

Dustin Semach (President and CEO)

and so, Gabe, just to follow on that point, so if you think about holistically, and what she's referring to is really the productivity that we're driving within our plants on that particular piece of it, but broadly speaking, it's the same categories we've been going after the past two years. It's just now with the new structure in place, we have a lot more visibility each cost structure, so it's given us more tailored opportunity to make adjustments.

If you go back historically, some of the comments we've talked about, which is whether it's further back office optimization, which we continue to go after, and then also areas around further automation within most of our functions and other G&A type productivity enhancements.

And so what I'll leave you with on this particular piece is that we're staying flexible as we go throughout the year to make sure that we're proactive. And so while this is a starting point or outlook for the year, and we're taking another hard look at the protective cost structure, particularly as we progress throughout the year if we're not seeing our initiatives take hold as quickly as we would have planned. And so I would say on this particular topic, stay tuned.

Operator (participant)

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Dustin for closing remarks.

Dustin Semach (President and CEO)

I'd like to thank everyone for their time today. I'm incredibly excited about our future, and I look forward to updating you throughout 2025 as we execute on our strategy to return Sealed Air to growth. Lastly, I'd like to close by reiterating my appreciation for all the Sealed Air team members for their tireless efforts in solving our customers' most critical challenges and their continued commitment to our transformation. Thank you.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.