SEE Q4 2024: Adj EBITDA down 26%, $90M savings to offset headwinds
- Protective Segment Turnaround: Management expects a back‐half volume inflection in the Protective segment, driven by initiatives like network optimization, product innovations (e.g., auto bagging and fiber mailers), and improved commercial execution, which could convert current underperformance into growth.
- Robust Cost Savings and Productivity: The company is on track to deliver approximately $90 million in cost savings—through both cost takeout actions and productivity enhancements—which helps offset inflationary pressures and improve EBITDA margins.
- Resilient Food Business with Pricing Power: The Food segment demonstrated strong fundamentals with mid-single-digit volume growth and the ability to pass through higher input costs via pricing improvements, positioning it as a stable growth engine.
- Protective segment weakness: The earnings call highlighted that the Protective business is experiencing significant volume declines and margin pressures (e.g., a 26% drop in adjusted EBITDA in Q4), with expectations that volume recovery may not occur until the second half of the year, posing ongoing risks to overall performance.
- Slow product ramp-up: Management acknowledged delays in scaling up key products such as fiber mailers and auto bagging equipment. This slower-than-expected execution could diminish market share gains and delay the anticipated benefits from these innovations.
- Macro and pricing headwinds: The company noted external challenges including FX headwinds of approximately $25 million and unfavorable net price realization due to increased raw material costs (an additional $105 million partially offset by price increases of roughly $40 million). These factors, along with tariff uncertainties in North America, could further compress margins and overall growth.
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Guidance & Margins
Q: What drives higher end guidance range?
A: Management explained that reaching the upper end of guidance depends on stronger-than-expected food performance, a rebound in protective volumes starting in Q2, and additional cost efficiencies that help mitigate FX and net pricing headwinds, supporting an EBITDA growth midpoint of around 3.5% and margins near 21%. -
Cost Savings
Q: How is cost out runway structured?
A: Management detailed that they’re aiming for about $90 million in savings—split as $65 million from cost takeout actions and $25 million from productivity improvements—designed to offset FX headwinds and unfavorable net pricing challenges. -
Long-Term Earnings
Q: What earnings power will each business have?
A: Management noted that both the food and protective segments are expected to achieve low to mid-single-digit volume growth with steady, mid-single-digit improvements in EBITDA margins over the long term as pricing and cost structures normalize. -
Protective Volumes
Q: What about weak protective volumes?
A: Management acknowledged that protective volumes remain weak in the first half—partially due to issues like the Amazon hangover—but they anticipate a rebound in Q2 as churn is resolved and operational changes take effect. -
Food Pricing
Q: How sustainable is the 2% food price increase?
A: Management highlighted that food pricing benefits from formula pricing and pass-throughs driven by resin inflation, enabling a modest but sustainable 2% price growth as part of its value proposition. -
Global Protein Outlook
Q: What are global protein market expectations?
A: Management expects North American protein volumes to be down by about 3–4%, while markets in Latin America, Australia, and retail segments like poultry show signs of stabilization and modest upside. -
Plant Closures
Q: What is the impact of plant closures on assets?
A: Management explained that closing two plants is part of a network optimization strategy aimed at enhancing cost efficiency without materially decreasing overall capacity, thus preserving long-term asset value. -
Tariff Impacts
Q: Which regions feel tariff impacts most?
A: Management noted that although most business is domestic, North American trade with Mexico and Canada may be mildly affected by tariffs, a risk they plan to mitigate through supply chain adjustments. -
CEO Priorities
Q: What are the new CEO’s initial priorities?
A: Management conveyed that the new leadership is focused on deepening customer engagement, accelerating cost takeouts, and ensuring the right leadership is in place to drive disciplined execution across the business. -
Automation Revenue
Q: What is the outlook for automation revenue?
A: Management affirmed that automation remains a vital, enabling part of the business’s value proposition, despite current customer capital constraints affecting equipment sales trends. -
Protective COGS
Q: What drove the protective COGS reduction?
A: Management explained that the reduction in cost of goods sold in protective was driven by a mix of lower sales volumes, favorable raw material pricing, and targeted cost-out actions within the segment. -
Productivity Improvements
Q: How will productivity further improve?
A: Management stated that ongoing plant optimizations and digital enhancements will provide further flexibility in cost structures, with additional productivity gains to be captured as execution accelerates.
Research analysts covering SEALED AIR CORP/DE.