Q3 2020 Sealed Air Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to <unk> third quarter 2020 sealed Air earnings Conference call. At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press Star then one on your telephone please be advised that todays conference is being.
In recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to one of your speakers Ms. Lori Chaitman Ma'am. Please go ahead.
I Hope you and your family or healthy thing for me.
Before we begin our call today I would like to know what we have provided a slide presentation to help guide our discussion.
Please visit our website <unk> todays webcast and presentation can be downloaded from our IR site I feel there that.
I'd like to remind you that statements made during this call, stating management outlook or predictions for the future period, a forward looking statement.
These statements are based solely on information that is now available to us.
We encourage you to review the information section titled Forward Looking statement in our earnings release, and slide presentation, which applies to this call addition.
Additionally, our future performance may differ due to a number of factors.
Many of these factors are listed in our most recent annual report on form 10-K, and as revised and updated on our quarterly report on form 10-Q, and current reports on form 8-K, which you can also find on our website youll their dot com or on <unk> website at <unk> you see that.
Yup.
We also discuss financial measures that do not conform to U.S. yeah.
You will find important information on our use of these measures and their reconciliation to U.S. GAAP in our earnings release.
Included in the appendix of todays presentation, you will find U.S. GAAP financial results the card bomb the non U.S. GAAP measures you referenced throughout the presentation I.
I will now turn the call Weve had beginning our president and CEO Pat.
Thank you Laurie and thank all of you for joining our third quarter 2020 earnings call.
You and your families for staying healthy in shape.
It's the pandemic continues our customers are counting on us to get things done.
Our employees are delivering and I couldn't be prouder of their efforts were focused on zero harm in everything we do supporting our customers executing on our reinvention business transformation, and becoming a stronger and better company.
On today's call I'll recap, our third quarter results I'll share how we are growing in an uncertain environment and how our global markets continue to evolve I'll share our growth strategy is centered around automation sustainability in digital.
Jim will review our financial results in more detail and then I will close with the reiteration of power for PZ reinvent see our guiding us in this journey.
We will end the call with you in it.
Let's turn to slide three for a recap of our third quarter results compared to last year.
Adjusted EBITDA increased 8% on sales growth of 2%.
Adjusted earnings per share increased 28% to 82 cents in the nine months ending September Thirtyth, we generated 292 million in free cash flow as compared to 110 million in the same period last year.
We had a solid third quarter for the first time in six quarters protected delivered year over year organic volume growth attributable to strength in ecommerce fulfillment and automated equipment.
They can protect it was offset by a modest volume decline in food, which was largely attributable to labor challenges and meat packaging plant in a lagging recovery in foodservice.
Based on our execution results achieved to date and improved demand in protected we're raising our full year 2020 guidance across all key financial metrics.
Let's turn to slide four which we call our movie real slide illustrating our diverse end market exposure in the breadth of our solutions that are supported by our powerful brands.
You can see a play button on the slot, which is to encourage you to visit our website, where you will find several videos demonstrating the value created by our platforms.
In the first nine months of the year approximately 64% of our sales were derived from packaging fresh.
Frozen proteins as well as other foods in fluids and good for the medical life Sciences, and pet care industries.
There continues to be an imbalance across the food industry with higher demand in the retail channel, including eat food and grocery offset by restrictions in heightened safety concerns across the food service sector.
Also well many meat packaging plants around the world are up and running they are not operating at full production rates and are managing labor shortages.
We saw an increase in equipment sales in the quarter as a result of our focus on our automation strategy, which I will highlight on the next slide.
These favorable trends were not enough to offset the labor challenges in the foodservice slowdown at large venues supporting events hotels and restaurants.
As we plan for a new normal we're confident that our focus on automation and sustainability will improve the growth trajectory of our food business and drive sales for our high performance materials.
Okay.
We see an increasing opportunity to grow food equipment and services, which year to date accounted for approximately 7% of the segment sales.
We're already working with our customers to optimize their plans with automated solutions and improved productivity, while keeping people out of harm's way and addressing sustainability requirements.
Approximately 14% of our sales were derived from consumer retail and third party logistics most of which are good shift through E commerce channels.
Demand for our mailers automated equipment in flavors, including our bubble wrap on demand were exceptionally strong in the first nine months of the year.
The surge in E Commerce continues to create demand for our products and services.
Our solutions are designed to minimize waste reduce carbon footprint increased speed to pack, while at the same time drag to zero harm and address labor scarcity.
We are taking our digital printing capabilities to the next level by enhancing our packaging materials, which is important for the at home buying experience. We continue to shift our portfolio to address the ever changing needs of the E Commerce channel, which will be a key element of our protective growth strategy.
Okay.
The remaining 22% of our sales served industrial transportation and consumer electronics segments well.
While these segments improved more than expected in the third quarter Theres still below prior year levels.
Now turning to slide five.
I can see how we are accelerating our C automation solutions to meet the demand for a touchless environment.
This is driving growth for the next phase of our reinvent seat business transformation.
We have a plan in place to triple the size of our equipment sales, which is now estimated to be $200 million in 2020 to over 500 million by 2025 you.
You can see on this chart, how the pull through our multiplier on services and materials over the lifecycle of equipment sales creates tremendous value.
We modeled a conservative three X solutions multiplier to illustrate the 5 billion plus potential opportunity over the 10 year equipment lifecycle.
We see automation, we're taking our integrated solutions approach by eliminating waste increasing productivity keeping people out of harm's way.
Our targeted savings for our customers greater than 30% will ensure an attractive payback for our systems.
The implementation of our see smart services will enable connectivity to our customer systems. It give us the opportunity to proactively and remotely optimize our installed base of machines.
Our high performance materials integrated with automated equipment and services provide a compelling value proposition to the packaging industry.
Let me now turn to slide six and give you an update on our leadership actions.
We are fully committed to zero harm for our employees and we're working diligently to ensure strong alignment with our customers suppliers operations in the communities, where we live and work.
Our local regional and corporate crisis management teams remained proactive in our business continuity plans are still in effect.
We've had numerous challenges to overcome but the disruption to our operation has been minimal on a global scale as mitigated business continuity risks.
We recognize our new normal will be here for the foreseeable future and have been improving productivity across our geographies supply chain and product portfolio.
We are investing in E commerce, and digital platforms and capabilities to ensure connectivity.
We believe these investments will be a growth engine for us in the future.
I'll now pass the call to Jim to review our results in more detail Jim.
Thank you Ted let's turn to slide seven for a review of our year over year net sales by region.
In the third quarter net sales totaled 1.2 billion up 2% as reported and up 3% in constant dollars in constant dollars North America, our largest region represented 60% of our sales increased 3%.
Asia Pacific was up 1% NTM DNA was flat.
South America was up 13% due to us dollar index pricing.
On slide eight here, you see our organic sales volume and pricing trends by segment and region.
Third quarter volume overall increased 1%.
4% growth in protective 2% decline in food.
By region, North America was up 2%.
APAC was up 1%.
In EMEA, and South America were down, 2% and 3% respectively.
Volume in protective was driven by strong growth in ecommerce and fulfillment of about 15%.
Partially offset by a 2% decline in industrials.
Both of which exceeded our expectations.
North America, and the APEC delivered 6% and 8% volume growth respectively.
This was partially offset by a 5% decline in M E Bay, where we have more exposure to the industrial sector, particularly automotive.
In food volume declined in all regions North America declined 2%.
81% in both South America, and Asia Pac were down 4%.
While equipment was strong labor challenges and meat packaging plants in the slow recovery in food service made on our volumes globally.
South America was also impacted by the soft economic environment in the region, reducing local consumption of fresh red meat.
And ATAC herd rebuilding on Australia impacted volumes as well.
On slide nine we present, our year over year consolidated sales and adjusted EBITDA bridges for the third quarter and first nine months of the year.
Organic sales in the quarter were up 1% with higher volume contributing 8 million to the topline.
Acquisitions added 24 million or 2%, which was the month of July sales from automated packaging systems.
This acquisition closed August Onest 2019, so sales for the months of August and September 2020 are included in our organic results.
Currency translation negatively impacted sales in the quarter by $12 million or about 1%.
Mostly due to year over year declines in the Argentinian peso Brazilian real and Mexican peso.
Partially offset by a stronger euro.
Adjusted EBITDA of 259 million increased $18 million or 8% compared to last year with margin up 120 basis points to 21%.
Reinvest see benefits totaled $32 million in the quarter.
$29 million as an operating cost savings and $3 million and price cost spread improvements.
Operating cost in the quarter included labor and other non raw material cost inflation of about $13 million.
Higher incentive based compensation 6 million.
We also incurred 4 million of incremental spending related to COVID-19, which was offset by lower travel expense.
Adjusted EBITDA continued to benefit from a favorable price cost spread movements this quarter by 9 million.
However, with resin prices increases mix.
We expect this trend to change in the fourth quarter.
The automated acquisition contributed $4 million of adjusted EBITDA in the month of July.
The integration of automated has gone very well and sales and cost synergies realized since completion of the acquisition are ahead of plan.
The adjusted EBITDA impact from higher volume on a consolidated basis. This quarter was negative 7 million due to the sales mix between reporting segments.
Adjusted EPS in the third quarter was 82 cents compared to 64 cents in the third quarter of 2019 due to higher adjusted EBITDA lower net interest expense and lower taxes.
The adjusted tax rate in the quarter was 20.6%.
And from 28.5% in the third quarter of 2019.
This year's lower tax rate was favorably impacted by the recently issued us guilty regulations.
Turning to slide 10.
Here, we provide an update on reinvent C, which continues to progress in earnest and is driving structural operating leverage in the business.
Our reinvent commercial work stream is progressing with targeted growth achieved in automation and sustainability, which is helping alleviate endemic driven weakness in some end markets.
The commercial strategies capabilities and governance processes implemented with this new reinvent work stream a robust and provides a solid platform for driving revenue growth in the markets we serve.
In 2020, we are now expecting to realize approximately $120 million of year over year reinvent see productivity benefits.
Adjusted EBITDA this.
This is up $10 million from our previous guidance.
In 2021, we continue to estimate over 50 million of additional year over year productivity benefits as reinvest see transitions from restructuring to our ongoing continuous improvement operating system.
Cash restructuring payments associated with reinvent see were 59 million in the first nine months of the year and are now expected to be about $85 million for the year with an estimated 40 million carryover into 2021.
The total cash cost of reinvest see is still expected to be approximately $215 million and.
This amount has not changed since the transformation was publicly announced in December 2018.
Turning to segment results on slide 11, starting with food.
In the third quarter food net sales of $705 million declined 3% as reported.
And 1% in constant dollars.
With Mitt parts and service sales, which currently represents about 7% of the segment.
We're up over 15% year over year due to strength in North America and empty Ed.
In North America, most of the equipment sales were replacements and upgrades to help improve our customers' plant productivity.
In EM EEI, we delivered a new port automation solution, which will drive incremental material sales in the future.
Brio back materials, which comprise the remainder of the food segment sales were down about 3% as a result of labor challenges in the meat processing plants around the world and the slow recovery in food service.
Shrink bags and vertical pouches, which are disproportionately sold into the food service channel together were down about 5% and accounted for nearly 50% of food sales.
Adjusted EBITDA in food declined $7 million or 5%.
152 million with margins down 30 basis points at 21.6%.
More sales volume unfavorable product mix and currency were partially offset by reinvent see benefits.
Favorable price cost spread.
The fourth quarter for food, we expect constant dollar sales to be down about 1% on a year over year basis, and the adjusted EBITDA margin to be roughly in line with the third quarter.
We anticipate improvements in product mix and operating costs, which will largely mitigate the projected decline in price cost spread.
On slide 12.
We highlight results from our protective segment.
In the third quarter.
Net sales of 533 million roughly $44 million or 9% as reported.
Organic sales were up 3% with volumes up $21 million up 4%.
Automated packaging systems that has strong organic growth of 7% in the quarter.
Demonstrating the value proposition of its work cell automation sustainability portfolio and our sales synergy efforts.
With the Spike in E Commerce shipments, we are experiencing strong demand for our automated equipment discrete and automated mailers and inflatables.
From an end market, our customer segment perspective, ecommerce and fulfillment account for approximately 45% of our protected sales.
Remaining 55% of sales, our industrials, where trends are improving but still below prior year levels.
Adjusted EBITDA of $109 million increased 25 million or 29% in the margin expanded 320 basis points year over year to 28.4%.
Growth in adjusted EBITDA was attributable to higher volumes.
The invest see benefits.
Lower operating costs and contribution from the automated acquisition.
Lower operating costs in the quarter were partly driven by a $7 million of inventory step up charge recorded in the third quarter last year as part of the automated acquisition.
And as well as the relation realization of cost synergies associated with the acquisition.
In the fourth quarter, we expect protective volumes to be up year over year, although at a lesser rate compared to what we experienced.
The third quarter.
This outlook is based on continued strength in E Commerce and automation North American then they pack.
Partially offset by weak economic conditions and E at EEI.
Now, let's turn to free cash flow on slide 13.
Year to date, we generated $292 million of free cash flow compared to $110 million in the same period in 2019.
182 million year over year improvement was largely driven by higher adjusted EBITDA.
Impact of the Nova tax legal settlement in the same period a year ago.
More capex due to pandemic related project delays.
Lower reinvent restructuring payments.
Trade working capital was a use of cash in the first nine months 2000.
Sun 20, which is a typical seasonal pattern for the company.
Our underlying working capital metrics remain well controlled and we do expect working capital to be a source of cash in the fourth quarter.
Overall for the full year 2020, we are raising our free cash flow guidance to approximately $450 million.
From our previous range of $350 million to $375 million due to higher expected adjusted EBITDA and lower cash outflows with taxes reinvent seen restructuring and capex.
Lower tax payments are largely from an approximate $30 million refund expected in the fourth quarter associated with the retroactive application of the revised use guilty regulations back to 2018.
Slide 14 highlights our leverage liquidity and debt maturity profile.
We ended the quarter with net leverage at 3.3 X, which is down from three point Fourx in Q2, and 3.8 X at this time last year.
The de leveraging accomplished in the third quarter included 20 million share repurchases.
Our priority is to continue to dig lever.
And we do expect our net leverage come down further by the end of the year.
As a reminder, leverage covenant in our credit facility has a maximum ratio of four point Fivex and the covenant calculation at the end of the third quarter 2.8, which is lower than our reported net leverage ratio due to certain allowed.
Favorable EBITDA adjustments in the credit agreement.
So with significant cushion against our financial covenant over $1.4 billion of liquidity and no debt maturities until August 2022, we have good financial flexibility.
On slide 15, we outlined our capital allocation strategy.
We continue to take a disciplined approach to strengthen our balance sheet, while driving attractive returns on invested capital.
We are investing in growth markets and disruptive products and technologies.
Approximately 40% of our organic Capex is currently focused on growth, including a breakthrough production processes product.
Product innovation.
Automation.
Maintenance and cost productivity projects.
Right, the remaining 45% and 15% of our organic capex effectively.
Regarding shareholder returns for the time being we are maintaining our dividend at current levels in the context of our overall deleveraging objective over the next several quarters, we expect to continue opportunistic share repurchase activity.
Turning to our 2020 outlook on slide 16.
We are raising our consolidated net sales outlook to be up about 1% as reported.
Were approximately 4.85 billion.
This compares to our previous estimate of net sales in the range of 4.7 to five.
4.775 billion.
On a constant dollar basis net sales are now expected to increase approximately 3%.
Which compares to our previous guidance.
Constant dollar growth in the range of 1% to 2%.
The higher sales growth is driven by protective which is now expected to increase approximately 7% in constant dollars as compared to our previous estimate of approximately 3%.
We continue to expect food to deliver approximately 1% constant dollar growth.
We now expect a negative impact from currency translation on sales.
Approximately $90 million for the full year.
For adjusted EBITDA, we are revising our outlook to approximately a billion 40, which is $20 million above the midpoint of our previous range.
This implies an adjusted EBITDA margin of approximately 21.4% for the year, which would be an improvement of 130 basis points from 2019.
Unfavorable currency translation is now expected to be approximately $20 million on adjusted EBITDA, which compares to our previous currency forecast a negative $25 million.
We are increasing our guidance for adjusted EPS.
So approximately $3.05.
$2.85 to $2.95.
Our outlook for adjusted EPS is based on approximately 156 million diluted shares outstanding.
The adjusted tax rate in 2020 is now expected to be approximately 26%, reflecting the benefits from the recently revised U.S. guilty regulations.
As previously mentioned, we are raising our free cash flow guidance.
Approximately $450 million.
Our adjusted EBITDA to free cash flow conversion now expected to be over 40%.
2020.
Let me pass the call back to Ted for closing remarks Ted.
Thanks, Jim.
Before we open up the call for questions turning to slide 17, I wanted to reiterate our four piece of reinvent state.
We always start with their purpose statement, we are in the business to protect to solve critical packaging challenges and to leave our world better than we found it.
Our performance continues to improve as we are progressing towards world class, we're keeping people out of harm's way, while strengthening our business through the crisis by.
The operating as one see culture, we are enabling faster decision, making.
Our strategy to deliver the best systems at the right price and make them sustainable is working well.
Our broad and innovative product portfolio global scale, and agility has enabled us to address the evolving customer needs across our end markets and geographies.
Irwin see operational excellence processes are driving flawless quality world class productivity and yield improvement as well as customer service enhancements that are creating customer references.
You can see the structural changes of reinvent see reflected in our operating leverage so far in 2020 with more to come.
Sustainability is in everything we do fueling our growth and in this pandemic still top of mind.
We are enhancing our portfolio and innovating to meet our 2025 sustainability pledge in drive a circular economy for plastics.
I'm excited to share that since announcing our investment in plastic energy global we collaborated with plastic energy Sabic brand various cheese in Tesco to lead by example, where weve been able to create a micro circular loop food grade packaging.
We are embedding, our environmental social and governance in diversity and inclusion priorities into our core business strategy and value.
We will continue to proactively manage as cheap and diversity and inclusion risk and leverage opportunities to drive success.
This is reflected in our culture and our purpose.
We delivered three solid quarters in a very challenging and unpredictable environment.
Reinvent seat business transformation is our operating engine driving profitable growth above inflation.
We are reinventing everything we do from how we innovate to how we solve our customers' toughest challenges with the power of one sealed air.
I'm proud of how our people continued to execute through this pandemic and I want to thank all of our employees and our planes inner innovation centers out in the field and working remotely for their dedication and commitment to business continuity.
Finally, I would like to highlight we have Karl dialing in on the call with us.
Earlier today, we announced the Carl is planning to retire in April 2021.
Carl has had an incredible 40 year career at sealed air and is how many leadership roles along the way.
Most recently he took on the role as Chief commercial officer and has been instrumental to the success of our reinvent fee business transformation and closer to home reinventing our iconic cryo vac brain.
For me personally Carl has been a tremendous partner and I am grateful for his tireless efforts to transform our business from the best in packaging to World class.
We've been so fortunate to have Karl as a part of the sealed air family.
He has made sealed air a special company.
We always Carl the very best in his retirement and look forward to a smooth transition with him the advisory role.
With that I.
Now, we'll open up the call for questions.
Operator.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your touched on telephones. If your question has been answered or you wish there look yourself from the queue. Please press the pound key.
And any background noise, we ask that you. Please place your line on mute. Once your question has been stated.
First question comes from the line of tourist step US with Bank of America. Your line is open. Please go ahead.
Hi, Thanks for taking my call and Karl Congratulations I mean is this coming.
At some point. Thank you for all your help with our research over there is really for Tom you spoke at our conference with Derma fast a while ago best of luck to you.
I guess my question really is on food.
We knew that there was a supply glut of animal that lease we thought there were that were ultimately going to come to slaughter and we're just questioning why don't we.
I heard some of the reasons, but why were not seeing more of a translation of that into volume food for the third quarter in the fourth quarter and the related question as we get into 21 Ted do.
Do you expect that sustainability.
And reinvent will be accretive to volume and food and for that matter protective and 21 as you had at one point I recognize you've got a lot of trial there right now with code. Thank you guys.
Thanks, George and.
I apologize if everyone. The call here is theres, a rainstorm, calling in Charlotte right now so hopefully talk through that but George for the first part I'm going to turn that over to Carl to give you a detailed answer what's going on with so.
Yes. Thank you George for the kind words and also I think you have to look a little bit deeper on what's going on in the market and.
No slaughter has been tracking slightly below prior year in the third quarter, and almost 4% and beef below prior year for the year to date.
And as I tried to work through the backlog and get their processes up and running Dave.
Without some of the skilled labor and still hide issues with the absenteeism, they've gone to a sum to order product mix.
And we've seen very very slow recovery and the food service part of both of those have translated to lower volume levels and a little bit of a negative mix, we're still performing above what the market is but it is dilutive.
And as you know something we're definitely keeping our pulse on.
Daily.
Okay, Great Carlin George I'll take the second part of the question, where you're asking about reinvent taking us into 2021 and sustainability to drive growth.
And with reinvent going into 2021 as you saw in the chart. If we looked at it we have savings coming into we think we have a built up pipeline, we feel pretty good about that just so you know the detailed that we manage this we have over 2500 projects that we're tracking right now and.
Anywhere from $5000 to multi million. So we do feel like we've got a good pipeline and so we think reinvent will continue to be strong and we'll look for opportunities some of those opportunities tie into the second point on sustainability is well sustainability and bolt.
Food and to protect the business on the food side of the business, we're developing some pretty innovative solutions that tying into automation and what we're doing in our factory automation that we think we could bring to new.
Meat processing plants, as we make them much more efficient improving their labor shortages et cetera on the sustainability side and as we mentioned we invest in plastic energy as we now are going circular there are certain parts of our materials into bags, such as PVC chlorine.
We've developed already rapidly in less than 12 months 12 months chlorine free bags coming into sustainability side that we see as a growth opportunity there as well on the protective side, we're definitely seeing sustainability with their E commerce boom and how do we make our AR.
Products recycle those sustainable the recycled bubble reps already coming out into our product lines are mailers not just.
The plastic mailers with the bubble, but also paper and our paper business is growing quite nicely and we expect more coming into 2021. The challenges will continue we're thinking this code pandemic environment is continuing so we feel pretty good both reinvent Sci and our new product development will help us.
The other piece ill probably talk about again with the question is what we think automation can do to fuel our growth going into 2021.
Okay. Operator next question.
Our next question comes from the line of Anthony Pettinari with Citi. Your line is open. Please go ahead.
Good morning, and best wishes to Carl on his retirement and thanks for all the help over the years.
Just quick question on product care is it sounds like industrial and E Commerce outperformed expectations in Threeq. Two just curious if that continued in October and when you look at the contribution margin for that business in Threeq do you expect that to improve are there any kind of drivers of improvement that we should think about there.
No. Good question, obviously in October, which was nice net debt and Thats in the fall.
Fourth quarter, so will we see the trends basically continuing I'll share that on the E Commerce side, what we see the shifting the portfolio. If you. If you look at slide four that we.
We talked about moving really to be a market driven company with these great product lines, the largest product line and the most profitable in our protective is our instapak, which is definitely hit with what's going on the industrial so actually using our leverage language that's been made.
Major de leverage on the portfolio. So actually the performance on all those different product lines and to be lifted by ecommerce is really helped that business not only grow that had significant margin expansion.
Seeing some of that get not as bad on industrial in third quarter, we anticipate that going through in the fourth quarter, but we still think it's going to be a drag year over year. So shifting the portfolio very very fast to mailers or bubble wrap on demand and not only can we get the volume.
But could we get continued margin expansion and we're really seeing the engine work if we get that volume, we're seeing that leverage come in very very nicely. So we think we definitely have some challenges continuing in the fourth quarter, but.
We plan to fight through that now into the fourth quarter were spending most of our attention right now is taking that momentum into 2021.
And next question.
Our next question comes from the line of Josh Spector with the S. Your line is open. Please go ahead.
Yes, hi, Thanks for taking my question I guess in terms of your 2025 equipment target and more than doubling their sales versus the 2020. What are the biggest factors that gets you. There and is this more of a replacement cycle that then decline or do you see E commerce growth in automation drive it sustainably higher level equipped.
Sales thanks.
Good and then Josh welcome to our coverage Glenn.
Glad to have you BS backend new personally so great question.
With the automation, we actually see that grows in both those areas you identified part of the part of his replacement.
We have an extremely large fleet of equipment. If you look at slide five we say out there that it's thousands of machines. So as we're driving automations, taking care of that installed base. The parts to service. The upgrade since we go digital we think that is a significant opportunity.
Stay connected to that installed fleet of equipment. We think we have some improvement opportunities there on the new equipment and Thats, what we focus and if you noticed we.
We actually have taken this number up already from 2020, when we first announced this at the Investor conferences last quarter. We were at 175. So we already have visibility into this is moving move.
Moving quickly in this environment, developing new products and new systems as we help to automate our customer's facilities such as meat packing plants, we're working with many of the majors right now of how we can pack that meet faster safer.
And do it with it in a remote environment keeping people out of harm's way on the E. Commerce side, that's where we're seeing a lot of benefit, especially changing the model from how we did in the past both our food and protective models, where we used equipment to actually subsidy.
Guys to get more materials and what we're finding is that actually focusing on what the equipment can do to help on labor to help on productivity help on safety that we could actually have multiple opportunities not only for the equipment that are in our portfolio, but working with other potential suppliers of.
Equipment and branding it so we see lots of opportunity to keep that growth as you can imagine going from 200 to 500, that's pretty aggressive growth targets and as always our internal targets are much more aggressive than what we're sharing externally.
Ben.
Next question operator.
Our next question comes from the line of questioning Panjabi with Baird. Your line is open. Please go ahead.
Yes. Thank you good morning and.
Carl Congrats again.
We believe in as a legend of the industry. So.
Very respectful bakery overtime so congrats.
Thank you.
I guess first off.
Obviously, we're seeing real time headlines of Lockdowns in Europe, some parts of the us as well some.
To some extent a pantry loading again assist in the U.S. starting in October.
How do you think this most this upcoming sort of paradigm impacts your portfolio versus maybe what you experienced in the first part of this year and then a related a separate question maybe for Jim in terms of the price cost evolution over the next few quarters, how should we think about that $35 million price cost spread you have benefited from so far this year changing as we say.
We go into 2021, thank you.
Okay. Good thanks Ghansham.
If you want to go into first on Yours, and then I'll sure.
Tim This is Jim So we did talk in our comments that we do expect price cost spread to turn a little bit in the other direction starting in the fourth quarter.
We have had some benefits there.
Year to date keep in mind.
A fair amount of that is from reinvent, which we think is sustainable and not just.
Going to be given back if you will when the market turns we continue to do a really good job buying materials and do what we can to position our materials globally in a way that we could avoid a lot of the inflation. So you see the headlines in North America around.
The the low density polyethylene and the big increases that we see there, but you got to remember we we buy globally. When we buy a lot of different resins, and we buy chemicals and if you look at the mix of all that you know its not as severe as what one might think when they look at the headline market changes in certain of the resins. So.
Thats the good news I think again, I think we'll do better than the market in terms of our buying.
And we'll also start to see the formulas kick in.
You know is there is a bit of a delay in the formulas, but but we'll we'll get those kicking in next year. So we are contemplating in our guidance, but that will turn a bit in the fourth quarter, but I think with some pricing actions some of which we can do just on the basis of value contribution and some that's based on formula and probably some mitigate.
Nation of materials overall, as we transition into 21, I think we feel like over the course of the year. It's very manageable. We may not have the the tailwind that we had in 19 in the first three quarters, but I think we've got a lot of actions in place, including keeping that ran that engine driving above infill.
Addition, which will help you.
And to the first part of your question Ghansham obviously.
Obviously watching the news in because.
Because we are directly connected also with our customers around the world. The announcement that just came out about France going into a shutdown. We've been connected just like when this all started this new it seems like a long time to build that it would just January when our team was talking about what was going on with China with our.
Ladies of how we put them into lockdown immediately so we've heard what's going on around the world.
We are in crisis situation crisis management, not only with our customers with our people in our facilities.
So how do we see that affecting our portfolio. We're in we think will be a little bit different when this first head because what happened. If you look at the first quarter going in the second quarter, we built up inventory with our customers and we did simultaneously so little bit of what's even going on with the food business right.
Now is burning some of that inventory off that we had when they add and working very very closely together to make sure that we keep our production levels going with our customers. The shift in the portfolio is we got to look at that with what's going on with restaurants will they reopen will they not real.
What's going on with our portfolio with whether it's the bags or whether it's our darfresh. So we're looking at those very carefully with our customers, but we also think again on automation, we can be in there, helping them deliver safely and supply to supply the world. So.
Don't have a perfect answer other than we're getting pretty used to how do we handle the crisis and stay connected. So we actually do think are very very diverse portfolio will help us fight through this situation and as early as the first quarter were first challenges that we are trying to solve right now.
Okay.
Next question please.
Our next question comes from the line of Adam Josephson with Keybanc. Your line is open. Please go ahead.
Thanks, Good morning, everyone I Hope I hope you and your families are well.
Jim.
Clarification on guidance you gave you mentioned that you expected protective volumes to be up in the fourth quarter, albeit not to the same degree that they are up in Threeq. You. I don't think you commented on food volumes I think you said food organic sales would be up but I'll, let you comment on volume so bearing in mind, they were down 2% in each of the past.
Few quarters can you talk about what your volume expectations are for the quarter for the total company do you expect volume to be up or down in any preliminary thoughts on next year in that regard. Thank you.
Sure let me stick to this year first and then maybe clarify a little bit of the guidance around the segments. So with food as you mentioned, our volume was just shy of 2% down year over year.
But I do think as we transitioned into the fourth quarter, we expect that to still be down year over year very modestly, but overall if you look at the full year, we do expect constant dollar food to be up 1%. So.
A little bit of a drag in the back half of the year.
There but.
Consistent with the third quarter, probably a little bit better maybe on protective.
The protective the growth assumption in the guidance is positive.
We were up 4% in the third quarter, the guidance would imply a little bit less than that on a volume basis and I think the thing we're a little bit cautious up there even though the trends around ecommerce remain very robust I think were little bit cautious about the the economy in Europe, but in particular, and maybe seeing a little bit of back office.
There in that region in particular, but overall it will we.
We do expect a favorable year over year volume growth in that segment as well.
As we transition into next year. It's an open question, obviously, we've got a lot to learn here over.
The next three months in terms of how the the co bid environment will hopefully stabilize and we can get back to more normalized levels with food production growing and thus beating the market.
As Ted talked about earlier, the real headwind for us in protective is still the industrials business and and it's improving but hopefully we can get to the point, where we can start to grow that part of the portfolio and when we do youre going to see the margins there really improve as well.
Next question operator.
Our next question comes from the line of selling with Jefferies. Your line is open. Please go ahead.
Hey, guys care.
Curious on how you're thinking about the pace of recovery in your industrial business are you kind of visiting this as a multiyear recovery and and I guess on a separate note just given the strength you're seeing in E. Com and automation I was just one do you have enough capacity to service that demand and your ability to scale up that business on the protective side of things.
Just just what you said the pace was that that didn't come through clear that on the industrial pace of recovery out of the question. Yes, Yes. The first part was the pace of recovery on the industrial side I mean, the last out there took a few years to kind of get back to previous levels I'm, just trying to get a better handle on how you kind of envision your.
Offshore business recovering the pace of that recovery and the second part is just the shrink you're saying he copyability kind of scale.
The good questions on the pace on the industrial that's.
That downturn has been pretty dramatic the one of the largest segments of industrial that we look at IHS automotive we saw we saw automotive coming back.
But now we had a start and stop and we keep talking about Europe again, where we have a really strong base with industrial with again, our instapak, so seeing what's now happening in that.
Potential slow down again, we definitely think the industrial come back we got to move our portfolio. If it does come back we got to move the products to what is growing again really where we want to push this product line to be market driven.
So the second can we keep up with the pace that the E Commerce Thats a great question because if you just go back a couple of years and where we were going with mailers.
That is.
Full full force with our team and our supply chain and leveraging our plants around the world you know actually expanding our capacity and moving resources. So.
It's a good problem to have in the portfolio, but we're definitely those products that are getting hit by E Commerce.
We're moving our production to be able to keep up with the pace.
The if you look again at slide four just give you. An example is we're really moving the whole company to be an E Commerce company and were internally working on a plan to do that once you go online you are no longer what region are you in if you look at that example, where you can see where we actually have our core view product.
Now doing spirits, which is technically lay up well that was actually launched by one of our large.
Freight forwarder companies and they put it on the internet with us side by side well the hits on that product line have we're showing up in Australia and now in the US. So we're moving the whole company to eat fully E. Commerce. So we got to be prepared to move.
When that that those markets that pull through comps so.
Great question E. Commerce is here is to stay and we're moving our whole portfolio, our whole business to be able to support that so it's going to be some challenges, but those are the good challenges were looking for and we think we can handle that challenge to have the capacity ready to serve those markets.
Okay, I think we have chance for one more question operator.
Our next question comes from the line of Jeff.
Kafkaesque with JP Morgan Your line is open. Please go ahead.
Hi, Thanks, very much Ken your product care business I think last quarter, you thought that the trends would improve but that the volume was still shrink in the third quarter, but but organically grew 4%.
Is it possible to pinpoint why is the growth was stronger than you expected.
I would definitely.
I'm trying to think all the products lines were up.
On the E commerce, the biggest ones that were up where our bubble wrap on demand more than we thought a core view product line way up.
Higher than expected.
And I would say on the industrial side, we saw that not as bad as we're thinking that I'm trying to think of.
I don't want to admit that we didn't predict this but we obviously didnt.
In the early on that I mean, we came out of the second quarter. This is Jim we we thought that we were looking at mid single digit declines in the back half of the year with industrials and high single digit decline than in the rest of the portfolio.
Low single digits and.
As we mentioned we were surprised to the upside on both of those and I think really.
Industrial's coming off a real all stop across the world in the second quarter really ramped up very nicely.
And obviously, we're well positioned with the products that we have if the markets are moving we're going to be there and they moved pretty fast.
Sequentially Q2 to Q3.
And then the same thing on the on E. Commerce, We just continue to see a lot of the in home buying.
And.
Our position this global so as Ted talked about the supply side of this is pretty challenge when you're seeing that kind of demand run your way supports minutely with the global footprint.
We were able to serve the needs of the market, but it didnt happen on it so and there was tremendous effort on the part of our supply chain team to make that happen. So I think we see that continuing as I said into the fourth quarter, especially in E commerce, but I think again the pause we're taking is on industrials in Europe and maybe.
And a little bit on the E Commerce in Europe, Yes, just one I had to look at the picture.
I guess, the most obvious thing that's exceeding our expectations, what's happening with our automated equipment that the automation side and you know we launched it we went public on wetter strategist up double digit EPS and every call I keep giving a shout out to our atps team.
And that was up significantly in the quarter and it makes sense is more stuff is coming through E commerce and how do we get those fulfillment centers, how do they pack quicker faster and safer and now having a product line that can meet that demand that one is probably the number.
One significant upside for the quarter and we got to do more of it going forward. There were very capable to pivot from industrial to E. Commerce to fuel that added growth in end of food, we even had a good point.
Carlos excellent comment putting food into our automated packaging system. So.
And because that will close on that is the message. There is more good things to come I want to thank everybody for the call with wraps it up for today I hope everybody stays safe and look forward to connecting everyone.
With everyone next quarter. Thank you operator, that's it for us today.
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.
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