Q4 2022 Sealed Air Corp Earnings Call

Speaker 3: Good day and thank you for standing by. Welcome to the fourth quarter and full year 2022 sealed air earnings conference call. At this time all participants are in a listen only mode. For the speakers presentation it will be a question and answer session.

Speaker 4: To ask a question during the session, you need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please limit yourself to one question and queue up for any additional follow-ups. You will then hear an automated message advising your hand is raised.

Speaker 5: Please be advised that today's conference is being recorded. I would now like to hand the conference over to the chief speaker today, Brian Sullivan. Please go ahead.

Speaker 6: Thank you and good morning everyone.

Speaker 7: With me today, Ritad Mahini, R.C.O., Mil Shamas, R.C.O.O. and Chris Stevens, R.C.F.O.

Speaker 8: Before we begin our call, I would like to note that we have provided a slide presentation to help guide our discussion.

Speaker 9: Please visit sealedair.com where today's webcast and presentation can be downloaded from our investors page.

Speaker 10: Statements made during this call, stating management's outlook or predictions for future periods are forward-looking statements.

Speaker 11: These statements are based solely on information that is now available to us.

Speaker 12: 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.

Speaker 13: Additionally, our future performance may differ due to a number of factors.

Speaker 14: Many of these factors are listed on our most recent annual report on Form 10K and as revised and updated on our court of reports on Form 10Q and current reports on Form 8K, which you can also find on our website or on the SEC's website.

Speaker 15: We discuss financial measures that do not conform to US gap.

Speaker 16: You will find important information on our use of these measures and their reconciliation to U.S. GAAP in our earnings release.

Speaker 17: 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.

Speaker 18: I'll now turn the call over to Ted. Operator, please turn to slide 3. Ted.

Speaker 19: Thank you, Brian , and thank you for joining our call today.

Speaker 20: Today we'll discuss our Q4 in year end results, our 2023 outlook, Reinvent C2.0 in our acquisition of Likwavax.

Speaker 21: After that, we'll open up the call for your questions.

Speaker 22: Starting on slide 3, the graphic is showing where we're taking packaging.

Speaker 23: with automation, digital, and sustainability solutions.

Speaker 24: We start with our purpose. We are in the business to protect, to solve critical packaging challenges, and to make our world better than we find it.

Speaker 25: This enables our vision to become a world-class company, partnering with our customers on automation, digital, and sustainability packaging solutions.

Speaker 26: Moving the slide 4.

Speaker 27: We're excited to announce that on February 1st, earlier than originally anticipated, we completed our acquisition of Liquibox.

Speaker 28: a global leader in sustainable packaging for the fluids and liquids industry, and a pioneer innovator of bag-in-box solutions.

Speaker 29: Fluids and liquids is our fastest growing and highest margin product line within our CryoBac Portfolio.

Speaker 30: This is a fast-growing attractive market for us.

Speaker 31: as flexible packaging is disrupting the rigid container market.

Speaker 32: LiquidBots brings to sea new competitive capabilities and is highly synergistic with our existing business.

The combined Liquibox and Cryovac business in 2023 is expected to exceed $600 million.

Representing more than 10% of our portfolio.

Our plan is to turn the fluid and liquid business into a $1 billion vertical by 2025 with an operating leverage of over 40%.

Liquibox will enable us to open significant new opportunities for growth in areas, like ready-to-drink liquids, wine and spirits, consumer packaged goods, quick service restaurants, and other attractive spaces as the best suitable and cost-effective alternative to rigid containers.

The combined business will leverage upon Cryovac technology for freshness and shelf-life extension, for broad market access.

and global footprint.

to the question of why now.

We've been investing in this attractive space for quite some time.

Our team identified Liquibox as a prime target in our M&A pipeline and the most coveted asset in the fluids and liquid space.

As the window of opportunity was getting closer, we preempted a potential auction process.

We quickly close the transaction within three months, two months earlier than originally anticipated.

I've appointed a meal shemaah to lead the fluids and liquids particle.

deploying our proprietary integration playbook.

delivering on our target revenue ambitions of greater than a billion dollars, and achieving cost synergies of approximately $30 million before year 3.

Under Emil's leadership, SEAS and Liquibox cross-functional teams are highly energized to implement the plans they've been jointly developing.

Let's turn to slide five.

which highlights how we're moving to be a market driven, customer-first company fueled by our iconic brands.

Our solutions focus on automation, digital, and sustainability.

create value for our customers by improving their productivity, sustainability, and enhancing their competitive advantages while allowing C to deliver growth faster than the markets we serve. Our digital online sales have now ramped up to 10% of our total sales in Q4.

Doubling that from Q3.

This digital transformation will be a driving force behind the evolution of our go-to-market strategy and source of new innovation while enabling us to reach more customers effectively and efficiently.

Our online sales platform, MySee, empowers us to reach new customers and new geographies for our highly profitable bubble wrap inflatable solutions.

In the quarter, we converted two of our largest distributors to online partners to make this happen.

Our cryo-vax fluids and liquids business grew over 20% in 2022.

Now with the addition of Liquibox, we expect this new vertical to be over 10% of our portfolio with a 40% operating leverage.

In fresh proteins, we saw retail markets going down in Q4 driven by declining customer spending.

Consumers are trading down from premium proteins and customers are working through excess inventory.

Leading with C automation, we were able to win with major customer conversions.

Fulfillment, industrial, and especially electronic markets were significantly down in Q4. These stockings amplify this trend.

The outlook for these markets is to stay challenged in the first half with a rebound in the second half of 2023.

We plan gains from new innovations and automation that were constrained over the past 24 months.

Following our investments to double capacity, including our new developments in fiber-based solutions, were well positioned for growth in the second half of 2023.

We're excited about the recent launch of our new line of paper bubble wrap mailers and high recycle content, content bubble wrap, filler solutions.

Moving to slide six, following the success of reINVENT-C, we now advance to the next phase of our transformation with reINVENT-C 2.0.

Moving from the best in packaging to a digitally driven, world-class automated solutions company.

from the best in packaging to a digitally driven, world-class automated solutions company. Starting in 2018.

Reinvent C-built and solidified the foundation for the next phase of C's journey through development of the C-operating model and our growth platforms, including with leading with automation, digital and sustainability. Reflecting on the last five years, we've met or exceeded our operating model targets. We've met or exceeded our operating model targets.

Silt growth has compounded at 5% versus our 5-7% target. Adjusted EBITDA has been 8% versus our targeted range of 7-9%.

Adjusted EPS growth has compounded at 18% versus our goal of over 10%. And we've averaged 89% free cash flow conversion over the last three years.

2022 was challenged on free cash flow with the building of working capital as we fought through supply constraints and volume headwinds.

reInvent C2.0 focuses on high quality, profitable growth and improved productivity.

The Liquibox transaction accelerates our growth platforms, highlighting our transformation from product to customer-first solutions approach.

Our digital transformation will empower us to attack new areas of opportunity and will drive profitability to accelerating the use of automation in our own operations.

By moving the business online, we'll focus efforts to grow faster than the markets we serve through a simplified, more digitized organization, reducing our cost structure by $35-45 million over the next 12-18 months.

Let's now discuss how reinvent C 2.0 will fuel our C operating engine.

Turning to slide 7, we've updated the sea operating model out to 2027 with re-invent seat 2.0 targets.

On the left side of the slide, we outline the see-operating model growth assumptions.

In 2023, we expect a flat growth performance despite a 3% market decline.

The downturn in the first half will be recovered by a strong second half.

Liquibox will add 6% profitable growth to the total sea for the full year.

We are confident our C operating engine will convert sales at more than 30% operating leverage.

resulting in continued margin expansion.

The combination of the sea-opering engine or high-performance culture digital transformation.

creative acquisitions, and strong free cash flow generation will deliver world-class growth and returns in the next five years.

Let's turn to slide 8 to discuss Q4 and folio results.

In the quarter, on a constant currency basis, net sales were down 4% and adjusted EBITDA was down 7%.

Despite the tough environment, we maintained adjusted even a margin above 21%.

On a full year basis, inconstant currency net sales were up 6% and adjusted EBITDA was up 10%.

are margin expanded by 110 basis points.

setting a new record in earnings for C.

Adjusted Earnings Per Share in the quarter of $0.99 were down 7% compared to a year ago and up 20% for the full year of 2022 on a constant currency basis.

Free cash flow through Q4, though disappointing, was a source of cash of $376 million.

We continue to invest in our people and our business as we accelerate our journey to world class.

Moving to slide 9, we updated our C automation growth plan.

Full year 2022 automation sales were up $475 million.

up 10% in constant dollars.

In Q4, we had a record quarter with equipment sales up 24% year over year, driven by food equipment, which was up 30%.

We continue to work with our customers to deploy automation solutions that create savings and fast returns by addressing labor shortages, inflation, safety, and productivity.

Our bookings continue to outpace revenue for 2022.

And though supply shortages linger, we expect to deliver double-digit growth in 2023 to achieve revenues greater than $525 million.

We're aggressively expanding our C automation solutions portfolio and driving faster growth by integrating equipment and technologies like robotics, vision systems, digital printing from a network of strategic suppliers.

In 2023, we're expanding our sea automation solution and auto bagging, filling, and boxing with the respective fiber-based materials.

Now turn it over to Chris, who will review our financial results.

In more detail.

Thank you, Ted, and good morning, everyone.

Let's start on slide 10 to review our fourth quarter net sales of 1.4 billion by segment and by region.

In constant dollars, next sales were down 4% with 4% growth in food, offset with down 15% ISO.

By region, we grew a mea by 5% offset by Bitcoin.

declines in America's of 7% and A-PAC of 3%.

In Kausten dollars, full year net sales were up 6% to 5.6 billion.

Food was 11% while protective was essentially flat.

By region, we were up 6% in Americas, up 7% in EMEA, and up 2% in APAC.

On slide 11, we summarize our Q4 and full year 22 performance.

primarily driven by inventory these stocking

and lower demand in our protective end markets and FX headwinds.

We had a challenging fourth quarter with sales down 8% as reported.

Versus Q4-21.

However, for the full year, we delivered reported sales growth 2%.

Q4 adjusted EBITDA of $297 million decreased 33 million for 10% compared to last year with barges of 21.1% down 40 basis points.

For the full year, adjusted EBITDA grew 7% to 1.21 billion with margin expansion of 110 basis points to 21.5%. This performance was driven by positive net price realization, which we define as Euro over year price realization.

Less inflation on direct material, freight, non-material and labor costs.

as well as productivity.

and as well as productivity gains which more than offset lower volumes, higher operating costs, and unfavorable FX impacts.

As it relates to adjusted earnings per diluted share in Q4 of $0.99, our adjusted tax rate was 26.1% compared to 26.2% in the same period last year.

On a full year basis, our adjusted earnings per diluted share was $4.10.

with an adjusted tax rate of 25.4% compared to 26.1% in 2021.

We had no share of repurchase activity in Q4, but repurchase to approximately 280 million or 4.5 million shares in 2022.

Our weighted average diluted shares outstanding in Q422 was 146.1 million and 147.1 million for the full year.

At year end, we had $616 million remaining under our authorized share repurchase program. Turning to quarterly segment results on slide 12, starting with food.

In Q4, food net sales of $874 million were up 4% on an organic basis, which consisted of 7% price realization to help offset inflationary pressures across all cost categories.

and volume declines of 3%. Food-adjusted EBITDA of $202 million in Q4 increased 2% in constant dollars compared to last year, with margins at 23.1% down 20 basis points.

Protective Q4 net sales of 532 million were down 14% organically with price realization of 6% being offset by volume declines.

We expect market contractions and a negative economic outlook to continue to put pressure across our protective fulfillment in industrial and markets.

in the first half of 2023. Protective adjusted EBITDA 102 million was down 15% in constant dollars in Q4 with margins at 19.2%, only down 10 basis points despite the end market weakness.

and customer be stocking activity.

Looking at slide 13, we can see full year segment results starting with food.

Food net sales of 3.3 billion were up 11% on an organic basis, which consisted of 13% price realization.

to help offset inflationary pressures.

and volume declines of 2% overall. For the year, adjusted EBITDA, a $755 million, was up 13% of constant dollars with margins of 22.8% up 70 basis points. Food automation sales for the year, which include equipment.

systems, parts and services account for approximately 8% of segment sales where up high single digits.

Protecting net sales of 2.3 billion were up 1% organically with price realization of 12% being offset by volume declines of 11% in the year.

A jet that EBITDA of 466 million was up 9% organically with margins of 20% up 160 basis points.

As for protective automation sales in the year, which account for approximately 9% of the segment sales, they were up double digits, fueled by our auto-botsing solution. Now let's turn to free cash flow on slide 14.

Full year free cash flow of $376 million compared to $497 million in the same period of year ago.

The $120 million decline was mainly driven by increased inventory, reductions of accounts payable, and higher cash taxes, which were partially offset by favorable adjusted EBITDA.

With regards to the reduction in accounts payable, we expect this non-structural use of cash in 2022 to benefit 2023 as we monetize working capital to drive growth and be lower.

On slide 15, we outlined our purpose-driven allocation strategy focused on maximizing value for our shareholders. On slide 16, we outlined our purpose-driven allocation strategy focused on maximizing

We maintain a strong balance sheet while driving attractive returns on Invest to Capital and supporting profitable growth initiatives.

We capitalized on the strength of our balance sheet by engaging our bank group in Q4 and accessing the bond markets last month to successfully finance the liquid box acquisition.

We expect to deliver throughout the year, estimating 3.5 times or below by the end of 2023.

Let's turn to slide 16 to review our 2023 outlook.

We expect net sales to be the range of 5.85 to 6.1 billion, which at the midpoint assumes mid-single-digit growth on a reported basis.

net sales to be in the range of 5.85 to 6.1 billion, which at the midpoint assumes mid-single digit growth on a reported basis and low single digit growth organic.

We expect local box to contribute between 340 million to 360 million in sales in 2023, given 11 months under our ownership.

We expect a full-year adjusted EBITDA to be in the range of 1.25 to 1.3 billion.

which assumes adjusted EBITDA margin of approximately 21%.

Full year adjusted EPS is expected to be in the range of $3.50 to $3.80.

assuming depreciation amortization at the midpoint of approximately 275 million.

and adjusted effective tax rate between 26, 27%, net interest expense of approximately 275 million at the midpoint, and approximately 146 million average shares outstanding.

The lower 2023 adjusted EPS is largely driven by non-operating items such as higher a pension expense of 8 cents.

The lower 2023 adjusted EPS is largely driven by non-operating items such as higher a pension expense of 8 cents and higher base business interest expense.

27 cents. And lastly we expect 2023 free cash flow in the range of $475,525 million which implies a free cash flow conversion of greater than 90%.

As noted in our earnings release, we have reached a tentative agreement to settle the legacy IRS tax matter related to the CryoVac acquisition from WR Gris. Our 2023 free cash flow range excludes any potential cash settlement as a tentative agreement is subject to further review and approval.

As it relates to ReInvent 2.0, we plan to include both the costs and the benefits in our adjusted results as we accelerate our digital transformation to drive higher levels of productivity and operating efficiency.

As we've highlighted before in our C-operating model on slide 7.

Our digital transformation will be driving 1% growth over time by broadening our sales reach. Making it easier to do business with us and delivering 30 basis point operational efficiency gains. So as we look ahead to 2023, we anticipate continued softness in the first half.

We will remain disciplined to drive the necessary actions to preserve our margins and generate strong free-catch flow.

With a successful integration of liquor box and the strong value creation, we expect this acquisition to have with our Kryol Vack brand. At the midpoint of our 2023 sales guidance, we expect to be in line with our C-operative model sales target.

of 5 to 7 percent. With that, let me now pass the call back and set for some closing remarks.

Thanks, Chris. Before we open up the call for questions, I wanted to share some insights from my travels around the world as we increase our face-to-face meetings in the post-COVID environment.

I've been able to meet with our employees, our largest customers, and see some of our latest automation solutions in action.

It was great to see the progress in our own facilities around the world. Our investments in touch-source automation eliminate millions of touches while providing higher quality materials and removing people from harm's way.

It's also been uplifting for me to see how embedded we are with our customers and hear first hand how we help them through incredible challenges in their facilities.

It was exciting to see our latest automation solutions in action and hear from our customers how much they value our partnership.

Our automation, digital, and sustainability focus is driving value with our customers and our internal operation.

Finally, I'm really energized by the cultural fit in working relationship with the Likobox team as we jointly uncover more opportunities.

With that.

With that, I'll open up the call for questions.

Operator, Victor, we'd like to open up now for the Q&A session.

Sure. As a reminder to ask a question, please press star 11 on your telephone.

and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please limit yourself to one question and queue up again for any follow-ups.

Please stand by while we compile the Q&A roster. Our first question will come from the line of Arun Viswanathan from RBC Capital Markets. Your line is open.

Great, thanks for my question. Good morning. I guess I just wanted to understand.

You're thinking on growth this year. So it sounds like there is some challenges on the volume front. You know, you noted a challenging macroeconomy economic background. How do you see volumes evolving, I guess, both in protective and food as you go through the year? You will face some easier consequences. I guess in the...

and both business, starting with the protective side. We've definitely seen, as you've been saying, in the major markets, especially in things like electronics and e-commerce. So we still feeling pressure. We're still going to feel the destocking in the first half of the year into the first quarter.

On the second half of the year, we're actually, we see a rebound. We still think in our guidance, we have our protective still down a couple of percent in our guidance, but we definitely think we should have a strong rebound in the second half of the year, especially with some of our new products coming in place.

we think we can power through that. And as we talked about with Reinvent C and moving further on digital with their distribution, again, I think we have some upside potential. On the food side, as we see that shifting with the volumes and the... still under pressure, also having a de-stocking.

the same story. The first half to be challenged, but we do think we have some significant opportunity for growth on the second half and we're actually guiding to see the food volumes up a couple of percent.

On the food side, as well as the protective, we really see the automation kicking in. It's still really tough out there for our customers with getting labor, inflation, etc. So we see some of that pickup coming in. We did this. We highlighted. We had strong automation in the...

fourth quarter, so we see that continuing into the second half of the year. Okay, next question. Thank you. One moment for next question.

Next, question, dried of. And ask.

George Stafos from Bank of America. Your line is open.

Hi everyone, good morning. Thanks for the details and congratulations on the progress through 2022. My question is on Liquidbox. Can you talk to the amount of synergies you're building into the EBITDA contribution you expect from the business this year? And relatedly, you know,

You see competition across several key characteristics of the package. Where would you say whether the carton, the valve, the material you are seeing competitors catch up to? Look a box or where you are seeing yourselves putting distance.

between yourselves and your peers in that market. Thanks guys, good luck in the quarter. Thanks George. I'll open it up and since I have a meal here on the call I'll let a meal give some insight to that. As far as the growth on the synergies that we have in the model.

We have the 30 million of cost out there. We feel pretty confident on that and Neil can talk to you about that. We're most excited, leading to the second part of your questions, where we see the growth synergies for what liquid box already has. And in talking with them and learning with them and actually hearing much more in the marketplace.

Their market position is actually something that we could actually extend. The teams have met with our internal teams of what we're doing on liquids and what we've done, especially with our FlexPREC products and where we've had some significant penetration in the quick service market. And bringing a full solution, we think.

we could actually extend their market leadership with the two teams together. And what I'm excited about, which is our first month together with the team, is what the growth opportunities are. But the meal, if you want to cover that a little bit. Absolutely. Thank you. Thanks, doors for the question. I guess just to...

Remind ourselves we're only a day eight after we, since we closed the acquisition. Let me address the question in a couple of different ways. First of all, there is obviously the competitive set of liquid box.

But really the piece around that is that $7 billion of the pressable market and how we convert If the power report regoms to the

Really the piece around that is that $7 billion of the addressable market and how we convert rigid to liquids. Even the liquid box.

capabilities and strengths that truly around the fitments, the lightweight and down-gaging even of existing solutions. And it's all about the sustainability piece. Liquid Pure is a unique product in the market that allows for the full recycling.

As the teams have met over the last couple of weeks, pre-closed only to a certain extent what we could share, but since eight days ago we now can fully work together, the teams are just incredibly excited in terms of the opportunities.

And as the team has met over the last couple of weeks, pre-close only to certain extent what we could share, but since eight days ago, we now can fully work together with the team, they're just incredibly excited in terms of the opportunities. Bring in the liquid box.

expertise and for the market and coupling that with steel there's

capabilities around extrusion, around sourcing and footprints. So we see tremendous opportunities in terms of short-term ones, leveraging the footprints of seal there around markets where look at boxes not present today. The customer relationships on both sides to advance the fluids.

segment as well as in terms of

how we drive the synergy since the us about the synergies on synergy side you know we're on piping the entire piece obviously the

the market piece that I just talked about, but also internally how do we collectively buy better? Obviously still there, as you know George, we buy more than a billion pounds of resins.

versus a smaller size of liquid box around the film expertise. This is what's the cryovag extrusion, the film structure.

piece of it. And that's really really, you know, that company, that small company, that has done a tremendous job with the resources they had, are now bringing in a much larger company, how we can even accelerate the path they were on in terms of the touchless automation.

within their plans and then bringing them into our digital capabilities in terms of how we go to market using MySee as well as digital.

So again, day 8 with many great opportunities that we hope to update you in the upcoming quarterly calls.

Good, thanks Emil. Next question. One moment. Our next question will come to the line of Gansham Panjabi from RW Baird. Your line is open. Thanks, good morning everybody. I guess first off, back to the 2023 question. How should we think about the waiting between the first half and second half on EBITDA?

effectively recession, reserved and then what we have currently.

Thanks for your question, Gacian. So let me maybe address your first part there. So as we typically do to try to provide, although we don't give quarterly guidance, we try to provide with our investors an understanding of first half, second half. And we made some prepared remarks, in our prepared remarks, just thinking about the first half softness.

is what we expect to see. So talk about maybe 46%, 47% in terms of the first half, followed by a rebound, an expected rebound, and the second half is somewhat reflected in our guidance for the full year. And I'll let Ted add some additional colors, but as we continue to drive the business and the rest of the reporting.

expectations out there in our operating model. We had 2025, we've now adjusted that to 2027. Main item in there is coming in with the local box being added to our portfolio and the excitement we have in terms of driving that growth and the expectation that automation is going to continue to be a big portion of our overall sales as we pursue that, but 10 negative additional thoughts.

Yeah, Gansham, the second part of the question is we're moving the portfolio as you look at the 2027. So you see the shift and we're very consciously talking about cryovac and that there are food business and moving at the portfolio. Moving it from where it was 45-55 to now over 60 percent.

The fluids portfolio, if you look at it being over 10%, it's actually another percent because part of the fluids is into our medical space. So you can see it's becoming a very strong part of our portfolio going forward and shifting that. Strong growth to the. Um, the food side of the business in our portfolio.

But the other side of our portfolio to highlight that's in the reinvancy is we drive to digital and the automation is really looking at our portfolio to be a full automation portfolio. So what does that mean? Were we leading with equipment? Were we can automate our customer's facility and have that pull through materials?

One of our fastest growing product lines has been in the fiber-based solutions, both food and the protective, and bringing automation into that space. And as Emil was talking about with Liquibox, right now they do very well, and we do very well with bags, and now we have fittings, but the box part isn't.

a significant opportunity as we bring some of our auto-boxing, digital technology in to pull that material through. So the portfolio is shifting in two ways. To bring to be a stronger portion of our portfolio to that very stable, high profitable business.

as we're adding fluids, but also as we continue to shift the portfolio to a full solutions model with that automation and pull through on materials. So we think, you know, exciting for where the portfolio shift. One other piece just to highlight it, highlight it in the...

My prepared remarks is looking at the liquids and fluids portfolio is now going to be leveraging at a 40 percent. Where the operating engine, despite all of our issues, we've been performing and operating in a really strong leverage.

over and now putting a part of our portfolio that's actually going to be more profitable than the existing base. So that 40% leverage is really going to be driving earnings over the next five years.

Okay, next question. Thank you. One moment for our next question. Our next question on the line of fill in from Jeffries. Your line is open. Hey guys, good morning. You know, in your full-your guidance, I believe you're baking in some share games by a few points versus the market.

I just want to get a little handle on what's driving that, have you kind of recaptured some of the shares that you may have lost last year on the food side. It's good to see equipment sales bounce back pretty nicely in the fourth quarter. Are most of the supply chain issues on the equipment side behind you, and that's an opportunity as well as the access to materials, I think, on the specialty chemical side?

Yes, so just to which fresh, we were getting ahead on those supply changes on the equipment sign. So I think we're in a good shape. I think we can grow that business and you'll see that strong growth coming back and expecting.

more. The first part of the question, reminding Chris. So I'm just thinking through the food number we talked about the Okay, the share gain. The share gain on food. Yet definitely we see that in our guidance. Part of the food.

We have it at 2% for full year growth on food, and part of that is the share gain. But on the second half, we see some of that market coming back. We now have that specialty resin that we highlighted before. We definitely, we're in a really good position with our food business.

I mean, our cryo-back materials and automation is the preference in the marketplace. And as we're driving that, now having the material, we think we can get that share back. And that's in part of our guidance. But it's against a tough first half outlook. So short answer is yes. We expect that share gained back. And we expect that share back.

both on materials and we expect more share gain on the automation. And Ted, have you won that share already at this point?

Well, partly we identified that in the fourth quarter. With the equipment coming in, that's identifying that that's coming. So part of that strong fourth quarter gain on the equipment, the answer is yes.

More to come though. Right and then specific on the food side given the specialty.

getting that back online, getting that in place, you know, the business that went elsewhere for us in terms of dual sourcing or loss of share, we've been making slow gains in the fourth quarter and expect that to continue every quarter as we execute in 2023. On the protective side, just if you're asking, you're focused on the food, but we also think we've Early Died fetishists.

Same thing as we get through the de-stocking and again, just really highlighting is we move our, especially we're on the protective side where we have a distribution moving those distributors to online partners as we go further digital with MySee, we definitely think it's going to expand our reach and our capability.

when we get through some of this destocking on the protected side. So we think we have some share opportunities there as well. Okay, next question. One moment for next question.

Our next question comes from the line of Anthony Petinari from Citi. line is open.

question comes to the line of Anthony Petinari from Citi. Your line is open. Good morning.

Following up on, I think Gonchum's question and appreciate all the detail on first half versus second half. But I was just wondering if you could provide any color or put a finer point on how one Q EPS might compare to 4Q. You talked about the protective volume weakness and I guess the cost saves are more second like an app weight.

Sure Anthony, as you know we don't get quarterly guides, we like to give you guys as well as investors just a feel for the first half and second half. But we definitely, from a sequential point of view, expect earnings per share in Q1 to be down going into the year. So you kind of, from a modeling point of view, think of it as 46-47% first half and then

As you may split it, we would expect Q1 to be a softer quarter given what is going on mostly in the protective side. Coming off some pretty strong growth on automation in Q1, don't necessarily expect to see that same level of growth in Q4 event in terms of Q1. So anyway, some headwinds face us in Q1.

that is reflected in our view of that first half and second half. Operator, next question.

that is reflected in our view of that first half and second half. Operator, next question. On moment for next question.

Our next question for the line of Angel Castillo from Morgan Stanley . Your line is open.

Hi, good morning. Thanks for taking my question. I was just hoping we could unpack a little bit more of the kind of 2023 growth. You talked about volumes, but I guess if I look at the organic growth that was outlined of maybe minus one to plus three kind of implies flash to modestly up. And then I think the liquid box contribution, if I could just look at the EBITDA margin that that business has.

maybe a more based business kind of flatish and contribution from ecosystems that maybe are offsetting some of it whether it's you know anything on the cost side or kind of cost of ramping up that business or interuing it.

Okay, thanks for the question, Angel. So let me, to your point, let me unpack it. So we talk about overall food being up in 23 low single digits from a volume perspective as well as a price. As we continue to benefit from some price actions that we took in 2022 that will continue to benefit us in 23.

That's on the food side. FX is for both segments providing some level of headwind. What do you think about it on a reported basis?

But when you get to protective, protective is where the pinch point is. I mean, that we saw it in the second half last year. We continue that outlook to be negative for us, unfortunately, in the first half of this year. So roughly down low single-digit growth, we don't expect much in the way of price activity in the first half given where we are.

recovering, the inflationary pressures that we've seen and that will continue to evolve as we execute in 2023. So hopefully that gives you provide a little bit of color. And then the automation piece is just to overlay and recognize automation for both.

food as well as protected as less than 10% of each segment fails. But that overall growth algorithm growing that business, double digits is what we expect that we share on slide, on slide something, slide nine, in our earnings supplement.

Yeah, and just again to highlight to your second party question on liquebox. So basically the simple story is we're seeing a flat year first half being channeled second half being recovery. So the question of the conservatism could be is just are these markets that we're facing the first half are they as tough as we're seeing? We're seeing?? as we're seeing Sapp best we go for a soon concerts need to stay by night.

The optimism is moving on to the high end of the guide. If we get through that first half, we definitely see the opportunity second half. On liquid box alone, we saw in the model we put the $30 million of cost out in the first three years. A meal is in the room and the meal is definitely working on the cost side of that even though

said eight days, eight days official, but I think we really see some good opportunities on the cost out there quick on the liquid box. But the part down the liquid box that we're really excited about is the growth side. That's where working with the team right now. That's been fairly resilient. It's into the markets that we really like with the quick service and is converting rigid container market.

So that's really the upside. Can we do more? And I'll just highlight again if you look at the numbers what we have in for liquid box, that's going to be leveraging better than the rest of the core business. So that's the upside on the earnings. And just want to highlight it, we didn't mention it. that. Corp already has worked because???ans if there were nsa and ours they went directly on and

Paying down that debt quickly. That's how we're going to get the EPS back to where the model says it should be. And we want to pay down that debt very fast.

That's how we're going to get the EPS back to where the model says it should be. And we want to pay down that debt very fast. And that's what we're focused on.

Okay, next question. One moment for our next question. Our next question will come from the line of Adam Josephson from KeyBank. Your line is open. Hey, Chris. Good morning. Thanks very much for taking my question.

In terms of guidance, just a two-prong question. One is obviously there are cost levers you can pull and you're able to achieve your EBITDA guidance. Volume and free cash flow, obviously last year were a lot harder for you. How much confidence would you say you have in the various components of your guidance, just given your experience last year with specifically with volume and free cash flow?

And just Chris, can you tell me what your pro forma leverage is now as well as what exactly your working capital expectations are for the year? Thank you very much. Yes, so good. So let me just answer the second half of your question and we'll come back to the overall guidance. But for purposes of, you know, we anticipate right now Q1 to end the leverage ratio roughly 3.5 times, 3.5 times. And I'll continue to kind of work that.

work that down recognizing our working capital improvements in terms of the normalization that we talked about getting inventory reduced selling through that inventory collecting those receivables we would see we would see that working capital cash generation come through using that excess cash to pay down debt.

it would be priority one. So the overall guidance, as you see on slide 16, when we provide our full year view, we've got outlook ranges that we'd like to provide to give you guys, as well as investors, a sense of what we're seeing on the potential downside of our guide versus the upside range. And I'll let you read through them yourself. Specific to your question on sales.

We're pretty confident that we recognize the first half, second half discussion we discussed.

For if I break it down on a regional basis one region I wanted to highlight for us is APAC recognizing China opening up again And Ted recently being over in Asia just listening to our team over in APAC is that although it is somewhat muted initially we're not too bullish in terms of how quickly that's gonna come back But we would expect second half improvement out of our business in China

to help give us some confidence in terms of that top line sales. Food will continue to be resilient regardless of what happens in terms of the consumer behavior in terms of what they choose to buy since we play in most, if not all, of the proteins. You get to the protective side.

We're hopeful that at the first half type of situation, every quarter getting in better and better in terms of protective end markets, but that's a little bit on the cost of side and we talk about the peace stocking potentially persisting.

And then the other element of our four metrics that we provide, you mentioned free cash flow.

I'd say the confidence is pretty high. We saw the reduction in inventory that start to occur second half of the year, eating more meaningful in the fourth quarter. That will continue in the first half of the year and we would expect that that cash generation would show a better profile.

than what we've seen in 2022. So that's what gives us confidence. I also want to highlight that we're very conscious to make sure when we think about the cost actions and when we think about the investment actions.

We do not want to starve areas that's going to help our future growth. So CAPEX as an example, you can see we expect to spend more next year than we did in the prior year. We think about innovation and the things that we're doing with reformulation to be able to meet the markets and meet our sustainability goals, et cetera, et cetera. We are not holding back on the investments in our business to try where we're going.

Maybe let me just add on the working capital just to give the confidence. In a nutshell, what happened last year? First six months, disruptions across the world and every single category of items we're buying. Our lead times to our customers on many product lines were extended by more than five times and on many times. So we had to build the inventory to...

make sure that we're not starving to growth. And as we got over that hump, essentially our infantry peaked in Q3 period last year.

At the same time, the end market started softening.

Customers started destocking as they saw that lead farms were returning back to normal. And that's where we got caught in that crunch. From that peak to trough by year end, we did take out more than $150 million in inventory. The second piece is all those material supply issues.

are behind us. There's ample supply of materials. The one area that is much better, but still impacts a little bit on long lead times, that's on the electronic side. So we're managing through that. And so we are gonna continue driving our working capital where it needs to be. But that's a short story of what happened last year. Wasn't it?

The fluke is a couple of things that happen exactly at the same time and we just power through it and make the rest happen.

The flu is a couple of things that happen exactly at the same time and we just power through it and make the rest happen. Thanks for your question, Adam.

happen exactly at the same time and we just power through it and make the rest happen. Very good. Thanks for your question now. Next question, Pepper.

One moment for our next question. Our next question is called the line of Adam Samlson from Goldman Sachs. Go on his open. Thank you. Good morning, everyone. A lot of ground has been covered. A couple of just clean up type questions if I may. Maybe first, just in the new C2.0, the contribution from digital growth is anticipating

I just want to be clear on some of the changes in the way guidance is now being couched that restructuring costs are going to be included in the in the EBITDA guidance not stripped out as a special item. So Chris, there's a $23 million restructuring that's included in the 2023 outlook. I just want to be clear that that's in the 1.25 to 1.3 billion of adjusted EBITDA.

Yeah, so let me answer maybe the second half of your question. I'll let Ted comment around the digital piece of it. That's very much a big portion of what we're identifying as opportunities for re-invent.

C2.0. So on the restructuring side, what we've profiled out on page 16 is that restructuring mainly consists of the continuation of re-invent. You know, the program from several years ago kind of concluding on that particular transaction as well as some of the restructions we've identified on the integration given the M&A, given the M&A deal.

What we're specifically identifying, to your point, is that re-invent C2.0 costs as well as the cash profile as we continue to execute that over the next 12 to 18 months. You can see what we've targeted for overall structural changes and benefits. That will...it is currently not reflected in our guidance. At the same time, we view it as potential upside as we continue to manage costs in terms of what is in our control by developing a global task force for environmental change which is a1.3 billion is a product ofman Guardians.

and how we're looking to change the structural dynamic of our company to provide for margin expansion. So on future calls, we'll continue to update yourselves as well as investors on how we're executing that particular program. So we're going to continue to update ourselves as well as we're going to continue to update ourselves as well as investors on how we're executing our company to provide for margin expansion.

And on the digital side, if you look at slide 7, and as you highlight on 2.0, we're highlighting where digital is hitting on the sales side, incremental sales.

And there's a few things that we would identify as a digital sale. The one that is very clear is when we start bringing our digital printing and actually put digital printing connected to our equipment and adding digital incremental sales to our automation.

Digital also shows up as we work with our packaging and we able to actually put digital coding on our packaging, letting our customers be able to mark the products as we've talked before about track and trace as we get our digital printing deployed around the world. But also the digital is our access to market that we're going with my C.

we think we can actually increase our capability. The last piece is on the digital printing, especially as we talked about even with our fiber-based products, that actually doing the printing with Corrigan fiberboard, pulling it in to some of our other solutions. We think we have...

some growth opportunities there, so that's that 1% incremental to what we're already doing in the model. But the second part is also in there that we're putting digital into the savings as we're driving our operating engine. As we're creating our digital platform on myC, working more effectively and efficiently. Some of our largest customers want to interact with us.

digitally, just like they've done in the COVID, whether it's designing a product online, using our design studios, being fully touchless from designing the product and actually sending those digital signals to our factories, extreme, but not significant savings to our customers. So it's part of that engine of how we're going to convert.

those additional sales to a more efficient and effective operation. And it's also connected to the touchless piece that, you know, Meal's team is just really doing some exciting stuff with our factories as we're driving touchless automation in the digital is a big piece of making all that happen. Okay, operator, I think we have chance.

Your time for one more question. Thank you. One moment for our last question.

Last question, Comforeline of Larry Demaria from William Blair. Your line is open.

Okay, thank you and good morning. First, a clarification and a question. 275 DNA versus run rate seems like a big jump. Can you just clarify what's in there and why the jump? And then secondly, you highlighted 18% EPS growth per Kager over the prior five years. We just did an acquisition, invested heavily in digital driving automation.

But you're only committing to over 10% growth, but it seems like the setup for next five years is arguably better than it was for the prior five years. So you just talk to that and you know, white ways shouldn't be better than, you know, over 10%.

Sure Larry, let me address your DNA related question and then we'll get into the growth aspect. So first as it just relates to the DNA, really a reflection of the investment, incremental investments we have made in our business. As you know we've increased pretty meaningfully the CapEx profile.

in our business. So the jump in DNA is primarily driven by those investments in the amortization as well. Yeah. Okay. So I'll take the second part, Larry. If we look at our operating model slide, so exactly as you said, if you look at that backwards slope of the last five years at 18%,

And then you see the challenge we have in 2023 on EPS, as Chris has highlighted in the bridge, specifically the biggest one being the interest rates. And again, how do we pay down that debt as fast as possible? So if you look at the slope of that curve from where it is in 23 to 27, it's actually the 15 percent growth rate. You can look at that in the Rodman Vagino Journal, just to summarize what we saw in

The target that we had out there is greater than 10%. Let's continue to go beat what we say we're gonna do. So it actually, the slope of that curve is higher than 10%. But we're also recognizing we took the dip in 2023 to get there. We think the model to your point, especially as we're adding.

Higher margin is we continue to have margin expansion. We think beating that 10% EPS growth into 2027 is More than possible

Okay. One thank everyone for the, that ends our call for today. We are, and hope you feel the excitement. We're really excited about the opportunity with liquid box brings to us and how it's going to accelerate our growth through the future. And we look forward to speaking with all of you in May. Thank everybody for your time. Go ahead, thank you everybody. Thank you.

This concludes today's conference call. Thank you for participating. You may be seated.

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