Q1 2025 Sealed Air Corp Earnings Call

Thank you Mark and thank you all for joining us for our first quarter earnings call.

Today I will discuss the progress we are making on our transformation.

An update on current market conditions, including our response to the recent trade policies and walk through how we will navigate the second half.

Over the last year, we've been fixing the foundation of the business by reorganizing back into two market focus businesses food and protective.

Recently completed the last major step by integrating our supply chain, including our planning and production back into each business.

This now aligns all our commercial innovation and supply chain teams all the way down to the respective end markets, putting us in a better position to serve our customers.

This is especially important periods of volatility now each business is better positioned to adapt quickly to their unique market dynamics and customer needs.

With clear accountability and incentive alignment, we continue to see improvements in fundamentals throughout each business in parallel we continue to enhance leadership across the organization with a strong orientation towards growth an ownership mindset.

I'm confident the actions we are taking continue to better position each business for long term sustainable growth and will help us successfully navigate the uncertainty ahead of us.

Before I give updates on each segment I would like to address the dynamic macro environment. We continue to operate in focusing on the changing global trade landscape and subsequent tariff impacts.

Since our discussion in February the landscape has continued to evolve with a focus first on potential tariffs in Canada, and Mexico than on broader reciprocal tariffs, including China.

As a reminder, we are largely domestic production for domestic consumption, which positions us well against direct tariffs.

In addition, most of our products are exempt under U S. MCA, which has put us in better position on direct impacts since February as the U S has shifted his focus to the rest of the world.

Since November we have been actively reviewing our supply chain and optimizing production and procurement to mitigate potential tariffs and minimize inflation.

Where we have exposure that cannot be mitigated, we're actively taking pricing actions largely in food.

At this point based on current policy, the net tariff impact to our bottom line is minimal and reflected in our outlook. More importantly, we are assessing the downstream impact on our customers' businesses driven by potentially weakening demand environment.

And protective we are closely monitoring consumer and industrial sentiment and the potential knock on effects in our fulfillment and industrial end markets.

Food is a more resilient business in any economic cycle with that said, we are continuing to monitor for protein trade downs and trade outs. If the consumer comes under more pressure to ensure we are adapting to our customer needs and mitigating mix impact.

We are working closely with our top customers and distribution partners to better understand the impacts on their businesses and how we can help them navigate the volatility in the market.

While there is some indication of softness in the market to come the trade policies are still not settled and it's too early to be definitive on the second half.

Lastly, as the trade policies continue to evolve we are assessing areas, where our global footprint across both businesses could put us at an advantage relative to our competitors' footprint, creating opportunities to win further share.

For now we are contemplating tariffs that are in effect and some modest volume softness in both businesses driven by our customers' cautiousness in this environment.

This is offset by the improved FX outlook due to a weakening U S dollar.

We are taking further cost control and productivity actions in the second half to help offset potential further volume softness and drive increased operational leverage.

As a result, we are being prudent and reconfirming, our full year guidance, which continues to contemplate tariffs in effect and our mitigation efforts related to them as.

As we progressed through the second quarter, we expect to gain more visibility in the trade policies and market demand and the impact of our mitigation actions.

We will now move to each of our market focused business segments.

During the first quarter, our food segment delivered modest volume growth against a strong first quarter last year that benefited from carryover demand.

As part of our go to market strategy and in food. We are focused on taking market share in a retail end markets. Our case ready solutions grew low single digits in the first quarter compared to prior year.

Our strategy and accelerating growth in retail allow us to capitalize on market trends, where consumers are looking to replace dining out and on demand food delivery service with a grocery store spend.

A balanced opportunity between away versus at home consumption.

Further and user shifts from process in frozen foods towards fresh foods benefits the retail market.

Putting this together this portion of the business is expected to continue to perform throughout the back half of the year benefiting from evolving consumer preferences and the strength of our product offerings.

Industrial food processing market relatively flat in the first quarter compared to last year.

The South American cattle cycle remained strong in Australia. The cycle remains near peak levels, which is now expected to last through 2027, given favorable weather patterns and growing export demand.

Within the U S. The beef market was slightly better than expected and offset by weaker pork and Turkey markets.

Cattle herd sizes continue to hover around 50 year lows, so changing consumer sentiment and weakening spending may reduce demand for premium beef cuts and reaccelerate herd rebuilding.

We continue to pursue growth opportunities within our fluids business as we move towards the summer season with many of our fluid solutions are in peak demand.

Dairy is a growing end market, particularly in Europe, Australia, and New Zealand, which is creating opportunities in both cheese and milk packaging applications looking forward, we expect our food end markets to be stable outside of China and the U S.

Which are operating at a higher period of volatility due to the trade environment.

While some large industrial food processor in the U S are indicating potential trade downs away from premium beef based on our current volumes, we are not seeing trade downs and trade offs in our U S business at this point in time.

However, if we do see mix shift <unk> portfolio covers a wide range of fresh proteins across the trade down spectrum from ground beef poultry and smoked and processed proteins, putting us in position to move with the consumer.

I'm confident in our food business continues to be well positioned to fully achieve its underlying long term potential.

There is a longer cycle business that previously demonstrated strength and resilience in Ms. Prior economic cycles.

Transitioning to protective our first quarter performance was in line with our expectations throughout the first quarter and into early weeks of the second quarter, we did not see significant shifts in order patterns or buying behaviors.

Turning to market trends and protected.

As a reminder, approximately 60% of our product offerings largely served industrial end markets. Overall industrials are proceeding with caution in the current low visibility environment with PMI hovering around 50 and trending down as we approach the ended the quarter.

The remaining 40% of the protected portfolio, primarily serves fulfillment in markets, where sentiment is weakening box shipments in the U S. Our largest market were down low single digits in the first quarter, coupled with declining consumer confidence throughout the quarter.

As I mentioned in February that protected turnaround will take time to realize however, I'm encouraged by the progress we are making on our transformation.

The reorganized North American go to market team has now been in place for over a quarter with our investment in field sales now fully ramped.

By strengthening our customer distribution relationships, we are gaining better insights into their needs in the state of our end markets.

We remain confident that our revised go to market approach will continue to increase customer satisfaction reduce churn and improve our right to win in the market as a proof point, we minimize large customer churn throughout 2024 that now fully lap key customer losses from the beginning of last year improving.

Our prior year comparisons for the second quarter of 2025 and beyond.

While there may be headwinds on the horizon, our end markets based on our transformation initiatives.

See headroom in the markets, we serve to win back share loss over the last couple of years with early signs of traction building throughout the first quarter.

Following the success of the go to market reorganization in North America. We are now focused on enhancing our commercial organizations and market strategies in other key geographies.

The reorganization is positioned to protect our team to better identify opportunities to drive efficiencies and effectiveness within the business.

Lowering our cost to serve improving speed of decision, making and increasing operational leverage.

We are targeting to capitalize further on these opportunities in the second half of 2025.

While the protective business is short cycle and more sensitive to global trade dynamics versus food. We are heads down focused on controlling the controllable and improving fundamentals in the business.

I'm confident that the actions we are taking continue to better position the business in the market.

Before turning the call to Ronnie to review, our first quarter financial results I'd like to reiterate my confidence that as an organization. We are on the right path.

Ronnie: Our priorities are unchanged and remain keeping the customer front and center operating with urgency driving further productivity and transforming the business to deliver long term sustainable growth.

Ronnie.

Ronnie: Thank you Dustin and good morning, everyone, let's turn to slide four to review sealed Air's first quarter performance.

Ronnie: Team executed well in the quarter and we came in ahead of expectations net sales were $1 <unk> 7 billion in the quarter down 2% on a constant currency basis.

Ronnie: But even in the quarter with $276 million up 2% on a constant currency basis.

Ronnie: Adjusted earnings per share in the quarter at <unk> 81 was up 4% as reported and 9% on a constant currency basis compared to a year ago.

Ronnie: Alright, just the tax rate was 25, 7% compared to 25, 9% in the same period last year.

Ronnie: Our weighted average diluted shares outstanding in the first quarter were $147 million.

Ronnie: Turning to slide five.

Ronnie: During the first quarter volumes were down 2%, primarily on anticipated declines in protected due to prior year business churn and continued softness in our fulfillment and industrial portfolios.

Ronnie: Protective weakness was partially offset by modest volume growth in food at less than 1%.

Ronnie: Price was flat for the quarter with protective down 1% fully offsetting martell pricing gains into it.

Ronnie: First quarter, adjusted EBITDA of $276 million decreased $2 million or less than 1% as reported and increased 2% on a constant currency basis compared to last year with margins at 21, 7% up 80 basis points.

Ronnie: This performance was mainly driven by cost takeout and productivity efficiencies, partially offset by unfavorable net price realization.

Ronnie: Moving to slide six.

Ronnie: In the first quarter food net sales of $852 million were up 1% on an organic basis, primarily driven by pricing actions and formula pass throughs combined with marginal volume growth due to continued growth in our case ready solution.

Ronnie: The protein market overall are flat from prior year and slightly worse than our initial expectations.

Ronnie: The U S beef slaughter was better than expected this was more than offset by reductions in pork and poultry.

Ronnie: From a regional perspective volumes continued to grow in our EMEA, Latin American and Australian businesses, partially offset by flattish volumes in North America and declines in Asia.

Ronnie: Food adjusted EBITDA of $203 million in the first quarter was up 7% as reported or 10% in constant currency.

Ronnie: Adjusted EBITDA margin was 23, 8% up 200 basis points compared to last year.

Ronnie: The increase in adjusted EBITDA was mainly driven by productivity and cost savings, partially offset by unfavorable net price realization.

Ronnie: Protective first quarter net sales of $420 million were down 8% organically driven primarily by volume declines of 6% with growth in Asia, and Latin America being more than offset by declines in other geographies, primarily North America.

Ronnie: As a reminder, all of our large customer churn came from North America last year, and we will have fully ramped in the second quarter.

Ronnie: North America was where much of our transformation effort with initially focused and we expect results in this region to improve throughout the year.

Ronnie: EMEA continued to show signs of stabilization, having its best quarter since 2021 with volumes down just 1%.

Ronnie: Protected adjusted EBITDA of 74 million was down 18% in the first quarter as reported or 16% on a constant currency basis.

Ronnie: The adjusted EBITDA margin was 17, 6% down 180 basis points from the prior year.

Ronnie: The year over year decrease in adjusted EBITDA is primarily attributable to lower volumes and unfavorable net price realization, partially offset by productivity and cost takeout savings and.

Ronnie: On a sequential basis margin improved 280 basis points compared to the fourth quarter, driven by continued productivity and cost takeout initiatives.

Ronnie: Now, let's turn to free cash flow and leverage on slide seven.

Ronnie: During the first quarter free cash flow was a use of $12 million compared to a source of $78 million in the same period a year ago.

Ronnie: The primary driver of the anticipated use of cash with an increase in incentive compensation and tax payments, partially offset by lower interest payments.

Ronnie: At the end of the quarter, our total liquidity position was $1 3 billion, including $335 million in cash and the remaining amount in a committed and fully undrawn revolver.

Ronnie: Our net debt leverage ratio was three seven times down from three nine times a year ago.

Ronnie: We remain on track to drive net debt to adjusted EBITDA to approximately three times by the end of 2026.

Ronnie: Let's turn to slide eight to review our 2025 outlook.

Ronnie: During the first quarter, we generated strong earnings against sales that were slightly ahead of our expectations as we navigated a shifting landscape executing business fundamentals and continued our ongoing efforts to turnaround protected.

Ronnie: We continue to operate in a low visibility environment, especially in protected and anticipate we will have better visibility into how tariffs are impacting our end markets and the translation into second half performance during our next call.

Ronnie: As Dustin mentioned, we are reaffirming our full year 2025 outlook ranges across sales earnings and free cash flow.

Ronnie: We see a softer volume outlook offsetting improved foreign currency in both food and protected.

Ronnie: Putting a slight shift in industrial and consumer sentiment.

Ronnie: Foreign currency headwinds are now expected to be approximately 1% better than previously anticipated in our February outlook.

Ronnie: Our net price realization assumptions across the total company remain relatively the same for the full year.

Ronnie: Looking ahead to the second quarter, we anticipate a sequential increase in sales in both segments, reflecting an improving trend within the protected portfolio and more favorable Turkey and pork outlook than in the first quarter in food.

Ronnie: As a result, we expect second quarter net sales of approximately $1 3 billion adjusted EBITDA of $270 million and adjusted earnings per share around 71 cents.

Ronnie: We remain committed to restoring underlying fundamentals by executing in the market progressing our transformation navigating the changing trade policy and deleveraging the balance sheet.

Ronnie: With that Dustin and I look forward to your questions.

Ronnie: Operator, we would like to begin the Q&A session.

Speaker Change: Thank you very much at this time, we will conduct a question and answer session. As a reminder to ask your question. Let me press Star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Ronnie: Please standby, while we compile the Q&A roster.

Speaker Change: Our first call comes from the line of Ghansham Panjabi Your line is open.

Ghansham Panjabi: Thank you operator, and good morning, everybody.

Speaker Change: I guess first off on the <unk>.

Speaker Change: Comments duston on protective volumes.

Speaker Change: As it relates to progress that youre seeing over the past year.

Speaker Change: If you kind of zoom out.

Speaker Change: That segment had seen volumes down on a yearly basis since the first quarter of 'twenty two so I'd love to hear some color as to what specific progress you're referring to as it relates to how that business is unfolding and if you gave us I missed it but what were the.

Speaker Change: Volumes by vertical industrial versus fulfillment.

Speaker Change: Sure Hey, Ghansham.

Speaker Change: Pleasure pleasure for the question and to talk to you today. So.

Speaker Change: A couple a couple of ways I'll qualify that one is we talked about volume being down roughly think of it as 6% kind of in Q1, and some pricing impact on top of that.

Speaker Change: And if you go back to the prepared remarks, both in Ronnie's in my section in what we refer to as really.

Speaker Change: Around the wrapping effective that churn and just for context, the large customer churn kind of fully ran out and think of this as a piece of it as we would have talked about what you'd like to fill air business with Amazon that happened in Q1 of 2024 was the last quarter and so we've really minimized churn along the way so no major customer churn since the first quarter of 'twenty, four and you've seen that wrap around effect.

Speaker Change: Now starting in Q2, which you will see a sequential improvement of roughly two points.

Speaker Change: Relative to year over year, So we're down they give it a 6% volume will be down four also if you go back to the commentary. If you look at if you go back to even in 'twenty. One 'twenty. Two every region was down pretty much every product line was down now youre talking about Asia, showing growth youre talking about EMEA stabilizing being down roughly one point and and again in <unk>.

Speaker Change: The Tam growing as well so really what we've narrowed it down to is really North America, which is where we've been spending our time.

Speaker Change: Piece around the positivity is around a minimum <unk> of churn and a lot of the initiatives that we're doing what it goes back to the go to market reorganization again, it's too early to call the ball, but the feedback we're getting relative to distribute our distribution partners are our major customers and I mean directly as I'm spending time with them. It's been it's been overwhelmingly positive in terms of our approach and going back to.

Speaker Change: This whole getting closer to the customer and improving our service levels, improving business fundamentals really really tackling kind of blocking and tackling and doing it better and it's working and that's what we're seeing and youre going to see it in the Q2 guide right now relative to protective going back to your question around fulfillment industrials industrials have continued to our industrial portfolio has continued.

Speaker Change: Outperform our fulfillment portfolio and it has done so well in Q1, but keep in mind the churn that I'm, referring to this fully lapping to give you an idea of if you go to Q1.

The net six number is down for an industrial down nine and fulfillment, but all of that large churn that we talked about North America is in fulfillment going back to the filler business and Amazon and so as you go forward fulfillment gets a lot more positive begins to perform similar to our industrial has been our industrials have been performing along the way and to continue to improve and so hopefully that answers the question, but we're.

Speaker Change: Might pause about the progress, we're making and that hopefully gives you some insight into how we're driving it.

Speaker Change: Thank you very much one moment for our next question.

Speaker Change: Our next question comes from the line of George Staphos from Bank of America Securities. Your line is open.

Speaker Change: Hi, Thanks, everyone. Good morning, Thanks for the details.

Speaker Change: So I was just wondering.

Speaker Change: Talk to you a bit on how you're measuring your customer improvement.

Speaker Change: And whether youre doing net promoter scores or anything to that effect.

Speaker Change: How are you managing that and how you are trying to improve your scoring with customers for all the right reasons, while at the same time youre, taking out cost, which is kind of a difficult balancing act right you're taking out in some ways people. While also trying to improve your positioning with your customers. So how is that going and then.

Speaker Change: Broadly if you could give us a view relative to where you sit today versus say, where you when you were talking about fourth quarter.

Speaker Change: Would it be fair to say that protective is maybe trending a bit better than you would've expected relative to food or vice versa. How would you have us think about that as we think about the momentum in the second half. Thank you and good luck in the quarter.

Speaker Change: Yes, yes, thank you George and I and I. Appreciate the question I'll give it to you in the three the three parts right. So the first one is yes to customer satisfaction. If you think about going back even a year and a half ago. Two years ago that was really the starting point to really go out there and get our customers feedback, which is something that had been lost along the way and since then we've repeatedly gone back and checked it and B.

And that is also just being out there in front of our distribution partners personally with our customers and having our executive team be out in the field a lot more than they had been historically and so the combination of those three things are what we think about customer, scoring that's absolutely theres a analytical side of it and then there is the software side of it or does actually being on the field and in both cases, that's how we're getting into getting the feedback.

Speaker Change: Today to make sure that we're.

Speaker Change: We're certain that things are improving and the answer would be so far the answer is yes. It is improving its not where it needs to be is I don't want to leave you with that Theres still a lot more work for us to do to continue to do that and that will continue to happen through the efforts that we're talking about on the balancing act. So wondering if you go back to the prepared remarks, because it's a great question. Yeah. This balance between how do you continue to drive effectiveness.

Speaker Change: And the business and efficiencies while at the same time maximizing growth.

Speaker Change: And it really comes from the starting point do you think youre organized effectively structured effectively all your processes effective and so where we focused and if you go back to the prepared remarks, we've actually been investing back into protective sales right. So we've been putting more feet on the street and particularly in North America over the past.

Speaker Change: Pass it was let's say 90 days is really started as part of our planning effort in Q4, and we've executed across Q1 and this is really a restoration of I'll go back to prior cycles. There was areas, where we touched ill go back to think of it as four or five years ago, where a feet on the street were touched as part of some of these restructuring processes. That's not been the case this time around and it's really about.

Speaker Change: Trying to find efficiencies in other areas of the business. A perfect example of that is we shifted a significant portion of our back office operations to Manila and.

Speaker Change: As a result of that we're able to take some of those savings and put it back into the field is still drive net leverage in the business and so I still think theres plenty of opportunities across the business for us to become more effective and efficient. So it's not just about cost takeout for cost sake, but how do we actually drive that in a way that brings about organizational agility speed of decision, making reducing spans and layers getting us closer to that.

Speaker Change: Customer so it doesn't have to be perceived as a negative or impair growth.

Speaker Change: Then your question on the last in the third part around is protected protective trending better than I had originally thought or is relative to food and I would say right now both businesses are kind of performing in line with our expectations kind of coming into the year, we talked about the backdrop in the second half, but these transformational efforts of protective had been ongoing for the past year and they have been in waves of.

Speaker Change: Implementation and execution and from that perspective, I feel good about where that's at and keep in mind over the past couple of months, we've actually accelerated a number of those initiatives, but the benefits of that acceleration will happen more in the second half. So I feel good about because if you go back to some of the language of user on urgency and pace and how do we drive those improvements so I do feel that stepping up but the strategy is.

Speaker Change: And the same and it's just about how quickly we can pull forward those results and and that's what we're focused on.

Speaker Change: Thank you.

Speaker Change: Our next call comes from Matt Roberts of Raymond James Your line is open.

Speaker Change: Hey, good morning, Dustin Ronnie Mark.

Speaker Change: Thanks for taking the question.

Speaker Change: On the price side, you're doing it but the net price through your relatively unchanged, but maybe in each segment protective or are you seeing any changes in the competitive landscape or how do you think about price through the year, particularly now that the areas, where you saw churn or out of the portfolio.

Speaker Change: Similarly, similarly on food any changes or impacts from underlying resins in it and it seems like.

Speaker Change: Alison do seems to be gaining share in food. So any changes in the competitive environment, how that impacts price through the rest of the year. Thanks for taking the question.

Matt Roberts: Hey, Matt.

Matt Roberts: Great question and I'll work through it step by step. So we'll remain relatively unchanged. It really is like to give you an idea we were down in our <unk>.

Matt Roberts: Prior guidance down roughly 63, now we're down roughly negative 57. So it has improved slightly but really not material in the full year and the composition actually by segment is pretty comparable as well as if you remember going back to February when we talked about is that a majority of the negative price realization is in protective for the reasons we've discussed in the past.

Matt Roberts: Due to a lower for longer volumes environment in that business and just the competitive pressure, particularly in some of the areas like filler et cetera, where when Amazon decided to lead that business. It create a lot of supply in the market, but pricing pressure in that business.

Matt Roberts: So thats and then all of us whether your IPG or store pack, we're all feeling the effects of that at that decision and so going back to so those dynamics really haven't shifted and they're kind of in line with expectation, there's no been real real shift in.

Matt Roberts: Direct material inflation non direct material inflation, and if you get back to resins, specifically, what I'd say is that and this maybe dive a little bit into that tariff conversation in terms of the questions around that is that right now, particularly with the recent change in China, where they made an exemption for polyethylene be able to freely trade without being terra.

Matt Roberts: It really kind of pay has kind of settled out right now and youre seeing maybe even some flattish kind of sequential movement right now, but there's still inflationary for the full year, which is baked into our formula pricing. So that's not really changed much it hasn't been material impact and would that change do you see the market kind of settled out because there was a period there where we were concerned there may be oversupply in the U S market.

Matt Roberts: Because just as a reminder for polyethylene is most of those are produced kind of domestic production for domestic consumption. The area, where we are seeing some pressure is in specialties and a.

Matt Roberts: A lot of those right now today are sourced outside of the U S.

Matt Roberts: With that could have some inflationary kind of indirect inflationary pressure relative to tariffs, but so far we have not really experienced that we don't see an impact at least in Q2 at this point this material.

Matt Roberts: And so those are the areas that and Thats why net price realization right now is relatively the same.

Matt Roberts: Thank you very much.

Matt Roberts: Our next call comes from Anthony Pettinari of Citigroup. Your line is open.

Matt Roberts: Okay.

Matt Roberts: Anthony Your line is open.

Matt Roberts: Standby for the next call.

Matt Roberts: Our next question comes from Jeff Zekauskas of Jpmorgan, Jeff Your line is open.

Jeff Zekauskas: Thanks very much.

Speaker Change: Your sales were down year over year, but your gross margins expanded nicely.

Jeff Zekauskas: Hey, Jeff.

Jeff Zekauskas: Pleasure and a good question. So there's a couple of things is if we go back if you go back to related to prior year, we continue to drive productivity initiatives into the.

Jeff Zekauskas: And to the business and cost takeout right. So if you go over the prior year.

Jeff Zekauskas: And are on track to exceed 150 $160 million, we talked about as our cost takeout program. We're on track this year for $90 million and what you've seen is that a lot of that goes into cost of goods sold right in terms of focusing on improving our cost positions in the business.

Jeff Zekauskas: And both businesses and so that's been really the effort.

Jeff Zekauskas: Kind of talked about it over the past three or four quarters and will continue to focus on it what we're doing now as we think about the second half is actually looking at in San Jose is there more opportunity in the business beyond the $90 million that we really have baked into our outlook at this point in time and that's what we're focused and that's what's been able to drive our improvements and if you get into specifically why is that the case.

Jeff Zekauskas: It's optimizing production optimizing scheduling.

Jeff Zekauskas: Being able to try to minimize impactful to supply base in terms of negotiation with suppliers from a pricing standpoint, it's everything from network optimization I mean, its a whole swath of activity that we've been undergoing over the past.

Jeff Zekauskas: Over the past year to really drive that outcome, but it's a great point and we've been really pleased with the pleased with outcome. So thank you for the question.

Jeff Zekauskas: Thank you.

Speaker Change: Our next question comes from.

Speaker Change: Phil <unk> from Jefferies. Your line is open.

Phil: Hey, guys, congrats on a solid quarter and a choppy environment.

Speaker Change: It doesn't I guess kind of kick things off can.

Speaker Change: Can you give us a little more color on the order patterns in April may for food and protective it sounded pretty steady which is pretty encouraging particularly on protective.

Speaker Change: Appreciating, it's a shorter cycle business.

Speaker Change: How much line of sight do you have and then certainly you saw a element of that business through distribution. So that adds to element is.

Speaker Change: <unk> ability, but what are your channel partners, saying as well.

Speaker Change: Yeah. So it's a great question I would tell you that for the most part.

Speaker Change: Or you're in food or protective and you're talking to our end customers their.

Speaker Change: Q1s were in line with expectations in terms of their understanding and most people are focused on what does that mean for the second half. So we actually haven't seen going back to the prepared remarks. It was intentional in there Phil.

Speaker Change: Phil around.

Speaker Change: We have our Q1 was really in line with expectations. We were ahead in a couple of areas and then.

Speaker Change: You go to April and May I mean, amaze, obviously very early at this point, but April has been largely on track I would say.

Speaker Change: The food businesses, where we're closely watching potential trade downs and that beef area has been a real close watch out and you've seen some of the large industrial processors begin to hone in on that in the U S. But it's really a U S specific commentary that I'm, making that comment around.

Speaker Change: But so far protective for April is in line with our expectations and and obviously may it's too early to call right now at this point, but we're quite pleased with where we're at now.

Speaker Change: Now that doesn't mean that we're not being cautious we're being thoughtful about the second half and.

Speaker Change: Going back to your question about distribution.

Speaker Change: Your distribution partners.

Speaker Change: The feedback I've gotten so far is that there are Q1s were also kind of in line and on track and are into April has kind of trended in line, where they think it needs to be and but again I go back to it. They are also cautious about the second half and trying to figure out which industries may be affected and what does that mean to overall demand and what does it mean by geographical composition and those are the areas.

Speaker Change: That we're going to focus on the second half beyond what can we do to mitigate and so if you think about over the next couple of couple of months I think allowed this will play out and we'll get a lot more visibility across the entire ecosystem, whether it's our distribution partners ourselves directly to our direct customers.

Speaker Change: Thank you.

Michael Rosslyn: Our next question comes from Michael Rosslyn.

Michael Rosslyn: Michael <unk> of <unk> Securities. Your line is open.

Speaker Change: Yes. Thank you that's the only market taking my questions and thank you Echo.

Speaker Change: Echo the congrats on a good quarter despite the backdrop.

Speaker Change: Mike you mentioned that the protective turnaround is going to take some time to realize that you've been working on it actually it sounds like.

Speaker Change: Year or so.

Speaker Change: In your transition to CEO the board to us.

Speaker Change: Do you have a sense of urgency around timing, so giving us have you been working on the protect the turnaround for about a year can you help us frame what the timing looks like on a go forward basis is nine months 12 months 18 months.

Speaker Change: I'm, realizing it's a delicate balance between expediency, ensuring that the changes you're making are the right ones, but just trying to get sense. It should help us frame, how we should think about the protective changes and the timing for this unit to occur.

Speaker Change: One last one quick one just you really have to protect it has multiple portfolios across many geographies is it possible to separate some of those portfolios that you determined maybe I'm not core without negatively impacting the remainder of the business. Thank you.

Speaker Change: Hey, Mike It's a great question. So a couple of things because I'm going to contextualize. It two ways because you talked about the urgency and then you're balancing the commentary in the script around taking time to realize.

Speaker Change: And then Youre juxtaposing that also what does that mean in terms of translating to results. So you got to park for the size of the second on the the.

Speaker Change: The macro backdrop and some of those areas. So what's happened. The question is really if you go back to the transition to CEO and what have we been doing differently. We've really been focused on accelerating the transformation programs that we've had within that business.

Speaker Change: Talk about it in the script and we hit on a couple of different areas, but one of them is again, we talked about the north American go to market transition.

Speaker Change: <unk> focus now is translating some of that benefit into our other geographic regions right. That's an acceleration that's happened over the past say.

Speaker Change: 70 days and then if you go into this kind of idea of having a fit for purpose cost model to continue to drive effectiveness and efficiencies in the business also given us the ability to reinvest in growth and and continue to maintain operational leverage as we work through the deleveraging the business from a volume perspective, that's also relatively new and also being accelerate as part of this effort.

Speaker Change: And then beyond that just we've talked about it briefly but some of the enhancements in our leadership.

Speaker Change: That piece of it continues to be underway and I think that will be in a much better position think of it over the next 90% to 90% to 60 to 90 days to six months.

Speaker Change: On the last piece, which we didn't really touch on the script because a lot of that work is still ongoing and we've highlighted in the past is really around and I'll touch on your point about portfolio optimization, but when you think about this idea around the fiber side, how were approaching mailers, how we're approaching our paper systems. How are we thinking about our Aps business, particularly in our hybrid <unk>, which we're bringing to market now over to <unk>.

Speaker Change: <unk>, we feel really good about those areas in that portfolio relative to fulfillment and making sure that we're more substrate agnostic that we're making progress in that area and that's an area of acceleration.

Speaker Change: So when you put those things together and you think about the business over Holistically, we're already demonstrating that if you look at our precession of quarters that we have currently in our guide you're already talking about being down roughly six being down four in that progression will continue throughout the second half and we're still targeting that take outside the macro backdrop for a second if theres something cyclical.

Speaker Change: Impact associated with that.

Speaker Change: But right now and Youre seeing that and that's what I'll go back to as a proof point is that youre seeing some of these outcomes are being driven and another highlight just to reiterate the commentary which is on EMEA being the best quarter. We've had since 2021 and was down one point of.

Speaker Change: The significant improvement over the past say two years and our Asia business is growing.

Speaker Change: It's really North America that we're really focused on improving that bottom line.

Speaker Change: So to answer your last question around specifically the portfolio optimization at this point in time and just as a reminder, we have we're still the largest protective packaging business in the world by a factor of almost too.

Speaker Change: And that is the breadth of our portfolio the strength that drives the strength of our relationships and distribution and we.

Speaker Change: It's an area that at least at this point in time outside of the smaller things that we pruned. If you think about Cabo thermal business. If you think about depth guard anything about couple of these areas that were smaller we've already called out.

Speaker Change: We don't see large portfolio shifts at this point in time, where we're really trying to optimize the business that we have particularly in this current M&A environment.

Speaker Change: Yeah.

Speaker Change: Thank you very much.

Speaker Change: Our next question comes from the line of Josh Spector UBS. Your line is open.

Josh Spector: Yes, hi, good morning, just a couple of follow ups on protective first can you say explicitly what's your volume assumption is for the second half I'm not entirely clear if you've updated that or youre, saying youre going to update that next quarter relative to the 4% decline youre, assuming in second quarter, and then somewhat related.

Josh Spector: With tariffs. So I was just curious on the equipment side, how domestically sourced or those materials and parts are I guess more.

Josh Spector: More explicitly how much of that comes directly from China is that a risk on cost and delaying or pushing out some deployments for you guys.

Josh Spector: Yeah.

Josh Spector: Hey, Josh this is dustin they couldnt equipment question just to be specific are you talking about food food and protective or protective or both.

Josh Spector: I was just asking more about protective but if it's easier to answer for both go ahead.

Josh Spector: Okay.

Josh Spector: Yes, so to be explicit about the second half were down about a point in volume.

Josh Spector: And protective.

Josh Spector: And so so going back to the question on equipment. So again on the tariff piece of it for the most part with a U S. MCA exemptions thats largely you're significantly reduced our exposure to any potential direct tariff impacts there are some and equipment, but we right now we see them as relatively immaterial.

Josh Spector: And then we're able to manage through sourcing and changes that we can put it in our supply chain. So at this point in time, we don't see a material impact in terms of being able to place our drive equipment sales outside the demand environment and our equipment business is to answer the question directly right now is still in line with our expectations and.

Josh Spector: Just as a reminder for everyone Holistically, it's about it rounds to about half a billion dollars of 50 50 between equipment sales and parts and service is split 50 50 between both businesses and so right now the first quarter to give you a sense in both businesses our book to Bill was above one.

Josh Spector: You're kind of indicating some of the strength in the order intake and so hopefully that answers. The question so quite positive about that with there.

Josh Spector: Thank you very much.

Speaker Change: Our next question comes from the line of Gabe <unk> of Wells Fargo. Your line is open.

Speaker Change: Dustin Ronnie and good morning.

Gabe: I wanted to ask you about.

Speaker Change: Margins and you guys kind of came in 100 bps above our model.

Gabe: On a consolidated basis.

Speaker Change: Drilling in a little bit on food that was.

Speaker Change: Some of the outperformance was and I appreciate that things can move around based on timing of resin recovery in raw material moving et cetera.

Speaker Change: But just a higher level doesn't as you look at the business and the value add that you bring to your customers.

Speaker Change: Are you performing in line with where you would expect in that business.

Speaker Change: Was there anything peculiar in the first half of 'twenty five that would kind of prevent you from from being in that range on a go forward basis.

Speaker Change: Thank you.

Speaker Change: That's a great question, Gabe and and again, what I would tell you. It goes back to some of the prior commentary if you look at our guidance right now we're expecting to be in the for the food business overall holistically in that you can think of it as two three points of margin range, which is obviously kind of in line with how we performed in 2025 and we demonstrated again in Q1, so I don't.

Speaker Change: See really anything procure alere in either year.

Speaker Change: That would not lead that to be long term sustainable margin growth. There is a or in terms of that 23 percentage point range that we get the question often times about how much more leverage you trying to drive in that business and right now our focus has been really on growth and so as you think about stepping that margin up that we don't really see it from here in terms of having like this long growth.

Speaker Change: Relative to margin expansion, unlike protective where theres more room to run and so right now we're focused on how do we find areas to step up our growth kind of above market, which is where we've been performing kind of here.

Speaker Change: Here recently in terms of market growth rates, but think of it as pre 2024 and 'twenty five.

Speaker Change: And that's our focus right now.

Speaker Change: Question is how we've been able to drive that it goes back to the some of the prior commentary a lot of that is really just putting driving productivity in both the businesses and cost takeout and theres nothing at least at this point in time that would indicate were not able to do it on a positive note as well if you look at this year, our net price realization is while it's not positive or zero yet it's still.

Speaker Change: <unk> is still relatively low compared to prior year. So you can see that gap begin to narrow, which obviously makes it a lot easier.

Speaker Change: Kind of managing the business going forward, we're pricing to help offset a lot of that inflationary impact.

Speaker Change: Thank you very much.

Speaker Change: Our next question comes from the line of Stefan <unk> of Morgan Stanley. Your line is open.

Rodney Mark: I'd just been Rodney Mark Thanks for taking my question.

Speaker Change: So you originally and I guess still do sort of expect.

Rodney Mark: Now a second half recovery.

Rodney Mark: Protective volumes as we fully lap some of the customer churn that you mentioned earlier.

Rodney Mark: But your original guide I guess it was given before liberation day and before the escalation of the U S. China tensions.

Rodney Mark: Maybe if you could just give us your thinking about sort of holding that guide and maybe to the extent you have visibility.

Rodney Mark: In your protective business.

How much of your international protective exposure is for importation into the U S. Thanks.

Speaker Change: Hey, Stefan are all great questions. So theres a couple a couple of things I'll comment on on this particular, one keep in mind that when we talked about the outlook for the year, we are seeing some volume pressure and protected and we call that out in the numbers I quoted already reflect that so while the guide overall is intact, what you're really seeing is some modest volume softness based on what we can see already today.

And think of how thats going to Cascade and proceed throughout the year and then that's being offset by a benefit in FX. There's a moderated FX outlook is similar to others.

Speaker Change: You don't think the euro as these other currencies will remain at the levels, they're at today in terms of devaluation.

The U S dollar weakening against them and so that's kind of how the guide is constructed and so you see some slight volume loss.

Speaker Change: Kind of reductions in food and you see some in protective.

Speaker Change: You know kind of reflecting that uncertainty in the marketplace being offset by an improved FX outlook. So in terms of international.

Speaker Change: International exposure.

Speaker Change: Peering through this lens and really understanding protective packaging materials, what's coming in for import export how that eventually make it to the end user and what's being affected by as an example, the reduction in potential Chinese imports into the U S that area is an area, where we have limited visibility other than to say this which is if.

Speaker Change: If you think about our business a majority of it is obviously, an industrials, which is gonna have far less exposure from that particular perspective and keep in mind that most of our business outside of the import export as domestic production for domestic consumption. So it has has to some degree geographically from the tariff impacts themselves and the demand localized to those economies and so.

Speaker Change: Right now at this point in time, we haven't seen a change in buying patterns change in order behavior.

Speaker Change: Now moving cautiousness relative to say hey, let's.

Speaker Change: Destock for a bit and wait to see what happens before we restocked, we haven't seen any form of that at least at this point in time.

Speaker Change: And then going back to the prior commentary.

Speaker Change: It's an excellent question. This is an area that we're going to continue to pressure test over the next two to three months.

Speaker Change: Really understand if theres, if theres back half because going back to the prepared remarks, there is limited visibility in protective and it's not just for us for our distribution partners and in some degree of diversification of the business geographically product wise and then just.

Speaker Change: The diversity and relative to customer base.

Speaker Change: Thank you very much.

Speaker Change: Our next question comes from the line of Christopher Parkinson of Wolfe Research. Your line is open.

Christopher Parkinson: Great. Thank you so much for taking my question can you just hit on a little bit on the trends that youre seeing in red meat markets.

Christopher Parkinson: You could just parse out international trends versus the U S and how that flows in not only into your second half assumptions, but also just intermediate to long term in terms of your competitive positioning. Thank you so much.

Speaker Change: Hey, Chris all great questions and.

Christopher Parkinson: So going back to <unk>.

Speaker Change: Some of the prepared commentary.

Speaker Change: In general market expectations have largely been the same if you go back to February to today across the protein markets.

Speaker Change: Was it an exception of really in the U S and so in the U S is where you know the question has been around the USB cycle. In Q1, we had some a little bit of a flip where beef was better than we'd anticipated similar to last year, where it kind of every quarter industrial food process, we're still take advantage of market pricing continuing to keep the her low but effectively slaughtering everything.

Speaker Change: Could along the way, where you've seen that dynamic kind of play out in Q1.

Speaker Change: But there was an offset this time relative to Turkey, and and pork were going to see that reverse going back through the remainder of the year, where we do believe that to come back and help offset some of that weakness that we do perceive to be in beef.

Speaker Change: And what.

Speaker Change: What we've talked about going into the commentary and you've seen this in some of the other industrial food processors, where you know there.

Speaker Change: There is a perspective that with the impacts we're having potentially on the consumer it may put pressure on premium beef purchases and you start working your way down trade downs and trade outs and working our way down that spectrum.

Speaker Change: We're well positioned to make sure to take share across those product lines. So today, we have.

Speaker Change: Great share across most of those areas. So it's not it's not that we're not in a position, but there is the potential mix impact that we would need to mitigate throughout the second half at those trade downs do occur, but again as the U S market you go to international markets, the Australian beef cycle, Latin American beef cycle continue to be very strong.

Speaker Change: We are seeing some shifts in exporting so if you think about as an example in the U S. Youre seeing lower exports, obviously, the China and you're seeing that demand being picked up by Australia.

Speaker Change: By Brazil in other geographies, but again, we're well positioned all these geographies that pick up that demand.

Speaker Change: The big the Big area that we're focused on is North America, and and really looking at how this market plays out and because it does still being up roughly 65% of the food business. It is hard for other markets to offset it but you know you go back to the commentary this markets outside the U S continue to perform incredibly well.

Speaker Change: Thank you very much.

Speaker Change: Our next call comes from the line of Arun Viswanathan of RBC capital markets. Your line is open.

Speaker Change: Thanks for taking my question.

Speaker Change: Well congrats.

Speaker Change: Congrats on the.

Speaker Change: Q1 there.

Speaker Change: Just curious on the guidance so it sounds like.

Speaker Change: Okay got it.

Speaker Change: I understand that there is a lot out there.

Speaker Change: There but.

Speaker Change: I guess you have you seen any slowdown.

Speaker Change: In may.

Speaker Change: Maybe in food.

Speaker Change: Food volumes continue to outperform there.

Speaker Change: And maybe if I if I ask.

Speaker Change: Another way.

Speaker Change: Alright, and keeping the guidance as is are you, saying that theres, maybe some pull forward or is it mainly just on that kind of 9% swing in volumes that you've you've kind of maintained your guide and just building in some conservatism.

Speaker Change: Yes, all great questions and so a couple of things I would say one is going back to the question around kind of the first quarter and then what we're seeing in the month of April and the question around pull forwards.

Speaker Change: There was I would say in Q1 very minimal pull force, particularly in our Canadian business.

Speaker Change: You saw some customers being concerned around the current tariffs that were impact, but this is really de minimis relative to overall kind of performance for the company and so in terms of slow down overall, we haven't really seen a slowdown in the business.

Speaker Change: Other than I would say the concern around premium beef and those cuts and that's more of a recent phenomenon that we're looking out for but in general we haven't seen any material change. The concern on is really well it has to come right relative to the economic outlook in the second half and what can we do to mitigate if those outcomes do play out the way they they may and that's where we are.

Speaker Change: Focus right now, but this is the challenging part of where we sit today is just that the business itself for the first quarter as well as the kind of heading into April has been performing.

Speaker Change: Really in line with expectations.

Speaker Change: Yeah.

Speaker Change: Thank you very much.

Speaker Change: Our next question comes from the line of Eldon Regas of Mizuho Securities. Your line is open.

Eldon Regas: Okay. Thank you good morning, everyone. That's in a quick one for me, if we see supply chain and other cost increasing because of tariffs.

Eldon Regas: We believe like you positioned well to raise prices to pass through those costs.

Speaker Change: Do you think you'd need like stronger volume to be able to do that and also which segments will have like an easier or harder time to pass through those costs.

Speaker Change: Again, I was waiting for the tariff question. So I'm glad I got it here and so a couple of things I would tell you around the tariffs specifically is that in general with the change with U S. MCA being exempt that really minimized our exposure across both businesses. There's more exposure in protective excuse me in foods and protect.

Speaker Change: <unk>.

Speaker Change: But in general right now keep in mind, our food business contractually in many cases, we can we can we can push through the price if necessary, but we see it in relatively minimal I mean, I don't want to overplay. The exposure we have in each business right now it's relatively minimal.

Speaker Change: In both food and protective and as we mentioned in the script. We at this point in time, we believe we can mitigate whatever we need to through pricing actions and our supply chain actions and the supply chain. We've been that we've had in motion really since November and really continue to focus on that over the past four or five months. The other area I'll leave you with is that the one that's kind of TBD play out I think we got the question earlier, which is around.

Speaker Change: How will resins play out for the full year. So we're highly focused there and managing that with our suppliers is seen as an example opportunities where we may be getting a particular specialty from another country, but they have assets in another country, where can we get it produced there to help mitigate it as an example same thing for our equipment business. While there may be some impact from this question came up earlier.

Speaker Change: We're looking at ways to source the different parts of components from other areas right now at this point in time, we see a path and many of these cases to be able to do that is.

Speaker Change: It's a question of when timing et cetera, and also keep in mind that the trade policy themselves have evolved quite a bit already and we expect that evolution to continue throughout the second half to some degree its not.

Speaker Change: It's not quite stable yet.

Speaker Change: But anyway I'll leave you leave you with that is we feel really good about in both cases and to your question around do we need the volume.

Speaker Change: The answer is no right because in most cases, we're in a similar position relative to our competitors and so if one has to price will probably most likely to see the market price.

Speaker Change: Yeah.

Speaker Change: Thank you very much at this time I am showing no further questions I would now like to turn it back to Dustin.

Speaker Change: For closing remarks.

Dustin: I'd like to thank everyone for joining us. This morning, I look forward to updating you over the coming quarters on our ongoing transformation and how we will continue to successfully navigate the environment.

Dustin: We have other similar challenges before and learn lessons that made us more resilient and prepared for navigating past economic cycles to the turbulence of COVID-19, our business has demonstrated strength resilience and adaptively.

Dustin: This challenge is no different and I am confident that we will navigate the landscape accordingly.

Dustin: Like to close by thanking the global still at Air team you continue to focus on what's important.

Dustin: Important delivering outcomes for our customers day in and day out each other thank you.

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

Dustin: [music].

Dustin: Okay.

Dustin: Yes.

Dustin: [music].