Q2 2025 Sealed Air Corp Earnings Call
Measures in the reconciliation to us. Gaap can be found in our earnings release or the appendix of our slide presentation. I will now turn the call over to Dustin operator. Please turn to slide 3.
Thank you, Mark. Good morning, everyone and thank you for joining our second quarter earnings call.
Today, I will give an update on our leadership team. The impacts of Shifting global trade policies on the markets, we serve, and our ongoing transformation.
Later, Ronnie will provide an update on our financial results and details on our Outlook.
Yesterday, we announced after a thorough search process, Kristen Actis Grande will be still. There is new Chief Financial Officer. We are excited to have Chris and come on board later this month and leverage. Her experience driving Transformations, across complex, manufacturing and distribution businesses to accelerate the transformation. We are driving here at field are
She has a proven track record of creating shareholder value.
and I'm looking forward to the impact, she will make across both of our businesses food and protective
I want to personally, thank Ronnie for all our contribution during this interim. Period. Ronnie has been a trusted business partner since I joined the company and I'm deeply grateful for our willingness to step up and support me through my transition to CEO all while continuing to advance our finance strategy and drive outcomes across the business.
She will continue to be an integral part of our leadership team.
My sincerest, thank you to you, Ronnie.
Moving on to trade policies. Since our discussion in may we continue to monitor the changing global trade landscape.
As a reminder, we are largely domestic production for domestic consumption.
And most of our products remain exempt under usmca, both of which position us well against direct tariffs.
The net impact of tariffs was not material to our second quarter results.
While the situation remains Dynamic. The second quarter was more stable than expected with a pause on broader tariff decisions until the third quarter.
However, there are parts of the business, particularly certain specialty residents that are procured for partners in countries, being impacted by increased tariffs, we continue to focus on mitigating the impact of tariffs through production and procurement optimization and limited pricing actions.
The net, tariff impact included in our second, half Outlook is minimal and we will continue to provide updates as the longer term impact, becomes more clear.
Let's now move to economic Outlook and discuss each of our Market focused business segments.
Globally. We are closely watching our end markets to understand the extent of demand impacts due to lower economic growth. Outlooks, shifting industrial production and changes in consumer spending patterns on the back half of this year on a go for basis.
Beginning with our protective segment.
We continue to be in full swing in our turnaround and are seeing early signs of progress.
As a reminder last year, most of our efforts were focused on our new go to market strategy. With a strong emphasis on getting closer to our customers and executing, well against the basics.
reflecting the market uncertainty ahead of us in the global trade policies that have lower growth, expectations across many markets but primarily in the US,
Transitioning to food.
Our food business remains resilient and contagious to perform throughout the first half of 2025, despite Market pressures accelerating in the second quarter.
As a reminder, our food business is focused on serving fresh protein markets across industrial food processing, retail, and food service.
Our international business, while tempered from a market perspective, continues to perform well and we expect fully your volume growth outside the US.
As we capitalize on opportunities.
Our media region is a standout where we have continued to take, share in the market throughout the first half of 2025. Building our momentum, coming out of 2024,
The pressures on the North American Market that we outlined at the beginning of the year, accelerated in the second quarter, putting even more pressure on the second half.
I'll start by focusing on the demand side before shifting to the supply side Dynamics.
Despite chopping consumer sentiment consumer spending continues to be relatively stable in the US. What is Shifting however is where consumers are placing their dollars, especially as inflation continues to escalate across all food categories.
The overarching theme is a shift into value grocery which is affecting each of our in markets.
These changes are particularly pronounced in lower- and middle-income households.
Within industrial food processing. The shifting spend landscape is resulting in pressure on premium beef cuts.
Consumers are trading down to lower-end cuts and ground beef.
While this shift is compressing our shrink back volumes, it's being partially offset by a pickup in our retail Solutions.
Within retail, the shift is away from high-end consumer packaging, good brands into private label.
Away from the deli counter to prepackaged goods, and from smaller portions into more economical bulk and family-sized packaging. Formats? Reducing the packaging volume per protein, weight, salt.
Overall changes in consumer spending are resulting in lower outlooks for food service with a mixed shift from fast, casual and Quick Service restaurants into retail. Or we have a broad solution, set and increasing Focus, but lower market share that our industrial and Food Service portfolios.
We continue to bring new solutions that include new packaging formats expanded printing capabilities and enhanced equipment offerings to capture more demand.
While we are making progress, this strategy will take time to fully capture the market opportunity ahead of us.
Shifting to the supply side.
The US beef, Slaughter rates are declining at an accelerated Pace leading to volatility in the beef markets.
while we've been closely watching the North American beef cycle, which are at 50 year lows,
This quarter, we saw an inflection point in the market, the spotter rates, decreasing 7% worse than our previous expectations of down 1% for the quarter.
This second quarter USB production.
And a softer second half is now resulting in lower, full year, volume assumptions compared to what we anticipated at the start of the year.
A Herbert building has begun. It's only the first step in a lengthy return to a more normalized and predictable part of the cattle cycle.
As a reminder, the time between heper retention and the resulting cattle going to Market is approximately 3 years.
An improved FX outlook on the weaker US dollars helping to offset the Topline softness in North America. And as a result, we are reiterating our sales guidance.
As we mentioned during the last call, with the anticipated slowdown in the US market in the visibility, we have into the structures that support each business. We continue to further streamline each business to make them fit for purpose for their respective long-term strategies.
Overarching themes, remain simplifying. Our organization moving closer to the markets. We serve at the coming easier to do business with which will result in long-term, sustainable growth in earnings,
Shifting gears.
I continue to be pleased with our disciplined approach to Capital, allocation,
We are on track for the full year of free cash flow guidance. That will continue to solely focus on Debt, Pay down
Before turning the call to Ronnie to review our second quarter Financial results, I'd like to reiterate my confidence that as an organization we are on the right path.
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.
Thank you, Dustin and good morning, everyone. Let's turn to slide 4 to review sealed air. Second quarter performance.
As Dustin mentioned, we executed well in the quarter and came in ahead of expectations.
Net sales were 1.34 billion in the quarter down 1% on a constant currency basis.
Adjusted EBITDA for the quarter was $293 million, up 3% on a constant currency basis.
Adjusted earnings per share in the quarter of 89 cents. Was up 7% as reported and 10% on a constant currency basis.
Our adjusted tax rate was 24.4% compared to 25.5% in the same period last year.
Our weighted average diluted shares outstanding in the quarter was 147 million.
Turning to slide 5.
During the second quarter volumes were down 2% across both businesses.
Food volume weakness was primarily due to softer-than-anticipated volumes for industrial food processing, predominantly in North America.
Protected volumes were down 2% in the second quarter, our lowest volume reduction since the end of 2021.
The Fulfillment portion of the portfolio, which represents about 40% of the protective business was down mid single digits, as we laughed to the tail end of material customer churn.
The Fulfillment declines were partially offset by volume increases within the industrial portfolio.
Price was up, 50 basis points, primarily on formula contract, pricing and food, which was partially offset by pricing declines in protective of about 2%.
Second quarter adjusted. Evida of 293 million increased 3% on a constant currency basis.
Margin of 22% was up 70 basis points.
This performance was mainly driven by cost takeouts productivity efficiencies and a 1-time. Benefit of 7 million from a lease buyout related to GNA Network optimization, partly offset by unfavorable net, price realization.
Moving to slide 6.
In the second quarter food, net sales of 896 million were flat as favorable pricing and formula passes were offset by softer volume.
As Dustin mentioned, protein markets decelerated more rapidly than we initially anticipated during the quarter.
The global protein markets we serve were down approximately 1%. The largest of which was the USD cycle which was down 7%.
Despite these Market headwinds our case ready, retail Solutions benefited from prior share gains with volume up slightly.
From a regional standpoint Foods, Amiya and Asia, Asia businesses showed strength with volumes of low single digits in both regions.
Food adjusted EBITDA of $210 million. In the second quarter, it was up 3%, adjusted EBIT, and margin remains strong at 23.4%, up 50 basis points compared to last year.
The increase in adjusted EBITDA was primarily driven by productivity and cost takeout savings, combined with favorable net price realization.
These were partially offset by lower volume.
Protective second quarter, net sales of 439 million were down, 3% as reported and 4% in constant currency while volumes declined 2% overall. Declines in our fulfillment portfolio, were partially offset with slight growth within our industrial portfolio.
Protected, adjusted ibida of 78. Million was down 5% in the second quarter as reported.
Adjusted, even in margin of 17.8% was up, 20 spaces points from the first quarter.
on a year-over-year basis cost takeout and productivity savings partially offset negative, net price realization
Now, let's turn to free cash flow and leverage on slide 7.
During the 6 months, we generated 81 million in free cash flow as compared to 207 million in the first 6 months of 2024.
Compensation payments and the timing of tax payments partially offset by lower interest payments and capital expenditures.
At the end of the quarter, our total liquidity position was 1.2 billion including 354 million in cash and approximately 830 million available under our revolver.
Our net leverage ratio was 3.6 times.
We remain on track to drive net debt to adjusted EBITDA to approximately 3.0 times by the end of 2026.
Let's turn to slide 8, to review our Outlook.
We continue to operate in a low-visibility and more volatile environment, within both our food and protective businesses.
As a result of the strong first half performance and improved form, currency assumptions will be offset by softer volume expectations, primarily in food, in the second half. Additionally, we are expecting slightly lower pricing across both segments due to deflationary raw materials driven by the global trade impacts.
Foreign currency impacts are now expected to be approximately 1% better than anticipated in our previous Outlook.
We are maintaining our previous sales. Guidance range of 5.1 to 5.5 billion and adjusted ebit. A guidance range of 1.075 to 1.175 billion.
Our net price realization assumptions across the total company remained relatively consistent for the full year.
We regularly monitor legislative changes to determine impacts to the company's performance.
In early July the 1 big beautiful, Bill Act was signed. We are currently evaluating the impact of these provisions and their impact on our effective tax rate and cash tax payments for. Now, we still expect our adjusted tax rate to be ranged between 26 and 27% for the year.
Based on our outperformance and the first half of 2025, we now expect adjusted earnings per share for the year to be slightly above the midpoint of our previous guidance range of $2.90 to $3.30 per share.
Lastly, regarding free cash flow. We are maintaining the midpoint of our previous guide of 400 million.
We continue to improve our discipline around capital deployment, reducing our outlays while improving our returns. As a result, we expect capital expenditures to come in lower than our original expectations, though slightly offset by higher working capital.
While our cash generation was more linear in 2024, we typically generate more cash in the second half of the Year. Mainly due to the seasonality of the business,
Looking ahead to the third quarter, we remain prudent. Given the uncertainty around consumer spending primarily in North America combined with the faster than anticipated deceleration in the US beef markets.
As a result, we expect net sales of approximately 1.3 billion adjusted ibida of 270 million and adjusted earnings per share around 68 cents.
With that Dustin and I welcome your question operator. We would like to begin the Q&A session.
Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press *111 on your telephone and wait for your name to be announced.
To withdraw your question. Please press star, 1 1 1, again please, stand by while we compile the Q&A roster,
Our first question comes from Matt Roberts of Raymond James. Your line is now open.
Hey, good morning everybody. Thank you for taking the questions. Um, Dustin, you gave a lot of good color on the beach. Headwinds it seems pretty well documented, but certainly appreciate that. Um, what does that translate into volume impact for second half, or, or any annualized impact? We should expect in food and maybe just broadly, any, any additional color on protective volume expectations for second half at about product line, or, or End Market sounds like you're seeing good wins there. Uh, so maybe any incremental color on on new customers or products in the lift contribution? Um, and just broadly higher thinking about volumes for that segment and 3 q and second half. Thank you for taking of course.
Uh, in market and we're just making sure that we're positioned to capture that demand still very optimistic about where we're at what we're doing to get after it. And uh, so but I'll go back to the supply side and I'll give you more color on that.
So on the cattle cycle itself, this is a reminder, you know, if you think about the business that's impacting it's really about 400 million dollars out of our 3.5 billion dollars, right? This is, you know, shrink bags that go into the beef in market right now for the year, we're expecting, you know, 3 to 4% for to, for 25, you know, down 3 to 4 for 26, flat in 27 and then in 28, is it will return back to growth?
Now, keep in mind, it's volatile as we mentioned, you're seeing the acceleration in herd rebuilding right now. Um, but it's still slow relative to have a retention. So you're you're you're seeing a little bit more elongation, but a little bit shallow now than our original expectations. But I'll just reiterate that it's more volatile as we go forward. But the rate the way to contextualize that, if you think about uh, the roughly 400 million and you take the 3 to 4% off that, that's kind of the year-to-year headwind. If you think about that in the context of a 3 and a half billion dollar business. You know, we're still very optimistic that that that while it's a headwind in it's worth calling out. It's, you know, it's not something that we can't overcome as organization and that's what we're focused on going back to the in markets that we're we're targeting really trying to rotate more into retail into food service.
If you think about volume expectations in the second half, particularly for the food business, what we're looking at is is roughly, you know, Down 2 points relatively were and you're looking at the volume mix in the second half of being around down, you know, 3 points in Q3 and Q4 from a volume perspective. And and you know, 2 points down relative to where we were uh, back in May and that's kind kind of shifted over all the business but most of that's related to where we see again, going back to the in the consumer. And it's still too early to to, to talk about 2026 because we'll, we'll have a lot more clarity as we progress, you know, throughout Q3 and Q4.
So, when we shift to protective,
Obviously really pleased with our performance in the second quarter while we're still down. It is a mark in progress, our industrial portfolio. You know, took a step up. Um, fulfillment. As Ronnie mentioned in her commentary is down Miss single digits. As we think about the second half so you had a roughly think of, as a couple points, uh, ahead of our own expectations in the second quarter. And what we've done is, we think about Q3 and Q4, is we really maintain our outlook for the second half, despite the over performance in 2q and that's really just around what, what Ronnie mentioned during the prepared remarks around, this being prudent around the second half as we closely, watch our end markets. Now, we talked about the industrial portfolio and just to give you some color where where, some of that the opportunity was a core view, business performed really well. Our shrink business is performing well. Um, our insta pack while still slightly down performed better than it has you know over the past. Think of it as probably 6 7 8 quarters. And uh so we're really pleased, there's pockets of it, it's not perfect, you know, it's like it's like I said, a holistic with the portfolio level and uh,
And mixed around each individual region. Um, but but again, really pleased to where we're at. And a lot of that benefits coming from the work, as we talked about in North America, that we're now going to be extending across the rest of the world, because that's where we had the biggest biggest pressure point, the all the other area as well, like the last color commentary, I'll give, uh, on it is really around our electronics, business and markets that we see there um, very strong in the first half of the year.
And uh, while we're, you know, looking at it, trying to make sure it's it's not transitory related to, you know, things pretty buying during tariffs, Etc. It's, uh, you know what we're thinking about Now is really, you know, where where is it going to be in the second half and so far as we've gotten off to the start here in Q3. It's, it's on tracks. We haven't really seen any any shift in the, in market dynamics at this point. Uh, but again, staying close to it and really excited about where we're headed and really positive about what we've been able to do and uh, and a relatively short period of time in terms of really, you know, beginning to turn the tide.
Thank you. Our next question.
Comes from Ben, sham Punjabi.
Your line is now open.
Hey guys, good morning. Um, I guess you know, Dustin on the Food business. I mean you're pretty much at a high water mark uh, for margins for that segment. Uh, you know what their commentary on food and for the Outlook through 2027, Etc. You know, I have to assume that red meats is more profitable. Especially North American beef, you have the Tariff uncertainty as it relates to Brazil, Etc. How, how should we think about the near-term outlook for margin specific to food? And then also, uh, you know, as you think out to 26, 27, the natural headwinds associated with this large profitable Market, uh, being a headwind. Thanks.
Is for us. What I would tell you is if I go back to it and you think about 25 to 26, you know, in 27 you're talking about a 400 million dollar business, with a slight impact relative to 3 to 4 percent. So in the scheme of things, relative to our overall shrink back business, which is about 1.4 billion in size. It's still relatively contained, uh, particularly to North America. And while there is absolutely a margin impact relative to loss of volume associated with that. Um, we still believe the, you know, the network optimization efforts are transformation efforts relative to the productivity are going to continue to to buoy and balance out our margins as we have over the past and demonstrated over the past couple years. So we feel still very confident that we're not going to have a material mixed impact relative to to bags relative to the rest of the business that would bring down margins and that we're still able to drive earnings power despite that headwind. Um, but again, we'll continue to monitor as we go forward throughout the second half of the year and to understand, you know, it does the outlook for 26 to become more acute or not. But as of right now down to 3 to 4 percent and that 400 million,
Our business within North America, we feel it's relatively contained and something that we can overcome and uh so we're not uh uh we're not we're not as concerned about it.
Thank you.
Thank you.
Our next question comes from George safos of Bank of America Securities. Your line is now open.
Hi everyone. Thanks for the details. Um, and uh, you know, congratulations on.
On Kristen and and Ronnie. Congratulations to you on all you did uh, in the interim role. Um,
And your work going forward. I guess my question is twofold. Um 1.
Dusting, you said that, your maintaining guidance despite what's been, you know, an accelerated decline.
In food. Can you talk about the specific controllables? That you're controlling? So the specific cost outs, things like that, that you expect for the second half, I guess, particularly within food, but wherever you want to talk about what Will bolster your earnings in the second half relative to your guidance. Is there a way you can give us a bit of cadence?
You know, food versus protective in third quarter and then, um, the second part of the question, you know, your lease last night mentioned and I'm and I'm paraphrasing, you know, that 1 of the reasons, uh, that Kristen was selected to see if those that she has experienced creating value with complex portfolios.
How does that apply to seal deer? What do you where do you think that to be most applicable? Thank you. And good luck in the quarter.
Yeah, thank you George. So couple couple pieces. Um, so as we as we talked about earlier in the year, right? We really focused on cost takeout we we you know we cited this roughly 900 Million number uh that we're well on track to achieve uh for the full year. And as we looked in the out years you know the Hope was at that point in time that we could drive even further operating, leverage in the business. And obviously as uh, as our Outlook looking for volume is coming down. Keep in mind that, you know, that that now a lot of that cost takeout effort is is really balancing out earnings. You know, to get us to the to the 1125 midpoint that we were calling out as as the middle part of our guidance.
And specifically a lot of these initials while we're continuing to kick off new things Network optimization. We mentioned a couple of the areas that we think will be able to yield benefit in 26, and 27 and Beyond right now, it's a lot of activities that we've been have been in Earnest over the past 2 years areas like that, you know, which we talked about in the past, which is our DNA optimization or on our back office in Manila. Um, that started from concept to a year and a half ago as an idea and now we're in full swing. Uh, the office is open, we've already hit our 200 plus employee there. The same thing with Mexico City which is which is staggered behind it, we're now ramping that up those are 2 examples of it but there's a Litany of them relative to the reorganization work. We've done um, that's been able to streamline the organization delayer. It
Actually improve accountability, improve speed of decision-making. While at the same time, driving earnings power in this case, even offsetting some of that volume weakness that we have in the second half. So it's a lot of stuff we've had in motion and we talked during May around, there's other opportunity now to, um, you know, to continue to do that going into 20, uh, 26 and 27. And we'll continue to work on it as we progress throughout the the second half of the year. We'll give you more color about what's to come. And what does that mean for for 26, going back to even, gotcha, question in terms of what we can do more to, to balance out where we see any pressures in the business, but we're, you know, it's now more than ever being really proactive about it and making sure that we have a pipeline of uh,
Directions that we're taking that not only improves the business outcomes but at the same time helps balance out the earnings power.
so, when you think about the question on Kristen,
Business. If you think about our protected business, complex portfolio international business. If you think about our food business, very similar, right? So even within underneath the food and protective kind of segments, there's obviously a lot of complexity in the, in the proliferation of solutions and applications we have and uh and most recently in MSE, she actually led a lot of the transformation work in that business. And so we think a lot of our direct experience is really applicable here to accelerate the work that we're already doing. And also bring new ideas. If you go back to even my own background, where I don't have a natural background in manufacturing, except for my time here at Solaire, she really is going to come in and complement that and bring a different lens to what we're already working on. And, and even bring uh, New Perspectives. So we're really excited about her coming on board and, uh, and I'll just take a moment with that said also again just to thank Ronnie for all she did. And I appreciate your words there because she's done a tremendous job over the past, uh, the past 6 months.
Thank you.
Our next question comes from Phil ing of Jeffrey's. Your line is now open.
Hey guys. Uh, congrats and then a strong quarter in a dynamic environment. So, Dustin, I think you guys kept your outlook for a protective and change in the back half, uh, despite, you know, progress, uh, which makes sense. But are you actually seeing any slowdown in bidding and or or activity? Um, throughout 2q and going into July? Um, and then some of the uptick you're seeing on the industrial size and Industrial side of your portfolio, can you kind of size up, you know, how much of that is internal initiatives or should the cycle turning? And, um,
That would be helpful.
Yeah, so, um, so going down to your your point about July. As I mentioned, I think it was early on maybe in the Q&A. Uh, we really haven't seen a change in order pattern, right? And, uh, I was talking specifically the time about our fabrication business, but in general, I wouldn't say we've seen a real shift. Uh, we're still on track, you know, kind of early here starting in, uh, in Q3. And so, I feel good about where that business is headed right now and a lot of that is, um, so order entry activity in the market, um, but keep in mind, uh, Phil what we're trying to balance out is a lot that's being driven from the fact that we invest in sales. So if you think about just and we've lost significant amount of volume since 2019. So we're going back to customers that we lost. We're going to existing customers to expand our business. And so a lot of the work we've done in our go to markets was giving us that confidence in our ability to take, not just grow existing business, but take share in the marketplace particularly in areas where we've lost it in the past.
Um, if I contextualize that with industrial portfolios, um, what I would tell you is that, uh, to me, that's not really a cycle of attorney. If anything, I would say, there's been more Market pressure here. Recently, if you think about areas like the automotive industry, um, where our foam in place Solutions used widely. Um, you know, we're obviously concerned about tariffs and what I could potentially mean for in markets, but we've continued to perform really well. And I think that speaks to. Now that we have that go to market motion, really beginning to really work, you know, beyond the fact keep in mind too that we've also minimize churn and that's not just a, a Q2 2525. That's for the past 6, 7, quarters. It's, uh, it's really beginning to Bear itself in the results. And so, um, we're still cautious obviously about the second half that's part of
You know, your commentary. We obviously had a beat expectations in 2q, we held the second half relative to volume expectations. Um which implies a slight uptick in volume in Q4.
And uh, so we're kind of heads down and really focused, uh, just focus on executing against against those internal initiatives. Um, but when I say internal but keep in mind a lot, this is really just being back out in front of customers, back out in the field back out, engage you in a distribution Partners. So it's it's really been a lot more about I think engagement is really the first wave of that benefit. When some of these other things are going to continue to yield. And uh and I'm really excited about, you know, kind of cascading this across our our European as well as our Asian footprint and getting further, leverage out of that particularly as we head into the 2026,
okay, thank you.
Thank you.
Our next question comes from Jeff zukas of JP Morgan. Your line is now open.
Uh, thanks very much.
Uh, you your adjusted ia, uh, range for 2025
this is 100 million and you you only have 2 quarters to go and you know, keep it de was you know roughly flat in the first half but why is the range
So wide. Is that because of
Conservativism or, or is the uncertainty about second half ebta that large?
Expected to be slightly above the midpoint, but we'll come out more fully and kind of give you a sense of where we're landing across all the dimensions of our guidance. We'll do that at that point in time when we have a little bit more certainty, and it really just speaks to the dynamic environment.
We're operating in particularly as it relates to tariff impacts and I think that you know as as you obviously as we're all aware right here recently in August a lot of those decisions were made but it actually takes time and I don't think people always fully appreciate that relative to what is it going to do to inflation? What's going to do the price and and it takes the time to work through the system and so a lot of that's just reflecting that but I would say in general it's not that we believe, you know we're concerned about the outcomes of that those far into the range up or down. It's more around just you know, conservatism and and looking to get through 3 q and give you a more, a more full update.
and then, um,
Secondly, can you describe a little bit of your issue with procuring, specialty resins and and why things seem to be a little bit um more difficult for you.
Yeah. It's uh, it's not difficult to procure them. This is just really speaking about our footprint and just giving you a little color where we're seeing more impacts on tariffs. Now, keep in mind our reiterate that, uh, no real impact in the second quarter. We don't see any real impact full year relative to our our Outlook at this point in time. But there are certain resins, you know, as as we've gone through this process with tariffs, we've really been shifting around uh production. We've been shifting around procurement, you know, in terms of being able to try to to mitigate the impact as much as possible. It did happen on its own
Right. And not just ourselves. But most of the companies are going through this relative to how we're optimizing where we buy from. There are examples where we're not able just to mitigate it because certain specialty resins are only available in Europe and you can't you know have a large chemical manufacturer shift it to another asset or ship it to another you know location and uh and this is just an example where we're we're having to, we talked about limited pricing actions where we have to embed that into our cost structure and then price accordingly to mitigate it, um, and just give me some of that color.
But no issue with procuring; we don't have an issue at this point in time for procuring anything.
Thank you.
Our next question comes from Anthony pettinari of City. Your line is now open.
Uh, good morning.
Um just following up on guest. Question on uh Twitter at the top bridge. I'm wondering if you can put a finer point on maybe the total level of cost saves that you expect to achieve this year and how that offsets net price which I think I think you said that uh that will sort of unchanged, but if you can just go through the bridge items for sort of cost saves versus Net price Falls and and FX, uh that would be that would be helpful.
Yeah, sure. I'll just uh Anthony. Uh, I'll just walk you down. Walk you down and give you a sense of kind of where there's some slight changes. The first thing I'm going to talk about before because I'm going to talk about net, price realization and some of the embedded assumptions there. And when you think about net price realization, really, what's happened is prices, come down, right? And that's being offset by what gorani commentary, deflationary aspects of our, our raw materials. And so it's remained relatively unchanged, it's actually gotten a little bit worse by about 7 million dollars for the full year, but it's, uh, but it's the Dynamics in. It have actually changed pretty materially, which is price coming down and raw materials coming down to offset it.
So, when you think about the, the volume Bridge, you know, and uh, excuse me, the ibaa, bridge, starting with volume, you volume, you know, we're expecting, you know, if you go back to the roughly hundred million dollars, we talked about holistically that drops the bottom line about 44 million, uh bucks. Then you get a net price, realization down 65, the CTO is 90. And there's about another 16 of actions that we're taking on top of that, which brings you to a total of 106. But think of this as not just structural savings, this is this is cost take out across the business relative to just being also just physically disciplined. And then, uh, and then we've talked about the compensation programs relative to how they paid out last year versus where we're on track this year. That's roughly 20 and FX is a drag of about 3 million and that Bridges it down to the roughly 14 million dollars year-over-year.
Thank you.
Our next question comes from Edlund Rodriguez of Missoula Securities. Your line is now open,
Uh, thank you. Good morning everyone. I just want to quickly on the price 1 material Gap especially in protective. I mean it's still negative.
Like can you have any success in raising prices there? That could now that Gap in the second half of the year? And again, it's been a persistently negative. Like, will we ever see that Gap? Now completely as we get into the second half and into next year?
Think about 2026. So keep in mind the change coming into this year, relative to expectations that, we're all wrestling with is, really what's going on in the Resident environment. There's really kicked off of the announcements back in, uh,
In the March time frame around.
Tariffs in general, what that did to the polyethylene market. And when you think about that, what's happened is, it's actually created, you know, a more deflationary environment across the board. So the pricing impact you're seeing protective and this has really been an ongoing theme right for the past 2 or 3 years kind of coming from resin highs, going back into. I want to say, is 202023 coming down to, you know, 22 to 23 to 24 to 25. We expected this year to be getting back into a slightly inflationary environment, which is, I would say, positive for us, but positive for the industry and sector as a whole and uh and that obviously did not happen. And so what you've seen is you kind of seen it Flatline you know, kind of where it dropped in in the March time frame and kind of cascade throughout the rest of the year which is what's creating that deflationary pricing aspect and that's a market impact. That's not an issue with our products is for a while there. There was the residents coming down and we were also reducing our price Gap relative to competition. Uh, we're really beyond that now, and this is to me a market Dynamic, uh, that's happening in the second half and what we've given them for guidance, we fully expect from that perspective. If we have optimism, is what we can potentially do on the volume side.
When you think about going into 2026, it's really what happens to the underlying resin Market that will help drive that. Particularly in protective Foods, a little different for variety of reasons, but uh, but when you think about the primary you know, piece really being low density, high density polyethylene, it goes into our protective business. Uh, you're really looking at what's where resin is going to go. And at this point in time, we don't have a clear view of that in terms of 2026 as we progress through Q3 and Q4, we'll get a lot more clarity and be able to give you an update. But our general view is right now where we're at, you know, as long as we get into this, you know, kind of a stable inflationary environment, our pricing will will go along with it, and you'll begin to begin Darrow. That net price realization and be able to bring it back to positive. And, you know, TBD is 26 will be that year.
Thank you. We're going to have the next question.
Thank you. Our next question, comes from Nico. Puccini of truist. Your line is now open.
Hi guys, I'm sitting in for Mike Roxland today. Thanks for all the callers so far. I just had two quick ones. One is how's the cattle cycle faring right now in South America and Australia? And then, you know, previously I think you had mentioned targeting growth in fluids. Is there just any update in that area?
Yeah, so on the cattle cycle itself, I say there's still your kind of peak in both Latin America as well as Australia.
And uh, and we still expect very strong, you know, I would say less strong relative to the underlying cycle but still strong years on a relative basis and going into next year and both of those, uh, both those regions.
And then, the US, which I, I mentioned before, hands obviously accelerated this year, which was making 2025 really the first year of those 3 years, where we went into this year, thinking it may be like 24, and then it might, it may be elongated.
And so you're down 3 to 4 percentage and that cycle will will obviously go. You know, generally for the next 7 years on fluids performance, that businesses continue to perform well. So you think about fluids again just to break it down. It's really this this combination of our, uh, cryovac fluids and uh, liquid solutions as well as our, you know, the the local box acquisition that we we
You know, clothes back in, um,
In February of 2023. And so, uh, again we've talked about the, the cryo back side of it, which is continued to perform. Well, we expected to perform well this year and continue to be a growth driver for the business. Overall, local box, we obviously went through um, our own kind of D stocking and and uh down cycle in that business in 23, we've stabilized this since then, it's not performing to where we would like it to be, which we talked about, historically that in Market, being able to generate Miss single digits, which is what our fluids business has done. Historically you look at the Kerr that business is mid single and high single digits. Um, and so we're still working on getting a local box there, but we feel really good about the progress. We've made on continuing to stabilize that business in and out. But getting to work out of what I would say. Some of the operational challenges we we went through and and getting back towards is focused solely on growth. So still more to come. And we'll give a lot more dialogue around this as we progress throughout the second half. And and we we fully expected to be a growth driver in 2026.
Thank you.
Our next question comes from Gabe. Hadi from Wells Fargo, your line is now open.
Uh, Ronnie. Thanks for all your help.
Um, I wanted to revisit a comment you made in your prepared remarks, Dustin about utilizing some external partners, and I think it was protective you mentioned speed to Market, um, and maybe intimated a reduction in in capital intensity, if maybe you can elaborate on the concept A little bit. Um, I don't know if it's a function of maybe customers being a little bit more dynamic in their own strategies and decision-making, or or what's driving it and then maybe quantify if quantify for us. I'm assuming capex, but maybe op cost as well. Um,
What I could save you.
Uh, sure Gabe. So a couple things. So keep in mind that our, you know, for the past, if you go back pre, maybe 10 years ago, um, a majority of our new Solutions were actually developed with external partners. And I mean, people coming in to actually help us design and build, you know, think of it as leveraging, Outsourcing, some of your R&D on equipment design, Outsourcing Rd on even material, but in a lot of ways, it was around applications.
And so um you know for the past 10 years we've really taken an approach of vertical integration relative to doing internal development and not just development of new applications materials and Equipment but also developing our own internal manufacturing technology.
And uh, and so we've really begun to rethink that broadly speaking, it goes back to the situation. We've been in with our balance sheet over the past couple of years. And, uh, and and what I mean by that is, you know, for there's a period of time in our our mailer strategy where we are leveraging our existing lines. Now, we're looking at, if you could be very specific, now we're leveraging other manufacturing technology to still produce our application, our product, but in a new form and uh and a much more cost-effective way and it speeds the time to actually get the lines up running speeds. We need is is able to, you know, gives us the ability to scale up much much faster in the market relative to, you know, where you place those lines. And that's an example where it's not just the application itself. Um it's but it's also thinking rethinking manufacturing technology and our food business. You know, we've talked, you know, at length about our industrial food processing and the strength of our our our um,
Kind of that 3-legged stool around Material Science equipment and our service capabilities. But as you think about that, broadly for retail, that's what we're thinking about is it really our equipment or do we leverage external Partnerships? So we talked about this a little bit in the past but we're being a lot more intentional now about how we go after it and that and it's really about using leveraging people that are good at what they're doing is their core competency and giving us time to Market versus trying to be everything, you know, be being great at everything effectively.
And uh, and so that is bringing down some of our Capital intensity. If you look at this year for our Outlook, we brought it down to roughly. Uh, it's with embedded. Iran's numbers is roughly 200 million dollars for the full year and if you go back to 2023 we were at that point, talking about doing 280, at the beginning of the year, we brought it down to 240 220 last year, 200 this year and this is all while increasing our returns, you know, I think addressing some of our performance issues. And so I think that, you know, this this approach that we're doing is not that we're actually under investing in the business. To me, we're investing more now than we ever have before. We're just doing it in the right areas, they're going to yield, you know, yield better results for us longer term. So you know, it's hopefully that gives you some color.
Thank you.
Our next question comes from Brian dong of RBC. Your line is now open.
Hey, this is Brian Dong on for everyone. This is an offense. Thanks for taking my questions. Can you walk us through your CTO to grow cost savings? What are the different buckets to that? And are you still targeting $90 million of savings up at the end of the year? Thanks.
Yeah, so, uh, good question. So the really the buckets have remained unchanged if you really think about 3, broad areas that we've been going after, uh, 1 is on the go to market side. How do we reorganize? You know, this goes back to, how do we reorganize back into food and protective? How do we reorganize our p&ls? Back into the regional p&ls underneath it. Um, what do we do with our on the, go to market side or relative to Marketing sales? You know R&D? That's that first bucket that we did, which is really in the front line.
which is really about while it generate cost savings is much more around, how do we get to the market, close your car, customers the layer of the business and, uh, and drive growth
productivity and uh, and so just to give you a sense
Thank you.
Our next question comes from Josh Spectre of UBS. Your line is now open.
Yeah, hi, good morning. Um, thanks for all the details around food and the assumptions there, but I kind of want to ask about the non-red meat assumptions, as you look at the second half, I guess, you know, really rough numbers. You talked about 400 million in sales down high single digits. You know, you roll that through to food. That's kind of a point headwind or so, I, I think so. Then the other 90% is down a couple points. Can you maybe unpack that and some of the assumptions between, I guess the retail Market versus maybe some of the processed foods and meats which I think would be some amount of an offset for what you're seeing there. But more detail, there would be helpful. Thank you.
Yeah, I appreciate the question, Josh. And so, again, when you think about overall—think, if you go back to prepare a commentary on Ronnie's comments—we talked about the overall business protein. Global protein production is down about a point this year.
Right? And so keep in mind, that's what's Weighing on, uh, some of the broader volumes and I go back to even the consumer itself, or the consumer is spending where you're seeing that shift of industrial food processing into into retail and Food Service, some of the markets. If you really look across every area, whether it's whether it's Dairy whether it's poultry uh smoked and processed, they've all come down slightly, which is why you see that broader impact across the business
And, uh, again, we don't see that as a, you know, I say, a longer-term headwind for 2026 and 2027. We see it as a condition right now of just the market. We're operating in really more on the demand side and, uh, and so, but I'll leave you with that. And that's really what's, uh, what's driving that broader impact.
Thank you.
Our last question comes from Stephan Diaz from Morgan Stanley. Thank you. Your line is now open.
Hi Justin. Hi Ronnie. Uh, thanks for taking my question. Um, so you noted industrial strength, uh, which is, which is nice to see. Just, uh, you know, considering some, you know, mix macro indicators on the industrial side. Um, I was just wondering if, if any of that, um, industrial and Market strength, um, was due to your automation business and then maybe how are you just, you know, thinking about your industrial portfolio for the second half and and into 2026 and and maybe how how are you thinking about your um,
Automation business as well. Thanks
It's a good question. So just just keep in mind. We don't we don't think of it as an automation business. Well, the way we think about it is, we're bringing a a solution to the market. That's really combining where we are the strongest, right? And I think in, and if you go back to an example, for a protective is our APS business, our Auto backing Solutions, right? It's an example where you're bringing the piece of equipment, you're bringing out the hybrid 1. Now you can bring the great materials, whether it's fiber or poly and you're bringing great, technical service in this.
Really all about, you know, throughput yield the ability to protect that, you know that particular item Etc and packaging and and then food business is very similar. So keep in mind that we think of it less I know it was talked about a lot going back, 3 4 or 5 years ago around automation for automation sake we're much more around that solution cell and bringing solutions to Market. That can bind that which creates a lot of value for our customers.
Again, on the industrial side. If you really look at our business, if you think about, uh, insta pack, right? Same thing, rate equipment, great, uh, Material Science, great service.
Anything about APS very similar, right? And so as you look across the, the different solutions that we have in protective and food in general, that's where we we drive. They're generally High higher margin businesses, the you know, deliver more customer value. And, uh, and I, I think across the board our approach to doing that, and going back to what made us great. That solution. Sell is really making a difference in the market and is absolutely contributing to the sum of the industrial performance. You see in the numbers? And I talked about this back as an example, which is performed a lot better than it has historically.
Thank you.
This concludes the question and answer session, I would now like to turn it back to the president and CEO. Dustin CMAC for closing remarks.
Thank you for joining us this morning. I look forward to updating you in November on our ongoing turnaround and progression in the growth transformation. We are driving in food to meet the market challenges ahead of us head-on.
finally, thank you to the 16,000 plus Soldier employees, and our customers who are at the center of our transformation. Thank you.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.