sealed air corp. q4 2007 earnings call transcript
Q4 FY07 earnings call at 11: 00 a. m. on January 30, 2007
IRWilliam v. Hickey -
President, CEODavid H. Kelsey -Sr.
Vice President, CFOAnalystsGhansham, Punjab-
Radia Heston, wachovitch
Morgan Rosemary morbailey
Ingles and Snyder
Deutsche Bank stock exchange
Good morning, welcome to The Sealed Air conference call to discuss the results of Sealed Air 2007 and throughout the year.
The phone is being recorded.
Today, we will have William V.
Hickey, president and chief executive, and David H.
Senior Vice President and Chief Financial Officer Kelsey.
They will answer questions after the management has prepared their opinions. [
We do ask you to limit yourself to one question per caller so others have a chance to ask their questions.
At this time, I want to hand over the meeting to Ms.
Amanda Butler, director of investor relations
Please continue, madam. Butler. Amanda Butler -
Good morning, director of investor relations.
Before we start our conference call today, I would like to remind you that the statement made at this conference call illustrates the management\'s vision or forecast for the future --
Look at the report.
These statements are made entirely on the basis of the information we have now.
We may perform differently in the future due to many factors.
We have recently listed many of these factors in the annual report in table 10
K or quarterly report on Form 10Q.
We have also released supplementary financial information and non-
GAAP measures we would like to discuss on the sealedair website.
Com\'s investor relations information section under the record.
Now I give it to Bill Hickey, our CEO. Bill? William V. Hickey -
Chief executive, thank you, Amanda.
Good Morning, everyone.
I\'m Bill Hickey, president and CEO of sealed airlines.
In addition to Amanda, we also have our CFO, Dave Kelsey.
As an introduction, I will provide some highlights of our fourth quarter businessyear 2007.
Dave will then review the specific details of our financial results.
We will have time to answer all your questions after Dave speaks.
We are pleased that we have completed a year of stability, volume and profit growth in line with the guidance we originally provided to you back in January 20.
In this challenging year, raw materials and energy costs have climbed to new highs.
In 2007, we continued to focus and execute growth plans for new product development and geographic expansion.
Our success in 2007 included the launch of more than 20 new products, including two new products based on renewable materials.
We have also expanded our business in the areas of medical applications and professional materials, which are areas of high growth for us in the future.
Look at our operation plan.
This year, we have completed the flexible film production line in Shanghai, China, which is currently running commercial products for the Chinese market.
We have completed SAP integration in all regions outside North America, we have concentrated the North American customer service center in South Carolina, at the same time, we maintain the efficiency of using raw materials, this added $30 million to our profits in 2007.
From our sales results, sales rose 9% in the fourth quarter, a record $1. 3 billion.
Excluding the favorable impact of foreign currency translation, our sales growth is driven primarily by volume growth in North America, Europe and the Asia-Pacific region, mainly in terms of our food business.
Our annual sales rose 7% to $4.
Compared to $4, 7 billion.
2006 3 billion.
Similarly, excluding the favorable impact of foreign currency translation, sales growth is mainly due to the increase in the number of our food business in North America, Latin America and Asia Pacific.
This growth has brought us a milestone in the Asia-Pacific region, where sales exceeded $0. 6 billion in 2007.
In addition, our Latin American business grew by 11% this year, with sales exceeding the $0. 4 billion mark in 2007.
In this year, we have also seen a strong double.
The digital growth rate of the world\'s developing countries, such as China and Russia, was 22%, and the growth rate of smaller Eastern European countries such as the Czech Republic and Romania was also accelerating.
Our success in these areas is attributed to the strength of our brand, our portfolio, our strong geographic location, our local staff and the continued economic development of domestic consumption and exports.
In the fourth quarter, we Diluted earnings per share at $0.
45, excluding the special items mentioned in our press release earlier this year.
Throughout the year, our diluted earnings per share were $1.
65 excluding the costs mentioned earlier, an increase of 8% per cent over 2006 per cent.
We achieved this revenue growth while absorbing the rising raw material costs for the whole year on an equal amount, about $19 million higher than for the whole year of 2006.
Take a closer look at the market segments and other categories we can report, and our food packaging business is again strong in the fourth quarter as we continue to gain new business with net sales up 10%, or if you exclude the favorable effect of 4% of foreign exchange.
Beef sales in the quarter were stable, with a growth rate of 4%, exceeding the slaughter rate for these beef categories.
Our business growth reflects our strong demand for roll stock and vacuum shrink bags in the Americas, as well as a favorable price mix in North America.
In this quarter, we announced price increases in various regions targeting rising raw material costs, but this will have a significant impact on the results of 2008.
In addition, we have introduced a number of new products, including on-demand marinades, grip and tear bags, and freshness Plus, which serve both food services and consumer applications.
Look at our full
As a result of 2007, net sales of food packaging increased by 8% or 4% if the favorable impact of foreign currency translation was excluded.
We have experienced strong sales growth in Latin America, North America and Asia --
This year, product prices in the Pacific and North America and Europe are strong.
Looking into the future, we believe that the global Red meat slaughter rate and protein demand continue to be strong, and in addition to focusing on reducing sources and continuing to expand new products to innovative product development in the international market, we will support growth in 2008.
We estimate that net sales (excluding foreign exchange and acquisitions) in the core business of the food packaging sector will grow at a rate of 4% to 6% per year over the next few years.
We also expect that with the launch of new manufacturing facilities in 2008 and the establishment of centres of excellence on our North American and European manufacturing platforms, profits in this category will continue to rise.
Entering our faster-growing food sector, food solutions, we increased net sales growth to 16% in the fourth quarter, excluding the favorable impact of foreign currency translation, with a growth rate of 8%.
As our largest number of units in Europe and North America grows, the number of units increases to 6%.
In addition, we have experienced strong growth in the price mix in Europe and Asia --Pacific.
In the quarter, we also announced regional price increases for rising raw material costs.
As I said before, these will affect the results of 2008 to a large extent.
Net sales of food solutions increased by 12% throughout the year, excluding the favorable impact of 7% of foreign exchange.
We have experienced strong growth in all regions, but most of the growth has been attributed to North America and Europe.
The product price mix has also grown strongly in North America and Europe, thanks to the favorable combination of North American pads and trays as well as ready-to-eat food and vertical bag packaging flexible films in Europe. Case-
Ready and Vertical pouch packaging continues to grow in double
Digital interest rates for the year. Case-
Ready to continue to expand its leadership by 12% per cent in 2007.
We also launched a new low-
Configuration file format, partially contributed to the completeyear Case-
Sales exceeded $0. 45 billion.
Vertical bag packaging also has a strong year, with the number of devices placed worldwide increasing by 16%, a record high
Sales in Asia doubledPacific region.
Currently, sales of vertical bag packaging exceed $0. 125 billion per year.
With the continuous promotion of pizza, frozen food microwave solutions and new tray solutions, our ready-to-eat meal solutions have been adopted more and more in the year.
Looking forward to 2008 in the future, we will continue to expand our business just in case
Ready, ready meals and a variety of food . . . . . . Server applications, expanding the base of our customers and applications with vertical bag packaging in order to come through our new aseptic and distillation applications
Since consumers may choose to dine in more places in 2008, we believe that this trend is beneficial to our food business and the release of many of our latest products, such as fresh pizza and Mirabella.
We estimate that excluding foreign exchange and acquisitions, net sales of core businesses in the food solutions sector will grow at a rate of 10% to 15% per year over the next few years.
This is a business we are investing in, but we are also looking forward to continuously improving our profit margins over the same period of time.
I would also like to remind our food solutions business, in particular the case-
We are ready, most of our transactions are outsourced products, and our average profit margin is 17%, but there is little or no capital invested.
When looking at our operational performance with respect to food solutions, you must take this into account.
Turning to protective packaging, net sales increased by 2% in the fourth quarter, excluding the favorable impact of foreign exchange and the adverse impact of sales in small product lines, with sales down slightly by 1% in the fourth quarter.
Despite the fact that due to difficult conditions in most end markets in North America, sales growth declined slightly in the quarter, we did experience a 6% increase in sales in Asia Pacific and Latin America, sales of inflatable products, shrink film and Instapak in Asia Pacific and shrink film and air honeycomb products in Latin America have increased.
In this quarter, we also announced price increases in this area, which is aimed at rising raw material costs, but this will also greatly affect our 2008 performance.
Throughout the year, in addition to the favorable impact of foreign exchange translation and the adverse impact of smaller product line sales, the net sales of protective packaging increased by 2%, and the sales of protective packaging even reached 2006.
Overall sales declined slightly, keeping our performance ahead of ordinary agents such as corrugated carton shipments down by about 2% and our sales in the international region up by 2%.
We have experienced 9% sales growth in the Asia-Pacific region and 7% sales growth in Latin America, thanks to our diverse footprint and global sales portfolio.
From a previous point of view, we saw success in the recent packaging
Tiger acquired more than 300 systems and adopted new products such as NewAir, Instapak fast and its room temperature version.
Looking ahead, we expect the growth rate of the North American packaging protection packaging business to be quite slow in 2008.
However, we expect the international market to continue to grow.
We estimate that in the next few years, net sales of core business of protective packaging, excluding foreign exchange and acquisitions, will grow at a rate of 3% to 5% per year, during which period, we want to keep our profit margins even higher.
Finally, net sales in our other categories increased by 23% or 15% in the fourth quarter, excluding the beneficial effects of foreign currency exchange, and all regions experienced double growth
Digital growth rate.
The main growth drivers for the fourth quarter were the acquisition of algae Plastics in Medical Applications in August and the acquisition of certain assets related to Dow\'s ETHAFOAM and related polyethylene foam product lines in November.
Although testing and the launch of new products continue to be adopted, especially in insulation solutions in Scandinavia, sales in the quarter appear to be weak due to the unfavorable yearover-
In the fourth quarter of last year, our medical application business made 2006 customer purchases in Europe, where we made predictions about our SAP conversion in Europe at the end of last year.
Net sales of other categories increased by 18% or 12% year on year, excluding the positive effect of foreign currency conversion.
We have both special materials and medical services.
Medical sales have increased by more than 20% this year, excluding foreign exchange.
Similar to our experience in the fourth quarter, the growth was mainly due to acquisitions.
However, we also have a 5% growth this year, driven mainly by the 12% growth of our professional materials and medical business in the international region.
Looking ahead, we will continue to expand our business in the field of medical applications, and we will focus on the successful commercialisation of new technologies and product lines that exist in our professional materials business.
We estimate that net sales of other categories of core businesses excluding foreign exchange and acquisitions will grow at a rate of 15% to 20% per year over the next few years.
We are also investing in these new businesses for our food solutions.
But in the meantime, we expect profit margins to increase.
Before I hand it over to Dave, I want to talk about 2008 and our guidance.
Looking ahead, we will continue to focus on business growth and global diversity.
This includes our continued investment in the growth of the BRICS region, including capacity expansion in countries such as Malaysia.
As part of our global manufacturing strategy, we continue our efforts to build new manufacturing bases in Eastern Europe and Mexico.
We will continue to invest in product development and product launch, which you will see in the first quarter and continue to focus on renewable packaging solutions.
We will continue to expand our application in neighboring areas by leveraging new and existing technologies through partnerships and acquisitions.
With the completion of the platform product display center in China and the United States, we will strengthen the global promotion of our solutions.
We will complete our final phase of global SAP Promotion in North America later this year.
Finally, we remain focused on optimizing our operations, reducing our costs, enhancing our flexibility, and starting to focus on supply chain initiatives that reduce inventory and optimize our procurement practices.
During the year, we will monitor raw material prices and make appropriate price adjustments as needed to continue to manage our profitability.
We expect the diluted earnings per share for the full year of 2008 to be within the range of $1. 64 to $1.
74 according to the accepted accounting principles, including the cost of $21 million or $0.
It is expected that a certain share will be generated in the implementation of our global manufacturing strategy.
Excluding these fees, we expect 2008 of our revenue to be within the $1 range. 75 to $1. 85 per share.
Our guidance suggests that the average raw material cost for the year will be slightly higher than 2007.
Usage growth in 2008 will be comparable to the situation in 2007, which we believe is in line with our expectations for moderate growth in the global economy.
We also assume a complete
The actual annual tax rate is 31%, and operating expenses account for about 16% of net sales.
Therefore, I expect that 2008 will be another year of diversified growth, but the most important thing is the execution of Sealed Air.
Now, I will transfer the call to Dave Kelsey to review some additional details of our financial performance. Dave? David H. Kelsey -
Thank you Bill, senior vice president and chief financial officer.
As Bill mentioned, our sales reached a record $1.
This quarter was 250 billion.
Of our $ 85% revenue growth, more than 0. 105 billion came from our international business, or $89 million.
International trade increased by $70 million.
$ 8% and a favorable foreign currency translation contributed $66 million.
About 54% of our revenue this quarter comes from outside the United States.
For those who attend the conference call, they would like to post more detailed forms on our website Sealedair.
Com shows the percentage of sales by geographical area, components of net sales changes by Business Unit and geographical area, and the effect of foreign currency conversion on sales displayed by geographical area.
From our operating statements, the company\'s gross profit for the fourth quarter was $0. 344 billion, compared to $0. 339 billion in 2006.
Gross profit of food solutions increased by US $7 million and gross profit of food packaging increased by US $3 million.
The strong sales growth and price combination gains in the two food sectors exceeded the rise in resin prices.
Gross profit on protected packaging decreased by $5 million compared to 2006, while other categories decreased by $1 million.
Before considering the impact of acquisition and divestiture, the number of units in both departments was low.
Their prices and combinations are not good.
In the absence of topline support, protective packaging and other categories cannot offset the higher cost of resin for the quarter.
In addition, our special film product line in North America is included in other categories, and some of our most obvious resins have increased as a percentage of revenue.
Compared to the resin price paid in 2006, the company\'s total cost of resin in the quarter was $19 million higher.
The sales price increases we announced in the fourth quarter lag behind our increased resin costs, so these benefits will not be realized until the first and second quarters of 2008.
The costs associated with our global manufacturing strategy did not have a meaningful impact on our fourth quarter gross profit compared to 2006.
Marketing, administrative and development costs were $0. 198 billion compared to $0. 187 billion in 2006.
These indirect costs fell to 15 per cent of income.
Compared to 16 8%.
3% in the fourth quarter of 2006.
Foreign Currency Conversion contributed $9 million in the year of $11 million-over-year increase.
These costs include $4 million related to the acquisition business and an additional $3 million to support the opening of our new stateof-the-
North American art Customer Service Center, $7 million related to new product development activities.
Excluding the $14 million expenditure that supports our growth plan, and the $9 million impact of foreign exchange, marketing, administrative and development costs, will be $0. 175 billion.
Operating profit in the fourth quarter was $0. 145 billion, up $11 million from the third quarter, although resin costs rose $7 million in a row.
Operating profit as a percentage of sales is 11.
6%, with the second and third quarter profit margins are basically flat, compared with 13 fell.
The fourth quarter of 2006 was 2%.
It is reported that the food packaging and food solutions departments have been mediocre this year --over-
Operating profit increased year on year.
As sales and resin factors also affect gross profit, operating profit for protective packaging is less than $7 million and less than $2006.
Another category, including professional materials, medical applications and our investment in new businesses, reported for one year-over-
Operating profit fell $2 million in the fourth quarter of last year.
This decline is attributed to a decline in sales in North America, including acquisitions, and a more visible impact of resin costs on our specialty foam business.
Interest expenditure was $35 million, essentially the same as in 2006.
Other revenue for the quarter was $8 million, down $13 million from last year.
The company spent $8 million on services provided to third parties during the quarter, and work on the deal has now stopped.
Interest income this year was $5 million, compared to $4 million in the fourth quarter of last year.
The income tax fee for the quarter was $23 million and the effective income tax rate was 22. 7%.
The low tax rate for the quarter was mainly due to the expiration of restrictions and regulations in several jurisdictions reversing tax reserves and related interest.
For 2008, our guidance is that our core income tax rate should be 31%, as we expect a further reduction in the effective mixed tax rate for national taxes.
Diluted earnings per share of common stock are $0.
Compared to $0, the quarter was $43.
There were 45 last year.
Diluted earnings per share for the year was $1.
89 compared to $1.
In 2006, 47, an increase of 29%.
Do not include these items detailed in the supplementary information provided on our website sealedair.
Com, diluted earnings of $2007 per share are $1.
65 compared to $1.
53 was 2006, up 8% year on year.
As stated in today\'s earnings press release, this EPS is consistent with the low end of the EPS guidance range we provided in our earnings press release in last January.
Finally, I will introduce some key cash flow and balance sheet items.
Our combined balance of cash and short
Long-term investment as at December 31 was $0. 471 billion, an increase of $52 million from the beginning of the quarter.
Some notable sources and uses of cash for the quarter were $0. 181 billion EBITDA, $22 million in inventory reduction, $53 million in capital expenditures and $16 in dividend payments2 million. Our quarter-
Total accounts receivable amounted to $0. 794 billion, an increase of $2 million over September 30.
Compared with last December, accounts receivable investment increased to $73 million, or $ 10%, for the current quarterover-
Quarterly sales rose to $0. 105 billion or $ 9%.
Customer accounts receivable balances outside North America doubled
Figure, foreign currency translation contributed $34 million or 47% this yearover-year increase.
This growth also reflects our international growth and the generally long payment cycles in these markets.
As a representative of our international business, VAT accounts receivable increased by $9 million year on year. over-year.
Inventory investment as at December 31 was $0. 582 billion, down $22 million this quarter.
This lower investment is due to the fact that our supply chain plans have increased our cash. to-
Reduce our logistics costs.
Compared with December 31, inventory investment increased by $72 million, an increase of 14%.
Stocks in the United States grew by only $3 million a year. over-year.
The increase in investment in stocks outside the United States is mainly due to foreign currency conversion of US $24 million, and US $45 million is mainly to support our international sales growth.
As at the end of December, the total amount of borrowing was $1.
872 billion, basically unchanged this quarter.
The outstanding balance associated with the debt issue due in April 2008 was $0. 3 billion in current liabilities.
When the notes are due, our cash position and the promised borrowing capacity available to us are sufficient to retire.
Capital expenditure for the quarter was $53 million.
Of these expenditures, $13 million is spent on projects as part of our global manufacturing strategy.
Our capital investment exceeds our guidance.
In 2007, $0. 2 billion was primarily used to support capacity increases independent of our global manufacturing strategy projects.
During the year, we invested $59 million in the first phase of our global manufacturing strategy.
Looking ahead, our guidance is that 2008 of capital expenditure will be between $0. 175 billion and $0. 2 billion.
This prospect includes the $70 million needed to complete the first phase of our global manufacturing strategy.
In closing my comments on our financial performance, I would like to summarize the current state of our global manufacturing strategy.
The $59 million capital investment in 2007 brought our cumulative capital investment to $2006, from $2007 to $73 million.
The additional investment plan of $70 million in 2008 will bring our total capital investment to $0. 143 billion.
This will basically complete the first phase of our global manufacturing strategy, in the range of $0. 13 billion to $0. 15 billion we expect.
We have started limited production at green plants in China and new factories in Mexico.
By this time next year, we expect to produce in new factories in Eastern Europe.
In addition to our capital investments, we have previously estimated that other costs associated with expanding our global manufacturing base and establishing Centers of Excellence will reach between $90 million and $100 million.
These fees will be paid to us for profit and loss between 2006 and 2008.
In 2007, our spending was $12 million lower than the original $35 million.
In 2006, our expenditure was $16 million, so by 2007, our cumulative expenditure was $28 million.
We currently expect to spend another $30 million during 2008.
Due to various factors, the actual time of these remaining expenses may change, and these factors may lead to the occurrence of some expenses in 2009.
The remaining $30 million of other expenses will bring our total to $58 million, well below our original $90 million to $100 million.
In summary, we currently estimate that our total capital investment and related expenses will be approximately $0. 2 billion, or 85% of the amount we expected to announce these global capacity increases in 2006.
We expect that our interests will decline accordingly with these lower costs.
In addition, due to delays in the start of construction of facilities in Eastern Europe, we expect that the time saved for this particular facility will be delayed.
Therefore, our current estimate is that there will be approximately $45 million in 2009 and an increase to $55 million in 2010.
Now, I will turn the phone back to Bill and your question. William V. Hickey -
President, Chief Executive, thank you very much Dave.
Operator, I would like to ask questions to the attendees now.
Thank you for your questions and answers. [
Operation instructions]William V. Hickey -
President, the chief executive first asked the operator.
Ghansham Panjabi, an opera actor with Wachovia.
Good morning, guys. William V. Hickey -
Good morning, president, chief executive.
WachoviaGiven at present all the resin price increases are implemented in the fourth quarter, considering what you said is your own sales price increase, is it fair to assume that you may fall behind in the price [inaudible]
In the first quarter, maybe the second quarter will start to catch up soon?
What should we think? William V. Hickey -
Yes, I think that\'s a fair statement.
I mean, the price increase has been announced, and it\'s interesting that we\'re looking at the outlook for resin in 2008, a bit like in 2007.
Keep in mind that the price of 2007 starts to fall from a low point, and in fact, with the price increase in December, it peaked in the fourth quarter.
Given our price increase, the price announcement we made at the end of November or early December to get all of this through the system, we may have more resin, higher cost, actually our sales
So . . . . . . I think you have heard that some of our peers in this field have maintained the same attitude.
WachoviaSo, you are all
Annual Guidance, Bill, do you assume that the resin is down in the second half of the year, or is it flat with the 1Q level? William V. Hickey -
If you look at my comments, my comments say that we expect 2008 to be slightly higher than 2007, but from what we have now, in the first month of the year, we will relax a little.
Wachoviaok, finally, can you tell us what you think about stock repurchase?
You obviously generated a considerable amount of cash in 07, probably in 08.
Of course, in 09, with the decline in capital expenditure, you have a lot of authorization in stock repurchase.
Can you tell us what you think there? William V. Hickey -
The president and CEO just thought the stocks were very attractive at the current price.
I don\'t think I can say that anymore.
Good enough. Thanks.
Next, we will hear the voice of Robert [inaudible]
Good morning, analysts.
Just wanted to talk about the resin again.
I know if you can clarify bill.
I know you said you expect a slight increase overall, but if I look at the CMAI average like the benchmark polyethylene grade, they think, compared to 2007, 2008 of polyethylene showed a low double-digit increase.
So, I know, it\'s just one of the 15 resins you purchased, but I was wondering if you\'re looking more positively at the decline of the resin than they [are]inaudible]. William V. Hickey -
President, chief executive, we are very concerned, we are concerned about CMAI, we are following several different people, polyethylene is also one of 15 people, maybe the most common, the most drastic price change, but it\'s . . . . . . I\'m trying to remember the 48% figure, less than 50% of the total amount of resin we purchased.
We may think that this will be the case with polyethylene in the second half of this year. . .
Will be flat.
Good for unknown analysts.
What do you think of the current growth of polyethylene? Do you think [inaudible]
Renegotiation? William V. Hickey -
President, Chief Executive yes, just a comment on the current quarter, but most of the growth in the fourth quarter actually happened.
Well, then, I guess the last part of the resin problem is that you\'re . . . . . . I think in the PE of 2007, when you announced the price increase at the end of the year, how much did the 2007 inflation you were trying to recover increase?
When was the last time you raised the price? William V. Hickey -
Earlier in 2007, the president, the chief executive, we raised the price.
I don\'t remember the exact date. Amanda Butler -
Director of Investor Relations, September. William V. Hickey -
In September, in September, we also had some product lines growing in September, which is Amanda\'s. Yeah.
As a result, we increased certain products in September and then tracked other products as well as some polyethylene products in December
There were also growth-based products in September.
Good for unknown analysts.
So, like the recently announced growth, the current growth basically covers the last three months of the year or so? William V. Hickey -
Our view is that the increase we have basically announced covers the announced resin increase.
Good for unknown analysts.
Well, since the time for cost savings has been delayed, a separate topic on global manufacturing strategy has been delayed a bit.
Is this entirely relevant to the construction delay that I think you mentioned, or is there any reading on the market, there is not enough demand, or do you not see how much growth these markets have? William V. Hickey -
The president, the chief executive will ask David to comment on this, but I will tell you that I hope I can get this factory faster, several of our products are sold out and we really need a factory.
But Dave, why don\'t you finish? David H. Kelsey -
Senior vice president and chief financial officer if you take into account the ratio of the $45 million savings we now predict for 2009 to the $0. 2 billion we will spend between capital and other costs, this is in line with previous spending of $0. 25 billion and savings of $55 million to $60 million.
So, it\'s really a fine tuning in three-
During the one-year process of implementing this strategic phase, we still hope to reach the low end of 55 to 65 in 2010, that is. . .
This delay is due to issues that we have previously mentioned in Central Europe.
When we negotiate for various interests, the ability to occupy real estate has been delayed.
All this is solved, the ground has been broken and the building is in progress.
So, we\'re on track --forward basis.
This is just the last topic.
The only reason the cost is related to the strategy is basically at a lower cost? William V. Hickey -
The real world has surpassed our previous estimates, the president and chief executive will say.
Unknown analystWilliam V. Hickey -
The president, the chief executive, we did try to keep the proper conservative, especially when we launched the project in 2006.
The unidentified analyst, OK, thank you very much. William V. Hickey -
President, CEO, next question operator?
The next question will be answered by Claudia Hueston along with JP Morgan.
Claudia Hueston-JP MorganHi, thank you very much. Good morning.
I just wanted to talk about another part.
I think I\'m still a bit comfortable with the report submitted here.
There are many jumps in the profits of this segment.
I\'m just wondering if you can help me understand what drives this volatility and how we should look at profit margins in the future.
I mean, I know it\'s going to get better over time and it\'s been a quarter --to-
Quarterly fluctuations? Thanks. William V. Hickey -
The president, the chief executive and others include a variety of businesses. let me look at each business.
One is the professional material, which is affected by our deal to buy the ETHAFOAM product line from Dow.
Including our medical business.
We also made acquisitions. 2007.
It includes our renewable products, and we are basically investing in a relatively modest sales for the future.
Therefore, this has had a negative impact on the overall profit portion of the business, and the fourth is the new technology we got in the early 07.
Nano hole is a super insulating material and also a net investment, I think what you see in the fluctuation of profit line is more investment expenditure, rather than the sales growth of the two businesses of professional materials and medical care, under the maturity curve.
This is the easiest way to explain Claudia.
Claudia Huston-JP Morgan thinks this is helpful, so when I think about 2008, it may be better to focus more on the performance of the fourth quarter than the first quarter of last year, because you have acquired these businesses, in some other investments, the investment is moving forward, right? William V. Hickey -
President, the chief executive is not sure if the fourth quarter can be represented.
I think once you look at this year\'s numbers, the full numbers, because that balances some of the ups and downs that occur when you spend on new technologies.
Claudia Hueston-JP MorganOkay, that\'s really helpful.
Thank you very much.
OperatorIngalls and Snyder, the Commonwealth Secretariat Morbelli, have the next question.
Good morning, Ingles and Snyder LlcHi. William V. Hickey -
Good morning, chief executive, Rosemary.
Ingles and Snyder are just following up. Hello. William V. Hickey -
Rosemary, president and chief executive
Rosemary Opera House, please press star one at this time. William V. Hickey -
President, chief executive, we lost Rosemary for some reason.
Yes, please continue, madam.
Can you hear me now? William V. Hickey -
Yes, we can, Rosemary.
Ingles and Snyder LlcAlright, I should have seen this on TV.
When. . . Just follow up on the clip issue.
If you eliminate the impact of different acquisitions in one year, will the profit margin of the existing business actually increase by 07 years compared with 06 years? William V. Hickey -
Dave, President and CEODavid H. Kelsey -
As Bill pointed out, acquisitions and spending on new projects have had a significant impact on new businesses.
I can\'t say that in the fourth quarter, as I pointed out in my prepared comments, the impact of the amount of resin on our North American foam business.
I think this has had a significant impact on some other factors in the quarter.
Rosemary, I don\'t have your answer on hand this year --to-
Given the number of things that have happened in the year, year comparison, but if you would like to get in touch with us after the conference call, we will try to get through with you. William V. Hickey -
One thing I might say, Rosemary, it\'s kind of back in the envelope, if you take out the new adventure project and look at the medical and professional materials yourself, the specialty materials business relies heavily on polyethylene as one of the main raw materials for its polyethylene specialty foam, which is much higher in the fourth quarter of 07 than in 06.
So in a specific section of another category, you\'ll see operating margins of less than 06 in 07.
Yes, that\'s the case.
Ingles and Snyder.
In your expectations of 2008, Bill, are you just slowing down or flat or even slightly down your North American business, or do you really have a full recession and its impact, whatever impact it will have on the global economy, the low end of your range? William V. Hickey -
President, chief executive, this is the economist problem this year.
My personal point of view, and my personal point of view, is that we will see very slow growth in the US.
I\'m not sure it will turn negative.
We will also see a slowdown in European growth, but I don\'t think there will be a recession, but that\'s my point.
Ingles and Snyder. And that is. . .
Is this your worst case at the low end of range? William V. Hickey -
The president, the chief executive, may be.
Ingles and Snyder.
I will queue up again. William V. Hickey -
Chief executive, thank you. Ross?
Good morning, unknown analyst. William V. Hickey -
Good morning, president, chief executive.
Unidentified analysts have just asked a few questions.
Bill, could you please talk a little more about the food solution.
I thought you said you thought there was an organic increase of 10% to 15% if I heard it wrong
Currency acquisitions over the next few years will also apply in 2008.
Can you elaborate on the driver there? William V. Hickey -
The president, the chief executive, the driver is. . .
I mean, the food solution is basically to take us to a space where we never had a big footprint, as you might have heard me say, when I outlined that we wanted to make food part of our business, we had a very solid footprint and market position in terms of home food. We got a. . .
We have been in this field for a long time.
But with more and more food consumption either eating outside of home or preparing outside of home and bringing in, our footprint in this market is small, two years ago, we see this as a real opportunity for growth, we have identified ready-to-eat food and catering services as well as ready-to-eat food, where we have a real opportunity to grow, whether institutional feeding, packed with mashed potatoes and creamy spinach in large quantities, we offer this service to many food service outlets, we do QSRs, we do tablecloth restaurants, we do institutions, we launch some fresh pizza, this is an overpacked fresh pizza sold in the supermarket.
We have some applications for frozen pizza trays.
It\'s just a relatively fast-
We thought it was a very good place for our 10% to 15% people.
We have also introduced sterile packaging in this segment where players who really don\'t have sterile packaging, more than two leaders, we think this is an opportunity, it\'s also a 20-person leader who refutes packaging. inaudible].
This is a replacement for canned goods.
So, for us, we see all of this as an opportunity for us to take advantage of our technology.
We have seen good reception in most parts of the world, we make rice and beans in Mexico, cold in the United States, tomato pasta sauce in Europe, it provides institutional feeding. . .
I think this is an exciting part for us.
Unknown analystWilliam V. Hickey -
President, Chief Executive, increased by 10%.
Please forgive Bill, an unidentified analyst. William V. Hickey -
That\'s how we look at 10%, president and chief executive.
Analyst for unknown reasons
Then one. up question.
You took out $7.
5 million of the consultation fees, which you say occurred before the acquisition was stopped.
Can we assume that you are not considering a massive acquisition at this time? William V. Hickey -
What I want to say is that the company has been considering the acquisition.
Finally, we make a decision on the value of returning shareholders.
The goal of our acquisition is to increase our global footprint, reduce our dependence on fresh meat, reduce our dependence on polyethylene cycles, and we focus on businesses that offer these opportunities.
If at the end of the day these numbers do not work for shareholders or companies, we will stop pursuing this particular transaction.
That\'s all I can say.
The unidentified analysts are very grateful. Operator[inaudible]
Good morning, analyst for unknown reasons.
Just after the last question, you guys talked about the pilot case they were working on in the previous conference call.
Ready for Vertical pouch packing, can you talk about Bill, how many pilots do you have, the status of these pilots, and then as part of your review, you also talk about Mirabella
Can you talk about the status of that product? William V. Hickey -
The president, the chief executive, actually I have gone above and beyond the pilot, and every word I say we are commercial.
I mean, I said in the prepared review
$0. 45 billion extra business ready
The digital growth rate of 07 years. We continue. .
We continue to expand the scope of cases. Ready formats.
I think we haveinaudible]
Mirabella is the latest case that I particularly like because it addresses a problem in earlier cases --
Prepare the format, where. . .
If you remember, you will see the current situation if you look at the supermarket --
The ready-made format has a very high tray with a lid on it.
Mirabella allows you to narrow the profile of the tray.
The movie actually goes through the meat, it keeps the red flowers, your shelf life is longer, you really reduce the use of the material, so it\'s not only a lower cost package, but better environmental packaging.
We only have one supermarket ad, but if you look at the $0. 45 billion case,
Ready, with a variety of tray covers, Mirabella, Darfresh, Darfresh bloom, and a variety of products that make up the $0. 45 billion BoxReady.
So, maybe this is one outside of the pilot, as is the vertical pouch.
Vertical bags are a business we continue to develop, invest in, where we have a sterile format, we have a distilled format, we have a refrigerated format, and the business grew 16% again in 2007.
So these are completely commercial products.
Unidentified analyst, maybe I just wanted to try to ask this in a different way to understand what you\'re talking about, but I think you hinted last quarter that there were a lot of pilot projects, and what I got is the number of incremental opportunities you see there, probably people who haven\'t used those products before.
In terms of feedback and preparation for moving forward, what are they showing you? William V. Hickey -
Mirabella pilot is a company and we now have three retailers.
Darfresh bloom is new and we have . . . . . . We do have pilot customers. We\'ve got a [inaudible].
Maxine Spencer loves the environment and the convenience of operation and machine capabilities. [Inaudible]
This is another way to showcase fresh cold dishes and cheese in North America and Latin America.
These are still well received.
I mean, we don\'t. . .
At this point, I haven\'t pulled the plug for any of our new products yet, and maybe that\'s a simple statement, yes.
One more question.
Tyson talked a few days ago about raising prices sharply.
The price of dairy products announced by Kraft this morning rose 40%.
As these companies continue to raise prices and you see a general increase in prices, can you talk about how these higher costs have an impact on your business and portfolio? William V. Hickey -
President, chief executive, you have seen that the Tysons are our customers.
The rise in food prices worldwide is not surprising, either in North America, where pork is up 40%, or in China, or in parts of Europe where dairy prices are up.
I think the fact that our customers raise prices increases their profitability, which makes them have stronger customers for our products.
Unknown analystThank you. William V. Hickey -
Chief executive Mark? Mark Wilde -
Hello, Deutsche Bank Securities. William V. Hickey -
President, chief executive. Mark? Mark Wilde -
This is Mark Wilder, Bill.
Just this morning, when you took us through all these snippets looking forward, you talked to everyone about improving profit margins, I was wondering if we would have a look at the supplementary form you provided us this morning.
If you go back to 2003, your EBITDA profit margin is around 20. 5%.
In the last year, you are over 16 years old. what kind of reasonable framework do you think we may look for in the next two or three years? William V. Hickey -
President, Chief Executive, let me start.
I mean, one of your colleagues mentioned that the price of petrochemical raw materials has been rising for many years. . .
Whether they are stable or down, I think what we need is some stability to restore those profits.
Now, like many people, we have been chasing rising prices.
As you hear me say, it doesn\'t matter unless the absolute price of the increase is higher than its stability.
I still believe that the industry is capable of reaching more than 18%.
20% may be longer
When we bring some new
However, one of our goals is to build our portfolio over a longer period of time.
Reduce our dependence on the cycle of petrochemical raw materials.
But in my opinion, some of the stability of petrochemical raw materials over a period of time will enable us to make an additional EBITDA profit of 18%. Mark Wilde -
Deutsche Bank Securities.
This is a follow-up
On the bill, I once again note the growth rate in Latin America and Asia in the fourth quarter --
The Pacific is a little lower than your annual growth rate.
What should we do about this? Do you see any slowdown in those parts of the world? William V. Hickey -
Chief executive, really not.
I mean, I don\'t see anything.
Whether or not the US slowdown will affect some of our major trading partners is the whole question.
Mexico is one of our big businesses in Latin America, and of course they are very close trading partners in the United States.
In the Asia-Pacific region, I think the main thing you are seeing is Australian beef exports;
Many of their meat exports have been adversely affected by the strength of their currency.
This is bound to be a slowdown in the economy, but their currency appreciation has made them less competitive in the global market.
So they may lose their share of meat in the rest of the world, including Brazil. Mark Wilde -
Thank you, Deutsche Bank.
Well, this is very helpful. Operator[inaudible].
An unidentified analyst
Hi, just a little confused, you guys always break this global manufacturing system and try a strategy to explain it as thoroughly as possible.
But I\'m just curious how it should appear in the income statement.
You said there was $3 million this quarter. . .
Then, what I\'m talking about now is excess capital expenditure, what do you charge on the income statement?
You claimed $3 million this quarter, but that\'s not a charge.
Now we\'re talking about $30 million this year, and I\'m just wondering if we\'re going to be spending $7 million as a separate line item or if it\'s going to be embedded in the line item.
Then the question I\'m going to talk about next is that this number never seems to have been reached. . .
I have always thought that the figure of $100 million is a very large one.
This number never seems to be close to the number you gave. . .
This is a positive, they are much lower.
But can you explain to me that they will really get this number? I mean, is this just a very conservative number?
This is the second question. William V. Hickey -
The president, the chief executive, will ask Dave to respond. David H. Kelsey -
Senior Vice President, Chief Financial Officer The total cost we mentioned here, other costs for P & L, back in 2006, when we launched this strategy, we set this expenditure at $90 million to $100 million.
The factors that make up the expenditure are the training of the labor force of these new factories, which are inefficient in building capacity to achieve full use, reducing the cost of employment or rearranging existing facilities and equipment, in terms of a factory we closed in early 2007, the cost of restructuring and closing was high.
As a result, the cost is estimated at $90 million to $100 million.
The figure for this year is $12 million;
In this regard, we earn about $3 million a quarter.
There is no obvious disconnect;
It is actually a little less than it was spent in 2006.
We expect profit and loss expenditures for 2008 to be $30 million.
If we don\'t think this is the correct estimate, we will provide a lower number.
We always warn that decisions on these investment times may change, and some of these fees may go into the future for some time or may be completely canceled.
But we are guiding this for today\'s modeling purposes.
These costs are about $30 million. William V. Hickey -
Chief executive, thank you Dave.
Operator, I will answer a few questions over the internet and I will read the question and then answer it.
The first question on the Internet is, look at your Asia
Pacific sales are $0. 6 billion, how many of them are related to food packaging and medical care, how will you describe your future Three
Annual sales targets for food packaging and medical care in the region?
Now in that part of the world, about 68% of sales are in the food industry, about 25% of sales are in the protective industry, and the other is a combination of professional materials and medicine, the balance should be around 7%.
Our expectations for growth in the region, I will divide the region into two parts because I think there are two different situations in the Asian and Pacific parts.
The Pacific segment, which includes our business in Australia and New Zealand, is more mature and may be more in line with my guidance on mature food packaging business within 4% to 6%.
I expect that the Asian part of this business, both food and medical, will continue to grow at twice the rate
Digital interest rates for the next three years.
The second question from the Internet is, which specific operating department does the global $3 million manufacturing cost include?
$3 million is $2.
The price of food packaging is $3 million.
5 million or 500,000 is in a protected state, $0.
2 million or 200,000 in others.
The next question is that your $0. 3 billion senior notes will expire on April.
Are you going to pay it off in cash or with a revolver?
Dave, can you answer this question? David H. Kelsey -
Senior Vice President, Chief Financial Officer, etc.
This is a problem in dollar terms.
So we need cash from the United States to pay it back.
Paying back the transaction cash to the United States involves tax issues.
Therefore, we will identify the most effective source of funds for retirement notes in the coming months.
My best guess right now is that this will be a mix of some cash and borrowing on our balance sheet, whether it\'s our committed revolving credit financing or our receivables securitization financing. William V. Hickey -
The president and chief executive believes that I do feel very confident about Dave\'s answer, even in today\'s troubled financial markets, that sealing air does have the ability to issue debt.
If you can, let me answer another question from the Internet.
It\'s far from where I sit.
Sealed Air is currently involved in any reconciliation discussions related to Grace, would you be surprised if no settlement was announced in the next six months?
No problem, no quarter will pass.
The answer is no, we are not currently involved in any settlement discussions with Grace.
We know that the hearing is going on and I am not yet well informed about the outcome or progress of the hearing, so I think it would be better to leave it to someone who is more knowledgeable than I am.
As far as the possibility of reconciliation is concerned, Dave has commented every year for the last six years, and there is at least a year left, and I don\'t think there is a reason to change our view of this.
Well, I don\'t think we have time.
If I can answer another question from the Internet, because I saw on the phone that we were repeating.
Okay, I\'m trying.
Someone asked if our resin purchase was a percentage of the sale or a percentage of the cost of the sale.
We didn\'t really talk about it, but I just looked at the numbers and it was less than 40% of the cost of our sales, which is about the kind of granularity I wanted to go. Okay.
I think some of the others start to repeat.
Can we go back to the phone line?
I don\'t know if we have heard from George stafu.
Can I answer your question, George? George Stafford
Bank of America gave bill my phone?
I want to ask a question.
Hi guys, good morning, congrats this year.
I think there will be a few questions soon.
Global manufacturing costs seem to be part of working capital this quarter.
I jumped a bit late on the phone, but I did hear some of your discussion Dave.
Can you write a number on this point? Or do you think that working capital on the bill will be involved in the implementation of global manufacturing, which is expected to reverse in the next few years? William V. Hickey -
The president, the chief executive, is actually George, and I think one of the highlights of the first quarter\'s CFO seat is definitely a $22 million reduction in inventory.
Although China is starting to operate and Mexico\'s operations are increasing, there is one. . . George Stafford
S. Securities bank understands this, but my point is that once the GMS is more fully operational, even if there are some good numbers that will eventually allow you to work overtime? William V. Hickey -
The chief executive thinks the answer is yes.
When it comes to GMS, we comment that we are currently supplying substantial demand in these growing regions of the world, with fewer exports from the United States and Western Europe.
This is a very long supply chain when you consider the inventory in transit and the additional inventory that we have to store as a safe stock in these markets.
When we expand our local production, we can take out a large inventory of work in progress and finished products from the system.
Therefore, it is expected that as the production of these plants increases, at the same time there will be some additional inventory to maintain these plans, the overall impact on our working capital will be beneficialGeorge Stafford
US stock exchange.
Mark on previous questions.
You must have said that you are always thinking about acquisitions.
I don\'t know if it\'s Bill, Mary or Ryan. by-
Goal, but traditionally you have a very low-key approach to this kind of work, I think.
I think I know the answer here, but in terms of why you decided to end this issue this quarter, what color can you share?
Do you have some transaction-related costs that are ultimately not realized? William V. Hickey -
I\'m not sure if I understand George\'s question. George Stafford
Banc on the US stock exchange, you are always thinking about acquisitions, why did you decide this quarter to consider the costs associated with acquisitions that did not cross the target line? William V. Hickey -
Chair, chief executive, I think the simple reason is that this is a very meaningful number, which means that we may have gone a long way before we see it. . .
This is basically the only reason. Most of the. . .
Most of the transactions we see, before you submit a lot of resources to it, you can almost make a decision early in the process.
This is not the case in this case. George Stafford
Bank of America Securities estimates that this is also a way to convey this, and whatever the process is going on, is now officially over.
One last thing I think . . . . . . I know you said that we have proposed a settlement and reorganization and you are not close enough to the hearing right now and don\'t know what might happen, but, have you learned from your contacts, is there any curve ball relative to the circumstances in which you previously agreed to settle with the assessment plaintiff.
Thank you all. good luck for the quarter. William V. Hickey -
The president, chief executive George, in terms of the matter of grace, various plans, and even the plaintiff\'s plans, acknowledge that our settlement is part of any proposed reorganization, and I see nothing but that. George Stafford
Thank you very much to the US stock exchange. William V. Hickey -
President, chief executive, we have only two left.
I couldn\'t help but answer your second call.
Well, I appreciate your sweetness. I appreciate it.
You said something about the slow slaughter, actually . . . . . . You know, your red meat sales or sales to red meat packaging are growing at a slower rate.
Do you think there are some? . .
I don\'t know if the frozen inventory is increasing, at some point will you catch up with the slower speed, or do you really get more accounts, even in a slower slaughter environment, can you grow faster? William V. Hickey -
The president, the chief executive, yes, I think the short answer from Rosemary is that we got the business very successfully in a slower slaughter environment, which is a simple statement. Yes.
If I can follow up, the profit from packaging red meat is higher than other proteins, especially chicken, if I remember correctly, but I guess it\'s also slower than pork.
When we get into a slow environment, maybe a recession, do you see some mixed changes, so we see a reduction in profit margins for your food packaging? William V. Hickey -
President, chief executive, we went through 2001, and if you remember the tech downturn in 2001, I think I might have made the same comment in 2001, you may put it in your notes and in the case of less beef consumption, we are able to make up for beef on chicken and poultry, although you are right.
This is a low-margin package because there is less technology to pack poultry than beef.
I think you \'ve heard me say it many times and the grade of profit is beef, pork and chicken.
But don\'t forget the ground beef.
During the economic slowdown, ground beef is often as accessible and desirable as chicken.
I also learned that one of the faster-growing foods in the event of a slowdown is pizza, whether it\'s frozen pizza or frozen pizza.
So if you see people ordering more pizza, take your wallet.
Good. I will. thank you very much. William V. Hickey -
President, chief executive, if you\'re still there, does mark have one last question? George Stafford
Yes, I am.
I just watched these stories all the time. . .
You know the pressure of plastic grocery bags, I think the Chinese are talking about banning them.
Is there something structurally different happening here, do you think this will affect the entire packaging business, specifically the plastic side of the equation, or is it just a noise? William V. Hickey -
President, chief executive, no, I think, no, I think, Mark, I\'m not sure we \'ve reached the tipping point, but you\'ll get there over time, when it happens, you don\'t know what it is until it happens.
But there have been many environmental cycles over the years, and I think this time there may be more material than in the past, which is why we have invested in renewable products.
We have two kinds of renewable crops every year.
One is based on PLAs, which is basically the lactic acid of the aggregated corn, and there is a need for this.
We basically sold out.
We can basically sell everything we can do.
Our other is coming from our new startup, the biosphere, where we continue to approach the market from different angles with different technologies.
The advantage of biosphere products is that it is not in the food chain.
Have a longer time
Long-term concern for corn
Plastic as a conflict in the food chain has not yet been resolved, but that\'s why I think our second technology is based on the non-
Food chain products may also be feasible in the end.
So, no, we\'re investing in both technologies.
In fact, we have just invested money to expand our capacity to produce PLA pallets.
Therefore, we believe that it is an important part of our business and that we need not only to be sensitive, but also to be part of our strategy.
One of the company\'s strategic goals in 2007, we sat with the management team a year ago, so we wanted to launch at least one sustainable product by the end of 2007, and we actually have two
So it\'s clear that this is high on our list of priorities and we think it will be an important part of our future business. Mark Wilde -
The securities market of Deutsche Bank is good.
Thanks Bill, this is the response I have been listening. William V. Hickey -