SEE - NYSE

Good day, and thank you for standing by. Welcome to the Q2 2023 Sealed Air Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Sullivan, Executive Director, Investor Relations and Assistant Treasurer. Please go ahead.

Thank you, and good morning, everyone. With me today are Ted Doheny, our CEO; and Dustin Semach, our CFO. Before we begin our call, I would like to note that we have provided a slide presentation with enhanced visuals to illustrate who we are, what we do and where we're going. Please visit sealedair.com where today's webcast and presentation can be downloaded from our Investors page. Statements made during this call stating management's outlook or predictions for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in the section entitled Forward-Looking Statements in our earnings release and slide presentation, which applies to this call. Additionally, our future performance may differ due to a number of factors. Any of these factors are listed in our most recent annual report on Form 10-K and as revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K, which you can also find on our website or on the SEC's website. We discuss financial measures that do not conform to U.S. GAAP. You will find important information on our use of these measures and their reconciliations to U.S. GAAP in our earnings release. Included in the appendix of today's presentation, you will find U.S. GAAP financial results that correspond to the non-U.S. GAAP measures we reference throughout the presentation. I will now turn the call over to Ted. Operator, please turn to Slide 3. Ted?

Thank you, Brian, and thank you for joining our call. Today, we will discuss our second quarter results and provide updates on our 2023 outlook and our continuous journey to reinvent SEE from the best in packaging to a world-class company, automating sustainable packaging solutions. We're introducing a new program called Cost Take-Out to Grow as part of our Reinvent SEE 2.0 to return to growth and take out our cost in this challenging post-COVID environment. After that, we'll open up the call for your questions. Starting with Slide 3. On this chart, we show our adjusted EBITDA performance since 2017 through the lens of major episodic events. The chart recaps where we are today, but most importantly, where we are going and how we're repositioning for future growth. We'd like to give you visibility to what we see for 2024 through 2025 and set the stage for a Cost Take-Out to Grow program. As we entered 2018, we were faced with major challenges such as the start of War on Plastics and remaining stranded costs after the Diversey sale. The company's operating leverage and earnings power were not where we wanted to be, and our stock price had been stagnant for the previous three years. That was the case for action to launch our Reinvent SEE program based on our 4P'S. We established the SEE operating model, setting the tone for a transformation to world-class. The Reinvent SEE growth strategy centered on the pillars of automation, digital and sustainability. Through Reinvent SEE, we realized annual savings over $300 million, margin expansion greater than 270 basis points and 5% top-line growth, including M&A. In early 2020, COVID shook the world and profoundly impacted the way of life globally. COVID brought demand surges in e-commerce and food retail caused wide supply chain disruptions, rapid inflation, product shortages and overstocking. We built Reinvent SEE aiming to become world-class based on our 4P'S: people, performance, products, processes and sustainability. Last quarter, we introduced our new SEE Corporate Brand, highlighting our transformation into an automation, digital and sustainability packaging solutions company. We are now evolving Reinvent SEE 2.0 to growth and expand the Cost Take-Out and productivity program to $140 million to $160 million of annual savings to be fully realized by the end of 2025. This Cost Take-Out to Grow program will redirect SEE resources from crisis problem solving to focus on driving major growth opportunities. We are transforming SEE go-to-market team to an efficient and effective solutions focused organization, accelerating automation across our business verticals and launching new product innovations enabled by sustainable materials and digital solutions. We will increase the operating leverage and earnings power in the business by further optimizing our supply chain footprint and driving digitally enabled SG&A productivity improvements. Bringing it all together, with our Cost Take-Out to Grow, we are targeting low single-digit growth, fueling our SEE operating engine, which will result in margin expansion in our journey to world class. Now moving to Slide 4. We'd like to showcase how we are creating high-quality growth. We break down our growth by geography, market, product mic, our online digital platform. In the second quarter, our digital online transactions grew to 16% of total company sales, representing a sequential increase from approximately 10% in Q4 of 2022 and approximately 14% in Q1 of 2023. This rapid growth reflects the speed of our digital transformation, our ability to adapt to changing needs of our customers, enabling us to serve customers we are not efficiently reaching today. Towards the bottom of the slide, you can see the current percent of online transactions for each of our business verticals. Our largest penetration is in our automated Protective Solutions business. Starting with Consumer Ready solutions, representing over 50% of total revenue. These solutions are designed to meet the evolving needs of food processors, retailers and brand owners as they seek to respond to shifting consumer preferences and to create an at-home experience. In the second quarter, Consumer Ready Solutions declined low single digit in volume, primarily driven by softer demand in our processors in food, retail end markets. The rapid increase in inflation over the past several quarters has impacted discretionary spending, resulting in decelerating market demand. Consumers are trading down from premium to lower-priced proteins. This dynamic impacted all regions with EMEA being hit the hardest. SEE Automation solutions for proteins continue to be a bright spot and grew approximately 40% from strong share gains with major meat processors in the quarter. Despite the softer global protein market, Automation grew double digits in all regions with APAC showing the strongest momentum growing greater than 50%. Throughout 2023 and into 2024, we expect the retail softness to continue. The U.S. cattle cycle will be a headwind for the business, partially offset by tailwinds from the Australian herd cycle, which already positively impacted our business. Automation will continue to be a secular driver across all these markets. The next business vertical, Fluids and Liquids now representing greater than 10% of company sales in the quarter experienced mid-single-digit growth before counting Liquibox. We continue to see the modest food service recovery and strong growth in Automation. We're bringing medical into this business vertical further capturing the synergy between CRYOVAC Material Science and Liquibox fitment and attachment technologies. Our third business vertical is our Automated Protective Solutions, which represents approximately 35% of our business today, focusing on a variety of markets and customers ranging from industrials to e-commerce fulfillment. Weak end market demand and channel destocking continued to impact volume performance in the quarter. We're focusing our efforts on turning around this vertical by expanding SEE Automation capabilities and fiber-based solutions. We're increasing engagement and reaching more customers through our MySEE digital platform, now representing approximately 35% of this vertical's revenue. We're actively performing a strategic review of our protective portfolio for further areas to optimize and unlock value. As a small example, we recently announced the closure of our [indiscernible] Thermal Temperature Assurance business. Transitioning now to Slide 5. We delve into SEE's growth pillars, namely Automation, Digital and Sustainability, all crucial in addressing our customers' most pressing packaging challenges. During the second quarter, we reached new significant milestones, demonstrating our commitment to our customers in delivering incremental value-add capabilities to enable profitable growth for SEE. Automation exhibited robust growth for the quarter, increasing by approximately 20%. Food automation was particularly strong up approximately 40% year-over-year from continued market share gains at major protein producers. We anticipate delivering over $525 million, up 10% in annual revenue this year. With regards to Digital solutions, we achieved several significant milestones. As an example of how digital printing is fueling SEE Automation, we introduced a new prismiq digital printer unit to print protein bags at our customers' facilities, enabling them to customize their products at the point of packaging. Transactions on MySEE platform surpassed $1 billion annual run rate in the second quarter, demonstrating robust digital engagement. Following the successful introduction of our Online Design Studio, onboarded customers experienced high-speed web-to-print solutions, streamlined graphics process and reduced print lead times. As we move more of the company online, we continue to unlock operational efficiencies, reach new customers and make it easier to do business with SEE. On the Sustainability front, we're proud to share that our MSCI and Sustainalytics ratings have improved, recognizing our ESG progress. Back in July, together with ExxonMobil Australia, we announced a unique circularity initiative for protein trace. The collaboration will avert more than 900 tons of plastic waste annually from landfills or incineration. We take great pride in the industry partnerships we've created to deliver scalable and sustainable solutions, making our world better than we find it. Turning to Slide 6. This is another example of how the combination of best-in-class CRYOVAC auto pouch equipment and film, Liquibox dispensing technologies and prismiq digital connectivity bring value and create customer returns. On the top right-hand side of the slide, you see the use of CRYOVAC technology barrier bags filling lemonade within a quick service restaurant environment. This automated form fill and seal solution enables greater than 2x operational efficiency and over 30% waste reduction compared with traditional back of the store lemons, slicing and squeezing, improved speed of service, reduces storage requirements, enhances safety while offering a seamless source of fresh lemonade throughout a given day. In this example, the operational savings were over $10 million for the customer. We're introducing a new solution designed not only to bring additional operational savings, but also create new revenue sources for QSR brand owners, a prefilled fresh lemonade, bag in the box can replace carryout rigid plastic jugs for quick service restaurants. This growth opportunity for our customers extend shelf life from hours to days, enables in-store retail carryout formats and digital marketing opportunities to enhance consumer experience. This application will disrupt rigid containers with an improved sustainability profile through less and more efficient packaging. Now I'd like to turn the call over to Dustin to review our financial results. Dustin?

Thank you, Ted, and good morning, everyone. Now moving to second quarter's results. Let's turn to Slide 7. In the quarter, on a constant currency basis, net sales were down 1% and adjusted EBITDA of $280 million was down 5% compared to last year. Volumes were relatively flat sequentially, excluding M&A effects, reflecting volume stabilization since the beginning of the year. Sequentially, EBITDA improved about 5% from $267 million in the first quarter of 2023, partially driven by improved sequential volumes and cost reduction. Adjusted earnings per share in the quarter of $0.80 was down 22% compared to a year ago on a constant currency basis but increased 8% sequentially from $0.74 in the first quarter of 2023. Turning to Slide 8. Liquibox contributed 5% to top-line sales of approximately $75 million was more than offset by organic declines driven by continued market pressures and customer destocking in Protective as well as continued weakness in food [indiscernible]. Second quarter adjusted EBITDA of $280 million, which included $19 million contribution from Liquibox, decreased $13 million or 4% compared to last year with margins of 20.3%, down 40 basis points. This performance was mainly driven by lower volumes within Protective. As it relates to adjusted earnings per diluted share in the second quarter of $0.80, our adjusted tax rate was 26.9% compared to 24.7% in the same period last year. We did not repurchase any shares in the second quarter. Our weighted average diluted shares outstanding in the second quarter of 2023 was $144.8 million. Moving to Slide 9. In the second quarter, food net sales of $881 million were up 3% on an organic basis, primarily driven by price realization. Volume was flat year-over-year with growth in Automation in our organic Fluids and Liquids business offset by continued weakness in retail demand. Volume was slightly up versus the first quarter. Food adjusted EBITDA of $191 million in the second quarter was up 16% in constant dollars compared to last year, with margins at 21.7%, up 90 basis points, mainly due to the contribution from Liquibox and lower operating costs, partially offset by unfavorable net price realization of $10 million. Protective second quarter net sales of $500 million were down 18%, driven by volume declines in all regions from continued market pressures in industrial, electronics and fulfillment markets and continued customer destocking activities. While we expect destocking activities to moderate, headwinds in end market demand are projected to continue in the second half. Protective adjusted EBITDA of $96 million was down 24% and constant dollars in the second quarter with margins at 19.2%, down 140 basis points due to lower volumes and associated operational leverage, partially offset by favorable net price realization of $11 million. Sequentially, Protective EBITDA margins improved 300 basis points primarily driven by favorable net price realization and cost control. On Slide 10, we review our second quarter net sales by segment and by region. In constant dollars, net sales were down 1%, with 12% growth in Food, while Protective was down 18%. By region, we grew APAC by 6%, offset by a decline of 2% in Americas and EMEA being flat. Now let's turn to free cash flow on Slide 11. Through the second quarter, free cash flow was a use of cash of $130 million compared to $94 million source of cash in the same period a year ago. Working capital has improved through our continued efforts to reduce inventory. However, benefits were offset by the previously disclosed deposit internal revenue service of $175 million. Excluding the impact of IRS deposit, free cash flow would have been a source of cash of $45 million. On Slide 12, we outlined our purpose-driven capital allocation strategy focused on maximizing value for our shareholders. As anticipated, we closed out the second quarter with a net leverage ratio of approximately 4.1x. We expect to use free cash flow generation to de-lever throughout the year and into 2024. We are working to optimize our portfolio and actively addressing opportunities to unlock value. Let's turn to Slide 13 to review our 2023 outlook. Our guidance at the beginning of the year anticipated a V-shaped recovery in the second half of full-year 2023. Based on continued end market demand weakness, compounded by destocking, we expect an L-shape recovery through 2023 and into 2024, reflecting a post-COVID lower growth environment. As a result, we are revising our full-year guidance, which includes the following. We expect net sales to be in the range of $5.4 billion to $5.6 billion, which at the midpoint is down 3% on a reported basis and down 7% organically. We now expect Liquibox to contribute approximately $300 million in sales for 2023. Second half will be similar to the first half of 2023, reflecting volume stabilization throughout the year, the slight uptick is in volumes in the fourth quarter. We expect full-year adjusted EBITDA to be in the range of $1.075 billion to $1.125 billion, which assumes adjusted EBITDA margin of approximately 20%. Full-year adjusted EPS is expected to be in the range of $2.75 to $2.95. We expect full-year 2023 free cash flow, excluding the previously disclosed tentative tax settlement to be in the range of $325 million to $375 million, which implies a free cash flow conversion of approximately 85% at the midpoint. Lastly, for the third quarter of 2023, we expect net sales to be in the range of $1.360 billion to $1.380 billion and adjusted EBITDA to be $260 million to $270 million with an earnings per share of between $0.60 and $0.64 per share. As Ted mentioned earlier, due to the current environment, we launched Cost Take-Out to Grow as part of Reinvent 2.0 to restore earnings and volume growth in 2024 and beyond. I look forward to giving you more details and updating you on the progress to the $140 million to $160 million of annual savings targeted by the end of 2025 and our growth initiatives on subsequent earnings calls. With that, let me now pass the call back to Ted for closing remarks. Ted, over to you.

Thanks, Dustin. As we look to the remainder of 2023 and into 2024, the combination of Reinvent SEE 2.0 initiatives and new product introductions will help us revert to low single-digit growth. We continue to be cautious on the global economic outlook and lingering impact of inflation. We are confident that our Cost Take-Out to Grow program will put us back to the earnings growth path and position us to address significant opportunities in our end markets. I also want to take a moment to recognize our people. Their hard work and dedication to relentlessly drive our company to world-class performance. With that, I open the call for questions. Operator?

Thank you. At this time, we will begin the question-and-answer session. [Operator Instructions]. Our first question comes from Ghansham Panjabi from Baird. Your line is open.

Hi, good morning. This is Matt Krueger sitting in for Ghansham. Thanks for all the details. I was hoping that you could provide some added detail on your volume expectations by segment for the second half of 2023. Your guidance appears to imply a slowdown in food in addition to the weakness in Packaging. Why would this be the case versus the second quarter? And what were the volume run rates for each of the businesses during July? And if you even want to break out some of those details by subsegment, that would be great?

Hey, Matt, this is Dustin speaking. Great question. So a couple of points. We highlighted and you go back to some of the prepared remarks, starting with Food. If you think about the second half of the year, what you're really looking at is a shift in the U.S. cattle cycle since the beginning of the year, starting in Q2 and now going throughout the remaining portion of the year. It's being partially offset to some degree with what's happening in Australia herd cycle as well, but not fully. And so that's what -- that market impact is compounding volume in the second half as it relates to Food. Keep in mind, holistically though, if you think about the business from first half to second half in Food and Protective, you're looking at general volume stabilization. If you move to Protective, looking at the second half, we talked about we're still seeing end market weakness in demand. And then that's being compounded by obviously destocking. So the longer -- the weaker the demand in our end markets, if you logging in the destocking cycle, you're seeing that extend into Q3 as well as the compounding market. So those factors were driving high single-digit declines in the second half for protective from a volume perspective. Okay. Next question?

Our next question comes from Lawrence De Maria from William Blair.

Thanks. Good morning everybody. As much I want to ask about some of the growth opportunities, I would like to understand some of the volume declines in terms of market declines versus, let's say, switching share losses and some of the trade downs. So can you kind of discuss the volume of market declines versus destocking in the second half? And what kind of share losses there potentially are and have you lost any share due to pricing actions? Thank you.

Sure. All right, Larry, this is Dustin Semach. I'll start off, and then Ted can chime in. So if you look at kind of going back to the prior question as well, I'll go up by segment, Larry. So if you look at Food, what we're seeing is volume holistically, right, think of it as down in the roughly 4% range in the second half of the year. You have a little bit of uptick in price slightly because we see this more of a year-over-year comp. And then when you look at market, it's down about 4% holistically. There's -- we're looking at share loss to about down one point and that's being offset to some degree in our other growth areas. And I'll let Ted come back to that point because I'll move to Protective quickly. When you come back to Protective in the second half of the year, we're seeing more pressure on price. You're seeing that on the commodity resin side really coming from the first half. So you see price down about 3% holistically in the second half with volume down high single digit, of which about half of it is market, the other 25, 30 points is destocking and the rest is going to be share loss offset by some growth. And I'll turn it to Ted to talk a little bit about the growth in each area.

Sure. And picking up on the share loss piece, if we look -- talk to Food first, we talked about what's happening with the resins. We feel like we've got that stabilizing, but we did still have a little carryover for the resin with our customers who we did lose because we didn't have the resin converting those back, they got to get rid of the stock that they have. Market slowing is slowing that down a bit into the third quarter. We think we should have that hopefully gained back by the end of the year. The other part on the share gain is with the Automation driving some of our growth. On the Food side, as we shared pretty strong, really have a great backlog. We got some of that pickup. We got some of the part shortages we had that we talked about in the Food business alone, up 40%, still driving to 10% growth for the year and into next year. Some of the activity on the Automation, we're working on new products. And right now, with our customers being under strain, they're reducing their CapEx, we're kind of fighting that right now, helping them calling in, what can we do to help them with their productivity issues, we still think Automation has opportunities for us on Food in the second half and going in strong into next year. On the Protective side, the share gain really is the pressure we've been seeing is with the destocking, we're seeing that reduced but still strong in the quarter. We still think we'll have more of that in the second half, but that the fiber -- the plastic, the fiber push is still there. We're working on that. That will be playing out through the rest of the year. So we do see some stabilization in the Protective side. Same thing on the growth with Protective, we really think going with our e-commerce platform, getting better reach, getting -- reaching more customers also with the fiber-based solutions coming on board and also the Automation, as you saw on the prepared remarks, we have some significant opportunities moving on the Protective side coming in the second half. But right now, the first half of the year is tough, second and half year going to stabilize and building into next year. Okay. Next question?

Thank you. Our next question is from George Staphos from BfA Securities. Your line is open.

Hi, good morning everybody. Thanks for the details. My question is a two parter combining the volume outlook with the savings on CTO2Grow. Ultimately, what should be the cadence on the $140 million to $160 million savings that you spell out on Slide 3? And how pressure tested are they, Ted, to the volume outlook? And the reason I ask, and this is kind of the second question, some of the issues that you cite here in the back half of the year, the cattle cycle, Automation, perhaps not growing as quickly because your customers are holding back CapEx. These are factors that were talked about in past quarters and the company's view was they shouldn't be that big of a deal. So are your customers -- does Sealed Air need to get closer SEE, need to get closer to its customers to have maybe a better view on the volume outlook and in turn, how that will ultimately play into the savings and the cadence there? Thank you so much. And good luck in the quarter.

Hi, George, good question. Let me let Dustin start with just unpacking some of those numbers, and then I will answer the question about how close we are to our customers and why we had that demand shift from first quarter to second quarter.

Thank you, Ted, and thank you, George. So to quickly answer that question, I just want to take a step back and talk about Reinvent SEE, right? Just as a reminder, is we're announcing the $140 million to $160 million outlook over the next couple of years through 2025. Going back to Reinvent SEE 1.0, the initial kind of commitment was roughly $225 million, which resulted in over $370 million in savings. And the point to make there is that as we move throughout the markets beyond '23 and into '24, we're going to continue to focus on taking out the cost and driving the necessary amount of savings to continue to restore earnings power. But going back to the $140 million to $160 million, so if you think about the cadence about -- there will be -- you'll see this begin to feather in Q3 and Q4. We're already off and running. The teams are actively engaged and executing as we speak. And then what you're going to see is 60%, 70% of that $150 million at the midpoint appear in 2024 and the remaining portion in 2025. Now I'll turn it back to you, Ted.

Yes. And then so George, to the second part of the question about being close to our customers. Going through this right now, extremely close to our customers right now with the pressure especially in the Food side, where they've seen the demand change. You can hear with some of our larger customers are announcing publicly what's going on with their demand reduction for the year, so we are side by side. We're seeing that feeling that or look one quarter later, we have much greater visibility to what we see, and that's where you see the adjustment in the second half. To the second part of your question, the Automation has been part one, releasing what we had in the backlog, getting that strong growth in the first half, we fill the pipeline is still strong. We've been reducing the bookings. The pipeline is still quite strong to get and we have to get those converted. What we're fighting with is with their reduction in demand and the reduction of their heavy intense focus on cost reduction is how can we come in and help them take their cost out through Automation, and that's the issue that we're going through right now to build up our backlog for the end of this year and going strong into 2024. We feel pretty good about that on the Automation side that we can hit. We have some work to do, but we think the Automation is really strong, bright spot for us going forward. Next question?

Thank you. Our next question comes from Michael Roxland from Truist Securities. Your line is open.

Thank you everyone for taking my question. Ted, in Fluids, you mentioned last quarter in the park, what about your confidence in regaining lost volumes -- Food volumes from last year. How much additional progress have you made in 2Q? And can you also talk about your approach in Food on a go-forward basis? One of your larger competitors recently acquired a food packaging business targeting modular vacuum packaging solutions for the protein, dairy, and it tends to increase its food packaging volumes to gain market share. So I just wanted to find out how you're going to address that increase in competitiveness? Thank you.

So the first part, how we're feeling comfortable building on what I just said before, we are with our customers directly. So again, feel pretty confident on the Automation on what we're doing with the customers in the Food space. On the resin piece, which is a different subject as we regain where we didn't have that resin in the past, we feel very good with our customers, with our brand, with our service that we can get that business back. Again, we have to get them to deplete the inventory they have with someone else. So feel really good about that at one, even myself personally being engaged with those customers, let's go get that business. The second part of your question with what our competitors doing in Automation, part of our growth in Automation being well above the market has been taking share. So we feel really good about that. We talked about in the fourth quarter, we had a major conversion with one of our largest customers, actually taking that business back that we lost over five years ago. We got that back, making gains. We have some of that equipment in place, actually have it on one of the slides of the new equipment that we brought in. So we feel very good about that. We feel like we have the best products. We feel like we have the best equipment. We have new designs coming in place, so feel really good about it. We'll always have competition. But I feel very good with our CRYOVAC incredible brand with our customers, we have the product, we can go get the business. We have a tremendous sales and service team. So we feel quite confident giving the team better tools, I think we're in a good place despite what the competition is doing. Next question?

Thank you. Our next question next question is from Phil Ng with Jefferies. Your line is open.

Dustin did a great job in talking about the cost element of your restructuring effort. So Ted, help us kind of think through perhaps the growth side of things. How long do you think these initiatives will take hold we'll see it on the bottom line? And some of the challenges you're calling out on volumes seem like it could linger into 2024. So curious, what's your level of confidence in getting back to growth from a top-line and earnings perspective when we look out to 2024?

Great question. And -- but I'll have to share because Dustin did take the Cost Out and there saw already some of the lines where I've used -- it's been great having Dustin here, a clean set of eyes, and I've used the phrase already for my mom, a new broom sweeps clean. So what you see there on our Cost Take-Out to Grow building on the success of Reinvent, we have really good line of sight. What he didn't say is we will continue to under promise and over deliver on those savings. So on the growth element, if you look at the curve on Slide 3, that is where we put a tremendous part of our resources taking care of that COVID period. We originally called out the COVID crisis. We've gone through so many crises around the world, our scientists, our engineering team, our service technicians, taking care of that bump that was out there, we redirected resources to take care of business. And actually, we had to redesign products that we already had. So to answer your question on my confidence can we bring -- get us back to growth as we put in the slide committing to low single-digit growth, our internal plans are above that single-digit growth. So how do we do that? You already -- we talked about inorganic with Liquibox. 5.5% growth is coming in there as we drive our largest -- our fastest growing, highest margin segment, so we feel really good about that. How are we doing on Automation on the growth going forward? Feel very good. That's got to be north to double-digit right now so far this year, quite strong going out? Yes. The Digital Solutions are just coming into fruition. Going again that hump that the COVID crisis behind us, putting our engineers on our Digital Solutions, feel really good about that. And then breaking out the fourth area of those new products, again, designing for this new curve on Reinvent 2.0, we have new trays coming out, new fiber-based products coming out. We now have to have those realized to beat that low single-digit volume growth out there. So again, under promise, just like on the cost side, we're going to beat that on the growth side, I have high confidence we're going to beat that going forward. Next question?

Thank you. Our next question comes from Gabe Hajde from Wells Fargo. Your line is open.

Hey, Dustin. Good morning. Maybe I'll ask the question a little bit differently. I'm honing in on Slide #3, where you talk about CTO2Grow, enabling you to get low single-digit volume growth. And then further on the right hand side of the slide, you talk about sales growth of 5% to 7%. So I'm assuming implied in there is some gross price as well as acquisition-related growth. So I guess in the near term, given that you're focused on deleveraging M&A tends to be fairly lumpy, is it safe to say that you're assuming that you'll get back to some sort of contribution from net or gross price in that algorithm? And I guess just to clarify on the guidance, you're calling down, I think Liquibox to be $50 million lower in revenue. What's driving that? And does that come back in 2024 and beyond?

Okay. So great question. I'll comment first on net price. And then the comments you made around Cost Take-Out to Grow and you see on this chart on Slide 3, that kind of course correction. So what we're calling right now is the $140 million to $160 million of annual savings through 2025. And if you think about that line, that dotted line, that's what it represents, okay? And then low single-digit growth during that period. And to your point, if you call it, you look at capital allocation, we are focused in the short term on deleveraging, right? So that's an organic number when we're pointing it out. In general, we can see net price realization somewhat, I would say, negative, excluding Cost Take-Out to Grow, right, for the next couple of years, and we talked about that in terms of where resin pricing is at today, where end market demand that holistically was driving that kind of short-term view on pricing, an idea is that when we get through that curve into 2025, that will enable us to get back on over to the right-hand side because our balance sheet will be much further leverage. Pricing environment, markets will be in a different place, and then we're able to get back on to our SEE operating model, which you can see on the bottom right hand corner.

Yes. The second part, Gabe, this is Ted, where you mentioned about the Liquibox. Liquibox being right now a step down from what we talked about before, the short issues coming in a quarter into the business. We've had operational issues right now into the quarter. We had some quality issues. We feel like we're on top of that. We brought the CRYOVAC team in there to fix it. We've even had some personnel issues in the plants. We've adjusted rates. I believe we have that fixed and on top of. We've also, with our customers, they've seen the slowdown in the market, so we've been face-to-face with our team, our CRYOVAC team with the Liquibox team and we think we have some significant opportunities. Right now in the short term there, those are issues, and that's why we took that number down for the year. But the last one on the cost synergy, though, we're actually ahead. Even though the volumes are down, we are ahead on the cost synergies there in the model. And so we get the volumes back up, where you think we'll far exceed the cost synergies on the Liquibox. Going into '24, '25 and '26, that is definitely part of getting back to the growth algorithm with the growth in Liquids and Fluids business, so we're still quite confident about that. Next question?

Thank you. Our next question comes from Josh Spector with UBS. Your line is open.

Yes, thanks for taking my question. I guess one thing I wanted to ask about was more on the cost side, specifically margins within Protective. You had a pretty nice step up in 2Q on flat sales sequentially. So just wondering kind of on your expectations for second half, I think you talked about pricing down, but price net of cost, I guess, could that be up? And if margins improve, do you think you could actually see Protective earnings up year-over-year in the fourth quarter? Or is that too aggressive?

Great question, Josh. And so as we mentioned earlier, two points or a couple of different dynamics that I'll call out. One is, if you think about the second half of the year, we're talking about volume stabilization. Having that volume stabilization sequentially coming from the first half really gives us an opportunity as we think about cost control, which benefited in Q2 and would Cost Take-Out to Grow, benefiting further. And what I haven't really splitly said, but I will say now, which is $140 million to $160 million, obviously, with Protective in-house performed in the first half of the year and really the best half of '22, a lot of those cost savings will actually proportionally be focused on our Protective segment holistically. If you think about the second half and to your point, you are going to have margins sitting in the high teens roughly for the -- think of it as the first for Q3. And by the time you get to Q4 on an absolute dollar basis, you should be very similar to where Protective was in Q4 of 2022.

The only thing to add on that on the growth side of looking at the Protective is the portfolio we did highlight in the prepared remarks. The continued portfolio review and actually changing that portfolio, we will -- we are planning to have margin expansion by the shift in the product mix going into the second half of the year. Also with the new products coming in and in Automation will be driving a different mix in the volume. So we should have again margin expansion in the second half. That's what we're planning on. Next question?

Thank you. Our next question comes from Arun Viswanathan of RBC Capital Markets. Your line is open.

Great, thanks for taking my questions. So if we look at the midpoint of the guidance, let's say, $1.1 billion for this year and the second -- implying kind of like a $553 million number for the second half. So yes, you're exiting at kind of that $1.1 billion rate. You will be facing some pretty easy comps next year in Protective. I think Food also as far as the back half maybe is positioned in a little bit better way as well. How do you think about growth next year? Do you envision returning to that SEE operating model growth level of EBITDA maybe in the mid- to high upper single-digit range? And what are the risks to keep in mind that would prevent you from getting to that range? Thanks.

How about if we take [indiscernible] on in the answer because we have the new CFO with readjusting with the CTO2Grow, and then I'll add some color on how it gets back to the model.

Absolutely. So Arun, again, I really appreciate the question. A couple of comments I would make. As we think about next year, right, volume growth is critical. If you think about restoring earnings and that's part of the reason we talk about CTO2Grow is really both sides of the coin, getting back to low single-digit volume growth and then restoring our earnings. If we get back to low single-digit volume growth, we believe the Cost Take-Out to Grow program will run earnings growth ahead of overall top-line growth. At that point, it won't get back to quite, say, mid- to high single digits for 2024, but anticipating kind of mid-single-digit-ish relative to 2024 earnings growth. So going back to your point, what are the kind of pluses and minuses as we think about that. One is, we're obviously coming off a down year. If you think about next year, I made a comment earlier in one of the questions around net price realization and that being slightly negative. That, to some degree, is what's putting pressure on our point of view at this point in time, which could shift as the market develops is putting pressure on what we see is that 60%, 70% of the $150 million coming into play next year, right? And again, what plus that up or plus that down from that point of view really comes in how you perform on volume and how those end market gets to look and do they shift or change from our point of view today as we progress out the next six months of the year. I'll turn it to Ted.

Yes. Arun, just building off of that is going through this depth and as we've put the CTO2Grow in there. And again, on the theme to under-promise, over-deliver the cost side, again, this is what we have in the plan. Our plan is to beat that. On the growth side, we got to get back to growth. As I shared is exactly what you've looked at in the model, but this is implying low end on the growth going into '24, '25 and '26. We have to turn that engine around to get those growth initiatives and to add a percent or two on top of what you see here to get it back to the model. Right now, those numbers are below the model for the outlook years. What we have to do internally is to beat that. We also, with the market going behind us, we think we -- that will lift. As we've shown with Reinvent what we did the first time, we leverage very nicely, but we've got to leverage off growth. So our crisis going forward, we have a growth crisis, and that's we have the whole team going after it. And we will leverage quite nicely getting that growth, and that's what we're focused on to beat what you see here. Next question?

Thank you. Our next question is from Adam Samuelson from Goldman Sachs. Your line is open.

Yes, thank you. Good morning everyone. Maybe continuing on the discussion in Protective and I appreciate that you're doing some portfolio review. Is there an element here of you have the strength to grow in terms of some parts of the business that are -- that might be more commoditized that you have to functionally exit those business lines and trying to replace those with newer higher-margin business? And is there a time lag when that transition happens that might be impacting your shipments and kind of your confidence in and the growth cadence going into next year?

Yes, Adam, it's an interesting, I have to actually pause and think what you said strength to grow. What we're -- part of the review on the portfolio, what we're looking at is does it fit into where we want to go? If you noticed, we changed the name, what was called Product Care, we went to Protective. Now we're calling it Automated Protective Solutions. So the lens we're putting on this business, does it fit our strategy of Automation, Digital and Sustainable Solutions for our customers. So what's being pruned or shrunk curve doesn't fit in if it has a discrete products like we shed the reflective business. We just talked about Kevothermal. These are discrete products, great products, but don't fit into that Automation lens that we have for this business. So those businesses, if we can't grow them, we're looking to do something else with them. The other side of the Protective, as we strengthen this portfolio continue to get the cost right. So that's that Cost to Grow, we can grow more effectively and efficiently. And how we go to market through our digital transformation, reaching more customers more effectively and efficiently, where in the past, we said we couldn't afford to go to this customer, that customer. We want to get more nimble and go reach with these tremendous product lines we haven't big Automated Protective Solutions portfolio, get to the reach of those customers and some of the new products that we have coming in. So we think we can grow this business, but we got some work to do. Next question?

Thank you. Our next question comes from Christopher Parkinson with Mizuho Securities. Your line is open.

Hi, this is John on for Chris. Can you dig deeper on your current Automation strategy? It appears that your clients have been pretty receptive recently. And so if you could provide more detail on your current backlog and how that's been trending versus your initial expectations? And then also, if you could just touch on digital and MySEE and how you see that growing in the intermediate term? Thank you.

Okay, good. So the first part of the question on the Automation on where we are, feel good about that. We talked about our bookings. If we look into last year, we had some of our product lines in Automation. On Protective and in Food at actually too high a level because we couldn't ship. So that pipeline, we work -- the bookings, we've worked down. That was part of the growth in the first half of the year, seeing that up significantly. The second half of the year, we're working that bookings to down, but the issue that we're focused on is the pipeline, turning the pipeline into bookings. So as I shared earlier on the call, we're balancing that with a market, the demand reduction where customers are challenged on their CapEx spending, we have to actually work harder. We have to show significant savings where we can help them in their productivity. So that's the challenge for us right now into the second half and going into next year. And also bringing in new Automated solutions, new products. So that part, we feel good about. The second part of the question, if you can help me, Dustin?

Go back through MySEE and...

Our Digital solution, yes, as we're working on MySEE and how we make it easier for -- to do business with our customers, you see that moving fairly quickly. Again, Protective is where we have the most conversions. And our largest distributors are coming online with us and very cooperatively, seeing that we can help in the interactions working back and forth. We're talking about not just touch lists in our factories, how can we touch list with our operations, communicate anything with customer service, order entry, et cetera. So we see that moving quickly. We need to get over half the company to really feel that tipping point, but with the second part of MySEE that we're excited about is slowly starting to happen, can we use our Online Design Studios and help our customers actually design their products online quicker and faster so we can start bringing in the scalability? That part is still underway with more good things to come. Okay. Operator, I think that was time for -- or we have time for one more call and to wrap it up.

I am showing no further questions at this time. So I would like to turn the conference back to Ted Doheny for closing remarks.

Right. I would like to thank everyone for their time today. We are definitely excited about the opportunities ahead for SEE, and we look forward to speaking again in November. Thank you very much.