SEE - NYSE

Good day, and thank you for standing by. Welcome to the Second Quarter 2025 Sealed Air Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Mark Stone, Vice President, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. This is Mark Stone, Sealed Air's Vice President, Investor Relations. With me today are Dustin Semach, our President and CEO; and Roni Johnson, our interim CFO. Before we begin our call, I would like to note we have provided a slide presentation to supplement today's discussion. This presentation, along with our second quarter earnings release is available to download from our Investor Relations page on our website at sealedair.com. I'd like to remind everyone that during today's call, we make forward-looking statements, including our outlook or estimates for future periods. These statements are based solely on information that is currently available to us. Please review the information in the forward-looking statements section of our earnings release and slide presentation. These sections also apply to this call. Our future performance may differ due to a number of factors. Many of these factors are listed in our most recent filings with the SEC. Additionally, we will discuss financial measures that do not conform to U.S. GAAP. Information on these measures and the reconciliation to U.S. GAAP can be found in our earnings release or the appendix of our slide presentation. I will now turn the call over to Dustin. Operator, please turn to Slide 3.

Thank you, Mark. Good morning, everyone, and thank you for joining our second quarter earnings call. Today, I will give an update on our leadership team, the impact of shifting global trade policies on the markets we serve and our ongoing transformation. Later, Roni will provide an update on our financial results and details on our outlook. Yesterday, we announced after a thorough search process, Kristen Actis-Grande, will be Sealed Air's new Chief Financial Officer. We are excited to have Kristen come on board later this month and leverage her experience driving transformations across complex manufacturing and distribution businesses to accelerate the transformation we are driving here at Sealed Air. She has a proven track record of creating shareholder value, and I'm looking forward to the impact she will make across both of our businesses, Food and Protective. I want to personally thank Roni for all her contribution during this interim period. Roni has been a trusted business partner, since I joined the company, and I'm deeply grateful for her willingness to step up and support me through my transition as CEO, all while continuing to advance our finance strategy and drive outcomes across the business. She will continue to be an integral part of our leadership team. My sincere thank you to you, Roni. Moving on to trade policies. Since our discussion in May, we continue to monitor the changing global trade landscape. As a reminder, we are largely domestic production for domestic consumption, and most of our products remain exempt under USMCA, both of which position us well against direct tariffs. The net impact of tariffs was not material to our second quarter results. While the situation remains dynamic, the second quarter was more stable than expected with a pause on broader tariff decisions into the third quarter. However, there are pockets of the business, particularly certain specialty resins that are procured for partners in countries being impacted by increased tariffs. We continue to focus on mitigating the impact of tariffs through production or procurement optimization and limited pricing actions. The net tariff impact included in our second half outlook is minimal, and we will continue to provide updates as the longer-term impact becomes more clear. Let's now move to economic outlook and discuss each of our market-focused business segments. Globally, we are closely watching our end markets to understand the extent of demand impacts due to lower economic growth outlooks, shifting industrial production and changes in consumer spending patterns on the back half of this year and on a go-forward basis. Beginning with our Protective segment. We continue to be in full swing in our turnaround and are seeing early signs of progress. As a reminder, last year, most of our efforts were focused on our new go-to-market strategy with a strong emphasis on getting closer to our customers and executing well against the basics. We stepped up our field engagement, invested in frontline sales, refreshed our commercial excellence programs and reorganize our teams. We are beginning to see the impact of our actions on our results. Our second quarter volumes were down 2%. The Protective industrial portfolio up slightly, marking the most stable year-on-year quarterly volume results we've delivered since 2021. Additionally, sales were up 4% sequentially and adjusted EBITDA was up 6% sequentially, marking the second quarter in a row with sequential adjusted EBITDA growth in the first time in 2 years we have seen sequential growth in sales and adjusted EBITDA. We remain focused on getting closer to and reestablishing trust with our distribution partners and customers. As a part of that effort, I continue to spend time in the field. More importantly, they are also recognizing the step change in field alignment and engagement. We will continue to build on this momentum as we progress throughout the second half. While turnarounds are typically nonlinear. This is a step in the right direction, and we plan on continuing to control the controllables by improving business fundamentals irrespective of market conditions. We are expanding our go-to-market strategies more fully across Protective's EMEA and Asia footprint, and we'll share more on the rest of the world go-to-market strategy as we make further progress. We continue to work on addressing fiber portfolio gaps in our Protective business as we advance towards a substrate agnostic solution set. Our previously announced [ Jiffy ] and Boss Paper Mailer is gaining traction in the market and our hybrid Autobag solution that can run either fiber or poly materials is being brought to market now. The process of bringing these innovations to market has led us to further transform our research and development strategy to increase our use of external partners and suppliers. This will reduce time to market and ensure we are addressing our customers' most pressing challenges faster. This is especially important during a period where we are focused on paying down debt and are not actively leveraging M&A to bolt on new solutions. Lastly, we continue to optimize Protective's network to improve customer service and quality. We recently opened the Lakeland, Florida manufacturing facility to better serve our customers in the Southeast of the U.S. We are assessing the entire manufacturing footprint to identify additional opportunities to enhance service and quality, while improving our cost positions. Our network optimization efforts will be outlined in more detail over the coming quarters. While we overdelivered in the volume in the first half against expectations and expect our turnaround and Protective to continue to deliver iterative progress, we are being prudent on expectations for the second half, reflecting the market uncertainty ahead of us in the global trade policies that lower growth expectations across many markets, but primarily in the U.S. Transitioning to Food. Our Food business remains resilient and continue to perform throughout the first half of 2025 despite market pressures accelerating in the second quarter. As a reminder, our Food business is focused on serving fresh protein markets across industrial food processing, retail and foodservice. Our international business, while tempered from a market perspective, continues to perform well we expect full year volume growth outside the U.S. has been capitalized on opportunities. Our EMEA region is a standout, where we have continued to take share in the market throughout the first half of 2025 building on momentum coming out of 2024. The pressures on the North American market that we outlined at the beginning of the year accelerated in the second quarter, putting even more pressure on the second half. I'll start by focusing on the demand side before shifting to the supply side dynamics. Despite choppy consumer sentiment, consumer spending continues to be relatively stable in the U.S. What is shifting, however, is where consumers are placing their dollars, especially as inflation continues to escalate across all food categories. The overarching theme is the shift into value grocery, which is affecting each of our end markets. These changes are particularly pronounced in lower and middle income households. Within industrial food processing, the shifting spend landscape is resulting in pressure on premium beef cuts. Consumers are trading down to lower end costs and ground beef. While this shift is compressing our shrink back volumes it's being partially offset by a pickup in our retail solutions. Within retail, the shift is away from high-end consumer packaging good brands into private label away from the deli counter to prepackaged goods, and from smaller portions into more economical bulk and family-sized packaging formats, reducing the packaging volume for protein weight sold. Overall, changes in the consumer spending are resulting in lower outlook for foodservice with a mix shift from fast casual and quick service restaurants into retail, where we have a broad solution set and increasing focus, but lower market share in our industrial and food service portfolios. We continue to bring new solutions that include new packaging formats, expanded printing capabilities and enhanced equipment offerings to capture more demand. While we are making progress, this strategy will take time to fully capture the market opportunity ahead of us. Shifting to the supply side. The U.S. beef slaughter rates are declining at an accelerated pace leading to volatility in the beef markets, while we've been closely watching the North American beef cycle, which are at 50-year lows, this quarter, we saw an inflection point in the market with slaughter rates decreasing 7% worse than our previous expectations of down 1% for the quarter. This second quarter U.S. Beef production and a softer second half is now resulting in lower full year volume assumptions compared to what we anticipated at the start of the year. While her rebuilding has begun, it's only the first step in a lengthy return to a more normalized and predictable part of the cattle cycle. As a reminder, the time between cattle retention and the resulting cattle going to market is approximately 3 years. An improved FX outlook on the weaker U.S. dollar is helping to offset the top line softness in North America. And as a result, we are reiterating our sales guidance. As we mentioned during the last call, with the anticipated slowdown in the U.S. market and the visibility we have into the structures to support each business, we continue to further streamline each business to make them fit for purpose for their respective long-term strategies. The overarching themes remain simplifying our organization, moving closer to the markets we serve and becoming easier to do business with, which will result in long-term sustainable growth in earnings. Shifting gears. I continue to be pleased with our disciplined approach to capital allocation. We are below $4 billion of net debt for the first time since the fourth quarter of 2022. We are on track for the full year free cash flow guidance, but we'll continue to solely focus on debt paydown. Before turning the call to Roni to review our second quarter financial results, I'd like to reiterate my confidence that as an organization we are on the right path. Our priorities are unchanged and remain keeping the customer front and center, operating with urgency, driving further productivity and transforming the business to deliver long-term sustainable growth. Roni?

Thank you, Dustin, and good morning, everyone. Let's turn to Slide 4 to review Sealed Air's second quarter performance. As Dustin mentioned, we executed well in the quarter and came in ahead of expectations. Net sales were $1.34 billion in the quarter, down 1% on a constant currency basis. Adjusted EBITDA in the quarter was $293 million, up 3% on a constant currency basis. Adjusted earnings per share in the quarter of $0.89 was up 7% as reported and 10% on a constant currency basis. Our adjusted tax rate was 24.4% compared to 25.5% in the same period last year. Our weighted average diluted shares outstanding in the quarter was 147 million. Turning to Slide 5. During the second quarter, volumes were down 2% across both businesses. Food volume weakness was primarily due to softer-than-anticipated volumes for industrial food processing predominantly in North America. Protective volumes were down 2% in the second quarter our lowest volume reduction since the end of 2021. The fulfillment portion of the portfolio, which represents about 40% of the Protective business was down mid-single digits as we lapped the tail end of material customer churn. The fulfillment declines were partially offset by volume increases within the industrial portfolio. Price was up 50 basis points, primarily on formula contract pricing in food, which was partially offset by pricing declines in Protective of about 2%. Second quarter adjusted EBITDA of $293 million increased 3% on a constant currency basis. Margin of 22% was up 70 basis points. This performance was mainly driven by cost takeout, productivity efficiencies and a onetime benefit of $7 million from a lease buyout related to G&A network optimization, partly offset by unfavorable net price realization. Moving to Slide 6. In the second quarter, Food net sales of $896 million were flat as favorable pricing and formula pass-throughs were offset by softer volumes. As Dustin mentioned, protein markets decelerated more rapidly than we initially anticipated entering the quarter. The global protein markets we serve were down approximately 1%, the largest of which was the U.S. Beef cycle, which was down 7%. Despite these market headwinds, our Case Ready Retail Solutions benefited from prior share gains with volume up slightly. From a regional standpoint, Food EMEA and Asia businesses showed strength with volumes up low-single-digits in both regions. Food adjusted EBITDA of $210 million in the second quarter was up 3%. Adjusted EBITDA margin remained strong at 23.4%, up 50 basis points compared to last year. The increase in adjusted EBITDA was primarily driven by productivity and cost takeout savings combined with favorable net price realization. These were partially offset by lower volumes. Protective second quarter net sales of $439 million were down 3% as reported and 4% in constant currency. While volumes declined 2% overall declines in our fulfillment portfolio were partially offset with slight growth within our industrial portfolio. Protective adjusted EBITDA of $78 million was down 5% in the second quarter as reported. Adjusted EBITDA margin of 17.8% was up 20 basis points from the first quarter. On a year-over-year basis, cost takeout and productivity savings partially offset negative net price realization. Now let's turn to free cash flow and leverage on Slide 7. During the 6 months, we generated $81 million in free cash flow as compared to $207 million in the first 6 months of 2024. The primary driver of this anticipated reduction was an increase in incentive compensation payments and the timing of tax payments, partially offset by lower interest payments and capital expenditures. At the end of the quarter, our total liquidity position was $1.2 billion, including $354 million in cash and approximately $830 million available under our revolver. Our net leverage ratio was 3.6x. We remain on track to drive net debt to adjusted EBITDA to approximately 3.0x by the end of 2026. Let's turn to Slide 8 to review our outlook. We continue to operate in a low visibility and more volatile environment within both our Food and Protective businesses. As a result, the strong first half performance and improved foreign currency assumptions will be offset by softer volume expectations, primarily in food in the second half and slightly lower pricing across both segments due to deflationary raw materials driven by the global trade impacts. Foreign currency impacts are now expected to be approximately 1% better than anticipated in our previous outlook. We are maintaining our previous sales guidance range of $5.1 billion to $5.5 billion and adjusted EBITDA guidance range of $1.075 billion to $1.175 billion. Our net price realization assumptions across the total company remain relatively consistent for the full year. We regularly monitor our legislative changes to determine impact to the company's performance. In early July, the One Big Beautiful Bill Act was signed. We are currently evaluating the impact of these provisions and their impact on our effective tax rate and cash tax payments. For now, we still expect our adjusted tax rate to be ranged between 26% and 27% for the year. Based on our outperformance in the first half of 2025, we now expect adjusted earnings per share for the year to be slightly above the midpoint of our previous guidance range of $2.90 to $3.30 per share. Lastly, regarding free cash flow, we are maintaining the midpoint of our previous guide of $400 million. We continue to improve our discipline around capital deployment, reducing our outlays, while improving our returns. As a result, we expect capital expenditures to come in lower than our original expectations though slightly offset by higher working capital. While our cash generation was more linear in 2024, we typically generate more cash in the second half of the year, mainly due to the seasonality of the business. Looking ahead to the third quarter, we remain prudent given the uncertainty around consumer spending primarily in North America, combined with a factor than anticipated deceleration in the U.S. beef market. As a result, we expect net sales of approximately $1.3 billion, adjusted EBITDA of $270 million and adjusted earnings per share around $0.68. With that, Dustin and I welcome your questions. Operator, we would like to begin the Q&A session.

[Operator Instructions] Our first question comes from Matt Roberts of Raymond James.

Dustin, you gave a lot of good color on the beef headwinds, it seems pretty well documented, but certainly appreciate that. What does that translate into a volume impact for second half or any annualized impact we should expect in Food. And maybe just broadly, any additional color on Protective volume expectations for second half either by product line or end markets? It sounds like you're seeing good wins there. So maybe any incremental color on new customers or products and the lift contribution and just broaden how you're thinking about volumes for that segment in 3Q and second half?

Yes, of course, Matt. And I appreciate the question. So starting with Food is in the cattle cycle. As we kind of made the comments on the call itself, just keep in mind that the main area that we're focused on is really where the consumer is at. So I'll get into the supply side in a second, but just in general, what we talked a lot about is really more on the demand side relative to where consumer spending is, as we mentioned, is relatively stable, but where it's going into retail, especially because you're seeing parts of food service and parts of industrial processing shift into that end market. And we're just making sure that we're positioned to capture that demand. Still very optimistic about where we're at, what we're doing to get after it. And so -- but I'll go back to the supply side, and I'll give you more color on that. So on the cattle cycle itself, just as a reminder, if you think about the business that's impacting, it's really about $400 million out of our $3.5 billion, right? This is shrink bags that go into the beef end market. Right now for the year, we're expecting 3% to 4% for '25, down 3% to 4% for '26, flat in '27 and then in '28, it will turn back to growth. Now keep in mind, is volatile. As we mentioned, you're seeing the acceleration in herd rebuilding right now, but it's still slow relative to have a retention. So you're seeing a little bit more elongation, but a little bit shallow out than our original expectations. But I'll just reiterate that it's more volatile as we go forward. But the way to contextualize that, if you think about the roughly $400 million and you take the 3% to 4% off that, that's kind of the year-to-year headwind. If you think about it in the context of a $3.5 billion business, we're still very optimistic that, that -- while it's a headwind and it's worth calling out, it's not something that we can't overcome as an organization. And that's what we're focused on going back to the end markets that we're targeting, really trying to rotate more into retail into foodservice. If you think about volume expectations in the second half, particularly for the food business, what we're looking at is roughly down 2 points relative to we were and you're looking at the volume mix in the second half being around down 3 points in Q3 and Q4 from a volume perspective. And obviously, 2 points down relative to where we were back in May. And that's kind of shift overall in the business. But most of that is related to where we see, again, going back in the consumer. And it's still too early to talk about 2026 is we'll have a lot more clarity as we progress throughout Q3 and Q4. So when we shift to Protective, obviously, really pleased with our performance in the second quarter. While we're still down. It is a marking progress. Our industrial portfolio took a step up. Fulfillment, as Roni mentioned in her commentary, is down mid-single digits. As we think about the second half, so you had roughly I think there's a couple of points ahead of our own expectations in the second quarter. And what we've done as we think about Q3 and Q4 is we really maintained our outlook for the second half, despite the overperformance in 2Q. And that's really just around what Roni mentioned during the prepared remarks around is being prudent around the second half as we closely watch our end markets. Now we talked about the industrial portfolio. And just to give you some color of where some of that, the opportunity was. Our core view business performed really well. Our shrink business is performing well. Our Instapak, while still slightly down, performed better than it has over the past, think of it as probably 6, 7, 8 quarters. And so we're really pleased. There's pockets of it. It's not perfect, like I said, holistically at the portfolio level and mixed around each individual region. But again, really pleased with where we're at. And a lot of that benefit is coming from the work, as we talked about in North America that we're now going to be extending across the rest of the world because that's where we had the biggest pressure point. The all the other area as well, I think the last color commentary I'll give on it is really around our electronics business and end markets that we see there. Very strong in the first half of the year. And while we're looking at it, trying to make sure it's not transitory related to being prebuying during tariffs, et cetera, it's what we're thinking about now is really where is it going to be in the second half. And so far, as we've gotten off to the start here in Q3, it's on track. So we haven't really seen any shift in the end market dynamics at this point. But again, staying close to it and really excited about, where we're headed and really positive about what we've been able to do in a relatively short period of time in terms of really beginning to turn the tide.

Our next question comes from Ghansham Panjabi.

I guess, Dustin, on the food business, I mean, you're pretty much at a high watermark for margins for that segment. What's your commentary on food and for the outlook through 2027, et cetera, I have to assume that red meat is more profitable, especially North American beef. You have the tariff uncertainty as it relates to Brazil, et cetera. How should we think about the near-term outlook for margin specific to food? And then also, as you think out to '26, '27, the natural headwinds associated with this large profitable market being a headwind?

Ghansham, good question. So as it relates to kind of Food margins where we're at now, you're right. I mean we're really pleased with where we're at from an overall margin perspective. We've talked in the past around shrink bags in general, which is what's serving that market and the specialty properties around that particular performance of that application and the equipment offers we bring with it is a high-margin business for us. What I would tell you is if I go back to it, when you think about '25 and '26 in '27, you're talking about a $400 million business with a slight impact relative to 3% to 4%. So in the scheme of things relative to our overall shrink bag business, which is about $1.4 billion in size, it's still relatively contained, particularly to North America. And while there is absolutely a margin impact relative to the loss of volume associated with that, we still believe the network optimization efforts, our transformation efforts relative to productivity, are going to continue to buoy and balance out our margins, as we have over the past and demonstrated over the past couple of years. So we feel still very confident that we're not going to have a material mix impact relative to bags relative to the rest of the business that would bring down margins and that we're still able to drive earnings power despite that headwind. But again, we'll continue to monitor as we go forward throughout the second half of the year. And to understand, it does the outlook for '26 to become more acute or not. But as of right now, down 3% to 4% and that $400 million business within North America, we feel it's relatively contained and something that we can overcome. And so we're not as concerned about it.

Our next question comes from George Staphos of Bank of America Securities.

And congratulations on Kristin and Roni, congratulations to you on all you did in the interim role and your work going forward. I guess my question is two-fold. One, Dustin, you said that you're maintaining guidance despite what's been an accelerated decline in food. Can you talk about the specific controllables that you're controlling. So the specific cost outs, things like that you expect for the second half I guess, particularly within food, but wherever you want to talk about what will bolster your earnings in the second half relative to your guidance? Is there a way you can give us a bit of cadence food versus Protective in third quarter. And then the second part of the question, your release last night mentioned and I'm paraphrasing that one of the reasons that Kristen was selected as CFO is that she has experience creating value with complex portfolios. How does that apply to Sealed Air, where do you think that to be most applicable.

Thank you, George. So a couple of pieces. So as we talked about earlier in the year, right, we really focused on cost takeout. We cited this roughly $90 million number that we're well on track to achieve for the full year. And as we looked in the out years, the hope was, at that point in time, but it could drive even further operating leverage in the business. And obviously, as our outlook and volume has come down, keep in mind that now a lot of that cost takeout effort is really balancing out earnings to get us to the 11.25 midpoint that we're calling out as the middle part of our guidance. And specifically, a lot of these initiatives, while we're continuing to kick off new things, network optimization, we mentioned, a couple of other areas that we think will be able to yield benefit in '26 and '27 and beyond. Right now, it's a lot of activities that we've been -- have been in earnest over the past 2 years. Areas like that, which we talked about in the past, which is our G&A optimization around our back office in Manila. That started from concept to a 1.5 years ago as an idea and now we're at full swing. The office is open. We've already hit our 200-plus employee there. The same thing with Mexico City, which is staggered behind it. We're now ramping that up. Those are 2 examples of it, but there's a litany of them relative to the reorganization work we've done that's been able to streamline the organization, delayer it, actually improve accountability, improve speed to the decision-making while at the same time, driving earnings power in this case, even offsetting some of that volume weakness that we have in the second half. So it's a lot of stuff we've had in motion, and we talked during May around there's other opportunity now to continue to do that going into 2026 and '27, and we'll continue to work on it. And as we progress throughout the second half of the year, we'll give you more color about what's to come and what does that mean for '26 going back to even Ghansham's question in terms of what we can do more to balance out where we see any pressures in the business. But we're -- it's now more than ever, being really proactive about it and making sure that we have a pipeline of actions that we're taking that not only improve the business outcomes, but at the same time, help to balance out the earnings power. So when you think about the question on Kristen, really if you take a step back, she has a background, obviously, it's been her entire career in industrial. And lastly, the MSE was doing a distribution works. There's a lot of in our background relative to managing and if you think about Ingersoll-Rand, the complex portfolio, international business. If you think about our Protective business, complex portfolio, international business, if you think about our Food business, very similar, right? So even within underneath the food and Protective kind of segments, there's obviously a lot of complexity in the proliferation of solutions and applications we have. And most recently in MSC, she actually led a lot of the transformation work in that business. And so we think a lot of our direct experience is really applicable here to accelerate the work that we're already doing and also bring new ideas. If you go back to even my own background, where I don't have a natural background in manufacturing, except for my time here at Sealed Air. She really is going to come in and complement that and bring a different lens to what we're already working on. And even bring a new perspective. So we're really excited about her coming on board. And I'll just take a moment with that said also, again, just to thank Roni for all you did and I appreciate your words there. I guess, she's done a tremendous job over the past 6 months.

Our next question comes from Phil Ng of Jefferies.

Congrats on a strong quarter in a dynamic environment. So Dustin, I think you guys kept your outlook for Protective unchanged in the back half despite progress, which makes sense. But are you actually seeing any slowdown in bidding and order activity throughout 2Q and going into July? And then some of the uptick you're seeing on the industrial side -- on the industrial side of your portfolio. Can you kind of size up how much of that is internal initiatives versus the cycle turning in? That would be helpful.

Yes. So going down to your point about July, as I mentioned, I think it was early on, maybe in the Q&A, we really haven't seen a change in order pattern, right? And I was talking specifically at the time about our fabrication business. But in general, I wouldn't say we've seen a real shift. We're still on track kind of early here starting in Q3. And so I feel good about where that business is headed right now. And a lot of that is order entry activity in the market. But keep in mind, Phil, what we're trying to balance out is that a lot of that's being driven from the fact that we invest in sales. So if you think about just -- and we've lost significant amount of volumes, since 2019. So we're going back to customers that we lost. We're going to existing customers to expand our business. And so a lot of the work we've done in our go-to-market has given us that confidence and our ability to take -- not just grow existing business, but take share in the marketplace, particularly in areas, where we've lost it in the past. If I contextualize that with industrial portfolios, what I would tell you is that, to me, that's not really a cycle turning. If anything, I would say there's been more market pressure here recently. If you think about areas like the automotive industry, where our foam and place solutions used widely we're obviously concerned about tariffs on what it could potentially mean for end markets, but we've continued to perform really well. And I think that speaks to now that we have the go-to-market motion really beginning to really work beyond the fact, keep in mind, too, that we've also minimized chart, and that's not just a Q2 '25, that's for the past 6, 7 quarters, it's really begin to bear itself in the results. And so -- we're still cautious, obviously, about the second half. That's part of your commentary. We obviously had a beat expectations in 2Q. We held the second half relative to volume expectations, which implies a slight uptick in volume in Q4. And so we're kind of heads down and really just focused on executing against those internal initiatives. But when I say internal, but keep in mind, a lot of this is really just being back out in front of customers and back out in the field and back out engaging with our distribution partners. So it's -- it's really been a lot more about, I think, engagement is really the first wave of that benefit when some of these other things are going to continue to yield. And I'm really excited about kind of cascading this across our European as well as our Asian footprint and getting further leverage out of that, particularly as we head into 2026.

Our next question comes from Jeff

Your adjusted EBITDA range for 2025 is $100 million, and you only have 2 quarters to go and your EBITDA was roughly flat in the first half. Why is the range so wide? Is that because of conservatism? Or is the uncertainty about second half EBITDA that large?

Thank you, Jeff. Yes. So just to answer it very directly, it's really just conservatism. As we think about the second half of the year, again, we don't -- the volatility just relative to the end markets that we serve and us being cautious around it, it really just being prudent with low visibility. And rather than touch the ranges at this point in time, there our thought process was let's work through the third quarter, once we have more visibility into the obviously 3Q, we can then not just touch the range as we indicated, to keep in mind on the guidance side of it, there are EPS is above -- we expect it to be slightly above the midpoint, but we'll come out more fully and kind of give you a sense of where we're landing across all the dimensions of our guidance and do that at that point in time, when we have a little bit more certainty. And it really just speaks to the dynamic environment we're operating in, particularly as it relates to tariff impacts. And I think as you obviously was we're all aware right here recently in August. A lot of those decisions were made, but it actually takes time. I don't think people always fully appreciate that relative to -- what is it going to do to inflation? What's going to do to price, and that takes us time to work through the system. And so a lot of that is reflecting that. But I would say, in general, it's not that we believe we're concerned about the outcomes of those far ends of the range up or down. It's more around just conservatism and looking to get through 3Q and give you a more full update.

Okay. And then secondly, can you describe a little bit of your issue with procuring specialty resins and why things seem to be a little bit more difficult for you?

Yes. It's not difficult to procure them. This is just really speaking about our footprint and just giving you a little color on where we're seeing more impact on tariffs. Now keep in mind, I'll reiterate that no real impact in the second quarter. We don't see any real impact full year relative to our outlook at this point in time. But there are certain resins. As we've gone through this process with tariffs, we've really been shifting around production. We've been shifting around procurement in terms of being able to try to mitigate the impact as much as possible. It did happen on its own right and not just ourselves, but most of the companies are going through this relative to how we're optimizing, where we buy from there are examples where we're not able just to mitigate it because certain specialty resins are only available in Europe. And you can't have a large chemical manufacturer shift it to another asset or shift it to another [indiscernible] location. And this is just an example where we're having to -- and we talked about limited pricing actions, where we have to embed that into our cost structure and then price accordingly to mitigate it and just giving you some of that color. But no issue with procuring. We don't have an issue at this point in time of procuring anything.

Our next question comes from Anthony Pettinari of Citi.

Just following up on Jeff's question on the full year EBITDA bridge. I'm wondering, if you can put a finer point on maybe the technical level of cost saves that you expect to achieve this year and how that offsets net price, which I think you said that, that will sort of unchanged. But if you can just go through the bridge items for sort of cost saves versus net price falls and FX, that would be helpful.

Yes, sure. I'll just -- Anthony, I'll just walk you down and give you a sense of kind of where there's some slight changes. The first thing I'm going to talk about before because I'm going to talk about net price realization and some of the embedded assumptions there. And when you think about net price realization, really what's happened is prices come down, right? And that's being offset by Roni's commentary, deflationary aspects of our raw materials. And so, it's remained relatively unchanged. It's actually gotten a little bit worse by about $7 million for the full year, but it's -- the dynamics in it have actually changed pretty materially, which is price coming down and raw materials coming down to offset it. So when you think about the volume bridge -- and excuse me, the EBITDA bridge starting with volume, your volume -- we're expecting -- if you go back to the roughly $100 million we talked about holistically, that drops the bottom line about $44 million. Then you get net price realization down $65 million. The CTO is $90 million, and there's about another $16 million of actions that we're taking on top of that, which brings you to a total of $106 million. But think of this as not just structural savings. This is -- this is cost takeout across the business relative to just being also just fiscally disciplined. And then we've talked about the compensation programs relative to how they paid out last year versus, where we're on track this year. That's roughly and FX is a drag of about $3 million, and that bridges you down to the roughly $14 million year-over-year.

Our next question comes from Edlain Rodriguez of Mizuho Securities.

Just one quick one on the price raw material gap especially in Protective. I mean, it's still negative. Like -- can you have any success in raising prices there that could narrow that gap in the second half of the year? I mean, again, it's been that persistently negative. Like will we able to see that gap now completely as we get into the second half and into next year?

To answer your question, I'll start with the second half. And so when you think about -- and I'll go to what we think about 2026. So keep in mind, the change coming into this year relative to expectations that we're all wrestling with is really what's going on in the resin environment has really kicked off of the announcements back in the March time frame around just tariffs in general, what that did to the polyethylene market. And when you think about that, what's happened is it's actually created a more deflationary environment across the board. So the pricing impact you're seeing Protective, and this has really been an ongoing theme, right, for the past 2 or 3 years kind of coming from resin highs going back into I want to say it's 2023 coming down to 22% to 23%, 24%, 25%. We expected this year to be getting back into a slightly inflationary environment, which is, I would say, positive for us, but positive for the industry and sector as a whole. And that obviously did not happen. So what you've seen is, you've kind of seen a flat line, kind of, where it dropped in the March timeframe and kind of that cascade throughout the rest of the year, which is what's creating that deflationary pricing aspect. And that's a market impact. It's not an issue with our products is for a while there, there was the resins coming down and we were also reducing our price gap relative to competition. We're really beyond that now. And this is to me a market dynamic that's happening in the second half and what we've given for guidance we fully expect from that perspective, if we have optimism is what we can potentially do on the volume side. When you think about going into 2026, it's really what happens to the underlying resin markets that will help drive that, particularly in Protective and Foods a little different for a variety of reasons. But -- but when you think about the primary is, really being low density, high-density polyethylene that goes into our Protective business, you're really looking at what's -- where resin is going to go. At this point in time, we don't have a clear view of that in terms of 2026. As we progress through Q3 and Q4, we'll get a lot more clarity and be able to give you an update. But our general view is right now where we're at. As soon as we get to kind of a stable inflationary environment, our pricing will go along with it and you'll begin again to narrow that net price realization and be able to bring it back to positive. And TBD at '26 will be that year.

Our next question comes from [ Nico Passini ] of Truist.

I'm sitting in for Mike Roxland today. I just had 2 quick ones. 1 is, how is the cattle cycle faring right now in South America and Australia. And then previously, I think you had mentioned targeting growth in Fluids. Is there just any update in that area?

Yes. So on the cattle cycle itself, I'd say they're still -- you're kind of peakish in both Latin America as well as Australia. And we still expect a very strong, I would say, less strong relative to underlying cycle, but still strong years on a relative basis going into next year in both of those regions. In the U.S., which I mentioned before hands obviously accelerated this year, which was making 2025 really the first year of those 3 years, where we went into this year thinking it may be like '24 -- and -- it may be elongated. And so you're down 3% to 4%, similar outlook for '26 and then flat in '27 and back to growth in '28, and that cycle will obviously go generally for the next 7 years. On fluids performance, that business continues to perform well. So if you think about fluids, again, just to break it down, it's really this combination of our Cryovac fluids and liquid solutions as well as our -- the Liquibox acquisition that we closed back in February of 2023. And so again, we've talked about the Cryovac side of it, which has continued to perform well. We expect it to perform well this year and continue to be a growth driver for the business overall. Liquibox, we obviously went through our own kind of destocking and down cycle in that business in '23, we've stabilized since then. It's not performing to where we would like it to be, which we talked about historically, that end market, being able to generate mid- single-digits, which is what our fluids business has done historically. If you look at the CAGR of that business, it's mid-single to high- single-digits. And so we're still working on getting a Liquibox there, but we feel really good about the progress we've made continuing to stabilize that business and are now beginning to work out of, what I would say, some of the operational challenges we went through and getting back towards just focus solely on growth. So still more to come, and we'll give a lot more dialogue around this as we progress throughout the second half. And we fully expect it to be a growth driver in 2026.

Our next question comes from Gabe Hajde from Wells Fargo.

Dustin. Roni, thanks for all your help. I wanted to revisit a comment you made in your prepared remarks, Dustin, about utilizing some external partners. And I think it was Protective you mentioned speed to market and maybe intimated a reduction in capital intensity. If maybe you can elaborate on the concept a little bit. I don't know, if it's a function of maybe customers being a little bit more dynamic in their own strategies and decision-making or what's driving it? And then maybe quantify for us, I'm assuming CapEx, but maybe op costs as well, what I could save you?

Sure, Gabe. So a couple of things. So keep in mind that our -- for the past, if you go back pre -- maybe 10 years ago, a majority of our new solutions were actually developed with external partners and I mean, people coming in to actually help us design and build. Think of it as leveraging outsourcing some of your R&D on equipment design, outsourcing R&D on even material. But in a lot of ways, it was around applications. And so over the past 10 years, we've really taken an approach of vertical integration relative to doing internal development and not just development of new applications, materials and equipment, but also developing our own internal manufacturing technology. And so, we've really begin to rethink that, broadly speaking, it goes back to the situation we've been with our balance sheet over the past couple of years, and what I mean by that is for -- there's a period of time in our mailer strategy, where we are leveraging our existing lines, now we're looking at to be very specific. Now we're leveraging other manufacturing technology to still produce our application or product, but in a new form in a much more cost-effective way. And it speeds the time to actually get the lines of the right speeds we need is able to give us the ability to scale up much faster than the market relative to where you place those lines. And that's an example where it's not just application itself, but it's also thinking -- rethinking manufacturing technology. In our Food business, we've talked at length about our industrial food processing and the strength of our kind of that 3-legged stool around material science equipment and our service capabilities. But as you think about that broadly for retail, that's what we're thinking about, is it really our equipment or do we leverage external partnerships. So we talked about this a little bit in the past, but we're being a lot more intentional now about how we go after it. And it's really about leveraging people that are good at what they're doing is their core competency and giving us time to market versus trying to be everything -- being created everything effectively. And so that is bringing down some of our capital intensity. If you look at this year for our outlook, we brought it down to roughly -- it was embedded in Roni's numbers, it's roughly $200 million for the full year. And if you go back to 2023, we're at that point, talking about doing $280 million at the beginning of the year. We brought it down to $240 million, $220 million last year, $200 million this year. And this is all while increasing our returns, I think addressing some of our performance issues and so I think that this approach that we're doing is not that we're actually under investing the business. To me, we're investing more now than we ever have before. We're just doing it in the right areas, they're going to yield better results for us longer term. So hopefully that gives you some color.

Our next question comes from Brian Dong of RBC.

This is Brian Dong on for Arun Viswanathan. Can you walk us through your CTO to grow cost savings? What are the different buckets to that? And are you still targeting $90 million of savings for the end of the year?

Yes. So good question. So really the buckets have remained unchanged. If you really think about 3 broader areas that we've been going after. 1 is on the go-to-market side, how do we reorganize. This goes back to how do we reorganize back into Food and Protective, how do we reorganize our P&Ls back into the regional P&Ls underneath it. What do we do on the go-to-market side relative to marketing, sales, R&D. That's that first bucket that we did, which is really in the front line, which is really about, while it generate cost savings, it's much more around how do we get to the market, closer to our customers, delayer the business and drive growth. And just again, the outcome of that was also being able to drive further productivity of the business. Another big piece in supply chain, right? And so again, and I'm not quantifying each bucket because these are shifting all the time, where we find better opportunities. So you kind of see a play between all 3 of the buckets. Network optimization, we're down about 5 plants holistically right now. Just over the past 2 years. And we've talked about on the call, we're beginning to outline broader plans there as we think about '26, '27 and '28. And so, it will be more to come on that topic. And then the last bucket is around G&A optimization. I used an example in the Q&A earlier around our Manila facility, and it's really about leveraging a global footprint relative to where we need to be. And to give you an idea, it's roughly -- when you break down the numbers, it's really between 65% and 35% between CTO and productivity. And so just to give you a sense.

Our next question comes from Josh Spector of UBS.

Thanks for all the details around food and the assumptions there. But I kind of want to ask about the non-Red Meat assumptions as you look at the second half. I guess really rough numbers. You talked about $400 million in sales, down high-single-digits. You roll that through to Food. That's kind of a point headwind or so, I think. So then the other 90% is down a couple of points. Can you maybe unpack that and some of the assumptions between, I guess, the retail market versus maybe some of the processed foods and meats, which I think would be somewhat of an offset for what you're seeing there. But more detail there would be helpful.

Yes. I appreciate the question, Josh. And so again, when you think about overall, I think, if you get back the prepared commentary and Roni's comments, we talked about the overall business, protein, global protein production being down about 1 point this year, right? And so keep in mind, that's just weighing on some of the broader volumes. And I go back to even the consumer itself and where the consumer is spending where you're seeing that shift out of industrial food processing into retail and foodservice. Some of the markets, if you really look across every area, whether it's dairy, whether it's poultry, smoked and process, they've all come down slightly, which is why you see that broader impact across the business. And again, we don't see that as a longer-term headwind for 2026 and '27. We see it as a condition right now of just the market we're operating in really more on the demand side. And so -- but I'll leave you with that. And that's really what's driving that broader impact.

Our last question comes from Stefan Diaz from Morgan Stanley.

So you noted industrial strength, which is nice to see, just considering some mix macro indicators on the industrial side. I was just wondering if any of that industrial end market strength was due to your automation business? And then maybe how are you just thinking about your industrial portfolio for the second half and into 2026? And maybe how are you thinking about your automation business as well.

It's a good question. So just keep in mind, we don't think of it as an automation business. Well, the way we think about it is we're bringing a solution to the market that's really combining where we are the strongest, right? I think -- and if you go back to an example for Protective is our APS business, our Auto Packing Solutions, right, as an example, where you're bringing the piece of equipment, you're bringing out the hybrid 1 now you can bring the great materials, whether it's fiber or poly and you're bringing great technical service. And it's really all about throughput, yield ability to protect that particular item, et cetera, and packaging. And then Food business is very similar. So keep in mind that we think of it less and other was talked about a lot going back 3, 4 or 5 years ago around automation for automation's sake. We're much more around that solution sell and bringing solutions to market that combine that, which creates a lot of value for our customers. Again, on the industrial side, if you really look at our business, if you think about Instapak, right, same thing, great equipment, great material science, great service. If you think about APS, very similar, right? And so as you look across the different solutions that we have in Protective and Food, in general, that's where we drive the generally higher margin businesses deliver more customer value and I think across the board, our approach doing that and going back to what made us great that solution sell is really making a difference in the market and is absolutely contributing to the -- some of the industrial performance you see in the numbers. And then I talked about it back as an example, which has performed a lot better than it has historically.

This concludes the question-and-answer session. I would now like to turn it back to the President and CEO, Dustin Semach, for closing remarks.

Thank you for joining us this morning. I look forward to updating you in November on our ongoing turnaround and Protective and the growth transformation we are driving in Food to meet the market challenges ahead of us head on. Finally, thank you to the 16,000- plus Sealed Air employees and our customers, who are at the center of our transformation. Thank you.