Lori C. Chaitman - Sealed Air Corp. Edward L. Doheny II - Sealed Air Corp. William G. Stiehl - Sealed Air Corp..

Anthony Pettinari - Citigroup Global Markets, Inc. Scott L. Gaffner - Barclays Capital, Inc. Ghansham Panjabi - Robert W. Baird & Co., Inc. George Leon Staphos - Bank of America Merrill Lynch Brian Maguire - Goldman Sachs & Co. LLC Daniel Rizzo - Jefferies LLC Adam Jesse Josephson - KeyBanc Capital Markets, Inc.

Arun Viswanathan - RBC Capital Markets LLC Salvator Tiano - Vertical Research Partners LLC Gabe S. Hajde - Wells Fargo Securities LLC Anojja Shah - BMO Capital Markets (United States) Edlain Rodriguez - UBS Securities LLC.

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Second Quarter 2018 Sealed Air Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference may be recorded.

It's now my pleasure to turn the program over to Lori Chaitman, Vice President of Investor Relations. The floor is yours..

Thank you, and good morning, everyone. Before we begin our call today, I'd like to note that we have provided a slide presentation to help guide our discussion. This presentation can be found on today's webcast and can be downloaded from our IR website at sealedair.com.

I would like to remind you that statements made during this call stating management's outlook or predictions for the 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.

Many 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 at sealedair.com or on the SEC's website at sec.gov. We also discuss financial measures that do not conform to U.S. GAAP.

You may 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 some of the non-U.S. GAAP measures we reference throughout the presentation.

Now, I'll turn the call over to Ted Doheny, our President and CEO.

Ted?.

Thank you, Lori, and thank all of you for your interest in Sealed Air. Welcome to our 2018 second quarter conference call. I'll begin the call with a few brief comments on our financial results and highlight recent investments both internal and external that will drive high quality growth.

Bill will then provide a more detailed review of our financials. I'll close with our 2018 outlook, key drivers for the second half of the year, and where we're making progress on longer-term growth opportunities and operational efficiencies. So let me get started with a recap of our performance in Q2.

We delivered solid results for the second consecutive quarter. Net sales increased 8% to $1.2 billion and adjusted EBITDA increased 11% to $218 million. EBITDA margin of 18.8% improved 50 basis points compared to last year and operating leverage or profit-to-growth ratio of 25%.

Our performance was attributable to strong top line growth, cost reductions, and pricing actions. Adjusted earnings per share was $0.64, which is almost double what we delivered in the same period last year. This year-over-year increase was attributable to profitable growth, accretion from a share repurchases, and a more favorable tax rate.

Year-to-date, we repurchased $530 million or 20 million shares. We have approximately $900 million remaining under our current authorization. We expect to deliver on our full year 2018 objectives despite unfavorable currency weighing on our second half forecast.

Our outlook for sales implies a 7% increase in constant dollars as compared to our previous forecast of 4.5%. This revised outlook assumes higher growth in our core business in five months of operations were approximately $50 million in sales from the AFP acquisition announced this morning.

We continue to benefit from strong fresh food and e-commerce markets and we're seeing increased demand for our essential and high-performing packaging solutions that extend shelf life, reduce waste, and drive customer productivity. We're also executing on our targeted acquisition strategy.

Constant dollar sales growth combined with additional cost reduction actions and ongoing productivity improvements will deliver operating leverage above our 20% target for the year. We expect reported adjusted EBITDA to be in line with our previously provided guidance even with FX headwinds.

Before we provide more detail on our results and outlook, I want to spend a few minutes on our AFP acquisition and the Kuraray plant-based resin agreement announced in June. AFP, a privately-held U.S.-based company, is a leading provider of specialized custom engineered packaging.

AFP generated $125 million in sales in 2017, has 260 employees and operate six facilities across the U.S. with further presence in Asia and Mexico. We see growth synergies with both the AFP acquisition and our recent Fagerdala acquisition that expands our fabricated design capabilities for the electronics, transportation, and industrial markets.

AFP and Fagerdala align well with the Ship In Own Container, in SIOC trend in e-commerce. This trend is transforming e-commerce packaging as more distributors want manufacturers to have their primary packaging parcel ready.

Just last week, in support of Amazon's SIOC initiative, we announced our participation in the Amazon Packaging Support and Supplier Network, which certifies Sealed Air to test, design and supply packaging across the globe without additional testing or documentation from Amazon.

AFP and Fagerdala also give us an expanded platform to broaden the application of our award-winning sustainable EcoPure solution. EcoPure is made from plant-based resin that we can now incorporate into a fully fabricated solution.

Our announcement of Kuraray, a Japanese material company, enables us to offer food packaging materials derived from its plant-based resins. This agreement expands our portfolio of sustainable solutions, enabling us to offer renewable packaging option as a higher barrier protection and as cost competitive with traditional rollstock films.

We will invest in our own development and production capacity utilizing Kuraray's plant-based resin to broaden materials application across our end markets. We will continue to lead in sustainable solutions and packaging that include renewable, recyclable, reusable and recoverable applications.

Let me now pass the call to Bill to provide more details on our second quarter results.

Bill?.

Thank you, Ted. Turning to slide 4, let's start with the review of our net sales by region. In the second quarter, net sales of $1.2 billion, increased 7% on a constant dollar basis with growth across all regions. In North America, sales increased 4% with Product Care up 6% and Food Care up 2%.

Europe, Middle East, and Africa, or EMEA, increased 4% in the quarter. Our largest and fastest growing countries in EMEA were the UK, Italy, Germany, Spain, and Russia. Asia Pacific increased 22% as reported and 20% in constant dollars.

Excluding sales from Fagerdala, Asia Pacific was up 5%, primarily due to higher slaughter rates in Australia, increased demand for packaging proteins in emerging markets, and strength in e-commerce. Latin America was up 7% as reported and 19% in constant dollars.

Volume in Latin America was up 12%, which was attributable to increased demand in Brazil, Argentina, and Mexico, where we benefited from new customer wins. On slide 5, we present our first half performance. Sales were up 9% on an as-reported basis and 7% in constant dollars with positive trends across all regions.

Slide 6 highlights volume and price mix trends by division and by region. On a global basis, we delivered favorable price mix of 4%.

Price mix was favorable in Food Care and in Product Care due to previously announced price increases, formula pass-throughs and continued shift to value-added solutions, all of which more than offset higher input and freight costs. We were able to get positive price realization in Latin America to offset the currency devaluation.

Volume, excluding the Fagerdala acquisition, was up 1% globally. Food Care volumes were up 2% with positive trends in all regions except North America. Volume was up 12% in Latin America, 6% in Asia Pacific and 1% in EMEA, reflecting new customer wins and favorable market conditions.

Volume in North America were down 1%, as growth in materials was more than offset by a decline in equipment sales due to the timing of installations and strong prior year results. First half orders are up compared to last year, as our customers invest in replacement equipment and capacity for new applications.

As a result, we do expect growth to return in the second half of 2018. Product Care volumes, excluding the impact of Fagerdala, were up slightly in the quarter. EMEA was up 4% and APAC was up 3%, which was offset by a 2% decline in North America.

In North America, increased demand for our differentiated portfolio across the e-commerce and industrial markets was offset by declines in our utility products, including traditional Bubble Wrap and shrink film. On slide 7, we present our sales and EBITDA bridges for the second quarter.

I covered sales trends in the last two slides, so my comments now will focus on EBITDA performance. Adjusted EBITDA increased 10% in constant dollars to $218 million, or 18.8% of net sales. Growth in adjusted EBITDA was attributable to volumes of $5 million, favorable mix and price/cost spread of $20 million, and restructuring savings of $10 million.

This was partially offset by $15 million in higher operating costs related to salary and wage inflation and investments across our global operations to support existing and future growth. Currency was favorable, $2 million. Adjusted EPS was $0.64, on average diluted shares outstanding of 161 million.

Our adjusted tax rate was 23% in the second quarter related to discrete items and earnings mix. We are now revising our estimated adjusted tax rate for the full year 2018 down to 28% from 29% before to reflect the lower rate in the second quarter of 2018. We continue to evaluate opportunities to further optimize our tax posture.

Slide 8 displays our first half sales and EBITDA bridges. If we focus on EBITDA for the first half, you will see that higher volumes, favorable mix, and price/cost spread and restructuring savings offset higher operating costs. Currency had a favorable impact of $8 million.

Turning to our results by division, on slide 9, we present Q2 and first half results for Food Care. In the second quarter, Food Care net sales increased 5% in constant dollars to $713 million due to favorable price/mix and positive volume trends. Adjusted EBITDA increased 3% in constant dollars to $135 million or 19% of net sales.

Favorable mix and price/cost spread turned positive in the quarter due to timing of contract pass-throughs and global pricing actions on non-formula customers. We do expect this trend to continue for the remainder of the year.

The increase in operating costs was primarily related to salary and wage inflation and operational investments to support growth. This was partially offset by $7 million in restructuring savings.

While we are pleased that Food Care navigated well through unforeseen macro events, including the trucking strike in Brazil as well as currency devaluations, we would like to have seen more operating leverage come through on the 5% sales growth.

We made investments throughout the organization to meet increased demands for our core products, particularly our case-ready platform. We also invested in capacities to support our robust pipeline for new innovations, including our FlexPrep solution for the fluids market.

These operational investments will improve our manufacturing efficiencies and will contribute to improve leverage in future quarters. On slide 10, we highlight results from our Product Care division. In the second quarter, Product Care net sales increased 11% in constant dollars to $442 million. Excluding Fagerdala, Product Care sales were up 5%.

Adjusted EBITDA increased 11% in constant dollars to $79 million or 17.8% of net sales. This performance was driven by favorable mix and price/cost spread, as well as restructuring savings. Our pricing actions are taking hold, and we are seeing a more profitable mix of business, particularly in the e-commerce and fulfillment segment.

The increase in operating cost was primarily related to salary and wage inflation, offset by income from the Fagerdala acquisition. Let's now turn to our free cash flow for the six months, which is on slide 11.

Free cash flow for the six months ended June was a use of cash of $5 million, which included $42 million of a one-time payment we made in January of 2018 to an outside engineering firm in lieu of certain future royalties. CapEx spend was $74 million.

Interest payments, net of interest income, were $86 million and cash tax payments were $97 million, including a $20 million transition tax payment related to the United States tax reform. For the full year, we continue to expect CapEx to be $160 million.

Interest payments, net of interest income, to be $175 million and cash tax payments to be $145 million. Cash restructuring, excluding payments related to stranded costs, is on track to be approximately $20 million. Let me now turn the call back to Ted to review our 2018 outlook.

Ted?.

Thank you, Bill. Turning to our total company 2018 outlook on slide 12, net sales are expected to be approximately $4.7 billion, an increase of 6.5% on an as-reported basis. We now forecast currency to have a negative impact on net sales of $20 million.

This updated forecast assumes currency headwinds primarily on Food Care results due to exposure to Europe, Latin America, Australia, and New Zealand. For Food Care, we expect full year constant dollar sales to increase approximately 4%. This is 100 basis points higher than our previous forecast.

We continue to see accelerated adoption of our innovations across the globe, including case-ready and OptiDure high-abuse bags. We have a healthy pipeline of equipment orders for customers that are upgrading aged assets and investing in capacity for new applications. The cattle market in Latin America has rebounded and we gained share.

In Australia, we benefited from a spike in slaughter rates due to dry weather conditions. While we do not expect this level of production to continue, the cattle cycle is bottoming and we expect modest growth into year-end.

For Product Care, we now expect full year constant dollar sales to increase 11%, which includes approximately $120 million of incremental sales from Fagerdala and AFP. Excluding these acquisitions, our outlook implies an increased sales of approximately 4%. We expect strong growth to continue for our new innovation across our Product Care portfolio.

This will drive higher quality growth as our customers recognize the savings we bring to their operations. Our outlook for adjusted EBITDA remains the same at $890 million to $910 million, implying a margin of 19%.

This outlook now assumes unfavorable currency of negative $5 million as compared to our previous outlook, which was in positive currency of $20 million. Improved operating leverage in the back half of the year is expected to offset currency headwinds. We are reiterating our adjusted earnings per share and free cash flow outlook.

EPS is expected to be in the range of $2.45 to $2.55. Higher D&A and net interest expense offsets our lower estimated tax rate. We do not assume additional share repurchases in our guidance. For free cash flow, we are on track to deliver approximately $400 million.

As we look beyond 2018 into 2019 and 2020, we're focusing on opportunities that will drive margin expansion and higher returns. We're finding more productivity opportunities, where we can do more with less by investing and working smarter.

Over the last three years, on average, approximately 70% of our capital has been spent maintaining our network, restructuring activity, and investing in a new corporate campus. We're shifting our capital to growth in productivity driven by ROIC.

We're investing in process improvements in our existing network as well as new capacity and high-growth regions to be closer to our customers. To create profitable growth, we are accelerating the adoption of our innovative solutions in high-value growth markets.

We're continuously investing and commercializing new solutions and leveraging our powerful brands around the world. We have and we'll continue to complement core growth with accretive M&A.

We're targeting acquisitions that are not only core to our existing business but that expand our presence in high-growth geographies and accelerate our entrance into adjacent markets. We are using ROIC as a guide to our investments, how we allocate our capital, and increase free cash flow.

Our focus is on opportunities that will drive earnings accretion and long-term value for our customers, shareholders, and employees. Now, let me pass the call to Lori to open us up for questions.

Lori?.

Thank you, Ted. Please mark your calendars the Thursday, November 1 for our third quarter 2018 earnings call. Operator, we'd like to begin the Q&A session..

Thank you. At this time, we'd like to take any questions you may have. In the interest of time, we ask that you please ask no more than one question and any additional questions to please re-queue to allow as many questioners as time permits. And it looks like our first question in queue will come from the line of Anthony Pettinari with Citi.

Please go ahead. Your line is now open..

Good morning. You talked about the sales contribution from AFP.

Apologies if I missed this, but could you talk about EBITDA contribution or maybe just the EBITDA margin profile in that business as well as purchase price, any color you can give there?.

We don't share the EBITDA or the purchase price. We did share that it's roughly $125 million in sales and it will be accretive, but we're not actually sharing for competitive reasons the profitability. It's a similar business to what we did purchase in Fagerdala.

The margins are less than our core, but we are excited about the synergies, especially the growth synergies between this and Fagerdala to the business..

Anthony, do you have another question? Operator, let's move to next question, and Anthony will come back....

Okay. Our next question in queue will come from the line of Scott Gaffner with Barclays. Please go ahead. Your line is now open..

Thanks. Good morning..

Good morning..

Ted, I just had a quick question on Product Care. If I look at it, the volumes were a little light of our expectation in the quarter. And there's been some consolidation within the market in the quarter, I think Pregis bought the FP International and there was another, I think, Polyair got acquired in the quarter.

Are you seeing anything around the competitive landscape in Product Care that gives you any caution around the go-forward view there?.

Always cautioned, we're definitely aware of the FP acquisition. We were actually looking that ourselves. In our Product Care business, though, we're actually seeing strong, actually double-digit growth in our inflatable Bubble Wrap, our Korrvu, and some of the automations and even our mailer business.

What we did not see on the growth is we do have some cannibalization of our legacy Bubble Wrap and shrink, but also that it's conscious (23:57) that it's very price sensitive into the market. So, actually excited about some of the things we're working on in Product Care and with some of our newest sustainable solutions for growth going forward.

So, not a concern on the growth going forward but the volume will be slightly up. Most of our growth in the second quarter is going to be on that price mix..

Thanks, Ted.

Operator, next question?.

Absolutely. Our next question will come from Ghansham Panjabi with Baird. Please go ahead. Your line is now open..

Hey, guys. Good morning. I guess, stepping back a little bit and first up, Bill, congrats on your permanent role as well.

But did volumes come in where you thought they would during the second quarter for both Food and Product Care? And then related to that, was there any impact from tariffs on any part of the portfolio, Food or Product Care? And can you give us a sense as to the portfolio risks associated with tariffs that have been implemented and also those that are being contemplated? Thanks so much..

Do you want to take the first one?.

Yeah. So, in terms of the volume, yeah, I think we were very happy with the volume. You noted some softness in the Food Care equipment business. We view that to be timing.

We're very happy about the level of orders that have come in right now in our Food Care North America business and equipment and we certainly expect that volume to come back relative to that. We're happy with the volumes in Product Care as well. As Ted noted, we did get some softness in the traditional Bubble Wrap and shrink.

Some of the shrink deterioration is really in maturing markets, shrink packaging that would go around a CD, a DVD, a magazine, something like that. So some of that deterioration was really expected as that would go. And as it relates to tariff, there's a lot of things happening on tariffs.

Certainly, we're watching the political environment very, very closely on that. And relative to tariffs on imports, we're viewing that as much like a freight cost increase that we might get and have to absorb, which we would then pass along to our customers. And I think Ted would want to comment on the tariffs on the exports..

Sure. And just one other comment on Food Care, on the equipment. As Bill highlighted in our prepared remarks, we had tough comparables in the second quarter from how strong the equipment was a year ago. But that does give us confidence on the second half because we have visibility of the orders there on the equipment that will turn into sales.

So that's part of our confidence for the second half. And just adding to Bill on the tariff, we've been watching the news as everybody of the noise of what's going on with tariffs, what could be applied, what couldn't be applied, but looking – and also many conversations with our customers.

So, first, as far as for our customers and where we export – or where our customers produce in the U.S., we do have access to the markets that will be affected outside. Latin America, Brazil and Argentina could pick up some of that if the price in the U.S., and we are positioned well with our global footprint to handle that around the world.

On the tariffs, as Bill already highlighted, we are seeing some of that pressure in the quarter and we expect to see it on our product – our materials that we ship outside the United States. And our plan is to pass that price on. Our competitors are seeing the same thing. So we need to be firm in that ensuring that is a pass-through price..

Thank you. It looks like our next question in queue will come from the line of George Staphos with Bank of America Merrill Lynch. Please go ahead. Your line is open..

Hi, everyone. Thanks for taking my question. Thanks for all the details, too. Ted, my question is on expectations for the quarter, relative performance with two parts.

In Food, you mentioned that you didn't quite have the operating leverage that you thought you were going to have, but then you also mentioned there were investments that were being made within the business, which, presumably, you would have known about going into the quarter.

So help us or help me anyway understand how Food performed relative to your expectations with that investment and relative to your normal operating leverage target.

And then on expectations for Product Care, you talked a lot about machine installations in Food, but how did your machine installations do in Product Care on some of the higher value-add product lines you're trying to push into the market? Thank you..

Okay. The short answer on the second on Product Care, net expectation, the real issue that you did identify on Food Care is some of the investments that we're making for additional capacity and new products. We are debottlenecking that, so the direct answer to the question, that was not to our expectation. We are making those investments.

We spent more than we got in the quarter. It's a long-term investment, so we will see that in the future. We will pick some of that up into 2019. So we've got some efficiencies there that we're working on..

So one follow-up comment to that would be, as you look at the comment that you raised and that we reiterated on the call relative to the PG ratio for Food Care being maybe a little disappointing to us, some of that you could understand by looking at our equipment business. We've indicated that that lagged a bit in the second quarter.

That's high-margin business for us. And so as the equipment lags, the PG ratio would lag. But our PG ratio, we expect to double from what the total company ended 2017 at. And as those equipment orders translate into deliveries and sign-offs by customers, we expect Food Care's profit-to-growth ratio to increase in Q3..

Thanks.

Operator?.

Yes, ma'am. Our next question in queue will come from Brian Maguire with Goldman Sachs. Please go ahead. Your question, please..

Hey. Good morning, and congrats on the progress with the price versus cost there. My question was really on the sort of the headlines around plastic that we're seeing, that's been sort of in the crosshairs for a bunch of consumer trends.

I know you guys don't do much or anything on the single-serve side, but just wondering if you're seeing customers show a preference away from plastic packaging. I know the partnership with Kuraray seems like it fits right in with where these trends are going.

But in general, are you seeing a lot of activity today or is this deal with Kuraray sort of preparing for what might come down the road?.

Yes. We're definitely seeing the plastic issue right in front of our customers. We actually had two of our majors in this last quarter discussing that with us of what we can do. Our customers are definitely quite interested as we bring in renewable materials.

But our focus on plastics or even with our film business, our scientists refer to it as skin, where our plastics are used for critical-use applications, both in protecting the packages, saving tremendous amount of waste and then for food as well, extending the shelf life, bringing fresh food to places and the positive benefit there.

We're going to continue the investment there. We made an organizational change I shared on the previous call. We moved sustainability into our innovation team and we'll continue the investment, both in products and people and process.

But it is definitely on the minds of our customers, and we'll be continually working to see what we can do to improve our sustainability efforts. And actually, the word we're using internally with our customers is to lead with them in that process..

Thank you. Our next question in queue will come from the line of Daniel Rizzo with Jefferies. Please go ahead..

Morning. You mentioned briefly about freight cost or treating tariffs as freight cost.

I was just wondering what your expectations are for freight in the second half as well as for input costs?.

The pass-through that we actually mentioned was the pass-through on the tariffs. But we got behind on the freight. Freight jumped up on us in the first half year, but our plan is to pass through the freight cost where we can with our customers.

But the second element, the freight is actually giving us an opportunity to go and sit down with our customers. Can we do things to help them lower their freight costs? So, it's an opportunity. As I mentioned, our partnership with Amazon, it's a big issue on what we could do to help certify that our packages fit into the Amazon system.

We got three new centers in place on that. So, also on the resin piece, which is our highest input cost, seeing that go in, we saw that go up in the first half of the year. The trend still Q1 to Q2 has been flat sequentially. The first quarter was up 15%, second quarter approximately 10%.

We're seeing and looking into the third quarter on resins to be somewhat flat, and our guidance has it flat to slightly up. There is some chatter and noise that this could be coming down. We heard that again last quarter. We didn't see it. So, our guidance has the resin input cost to be flat and slightly up..

So, specific to your question about the freight, Product Care was able to roll out a very successful price increase on April 1 in North America that covered a variety of input costs, and freight was a significant component of those costs. And those price increases were well received. They have stuck as we indicated.

We've also indicated that if we have future freight increases that we fully intend to pass those along to customers as well..

Operator?.

Yes, ma'am. Our next question in the queue will come from Adam Josephson with KeyBanc. Please go ahead. Your line is now open..

Thanks. Good morning, everyone. Just a couple on your guidance. You mentioned that the expected better operating leverage in the second half will offset the incremental FX drag of $25 million for the full year.

Can you just help me understand where that expected better operating leverage is coming from? And particularly, just given the magnitude of the $25 million of better operating leverage seems quite a bit relative to your expectation three months ago. And I'm assuming that AFP won't contribute much to your EBITDA for the year.

And just relatedly, your FX assumptions for the second half related to the guidance. I appreciate that..

You want to take it?.

Sure. So, on this one (35:59), I would say that we're very, very pleased with where we ended up in price mix for both Food Care and Product Care. Product Care moved into a positive price mix at the first part of the second quarter, Food Care moved into a positive price mix in the middle to the later part of the second quarter.

We anticipate both of our businesses to maintain positive price mix through the balance of the year. That will contribute to our improvements in operating leverage that we're expecting for the balance of the year.

You are correct that even though our acquisitions are accretive, they would not necessarily improve our operating leverage in the first year after the deal would close. But we see the price mix improving. I previously had mentioned the Food Care equipment sales, that will be picking up as we move through the second half of 2018.

And then also you appropriately noted the FX movement. Our prior guidance had sales of $110 million impact on FX and EBITDA of $20 million on a positive basis. Our new guidance, as you will see, sales is negative $20 million, EBITDA is negative $5 million. Where that's impacting us most is, indeed, our Food Care business.

And the specific currencies that are involved are the euro, the Brazilian real, Argentinian peso and the Australian dollar. And those are also the currencies that represent a large portion of our sales. The biggest one there would have been that I mentioned, the euro, which represents 14% of our total sales..

Operator?.

Yes, ma'am. Our next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead. Your question, please..

Great. Thanks. Good morning. Just had a question on the volume versus price kind of situation for the second half. You do face some relatively tough comps in both Food Care and Product Care in the 4% to 6% range. And your price is actually above us this quarter.

So, what's the outlook for how price mix trends from here? I mean, should we remain in that kind of plus 4% to 6% range and then volumes should be back down in the 1% to 2% range? Or do you feel like you can comp in mid-single digits against those tougher comps in the back half? Thanks..

Yes. For the second half we still think it's going to be the same. It's going to be more on the price mix than the volume. We think we'll have volumes slightly up but we're going to do it mostly on the price mix. On the Food Care side, we think we still have opportunities in our shrink bags, our top products that we think we have opportunities there.

And as we keep highlighting, what we didn't get in that second quarter on Food Care was the equipment. We think we have an opportunity and good margin for that coming through.

We also do believe we've got a pretty good pipeline of some of our new products coming through especially in the fluids and we think that's an opportunity for the second half of the year. On Product Care, we still see a continued demand for some of our new products, our Korrvu, the e-commerce business is still strong.

Yes, definitely, we think we have the right price mix on this. We're not anticipating gaining where we do have pricing issues, on our traditional Bubble Wrap and film, but we do have tough comps in the second half on volume. And right now, it looks like it's going to be a price mix coming through in the second half of the year..

Operator?.

Our next question in queue will come from Chip Dillon with Vertical Research. Please go ahead. Your line is open..

Hi, guys. This is Salvator Tiano filling in for Chip.

How are you?.

Good..

Great. So my questions have to do a little bit with the acquisitions of whole list of (40:12) plastics. So, firstly, it seems like you're expanding to other – to, I guess, non-plastic resin areas. You mentioned AFP, they use a different type of raw material.

And I was wondering, how do you see the challenges in your Product Care packaging segment with regard to plastic. You mentioned, for example, Bubble Wrap, shrink film had some challenges in the quarter.

And while some of it is cannibalization, do you see any concern that going forward, some customers may want to switch away from, let's say, Bubble Wrap to something more sustainable? And are you doing these acquisitions to address these concerns?.

Yes. Well, first of all, on the AFP acquisition, we're actually – we'll be bringing our EcoPure into that line, which is a sugarcane-based resin. So that's actually in our current portfolio that's going to help the synergies there.

On the M&A, though, some of the acquisitions that we're looking at are in the technology space that will help us with the Product Care business. So, as far as the push on plastics that we already talked about, we're definitely seeing that issue there.

But the sustainable, the reusable piece, we still think that's a growth opportunity because especially in the Bubble Wrap and e-commerce, the sustainability issue, we're replacing our products. We're replacing polystyrene, which is Styrofoam. We're reducing the amount of packaging material.

So, there's still a lot to be gained on the sustainability footprint with our traditional Bubble Wrap. So we see that still an opportunity for growth. And actually that inflatable Bubble Wrap was up double-digit in the quarter, and we expect that growth to continue..

Operator?.

Our next question comes from Gabe Hajde with Wells Fargo Securities. Please go ahead. Your line is open..

Good morning. Thanks for taking the question. I was really kind of thinking about your CapEx mix, and you talked about being more heavily weighted towards some restructuring efforts and maintaining the business and looking forward shifting to more growth/return-type projects. Can you talk about just – I mean, you mentioned ROIC as a framework.

What types of hurdle rates or targets that you look for in these projects and maybe where geographically they might be centered around?.

Yeah. We're using – basically looking at the ROIC to possibly beat our cost of capital, which is quite interesting if we look at the $160 million of spend in the capital and where is that returning.

I mentioned in the second quarter in Food Care, we're investing in some new technology that could, as we go into new markets, that we can offer looking for a step function change in our productivity.

So looking at the CapEx hurdle rate, we've been scrubbing what we're looking, can we do 20%, 30% ROIC in some of our existing facilities, and maybe looking at it a little bit differently, can we get fully automated facilities instead of today, we have a lot of batch processing in our facilities. So, I think we have an opportunity.

Part of that 70% spend in the past was for various reasons. We don't have those reasons going forward. So, I think the investment internally on our CapEx, and especially in the productivity of our facilities around the world, we have some significant opportunity to drive productivity and to drive growth..

Operator?.

Our next question will come from the line of Anojja Shah with BMO Capital Markets. Please go ahead.

Your question, please?.

Hi. Good morning. My question is around capital allocation and how you're prioritizing the main buckets. I know you're – we've talked a lot about CapEx. And then you have another $900 million for share repurchases. And then clearly, you're interested in M&A.

So just any sort of sense on your priorities there, which one you're focused on most or any comments around that?.

Well, again, it ties into using it – our returns and where we can offer the most returns to the business. So, as we shared on the M&A opportunities, looking where we can get growth into our existing footprint, existing markets, and where we can get a higher return for growth.

So, we're quite – but using ROIC there as a guide, we're not looking to overspend in that as well, and that's why the ROIC is a good guide for us. We're also looking not to go away from our core competencies. So, that's the guide there on the M&A.

As I mentioned internally, the capital allocation internally, I think we have some opportunities on our facilities and put our internal CapEx to get higher returns. Then the third piece there was on the share buyback.

And putting all three of those in the mix, where we can create the highest returns, on the accretion of the share buybacks, we're looking at that very carefully, the $100 million, if we put out there on an M&A, that's got to beat the returns on a share buyback. So, we're looking at that quite carefully..

Operator?.

Our next question in queue will come from Edlain Rodriguez with UBS. Please go ahead. Your line is open..

Thank you. Just one quick one on that partnership with Amazon, like what does it really do for you? I mean, does it have any financial impact? Does it help you grow the Product Care business? I mean, if you could just elaborate on that a little bit..

Yeah, it's a good question. What it allows us is we get to use our – we have three certification facilities that we take products and we can certify those products, similar to get a stamp of approval, similar to what you do in the equipment world, where you would have a UL approval.

This would be the Amazon approved for this SKU that it has packaging material that will help them in their distribution centers and their packaging. And if you don't have that symbol, you could pay a penalty. What it means for us, for our three facilities, we have one in the U.S.

that's been certified, one in Europe, and one in Asia that we do charge for this. And it's an opportunity part of that Amazon partnership that our brand will mean that it's Amazon-approved and should help the growth for our own products going through the Amazon network..

Operator?.

Yes, ma'am. We do have a follow-up question from the line of Scott Gaffner with Barclays. Please go ahead. Your line is open..

Thanks. Yeah.

Just a couple of quick follow-ups, first on Product Care, I think you would – company had bought or did a JV with an alternative product care company a few years back on the mycelium-based packaging, can you just update us on that? And then, Ted, just focusing on – I mean, you sort of teased out the 2019-2020, sounds like there's a lot more to come there.

But when we look at this CapEx that you're talking about moving more towards growth CapEx, should we expect volume trends then to accelerate relative to the market that you participate in? Thanks..

Okay. Scott, I hate to say, your first question, I don't know the answer to, so if we can follow-up on that one. I apologize at least in my nine months that I don't know the answer to that one.

But as far as the CapEx, first of all, just to make sure, taking a look at the CapEx that we described fitting into our cash flow targets and where our growth is but, yes, I do believe getting our facilities more efficient, our network more efficient, can help to drive our growth expectations going into 2019-2020 and beyond.

So, some of these adjacent markets that are next to us that want our products, where we have bottlenecks today in our portfolio, I think it will help drive our growth into the future. And we'll follow up with you on your other question after the call..

Operator?.

Yes, ma'am. Our next follow-up question will come from the line of Chip Dillon with Vertical Research. Please go ahead. Your question, please..

Hi, guys, Salvator Tiano again. Just a follow-up, I don't know if I missed, but I don't think Brazil was discussed in detail. And I know, obviously, it wasn't a big issue for you because you have Latin America volume growth in the double digits.

But what was kind of the impact of the strike there? And did it hit your volume growth in any meaningful way, as we saw for some of your peers?.

Yeah. Brazil was actually a highlight for us in the quarter. Now, in the first half, as you highlighted, the trucking strike actually slowed us down. We've had issues with Brazil in the last year, but actually Brazil is a bright spot for us for a number of reasons. One, we got some significant wins in the quarter from our team, doing quite well there.

We also see Brazil as growth for us. The majority of the fresh red meat that ships out of Brazil, which – its export capability will increase, is frozen. But as see that shift going to fresh red meat, we're connected to that.

And again, if this tariff does hit in the U.S., the growth there in Brazil to pick up some of the European and Asia protein needs will be picked up. So, we see continued opportunity. So, answer to the first question, yes, to this part, strong growth for us in the quarter, and we're looking for continued strong growth out of Brazil going forward..

Great. Thank you, Ted.

I think, operator, we have one more question in the queue?.

That is correct. Absolutely. We have time for one more question. Our final question in the queue will come from the line of George Staphos with Bank of America Merrill Lynch. Your question, please..

Hi, everyone. Thanks for taking the follow on.

Ted, could you talk a little bit about what trends you saw with foam-in-place packaging? And then more broadly within Product Care, recognizing that the volume losses in some of the more mature product lines, you attributed to cannibalization and pricing actions but from your nine months in the job and what you've heard from your colleagues, anything in that – weakness in volume in those categories concerning in terms of the economic outlook or purely one-off and strategic? Thank you guys and good luck in the quarter..

Thanks. Actually, really good question. We're not actually going to share specifically some of the M&A opportunities we're looking at.

But looking at the Product Care space, the ones that we're interested in this integrated fabricator, we learned from Fagerdala having that direct access to these growth markets, where we've seen the integrators moving into the electronics and especially even some of the push back to the U.S. with some of the U.S. manufacturing.

So, we see an opportunity there, so some of the other growth opportunities for us, on the Product Care side, is internal development in the automation space. That's in my nine months that our customers are asking for help in automation in their facilities. We have products today but we see continued growth.

We're developing our own in products internally but we're looking for Product Care opportunities that we can help our customers in the automation of their processes in packaging. So, that's where we see some opportunities..

Thank you, George, and thank you, Ted. Operator, that's actually ends our call, so thanks everybody for joining us today..

Thank you, presenters, and thank you to all of our participants for joining us today. We hope that you found today's conference informative. This will conclude the program. You may now disconnect and have a wonderful day..