Sealed Air Corporation (NYSE:SEE) Q4 2023 Earnings Call Transcript

Sealed Air Corporation (NYSE:SEE) Q4 2023 Earnings Call Transcript February 27, 2024

Sealed Air Corporation beats earnings expectations. Reported EPS is $0.88, expectations were $0.62. Sealed Air Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Sealed Air Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please note that today’s conference may be recorded. I would now like to hand our conference over to your -speaker host, Brian Sullivan, Head of Investor Relations. Please go ahead.

Brian Sullivan: Thank you, and good morning, everyone. With me today are Emile Chammas, Interim Co-CEO and COO; as well as Dustin Semach, Interim Co-CEO and CFO. Before we begin, I would like to note that we have provided a slide presentation to supplement the call. Please visit sealedair.com where today’s webcast and presentation can be downloaded from our Investor Relations page. Statements made during this call stating management’s outlook or estimates for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in the section entitled Forward-Looking Statements in our earnings release and slide presentation, which applies to this call.

Additionally, our future performance may differ due to a number of factors. Many of these factors are listed in our most recent annual report on Form 10-K filed or to be filed with SEC, and as revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K. We discuss financial measures that do not conform to U.S. GAAP. You will find important information on our use of these measures and the reconciliations to U.S. GAAP in our earnings release. Included in the appendix of today’s presentation, you will find U.S. GAAP financial results that correspond to the non-U.S. GAAP measures we reference throughout the presentation. I will now turn the call over to Emile and Dustin. Operator, please turn to Slide 3. Emile?

Emile Chammas: Thank you, Brian. And thank you for joining our fourth quarter and yearend earnings call. Today, Dustin and I will review SEE’s financial performance, provide updates on the markets we serve, discuss relevant trends and highlight the significant progress made on the transformational actions discussed on our previous call. Lastly, we will conclude with our 2024 outlook before opening the call for questions. We close the quarter with sales of $1.4 billion and deliver $274 million in adjusted EBITDA in line with our expectations. Our fourth quarter results reflected the continued impact of challenging protein cycles and trade downs in our food business as well as a muted fourth quarter seasonal pick up in our protective segment.

For the full year, we finished with $5.5 billion in sales and $1.1 billion of adjusted EBITDA, slightly above the midpoint of our guidance. Through the later focused efforts of our global team, excluding payments and deposits related to the resolution of certain prior year’s tax matters, we delivered $467 million of free cash flow well above our guided estimate. Dustin will provide a more comprehensive overview of our financial performance shortly. Now, let us move on to our 2024 market and business update. While our end markets in 2024 should be better than 2023, we expect the best and L-shaped recovery with no near-term growth catalyst. We are continuing the transformational actions that we detailed during our third quarter call. We will continue to focus on our core business and customers, restore underlying fundamentals, and position ourselves for accelerated growth in 2025 and beyond.

I will now share some updates across our transformational initiatives. First, as we previously mentioned, we recognize the need to reallocate global resources back into our regions to enhance customer proximity and improve commercial effectiveness. As part of our reorganization efforts, we also determined that blending the protective and food commercial teams contributed to a loss of customer centricity and reduced commercial rigor. Consequently, we have reorganized our commercial teams by reestablishing food and protective operating units within each region and shifted global resources to our regional teams. This is an initial step in our broader transformation to improve our commercial execution and capture incremental market share as conditions improve.

Second, with sustainability as an accelerating mega trend in both food and protective, now more than ever, innovation will play a critical role in driving outside market growth. To maximize our opportunity, we are shifting our innovation focus from the laboratory to the field. What does this mean? We have a strong material science research and development capability, but we need to take the next step forward by better leveraging the voice of the customer to help prioritize and shape our innovation pipeline. Making this shift combined with our scale will allow us to outpace our competition, ultimately improving time to market and the commercial success of our new products. Throughout 2024, we will be introducing new recycle ready products at an accelerating rate, bringing to market full automation solutions within case ready, and expanding applications within our fluids and liquids businesses.

Moving to Slide 4. You can see a practical example of where sustainability pressures, driven by new regulations and consumer preferences, are driving unprecedented shifts in the protein trays market. In response, we recently introduced the first bio-based industrially compostable tray for protein packaging. These trays provide comparable performance and stability to traditionally expanded polystyrene trays, allowing us to gain share in an estimated $5 billion tray market while supporting our customer sustainability goals. Next, we have continued our portfolio optimization efforts, investing in core growth products while deprioritizing those that no longer align with our strategic objectives. We have made a lot of progress in redefining the long-term strategy for our portfolio of solutions, in large part getting back to SEE’s differentiated material science, automation and service expertise.

As our transformation takes hold, end markets recover and financing environment improves, we will be in a much stronger position to take actions to drive further shareholder value. Meanwhile, our primary focus remains on making improvements we can drive regardless of the operating environment. Finally, our cost reduction initiatives within CTO2Grow are progressing as planned. In 2023, we drove actions culminating in an annual run rate savings largely in 2024 of $50 million, up from $40 million at the end of the third quarter. As part of the effort, we have completed three plant closures in 2023, and are in the process of closing four additional sites as part of our footprint rationalization efforts with more sites on the review. In addition, we are rightsizing our Argentina operation given recent regulatory and economic instability.

With the actions we have driven so far, we are currently at a total of $65 million in annual run rate savings. Building upon this momentum, we are confident in our ability to achieve $90 million in year-over-year cost savings in 2024. Moving on to updates on our Food and Protective segments. We observed ongoing challenges in the Food segment, where volumes declined year-over-year. However, sequential performance improved in Q4 due to increased holiday demand. The challenges we faced in the fourth quarter stemmed from multiple factors, including the rebuilding of the cattle herd in North America, shifts in the European protein production and consumption and consumer trade down in retail food. The depressed capital cycle, coupled with higher interest rates, negatively impacted our equipment business as customers scaled back their capital expenditures to preserve cash.

We expect these trends to continue into 2024. For Protective, 2023 was a turbulent year. Real industrial production contracted year-over-year in most advanced economies. High inflation and the subsequent drag on real income continued to squeeze household spending power and is reducing the demand for consumer goods. Additionally, sustainability and new business models like shipping your own container and buy online, pick up in store continue to reshape e-commerce packaging choices and demand. Pricing pressures have intensified as competitors step up to address weak market demand. On a positive note, the destocking of downstream inventories is largely complete. Different from previously expected, while market indicators are signaling an improving 2024, we have not yet seen this translate into improving demand for our customers’ businesses and subsequent restocking or uptick in volumes for our packaging solutions.

While we do not see an immediate near-term market catalyst, we are anticipating a gradual recovery in our end markets throughout 2024 with volume lift towards the end of the year and continuing into 2025. As our markets recover, our focus on innovation and sustainability, coupled with our CTO2Grow and strategic commercial initiatives, gives us confidence in SEE’s continued recovery. Now I’d like to turn it over to Dustin to review our financial results. Dustin?

Dustin Semach: Thank you, Emile, and good morning, everyone. Moving to the fourth quarter and full year results. Let’s turn to Slide 5. Net sales were $1.4 billion in the quarter, flat on a constant currency basis, and were $5.5 billion for the full year of 2023, down 1% at constant currency. Adjusted EBITDA in the quarter was $274 million, down 8% compared to last year. For the year, adjusted EBITDA was approximately $1.1 billion, down 9%. Volumes have improved sequentially in Q4 as holiday demand drove a low single-digit seasonality pickup. As reported, adjusted earnings per share in the quarter of $0.88 were down 11% compared to a year ago. Our adjusted tax rate was 18% compared to 26.1% in the same period last year, driven by a onetime benefit due to the reversal of liabilities related to uncertain tax positions.

We did not repurchase any shares in the quarter. Our weighted average diluted shares outstanding in the fourth quarter of 2023 was $144.9 million. For the year, adjusted earnings per share of $3.18 was down 22%, primarily driven by lower adjusted EBITDA and higher interest expense, partially offset by lower tax expense. Turning to Slide 6. In Q4, Liquibox contributed 5% to total company sales or approximately $70 million, but was offset by lower pricing in Protective and lower volume in both businesses. The volume declines were driven by continued market pressures in Protective, lower automation sales as well as continued weakness in food retail end markets. Fourth quarter adjusted EBITDA of $274 million, which included $50 million contribution from Liquibox, decreased $23 million or approximately 8% compared to last year with margins of 19.9% and down 120 basis points.

This performance was mainly driven by lower volumes within both segments, offset by contributions from Liquibox. Moving to Slide 7. In the fourth quarter, Food net sales of $893 million were down 3% on an organic basis, primarily due to the volume declines driven by lower automation sales as customers enforce tighter controls on capital expenditures and by continued weakness in retail demand. Food adjusted EBITDA of $195 million in the fourth quarter was down 3%, with margins at 21.8%, down 130 basis points compared to last year. The decrease in adjusted EBITDA was mainly driven by higher operating costs and lower volumes, partially offset by contributions from Liquibox and favorable net price realization of $10 million. Protective fourth quarter net sales of $485 million were down 10% organically, driven by lower pricing and volume declines in Americas and EMEA from continued market pressures in the industrial fulfillment markets.

Protective adjusted EBITDA of approximately $90 million was down 12% in the fourth quarter, with margins at 18.7%, down 50 basis points. The decrease in adjusted EBITDA was driven by unfavorable net price realization and lower volumes, partially offset by favorable productivity benefits. On Slide 8, we review our fourth quarter net sales by segment and by region. In constant dollars, net sales were flat with 5% growth in Food, mainly driven by the Liquibox acquisition, while Protective was down 10% due to weak end market demand. By region, Asia Pac grew 5% organically driven by a strong Australian cattle cycle. Americas was down 6% due to lower automation sales, a weak U.S. cattle cycle and lower pricing in Protective. EMEA declined 11% on challenging market conditions across both segments and continued destocking within Protective.

In constant dollars, full year net sales were up 9% in food, while Protective was down 15%. By region, we were up 3% in Asia Pac, offset by declines of 2% in Americas, and 1% in EMEA. Now let’s turn to free cash flow and leverage on Slide 9. Through the fourth quarter, excluding the impact of the payments and deposits related to the resolution of certain prior year tax matters, free cash flow was $467 million compared to $376 million in the same period a year ago, representing an increase of 24% year-over-year. The primary driver of this improvement was significant inventory reduction, partially offset by lower earnings and higher interest costs. Since the peak in the second quarter of 2023, we have reduced total debt by approximately $280 million, exiting the year with a net leverage ratio of 3.9x, down from 4.1x in the third quarter.

Our total liquidity position was $1.3 billion, including $346 million in cash and the remaining amount in committed and fully undrawn revolver. We will continue to focus on driving net debt to adjusted EBITDA to below 3.5x over the next two years. Let’s turn to Slide 10 to review our 2024 outlook. We expect L-shape recovery through 2024 and into 2025. As a result, we expect net sales to be in the range of $5.2 billion to $5.6 billion, which at the midpoint assumes a 2% decline in organic growth with flat volume growth offset by negative pricing. Portfolio exits represent 0.5% lower volume in both segments. While the global protein end markets continue to be challenged, our food volume is expected to grow approximately 1%, driven by competitive wins in our core businesses, momentum in our fluids and liquids businesses, including Liquibox, and our new product launches, offset by pricing declines of 2%.

Our work on integration and operational momentum at Liquibox is taking hold, and we expect the business to continue to improve across 2024, further supported by a positive outlook for the food service end markets. We see a slower market recovery in Protective than previously anticipated with a full year volume decline of approximately 1%. Pricing pressures have increased, further reducing top line by 3% as the competitive landscape has intensified in a lower volume environment. Protective volumes are expected to recover towards the end of 2024 as our new commercial model gains traction and market dynamics improve. We expect full year adjusted EBITDA to be in the range of $1.05 billion to $1.15 billion, which assumes adjusted EBITDA margin of approximately 20% at the midpoint.

This outlook is lower than our soft guide provided during our Q3 earnings call, mainly driven by lower volume expectations. We anticipate continued softness in the first half of 2024 as volume reaches the trough and gradually improves as the market conditions and seasonality improve in the second half. We remain disciplined to drive the necessary cost actions to offset further volume weakness. The midpoint of our adjusted EBITDA guidance is in line with 2023, with $90 million year-over-year cost savings offsetting flattish overall volumes, negative net price realization and restoring bonus pools. Full year adjusted EPS is expected to be in the range of $2.65 to $3.05 per share. The lower 2024 adjusted EPS is largely driven by higher depreciation, interest and tax expense with an assumed tax rate of 26% to 27%.

We expect full year 2024 free cash flow in the range of $325 million to $425 million. At the midpoint, our free cash flow conversion as a percent of adjusted net earnings is expected to be 90%. We are assuming approximately $80 million in restructuring charges, and approximately $20 million incremental cash interest payments, offset by favorable working capital of roughly $30 million. Lastly, for the first quarter of 2024, we expect net sales and adjusted EBITDA to be ranged around $1.3 billion and $240 million, respectively, with earnings per share between $0.50 and $0.60. Our ranges and outlook reflect the dynamic environment we continue to operate in. As we gain more visibility throughout the year, we will be able to adjust and update expectations accordingly.

Turning to Slide 11. We closed out the year in line with our expectations and remain committed to executing against our caustic up to growth efforts. While our expectation for 2024 has reduced to a weaker and longer recovery period for our end markets, we are encouraged by the feedback from our customers and our distributors that destocking is largely behind us and are more confident in a second half modest recovery in volumes. We are focused on driving a transformation at SEE in 2024, improving commercial execution and restoring business fundamentals. We expect 2025 to be the year we return to a normal growth trajectory and where our cost reduction and operational excellence initiatives will position us well to return to adjusted EBITDA growth in 2025 and beyond.

Lastly, I’d like to close by thanking the global SEE team, who are at the center of our transformation for their efforts solving our customers’ most critical packaging challenges day in and day out. With that, Emile and I look forward to your questions. Operator, we would like to begin the Q&A session.

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Q&A Session

Operator: [Operator Instructions] Our first question coming from the line of Phil Ng with Jefferies.

Philip Ng: Hey, guys. Dustin, if I hear you correctly, you’re guiding to $240 million of EBITDA for 1Q. That implies a pretty steep year-over-year decline. So help us kind of think through what’s driving, perhaps, a bigger hit to start the year? Certainly, volumes are an element of it. And the shape of the year, do you expect EBITDA to inflect positively by one would be helpful. And any color by segments would be helpful in terms of the shape of the year.

Dustin Semach: Phil, this is Dustin speaking. Again, I appreciate the question on Q1. A couple of comments I want to make. One is, you hit it nail on the head relative to volume, right? So volume in Q1 is going to be down a couple of points, and that negative leverage is impacting the EBITDA for the quarter. That’s being partially offset by some of the cost takeout program, but that program is going to ramp across the quarters. That’s really what’s going to drive the sequential improvement as we go throughout Q1, Q2, Q3, Q4 in terms of approving from here. And so then coupled with that, the pricing actions that we talked about in terms of some of the pricing flow through from the prior year coming across 2024 is also going to impact Q1, right?

So the expectation from here is that we’re going to improve EBITDA sequentially quarter-to-quarter-to-quarter, right coming from the $240 million that we mentioned for Q1. And then we’ll — and then obviously, when we get to roughly Q3 and Q4, going back to the mass recoveries in the second half volumes, we’ll see that inflection point begin and it’ll point towards EBITDA growth.

Operator: And our next question coming from the line of Ghansham Panjabi, Baird.

Unidentified Analyst : Hi, good morning ,everyone. This is Mac Rigor sitting in for Ghansham this morning. So I was just hoping that you could provide us with some added detail on how volumes trended throughout the quarter on a monthly basis? And then given that we’re essentially finished with the first two months of the first quarter here, how has 2024 kicked off for each segment from a monthly volume cadence as well? Any details there would be super helpful.

Dustin Semach: Matt, this is Dustin speaking. I’ll kick it off. And again, I appreciate the question. So if you go back to the fourth quarter, and we’ll start with Food, as we mentioned, underlying volumes throughout the entire year have been trending slightly kind of low single digits. Q4 was no different, with the exception of our automation sales, which we pointed to during Q3 that we expected that the impact of lower bookings throughout the year due to the capital constraints of our customers really impacted our equipment sales in the fourth quarter. However, we still achieved over $500 million of sales and we are kind of ahead of our own expectations. So when you shift to Protective. Protective ended where we set expectations around mid-single digits, right?

That’s obviously a big improvement coming off of the prior three quarters that we’re in the teens up to almost 20% starting in Q1. So throughout 2023, volumes in that business, I would say, improved sequentially, slightly and wrapped around the prior year. What’s important about both businesses that’s different in Q4 of ’23 versus ’22 is that we saw the actual seasonal pickup in volumes, right, in the fourth quarter. And so — in both businesses, this is Food and Protective. Now, as you move into Q1, right, January is coming in slightly ahead of expectations, and there’s a number of different reasons for that, and this is really across both businesses, so both Food and Protective have performed quite well in January. And then in February, it looks to be in line.

And this is obviously embedded in the current guide that we have for Q1.

Operator: Our next question coming from the line of George Staphos with Bank of America Securities.

Unidentified Analyst : Yes. Hi, good morning. This is actually [inaudible] sitting in for George, he’s traveling for our conference. So Dustin and Emile, you talked to it a little bit in your prepared remarks, but perhaps can you get a little bit more specific on what commercial and sales tactics you’ve changed in each segment since taking over? And what the competitive response might have been in each business at this juncture?

Emile Chammas: Hi, good morning. Thank you for the question. This is Emile speaking. So in terms of the commercial transformation that we’ve undertaken and recently announced, so we recognize that in the old structure that we had, combining both Food and Protective commercial teams really contributed to a loss of customer centricity and reduced our commercial rigor. So to solve this, we’ve recently announced that we’ve reorganized our commercial teams within Food and Protective operating units within each region. Now these units are not just sales units, but the units combined with sales, marketing and dedicated support functions, including R&D representation, finance and operation. The other pieces that we talked about in terms of our plans and that we’ve now implemented is the old structure really have shifted the resources from the regions into the global centers.

And really, that put the voice of the customer even further away from the decision-making process. So as part of this reorg that we’ve announced, we’ve reallocated those resources from the global teams back to these operating units. So inherently, the new design is better in terms of us being faster in the market, in terms of being closer to the customers. But just as important around that, we’re driving the whole culture and the culture of discipline and performance in terms to better execute in the marketplace. And to support that, we’ve realigned the incentives of everybody to be more localized, closer to the markets as well as in terms of our global goal alignment.

Dustin Semach: And the only two points I’ll add on to what Emile said, which was — is really, if you go back to the why, the why in terms of both Food and Protective is that those end markets and those customers are very different in terms of needs from a packaging solution, service capability, right? So that one is recognizing that those are 2 very unique segments, end markets, customers, et cetera, is one of the primary kind of motivations in terms of making that overall decision.

Operator: And our next question coming from the line Jeff Zekauskas from JPMorgan.

Jeff Zekauskas: Thanks very much. Can you talk about how your Industrial Packaging business did in 2023, and how it’s beginning the year in 2024? And can you talk about what your expectation for automation volumes are this year? And then lastly, in your compostable products that you feature in your slides, it has 54% biobased content, what’s the other 46%?

Dustin Semach: Okay. So I’m going to start with the overall industrial question, right? So if you think about 2023, and I think one of the comments that Emile — this is Dustin speaking by the way, one of the comments that Emile made, which is really important, is around the fact that if you really look at PMI or you look at PMI equivalent across most of our overall advanced economies, right, what you see is a contraction, right, in industrial activity. And as a result of that, our business is our industrial packaging. Think of this as like Instapak and industrial inflatables and so on and so forth, performed poorly, and you’re looking at — if you look at overall impact for 2023, you’re looking at volumes that were down in the low teens, right?

And so — and then it kind of in line with your expectation in terms of double digit for that kind of contraction you would have seen in industrials. On an encouraging sign is kind of coming into 2024 is that it’s beginning to point towards growth. It’s modest growth in ’24 relative to industrial, but it is growth, it is more second half weighted. And we’ve seen those businesses already begin to perform better. And if you look at even Q4, it’s embedded in that number, which is mid-single digit decline in volumes in the fourth quarter. You’re seeing it open up well in the first quarter and continuing. So we see it as optimism in terms of showing signs of stabilization. And as we said earlier, there are signals right, relative to signals that are more positive for the year, but they haven’t translated yet largely because we think it will take time to work through the system in the first half and then we’ll begin to inflect more importantly in the second half.

Emile Chammas: Let me maybe jump in, Dustin, on some of these other points on the biobased, right?

Dustin Semach: Sure.

Emile Chammas: So as you mentioned, we’ve recently introduced the new biobased tray, and really, this is around addressing the market needs that is moving away from expanded polystyrene. And as you mentioned, 54% of the tray is from cellulose renewable sources. And the other portion of the polymers are acetic acid and other processing aids. So really, in terms of the tray, it’s not only the sources of it that are renewable, but the fact that this is industrially compostable certified, so it can go into the industrial recycling streams and fully decomposed into those natural components. And I just want to add a point on the automation piece in terms of where that’s headed. So despite the external uncertainties in terms of our customers being slowed in terms of triggering new CapEx spend based on the inflation — the interest rate environment as well as muted end markets, we do forecast it to be flat year-on-year.

And as part of that, we’re also expanding our offerings. So automation is still a critical part of our total solution sales. So we’ve signed recently some partnership agreements in the protective space to complement our box rightsizing capability, and we are actually going commercial, and we have orders of those based on that new partnership in the Asia Pacific region. And we just recently signed the IPP show, a new partnership in terms of expanding our automation capabilities in our consumer-ready space. So we’ll be announcing that publicly soon. And again, automation continues to be a big part of our capabilities. We’re all about total solutions, materials, equipment as well as service, and we’re expanding and filling the portfolio gaps that we have with those external partnerships.

Dustin Semach: And then one other final point on that question. I’ll just say that as a reminder, we kind of closed the year at around $500 million, $0.5 billion in automation sales in 2023, which is a peak for us. And to Emile’s point, we expect it to be flat next year despite the challenges.

Operator: And our next question coming from the line Anthony Pettinari from Citi.

Anthony Pettinari: Good morning. Looking at the ’24 guidance, can you just help us quantify the impact to EBITDA from lower net pricing for the year? I think you talked about that on the bridge, but I just want to make sure I got that right. And then when you think about pricing, potentially stabilizing maybe in the back half of the year, I mean, is that just a function of volume recovery, volume stabilization? Or is there sort of anything else going on in the market or what you’re doing internally that you would expect to help out?

Dustin Semach: Yes, absolutely. So great question. This is Dustin speaking. So a couple of comments I would make. If you think about net price realization for fiscal year 2024, we’re expecting it in the neighborhood of about down $60 million. So if you put that in the context of a flat EBITDA guide year-over-year, really this $90 million or so of cost takeout benefits that we’re driving, offset by a negative net price realization of $60 million, and an additional — and then this restoration of our overall bonus pools. And so that kind of gives what net-net gets you back to a flat guide . And so — and the only other piece, in just terms of the price component, if you break down that price realization, just to give you some of the specifics, it’s really a net negative of about $120 million being offset by an equivalent of benefits in direct materials.

And then if you think about a net down on kind of labor inflation, on labor and nonlabor, which you will notice is more muted in the past, which we do see continuing to normalize kind of at a post-COVID, because it was at a historic high in 2024, or excuse me, 2023. Then if you think about the pricing environment in general, if you think about last year, there’s really 3 components in our pricing that are affecting us. One is concessions that were given last year as part of contract renewals, et cetera, that we talked about in terms of putting a big piece of our business underneath that we renewed. The other piece was formula pricing. As if you think about in the second half of ’23, a lot of resin costs came down. So formula pricing, as a reminder that tracks with indices began to kind of come into effect at the beginning of really of 2024.

And then the third piece is obviously is just the pricing environment. That’s why you decompose that $120 million. And if you think about the second half, that’s where we — there may be an area of opportunity because right now, if you look at it, our resin prices have kind of stabilized and we see them maybe slightly inflationary in the second half. And this is — when I say inflationary, I mean, sequentially as you move throughout the year, still obviously net down from 2023.

Operator: And our next question coming from the line of Matt Roberts with Raymond James.

Matthew Roberts: Hi, Dustin. Good morning. Discuss the new product focus. So could you maybe quantify a little bit, what type of addressable market do you think these new products represent? And which segments are they prioritized? And in that regard, how much of this is a new opportunity versus substitution of some of your existing sales? .

Dustin Semach: All right. Matt Yes, great question, and I appreciate you raising it. So I’ll go ahead and start and then Emile will follow on. If you go back to kind of the prepared remarks, we talked about — in the prior questions, what we talked about, the compostable tray. And that for us is, if you go back a number of years, we used to actually produce trays, and over the past couple of years, we haven’t. And we sell them as part of a package solution when we think about something of our overwrap film, the tray as well as the equipment, I think about those 3 pieces of the solution, I think of it is as a poultry application. And so we’re actually — for us to go back into the tray business, which is really what this is in terms of compostable trays, our step back into manufacturing it, that overall addressable market is about $5 million.

And what’s really exciting about it is it’s not just that we’re entering a market because if you think about that market overall, it’s a relatively low growth end market, but it’s going through an unprecedented shift, right, where you’re seeing whether it’s consumer preference, very similar to fiber and protective, it’s that same shift in the protein tray market, where consumers prefer to move out of expanded polystyrene and as well as the market in terms of regulations are coming to effect, which you’ve already seen in a number of states in the United States as well, across Europe, et cetera, which is presenting this opportunity where you need to have a new alternative, right, relative to that. And so this is a great opportunity there to take a big share in that market, and we’re heavily invested in it.

And then I’ll let Emile kind of jump on to some of the other areas that we’re focused on.

Emile Chammas: Yes. Thank you for the question. And again, it gives us a chance to talk about some of these growth areas across multiple segments. So let me hit kind of through some of the key areas. So on Protective, a couple of areas, I did mention that new partnership in terms of expanding our capabilities and portfolio gaps around 3D box rightsizing. So again, that is commercial. We have our first orders and we have a pipeline. Two is, it will be a small impact this year, but we did mention in our past call that we were slow in terms of the shift of the market in Protective to fiber. We are introducing — again, it will be a small impact this year, but on the AUTOBAG — in our AUTOBAG segment, we are introducing a paper AUTOBAG solution as well as driving some more sustainability pieces around high recycled content in our protective businesses.

Let me talk about fluids because I didn’t come up so far. So fluid is actually a key part of our growth this year, both in our [inaudible] fluids business as well as on Liquibox. So again, on our traditional CRYOVAC liquids, we continue to drive penetration around our FlexPrep solution. And beyond that, we are introducing later this year a further expansion of that capability, attacking the rigid squeeze bottle market, and we’ll be bringing that to an initial customer later on this year. On the protein side, Dustin and I mentioned the compostable tray. We have launched based on customer, voice of the customer new capabilities around our chill tunnels, which are in market right now. And there also, we are introducing a whole host of second-generation recycle-ready flexible materials across the markets where our customers demand them.

And then finally, maybe just the other piece tagging in on the innovation question and back into the tray. If you think about our tray launch, beyond that, it’s a great product responding to the market. In terms of how we did it, we did it in a record time. It was really in terms of how we partner strongly on that innovation together with our critical partners, both on the supply side and the customer side. And this is when we talk about our commercial transformation and how do we drive that capability accelerate our innovations. This is really the model we’re trying to reapply. It’s not doing innovations internally and then going out there, trying to sell them. It’s really bringing those customers in, those early adopters, and partner with them and our supply base to get to the market faster with more relevant innovations that will drive commercial success.

Operator: And our next question coming from the line of [inaudible] from Mizuho Group.

Unidentified Analyst : Thank you. Good morning, everyone. So as you look past 2024 and into ’25, like how do you see the volume power of the portfolio? If you no longer have destocking going on and demand is gradually picking up, like what does volume look like on a normalized basis in 2025, 2026?

Dustin Semach: So it’s a great question, and I’ll make a couple of comments, right. Going back to the prepared remarks. This is Dustin speaking, by the way. So one is, look, we still continue to operate in a very limited visibility environment, right? Our guidance reflects that and some of the progression of the next two — kind of two halves reflect that. So the reason I say that is just take that into account because one of the expectations, too, once we get to a place where demand comes — picks back up, there is an opportunity, potentially, for some restocking, right, which will also create an outside, at least, even if it’s transitory uptick in overall volumes. So if you think about a normalized basis, and you think about the end markets we serve, and I’ll break it down into three categories when I give this perspective.