Good day and thank you for standing by. Welcome to the Q3 2024 Sealed Air Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please also be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brian Sullivan, Investor Relations. Brian, please go ahead.

Thank you, and good morning, everyone. With me today are Patrick Kivits, CEO; and Dustin Semach, President and CFO. Before we begin our call, 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 the 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 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 US GAAP. You will find important information on our use of these measures and their reconciliation to US GAAP in our earnings release. Including the appendix of today's presentation, you will find US GAAP financial results that correspond to the non-US GAAP measures we reference throughout the presentation. I will now turn the call over to Patrick and Dustin. Operator, please turn to slide 3. Patrick?

Thank you, Brian, and thank you for joining our third quarter earnings call. Before we dive into today's earnings discussions, I would like to take a moment to update you on the progress we have made on the actions outlined during our last earnings call. Over the past few months, I've been engaging with our largest customers and distribution partners to gain deeper insight into how we can meet their needs and address their packing challenges. Separately, I've connected with our investors to get their perspectives on the opportunities ahead for creating shareholder value. Through these discussions, it became clear that reorganizing into two verticals, Food and Protective, was a critical foundational step to enhance our customers' experience and maximize shareholder value. Each business is distinct with unique end markets, customer bases, innovation needs, and manufacturing assets. We are returning to our core value proposition as a company, combining industry-leading material science, best-in-class services, and differentiated automation offerings to deliver world-class packaging solutions. As we refine our strategy, serving our customers and addressing their critical packaging challenges remains a guiding principle. Next, we need to ensure we have the right team in place to drive accelerated progress in each vertical. We focused on bringing in talent from other packaging companies with strong commercial and portfolio expertise, looking for leaders that have successfully improved commercial execution and navigated sustainable portfolio shifts while consistently delivering sales and profit growth. The first critical hire was Byron Racki, who now leads our Protective vertical. With over 20 years of experience in the packaging industry and strong commercial acumen, Byron brings valuable knowledge in fiber, similar to my own background. He has successfully navigated substrate and packaging format transitions in his previous roles. He is spearheading the turnaround of our Protective business. In October, we brought in Steve Flannery as Head of our Food vertical. With over 25 years of experience at Avery Dennison, Steve has held leadership roles across sales, innovation, marketing, and operations. He has led businesses in multiple geographies, driving market-leading innovations and fostering a team-based culture that consistently delivered robust sales and earnings growth. Steve will build on the momentum within our Food business and unlock further growth. Emile Chammas continues to be our Chief Operating Officer, leading our efforts to optimize the supply chain for both Food and Protective, ensuring each prospective supply chain is stable for those end markets and expected service levels. We also hired Belinda Hyde as our Chief People Officer, who will focus on enhancing the employee experience, cultivating a high-performance culture, and ensuring we have the right leadership and capabilities across the organization. Lastly, our President and Chief Financial Officer, Dustin Semach, is partnering closely with me to develop a long-term plan to create shareholder value and drive product transformation across the business. Beyond strengthening the management team, we are also enhancing the Board. In October, the Board appointed Tony Allott as a new Director. Tony is an experienced senior executive in the packaging sector. He successfully led Silgan for over 16 years as President and Chief Executive Officer, where he created significant shareholder value. He continues to serve as Silgan's Chairman. We look forward to leveraging his expertise in leading packaging companies with diversified portfolios to help accelerate our transformation. With our Food and Protective presence now in place, we have aligned our operating units, innovation, customer service, and automation functions within each vertical. These changes will enable each vertical to swiftly adapt to market trends, leverage their global scale, enhance customer focus, and execute their respective growth strategies. This represents a significant milestone in our transformation, and I'm eager to build on this foundation as we continue to evolve the business towards achieving long-term sustainable growth. I would like to highlight some early successes resulting directly from the transformation actions we have initiated. With dedicated Food commercial teams now aligned to each local end market and fully focused on execution, our Food business is delivering above-market growth in each of our end markets and across most product lines. This above-market performance is driven by a mix of commercial excellence, new product launches, and competitive wins. On the Protective side, while volumes in the business continue to be soft, we are gaining traction in the market with our sustainable packaging solutions. We recently announced a partnership with a large retail customer, Best Buy, to provide a suite of high recycled content and fiber-based products to help reduce the amount of virgin plastic used in their packaging. Additionally, we collaborated with them to arrange the collection of plastic waste from their distribution centers for recycling. Beyond this example, we continue to position our portfolio to match our customers' sustainability needs while still addressing their most critical packaging challenges. With that said, we still have much more work ahead of us. Over the next couple of months, we will focus on operationalizing each vertical. On Protective, we are continuing to work through sustainability-related portfolio gaps, improving commercial execution, and infusing talent throughout the organization. On Food, we are focused on accelerating growth outside of our shrink bags business with case-ready and fluid and liquid solutions, successfully navigating sustainable packaging transitions, and improving pricing dynamics. Until we see improvements in volume and price performance, we are accelerating our cost-takeout initiatives to further right-size each vertical and drive overall profitability. Before I hand it over to Dustin for a business update, I would like to take a moment to discuss the impacts of Hurricane Helene. Hurricane Helene's path impacted many of our plants and sites across South Carolina and Western North Carolina, affecting over 1,500 employees. These locations experienced challenges across many aspects of their infrastructure. Our team quickly mobilized to ensure that first, our people and their families were taken care of; and second, to restore normal operations. Despite these challenges, our team members kept us operational and ensured each other's safety, minimizing the impact on the quarter and to our customers. It was really inspiring to witness our team come together to support one another, their communities, and our company. I'm excited to be here and look forward to updating you on our transformation and 2025 outlook in February. With that, I'll turn it over to Dustin to give an update on the business and our outlook.

Thank you, Patrick. Let's turn to slide 4 to review Sealed Air's third quarter performance. We closed the quarter with sales of $1.35 billion and adjusted EBITDA of $276 million, each down 3% compared to last year on a reported basis. Our third quarter results reflect a continued solid performance in Food, persisting challenges in Protective, and strong productivity benefits, including our cost-takeout initiatives. Adjusted earnings per share in the quarter of $0.79 were up 3% compared to a year ago. Our adjusted tax rate was 24% compared to 25.7% in the same period last year. The decrease in tax rate year-over-year was driven by the jurisdictional mix of income and non-recurring discrete items in the prior year. Our weighted average diluted shares outstanding in the third quarter of 2024 was 146 million. Turning to slide 5. In the third quarter, organic sales were down 2% driven by lower pricing across both the Food and Protective segments. On a year-over-year basis, relative to prior quarters, third quarter pricing was sequentially less negative as the carryover pricing actions from 2023 started to diminish. Volumes were relatively flat year-over-year for the quarter, growth in the Food segment across all regions offset by declines in Protective in Americas and EMEA. Third quarter adjusted EBITDA of $276 million decreased $9 million or approximately 3% compared to last year with margins of 20.5%, down 10 basis points. This performance was mainly driven by lower volumes and unfavorable net price realization in Protective, partially offset by higher volumes and favorable net price realization in Food, and lower operating costs, mainly driven by productivity benefits, including cost-takeout initiatives. Moving to Slide 6. Food net sales of $898 million for the quarter were up approximately 1%. Lower pricing, primarily in Americas and EMEA, was more than offset by positive volume growth in all regions, driven by strength in protein end market demand and share gains within our bags and case-ready solutions. In the third quarter, the global protein markets were net positive by approximately 1%. Continued strength in Australian cattle cycles, stronger-than-anticipated U.S. beef production, and robust pork demand more than offset declines in poultry production caused by Avian flu outbreaks affecting North American turkey flocks. Meat increased consumer demand in the protein markets further drove competitive gains. Our case-ready solutions experienced high single-digit growth, driven by the ongoing recovery of the roll-stock business where we lost share in previous years due to resin shortages and by market share gains in the retail space with our trays and lending offerings. Protein sales, however, declined as customers continue to exercise caution in deploying capital. Food adjusted EBITDA of $206 million in the third quarter was up 6% with margins at 22.9%, up 120 basis points compared to last year. The increase in adjusted EBITDA was mainly driven by volume growth and net price realization. Transitioning to Protective. Third quarter net sales of $447 million were down 8% as anticipated in our Q2 guidance. Industrial portfolios remained weak due to subdued manufacturing activities in the developed world. Volume in the fulfillment portfolio has declined approximately 10%, driven by the slowdown in equipment automation and continued pressure within void-fill product lines. In our APAC region, volumes grew approximately 1% in the quarter, as the gain in box rightsizing automation offset weakness in industrial and fulfillment portfolios. In the Americas and EMEA regions, volume performance remained largely unchanged from the prior quarter. Sustainability pressures on the void-fill product lines, ongoing weakness in the industrial sector, and lower automation sales continue to negatively impact our results. Protective adjusted EBITDA of approximately $75 million was down 21% year-over-year with margins at 16.9%, down 260 basis points. The decrease in adjusted EBITDA was driven by lower volume and unfavorable net price realization, partially offset by productivity benefits, including cost-takeout initiatives. On Slide 7, we review our third quarter net sales by region. On an organic basis, America was down 2%, primarily due to lower pricing. Volumes were down 1%, driven by continued softness in protective portfolios, partially offset by strength in Food. EMEA declined 6% organically, driven by lower pricing across both segments and volume decline in Protective. APAC was up 3% organically as tailwinds from the Australian cattle cycle and the gain in fulfillment automation more than offset lower pricing and continued weakness in our other Protective portfolios. Now let's turn to free cash flow and leverage on Slide 8. With the focused efforts of our teams around the world, we delivered strong free cash flow of $323 million as of the third quarter year-to-date. This is well above the $183 million a year ago when excluding payments and deposits for the resolution of certain prior year's U.S. tax matters. Our teams continue to focus on improving working capital, which as a percentage of sales has improved by 120 basis points year-over-year, as we continue to improve payables and inventory velocity. We maintained our focus on deleveraging the balance sheet and ended the quarter with a net leverage ratio of 3.7 times. Our total liquidity position was $1.4 billion, including $386 million in cash and the remaining uncommitted and fully undrawn revolver. We are highly confident in achieving our net debt to adjusted EBITDA target of below 3.5 times by the end of 2025. Let's turn to slide 9 to review our 2024 outlook. Our third quarter results were largely in line with expectations. We are pleased with the continued momentum in our Food business. At this point, we expect our Protective volumes to remain soft in the fourth quarter due to continued portfolio challenges and overall market dynamics. As a result, in total, we expect our Q4 volumes to be slightly up year-over-year in Q4 with the strength in food being partially offset by weakness in Protective. Heading into the fourth quarter, we expect sales to be approximately $1.3 billion, consistent with the midpoint of our sales guidance with year-over-year volume performance improving slightly versus the third quarter levels for both businesses. We continue to expect adjusted EBITDA to be in line with the midpoint of our guidance range, mainly driven by continued cost control actions. We are raising the midpoint of adjusted EPS to be at the higher end of the previous range, driven by lower interest expense, effective tax rate, and depreciation and amortization expense, reflecting improved discipline around capital deployment. We're also raising the midpoint of our free cash flow guidance to $400 million, reflecting the continued improvement in working capital. We will be working with the new management team over the coming months to operationalize each vertical and fully form the growth strategies and transformation plans for each business. This will inform our outlook for 2025 and beyond. In the meantime, we are accelerating our cost reduction and operational excellence initiatives to drive profitability. Turning to slide 10. I'm very excited about the reorganization into Food and Protective verticals and their new leadership teams. As Patrick mentioned earlier, the transformational steps we have taken will position each business and Sealed Air as a whole for long-term growth and success. With that, Patrick and I look forward to your questions.

Thank you. At this time, we will conduct the question-and-answer session. The first question comes from the line of George Staphos at Bank of America Securities. Your line is open.

Thank you very much. Hi, everyone. Good morning. I appreciate the details. My question is regarding the fourth quarter, specifically about how Protective is expected to perform. Traditionally, the fourth quarter tends to show improvement compared to the third quarter. However, if my analysis aligns with your guidance, we anticipate a sequential decline both year-on-year and for the quarter. It appears that Protective is underperforming. You mentioned that both Food and Protective segments should see sequential increases in volume. Could you elaborate on what is occurring in Protective that is affecting the fourth quarter compared to last year? Additionally, could you discuss the growth trends you are observing between fiber and poly within Protective? Thank you.

Hey, George, this is Dustin. I just want to clarify a couple of points regarding our full-year guidance. Both businesses are expected to increase sequentially. For the Food segment, we're anticipating around $920 million, up from $898 million in Q3. For Protective, we finished Q3 at $447 million and are projecting approximately $460 million in the fourth quarter. While these figures indicate we're still down compared to last year, the decline from Q3 was about 8%, and we're looking at a decline of roughly 6% for Q4. The improvement in Protective is largely driven by seasonal factors, particularly due to the strong holiday season we anticipate in the US. It's important to note that in terms of Fiber versus Poly, the Fiber segment currently constitutes about 15% of the Protective business. Although Fiber is outperforming Poly, its relatively small size means it can't fully offset the declines in other areas of our portfolio. Furthermore, not all parts of Protective are performing equally. Our APS business, which includes mailers and auto bagging, has done well this year, and inflatables are also performing strongly. However, we're facing challenges in certain areas, particularly with void-fill and other segments within the portfolio. I hope this provides some clarity.

Thank you. Please standby for the next question. Our next question comes from Anthony Pettinari with Citi. Your line is now open.

Good morning. Following up on George's question, while I understand you can't predict the economy, could you provide a directional update on when you might expect year-over-year volumes in Protective to level off? Additionally, regarding specific segments of that business, when do you anticipate that the void fill will decline to a point where it won't significantly affect overall segment volumes? Also, will there be a time when the year-over-year automation comparisons become easier?

Good morning, Anthony. It's Patrick. I'd like to start by highlighting that the overall void fill and mailers segment represents approximately 10% of our Protective business. I had the chance to attend the Pack Expo exhibition this week in Chicago, and many attendees were surprised by the number of paper offerings we have available. We will continue to focus on our existing e-commerce offerings as we shift towards more sustainable products in this area. In the coming months, I mentioned the significant win with Best Buy, which demonstrates that while we may have been late to introduce fiber-based solutions in this market, our offerings are competitive. I believe we will see continued growth in this segment, though it is still too early to determine its impact on the mailer sector. We will provide more insights on this in February. Overall, these changes in our portfolio and go-to-market strategies are aimed at facilitating a turnaround in this area.

To continue from Patrick's comments, we are currently focused on understanding the market in the coming months. In general, the remarks in our script regarding our growth strategies and overall transformation plans will be fully formed by February. At that point, we will have a clearer perspective on how we anticipate Protective will perform through 2025 and beyond. You mentioned void-fill specifically and its benefits for next year. It's important to note that the specific loss from Amazon earlier this year was factored into our guidance, but void-fill has since declined even further. The comparison for next year in void-fill should improve significantly since we are moving past that substantial customer loss. Regarding automation, it's an excellent question. We have faced challenges this year primarily due to capital deployment, which is largely a continuation from last year. However, market conditions are becoming more favorable with impending rate cuts. Throughout this year, our book-to-bill ratio in both Food and Protective has been around 1:1, indicating that we are entering 2025 with a much stronger backlog, which will help us achieve stable growth in our automation sector, benefiting from a better materials situation as well. Please allow us some time, and we will consolidate all this information over the next few months.

Thank you. Please standby for the next question. Our next question comes from Ghansham Panjabi with Baird. Your line is open.

Thank you. Good morning, guys. I just wanted to go back to the operating structure shift into two distinct verticals. Can you sort of put that change in context for us on a historical basis? Are you basically just going back to a structure that the company had in place a few years back and then there was a shift? And also, what do you expect the positive changes will be coming out of this operating model shift, including the leadership changes that you've announced?

Good morning, Ghansham. That’s a great question. To begin, we transitioned to a regional-focused organization towards the end of 2018, and now we are returning to a vertical organization model. However, this change is not merely superficial; it signifies a new approach to the market and a fresh perspective on our value proposition and portfolio. It’s crucial that our team is focused on driving growth in their respective areas. By organizing vertically, we can foster more collaboration among teams and align our growth strategies. Over the past couple of years, we've been ambitious with new initiatives, which, while valuable, have somewhat obscured the ongoing decline we faced in Protective. We're shifting our focus and reevaluating our go-to-market strategy, especially since some distribution partners expressed concerns that we were competing with them through alternative channels like e-commerce. We've reassured them that they are essential to our go-to-market efforts. This change is not straightforward, and we are seeking feedback to ensure we can effectively support our sales teams. Additionally, as previously mentioned, we will be emphasizing the transition from plastic-based to fiber-based offerings, and we aim to drive significant growth in areas where we currently lack penetration, particularly within the Protective and Food sectors.

Yes. To add to what Patrick mentioned, Ghansham, regarding innovation and customer service, we are focusing on getting closer to our customers. Innovation has been reorganized into specific verticals along with customer service. We're working on enhancing the service aspect. These are two significant changes. In terms of when improvements can be expected, we are already seeing progress in the Food segment due to the operational model changes we implemented earlier this year. The Food business is performing well, gaining market share not only in one region or product line but across all regions and most product lines. This focus is already benefiting Food, and in Protective, as Patrick mentioned, there's a renewed emphasis on our go-to-market strategy and portfolio adjustment. We will continue to develop a transformation plan for Protective and provide more details in February.

Thank you. Please stand by for the next question. The next question comes from Stefan Diaz with Morgan Stanley. Your line is open.

Hi, good morning. Thanks for taking my question. So you mentioned in the prepared remarks stepping up the CTO2Grow initiative. I believe the previous cost takeout number was $140 million to $160 million. Do you have an update for that number? And then maybe if you could also highlight some of the additional actions you're taking as far as cost takeouts versus before? Thanks.

Okay. This is Dustin speaking. So if you go back to the original intent of the program, we talked about $140 million to $160 million in cost takeout savings, and as we announced this back in the middle to later part of 2023. We're on track right now for the $90 million, and we talked about it across a number of different buckets, right? This is related to network optimization, across our supply chain, it's related to G&A, back-office as well as touching other areas of go-to-market that we're largely non-customer-facing. And so we continue to execute on that. And what we talked about originally was next year, but it was going to be roughly $50 million. And if you look how the volume drop we've had in Protective in Q3 and Q4, we're now reevaluating that and looking to step that up as we go into next year. We haven't landed on exactly what that will be, and that work will complete over the next two to three months, will be factored into kind of our outlook for 2025. But that's the intention. So we, at this point, have at least another $50 million already baked in, in terms of actions that we're taking that will continue to roll through next year. And then we have another kind of x amount that we're working through to determine that. And our commitment is that we're going to be driving profitability, right? That's the main message I want to leave you with on that point. And so in terms of areas that we're focused on, it is largely in those same buckets that we talked about. But I would say there's a more primary focus on Protective than relative to Food due to the performance of each of those individual businesses. And that's one of the great benefits of moving to the models that we're going to is being able to better really understand those cost structures because they're now aligned to each individual vertical.

Thank you.

You're welcome.

Thank you. Please stand by for the next question. Our next question is from Josh Spector with UBS. Your line is open.

Yeah. Hi. Good morning. I wanted to follow up again on some of the comments around the two segments and the different presidents. So you talked a lot about the operational side, which is good to see. I guess the question is really strategically, does this change anything? So you're investing more, I guess, in Protective to improve it. Does that change your willingness to look at any divestment opportunities or carve-outs within there? So how are you thinking about that today versus maybe three, six months ago?

Good morning, Josh. That's a very good question. Right now, we are focused on implementing all the changes we are making. Based on feedback from our distribution partners, we believe we are on the right track with our go-to-market strategy. We are confident that our fiber offering is heading in the right direction. We have been addressing issues related to accountability and clear visibility with our verticalization efforts. I see many opportunities to enhance our business as we move forward. We will continue to explore options for consolidating our footprint or identifying areas where we may not be performing as well or where markets are not expanding. Overall, we are quite comfortable with our current position and the changes we are making, and we are committed to driving change within those organizations.

Thank you. Please standby for the next question. The next question comes from Mike Roxland with Truist Securities. Your line is now open.

Thanks, Patrick and Dustin, for taking my questions. I wanted to follow up on the comments about the shift to verticals. Have you fully separated each business so that if you were to analyze Protective, the dis-synergies would be minimized? Also, regarding food, I understand you have been guiding food margins to be around 21% in the third quarter, which is closer to 22.9%. What happened during the quarter that enabled that, and how should we view the margin progression in the fourth quarter?

Thank you, Mike. That's a great question. I'll begin by discussing the verticals, and then I'll turn it over to Dustin for the food margin question. The motivation behind reinstating our verticals and adjusting the operating model is centered on enhancing organizational effectiveness. I previously mentioned the importance of having individuals focus on their specific areas of responsibility daily. This approach helps us establish clear accountability and lines of sight through a P&L structure with subject matter experts, preventing us from losing traction in the market, which has been a concern in recent years. The advantage of this strategy is that we can foster innovation within our verticals. This way, when challenges arise, one person will be accountable, eliminating the tendency for finger-pointing. It also ensures our innovations are driven by actual customer needs rather than assumptions. This is the foundational reason for our approach. While it provides us with future flexibility, our primary aim has been to enhance operational effectiveness through verticalization. Dustin?

To add to my earlier point, as we undergo this reorganization, we have the opportunity to reassess our cost structure and determine what is truly necessary to support our growth goals for each business. This allows us to approach the situation from a different perspective. Instead of viewing it as a dis-synergy issue, we focus on maximizing the value of each business and steering them toward long-term sustainable growth, which I believe is achievable, as demonstrated by our food operations. This year, we have seen volume growth benefiting the food margin. We are experiencing volume growth across all regions and product lines, leading to better utilization of our network and improved margin performance. We anticipate that business will operate in the low 20s margin range, with the potential for variance each quarter based on operational circumstances. However, any expectations for growth beyond that will be considered in relation to future reinvestments aimed at unlocking additional growth opportunities.

Thank you. The next question is from Chris Parkinson with Wolfe Research. Your line is open.

Hi everyone. good morning. It's Andrew on for Chris. I just want to delve into Food volume trends, both in this quarter and looking into the fourth quarter in 2025. Would you mind walking through protein substrate and sort of the success of new products and how those two have interplayed and what you expect going forward? Thank you.

I want to make a few comments to reorient the discussion around Food. In Q3, we mentioned achieving low single-digit growth, specifically 2.4% in volume, with an underlying strength of 4%. We also noted in Q2 that some of the tomato season was advanced into that quarter. Q3 has been very strong, and we anticipate similar performance in Q4. One significant change this year is that the U.S. beef cycle is performing better than we initially expected. However, it's important to recognize that Q4 and 2025 may present more challenges. While we've faced a slight market headwind this year, we expected it to be more significant. Next year, the impact on our volume, particularly in bags, may increase. On a positive note, our beef cycles in Latin America and our market share gains there are performing well, especially in EMEA, which we discussed in Q1 and Q2. We're seeing continued competitive wins and strong volume in Q3 and Q4. We expect this momentum to carry into Q4 and 2025, although we're still assessing market dynamics, especially regarding proteins. The improved U.S. beef stock will delay some impacts, pushing them further into 2025. We'll continue to analyze this situation and provide a clearer outlook in February.

Thank you.

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

Thank you. Good morning everyone. Just a quick one for me, and that's about the guidance. I mean Patrick, of course, you're new to the firm. So, it's been like this is like the third quarter in a row where you have exceeded your expectation. So, it's very likely that the guide for 4Q is as conservative as the prior quarters. But question for me is like where is the uncertainty coming from? Like what's the driving results higher than you initially expected? Is it a question of volume visibility? Is it cost? Like what's making two quarters different from what you expected just a couple of months before that?

Yes. Great question. I think as we went into Q3, this is really about the volume development in Protective. I think we anticipated a different volume situation in the Protective business. We continue to see strength in our Food business, which I think is really strong despite some of the headwinds we had in certain cattle cycles in certain regions, and we're very well hedged there. But at the end of the day, that's the main uncertainty in terms of our guidance going forward.

Yes. So, a couple of comments I'll complement there. One is, if you look at Q3 relative to your point around meeting or being expectations, on the top line, it was relatively tight, I would say, relative to our expectations. So both businesses came in Protective in the way that we thought as well as Food. On the bottom line, there are some benefits, and that's largely coming from leverage in terms of how we're optimizing within our plants and some of the cost takeout and some of the timing of that. But again, I would say if you look at Q3, it's more modest relative to Q2 and Q1. And so as we go into Q4, I would tell you that if you go back to the beginning of the year and say what's played out throughout the year, our Food business has gotten better and better and better, right? And our Protective business has actually gotten worse from our original expectation. If you go back to the beginning in Q1, we would have, at that point, thought more of an L-shape recovery, but some inflection towards the end of the year, particularly in Q4. And our outlook has changed, right? That's been the downside. So the strength in our Food business has been continuously offset by the weakness in our Protective business due to the portfolio challenges we've had and that we're working through. And so that to me is what's set up our view of guidance. When we look at Q4, we think that that's what we're guiding towards is what we expect to actually happen. And so it's reflective of that. So it's not intended to be conservatism per se.

Thank you.

You’re welcome.

Thank you. Please standby for the next question. Our next question comes from Gabe Hajde with Wells Fargo Securities. Your line is open.

Patrick, Dustin, good morning.

Good morning.

I'm going to try one more time. You provided us with a top line number for Food and Protective, and mentioned there might be some sequential strengthening for Protective seasonally. I realize that price and cost were slightly worse for Protective compared to Food, where it was actually positive. Is there anything specific in the fourth quarter regarding hurricane or weather impacts that you referenced but haven't quantified for us? Additionally, the variability in cash flow remains at $100 million, which is wider than the EBITDA range. I suspect this is related to working capital. Once you reach your desired level, I'm unsure when that will be, but could you give us some insight on that? After reaching that level, will cash flow be stable and increase with the company's growth? Or is there a possibility that something could unwind next year that we should be cautious of on the working capital front?

Yes, Gabe, I appreciate all your comments. Let me start with specific events related to Q4. At this time, we do not anticipate any effects from Hurricane Helene that would alter our guidance. There is no significant impact on our business, which is a testament to our teams and their hard work. We are really pleased with that.

And maybe to build on that, Dustin. So if you remember, the hurricane just happened two business days before the end of the quarter, right? So I think we were able to manage the quarter pretty well. So some of the costs were just a carry-over between these two quarters, but at the end of the day, it wasn't material.

I want to shift the focus to working capital and free cash flow. We're very satisfied with our progress this year. Our commitment has always been to convert adjusted net income into free cash flow effectively, and we anticipate maintaining that into next year. This year, there was a one-time benefit from the restoration of our compensation pools. Last year, we mentioned that our executive compensation would be quite low, which impacted our results this year. Notably, the $1,100 million adjusted EBITDA at the midpoint includes a $30 million increase in our compensation expense due to this restoration, which you may recall from our original guidance for 2024. We believe working capital is now largely normalized, although there may still be some opportunities in inventory next year. We will have bonuses aligned more with historical levels, which should positively influence our outlook. We anticipate a strong year ahead for free cash flow, though it will be influenced by our profit projections in February. We still expect a high conversion rate and remain confident in our ability to reduce debt according to the commitments we have set, which remains fully in our control.

Thank you. Please standby for the next question. The next question comes from Phil Ng with Jefferies. Your line is open.

Hey, everyone. Congratulations on a strong quarter. From a high-level perspective, demand for Food has been quite solid. My question is whether there is an opportunity for positive price/mix as we look toward 2025. Have you started those discussions? Also, pricing in Protective appears to be relatively stable. Can you provide any insights on the competitive landscape and your ability to maintain pricing? Ultimately, Dustin, I'm trying to understand if there's a chance for net pricing to turn positive in 2025 in either of your two businesses.

I appreciate the question regarding the pricing and cost dynamics for each business. You are correct that looking at Q4, our guidance indicates low single-digit volume growth, consistent with the previous three quarters. Additionally, the pricing spread has remained relatively flat, which is a positive sign for next year. However, there are still some pressures in the Food sector related to major industrial processors as we head into next year. On the positive side, we anticipate more favorable pricing dynamics going into next year compared to our current situation. It's important to note that input costs, particularly resin costs, play a significant role. These have been stable this year, reducing volatility, which we believe will lead to improved pricing and cost dynamics in 2025. We are still determining the specifics for Food over the next few months. In the Protective sector, pricing has indeed narrowed due to reductions driven by various supply chain factors. The decrease in resin prices throughout 2023 into 2024 has had a similar impact. We expect to see about a 1% price reduction in Q4, which will carry over into next year. This reduction is influenced by competitive dynamics, especially in segments where we have seen volume declines, like poly and void fill. The decrease in volume has increased pricing pressures within that competitive landscape. Nonetheless, we remain optimistic about next year compared to our experiences in 2024. Regarding whether we expect this to result in a positive net price overall, we are currently down about $60 million this year, but we do anticipate improvements. It's a valuable question, and we will continue to evaluate it.

Okay. Very encouraging. Thanks a lot.

Yes. Thank you. It's a great question.

Thank you.

Thank you. Please standby for the next question. The next question comes from Matt Roberts with Raymond James. Your line is now open.

Hey, Patrick, Doug and good morning. I know we spent a lot of time talking about fiber, but maybe I'll try to get in one more here. Patrick, you did say you spoke to many distributors and customers over the last couple of days. So maybe help me understand specifically where your fiber product lacks versus peers? I mean, what products or changes are there in the pipeline that we could expect to see? How long would it take to commercialize any of those new products to stop the erosion you're seeing in mailer and void-fill areas? And what type of investment would it require to ramp those up? Thank you for taking the question.

Thank you, Matt. Let's start with the mailer side. When replacing plastic mailers with bubble wrap, the perception of protection offered by traditional mailers is quite different. People are often hesitant to move from plastic to fiber-based products, and the protective qualities of fiber-based mailers are crucial. I've noticed that although our product is theoretically as protective as competitors' offerings, it hasn't been perceived that way. We're focusing on improving both perception and protection to enhance our mailer in the market. We currently have some promising prototypes that could boost sales in this area. Regarding void filling, our priority has been on mailers because the void is under considerable pressure with ongoing efforts to minimize it, as it's a challenge. There is healthy volume growth in this sector, but it's essential to find the right balance for various applications concerning the level of protection required. Protection is critical and must align closely with automation. As for timing and investments, our paper mills can ramp up quickly since we have numerous offerings ready and have significantly improved those. We're also in a solid position regarding capital investment; it requires less capital compared to our Food business, making implementation easier. In terms of void filling, this will involve a longer process as we integrate automation with the materials being used.

Thank you. The next question comes from George Staphos, Bank of America Securities. Your line is open.

Hi. Thanks for taking the follow-on. It's on Protective as well. So one, what are your views on Instapak and how important that is in the portfolio on a going-forward basis? Relatedly, in terms of Protective, does the affinity for sustainability to focus on fiber versus poly vary depending on whether we're talking with a large distribution company or e-tailer or a smaller one? I would imagine, but maybe this is incorrect. The smaller distribution guys, the guys more in the street don't care as much, but if you could help us understand that. And then lastly, as you move this transformation over time to fiber versus plastic, recognizing no guarantees here because it's still nascent days for you, does it make the business more or less price competitive? Do you think it makes your pricing more variable, less predictable or more if you move to fiber over time? So thanks, guys, I‘ll turn it over. Good luck in the quarter.

Thank you, George. That's a great question. The difference lies primarily between products that directly engage the consumer and those aimed at the industrial sector. The distinctions are more prominent when considering consumer-facing products. This relates back to your question about Instapak. Instapak typically caters to the industrial market, as our products tend to be heavier and higher in value. The industrial segment is notably more price-sensitive and less influenced by consumer trends regarding materials like poly versus paper. I think Instapak plays a vital role in our product lineup. It faces less pressure from shifts to fiber-based solutions, primarily because fiber-based products do not offer the same level of protection. This will be essential as we progress, especially since curbside recycling for consumers offers very different opportunities compared to industrial recycling. Thus, I believe there are distinct differences among market segments, predominantly based on their consumer engagement rather than the size of the customer. Now, regarding pricing, as we create more fiber-based alternatives, it is crucial for us to become more substrate agnostic. This means we need to ensure our equipment can handle both materials seamlessly, giving customers options between poly or fiber-based alternatives. Typically, using fiber-based products will be more costly because they involve more material than poly products. However, customers now have that choice. I believe the price predictability remains relatively stable from this perspective. More importantly for us is ensuring that consumers who prefer fiber-based products can easily access them through our offerings without needing to seek alternatives.

Thanks very much, Patrick.

Thank you.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to CEO, Patrick Kivits, for closing remarks.

So I'd like to thank everyone for the time today. I look forward to updating you over the coming quarters on the progress we are continuing to make to transform Sealed Air. And lastly, I'd like to close by thanking the global Sealed Air team for their efforts in solving our customers' most critical packaging challenges every day. Thank you.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.