Earnings Call Transcript - SEE Q2 2021

Operator, Operator

Thank you for joining us, and welcome to Sealed Air's Second Quarter 2021 Earnings Conference Call. All participants are currently in listen-only mode. Following the speaker's presentation, we will have a question-and-answer session. I would now like to turn the call over to Lori Chaitman, Vice President of Investor Relations. Please proceed.

Lori Chaitman, Vice President of Investor Relations

Thank you, and good morning, everyone. With me today are Ted Doheny, our CEO, and Chris Stephens, our CFO. Before we begin our call today, I'd like to note that we have provided a slide presentation to help guide our discussion. Please visit our website, where today's webcast and presentation can be downloaded from our IR website at sealedair.com. I'd like to remind you that statements made during this call regarding management's outlook or predictions for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in the section entitled forward-looking statements in our earnings release and slide presentation, which applies to this call. Additionally, our future performance may differ due to a number of factors. 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 or on the SEC's website. We also discuss financial measures that do not conform to U.S. GAAP. You will find important information on our use of these measures and their reconciliation 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 as referenced throughout the presentation. I will now turn the call over to Ted. Operator, please turn to slide 3.

Ted Doheny, CEO

Thank you, Lori, and welcome to our second quarter earnings call. We appreciate your interest in SEE and hope you and your families are staying safe and healthy. We're working through very exciting and challenging times as we transform SEE. We're accelerating our strategy to take us to world-class in everything we do. As you can see on slide 3, we're in the business to protect, to solve critical packaging challenges, and to make our world better than we found it. On today's call, I'll recap our second quarter 2021 performance. I'll share a strategy for growth in automation, digital, and sustainability within our global markets. Chris will review our financial results and outlook in more detail. I will then end with closing remarks and before opening the call for Q&A. Let's turn to slide 4 for review of our second quarter 2021 results. Net sales increased 15% with 9% volume growth led by strength in the Americas and Europe, Middle East, and Africa regions. Adjusted EBITDA increased 1% and margins were under pressure at 19.8% compared to 22.6% last year. This year, we experienced higher volumes, additional productivity gains, and pricing actions against dramatic inflationary cost pressures and supply disruption. On a per share basis, earnings of $0.79 were up $0.03 compared to last year. We generated free cash flow of $102 million in the first six months of the year, which compared to $129 million in the first half of last year. We are raising our full-year sales and adjusted EPS outlook and reiterating our prior guidance for adjusted EBITDA and free cash flow. Our SEE operating engine is delivering. Sales growth and productivity gains mitigated the adverse supply environment in the second quarter. This engine, coupled with expected price realization, is enabling us to maintain our adjusted EBITDA guidance for the full year and drive continuous improvement going forward. I want to highlight our SEE operating model on slide five, which clearly defines where we're taking SEE in the future and what you should expect us to deliver. Our organic sales target is built up in a historically stable packaging market that grows 1% to 3%. We've been adding to this base with our innovations and automation, digital, and sustainability to take us to an organic sales growth target of 3% to 5%. Our operating leverage target is over 30%, which drives adjusted EBITDA growth to 5% to 7%. We're targeting adjusted earnings per share growth of greater than 10% and free cash flow conversion of more than 50%. Our SEE operating model delivers significant cash for our disciplined capital allocation. We're fueling growth opportunities with our investments in innovation and CapEx. Through SEE ventures investments, we're utilizing a balance sheet to incubate disruptive technologies and new business models to accelerate our future growth. We're also returning value to our shareholders through share repurchases and dividends. We approved a new $1 billion share repurchase program and recently increased our dividend by 25%. Our approach to capital allocation reflects our confidence in our vision, strategy, and execution of our SEE operating engine. Let's turn to slide 6, which highlights our market-driven solutions powered by our iconic brands. We encourage you to visit our website, where you can read about our innovation and customer success stories. We create measurable value for our customers through automated and sustainable solutions that are designed to maximize food safety, minimize waste, protect goods, and deliver productivity savings. In the second quarter, we had strong growth across our end markets. We are leading a dramatic shift to a touchless automated environment for all customers, resulting in more than 30% growth in our SEE automation portfolio. We're ahead of our plan to double our equipment business in the next three years. For our food customers, our SEE automation growth is a result of our integrated touchless systems with our high-performance Cryovac materials. Bookings per AUTOBAG and auto box equipment were up more than 50% in the first half of the year. We are investing more than $30 million in capacity expansion to help meet the strong demand for equipment solutions. Our automated solution addresses labor shortages, productivity, and employee safety. We're at the table with our customers, providing connectivity from our operations to theirs, which is helping all of us exceed our sustainability commitments. Restaurants, sporting events, conferences, and other large public venues are cautiously reopening. Our solutions with high exposure to food service returned to growth for the first time since Q1 2020. We're seeing growth in our Cryovac barrier bags utilized across all proteins, including cheese and seafood, and Cryovac pouches for soups, sauces, beverages, and other liquids. Our industrial markets were up double digits in the Americas, Europe, Middle East, and Africa regions compared to last year when there were pandemic-related shutdowns. We continue to capitalize on global e-commerce growth and increased demands for recyclable materials, fiber-based solutions, and automated packaging that minimizes waste. In medical, pharma, and life sciences, we play a key role in the COVID-19 vaccine distribution and benefit from growth in online shipments of medical equipment and pharmaceuticals. Now turning to slide 7 for an update on SEE automation. In the first half of the year, equipment, systems, and service sales were up 26% and accounted for 8% of our net sales. We're on track to achieve approximately $425 million or 12% growth in 2021, of which more than $250 million will come from equipment and systems. Our bookings for automated equipment are strong. We're confident in our ability to exceed $500 million by 2025. When you factor in a 3x multiplier, including growth in parts and service from the install base, and the flow through of materials, this results in a $5 billion-plus potential growth opportunity over the 10-year solutions lifecycle. The solutions multiple is why we are so excited about SEE automation. Let me now turn to slide 8 and talk about sustainability. Sustainability is in everything we do and fueling our growth. We're making significant progress on our 2025 sustainability pledge with nearly 50% of our solutions already designed for recyclability. Our innovation strategy is focused on maintaining the high quality standards that our customers are accustomed to in food safety, minimizing waste, and protecting goods. We're continuously optimizing our high-performance materials, and incorporating more recycled and/or renewable content to drive circularity and make sustainability more affordable. We're also collaborating and investing with partners on mechanical and advanced recycling. As part of SEE ventures, we recently joined the closed-loop circular plastic fund. This fund invests in scalable recycling technology, equipment upgrades, and infrastructure solutions to advance the recovery of plastics in the U.S. and Canada. You can see a handful of our solutions designed for recyclability on this slide, with many more shared on our website. Earlier this year, we established a net-zero carbon emissions goal across our operations by 2040. We're taking many actions to reduce our energy consumption, such as investing in touchless automation, upgrading air compression systems, and utilizing LED lighting. We're also investing in renewable energy sources, including solar and wind. Between 2012 and 2020, our greenhouse gas emissions intensity decreased by a remarkable 50%. We'll share more details in our upcoming annual sustainability report, which will be available on our website in early fall. I'll now pass the call to Chris to review our results in more detail. Chris?

Chris Stephens, CFO

Thank you, Ted. And good morning, everyone. Let's start on slide 9 to review our quarterly net sales growth by segment and by region. In the second quarter, net sales totaled $1.3 billion, up 15% as reported and up 11% in constant dollars. Food was up 6% in constant dollars versus last year and protective increased 20%. EMEA and the Americas were both up double digits. EMEA was up 16% and the Americas were up 13%. A-PAC was flat versus last year with a modest decline in volumes offset by favorable pricing. On slide 10, you see organic sales volume and pricing trends by segment and by region. In the second quarter, overall volume growth was up 9% on favorable price of 3%. Let's start with volumes. Food volumes were up 4%, with the Americas up 7% and EMEA up 2%. This was offset by a 3% decline in A-PAC, largely related to Australia herd rebuilding. Protective volumes were up 15%, with the Americas up 13% and EMEA up 36% while A-PAC had a modest decline. Q2 price was favorable at 3%. You can see that protective had 5% in favorable pricing and food was 1% due to timing of pricing actions and formula pass-throughs. We have implemented several price increases and expect 2021 price realization to be $275 million. On slide 11, we present our consolidated sales and adjusted EBITDA walks. Having already discussed sales, let me comment on our adjusted EBITDA performance in Q2. We delivered adjusted EBITDA of $263 million, up 1% compared to last year and margins of 19.8%, down 280 basis points, reflecting the impact of the current inflationary environment and supply chain disruptions. We are leveraging our higher volumes at 40% as we experienced a more favorable product mix. Despite favorable pricing in the quarter, you can see how higher input costs weighed on our EBITDA performance with an unfavorable price-cost spread of $36 million. Operational costs increased approximately $13 million relative to last year. This increase reflects investments to support growth, inflation on labor and indirect material costs as well as the normalization of spending in the quarter. This was partially offset by $13 million in reinvested SEE productivity benefits. We expect our price-cost spread to improve sequentially in the third quarter. However, we do not expect to see positive price-cost spread until Q4. Adjusted EPS in Q2 was $0.79 compared to $0.76 in Q2 2020. Our adjusted tax rate was 25.6%, reflecting a more favorable mix of foreign earnings. Our weighted average diluted shares outstanding in the quarter were 153 million. We exited the quarter with 150 million shares outstanding. Turning to slide 12. Here we provide an update on reinventing SEE. We have achieved $28 million of benefits in the first half of the year and remain on track to realize approximately $65 million in 2021. Our commercial work stream is accelerating innovation and driving new customer wins in core and adjacent markets. Turning to segment results on slide 13, starting with food. In Q2, food net sales of $737 million were up 6% on a constant dollar basis. Cryovac barrier bags and pouches returned to growth, increasing approximately 10% and accounting for nearly 50% of the segment sales. This growth reflects the beginning of food service recovering relative to last year when protein plants and restaurants, sporting events, and other large venues were shut down. Sales in case-ready and roll stock retail applications, which account for just over 40% of segment sales, were down low single digits as supply disruptions impacted our results. In addition, this is against the backdrop of tough comps given the surge in demand from shutdowns a year ago. Equipment parts and service sales, which account for 8% of the segment, were up nearly 40% in the quarter. We are experiencing increased demand for our automated solutions as our customers around the world invest in their processing plants to upgrade aged equipment and drive productivity. Adjusted EBITDA in food was $158 million in Q2, declining 6% compared to last year, with margins at 21.5%, down 360 basis points. This decline was related to elevated input costs, supply disruptions, and the timing of pricing action. On slide 14, we highlight protective segment results. In constant dollars, net sales increased 20% to $592 million. Industrial was up approximately 30% relative to last year when automobiles and general manufacturers were forced to temporarily shut down their operations. Fulfillment, which is largely driven by e-commerce growth, was up approximately 10% on a global basis, led by double-digit growth in automated equipment, inflatable solutions, paper, and temperature assurance. We leveraged our broad portfolio and global scale to meet increased demand despite ongoing supply issues such as industry-related chip shortages out of Asia. The $30 million investments and capacity that Ted referenced earlier will help us meet increased customer demands for automation equipment. As a reminder, approximately 55% of our protective sales are derived from industrial markets and the remaining 45% from fulfillment and e-commerce. Adjusted EBITDA of $107 million increased 17% in Q2, with margins at 18.1%, down 100 basis points versus last year. Higher sales and productivity gains helped mitigate higher input and supply disruption costs. Now, let's turn to free cash flow on slide 15. In the first half of 2021, we generated $102 million of free cash flow relative to the same period last year. Higher earnings and lower restructuring payments were offset by higher employee-related costs and CapEx investments to support growth and innovation. On slide 16, we outlined our capital allocation strategy. We will maintain a strong balance sheet while driving attractive returns on invested capital and supporting profitable growth initiatives. In addition, we have a healthy acquisition pipeline that aligns with our growth strategy. On this slide, I want to highlight our growth investments. We are focusing our CapEx on breakthrough processes, automation, digital, and sustainability. With SEE ventures, we have invested approximately $40 million in early-stage disruptive technologies and business models that are expected to accelerate our strategy and innovation efforts. As it relates to returning capital to shareholders in Q2, we were active buyers of our stock. We repurchased 6.1 million shares for $299 million during the first six months of 2021, reflecting confidence in our vision, strategy, and execution. And as Ted noted, today, we announced a new $1 billion share repurchase program, continuing our commitment to return value to shareholders. This new program has no expiration date and replaces the previous authorization. During the second quarter, we also announced an increase to our quarterly cash dividend of 25%. Let's turn to slide 17 to review our updated 2021 outlook. We are raising our net sales guidance reflecting strong first-half sales performance and outlook for the remainder of the year. For net sales, we estimate $5.4 billion to $5.5 billion or 10% to 12% as reported growth and 8% to 10% in constant dollars compared to our previously provided $5.25 billion to $5.35 billion range. At the midpoint, the $150 million increase in cost and dollar sales largely reflects additional pricing. We continue to anticipate adjusted EBITDA to be in the range of $1.12 billion to $1.15 billion. On a reported basis, adjusted EBITDA is expected to grow 7% to 9%. Higher sales are expected to help offset increased material and supply disruption costs. Given the timing of pricing actions, we anticipate modest sequential improvement in EBITDA in Q3, but more meaningful improvement in Q4. We are raising our 2021 outlook for adjusted EPS to $3.45 to $3.60. And we continue to expect a 45 to 55 first-half second-half percentage split. Our outlook assumes a 153 million average shares outstanding, a 1 million reduction from our prior guidance due to share repurchases in the first half, and an adjusted effective tax rate of approximately 26%. Lastly, our free cash flow outlook continues to be $520 million to $570 million. There is no change to our outlook for 2021 CapEx of approximately $210 million and reinvention SEE restructuring and associated payments of approximately $40 million. As you can see on the slide, we wanted to provide a few variables as relates to our 2021 guidance range. The low end of our range would assume the magnitude and duration of material inflation and supply chain headwinds persist longer than anticipated and a slower pace of food service recovery. The high end implies market and geographic share gain, continued strength in automation, industrials, e-commerce, and food, and overperformance of our SEE operating engine.

Ted Doheny, CEO

Thanks, Chris. Before we open up the call for questions, I want to emphasize how our SEE operating engine is delivering results on our journey to world-class performance. We are clearly defining where we are taking SEE in the future and what you should expect us to deliver with our SEE operating model. We differentiate ourselves in the markets we serve with a broad set of innovative packaging solutions, global service scale, entrepreneurship, and agility. Our people are working hard to exceed our customers’ expectations. This is core to who we are. Our talent is driving our transformation to world-class. We will continue to focus on zero harm and protecting our people as the pandemic continues. We are reinventing everything we do, from how we innovate to how we solve our customers' most critical packaging challenges. Our strategy is working. We're creating sustainable, long-term value for our stakeholders and making our world better than we found it. With that, I'll now open up the call for questions. Operator, we would like to begin the Q&A session.

Operator, Operator

Our first question comes from Ghansham Panjabi with Baird. Your line is open.

Ghansham Panjabi, Analyst

Thanks. Good morning, everybody. In one of your positive variances that you cited on slide 17, you called that share gains in markets and geographies. I was hoping you could give us a bit more color on that dynamic. And then related to that, how much of the share gains would you ascribe to products that align with your circularity initiative? Thanks so much.

Ted Doheny, CEO

Thanks, Ghansham, and for the two parts to your question, I'm actually going to put that into bands for a second and give that to Chris, and I'll follow up in the second part of that question, Chris. And if you can remind me, but Ghansham, before we get to your question, I did want to add some clarity to the Q&A and make a brief comment. Late yesterday, we announced that we received notification from the SEC staff that our previously disclosed investigation has concluded as it relates to Sealed Air, and the SEC does not intend to recommend any enforcement action against the company. As I'm sure everybody can appreciate, our comments are limited to the SEC documents that were filed publicly, including in our press release in Form 10-Q, which we're going to file later with the SEC. Throughout this process, though, I want to highlight that we fully cooperated with the SEC investigation, and we are pleased to put this matter behind us. So, let's get back to your question, Ghansham, and Chris, if you can handle the first part, I will take the second.

Chris Stephens, CFO

Sure. Hey, Ghansham, are you still there? Let's continue on. I think you mentioned just in terms of page 17 for our overall outlook slide, if I recall correctly, you said that slide 17 provides an update on our outlook on net sales, adjusted EBITDA, adjusted EPS, and free cash flow. As we see overall performance in terms of the top line, we saw very strong growth in the quarter. If I was to change, if we were just to get to reflect what we said in the May time frame and bridge it to what we view now in terms of top line growth, we increased last quarter by $150 million. We mentioned that 50% of that was going to be price and 50% of that was going to be volume. This quarter, we're going up another incremental $150 million, mostly driven by price with a small amount of volume improvement. Our most significant strength before is the protective side of our business especially out of EMEA where we saw extremely strong growth, as we commented on in our prepared remarks. So that gave us confidence coming off the first quarter, second quarter, first half of the year, leading into the next year to increase our guidance by $150 million. And we feel pretty good about the performance and execution in terms of the bottom line. We talked about the multiple price increases that are necessary, in light of this significant inflationary environment that we're in, multiple price increases throughout the year to make up for that difference, hoping to close that gap in the second half. And I did want to comment that we expect slight improvement in our third quarter, similar to Q2, but as I mentioned, that fourth quarter is where we'd expect to see the bigger lift when formula-based pricing and other pricing actions kick in in a more meaningful way.

Ted Doheny, CEO

Great, and I'll handle this second part of the question where Ghansham asked about tell us about the investments in the circularity piece. So, if I could point to slide 8, we talk about what's going on with sustainability. As highlighted in our prepared remarks about our investment with the closed loop, we're excited about our previous investments, and you've heard us talk about our SEE ventures, where we're investing in sustainability. We are using our balance sheet to go side by side with some really interesting investments that are out there. What we like about closed loop is it aligns exactly with where we're going. They focus on sustainability and their strategies to minimize the carbon footprint. Their aim is to convert from a linear process where a product is made and ends up in the oceans or landfills to a circular process to recycle waste. The other part we like about their strategy is that they also connect it to earnings growth. They focus on the circular economy and how to do that in a way to drive earnings. Additionally, our investment allows us to see other interesting incubating technologies they're looking at for recycled products and businesses. We're going to be investing side by side, but this really ties into our strategy of linking sustainability to our carbon neutral goals while also protecting our business interests.

Operator, Operator

Our next question comes from Adam Samuelson with Goldman Sachs. Your line is open.

Adam Samuelson, Analyst

Thanks. Good morning, everyone. So, two-part question. First, I was hoping to get a little bit of color just on volumes. I looked through the balance of the year, and the volume growth expectations don't seem particularly aggressive. Maybe you can help frame by business, by region, how volumes are tracking relative to pre-pandemic 2019 levels and where you see the opportunities and risks over the balance of the year. Then, just to confirm on the pricing side, it implies about 9% pricing year-over-year in the back half, presuming it's more fourth quarter weighted. Can you clarify for us how we should think about the raw material cost trajectory through the second half? Thanks.

Chris Stephens, CFO

Thanks, Adam. Maybe I'll take the second part first because what we've seen is just coming off the announcement we made yesterday in terms of the press release regarding overall pricing. If we go back to the first quarter call, we talked about an incremental headwind on resins and chemicals primarily from this material inflation. Heading our way roughly $150 million, now we are seeing more like $300 million. As a result, we have implemented multiple price increases, with more to come as we have communicated. The realization of these price increases in my prepared remarks discussed will mostly be in the second half, with the $150 million increase to the full-year guidance being primarily driven by price. Your first part of your question regarding overall volumes and the protective side of the business, especially in the Americas and specifically EMEA has been extremely strong, with some of that being unfavorable comps. Clearly towards the second half of the year, but as we look at the second half, the momentum appears to be moving into that part of the year, and we see protection continuing to strengthen.

Ted Doheny, CEO

Sure, Adam, as you can see, Chris and I are tag-teaming. Chris will tell you we do what we say we're going to do and give you a little bit of excitement as we go through this journey. As we put in the press release, we went directly to our customers regarding our price increase, which is significant. What we are seeing through this engine are increasing productivity, but we need to get through this significant input cost challenge quickly. We are working hard, and we expect the model we showed on slide 5 to be driving us going into 2022 and beyond. The specifics we are driving really focus on utilizing our automation to drive growth with our customers. We are helping customers realize significant savings through our operations during these challenging times.

Lori Chaitman, Vice President of Investor Relations

Operator, next question, please.

Operator, Operator

Our next question comes from George Staphos with Bank of America. Your line is open.

George Staphos, Analyst

Hi, everyone. Good morning. Hope you’re doing well. Thanks for the detail. Hey, Ted, you kind of took my question there that I had for you. But I'll try a different approach to it. So is the automation allowing you to also upsell the price per package? Or is it more around needing to raise pricing, and the productivity that your customers are getting from this is allowing them to absorb the increase in pricing? And are you finding that it is one-for-one? And then the related part two is you gave us color on your automation sales and initiatives here in food, but could you remind us what the automation performance was in protective in the quarter? And overall how that's helping you drive more operating leverage across both businesses? Thank you.

Ted Doheny, CEO

Good question, George, and I'm glad I answered part of your question before. But going back into your detail on how we're doing this with our customers, please remember the customers are listening to this call with us as well, so I’ve been very direct with them. The package pricing is going up, and we are clear about that. But where the real savings for them will be, it’s in the millions through automation. We are talking to them about how we can save them money while also sharing that materials are going to be more expensive. At the table with them, we also learn more about the challenges they face. We are all experiencing higher input costs. So yes, it's a pricing discussion, but really how can we save them money through our automation solutions?

Chris Stephens, CFO

Sure, Ted. Just to add on Greg's comments relative to volume, in Q2 we mentioned that food was up considerably on the equipment side, but protective was also up double digits. If I gave you the first half numbers, food performed a little bit better than 20%, while protective grew around 30%. We also see opportunities to exceed the manufacturing equipment in our projected growth.

Lori Chaitman, Vice President of Investor Relations

Operator, next question please.

Operator, Operator

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

Unidentified Analyst, Analyst

Hi, good morning, Ted, Chris, Lori. It’s actually John on for Phil. I hope you’re all doing well. I wanted to stay on the inflation and price initiatives that you announced yesterday. Could you talk a little bit about what’s different, like why you announced these price increases in a press release and how it compares to some of the other price increases you've put out without a press release earlier in the year? And then Chris, I just want to confirm; I think you said that essentially that the price cost spread is now expected to be about a $25 million plus headwind for 2021 from about flat in the guidance last quarter. Thank you.

Ted Doheny, CEO

Hi, John. I'm going to do the first part and then turn it over to Chris. So why did we do a press release on this? It’s more than a price announcement; it’s a problem-solution announcement going directly to customers because it's significant. So, number one, price increases are coming across the board, not just with non-formula prices, etc. The second element is the solution-based announcement. It's about working with our customers to bring solutions to help mitigate this tremendous environment.

Chris Stephens, CFO

Sure, John. On the second piece of your question, you're right. In the first quarter call, we talked about trying to drive pricing actions and productivity, etc., to mitigate the concern on our EBITDA performance. We feel good about maintaining the current range, but the dynamic is driving incremental volume and productivity to overcome the view of the full year price-cost spread being net negative. Yes, it's roughly $25 million to $30 million of negative price-cost spread for the year based on what we know today.

Lori Chaitman, Vice President of Investor Relations

Operator, next question please.

Operator, Operator

Our next question comes from Jeff Zekauskas with JPMorgan. Your line is open.

Jeff Zekauskas, Analyst

Thanks very much. Is it the case that as a base case next year you recoup your negative price cost spread? And secondly, in the food area for the third quarter, is it the case that your raw material spreads will get a little bit worse and your protective spreads will get a little bit better, leading you to have a little bit better of cost spread profile in the third quarter?

Ted Doheny, CEO

I will do my part, and then Chris. To your first part of the question, I keep going back to the slides we laid out to show you where we're going. So again, as we are managing through this issue, we think we will be through this, and we will be ahead on pricing. We just can’t make the call right now because we don't know when this inflationary pressure is going to stop.

Chris Stephens, CFO

Sure, Jeff. Regarding your question, we can absolutely recoup some inflationary headwinds as long as there isn't any additional pressure in the inflationary environment. As it relates to the second half, we could see food have some more pricing benefit from formula-based pricing, and we're also implementing pricing in protective, which should materialize in Q4.

Lori Chaitman, Vice President of Investor Relations

Operator, next question please.

Operator, Operator

Our next question comes from Anthony Pettinari with Citi. Your line is open.

Anthony Pettinari, Analyst

Good morning. I'm following up on Jeff's question on food. Can you talk about organic growth expectations for the second half? How those are bracketed out between price and volume? And within those volumes, is there any way that we should think about case-ready volumes and food service volumes and how those might trend in the second half given the comps?

Chris Stephens, CFO

Maybe the only thing to add is for food, overall, the incremental $150 million in guidance leading up to today’s guidance shows most of the food increase will be driven by pricing actions. There will be a slight improvement on volumes, and then protective will also see continued improvement both in volume and price, though, again, it's mostly on price.

Ted Doheny, CEO

The other piece on that is what’s going on in the markets. We will see, and again if you remember year-over-year, the first half was when shutdowns hit. The demand for bags was really strong, but behind that, our food service was shut down. So we see that moving into the second half and will begin to gain in that area. We think food will continue to recover and we are set to perform well going into next year.

Lori Chaitman, Vice President of Investor Relations

Operator, next question please.

Operator, Operator

And this question comes from Salvator Tiano with Seaport Research. Your line is open.

Salvator Tiano, Analyst

Yes, hi Ted, Chris, and Lori. Thanks for taking my question. I'm just trying to understand a little bit the price cost that people have been asking about. Specifically, you clarify you expect $25 million to $30 million of negative price costs for the year. Now, with Q3 also expected to be in the red and being at $55 million so far, does that imply that you should be at least $30 million positive price costs into Q4? Is that how you're thinking about it? And regarding the Q4 implied EBITDA, it seems to be based on a modest Q3 increase, probably around $320 million or something like that, based on the full-year guidance. How much of that do you think you can sustain on a run rate as we look into 2022?

Chris Stephens, CFO

Sure, Salvator. You're correct in terms of how we look at the fourth quarter; most of the benefits of the price-cost spread will show a significant lift. We're seeing a great deal of change based on expectations for material prices and what we anticipate can materialize. It's too early to gauge the sustainability of those margins in 2022, as they depend on the inflationary environment.

Ted Doheny, CEO

Yes, Salvator, as you've pointed out, we think we'll be back at the target in the fourth quarter, carrying that through into next year. We are confident in the continued performance of our operational model as we navigate these challenges.

Lori Chaitman, Vice President of Investor Relations

Operator, next question please.

Operator, Operator

Our next question comes from Adam Josephson with KeyBanc. Your line is open.

Adam Josephson, Analyst

Thanks a lot. Good morning, everyone. Chris, just on your guidance, I want to make sure I understand a couple of things. Polyethylene has yet to settle for July, so I'm wondering what your actual polyethylene price expectations are not only for July, but for the balance of the year, and then on the Delta variant, I don't think you've talked about it, but what is embedded in your guidance in terms of any potential disruptions in Asia or elsewhere from the variant? Thank you.

Chris Stephens, CFO

Right, Adam. Thanks for your question. We have been in a very inflationary environment when it comes to polyethylene. That being said, we are dealing with it diligently. Our expectation is that we will continue to see inflationary pressures on polyethylene for a while longer. Notably, this makes us a little uneasy, but we remain hopeful that the situation will level out.

Ted Doheny, CEO

As it relates to the Delta variant concerns, we are certainly monitoring that closely. Overall, we feel that food service could perform well, but we are mindful of the overall burden of potential disruptions. We understand the dynamics may change rapidly as we evaluate this.

Lori Chaitman, Vice President of Investor Relations

Operator, it looks like we have time for one more question, please.

Operator, Operator

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

Josh Spector, Analyst

Hey, guys. Thanks for squeezing in my question here. Just looking at Asia specifically, there was a bit of a step down in Q2 versus Q1 in both segments. You talked about some weakness; you mentioned herd rebuilding in food, but is there anything else that’s changed resulting in a lack of growth near term? How are you thinking about the second half and 2022 for Asia broadly as a result?

Ted Doheny, CEO

Josh, good question. This didn't really drive our numbers, but Asia-Pacific growth in the quarter was not quite what we would expect. We do think we have opportunities, and I don't want to give you a time frame, but we feel we can improve in Asia. There were certainly some issues; again, it’s similar to year-over-year comparables. When we look at our guidance, we have an approach to under-promising and over-delivering. Our Asia team is being aggressive, focusing on driving growth in such a large region. Right now, we have a tepid expectation, but we see great opportunities in Asia that will materialize through strong bookings. Those bookings numbers are up, giving us confidence.

Lori Chaitman, Vice President of Investor Relations

Thanks, Ted. Thank you all for joining us on today's call. We look forward to speaking with you in the near future. Stay safe and healthy.

Operator, Operator

This does conclude the program. You may now disconnect. Everyone have a great day.