Earnings Call Transcript - SEE Q1 2022

Operator, Operator

Good day and thank you for standing by. Welcome to the First Quarter 2022 Sealed Air Corporation Earnings Conference Call. At this time, all participant lines are in listen-only mode. After the presentation, there will be a question-and-answer session. Please be advised today’s conference may be recorded. I would now like to hand the conference over to your host today, Louise Lagache, Please go ahead.

Louise Lagache, Host

Thank you, and good morning, everyone. With me today are Ted Doheny, our CEO; and Chris Stephens, our CFO. Before we begin our call, I would like to note that we have provided a slide presentation to guide our discussion. In addition to our results and outlook, Ted will go through a deep dive on SEE Digital Packaging features. Please visit our website where today's webcast and presentation can be downloaded from IR website at sealedair.com. Statements made during this call stating management's outlook or predictions for future periods are forward-looking statements. These statements are based only 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 report on Form 8-K, which you can also find on our website or on the SEC website. We discuss final 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 corresponds to the non-U.S. GAAP measures we reference throughout this presentation. I will now turn the call over to Ted. Operator, please turn to Slide 3. Ted?

Ted Doheny, CEO

Thank you, Louise, and thank all of you for our first quarter 2022 earnings call. Chris and I will discuss our Q1 results and our 2022 outlook. I will first recap our quarter performance and then provide a deep dive into our digital transformation. After that, Chris will review in more detail our financial results and our revised 2022 outlook. On Slide 3, you can see we delivered strong sales and earnings despite sustained inflationary pressure and the volatility caused by numerous disruptions around the world. Our SEE operating engine is performing. In the quarter, net sales were up 12% to $1.4 billion, and adjusted EBITDA was up 22% to $327 million. Adjusted earnings per share was up $1.12, up 43% compared to a year ago. Free cash flow for Q1 was a use of cash of $19 million as we continue to invest in our operations to support growth and productivity. On Slide 4, you can see our SEE operating model. As presented last quarter, we aim to achieve 5% to 7% annual sales growth over the next three years. We are targeting to have more than 1% of this growth to be digitally generated by 2025. We're also targeting to have 50% of our total sales to be generated online by 2025. We are targeting adjusted EBITDA growth at 7% to 9%. We've updated our SEE operating model for free cash flow conversion to greater than $0.45 to align with our increased capital expenditures in our operations to approximately 5% of sales. Finally, we are raising our 2022 sales and earnings guidance, and Chris will talk about this in more detail later. Let's turn to Slide 5 to take a look at our markets. We're transitioning to a market and customer-centric company, creating value and delivering savings through automation, digital, and sustainability solutions powering our engine to grow faster than the markets we serve. While Chris will give you more detail on our geographic performance, I will focus on activities in our top markets. We experienced strong sales performance across most of our markets. We continue to generate increased demand for our automation, digital, and sustainability solutions. In Q1, equipment and system sales were flat in constant dollars due to component shortages and sanctions imposed on Russia, mainly impacting our Food Equipment business. Despite this, I want to highlight that equipment bookings continued to be strong and were up more than 20% this quarter, led by strong demand in AutoBox. AutoBox bookings more than doubled compared to Q1 last year, while food equipment bookings were up double digits even in a challenging environment. We are investing to double our equipment production capacity in the next three years. You can find more details on our SEE automation business on Slide 21 and 22 in the appendix. Turning to Slide 6. We'll now take you through a deep dive on our SEE digital transformation journey. We start with our vision statement to become a world-class digitally driven company, automating sustainable packaging solutions. Our digital operating model will shift our business from an offline to an online operation through e-commerce. We'll be ramping up our digital sales aggressively, generating additional revenues in excess of $300 million over the next three years. We're excited to launch our new digital brand, prismiq, powered by possibility. Our digital business will include digital packaging, design services, and direct e-commerce sales. Let's look at Slide 7. We are transforming SEE's culture and DNA, including a new people-plus digital organization. We are building a caring people-first, digitally driven culture with teams passionate about engineering a future where packaging plays a powerful part in everyone's daily life. Beyond nurturing our people, we are investing in new technologies and systems as well as adapting our processes to new ways of delivering our solutions. We're ushering in new competitive capabilities while simplifying our processes to create new value through packaging solutions, packaging that's digital, experiential, and intelligent, packaging solutions that transform data into results. We're doing this for customers so they can engage with SEE in new and different ways while enabling them to connect directly with consumers. We're changing the way we work, proactively swarming to connect everyone without functional, market, or geographic barriers, and partnering with our customers. Moving to Slide 8. Last week, we introduced our new digital packaging brand, prismiq, packaging made brilliant. prismiq will represent our digital packaging solutions from ideation to consumer engagement, design services, digital printing, and smart packaging. prismiq solutions portfolio allows SEE to embed digital printing capabilities within our manufacturing operations as well as in our customers' operations, driving efficiency and personalization directly at each package. We are bringing together both the operational and experiential journeys of our customers to create digitally empowered packaging. Using design and digital printing as an enabler, we are innovating so each package will be able to provide valuable product information, sustainability indicators, traceability through unique scannable identification markers, and much more. Our end-to-end cloud-based platform will generate package-specific digital IDs that collect and manage data along the value chain. Customers can access and leverage those insights through dashboards and analytics. We are leveraging world-class partners like Adobe to build scale and speed in digitizing billions of packages we produce today and many more in the future. Ultimately, we are elevating packaging from its current functional and linear state to a digital ecosystem where it's a billboard for engagement and efficiency. Our proprietary digital printing technology is a core pillar for this new brand. The possibilities powered by prismiq are endless. We are excited by the value this will unleash for our customers. Let me now turn to Slide 9. Here, we highlight our breakthrough digital printing technology as well as our bold moves to rapidly expand our network penetration globally and our e-commerce platform. We've been mobilizing to develop digital printing technology for our unique applications and substrates in our operations around the world. Alongside our prismiq brand, we are unveiling a first-of-its-kind proprietary 54-inch digital press that will offer a combination of wide web, high-speed, full-color, water-based food-grade inks and double-sided printing capabilities for fiber-based materials as well as film-based flexible and shrinkable materials. We're also using this technology to integrate printing systems in line with our operations, often cutting the footprint down 10 times from what it's replacing. prismiq digital printing is bringing speed to our graphic services, dramatically reducing minimum order quantities, providing faster prototyping, and now offering serialization that enables tracking and tracing and blockchain capabilities. We've already invested well over $50 million in digital printing technology and have plans to double that investment with the goal of taking our entire platform to digital. Now moving to Slide 10. I would like to show how digital printing is a critical enabler of our SEE sustainable ecosystem as we work to create a circular economy for packaging. Our goal is to offer the best solutions at the right price and make them sustainable. To make this scale impossible for the billions of packages we produce, we are leveraging world-class partnerships with suppliers and customers. Our game-changing innovations in digital, automation, and sustainability are designed to help close the loop on the circular economy. Our SEE ecosystem connects our internal operations to our customers' operations and consumers at home. In this loop, our SEE touchless automation team is gaining momentum. We're developing these innovations across our entire network to eliminate waste, simplify processes, and remove people from harm's way. Now, with our prismiq digital printing, we can move faster. Our touchless automation will enable our SEE operating engine to produce flawless quality, world-class productivity, and exceed our sustainability goals. We're investing in bold ideas like prismiq, packaging made brilliant, that will disrupt the markets we serve and our own business. We are building a caring, people-first culture with talented, passionate, and diverse teams that believe they can make our world better than they find it. I will now pass the call to Chris to review our financial results in more detail.

Chris Stephens, CFO

Thank you, Ted, and good morning, everyone. Let's start on Slide 11 to review our first quarter net sales growth by segment and by region. In Q1, net sales were up 12% to $1.4 billion. In constant dollars, net sales were up 15% with 18% growth in Food and 10% growth in Protective. By region, Americas was up 18%, EMEA up 11%, and APAC up 4%. On Slide 12, you can see organic sales volume and pricing trends by segment and by region. In Q1, price was up 16% overall, while volumes were down 1%. Q1 price was favorable 17% for Food and 15% in Protective. Most of the price realized in Q1 was a result of prior actions and formula pass-throughs. These actions to increase price with care to gain share are in response to ongoing inflationary pressures. As always, we are working directly with our customers to meet their needs, save their money, and drive productivity. Food volumes were up 2%, driven by EMEA up 7%, and APAC up 3%, while Americas was down 1%. Protective volumes were down 3% with declines in all regions, mainly driven by normalized demand trends given the strong demand in Q1 2021. On Slide 13, we present our consolidated sales and adjusted EBITDA loss. Having already discussed sales, let me comment on our Q1 adjusted EBITDA performance. Q1 adjusted EBITDA of $327 million increased $59 million or 22% compared to last year with margins of 23.1%, up 190 basis points. We achieved positive price realization this quarter. However, labor and non-material inflation continue to rise at a rapid rate, impacting year-over-year earnings by $24 million compared to $13 million a year ago. In addition, operating costs of negative $30 million include incremental investments to support future growth. Productivity gains totaled $10 million in Q1, and we remain on track to realize approximately $60 million of productivity gains from the completion of Reinvent SEE initiatives and performance of our SEE operating engine in 2022. Adjusted earnings per diluted share in Q1 was $1.12 compared to $0.78 in Q1 2021. Our adjusted tax rate was 25.2% compared to 27.6% in the same period last year. We were an active buyer of our stock in the quarter with approximately 3 million shares repurchased valued at approximately $200 million. Our weighted average diluted shares outstanding in Q1 2022 were $149.5 million compared to $155.4 million in Q1 2021. At quarter end, we had $696 million remaining under our authorized share repurchase program. Turning to segment results on Slide 14, starting with Food. In Q1, Food net sales of $808 million were up 18% in constant dollars. Price was up 17% year-over-year, with all regions contributing to positive price, while volume growth was 2%. Automation sales, which includes equipment, systems, parts, and services accounts for approximately 6% of the segment sales and were up mid-single digits in the quarter. Adjusted EBITDA of $200 million in Q1 increased 28% compared to last year, with margins at 24.8%, up 250 basis points. On the Protective side, net sales of $610 million increased 12% on an organic basis. Price was up 15% in the quarter, again, with all regions contributing to positive price, while volumes saw a decline of 3% in the quarter as we faced normalized demand trends. As a reminder, volumes in Protective were up 13% in the first quarter last year, fueled by the strong growth in fulfillment, e-commerce, and the rebound of industrial end markets following COVID shutdowns in 2020. As for automation sales in the quarter, which accounts for approximately 8% of the segment's sales, they were up double digits in the quarter. Adjusted EBITDA of $127 million increased 16% in Q1 with margins at 20.9%, up 140 basis points. Now let's turn to free cash flow on Slide 15. In the first three months of 2022, free cash flow was a use of cash of $19 million compared to a source of cash of $36 million in the same period a year ago. This $55 million swing was largely driven by increased working capital needs, CapEx to support growth and productivity, plus the absence of a $24 million federal tax refund in Q1 2021. On Slide 16, we outlined our purpose-driven capital allocation strategy focused on creating economic value. We maintain a strong balance sheet while driving attractive returns on invested capital and supporting profitable growth initiatives. We are focusing our CapEx on touchless automation, digital, and sustainability. As Ted noted, we are investing in smart packaging and digital printing and see many opportunities to expand our presence in attractive growth markets and geographies. Let's turn to Slide 17 to review our updated 2022 outlook. We are raising our net sales and earnings guidance, reflecting our strong Q1 performance and the outlook for the remainder of the year. For net sales, we now estimate $5.85 billion to $6.05 billion, a year-over-year increase of 6% to 9% as reported compared to our previously provided $5.8 billion to $6 billion range. Our organic growth forecast is 9% to 12%, which assumes approximately 1% in volume and 9% in price at the midpoint. Full year adjusted EBITDA is now expected to be in the range of $1.22 billion to $1.25 billion. This compares to our previous guide of $1.2 billion to $1.24 billion. Adjusted EBITDA is expected to grow 8% to 10% and implies an adjusted EBITDA margin of approximately 20%. For adjusted EPS, we now expect to be in the range of $4.05 to $4.26. This assumes depreciation and amortization of approximately $250 million and an adjusted effective tax rate of approximately 26%, net interest expense of approximately $160 million, and approximately 149 million shares outstanding. And lastly, we are reiterating our outlook for free cash flow, which is in the range of $510 million to $550 million. So in summary, we are executing on our strategy, driving productivity and cash generation and aligning our business around the SEE operating model. This is reflected in our Q1 performance and revised 2022 outlook. With that, let me now pass the call back to Ted for closing remarks.

Ted Doheny, CEO

Thanks, Chris. Let's turn to Slide 18, where we have our purpose statement. As an ESG centered company, our purpose guides everything we do. This is how we are making our vision a reality. Our SEE operating engine is performing and maintained momentum despite considerable disruptions and sustained inflation. I'm proud of our team's efforts and perseverance operating in challenging times. We continue to invest in automation, digital, and sustainability to deliver savings and productivity for our customers. Please visit our website to see our full prismiq, Digital Packaging Made Brilliant launch to learn more about where we are going. We are creating long-term value for our stakeholders and making our world better than we find it. Continuing with the theme of providing investors deep dives into our growth drivers of automation, digital, and sustainability, next quarter, we plan to provide a deep dive into sustainability. With that, I'll now open the call for questions. Operator, we'd like to begin the Q&A session.

Operator, Operator

Our first question comes from the line of George Staphos with Bank of America. Your line is open. Please go ahead.

George Staphos, Analyst

I wanted to explore digital and prismiq further. I understand that you want to double your investment in digital to over $100 million. You've already invested $50 million in presses like the 5540, and you mentioned aiming for 100% digital, if I heard you correctly. When can we expect you to reach 100%? Additionally, what aspects of your prismiq value proposition are proprietary and which could be replicated by others? Is it entirely proprietary, giving you a substantial competitive advantage?

Ted Doheny, CEO

Thanks, George. I'm glad you started with prismiq. I want to provide some clarification using the presentation slide. You mentioned our operating model, and we expect digital to contribute an additional 1% growth by 2025. Additionally, we aim for 50% of our sales to be online by that time. Regarding prismiq, the image on Slide 9 showcases one of our largest printers already in use. The investment of just over $50 million reflects what we've committed to digital printing technology since acquiring the proprietary technology about three years ago. Our digital investment extends beyond just printing, so I wanted to clarify that. Now, focusing on the press, this image represents what's particularly exciting. It's currently operational at our Simpsonville facility, the largest food packaging plant worldwide. This press significantly reduces the footprint of our current printing operation by a factor of 10. We also have smaller versions and single-color models already deployed in our Illinois facility, where we're producing mailers. This advancement allows us to create mailers with single-color printing based on just phone calls, enabling unique printing capabilities for each mailer, which is incredibly exciting. In the next three years, we expect to transition our entire printing operation to digital. This press is the largest of its kind, capable of full 10-color printing and metallic printing. Customers have shown interest, particularly in the invisible ink option, which enhances track and traceability. There's a lot more to share about our digital initiatives that we'll follow up on. I'm looking forward to the next question.

Operator, Operator

Our next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open. Please go ahead.

Adam Samuelson, Analyst

So I was hoping to just maybe dig in a little bit on the performance in the quarter and the expectations over the balance of the year, thinking about kind of how positive price cost spread was in the first quarter. It seems like that you're expecting that to moderate pretty notably over the balance of the year, maybe offset a little bit by some better year-on-year volume trends as we go forward. Could you just help us think about kind of some of the key puts and takes around that, both second quarter and back half?

Chris Stephens, CFO

Yes, very good. Yes, a good question. So maybe just a comment on Q1, just that price realization coming off of favorable price cost spread in Q4 that momentum continued into Q1. So, we were pleased with that performance in the first quarter in terms of contribution to our overall results. But to your point, we do see Q1 as being a very strong price cost spread. We'll continue to benefit from that going into Q2. The second half of the year really, the moderation, I think, on the material inflation side, since we're seeing the material inflation at least anticipating most of that to be two-thirds of which to occur more in the first half of the year than the second half. So, as we work through literally quarter by quarter, just managing that expectation around price cost spread, that's how we're working through it. So to your point, there will be some moderation in the second half of the year in terms of our guidance implies, but strong performance for Q1 out of the back. So, we're in a position to basically look at overall full year guidance. And given the strong Q1 performance, we wanted to provide some updated commentary around our full year guidance to reflect some of the favorability into the full year. Ted, anything to add?

Ted Doheny, CEO

Yes, Adam, I want to acknowledge your participation in the Goldman Sachs conference next week. I will also be bringing our Chief Operating Officer to discuss some exciting developments in our industrial sector. I want to emphasize the importance of price realization, as seen on Slide 13. This quarter marks our first instance of positive price realization despite significant inflationary pressures affecting various materials. Regarding volumes, as Chris mentioned, we faced a challenging comparison to last year in the Protective segment, which had notable increases. We encountered material constraints and automation issues that impacted our shipping backlog. Despite these challenges, we expect volumes to improve in the Protective segment this year. Our mailers saw the most significant decline year-over-year, but we're excited to introduce a new paper bubble wrap mailer in the second half, which we believe will attract more e-commerce business. Additionally, the industrial sector showed strong recovery, especially with our Instapak product line, which grew 6% and has high margins. On the Food side, we've seen positive results, particularly in the red meat market, and significant growth in liquids, despite some declines in the seafood category. Overall, our broad portfolio leads us to feel cautiously optimistic about driving growth and volume in the latter half of the year.

Operator, Operator

And our next question comes from the line of Adam Josephson with KeyBanc. Your line is open. Please go ahead.

Adam Josephson, Analyst

Congrats on a really good quarter. Chris, one question on your volume guidance. Can you just walk me through the change from three months ago? So I think three months ago, you were expecting about 3% volume growth for the year. Now you're expecting about 1%. How much of that is the raw material and automation constraints that you mentioned? How much is any demand elasticity from these higher prices? How much is the just global industrial economy slowing, e-commerce slowing? Obviously, we saw Amazon's report on Thursday. Can you walk us through the buckets and what changed from three months ago?

Chris Stephens, CFO

Sure. We did experience a slight adjustment in our volume assumption, which is now reflecting a growth of 1% instead of the initial 2% to 3% forecasted for the year. There isn't a single cause for this change; rather, it's a mix of factors. Supply constraints have notably affected us in the first half of the year, and we hope that as we progress, these issues will resolve and provide more organic growth, particularly in the area of automation. Looking at specific markets, while there is some industrial strength as they continue to recover, the industrial and automotive sectors remain relatively subdued. Overall, we now foresee volume growth closer to 1%, and we will reassess this each quarter as circumstances evolve. It's the result of various influences rather than just one singular factor.

Operator, Operator

Thank you. And our next question comes from the line of Larry De Maria with William Blair. Your line is open. Please go ahead.

Larry De Maria, Analyst

Nice job, everybody. Thanks for the update on prismiq and the digital transformation can see the obvious utility new offering. Can you provide some perspective as to how advanced versus competition this is? How much differentiated it is? What kind of ROI do you think it will provide and be needed in the market? Obviously, you said it's over footprint, etc. But can you just give a little bit further color on the competitive position and the ROI?

Ted Doheny, CEO

Yes. Larry, the competitive position, we have proprietary technology we actually bought three years ago. The digital printing technology that we have, I'll describe it in my non-technical way. We have the ability for digital printing with actually floating heads that can go over actually flexible materials. And why that's really unique is our materials, they shrink, they change formats at high speed. And having the ability to print that on multiple different formats, multiple different layers and at high speed, we think we're in a unique position. So, we think we are ahead of the competition on that. And so we think we have something that right now we're ahead, and that's why we have to go faster, and that's why we got to invest faster. That's why we actually are partnering. You saw the announcement last quarter in investing with Foxpak, another digital printing capability so that we can take this and go globally very quick. Our initial phase is with our internal operations. But already dealing with customers is we're putting automation into their facilities. They'll want this digital printing to be incorporated in the automation we actually put in their packaging plants. So we think we're ahead. The scalability on the background, as I shared, we're working with world-class suppliers, especially on the software side, so we can scale very, very quickly. So, we think we're ahead, and we're going to be driving it much faster. That ramp-up number that I gave, we're measuring that actually daily with our teams internally on what our digital sales are. So pretty excited about what that's going to mean and start affecting our business this year.

Operator, Operator

Thank you. And our next question comes from the line of Ghansham Panjabi with Baird. Your line is open. Please go ahead.

Ghansham Panjabi, Analyst

Maybe you could just touch on some of the topical events at this point just in terms of China COVID and the impact potentially on your industrial business, maybe even the food business in Europe. And then going back to prismiq, just from a high-level standpoint, is it designed to be additive to your sales growth? Is it a productivity boost along the supply chain, mix benefit? How would you sort of have us think about the specific impact on Sealed Air?

Ted Doheny, CEO

Let me go step first, Ghansham. So I remember that before I go through some of the issues. So, it's actually on the top line as we put it in a model, we think we're going to add additional growth with that. So, we'll see that added to our business. And also, it's also a cost side. We think and the customers we've shown the capability of what we can do in printing. If you can visualize our case ready, what does digital printing mean, you see labels on top of everything. Even if you look at our meat, they slap a big piece of paper label on the meat when you see it in the store. We're now going to be able to digitally print all that information right there on the marking and your smartphone will be able to tell you everything about the package, what's inside, all that material. So, the first part of your question, it's going to drive additional sales. But the second part of your question, there's a huge cost opportunity for us and our customers as we digitize the printing capability. So it's going to help us on both. How we're putting that into our modeling? We just put that high-level number there, but we think it's going to help us drive our top line and the bottom line. Other issues, I'll take a just a deep breath when you talk about some of the constraints that are out there, Ghansham, as you know, quite well, the resins piece is still out there. It's still the constraints. We are anticipating it should be some time the other side of that curve. But right now, the inflation on our resins and materials is still quite strong. We use special stuff. So we're feeling that. We're still in a ration situation with a lot of our specialty chemical suppliers. On the other side of the business, where we see the automation where automation is just a huge growth driver for us, we're struggling like as many of the automation companies are. We got issues with components, with chips. And again, that links directly into the Russian conflict. We have some of our leading automation right now in automation from Russia that's actually been stopped. So that is showing up as another headwind. We've had headwinds in China with the China lockdown in COVID. I was just talking to our China team this morning. We have 200 people in our largest facility in China that we're actually providing housing in the plant and to keep the operation going to keep them safe. And so that lockdown is significant. Now these are all small percentages of the total, but it's where that volume piece right now is hitting us that we think we'll get through these challenges in the second half of the year. But who knows? More are coming. But right now, we're fighting through each one of those, we think pretty successfully, but I don't want to underestimate how significant the challenges are.

Chris Stephens, CFO

Yes. To build on Ted's comments regarding Q1, we are assessing the potential lost opportunities this quarter. We continue to see demand, but it is being delayed. We estimate that organic volume could have improved by about 1% to 2% if not for these constraints, which has pressured our organic growth numbers for the quarter. Additionally, reflecting on our earlier discussion, we've lowered our assumptions from about 3% growth to 1%, indicating adjustments in our execution capability as circumstances continue to change. When we first set our guidance in February, we anticipated earnings within a range of 48-52, but currently, our outlook is more aligned with 51-49. We will manage this accordingly and recognize that there is potential for improvement, which could enhance our upper guidance. On Page 17, our guidance includes not only potential downsides but also scenarios that could lead to higher outcomes.

Operator, Operator

Our next question comes from the line of Mike Roxland with Truist Securities. Your line is open. Please go ahead.

Mike Roxland, Analyst

Congrats on a very good quarter. Just two quick questions. I just want to get your sense about the on-demand elasticity, and the Company's ability to continue to increase prices given the inflationary environment. And then just the second part of the question is recognizing that you're material agnostic, any thoughts around expanding in fiber based. I think last quarter and even this quarter, you mentioned in the slides that 15% of your material was in fiber, any desire to expand that? And if so, like why would that be a focus?

Ted Doheny, CEO

Yes. Looking at that slide, I want to focus on the last point while Chris can discuss some of the volumes. In our ecosystem, we have 15% fiber-based materials. We have described ourselves as materially agnostic. For example, we previously used film-based plastic mailers, specifically bubble wrap mailers, but we are transitioning to a paper bubble wrap. This reflects a strong shift toward fiber-based solutions. On the food side, we are actively collaborating with customers who are requesting assistance with trays and looking for compostable recycled fiber-based products. We have some exciting developments in this area. In terms of our internal goals, we aim to increase that percentage to over 20%. You'll see progress in this regard. I also noted in my opening comments that AutoBox sales are rising. AutoBox is currently our fastest-growing equipment line, and it is driving the adoption of paper, cardboard, and fiber-based solutions, which will help increase that percentage. I can't say for certain if we will reach that goal by the end of the year, but we are moving toward exceeding 15%, and we hope to reach 20% by year's end. Chris, if you...

Operator, Operator

Our next question comes from the line of Anthony Pettinari with Citigroup. Your line is open. Please go ahead.

Anthony Pettinari, Analyst

Just following up on resin. Can you talk about underlying assumptions for resin costs in the updated full year guide? You basically assume PE is sort of flat from here on out? Or do you anticipate further inflation? And then just maybe to clarify on your earlier comments, do you assume some improved availability of specialty resins maybe in the second half that are currently scarce? Or are you just sort of assuming more of the same?

Chris Stephens, CFO

Yes. So good question. So Anthony, I think the underlying assumption around our full year guide, the updated guide reflects that we are going to continue and are anticipating to continue roughly an incremental $100 million on the raw material costs given the change in price or at least anticipated change in pricing that we all see. Relative to the specialty resins continues to be elevated, getting better, not only hopefully getting better from a price point of view as well as just the availability side, as we mentioned earlier in the commentary. But if you look at the assumptions for the full year guide, what we said in February and what we're saying here in May, we anticipated that material inflation to be roughly $200 million, and now we're looking more like $300 million for the full year.

Ted Doheny, CEO

Anthony, I want to provide a bit more detail regarding the specialty resins. We do utilize specialty resins, which you understand well. Currently, there are some resins that are difficult to obtain because they are being rationed. Our team has made significant advancements in redesigning our resin and barrier, particularly with our CRYOVAC brand. While this doesn’t reflect in volume yet, we believe that by adjusting what we have to meet some of the demand, we could actually have the opportunity to gain market share in the second half of the year when some of these materials become available again. We see potential upside in the latter part of the year. The situation with paper is also impacting us, as we’re experiencing inflationary pressures, particularly related to energy costs. Although we have a strong market share with our paper products in Europe, we are feeling the effects of inflation. Our teams are actively addressing this, and we expect these pressures to persist throughout the second half of the year. We aim to maintain positive price realization, but we definitely anticipate inflationary challenges continuing through the first half and throughout the entire year.

Operator, Operator

Our next question comes from the line of Christopher Parkinson with Mizuho. Your line is open. Please go ahead.

Kieran De Brun, Analyst

This is Kieran on for Chris. I was just wondering if briefly, you can just walk me through some of the productivity initiatives that you've been working on. It seems like you're well on track to achieve that target for 2022. But are there any areas where you may have been executing quicker than expected or where you're seeing additional opportunities? And it seems like there's even a greater opportunity here over time when we look out past '22. And while I understand you're probably going to quantify that at this time, just preliminary thoughts in terms of how you view those trending through the portfolio over the year and then further out?

Ted Doheny, CEO

Yes, it's a great question. If you go to Slide 10, if you look at our ecosystem slide, what we've been working on internally. And right now, we've been talking about price realization a lot because of just dramatic inflationary pressure. But if we look at the SEE operating engine, what's producing underneath that is the productivity of our operations around the world as we're driving to touchless operations. When we talked about automation last quarter, I shared that we're going from right now our network, where we're talking about currently today, we have in the hundreds of robots and cobots in our facilities around the world. Over the next three years, we're going to take that number to the thousands. So we're making some significant process in the productivity that's underlying our business. And if you look at our performance today, we're looking at what is that productivity that's driving underneath the engine right now. Though it's in the inflationary environment, it's about that price realization, but we're seeing the productivity actually doing quite well. So, we're actually going faster on that. Digital printing can even help even more that we can actually simplify our production both internally and bring some of those production savings to our customer. So your question about the long term, absolutely. That's where we think our productivity in the outward years is going to continue to increase and drive our margin expansion once we get through this really dramatic inflationary pressure.

Operator, Operator

Our next question comes from the line of Joshua Spector with UBS. Your line is open. Please go ahead.

Lucas Beaumont, Analyst

This is Lucas Beaumont on for Josh. So I just wanted to go back to your equipment backlog in the AutoBox products. You've had a pretty big increase there in the backlog. So, I was just wondering if you could talk a bit more about what gives Sealed Air the edge there. So I think some of the paper focused companies also have competing kind of box sizing systems. So, I was wondering if you could talk a bit about sort of what makes your products different and sort of where your edge is.

Ted Doheny, CEO

That's a great question. To address the automation aspect, we're not focusing deeply on it now, but we have the slides available in the appendix. On Slide 21, you can see that our equipment increased by only 8% year-over-year. However, our bookings are continuing to show double-digit growth, which indicates strong demand despite constraints. The slide highlights component shortages, sanctions in Russia affecting our success in food automation, foreign exchange issues, and disruptions from the China lockdown, all impacting our equipment business. We're currently investing in a strategy to double our equipment capacity over the next three years, and unlike some competitors, we are collaborating with multiple suppliers to stimulate our equipment growth. We aim for high double-digit sales growth to align with our booking trends. Moving to the next slide, you'll see our solutions multiplier, with examples discussed last quarter. In terms of cheese automation, we've had great success post-launch, selling over 20 systems and having more than 50 in our pipeline, with an average value of around $500,000 each, translating to over $25 million in backlog just from cheese. The solutions multiplier indicates that for every piece of equipment sold, including auto-loading and auto-packing, there's a $500,000 pull-through in materials, resulting in a 10x multiplier from equipment to complete solution. Additionally, we’re excited about our Protective equipment example for tire manufacturing. This equipment costs $2 million with $350,000 in material pull-through and a lifetime multiplier of over 3x. For our customers, it means an 8x increase in packing speed and a 50% reduction in labor, along with a shift from PVC to 100% recyclable polyethylene, fully robotic within their operations. This presents tremendous opportunities for us, and we’re leveraging a third-party branded equipment supplier in Europe to enhance our market reach. Operator, I believe we have time for one more question.

Operator, Operator

Our last question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is open. Please go ahead.

Arun Viswanathan, Analyst

I guess I had a question on the pricing strategy. So very robust pricing in Q1 with care to preserve share. So mid-teens and then you lost, say, 1% of volume. But when you look out into the future, it looks like you still have this model of pricing off of inflation and formula-based pricing within food. Would it be possible for you to consider more of a value-based pricing strategy? And I guess, would that be more representative of where the Company is heading and kind of removing that raw material side so that you could preserve some of this price action once raw materials recede? Or how should we think about kind of the pricing strategy you guys are thinking about internally?

Ted Doheny, CEO

That's a great question. The pricing strategy we have is value-based, which I have personally worked on with our largest customers worldwide. We’re very careful in how we present this. Our disciplined pricing approach focuses on taking care of our customers to gain market share. We emphasize automation and digital solutions, and sustainability in our communication with customers. It's not about the cost of our materials or solutions, but rather about the savings we can provide, especially in the current inflationary market where there are significant supply constraints. Our pricing strategy is not about increasing prices; it's about gaining market share. We focus on payback periods when selling our offerings. For our automation products, we aim for a payback period of three years. The focus is on how we can save customers money rather than how expensive our systems or materials may be. The reality is that there's a lot of waste in the market, and we are working with our large customers to improve their operations and automate processes. We approach this as a value-based selling process, prioritizing price realization over merely raising prices. We achieved our first quarter of positive price realization, and we are careful in how we communicate this to our clients. Our strategy is to help our customers save money, which in turn will promote our automation, services, and materials. Thank you for your question. We appreciate everyone joining the call and look forward to our next discussion, where we will delve into sustainability. Thank you.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.