Sealed Air Corp

NYSE:SEE

Earnings Call Transcript 2022-Q2

[Operator]

Good day and thank you for standing by. Welcome to the Second Quarter 2022 Sealed Air 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. [Operator Instructions] Please be advised, today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Brian Sullivan. Please go ahead.

[Brian Sullivan, Investor Relations]

Thank you, and good morning, everyone. With me today are Ted Doheny, our CEO; and Chris Stevens, our CFO. Before we begin our call, I would like to note that we have provided a slide presentation to help guide our discussion. In addition to our results and outlook, Ted will go through a deep dive on sustainability for SEE. Please visit our website where today's webcast and presentation can be downloaded from our 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 solely on information that is now available to us. We encourage you to review the information in the section titled 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 US GAAP. You will find important information on our use of these measures and their reconciliation to US GAAP in our earnings release, included in the appendix of today's presentation, you will find US GAAP financial results that corresponds to the non-US GAAP measures we reference throughout this presentation.

I will now turn the call over to Ted. Operator, please turn to slide three. Ted?

[Edward Doheny, Chief Executive Officer]

Thank you, Brian, and thank all of you for joining our second quarter 2022 earnings call. Starting on slide three, the graphic is showing where we are taking packaging with automation, digital and sustainable solutions. We start with our purpose. We are in business to protect, to solve critical packaging challenges and to make our world better than we find it. This enables our vision to become a world-class digitally driven company, automating sustainable packaging solutions. Our purpose and vision drive value creation for our people, customers and shareholders.

On today's call, Chris and I will discuss our Q2 results and 2022 outlook. I'll first recap our quarterly performance and then provide a deep dive into our SEE sustainability strategy. After that, Chris will review in more detail our financial results and our 2022 outlook.

On slide four, you can see we delivered strong sales and earnings, despite sustained inflationary pressures and a challenging global operating environment. Our SEE operating engine continues to perform. In the quarter, net sales were up 7% to $1.4 billion and adjusted EBITDA was up 12% to $293 million. Adjusted earnings per share of $1.01 was up 28% compared to a year ago. Free cash flow through Q2 was a source of cash of $94 million. We continue to invest in our global operations to drive growth and increase productivity.

On slide five, we share our SEE operating model where we highlight our growth targets driven by automation, digital and sustainability, which are fueling our SEE operating engine. We leverage all three into our innovative solutions to create customer value with attractive returns. Our SEE operating model highlights our growth targets through 2025, as well as our actual performance over the past four years. We aim to deliver 5% to 7% annual sales growth over the next three years. We're targeting adjusted EBITDA growth at 7% to 9% and adjusted EPS growth of greater than 10%. We've updated our SEE operating model for free cash flow conversion, defined as free cash flow divided by adjusted net earnings to be greater than 90%. We will continue to accelerate investments, expecting capital expenditures of approximately 5% of sales each year.

Let's turn to slide six to take a look at our market-driven solutions and how they create value for our customers using automation, digital and sustainability to drive growth faster than the markets we serve. We experienced solid sales performance across our diversified portfolio despite persistent supply constraints as well as inflationary and macroeconomic headwinds. Our strongest growth in the quarter was with Liquids & Fluids, which was up over 30%, driven by food service recovery and our new flexible pouch solutions. Our auto pouch system, coupled with prismiq digital printing technology is creating an ecosystem that help customers automate food safety, streamline inventory management, unlock new capacity and improve product yield. In consumer retail and fulfillment markets, we experienced a reduction in volume as our customers are quickly throttling back their own inventory levels.

I'd like to highlight the launch of our Bubble Wrap paper bubble mailer. You can see the illustration of this product on the right side of this slide. The product is made with recycled and renewable materials and is curbside recyclable, while living up to the Bubble Wrap brand promise. It is also smaller and lighter than boxes, which reduces shipping costs and dimensional weight. Our paper Bubble Wrap mailers will include innovative digital packaging features and will be expanding globally by early 2023.

We are relentless in designing and delivering solutions that maximize food safety, minimize waste, protect goods and create productivity savings for our customers. In Q2, automation sales were up 5% year-over-year in constant dollars, driven by Auto Box and Autobag. Customers continue to embrace our value proposition of automation to address labor scarcity, productivity, quality and employee safety. We're on track to achieve approximately $500 million on automation revenue for the year. Though food placements in the second half will continue to be pressured due to various supply constraints and impacts from economic sanctions imposed on Russia.

Our digital business continues to grow at an accelerated pace. In Q2, we saw almost 400 customers come online. We more than doubled online revenues in Q1 and we continue to be on pace to have more than 15% of our global business transacting globally by the end of this year. Digital packaging is creating customer demand after our launch of prismiq last quarter.

Let's turn to slide seven for an update on SEE Automation. As we continue to share with our SEE operating growth model and in our previous earnings calls, we are looking to double our equipment business in the next three years with increased investments internally and through strategic acquisitions. As you can see in our updated SEE Automation strategy, we're looking to take SEE Automation to over $1 billion in the next three years with both organic and inorganic investments. Our strategy to allocate capital is purpose-driven, and we have a pipeline of potential acquisition opportunities to accelerate our journey to a digitally driven company automating sustainable packaging solutions.

We have our own SEE proprietary playbook to take acquisitions to successful outcomes. The playbook has proven its value during the last three years with the APS acquisition, where we created significant value to our shareholders. We continue refining it with real-world experience and searching for targets with win-win value creation power. There are several potential acquisitions within our space where M&A can create meaningful synergies and drive our profitable growth.

Turning to slide eight, we'll now take you through a deep dive on how we see ourselves as a sustainable company. We are focused and determined to be a world-class digitally driven company automating sustainable packaging solutions. Our approach combines automation, digital and sustainability, which positions us to drive efficiency within the operations of our own business and our customers. We're enabling product identification and traceability from product source to the consumer home, reducing resource waste across the value chain, accelerating circularity through recovery and recycling and decreasing greenhouse gas emissions in our own operations and at our customers to mitigate climate change. We call this the SEE net positive circular ecosystem, designing, developing and deploying automation and digital packaging solutions that have a positive impact on our stakeholders and society.

One of the key components of this circular ecosystem is collaboration. We lead and engage in partnerships that are reshaping the future of the industry. By collaborating with organizations such as the Alliance to End Plastic Waste, Closed Loop Partners and SEE Venture Investments like Plastic Energy, we are creating our circular future where packaging never becomes a waste. Last year, we collaborated with a key resin supplier, [Sabik] (ph) on a circular demonstration of flexible plastic packaging with the leading UK retailer for cheese. We are expanding the use of certified circular materials in our product solutions globally. Earlier this year, we partnered with ExxonMobil advanced recycling solutions about a key collaboration with a major grocery retailer in the US to drive circularity of flexible plastic packaging used for fresh proteins.

Now let's turn to slide nine. Why do we call it net positive? As you can see, the integration of our solutions generates economic, environmental and social benefits. Our solutions create a multiplying effect where the beneficial impacts far exceed the investments in those solutions. Our customers benefit from materials efficiency, productive packaging processes and more effective distribution of their products. Society benefits from essential packaging that enables access to safe and fresh food with less waste and spoilage. The producer benefits from preventing damage to products during transport, retailing, e-commerce or storage. Our ecosystem allows for recovery materials after use driving the circular economy for packaging. SEE benefits by getting recyclable and reusable material so that we can offer the best solutions at the right price and make them sustainable. Our SEE net positive circular ecosystem will make our world better than we find it.

Moving to slide 10. Let's talk about some of our sustainable solutions that underpin our net positive circular ecosystem. Our packaging solutions are designed to meet the current and anticipated needs of our customers and position them to achieve their sustainability goals. We are material agnostic in our solutions. We integrate materials and equipment with advanced technologies to drive customer benefits. We offer a wide range of fiber, plant-based and plastic material solutions that minimize waste, reduce resource use and overcome labor challenges. By enabling circularity we lessen reliance on virgin materials for both packaging and equipment, expanding advanced recycling capabilities like we have proven through partnerships with Exxon, Sabik and Plastic Energy allows essential packaging to be recovered and reused for demanding applications such as food packaging, while enhancing safety and performance.

We are intensely focused on reducing our own greenhouse gas emissions and working hand in hand to reduce those of our customers, while avoiding emissions associated with wasted or damaged products. For example, our ability to extend the quality of life of foods such as fresh meats from days to weeks while ensuring package integrity through distribution allows customers and retailers to avoid significant waste. By eliminating waste our customers reduce their greenhouse gas Scope 3 emissions.

Let me now turn to slide 11. To effectively design, develop and deploy integrated solutions that have a positive circular impact on our stakeholders and society it starts with us and how we operate. Here are some of the metrics we are using to track our progress on our journey to creating and transforming to SEE net positive circular ecosystem. We pledge that by 2025 100% of our solutions would be designed to be recycled or reused and contain an average of 50% recycled or renewable content. We are on track to meet that pledge. We have ambitious internal goals to improve our operational efficiency by 2030 in key areas such as energy, water, greenhouse gas emissions and landfill diversion of our manufacturing waste. We're making steady progress against all these goals.

SEE is leading our industry to net zero in our Co2 emissions from our operations by 2040. For example, we have a picture of our Madera, California manufacturing facility where we have installed more than 10 acres of solar panels and battery storage. The panels will provide 99% of the electricity for that facility. This is the first plant in SEE that is powered with on-site renewable energy. We are a sustainability company.

I will now pass the call to Chris to review our financial results in more detail.

[Chris Stephens, Chief Financial Officer]

Thank you, Ted and good morning everyone. Let's start on slide 12 to review our second quarter net sales growth by segment and by region. In Q2, net sales were up 7% to $1.4 billion. In constant dollars, net sales were up 11% with 13% growth in food and 7% growth in protective. By region, Americas was up 13%, EMEA up 7% and APAC up 5%.

On slide 13, you can see organic sales volume and pricing trends by segment and by region. In Q2, price was up 16% overall, while volumes were down 5%. Q2 price was favorable 15% in food and 17% in protective, primarily reflecting price realization both from actions in 2021 and 2022, as well as formula pass-throughs to help mitigate continued inflationary pressures. We are working directly with our customers in a disciplined manner to price with care to gain share.

Food volumes were down 2% with Americas down 3% and EMEA down 2%, partially offset with APAC up 1%. Lower volumes are primarily attributed to continued supply disruptions across all regions. If you exclude these constraints, we would have been in line with volumes reported in Q2 last year. Protective volumes were down 8%, with declines in all regions given tougher comps relative to Q2 '21 COVID-related economic recovery and vaccine distribution tailwinds. We also experienced lower volumes due to the COVID-related lockdowns in China during the quarter.

On slide 14, we present our consolidated sales and adjusted EBITDA loss. Having already discussed sales, let me comment on our Q2 adjusted EBITDA performance. Q2 adjusted EBITDA of $293 million increased $30 million or 12% compared to last year, with margins up 20.7%, up 90 basis points. Strong price realization and favorable mix have limited the margin impact of lower volumes and higher operating costs. Unfavorable operating costs of approximately $58 million were driven by higher nonmaterial inflation and the impact of continued supply disruptions.

Productivity gains totaled $7 million in Q2 and we now expect approximately $45 million for the full year, down from previous expectations of approximately $60 million due to continued supply disruptions and labor challenges. Adjusted earnings per diluted share in Q2 of $1.01 compares to $0.79 in Q2 '21 was primarily driven by strong earnings growth. Our adjusted tax rate was 24.7% compared to 25.6% in the same period last year. We were an active buyer of our stock in the quarter with approximately 871,000 shares repurchased at a cost of approximately $50 million. Our weighted average diluted shares outstanding in Q2 '22 was 147.5 million compared to 152.7 million in Q2 '21. At quarter end, we had $646 million remaining under our authorized share repurchase program.

Turning to segment results on slide 15, starting with food. In Q2, food net sales of $806 million were up 13%, both in constant dollars and on an organic basis. Price was up 15% year-over-year, with all regions contributing to favorable price, while volume was down 2%. The volume decline in the quarter was primarily driven by supply constraints across all regions and the impact of economic sanctions related to automation sales in Russia. Automation sales, which include equipment, systems, parts and service account for approximately 7% of the segment sales and were down mid-single digits. Adjusted EBITDA of $168 million in Q2 increased 9% in constant dollars, compared to last year with margins at 20.8%, down 70 basis points.

On slide 16, Protective net sales of $612 million increased 7% in constant dollars or 9% on an organic basis. Price was up 17% in the quarter, again, with all regions contributing to favorable price, while volume saw a decline of 8% in the quarter. We see general concerns in the market related to the economic outlook, particularly in retail, where customers are adjusting their inventory levels. Additionally, we had a tough comparison from last year. As a reminder, volumes in Protective were up 15% in the second quarter last year, fueled by the strong growth in fulfillment, e-commerce and the rebound of industrial end markets following COVID shutdown in 2020.

As for automation sales in the quarter, which accounts for approximately 9% of the segment sales, they were up double digits in the quarter, fueled by Auto Box and AUTOBAG placements. Adjusted EBITDA of $126 million increased 18% in Q2 with margins at 20.6%, up 250 basis points.

Now let's turn to free cash flow on slide 17. In the first half of 2022 free cash flow was a source of cash of $94 million compared to $102 million in the same period a year ago. The $8 million difference was mainly driven by higher adjusted EBITDA, offset by increased inventory given higher material costs and strategic stock builds to help mitigate global supply disruptions.

On slide 18, we outlined our purpose-driven capital allocation strategy, focused on maximizing value for our shareholders. We maintain a strong balance sheet while driving attractive returns on invested capital and supporting profitable growth initiatives. We continue to focus on strong cash generation. And going forward, as Ted noted, we plan to measure cash conversion on an adjusted net earnings basis, specifically calculating free cash flow, which we define as cash flow from operations less capital expenditures divided by adjusted net earnings. We are focusing our investment activities such as CapEx, innovation and M&A on touchless automation, digital and sustainability. We take a disciplined approach on these activities across segments, applications and geographies. As Ted highlighted, on the SEE Automation slide seven, we are planning to double our equipment business in the next three years through organic and inorganic investments.

Let's turn to slide 19 to review our 2022 outlook. Despite headwinds from selected end markets we serve and FX, we are maintaining our full year sales and EBITDA guidance range, given our focus to drive pricing with care to gain share. Our net sales guidance of $5.85 billion to $6.05 billion assumes a 6% to 9% growth on a reported basis and organic growth of 10% to 13%, which assumes flat volume and approximately 11% growth from price at the midpoint. Full year adjusted EBITDA range remains at $1.22 billion to $1.25 billion and assumes adjusted EBITDA margin of approximately 21%. Full year adjusted EPS of $4.05 and to $4.20 assumes depreciation and amortization of approximately $245 million and adjusted effective tax rate of approximately 26%, net interest of approximately $165 million and 148 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. To summarize, we had a strong quarter and we continue to work through the challenges we can control. This is a testament to the SEE team as we are focused on executing our growth strategy, driving productivity, generating world-class cash flow performance and executing our SEE operating model.

With that, let me now pass the call back to Ted for closing remarks. Ted?

[Edward Doheny, Chief Executive Officer]

Thanks, Chris. And let's move to slide 20. Before we open up the call to questions, I want to emphasize how our SEE operating engine continues to perform. We are determined to make the world better than we find it by generating net positive results for our people, customers, shareholders and society. We are a sustainable company.

With that, I'll open up the call for questions. Operator?

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Lawrence De Maria with William Blair. Your line is open. Please go ahead.

[Lawrence De Maria, William Blair]

Hi. Thanks. Good morning everybody. I wanted to just dig back into two things here. First, on the negative 2% Food-Tech volume comp, any more color on what's driving that? Is that a trend you're concerned about as we look -- the outlook for some of the protein consumption may be down into next year? So how concerned are you there? And secondly, the automation orders seem to have come back down, maybe there was some pent-up demand previously. But is there incremental weakness there or something else? Obviously, you called out supply chain. Just some more color on that would be helpful. Thank you.

[Chris Stephens, Chief Financial Officer]

Good morning, Larry, it's Chris. Let me answer the first part of that question. I'll let Ted then follow on. But on the food side, the volumes for the quarter, what we saw mainly attributable to kind of the supply disruptions that we've experienced. Actually, if you noted in my prepared remarks, just commenting on -- if we excluded these supply disruptions, we felt we would have been more in line and basically flat on the volume side consistent with last year.

So heading into the second half of this year, continuing to work through those supply constraints. Some are easing, which is good news. So when we think about second half specific to food, we expect that low single-digit growth to be there, given seasonality, et cetera. But Ted maybe [indiscernible]

[Edward Doheny, Chief Executive Officer]

Yes. Hi, Larry, good questions proposed. So if you look at the food, as Chris highlighted, it's our specialty materials that really is helping establish a couple of percentage points. If we had it, we would have been on top of the head actually positive growth in the quarter on the volume. It's also then connected to the equipment side, which you -- the second part of your question. So if you unpacked equipment, if we just look at slide seven, where we talked about automation, we spent a lot of time on our investment, it was actually misses in the quarter on the sales side, where we do have a huge backlog on equipment and what we're still struggling with supply constraints to get some of that through.

To your second part of the question, we're actually seeing the demand increase on automation and especially with food. I put another slide in the deck and we're actually seeing the demand increase on automation and especially with food. I put another slide in the deck as we talk about our solutions multiplier. I was actually in Japan the past week focusing on our suppliers. Two of our major suppliers on equipment are in Japan.

So what can we do to get the equipment, also a major specialty suppliers in Japan, how do we get more materials. The third part of the trip to Japan was getting into the country of automation, and we want to be world-class in automation, we got to be in Japan. So we met with major customers and actually on the pork side, we have a new system in place, and it actually matches the graphic that we have there in the appendix, where they have our rotary chamber machine, we now actually put in robotics. They're buying our robotics arm. This is in Japan. And so there are actually three more systems in place which was quite exciting.

So the backlog is up, we just got to deliver it. So part of our second half opportunities, automation is still the answer for us to drive our food growth. So we're actually quite excited about the opportunities. And when mentioning Japan, two other great highlights for the visit there last week is, we had a new leader in place, Alessandra just to shout [indiscernible] dynamite with the opportunities we have in that country to lead. And we've met with investors. We did a non-deal road show with Japanese investors quite interested in what we're doing on automation and sustainability. So good question. Short answer is, the miss is constraints and that we're looking to that to be potential upside opportunity for the second half. We got to get through that backlog, and that's why we're enhancing our investment in automation.

[Lawrence De Maria, William Blair]

Thank you very, very much. Yeah. Thanks.

[Edward Doheny, Chief Executive Officer]

Next question. Operator?

[Operator]

And our next question comes from the line of Phil Ng with --

[Philip Ng, Jefferies]

Hey, guys. Thanks for taking my question. Ted, I guess, in a more uneven macro backdrop and just given the amount of inflation. I'm just curious, have you seen any shift in customer behavior in terms of the uptick of your higher-value products focused on automation, digital and just the service component? And then I understand how the growth algo looks in past cycles, just given your pivot into some of these value-added automation digital end markets, do you see your business holding up materially different, whether, it's Food or Protective in a potential recession? Thanks a lot.

[Edward Doheny, Chief Executive Officer]

Yes, it's a good question. And it's a big question out there. Are we in a recession, yes or no. And the simple answer for us is, we definitely feel it. So what's different with our customers right now through using our automation, digital, and sustainability, two things are happening. So as they're in a crunch with, hey, could their markets be softening, the situation is still the same. They still have significant labor issues and how can we help them on the cost side with automation, and that is key. The digital side is quite interesting because what digital is doing for us, it's actually making us more cost effective so we can actually work with the smaller customers, especially on the protein side, where we do extremely well with the large customers who were in their plans. With digital, we're actually now being able to give solutions for those smaller markets and smaller customers. So we think on the recession side of the equation, we can help all. So actually quite excited for that opportunity.

So the debate, I don't want to debate the question, is the recession coming. We definitely feel it with our customers with this tremendous inflationary pressures. But we think the strategy is going to really open up some growth opportunities for us in a recessionary environment as well.

[Philip Ng, Jefferies]

Ted, have you seen any shift in order patterns from your customers, call it, over the last few months given your point saying you're feeling it a little more?

[Edward Doheny, Chief Executive Officer]

Yes, order patterns in the sense of -- maybe, Chris, if you?

[Chris Stephens, Chief Financial Officer]

Yes, I think if you kind of think about the supply constraint side of it in terms of delivery, but the order activity is -- if we talk about just kind of follow on the automation side, continues to be very strong, continues to be there. We got to work through the supply constraints. On the order behavior, the shorter-cycle business, given Food and Protected. Food, again, if you put the supply constraints aside, we thought we would have been more on the flat side for food volumes for the quarter and the Protective piece of it, given the tougher comps quarter over quarter, given the vaccine distribution last year, et cetera, we're feeling that, but we expect flattish for the second half of the year for Protective.

[Edward Doheny, Chief Executive Officer]

And it gave me a chance to thank, so thank you, Chris. So let me give you some specific examples. So if you look at slide six. So what has shifted in the end market. Let's go to the Protective side. We talked about the paper bubble wrap and it ties in the sustainability side. During the surge of the COVID last year, that our mailer business was quite strong. How do we get that out? We've seen that soften with the e-commerce pulling back, and you've seen that in the retail market. So the shift is just the significant demand for this paper bubble.

Now paper bubble mailer, now will that be a fix for the second half? That's probably just a couple of million, but we believe that's a $100 million opportunity for us over the next three years. So definitely, that kind of a shift. So on the food side, we've really seen the shift where -- especially with -- we get the issue where are we with the cattle cycle. Automation has been driving that. We've seen the shift from fresh red meat, which has been strong in the first half, really the shortage is on the pork. So we see a lot of pork, poultry, that kind of shift going in the marketplace on the second half of the year. But right now, we still see the demand strong. It's going to look a little different though going forward.

[Philip Ng, Jefferies]

Thank you. Great color, guys.

[Edward Doheny, Chief Executive Officer]

Next question. Operator, we can go to next question, please.

[Operator]

And our next question comes from the line of Anthony Pettinari with Goldman Sachs. Your line is open, please go ahead.

[Adam Samuelson, Goldman Sachs]

Yeah, thanks. Good morning, everyone.

[Edward Doheny, Chief Executive Officer]

Good morning, Adam.

[Adam Samuelson, Goldman Sachs]

Good morning. So Ted, I was hoping maybe some of the comments you made before about e-commerce and just trying to think about Protective and as e-commerce activity and maybe durable goods purchases by consumers broadly through the pandemic normalizes to some extent and is that consumer spending is going to other categories that will be using less protective packaging? Just how do you think about any further kind of headwinds that might be in the business that you still have to comp through in a more slower e-commerce environment.

And I guess along those lines, I look at the chart on equipment orders on slide seven for Auto Box, which -- this is, I believe, LTM orders, so in dollars which has kind of fallen pretty precipitously from their high. So I'm just trying to think about does that present an equipment kind of headwind into next year as those orders would have converted into shipments?

[Edward Doheny, Chief Executive Officer]

Good question, Adam. As far as the first part of the question, what do we see shifting on e-commerce. So again, I'll use two slides. I'll use slide six to highlight that. The big surge that we had last year on the Protective side within the medical side, we were doing a lot of packaging for COVID. A lot of that business was very strong. That actually is down. So we have seen that in the quarter anticipating where that's going to shift though, we have seen industrial and transportation actually pick up, taking it to a product line and even trying to how do we put this online is our Instapak. Where Instapak for the last couple of years has been down, especially in the pandemic as it was connected to the industrial. Instapak in the quarter was up in volume and up in margins. So actually, probably in the Protective side, our most profitable piece of the Protective portfolio.

The second part of your question, looking at the automation is we're driving automation for the entire portfolio. Auto Box, and we've had -- it's lumpy. And as we're getting more and more as you understand us in the equipment business and those, which has been in micro, we used the term lumpy because you get large orders. So a little bit of that was in Auto Box being very strong. Anticipate Auto Box and especially AUTOBAG being up continuously.

The AUTOBAG business is just a great indicator on how well we're doing with our automated packaging system. In the quarter, even though we have huge supply constraints because that's where we're doubling our CapEx right now, a significant amount of CapEx into that business, we just got to get that taken care of. Our lead times are too long so that's actually hurting the bookings. So we got to get through that. But as far as those markets that they serve is quite strong on both sides of the business. So I hope that answers.

Next question, operator?

[Operator]

And our next question comes from the line of Anthony Pettinari with Citi. Your line is open, please go ahead.

[Anthony Pettinari, Citigroup]

Good morning. On the full year outlook, understanding you don't give quarterly guidance, but any thoughts on the kind of the split or the cadence between 3Q and 4Q? I think historically, you've seen a little bit of a $0.10, $0.15 step-up from 3Q to 4Q. Can you just kind of remind us the comps in the two businesses from 3Q to 4Q? And anything that you can kind of say on that cadence.

[Chris Stephens, Chief Financial Officer]

Sure, Anthony. As you mentioned, we don't necessarily specifically provide quarterly guidance. But I can tell you that when we look at the most recent outlook for the second half when we are preparing for the call, we kind of look at Q3 as pretty much being consistent or in line with Q2 performance with fourth quarter being stronger of the two, mainly because of the expected seasonality side of our business. So to your point earlier, when you comment on the fourth quarter it is usually stronger quarter. That's what we anticipate and that's what is assumed in our full year guidance.

Okay. Operator, next question.

[Operator]

Our next question comes from the line of George Staphos with Bank of America. Your line is open, please go ahead.

[George Staphos, Bank of America]

Hi, everyone. Good morning. Thanks for the details. I hope you can hear me, okay. I wanted to ask a question on the growth outlook. In years past, Sealed Air has said that one of the better indicators for the cattle cycle and production in the future was driven by near-term faster trends and drought conditions. So what's your view on the cattle cycle, which has been moderating anyway over the last couple of years, whether this current condition may lead to weakened production and an outlook for next year?

Relatedly, back to slide seven, Ted, could you talk to us a little bit about whether the double-digit revenue that you saw in automation sales in Protective I believe, whether that was -- is there a way to parse that between volume and price, if you will, and with the book-to-bill at about one, is accelerating or decelerating from recent trends? Thank you very much, and good luck in the quarter.

[Edward Doheny, Chief Executive Officer]

Thanks, George. And I'll try to unpack that. First, let's talk about the cattle cycles. We're definitely looking at that, and it's interesting if we can compare it from the past, what we did in the past and applying that on our strategy and where we're going. We looked at the cattle cycle of what's been happening from all the back to 2015. We recently analyzed what's going on in the US, Latin America and Australia, looking at our three big markets, and seeing what's happened with various issues. But with it peaking in 2015, then going down, did a trough in 2019, we had various issues going on. We had droughts, where they're pulling the herd out early during the COVID, et cetera.

So when we pull back from the cattle cycle, we said, well, what's happening to our business. And we saw through peak and trough -- peak then to trough and then where it's coming back to, we had steady growth, and that was leading then to where you went to and what are we doing on automation. And then also what are we doing with our underlying products that are satisfying the protein market. Our dominance in fresh red meat is moved, that's being driven now through automation and what we can do with our new products. Taking fresh red meat, doing really, really well in bags, and we're still doing well in bags. But significant growth for us in the roll stock, which we call our case-ready, what you see in the supermarket with our new products, what we're doing in case-ready and you can see that's out there.

So from the past, we've been able to grow through cycles, going forward where we see the cattle cycle, we actually see in the first half that beef was strong. We were short, as Chris highlighted, because we had some supply constraints, but we're really seeing the growth right now on the protein side where it links to automation is on pork and poultry. That's where we're spending time where our customers are bringing us in, can you help on the automation in those areas where we're excited, because we think we can have some significant share gain. And then it also ties into the question that I was asked earlier. Well, we have these big solutions for the big customers, but also what digital has enabled us is how can we now take care of those smaller operators with some solutions that we can actually be deployed for some of the smaller operators.

So on the equipment side of the business, you mentioned the comment, you see the book of the bill going down, it's really because of our supply constraints. I mean, we could even get more orders, but our lead times are too far out there. That's why we're aggressively working on our capital to get the products in place, investing in our CapEx, that's why I was working with our major suppliers on equipment and why we even talk to you about is there an M&A opportunity here that we can satisfy the demand. We believe that the automation is the right thing. So with the cattle cycle moving up and down, the real excitement is can we take share, get into new proteins, offer an automated digital and sustainable solution. So we got some work to do, but we think we can grow pretty aggressively through the cycle, no matter what plays out on the cattle cycle.

Next question, operator?

[Operator]

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

[Adam Josephson, KeyBanc]

Thanks very much, Ted and Chris. Hope you're well. Chris, just on your volume guidance. I know you started the year expecting about 3% growth, and now you're thinking about flat. When I look at the comps, the second half comps, you're up about 4.5% in the second half of last year. So that would -- flat volume for the year would imply a pretty substantial volume growth in the second half. Correct me if I'm wrong there. I think you said you expect about flattish volumes in Protective in the second half. And if I heard that correctly, that would mean that Food volumes would be up, I would think, quite substantially. So can you help me understand what's embedded in that full year volume expectation by segment and as well as what gives you confidence that you can overcome what seems to be a pretty difficult comp in the second half?

[Chris Stephens, Chief Financial Officer]

Sure. Very good. So let me talk about the protective side for, right? We just -- we faced more challenging comps on the Protective first half of this year versus first half of last year. And as we look to the second half guidance, it is more of a flat year-over-year volume growth, call it, maybe 1% to 2%, low single digits, but for the full year, we expect Protective volumes to be down roughly 2%, so down low single digits.

If you move to the Food side, the confidence we have on the Food is not only on the material side, but also in the equipment piece of it, hoping to work through the supply challenges and supply constraints we talked about. So the assumption on the Food side for the second half of the year is that low single-digit growth, both for third and the fourth quarter, which then plays itself out to roughly approximately a 2% growth in Food volumes for the full year. So there's nothing that just triggers us from a concern point of view on either segments for the second half. We go through the risks and opportunities. We go through the discussions with the team. We even kind of point to our performance here in July a little bit slower than we expected out of the start, but there's reasons for it. And those reasons always circle back to the supply constraints that we're working through the supply disruptions. So that's it in a nutshell. That's kind of how we're managing through the second half of the year.

Operator, next question, please.

[Operator]

And our next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open, please go ahead.

[Angel Castillo, Morgan Stanley]

Hi. Thanks for taking my question. So maybe just a quick one, just to follow up on your comments there about the volume growth in the second half. Just curious on the supply constraints that you've been having. You mentioned a little bit of easing. I was wondering if you could tell us maybe what you're seeing that perhaps in terms of time line of when that can kind of normalize so that you can have, again, more visibility into this growth in the second half? And if I could, just a little bit more broadly on pricing, also how you see that in the second half? And how is that kind of continuing given that price cost that has been a strong kind of contributor to the growth so far. So how are trends there? How is customer activity, et cetera?

[Edward Doheny, Chief Executive Officer]

I'll go first [Multiple Speakers] Chris, to talk about pricing with care. So on the volume side, building off of what Chris said, looking at low single digits in the second half and the visibility we have that, again, that's where the automation story comes in. We've got the backlog. We do have supply constraints, but we have two of them on the Food side. As we're working on our sustainable solution, the resins we have seen -- I haven't gotten that question yet, but we've seen our -- 50% of our resins is specialty, and that's what's hurting us right now on the supply constraints. That's what we need to fix. So we see that getting better in the second half than the first half. So that's a positive vibe on the volume side with Food, because it's very, very important.

The second is the automation. We have the backlog, we have the orders, we still have issues, but we have line of sight to how we can go get that. So that's what's helping us with the confidence on the Food volumes to get that positive single-digit volume growth on the food.

So with that, I'll turn it to Chris.

[Chris Stephens, Chief Financial Officer]

Sure. Yes, on the price realization side, maybe I'll use it as an opportunity to kind of bridge what our expectation was on the EBITDA side in our first -- after our first quarter call, just kind of bridge it to today. And what we're seeing is given the price realization, more of a $600 million plus number is what we're anticipating to get on the price side of the equation, we just talked about volume, volume to be more flattish versus a positive 1%, I think, maybe the 2% growth that we expected last time.

However, on the cost side, both material and nonmaterial they both were up versus our prior expectations. So from the materials side, we're more in this $350 million range, $350 million for the full year. And then on nonmaterial inflation, we expect that to be more about $110 million, where last time we guided about $100 million. So we're trying to provide this transparency as we manage through this, both on driving productivity actions as well as the price realization to help offset those costs and that gave us the confidence to keep the full year guidance.

Yes, we still have that broader range and we're six months through the year, we'll tighten that after the third quarter. But right now, that's kind of the headline is that, we have a little bit softer top line volume, offset with much more favorable price and FX, clearly, as everyone has seen, hitting a lot of companies with the European-based presence, we're seeing higher FX rates in terms of the headwind from that. But those puts and takes allowed us to maintain full year guidance.

[Edward Doheny, Chief Executive Officer]

And I just want to make the comment on the pricing because we're talking -- we have our customers listening here. So the pricing with care to gain share, and I'm personally getting involved in many of these orders, especially on the automation side with our major customers that we are totally focused on how we can save them money. We are passionate about how can an automation and help them with their issues, help them with labor disruptions, sustainability. So it's not how much our solutions cost, it's how much we can save them.

And I just want to share that issue. And that's where the language that we want to use is really what is our price realization that we're getting. And to be very open with our customers that what we're realizing the price over our cost. So we still think we have more opportunity, but we have to work hard. To get that price, we have to save our customers more money and can we also want to do this in taking share in the process.

So I just want to highlight, we are working this one very, very hard, and we think we have more opportunity still to go on the pricing side. But we have to earn it. We won't get the price unless we truly show our customers we can help them save money. Next question?

[Operator]

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

[Kieran De Brun, Mizuho]

Good morning. This is Kieran on for Chris. I'm wondering if we can just kind of put it all together, can you discuss any productivity initiatives you have ongoing? And then when we think about kind of the cost price, volume, and productivity equation, how we think about margins trending over the course of the year and the second half?

[Chris Stephens, Chief Financial Officer]

Sure. So what's assumed in our full year -- in our full year guidance is to maintain approximately 21% EBITDA margin. In my prepared remarks, I talked about how on the productivity side some of it driven by just the labor challenges we're faced with as well as just the inefficiencies given the supply disruptions, a little bit lower on the gross productivity. We expected roughly $60 million in our previous guide. Right now, we're expecting roughly $45 million. So we continue to work through that. However, those initiatives are very much built off what we have created over the past several years with the great success of Reinvent in our SEE operating engine is the opportunities that we have to continue to drive productivity are out there. Unfortunately, they're being a little bit offset this year, unfortunately, given some of the supply constraints and just the inefficiencies we've had to work ourselves through. But again, I'd just go back, the EBITDA margin profile for the full year is to hit approximately 21%, and we're committed to deliver that.

[Edward Doheny, Chief Executive Officer]

Yes. And maybe if I can just add to that, especially as a shout-out to Mizuho, because at time to my Japanese visit we had Mizuho hosting us with some Japanese investors. And if you look at our operating model because it ties into our productivity, productivity we did in the past, productivity that we're sharing in the future. So if you look at slide five on the operating model, this was a question that came from their Japanese and our Japanese hopefully, near future investors, that they looked at this and what got their attention was that consistency of performance, especially on EPS. Driving that well north of what we said we'll do of greater than 10% and a 20% CAGR over the last four years and having the courage and the confidence to drive that in our outlook.

And of course, a lot of detailed questions on how are you going to do that? So that's where we highlighted our operating leverage target that we've been talking now for a few years of what our operational excellence mean and holding ourselves to how do we get operating leverage. We've got a lot of challenges out there. But if we look at our operating leverage in the first half of the year, we're doing okay. We have a 37% operating leverage on the business. So it's north of our target. We got issues that are going on with inflation, et cetera, et cetera. But the other piece of what are we doing in the future because the questions were asking, hey, if you have a recession coming? That's again where we're bringing in digital. We have in some of my customer meetings in the quarter and met with two of our largest customers, and we talked about what we're doing on digital, putting the whole company online, how can we be more efficient in working with them? Can they design their products with us digitally, remotely? And how can we then give them our digital printing capability so that they can actually have unique products and actually at the right cost? So that productivity through all these challenges, we're pretty excited that we're going to make it happen. And so with that, operator, we're down on the hour. So I want to -- if we can close and finish. And I do want to thank everybody for being on the call today.

And as you've heard, we're really excited about SEE as a sustainability company. ESG is critical to who we are, our performance and our success. We really appreciate the interest in SEE, and we look forward to all of you -- speaking with all of you next quarter. So operator, thank you, and that's the close for our call today.

[Operator]

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