希悅爾 (SEE) 2003 Q1 法說會逐字稿

Good morning, everyone. And welcome to the Sealed Air analyst and stockholder conference call. This call is being recorded. Leading the call today we have William D. Hickey President and CEO and David H. Kelsey CFO. After our prepared comments we will be taking questions. May place yourself in queue simply by pressing the “star” key followed by the digit 1 on the touch tone telephone. If the question has already been answered you can remove yourself from the queue by pressing the pound or the hash key on your touch tone telephone. Limit your question to one per caller so others have a chance to ask questions. I would like to turn the call over to Chip Cook, DCC.

Good morning before we begin our call today I would like to remind you that statements made during this call stating managements outlook or predictions for the future are forward-looking statements based only on information that is available to us.

Our future performance may be materially different due to a number of factors. Many of the factors listed in our most recent annual report on form 10-K or quarterly report on form 10-Q we have also posted supplement at statistics and financial information and reconciliation of non-GAAP financial measures that we expect to discuss today on our website at www.sealedair.com on the investor information section. Now I will turn the call over to Bill Hickey our CEO. Bill.

Thank you Chip good morning. I'm Bill Hickey, president and CEO of Sealed Air with me today is David Kelsey our CFO. As an introduction, I will provide a few highlights on our business for the first quarter of 2003. Dave will then review the details of our financial results. After Dave's remarks, we will have time to take your questions. Sealed Air has once again delivered solid operating results in a quarter marked with challenging economic conditions. In many parts of the world, Sealed Air's reported top line results were quite strong helped in part by the positive effect of foreign currency translation, which were specially strong in the quarter. Excluding currency effects, we achieved our mid single digit top line growth objectives with net sales increasing approximately 4%.

In fact, both segments of our business achieved targeted levels of sales increases, and all of our major geographic regions around the world contributed positive volume gains to help drive our growth. Despite the challenging business conditions that prevailed in the first quarter, our results continued to demonstrate the strength of our people and our business. Our organization is driving sales by remaining keenly focused on customers as our highest priority, and we continue to benefit from our strategic priorities of innovation and continuous improvement. We continue to develop new products and applications and add to our customer list. In fact, our latest innovation inflatable Bubble Wrap, was released to our sales force in the first quarter of 2003.

All of these efforts broaden our reach, drive current growth and position us well for an upturn in the economy. We also continue to invest in serving our customers around the world. In the first quarter we started up a new manufacturing operation in Malaysia and approved capital expenditures for new operations in the United States and Eastern Europe. We're off to a reasonably good start in 2003, and believe that Sealed Air's business will improve going forward. We expect to benefit from a combination of our selling price increases, which we have already announced, and a modest abatement of raw material costs and a gradual improvement in global economic conditions, as we move through the year. I will now turn the call over to Dave to review the details of our financial performance. Dave?

Thank you, bill. I'd like to start with some additional comments on our sales. As bill said, our first quarter sales were record setting, up 10% or $77 million, including a $43 million positive effect from foreign currency translation. Our growth reflects 2% volume gains and our food packaging segment and 6% volume growth in protective and specialty packaging. Also our protective and specialty segment had an additional 1% favorable revenue variance in the first quarter from businesses acquired in the past 12 months which contributed $3 million to the top line.

To summarize our top line performance in the quarter, unit volume growth and food was 2%. And protective 6% and for the total company, 4%. A $27 million favorable variance. Mix and price were 1.5% favorable in food and protective unfavorable by 1.3%, and favorable for the total company 0.4% or $3 million. Currency translation was favorable in foods 6%, in protective 6%, in companywide, 6%.

Acquisitions were not a factor in food, and as I just stated, added 1% to protective, resulting in the less than 1% growth companywide. Total revenue growth, then, was 10% in food, and 12% in protective, and 10% for the company. The company's gross profit was $259 million for the first quarter. Gross profit margin was 31.5% compared with 33.6% in the first quarter of 2002. The decline in percentage margin reflects increases in resin costs only partially offset by productivity gains. As noted in our earnings press release. The cost of certain resins were more than 40% above first quarter 2002 costs.

As we've stated previously, Sealed Air's business is based on selling differentiated products that add value to our customer's operations. We position them according to the benefits they provide. Thus, our margins do not move in lockstep with commodity raw materials and we have tended not to raise selling prices in periods of resin price extremes to completely offset our higher costs. Rather, we also rely on our ability to introduce value added products and to derive productivity gains from our world class manufacturing initiatives to offset higher resin costs. Marketing administrative and development expenses increased $11 million to $139 million compared to the first quarter of 2002.

As a percent of revenue, these overhead expenses were 16.9% compared with 17.1% in the first quarter of 2002. Those of who you listen to our January 28th conference call to discuss fourth quarter results, may recall that we stated that we expected 2003 SG&A expense would be in the range of 16-17% of revenues. Operating profit was $121 million or 14%, 14.7% of net sales. By segment, food packaging contributed $76 million and protective and specialty packaging contributed $52 million, while unallocated -- unallocated corporate expense were $7 million. Interest expense of $22 million compared to $17 million in 2002 increased due to $7 million of accrued interest on the cash portion of the asbestos settlement that we recorded in the fourth quarter of 2002. Income tax of $36 million represented an effective tax rate of 37% compared to 41.4% last year.

Our lower effective tax rate is partly attributable to a higher proportion of our 2003 earnings occurring outside the United States where tax rates are lower. Moreover, we also benefited from our 2002 reorganization of international subsidiaries into a more tax effective structure. Diluted earnings per share were 52 cents for the quarter. As shown on the financial exhibit to our earnings press release, the number of diluted common shares outstanding for the first quarter of 2003 including the nine million shares to be issued under the terms of the asbestos settlement. The comparable EPS for the first quarter of 2002 was 56 cents per share. Please note that the financial exhibits to our press release contain the calculation of EPS on an as if converted basis, for those of you who prefer this non-GAAP portrayal. On previous conference calls we would compare EBITDA and EBIT for the prior periods. However under new SEC disclosure standards non-GAAP measures such as EBITDA must be reconcile to a non-GAAP measurement.

At this time in our closing cycle we have not completed our first quarter statement of cash flows. Without the appropriate reconciliation we're unable to address EBITDA and EBIT during this call. We can share with you is our cash balance as of March cash was $150 million which is $23 million higher than our balance at the start of the year. Our quarter and our accounts receivables totaled $554 million, up $54 million from March 31st, 2002. While our quarter to quarter revenue increased $77 million. Compared to December 31, 2002, receivables investment increased $7 million. Inventory investment at March 31st, was $356 million, up $26 million from December 31st, 2002. Total borrowings at March 31st, net of $150 million of cash or $765 million, and approximately $32 million from net borrowings of $797 million at start of the quarter.

The decrease in our borrowings during the first quarter is attributable to our cash flow from operations. Also, following the end of the quarter, we elected to take advantage of the attractive conditions in the capital markets and we raised nearly $300 million through the sale of five-year notes. Our substantial cash position gives us considerable operating flexibility, while our primary consideration is to satisfy cash to cover a portion the asbestos settlement, we also have the ability to invest in the business and repurchase shares under our authorized buyback program. Now I'd like to turn the call back to bill and to your questions.

Okay, thank you, Dave. I would like to make a few comments before we open up the floor to questions. At first I'd like to talk about our margin in the first quarter, and how remind you all how the Sealed Air business model works. As you've heard Chip and I and Dave say on numerous occasions that we present our organization as packaging consultants to our customers, and as a result, our salespeople go in day in and day out with a value-added approach to the selling cycle. And as a result, we have very many long-term relationships with customers who have been long-term Sealed Air customers for 20 or more years.

And as a result, we are not transaction focused. Unfortunately, the accounting model is based on a quarter, and essentially results in cutoff at the end of each quarter, and although we are mindful of the quarterly results, we do not focus entirely in running our business on the first quarter. So we raise our prices in the marketplace as we have in the past for very many years, in effect, to [colak] the cycle of [polyethylene] or [polystyrene] cost increases. For those of you that followed the company for a number of years, I'd like to go back to give you an example from 1996. In the first quarter of 1996 [Polyolefin] cost increased by about 24% in the first quarter, which Sealed Air experienced about 130 point-basis-point decline or margin from the first to the second quarter. [Polyolefin] continues to increase another 15% in the second quarter of 1996, however, because our selling prices kind collages, margins actually stayed reasonably stable in the second quarter.

However, by the third quarter, we were back on an upward trend on our margins and by the fourth quarter we were actually ahead of the pre-resin cycle margin, which in my mind kind of validates how we go to market. So the extent that past is prolonged to the future, the business model we're following is relatively consistent with what we've done in 1996, as well as a numerous other Polyolefin cycles we experienced over the years. And the price increases which we have announced at the end of the first quarter and also into the second quarter will be rolling through our numbers through the remainder of 2003. I would also like to address one other item before we take questions. As a global packaging company, I wanted to just give you a brief update on the SARS impact upon our business.

As of today, there are no known Sealed Air employees in Asia or outside of Asia that are either directly or indirectly involved with the SARS issue. We have postponed a number of meetings. We have curtailed our travel to the region, but at this point we have not seen a significant effect on our business from the SARS outbreak. With that, I would like to open up the call to any questions we have from the participants.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, you will need to press the star or asterisk key followed by the digit one on the touch tone telephone. You will hear a tone prompt acknowledging you request and the questions will be polled in the order they are received. If you're question has been answered and you would like to withdraw your polling request, press the pound or hash symbol on the push button telephone. If you are using a speaker phone pick up the hand set before pressing the numbers and please disconnect your mute function. One moment please before we begin our first question. And our first question will come from Edings Thibault with Morgan Stanley. Mr. Thibault your line is open sir, check your mute function.

Great, thank you very much. Good morning, gentlemen.

Hi, Edings.

Good morning, Edings.

If can you talk about the success you've seen in your inflatable Bubble Wrap, and the potential. I know it's still early going but your outlook on that product in the near-term.

Sure, Edings, as we indicated in our opens comments, we began our rollout to the sales force in the first quarter. Actually there's a region in one part of the country, the west isn't going to get product until the second quarter, and our inflatable product category continues to grow, actually in the first quarter, it's up about 19% over the first quarter of last year, and the acceptance in the marketplace has been good, our expectations are optimistic, and of course, I want to remind you that our inflatable product line actually includes three products.

One is a product called Rapid Fill which has been around for a number of years. The second is our [Fill-Aire] which are kind of the large air-filled pillows which are used by some of the e-tailors. And, of course, the third and most newest addition to the inflatable product line is the inflatable Bubble Wrap. I would say that sales in the first quarter aren't significant to mention, but we're still extremely hopeful, and optimistic.

Great, thanks. And, in fact, I'd like to turn to the resin environment. Obviously, that's a critical factor in the quarter. In talking about your experience. Did Sealed Air in fact have to pay some of the surcharges that we heard about in the market, and can you talk about resin prices as they stand right now relative to perhaps levels in February and March?

Okay. There were surcharges put into effect by a number of suppliers. I'd rather not name any of the particular suppliers, but some of the suppliers held firm on their surcharges and a number of suppliers made some concessions on -- on the surcharges. What's actually happened is, I think, most of the major suppliers have announced withdrawal of the surcharges as of the end of March, beginning of April. However, the surcharge was essentially replaced by the scheduled April 1st price increase. So resin prices are holding in April at same level they were in March.

Great. And would you expect them to decline the balance of the quarter?

I think the expectation is, you know, following the cessation of hostilities in the Middle East, that there should be an abatement in energy prices I do have -- note that natural gas remains over $5 per million cubic feet. So I wouldn't expect resin to move too much lower until natural gas gets below $5.

great. Thank you very much.

In the interest of fairness, we ask you limit yourself to one question per caller so that the others do have a chance to ask their questions. Once your question has been answered, we ask that you re-queue by pressing the star or asterisk key followed by the digit one. Our next question from Ghansham Panjabi representing Lehman Brothers.

Hey guys, good morning.

Good morning,.

You can give us a geographic sales breakout?

I tell you, with all these new rules Ghansham, I want to be sure, the reported numbers, I think I can tell you the pieces of it, as long as I stay with numbers that are reported.

All right.

I have to give you the reported numbers, the currency effect, and then the excluding currency effect, and I think that reconciles to a GAAP number.

All right.

Okay? North America was 5% up on a reported basis. Currency was 1% minus, so the excluding currency was 4%. Europe was up 23% on a reported basis. 20% of that was positive currency, and therefore, the constant dollar growth was 3%. Latin America, on a reported basis was minus 3%, currency was 12 negative, so volume ex-currency was plus 9. Asia-Pacific, on a reported basis was 22% up. 16% of that was -- was -- was currency, so 6% was excluding currency. That's your full reconciliation.

Okay, great. And one more question, if I could. Your lower tax rate for the year. This is dramatically lower than what you guys have guided towards in the past. I'm just wondering if your previous 240 estimate. The estimate for the fiscal year on an EPS basis, did it account for this lower tax rate?

I'll let Dave handle. That I know Dave mentioned guidance for 2003 was a little lower tax rate. I think this is below what was indicated earlier.

I think Ghansham in prior conversations we did indicate we expected a decline in our effective tax rate. That is, I think, additionally benefited in the quarter by the strong performance that bill's just gone through in our international operations. As I commented in my prepared remarks, a number of the countries we do business in overseas have lower tax rates than we have in the U.S. The 37% number that we did record in the quarter is a rate that we feel we are going to be able to hold to for the balance of the year. So that's, you know, I think a reasonable rate for those of you out there that do modeling to assume will be at the 37% effective tax rate. Regarding impacts on guidance, the press release has indicated that we expect total year earnings in the range of 240 -- $2.40 to $2.45 per share, and that factors in all the things that have occurred in the first quarter. Resin prices, foreign exchange, tax rates, introduction of new products and the like, so, you know, I'll leave it at that, that the $2.40 to $2.45 range custody which includes the 37% effective tax rate.

Great, thank you, very helpful.

And representing Ingalls and Synder, next question will come from Rosemarie Morbelli.

Good morning, all.

Good morning, rosemary.

Could you give us a feel which changes occurred in the price mix category. It was down for protective. It was up for food. Was it similar areas up or down as in the fourth quarter, or did you have some shift in your markets? And if you could talk about the different markets you serve and the trends there.

Yeah, I don't think there's any change in the business in terms of the factors in the first quarter versus the fourth quarter. The price mix was positive in the food side of the business, and I think that's as we tend to up sell case rating and the higher value added products that brings kind of the mix side along with the price. I think the factors you're seeing on the protective side are, you know, more reflective of the industrial economy and the sluggishness that we're still seeing in the industrial economy and other -- kind of focus on our industrial customers on more cost effective means of packaging. But, as I say, and I wouldn't say that's a change from last year.

Okay, and if you could follow up with talking about the different markets you serve and other different trends you are seeing out there?

Markets Rosemarie meaning geographic?

Meaning end markets, customers in the industries you sell into?

Well, sure. I mean, on the protective, industrial side, essentially kind of the retail sector and the housing sector are continuing to hold up the economy. Manufacturing is continuing to be sluggish, and the military customer base provided a slight uplift, but really was not a major factor in our results for the quarter. On the food side, case rating continues to grow. That is really up 18% in the first quarter. We continue to see success with our whole poultry bird bag, which is kind of a leak-resistant bag that is doing quite well on the poultry sector, and we continue to see what I think Chip has referred to as in the bag merchandizing, which is essentially taking our barrier bag and using that as a display item, and using it in the retail case as a direct package to go home with the consumer, as opposed to taking it out of a barrier bag and putting into a tray, and those are gaining acceptance and those stores that tend to the larger pieces of meat, the larger cuts. The Sam's and the Costco’s.

You didn't touch on electronics, anything there?

Having listened to the news releases of some of our customers in the electronics field, and I'm sure you've seen them too, there's really not much happening there, Rosemarie.

I'll give it back, thank you.

And we will go next to Dan Khoshaba with Deutsche Banc.

Dan?

Dan?

I know that you don't raise prices and raw material costs. That seemed to be a very successful and right strategy, with the old Sealed Air, and perhaps it's the right strategy now with the new Sealed Air. But I'm just wondering, is that a new policy for the food business? In other words, prior to you guys buying that business, did they, the previous owners and managers, did they attempt to raise selling prices in line with raw material costs? And is it the right strategy for that business?

Okay. Let me -- and I've got Chip here who's actually came from that side of the business, I'll make a comment and ask Chip to answer the history. I will say one thing that when we put the [Cryovac] business together with the industrial packaging of Sealed Air. There was a lot of commonalities in how we went to market and how we did business from the consultative sales approach to the value-add products and the approach on pricing.

Yes.

The two company independently follow the same model, and I don't think there have been any changes in the model for the last five years, Chip, you want to add history to that?

I think bill's exactly right. The [Cryovac] followed that same philosophy, and it's always a -- we always take the long-term view in pricing, and I think that's still reflective of our strategy for both sides of our business.

: Okay, and Dan, answer to your third question is it the right strategy going forward? We still believe it is. Obviously, it's something you continue to look at over time as markets change and economies change, but right now that remains our strategy and how we go to market.

Okay. The reason for that, obviously, is so that you detach your pricing from the commodity aspect of the business, and I understand the logic, but I'm wondering, what happened in 1999 because in '99, I was covering the company, we had significant raw material cost inflation as you guys know, throughout the polyethylene chain. The companies said the same thing, they did raise prices. You guys raised your selling prices but there was a very, very big lag. Several quarters before you kind of got there. Were you able looking back now, were you able to keep that pricing, or did you have to lower the selling prices as raw material costs fell quite significantly over the next then couple of years?

Yeah, Dan, I'm actually looking at my spread here from '99, and we actually were able to get our margins over 34% at that time. Now I will tell you that 1999, first quarter, was like nine months following putting the business together, we were going through a restructuring, if you remember, we eliminated something like 765 employees over that time. I will confess that we probably were slower on the draw there in being as effective in the field with the price increases. But I think when you get in 2000 you see the margins kind of come back up into the 33 plus. So I do think it works, obviously, in '99, there were some background noise, there was static, but so it took us a few quarters longer.

And you've got pricing in the marketplace?

Yeah, we have pricing in the marketplace, and we've actually implemented our second price increase depending on the business between April 15th and April 21st, depending what part of the business analysis.

Okay Bill thanks.

Which means, let me take a minute, we do have a question that came over the Internet, and let me take a break here to answer that question. I will repeat the question. When did announced pricing increases incur, and was there evidence to recent volume trying to front run the price increase, and how much of the 16 cents P/E price increase did we actually absorb in the first quarter. The first one price increases announced the first round one was February 24th. Most of those didn't go into effect until the 1st of March. There are also price increases announced at the end of the of March that didn't go into effect until April 15th or April 21st depending on the business, so those are the dates of the increases. I don't have any solid evidence of volumes trying to front run the price increase, we did have that discussion among our management group and concluded we didn't see it as being a factor. Those of you that know our product line know you can't store up a lot of Bubble Wrap in anticipation of a price increase. How much of the 16 cent P/E price increase did we absorb in the first quarter? I don't think I have that number right offhand, my assumption is probably a good part of it. Okay? With that, operator, can we take another question over the phone

Certainly , our next question from Timothy Burns (ph) representing Cranial Capital.

Hey, Bill, Dave and Chip.

Haven't heard from you for a while?

I am doing fine. I guess two questions, key question is when you introduced a new product, and obviously, this inflatable Bubble Wrap is, you know, one that's been long awaited and played with, there is kind of a ripple effect in the sales of other protective products, because your sales people get to get in front of the customer, and maybe do an installation, while you're there you're buying plank foam or other [InstaPak] products. Should we expect something like that? And I have a quick follow-up?

Well, I mean, I mean, Tim you sort of haven't called on customers. It's always exciting when you come in and say I have something new, and while there you show them everything else you have. To the effect that there's spillover, that's always helpful but in this economy, we're not counting on it right now.

Okay. And will there be any -- this SARS thing. I don't know, they're studying how it actually developed. I guess people living right on much of ducks and other fowl. Will there be calling of some of the animals that could impact your Asia-Pacific food bag sales?

We don't package a lot of ducks. We don't package a lot of ducks. As I said, we just got an E-mail this morning from one of the people that runs our protective business over in Asia, and, you know, he's kind of suggesting that direct impact on our business is small, it's still confined to a relatively -- it's Hong Kong, kind of southern China and Singapore seem to be the pockets. And at this pint, it -- and at this point, it hasn't impacted our business, I will tell you talking to colleagues who draw a lot of supplies from that part of the world, kind of like toy companies and some of the other people that do a lot of their outsourcing from China, are rethinking the supply chain implications. So I think -- I think you may -- you may, and I don't want to make a prediction here that you may see a little bit of a slowdown in China's growth as a result.

Sure. Well, as you know, I'm a connoisseur living here in Cleveland, and understand all the fine dining.

You have ducks there?

Well, maybe there's a packaging opportunity. Let's say people bring their fowl home alive. Maybe there's a whole new business for you. So there!

okay. Thanks Tim.

Okay, talk to you.

And our next question from Mr. John McNulty representing Credit Suisse First Boston.

Guys, quick question regarding share repurchasing. You put that on hold to build up a decent cash position getting ready for any kind of asbestos settlement payout. And I believe, if I remember correctly, you were targeting kind of a $300 million kind of fund that you were going to be setting up there for that kind of a payment. Now that you've done the $300 million of debt, just the end of the last quarter, and you also had about $150 million of cash that you had generated over the past year or two, you know, can we expect to see kind of the same level of buybacks that we got used to seeing Sealed Air make prior to the asbestos, you know, issues that popped up, and if so, when can we expect to be back in the market there.

Well, I'll turn this one over to Dave.

John, I think you may recall last year, we spent about $30 million on buybacks, and we have a program that remains in force that allows us to buy back something on the order of 7 million common equivalent shares. It is not our practice to comment specifically on when we may be in the market to repurchase shares. Suffice to say that you've identified the fact that we have sufficient cash, and I'm confirming we have a buyback plan in place, and we'll leave it at that.

okay, great. And one quick follow-up. In terms the impact on your earnings for the next three quarters and the favorable tax rate that your going to get that have been better than what you were expecting. Would you say the net amount that you're going to benefit from there is roughly in line with the net amount that you're going to get hit on the interest expense given the new $300 million offering that you put out there at the end of the quarter?

I don't know, John, that they directly offset each other, but certainly that one of the things that allowed us to stay with our $2.40 to $2.45 guidance for the year was the expectation, despite the roughly 6 cent impact over the balance of the year from the higher or additional interest on the bonds was that we would have that 37% tax rate. So it's in the mix of pluses and minuses that get us to that $2.40 to $2.45 range.

Great, thanks a lot, guys.

You're welcome.

Chris Kapsch (ph) representing Black Diamond Research will have our next question.

Want to follow up on some of the trends on the protective side, and specifically price mix which has been sort of negative, I guess for, six straight quarters, but looks like the magnitude of that negative number is abating a little bit. I'm curious if you could speak to that a little bit, specifically if there's any -- I guess that business sort of been weak because of the industrial economy being so soft. I'm wondering if there is a sequential improvement there, if it reflects any competitive pressures abating, or is it really just simply a function of resin prices being up and you're getting some pricing through or is there some richer product mix that you're able to get in the business at this time?

Chris, that's a mouthful. The answer is sort of all of the above on the industrial side. We do have -- I mean, we do have the -- the issue of serving a very sluggish manufacturing economy, as you heard me answer one of the earlier questions, you know electronics and telecom which are more sort of kind of the sweet spot in the marketplace for Sealed Air products have been flat to down for probably six or seven quarters. So that's obviously a factor. The other factor is that we have in response to some of the economic issues on the part of our customers, introduced what I'll call lower priced offerings. We went from kind of a [Fill-Aire] system to a [Fill-Aire] tableside system, which is a lower cost version of an inflatable product. We've done similar things with industrial products to -- to bring the price point more in line with where the market conditions are in the industrial economy. On the other hand, we are seeing some effect on the price, in response to one of the earlier questions. We did have an industrial business price increase announced back in February that went into place in March, and we do have some of the newer products like the inflatable Bubble Wrap, which actually goes up price. I think what you're seeing, Chris, is a combination of all of those that are bringing that price mix number closer to break even and hopefully to a positive here as the economy gets a little better.

And do you have any comment on how you anticipate that to move forward, the price mix component of the protective?

I can suggest the example I gave in my comments before the Q&A, if you look at some of the prior, prior cycles, the company's gone through whether it's the '96 cycle I referred to or the '99 cycle that Dan Khoshaba referred to, takes a couple of quarters to get through.

Thanks, Chris, what I would like to do is take the next question over the Internet, just to be sure we give everybody kind of a fair chance. And question, I'll read the question is -- What percentage of the $26 million increase in inventories is due to raw material costs? Also Sealed Air's inventory turns ratios revolve around the number seven terms as opposed to S&P average of 11. What steps is SEE taking to increase the inventory turns, therefore increase? Dave, I know you did inventories work prior to the call.

You realize the S&P was 11, but --

I can't speak to that. I don't know what goes into the 11 and whether that's comparable industrial firm or not. In term of Sealed Air's performance, resin prices we've been throwing around some fairly dramatic year-over-year increases in resin prices and that clearly does flow through the balance sheet, particularly in our overseas operations, where we have FIFO accounting for inventories. In addition, regarding our international business, when we translate those inventories back into U.S. dollars, there is a significant foreign exchange component that's driving our year-over-year increase in resin’s, and I think in -- that's about a $20-21 million impact year-over-year, that foreign exchange is having on our increased inventories.

Okay, so what you're statement is, is really most of the dollar increase on the balance sheet is from the change effect and the rest from the raw materials.

The 21 -- the year-over-year increase in inventories is the $26 million is an increase since the 1st of the year. The increased year-over-year is a little over $60 million. Roughly a third of the year-over-year increase is foreign exchange, and a significant portion of the remainder is attributable to the increase in resin share year-over-year.

And as far as the turn number I guess I'm not sure I can comment on the S&P average. I know Sealed Air's historical turns have been in the seven, six to eight range, and that's a number that we kind of targeted, and that's kind of a moving inventory, a little over every six weeks, and that's with a lot of inventory on the water and in other parts of the world.

Next question over the telephone

Thank you, our next question from Uzi Zimmerman (ph) representing JFM Capital.

Have you done buybacks on the return during the recent quarter or since the end of the quarter?

Short answer is no. Obviously since the end of the quarter, we're in a blackout period until earnings are released today. The company is subject to the same inside the trading rule. The short answer is no.

Thanks

We have a follow-up question from Edings Thibault with Morgan Stanley.

Good morning, again. Bill, you saw acceleration in the case rating volumes relative where the numbers had been in 2002. I was wondering if that was as a result of some of the new Tyson initiatives they've taken to push that where exactly you were seeing that growth?

Actually it's interesting, the biggest increase in the quarter, Edings, came from Europe. Europe was actually up well into the double digit numbers, and one of the -- one of the drivers was we have a significant new case for a customer in Spain that started up operations really in the second half of '02. And comparable numbers in '03 are very favorable. We also are seeing some conversion at [Inaudible] in U.K. and at [Inaudible] in France. So the kind of acceleration which we're pleased to report for the first quarter is really helped by some major steps forward in Europe. I will say, though, in the U.S., if you go Tyson's most recent quarterly earnings which was back in January. Tyson reported their beef case ready sales were up 14.3%, and their pork case ready sales were up 44%. So overall, case ready continues to do well. I will say that in the first quarter, the acceleration came from Europe.

Great. Thank you very much.

Let me take another question from the Internet. I'll repeat the question. 2003 guidance assumes, quote, continuing global economic recovery, closed quote. Does that mean increasing global GDP in each successive quarter and what kind of assumed improvements would be positive but flat global GDP growth satisfies that assumption? Dave, you want to address that one?

I don't think that we're any more expert than the next management team in terms of projecting where GDP growth is likely to head. We have not assumed anything other than business as usual for the balance of the year, so, you know, we're not expecting to benefit from any acceleration in business activity for the balance of 2003.

But I guess on the other hand just to be clear is we're not anticipating another downturn in terms of a recessionary dip in 2003 either.

That's correct.

Okay. Do we have another question on the telephone?

And due to time limitations, this will be the last question we'll be able to take. My apologies there. This is a follow-up question from Rosemarie Morbelli representing Ingalls & Snyder.

Hi. How much did they contribute to first quarter operating income and how much could they be hit by continuation of SARS?

Okay. First part of your question, is I don't think I can tell you the operating income number for Asia at this time. But I can tell you that on kind of the sales number as you heard me say earlier in response to one of the earlier questions that on a reported basis, Asian sales are up 22%. Currency was 16% positive. So the kind of real growth excluding currency was -- was 6% positive. That's just an indication, remember too, that Asia is like 9% of the business.

Okay, that was going to be the --

yeah. And so in terms of magnitude, you know, SARS should not have a significant effect on the business, and as I said in my earlier comments and that to this point it has not had an effect on the business.

Okay, and I was -- listening to the French news the other day, and it seems that it is either in Holland or in Belgium that they are having some kind of a chicken plague and they're killing thousands of animals. Can that actually become a major problem for you if this spreads throughout at least one part of Europe?

No, and Europe we really don't do. Europe chickens are not a large part of our business. In the U.S. they have not been a large part of our business until we developed our new leak resistant bag within the last couple of years. Chickens are very fragile animals, and they tend to get viruses periodically, and the other thing too is that the effect on the business, if there is any, and I don't expect there to be, is generally short term, Rosemarie, the chicken cycle reproduces in about 42 days. So they can get a herd or a flock size back to a commercial scale relatively quickly and other numbers takes 18 to 24 months when you're dealing with other animals. To the extent there are cycles in chicken, they tend to be a lot shorter.

We don't have a mad cow type of impact, like that. Lastly, if I may, you talked about the equipment part of your business in the fourth quarter which I know its small but seems to be a barometer for the economy, and you had mentioned there was a lot of customer interest in the second half of '02 which had not materialized until orders. Are you see will any change there?

Actual very subtle, I can't give you a specific number right now, but I was looking through the trends in the month by month in the first quarter -- January, February, March -- and without trying to being too optimistic. There's been a subtle Improvement versus 1, 2% month over month in a first quarter and I take that as a hopeful sign and I also take as a hopeful sign some of the earnings releases coming out from other companies that they're beginning to be some confidence coming back into the economy. So very subtle conversion orderings, not a huge number but I think the winds are blowing the right way.

Okay, thanks.

Okay. I do want to take a couple of closing comments and thank you all for participating in the call. Although the global economy and geopolitical issues continue to present challenges for many businesses, it's still an exciting time at Sealed Air. We continue to benefit from our focus on innovative products like inflatable Bubble Wrap that add meaningful value to our customers' bottom lines. Our global reach includes operations in 50 countries and provides a platform to serve customers almost anywhere in the world. Whether our customers expand locally or internationally, we are there, and we have expansions under way in Eastern Europe, Asia and the U.S., that will further enhance our capability to serve customers. Our organization remains focused on continuously improving our operation under the philosophies embodied in our world class manufacturing. -- initiatives. All of the strengths and priorities position as well for the longer term. As we have highlighted on today's call, we expect to see improvement in our gross margin to the remainder of 2003. Finally, our substantial cash position allows us the ability to fund the portion of the asbestos settlement to continue investing in our business, and the potential opportunity to return value to our shareholders through the repurchases of preferred shares. For all of these reasons, I continue to be confident in our position and our long-term outlook, and I'm always very glad to be a Sealed Air shareholder. Thank you very much.

And this does conclude today's Sealed Air first quarter analyst and stockholder conference call. We do thank you for your participation, you are now welcome to disconnect.