希悅爾 (SEE) 2004 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 V. Hickey, President and Chief Executive Officer, and David H. Kelsey, Senior Vice President and Chief Financial Officer. After our prepared comments, we will be taking questions. (OPERATOR INSTRUCTIONS).

Now, I would like to turn the call over to Eric Burrell, Director of Corporate Communications.

Good morning. Before we begin our call today, I would like to remind you that statements made during this call stating management's outlook or predictions for the future are forward-looking statements. These statements are based only on information that is now available to us. Our future performance may be materially different, due to a number of factors. Many of these factors are listed in our most recent annual report on Form 10-K or our upcoming quarterly report on Form 10-Q. We have also posted supplemental statistics and financial information and a reconciliation of non-GAAP financial measures that we expect to discuss on our Website at www.SealedAir.com in the investor information section under the reports and filing section.

Now, I will turn it over to Bill Hickey, our CEO. Bill?

Thank you, Eric. Good morning. I am Bill Hickey, President and CEO of Sealed Air. With me today is David Kelsey, our Chief Financial Officer. As an introduction, I will provide a few highlights on our business for the first quarter of 2004. Dave will then review the details of our financial results. After Dave's remarks, we will take your questions.

Sealed Air is pleased to report strong growth and net sales of 11 percent, which helps to achieve a 23 percent increase in diluted earnings per common share for the first quarter of 2004. Sealed Air's long-standing commitment to providing value for our global customers helped contribute to our results. Our net sales of $913 million were the highest on record for a first quarter at Sealed Air, and the second highest on record for any quarter in our history. I honestly look forward to our first $1 billion quarter. The favorable performance of our top line was driven by solid volume growth in our protective packaging segment and strength in our international business. Even excluding the effects of foreign currency translation, every region of our business delivered a positive contribution to our growth, with Latin America and Asia Pacific posting the strongest growth rates in the quarter.

In the protective business, we continued to grow with our global customers, as they expand their business into all regions of the world. Excluding the effects of foreign currency translation, net sales in our protective packaging segment increased 5 percent, led by unit volume increases and stable product price mix. Our broad portfolio of products and our staff of experienced packaging professionals enabled Sealed Air to consistently deliver value to our customers, with the right packaging solution for a wide range of applications for our customers almost anywhere in the world.

On the industrial side of our business, the month of March was a strengthening month. We continue to see strong sales in Asia and Japan, where we are benefiting from a stronger Japanese economy and continued growth in China. As an example, a couple of recently released numbers -- UPS packaged shipments were up 5.2 percent in the first quarter, FedEx shipments were up 1 percent through the month of February, and U.S. Corrugated Box shipments were up 3.1 percent, all signs of a recovering economy and consistent with what Sealed Air is seeing in the marketplace.

Our food packaging segment sales increased 2 percent, excluding the effects of foreign currency translation, despite the import restrictions on U.S. beef products imposed by various countries around the world. Our global reach and ability to supply our customers with packaging for all major sources of protein helped reduce the impact of import restrictions on our food packaging business. We continued to achieve solid growth in our strategic growth programs within our food packaging business. Case-ready sales continued to achieve solid double-digit growth, as the trend toward safe, consistent and centrally packaged prepared packages of fresh meat drives growth in this global packaging opportunity.

We also continued to meet sales growth objectives in our vertical pouch packaging business, due to the quality and productivity gains provided by these products for foodservice operations. To support long-term growth for our food packaging customers, we started up a new plant in Arkansas in the first quarter of this year, and we expect to start up a new plant in Europe outside Budapest, in Hungry, later this year.

Finally, we are extremely pleased with the Company's consistent ability to generate cash. In this quarter, as indicated in our press release, we repurchased $25 million of Sealed Air common stock, and at the same time were able to increase our cash balances. We continue to invest in upgrading Sealed Air's information technology platform, which will improve service to our customers and improve our cost structure.

And lastly, we are realizing the benefits of last year's recapitalization and our date repurchase, which has increased our earnings per share.

Now, I will turn the call over to Dave to review some additional details on our financial performance.

Thank you, Bill. I would like to start with some additional comments on our operating performance. As Bill mentioned, our sales of $913 million were a record for a first quarter. This was the third consecutive quarter that our sales topped $900 million. Included in our year-over-year growth of $90 million is a $62 million positive effect from foreign currency translation.

For those participating in the call who would like additional detail, tables are posted on our Website, SealedAir.com, that present percentage of sales by geographic region, the impact of foreign currency translation on sales by geographic region, and the components of the change in net sales by business segment and by geography.

Moving through our statement of operations, the Company's gross profit was $286 million for the first quarter. Gross profit margin was 31.3 percent, compared with 31.5 percent in both the fourth quarter and the first quarter of 2003. Compared to last year's first quarter, we were able to largely offset increased resin costs through a combination of price increases and productivity contributions from our world-class manufacturing initiatives, such as those featured in our annual report.

Marketing, administrative and development expenses increased $21 million to $159 million, compared to the first quarter of 2003. Approximately one-half or $10 million of this increase was attributable to foreign currency translation. As noted in our press release, and as Bill just commented, the balance of the increase reflects a number of factors, no one of which contributed to more than a $3 million variance. Many of these year-over-year increases, such as our information systems and R&D project costs, will improve our future profitability. As a percent of revenue, these overhead expenses were 17.4 percent, compared with 16.9 percent in the first quarter of 2003. Looking ahead, we expect our total expenses to be within our target range of 16 to 17 percent.

Operating profit for the quarter was $127 million. Operating profit as a percent of sales was 13.9 percent, compared to 14.7 percent in the first quarter of 2003. By segment, protective packaging contributed $52 million or 14.8 percent of first-quarter sales, down fractionally from the 14.9 percent margin achieved in the comparable period last year.

Food packaging contributed $76 million, an increase of $2 million or 2 percent over the prior year. With the 11 percent increase in food packaging sales, the segment operating margin declined to 13.4 percent, compared to 14.6 percent in the comparable period last year.

Interest expense was $38.1 million, compared to $22.4 million in 2003. This substantial increase is attributable to $3.3 million from the April 2003 issue of $300 million of five-year senior notes and, most significantly, $16.3 million of interest expense from our $1.3 billion financing completed in July of last year.

As a reminder, we used the proceeds of this July financing, together with available cash, to redeem all of our convertible preferred stock. This redemption has been accretive to both earnings per share and to cash flow. Our repurchase of bonds with a face value of $172.5 million in December contributed to a $4.8 million decline in interest expense, compared with the fourth quarter of 2003.

Income tax expense of $34 million represented an effective tax rate of 36 percent. Previously, we shared our expectation for an effective tax rate of approximately 36 percent for all of 2004. Meanwhile, we continue to work on projects to reduce our effective tax rate, particularly on our earnings outside the U.S.

Diluted earnings per share was 64 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 includes the 9 million shares to be issued under the terms of the asbestos settlement.

I will conclude my remarks with some key cash-flow and balance sheet items. First, EBITDA of $177 million was a record amount for a first quarter. At 19.4 percent of sales compared with 19.8 percent a year ago, it was in line with our expectations. Our expectation is that EBITDA for the year will be above the 20 percent threshold of our target range. In compliance with Regulation G, we have posted a reconciliation of EBITDA to net earnings on our Website.

Capital expenditures were $27.4 million for the quarter, primarily in our food packaging segment, and include construction of our new facilities in Hungary, South Carolina and Arkansas that we have discussed. In the first quarter of 2003, our capital spending totaled $22.1 million. We remain comfortable with our target range to spend between $125 and $150 million on capital for 2004.

Our cash balance at March 31 was $413 million, up $48 million for the quarter. This increase came after we used approximately $25 million to repurchase approximately 500,000 shares of our common stock during the quarter. Our quarter-end accounts receivables totaled $579 million, down $36 million from December 31, 2003. Compared to March of last year, receivables investment increased $25 million, while our quarter-to-quarter sales increased $90 million.

Inventory investment at March 31st was $390 million, up $19 million during the quarter and up $35 million or 10 percent from March 31, 2003. This expansion was in keeping with our 11 percent topline growth.

Lastly, total borrowings at March 31, net of our $413 million of cash, were $1,873,000,000, down $42 million during the course of the quarter.

Now, I'd like to turn the call back to Bill and to your questions.

Thank you, Dave. Operator, if we could now open the call up to questions from the participants?

(OPERATOR INSTRUCTIONS). Richard Holohan, Smith Barney.

I had two quick questions. One was on the other income line. It looked like that jumped up a couple of million bucks from either the year-ago quarter or the fourth quarter of last year. What was in that, and where do you see that going forward?

I will ask Dave to address that, but don't forget we have got a cash portfolio of $420 million.

Right.

There goes my punchline, Bill. Yes; the swing was $5.8 million, which is roughly 4 cents a fully-diluted share. As Bill mentioned, the interest income on our cash balance, which is about $250 million higher than where it was at the end of the first quarter last year, was a large contributor. Another example is a small gain we have recorded in the first quarter on an unneeded European warehouse. There is nothing that makes a CFO more happy then selling warehouses.

And then, last year, we did have a couple of losses, such as the deductible on a fire loss in a small facility in Asia. So no big items, no individual item that represented more than 20 percent of the $5.8 million swing.

If you compare that to the fourth quarter of last year, you had about $365 million in cash. So it's not that big a jump in cash. Is there another part in there that I am missing?

Actually, it's interesting. Rising interest rates are going to help that number through 2004. In fact, in a prospective look at interest rates going up for the rest of the year, we should probably have a net benefit in that most of our debt liabilities are fixed rates, and our cash portfolio should earn a higher return in a higher interest rate environment. But there is really nothing unusual in that number.

So that should be sort of a good level going forward, and we will just keep an eye on short-term interest rates?

Yes. There were a number of minor items, and it's difficult to forecast what will hit on a quarter-to-quarter basis.

The second question I had was on price increases. It looks like you had about 1 percent of your sales growth was attributed to price increases in the food segment. So is it fair to say that you are offsetting your higher resin costs through productivity and other cost initiatives?

Well, there, I could say that doing business in 50 countries, there are price increases being done in different parts of the world. And remember, kind of the resin doesn't move the same in all markets. So you have the U.S., where resins are primarily based on a natural gas feedstock. You have Europe, where resins are based on a petroleum feedstock. But there are opportunities to raise prices on our business in different parts of the world, and I think in one or more segments of our business, we probably have had a price increase on a year-over-year basis.

(OPERATOR INSTRUCTIONS). George Staphos, Banc of America Securities.

Good morning.

Thanks for the ATM comment, George.

Well, we think it's appropriate. But on free cash flow, were you in fact apprised by the level of generation in the quarter? If not, where, still, were you most pleased in the quarter, and how might you move on those parameters over the rest of the year? Then I had a follow-on. Sorry, operator.

George, let me just start. And I am going to hand it to Dave. Having been in this business 20-plus years, kind of the first quarter is one where our cash flow tends to not be the peak (ph) quarter of the year. So it was a little bit better than we had thought, and I will let Dave go into how it got there.

Certainly, the big driver was the $36 million improvement in our accounts receivable. That correlates quite well with the increase in our cash balance for the quarter. And that was pretty much global performance and improvement in the quality of receivables, so the team that works in that area has done a very good job addressing balances that had not been current at year end, and has made significant progress to bring those balances current.

And there was nothing in the receivables program, securitization program there? You might have mentioned it, but I missed that.

No, we have nothing outstanding under the receivables securitization, nor do we have anything outstanding under any of our short-term borrowing facilities.

The follow-on -- if one could critique the quarter, one area possibly would be food volume, which was relatively flat. And we know that the Company over the years has tried to invigorate the growth rate to get food through new products. You have been kind of quiet on new products; that was my take, the last few quarters. Can you update us, one, what are your expectations for food growth going forward? And what should we be hearing about new products over the next two or three quarters?

George, let me talk about how the food growth is. As you are aware, there continues to be a ban on imports of US beef from a number of countries in the world. Roughly, looking at the numbers, interestingly enough (ph), 9 percent of the US beef industry is represented by exports. One of the major players in the meat and poultry industry released their results, I think, a day or two ago. And they showed quite a large decline in their export sales. We have actually, I think, managed the situation reasonably well, in that our numbers are definitely, I think, much better than the export results themselves would indicate.

So what we're hoping is that their discussions -- the U.S. and Japan met on Saturday to talk about what are the procedures and protocols to lift the ban on imports of US beef into Japan, which is one of the largest markets. And those talks, as we understand, went reasonably well. There is no firm date. Our earlier indications to you on the first-quarter call was that we were hopeful --

1 percent (ph) or so, right?

Yes. We were hopeful, though, that those numbers would be -- the restrictions would be lifted by June. It's now looking more like August, the August/September timeframe. And so we're just going to take a wait-and-see attitude on that.

As far as new products, case-ready vertical pouch -- all of those continue to move. There is continued penetration in kind of the simple steps concept. We were actually on a supermarket tour a couple of weeks ago, with one of the other firms, and proudly saw the display of this new offering, where a ready meal is actually prepared by our customer and then chilled and delivered to the store, purchased by the consumer, reheated by the consumer -- all in the same container. So it's effective, it's efficient, it's cost savings and it's convenient. And we're seeing an acceptance of that. In fact, I was in a supermarket on Saturday, and watched the offering from a number of the major brands of prepared meats, generally that could feed two to four people, depending on the size.

So those are out there. Perhaps we have not talked a lot about that particular one, but that's an opportunity. And there is still more to come.

Ghansham Panjabi, Lehman Brothers.

Can you guys give us U.S. food and protective volumes for the quarter, please?

Dave, you have got the -- I think we got the --

It's out on the Website.

Yes, it's out on the Website. I can give you the volumes is food is like 0.5 and protective is kind of 4.9, which comes up to 2.2 for the total Company.

What about specifically for the U.S.?

We don't have it broken down that way, Ghansham.

Was there any market-share movement in protective packaging on the quarter?

No. No, we don't track market share on a quarterly basis; we think it's kind of a misleading number.

And what about trends in this particular business in Europe? What are you seeing there?

Actually, Europe in protective had a pretty good quarter. Europe, in protective, probably had a much better quarter on a relative basis than the U.S., where we are seeing some benefits in the economy over there.

And just finally, Dave, what was the FX impact on the bottom line?

The FX impact on earnings per share or (multiple speakers)?

Yes. Earnings per share.

To tell you the truth, I have not calculated that. I can tell you that on the top line, we had a $62 million impact. But you have to go to work with some margin percentages and make some assumptions which go beyond what we would normally disclose, to get yourself to a bottom-line impact.

Rosemarie Morbelli, Ingalls & Snyder.

You have reshuffled your segments, and took out medical from out of packaging, protective packaging, and put it into food. If I do the math, it means that you had, in the first quarter of 2003, about 8.8 million in revenue from this part of the business. Is there a seasonality, first of all, in the medical film to being in connectors? Or is that number in '03 more or less similar for the next three quarters? And what was the growth in the first quarter of '04?

Medical, as you know, is only part of the segment, Rosemarie. It's really only about 1 percent of the Company sales, maybe a little bit more when you add it all up. So, obviously, it's combined. The reason why it was kind of shifted is the way the SEC requires reporting by segment, they are supposed to reflect the organizational and kind of management structure. And we did a little organizational change at the end of last year, and moved the reporting responsibility for the medical business from the executive who ran the protective business to the executive who ran the food packaging business. So we necessarily have to move the segment.

We also -- you have heard us say that the medical business is an area where we have seen growth. You have heard us say we are putting a new plant in, in South Carolina. And the first quarter is not necessarily the best quarter the business has. We have not started up the second line yet. And a lot of that product goes to Asia, and the first quarter tends to reflect the Chinese new year and the various other slow periods that happen during the first quarter of the year. But we will have that reclassification, Rosemarie, done on a quarterly basis. And it's actually comparable in both periods, so you really are looking at comparable numbers between 2003 and 2004.

Right. So if I were to take that 8.8 million and put it for the year, then you would have had about 35 million of revenues from that business, and it looks as though it is more like 50 million. You are adding one line in South Carolina, so obviously you are expecting quite strong growth in that particular area. Are we looking at the 20 percent range, similar to case-ready, or is it a business that is going to grow smaller or actually faster than case-ready?

Well, we see the medical business, Rosemarie, as an opportunity. I was actually in China at the end of March, and met with some of the ministries of the Chinese equivalent of the State Food and Drug Administration, and had an opportunity to be updated on their plans in China to have a major upgrade of the health-care system, particularly the hospitals, where, interestingly enough, a fair amount of medication and intravenous feeding is done in the form of glass bottles. And one of the steps in the upgrade of the health-care system is to replace those glass bottles with flexible pouches. And we see that as an opportunity.

I think it's hard to predict how big it is, Rosemarie. Right now, I couldn't tell you how many hospitals there are in China, and I can only guess that the number of bottles being used is in the billions. But we are hopeful that that will present an exciting growth opportunity for the Company. But as I remind you, it's still a very small part of the Company.

Right. And then lastly, if I may, did you have anything from acquisition of product lines in protective and in food for the quarter?

Dave, I think there was about 0.1 percent effect, which is really kind of a follow-over from an acquisition we did early last year.

Yes, I think on a total-company basis, it was less than $1 million that we picked up at the top line. And that detail is shown on the charts that we have out on our Website.

(OPERATOR INSTRUCTIONS). Edings Thibault, Morgan Stanley.

A question, Bill, on the gross margin line, and perhaps more specifically the movement of your general costs here. I know you're a global business, but the bulk of your business remains in North American. And, giving your polyethylene focus, one would expect that sort of more muted cost elements in this quarter, relative to a year ago, where we had a natural gas price spike. And yet margins are actually down slightly year over year. Is that just the impact of international businesses, or are there other things going on? How should we think about that gross margin line, and how should we think about the cost pressures that may be on the second quarter, with oil being as high as they are?

Yes, it's interesting. Let me go back -- interesting, because I think we passed kind of a watershed in the first quarter. And, although I know it's an important part of that watershed, is the change in the U.S. dollar versus currencies, but I do believe that for the first time in the Company's history, sales from the United States or less than 50 percent of the total. If you take the Canadian sales out of North America, you've seen for the first time in the Company's history that more than 50 percent of the sales came from outside the United States, which is pretty consistent with where I think the business is going long term, because I think a lot of the opportunities for growth continue to be outside the United States.

But now let me come back to your comment, because we're still talking about half the business. And most of the resins -- I'll just give you some numbers -- is quarter over quarter, you were looking at low to mid single-digit changes in raw material resins. And year over year, you're looking at slightly over double-digit numbers, first quarter '04 over first quarter '03. So kind of resin component of the cost structure hasn't gone away, although I feel that through the rest of this year, we may see more stable prices going forward than we have seen in the last 12 months.

This morning, before the call, we checked the price of natural gas, which is 5.61 per million BTU, I think, is the measurement, which is up about 10 percent from last first quarter's natural gas price. Remember, natural gas is the primary feedstock for the resin industry in the United States, where oil is the principal feedstock for prices in Europe.

Now, we have seen higher prices of resin in other parts of the world. There used to be a reasonable spread between Asian prices and North American prices, and Asian prices have come up quite a bit in the last three to six months. And you have also seen some increases in Europe. So, as more of the business is outside the U.S., you are beginning to see some of the effects of different pricing in different parts of the world.

I can also say that probably resin prices are closer to each other on a global basis than they have been in a very long time. So I hope that gets you there.

Well, let me ask you -- you are still under -- as you know, natural gas prices are up. And oil prices are up. So it wouldn't be a stretch to believe across your business, you might be seeing higher raw material costs in the second quarter. And could you comment on your pricing strategy in that regard? You have done a good job this quarter of holding down, of offsetting those costs. Is that still the plan, or do you need to go out and get higher prices?

Well, I think what we can see -- as I say, right now, our expectation is stability in resin prices for the second quarter. So we'll just wait and see what happens.

One final follow-up on that. The price move in your protective side, given those changes, I guess I was a little surprised to see a negative price mix move. I was just wondering if you could shed some light on that, across the 50 countries where those prices may be moving.

I think it's more of a mix one, Edings. In looking at it, I can tell you looking at the components of the products you have got -- across the range in Europe, you have got prices up about 2 percent. In Canada, prices are essentially flat to slightly up. So what you are seeing there is, in effect, that basically the mix components kind of flattened it out.

And on that mix, is that because the pickup here is in some of your lower value-added products that -- sort of bubble wraps, if you will? And as the economy gains steam, we will see more sales in some of the higher value-added products? Is there a cyclical component to that mix shift, or what else might be going on there?

No, I think there is a cyclical component to it. The other interesting thing is, as you heard me answer the question a couple of minutes ago, is having just come back from Asia about a month ago, one of the things I noted is that in a developing market like China, there tends to be more demand for the less sophisticated products, interestingly enough. And some of our less sophisticated products in China are selling quite well.

Now, I think as that market develops, there will be more opportunity for sort of the higher value-added products. So you are also seeing mix coming from, a little bit, geography, too.

Amanda Tepper, JP Morgan.

In the U.S., you got positive -- pretty strongly positive price mix. And I am wondering where that came from. Is it more protective, is it more food? Is this a legacy of the pricing that you did last year?

Well, I think -- remember, we did have pricing, we did have our most recent or announced price increase last April. So you are getting some follow-through from that. That probably -- this April kind of lapses, but you probably have some of that flowing through.

And that was both protective and food (ph), right?

That would be both. That would be both.

And then, shifting over to the IT upgrade, what exactly are you doing there? What's the timeframe? How much are you spending? When are you going to stop spending?

Well, it's probably another -- we're basically upgrading our whole global platform. It is a project that will probably go another year or two.

Is this a migration to enterprise software?

Yes, it is. And in fact, we did part of the upgrade the last weekends; we had a lot of our information services people spent the weekend on the job. But we brought the system up, and things are going along reasonably well. And we are really looking for longer-term benefits in supply chain management, in customer service and in our cost structure.

Can you tell us which enterprise software you're using?

We're using SAP.

John McNulty, Credit Suisse First Boston.

One or two quick questions. First of all, on the price mix line for your food packaging business, I'm wondering if the real strength there is more of a mix issue, because you have temporarily lost some of the business that is tied to Mad Cow and U.S. beef exports, or if it tied more to what you were discussing earlier, in terms of geographic mix, maybe?

I'm not sure how to get my arms around that, John. We did have a favorable price mix in the food business. Clearly, if we had not experienced the softness in the beef packaging area in North America, that price mix could have been stronger. But it's tough to speculate on that. I think, overall, the fact that we did get 2 percent or 1.8 percent positive price mix in food is indicative of the broad global strength of our products.

But what I guess I was getting at was the business that you have temporarily lost -- that is not typically a lower-priced or lower-value product in terms of -- so that that was actually what helped your mix, if anything. When you get that back, this could have actually been a stronger number; is that what you're saying?

Yes. I think I should say that the products used for export shipments are higher-value.

Okay, great. That's exactly what I was looking for. The other thing -- in terms of your overall share count, it looks like you bought back, based on the dollar amount, $25 million or so. We did not really see much of a movement in the actual number of shares. I'm wondering if that was just a timing issue, or if that was really just buying back some creep, and kind of what we can expect going forward, in terms of maybe the share count?

I think, over the past year, during 2003 -- I don't have the exact measurement in front of me -- we did see the fully-diluted share count go up slightly more than 1 million shares. One big slice of that was attributable to individuals that converted their preferred stock to common shares, rather than submitted for redemption. So part of our repurchase focus is on offsetting some portion of that share creep, as you called it, that we saw through the course of 2003.

I guess what I mean, though, is your fourth-quarter total share count is basically the exact same number as your first quarter, unless I am mistaken on that. So we did not really see any share decline, despite the fact that you bought back 25 million. And again, I'm wondering if that was because you really bought them back toward the end of the quarter or not. And also, on top of that, you did add 48 million or close to $50 million of cash to your cash line. I'm wondering -- you guys typically do not let that sit there for very long long, now that you have kind of gotten to the level that you need to meet, to meet the asbestos settlement at some point. So I'm wondering where that might be going, going forward, as well.

The share repurchases were spread over the first quarter, and the details on those repurchases by month will be in our 10-Q when it's filed next week. I don't have any specific comment to make on the quarter-to-quarter change in shares outstanding that would shed any more light on our repurchase program.

And as for uses of cash, we do have an ongoing program to repurchase shares. As you know from what we did in December, when we thought that it was appropriate, we have also used available cash to reduce debt. And we work and we will continue to look at both of those opportunities, as well as opportunities to reinvest in the business, as we go forward.

John, I think maybe you may have missed Dave's comment in his opening remarks, but Dave said it was approximately 500,000 shares purchased in the first quarter. 500,000 shares were purchased in the first quarter, and where the share count is, is those are average numbers. The share count is an average number; it's not an end-of-quarter number, because you use the average shares for EPS calculation.

That definitely makes sense, so it sounds like we could expect it to dip a little bit, just to reflect that debt repurchase?

I've got a couple of questions coming over the Internet on the Website. Let me address those before we take another one on the telephone. One question on the Internet is, could you discuss the impact of higher oil and chemical prices, as well as the hedging strategies you are using?

I think we have kind of covered the first part of the question, is we continue to offset the cost of higher oil and chemical prices through productivity improvements, world-class manufacturing and selective price increases. So I think that addresses part one.

The hedging strategies is we really do not have a formal hedging program. SealedAir has not hedged our commodity raw materials. There really has not been an ideal market for that, and the premiums have been quite high. But we do buy our resin from the major global suppliers under sort of annual agreements, based on very large volumes. So we think we buy very well.

Second question on the Internet is what percent of our business, subject to last price increases, that are actually being done under the implemented price increase? I think I answered an earlier question that we are still seeing some flow-through in our first-quarter numbers from price increases that were announced last April. And you saw that number come through on the price component in the United States.

Third question from the Internet is, with many industries implementing price increases to reflect raw material and fuel input increases, do you think this is an opportune time to implement a similar input-related price increase to reflect the extraordinary change in level of raw material prices? We always look at the best way to price our products, and we will continue to look at it on an ongoing basis.

Let's take one from the phone line, operator.

George Staphos.

Have you seen any further evidence of a pickup in either catalog or Internet-related shopping, relative to your protective packaging business? The box guys have been talking about that more and more. I was wondering what your thoughts were.

Well, it's interesting. I don't know whether you heard my comments in the beginning.

Oh, UPS and FedEx?

Yes, three good things -- UPS, FedEx and U.S. Corrugated Boxes. UPS was up 5 percent in the first quarter, which is through March. Interesting -- FedEx is up 1 percent. But FedEx reports through the end of February, which is reasonably consistent with what we have seen. March was a better month than January and February. And U.S. Corrugated Box shipments were up 3.1. So I think March was the stronger of the three months, and perhaps that's a good sign for the future. But I would say no kind of ramp-up in catalog and Internet, but -- pretty solid but reasonable single-digit growth at this point.

Timothy Burns, Cranial Capital.

Boy, you spend a lot of time in the supermarket. Are you one of these guys that kind of cruises the aisles where the food is being offered, just pick it off and keep going to the next one?

No. I am the person, and my wife doesn't want me to go to the supermarket with her because I slow her down.

Hey, my questions are twofold. Number one is, on the protective side, it sounds like the improved performance continues. I'm sure there is a demand quotient to it. Are there new products that are feeding it, as well? And then I've got a follow-up on the food side.

I think the industrial right now is primarily demand picking up. I think that's the best thing to say. Inflatables are pretty well out there in the marketplace, and that is kind of a last new product. There are a couple of others that at least we have in various test stages, but not something I am prepared to talk about right now.

And you said that Latin America and Asia in particular continue to be the strongest legs of the Company's performance. Is that food or food and protectives?

Well, it's interesting. On one of the charts on the Website, it gives the question I usually get asked, is kind of what is the growth including and excluding foreign currency?

I know. George Staphos always asks that.

I know; George always asks that. I missed it. But I have it right here in front of me.

He's losing it. He's getting old. But can you say?

Tim, Latin America growth excluding currency was 11 percent, and Asia Pacific excluding currency was 6 percent. And it's interesting; both reflect good combinations of food and protective. We actually are seeing some industrial growth in Japan, and that has helped the protective side of our business. The protective side in China had a good first quarter, and Latin America continues to do well in food. Coming back from what had been in Latin America a couple years of economic uncertainty with Brazil and Argentina, but coming back strongly.

You guys haven't said much about Europe. And it's normally a pretty big market, especially with what is happening east of Germany and Switzerland. Any comments?

Europe? European numbers are, excluding currency, 2 percent on the whole business. And I would say that the protective business in Europe probably had a better first quarter than the food business in Europe. And you're absolutely right; it is sort of east of the old iron curtain, business is quite well. I think our business in Russia was up over 40 percent in the first quarter, and that follows a 30 percent increase in 2003.

You know, the numbers are still relatively modest, but the direction is absolutely right. We are seeing pretty slow growth in the core markets of Europe, with real interesting opportunities in Eastern Europe. You heard me say that we will be opening a new plant in Budapest, outside of Budapest, which will serve part of that market, as well as the operations we currently have in Poland and Russia.

Last question. A lot of companies have these assets that are just kind of like stuck, you know? And they are either in the market where there is no growth, or they can't compete to ship overseas. Is one of the tricks to Sealed Air's story the fact that your protective businesses are relatively small and mobile, and your film, albeit you are still building regional or mega-regional plants, can travel well, so you can kind of participate in the growth of the globe without having assets everywhere?

Well, it's kind of a mix. I will say Sealed Air's products and assets are mobile. We pick them up and move them. That isn't a surprise. And I think, because we try to manage our capital well, we can put in plants at reasonable cost. And as we are putting up new plants in different parts of the world, we will actually move manufacturing equipment from other parts of the world, from more mature markets to more developing markets. A small amount of the production equipment going into Hungary, say, is coming out of other plants, where we can make the same product at a significantly lower cost.

No doubt. Well, listen, good quarter. My best to you and David. We will talk to you soon.

Let me take another question from the Internet. I've got a question saying, have I taken a question from the Web? Holding people to one question, okay, we will try to do that better. Operator, just remind us. Next question on the Internet was what percent increase would we expect in resin costs over the next 12 to 18 months in the United States? Really, at this point, our outlook is for reasonably stable resin prices, so I wouldn't want to venture to say what percent increase we're expecting. But basically, our outlook for at least the rest of this year is reasonably stable.

Next question is what caused the decline in operating profit in the food packaging business. I think there are couple of components to that. I point to an earlier response we had on the export sales. Those tend to be packaging, which has to be transported long distances, so it tends to be higher value. You also have a component of the resins in there. And I think I'll repeat the numbers again. Resins are up double-digit range, first quarter '04 over '03, and low to mid single-digit change sequentially, fourth quarter '03 to first quarter '04. But I would say that the principal effect on the operating profit on the food side is volume-related.

Next question on the Internet is, how do you find the slides on the Internet? It's www.SealedAir.com, and, Eric, it's investor relations?

Yes.

The investor relations button on the Company's Web site.

Okay. Can we get another question from the phone?

Bruce Babcock (ph), Sabre Capital (ph).

You all, and so many other people, are talking about business being better in March. Can you give us any sense as to how much of that is just that March last year was so depressed by concerns about Iraq? So on a year-to-year basis, it's a little misleading versus that you really are seeing, sort of much-to-month and calendar-adjusted and all that stuff, that business really is getting better?

Well, that's a good comment, Bruce. I looked at our March compared to our January and our February in absolute terms, not necessarily compared to last March, in terms of a trend. And, interestingly enough, in our business, our March last year, I believe, was up mid single digits. So the comps were kind of challenging going in.

I don't have any hard evidence to suggest that the March number is not real as absolute terms as a comparative, except, again, to point back to the numbers that we kind of look at as indicators, is our friends at UPS and FedEx and Box Shipments. And those numbers are up, and they kind of tie to what we have seen. And our March last year was not particularly weak. So I guess we will have to wait for April for us to see if it's real.

Edings Thibault, Morgan Stanley.

Good morning, again. Just a few questions on two things -- number one, the SG&A levels. Am I right in just saying that, given the investments you're making on the business operating systems, that you don't necessarily -- there are no sort of one-timers or anything in that Q1 number that we can expect to decline sequentially, going forward?

Edings, there are no major one-timers. We would have disclosed those, if there were. We do think, going forward, though, that the number for the year will trend down into our target range of 16 to 17 percent.

Just to clarify, a trend down in absolute numbers or a trend down in percentage?

In percentage.

And then are there any kind of startup costs involved in both these plants, in both South Carolina and now Arkansas and even in Budapest? At those still being carried on the capital portion of the ledger, or are you now starting to incur startup costs with those businesses that perhaps are not being offset by the revenue yet?

That is a good point. In the plant in Arkansas, which is now in service, we have been running a fairly high level of startup costs through the P&L. The other two plants are still under construction and have not yet been brought into service. By scale, they are not as large as the Arkansas plant, so we wouldn't expect to see a comparable effect in the second and third quarters, but there will be some modest effect as those are brought online.

And could you just comment on when we might expect to see that Arkansas plant? It sounds as if it's not profitable on a per-plant basis. Just directionally, when you might expect the revenue to begin to offset those costs?

We would expect it to ramp up fairly quickly, in terms of its sales levels. But it's not the kind of thing where you go from turning on the light switch on Monday morning to running at 90 percent of capacity on Friday afternoon. So it will take a period of months, but I would assume that it will build pretty steadily from this point through to a year from now, to get to expected levels.

There was one more Internet question. Eric, it was about the Website. Could you just address that?

To find the supplemental charts, if you will go to SealedAir.com and then the investor information section, under that you will see a reports and filings tab. Click on that, and I think it's called supplemental financial information. Click there, and then you'll see this quarter as well as previous quarters' supplemental information.

Thank you, Eric. If there no further questions, I want to thank you all for participating in the call today. SealedAir is off to a good start in 2004, and we're well positioned for growth going forward. With operations in 50 countries and two more plants coming onstream later this year, we feel that we are in a position to take advantage of global macroeconomic trends that will benefit both segments of our business.

As global standards of living continue to improve, driving increased protein consumption in developing economies and increasing global trade, SealedAir will be there to provide value-added solutions, products and services to our customers around the world. Our dedication to operational excellence and the principles of world-class manufacturing, as highlighted in this year's annual report, should enable us to continue to use our resources efficiently and safely, making a difference in our business and in our world.

These priorities, combined with our focus on maintaining a tight control of expenses, will help keep SealedAir generating strong cash flows from operating activities that will be used to reinvest in the business and provide value to our shareholders. For these reasons and many others, I'm comfortable with our positioning and confident in our long-term outlook, and I am personally glad to be a SealedAir shareholder. Thank you all for joining us.