希悅爾 (SEE) 2004 Q4 法說會逐字稿

Good morning, everyone, and welcome to this Sealed Air analyst and stockholder conference call. This call is being recorded. Leading the call today, we have William B. 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. Please go ahead, Mr. Burrell.

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 quarterly report on Form 10-Q and will be listed in our upcoming Form 10-K. We have also posted supplemental statistics and financial information and 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 filings tab. Now, I'll turn it over to Bill Hickey, our CEO. Bill?

Thanks, Eric. Good morning. I'm 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 of our business for the fourth quarter and the full year 2004. Dave will then review the details of our financial results. After Dave's remarks, we will take your questions.

I am particularly pleased to announce that Sealed Air's sales for the quarter surpassed the $1 billion mark for the first time in our Company's history. This is truly a milestone for Sealed Air, which got its start back in 1960 with the invention of Bubble Wrap cushioning. As you may have seen from our additional press release this morning, today is the fifth annual Bubble Wrap Appreciation Day, as recognized by Chase’s Calendar of Events. And I'm going to pop a few bubbles in commemoration of Bubble Wrap Appreciation Day. For almost 50 years, Bubble Wrap brand has been a household name in America. I can't think of a better way to celebrate the day than to announce Sealed Air's first $1 billion quarter. I am especially pleased that we were able to end what has been a relatively challenging year from a raw material cost standpoint on a high note.

As we mentioned to you on our third-quarter conference call back in October, we announced a four-point program to improve the profitability and to meet our expectations for earnings. If you recall, the first step was a profit improvement program to improve our operating efficiencies. Our second was a capability to enhance our supply chain. Third was using our cash balances to reduce our debt. And fourth was to use our cash balances to repurchase our common stock. We fully expect to carry this continued momentum into 2005 and beyond as we begin to realize the benefits from our restructuring and debt-reduction activities that we implemented in the fourth quarter.

I am also encouraged by the interest we have been receiving on some of our new products and systems that were highlighted at this past November's Pack Expo show in Chicago. A couple of examples of new products that have generated a lot of customer enthusiasm and excitement include our new priority Pack system for high-speed variable-sized product containment; and our new Shankland Omni Form -ill-Seal wrapper with a modular plug & play infeed, representing the newest generation of shrink packaging equipment.

Going back to the financial highlights for the quarter, Sealed Air sales increased 9 percent, reaching over $1 billion. Excluding the impact of foreign currency translation, our quarterly sales rose 5 percent, reflecting continued strong performance from our protective packaging segment and solid growth in our international food packaging business. For the full year 2004, we reported sales of $3.8 billion, representing an 8 percent increase over the prior year. Our global presence was a major contributor to this growth, as our international businesses recorded 6 percent unit volume growth for the year.

Taking a closer look at our two business segments, protective packaging net sales increased 8 percent during the quarter and that excludes the positive effect of foreign currency translations. A good holiday shipping season helped boost our domestic volumes during the quarter and we have continued to see solid demand across all major regions of the world for our packaging products. Heading into 2005, we are excited about the continued growth prospects for Instapak continuous foam tube applications and our expanded systems offering in our inflatable product line.

Our food packaging segment sales increased 3 percent during the quarter, which also excludes the positive effect of foreign currency translation. I was particularly pleased with the strong double-digit growth that we experienced in our key growth programs of case-ready and vertical couch packaging. Latin America continues to be a solid contributor to our food business, with double-digit growth rates for both the fourth quarter and the full year. Even our North American beef business performed better on a year-over-year basis, as U.S. beef production ended the quarter up slightly higher compared with the prior year. We expect that U.S. beef market conditions will gradually improve as we progress into 2005.

The anticipated opening of the Canadian border for exports of animals under 30 months of age to the United States, currently scheduled for early in March, should help improve the supply/demand imbalance the beef industry has been experiencing for the past several quarters.

Finally, as we mentioned in our press release, we are setting our full year 2005 earnings guidance at a range of $2.95 to $3.05 per common share. This figure includes an expected 11 cents to 12 cents reduction in earnings per common share associated with the application of EITF Issue No. 04-08, which is an accounting pronouncement which requires the dilutive effect of contingent convertible securities to be included in our diluted earnings per share calculation. Our guidance also assumes that raw material costs will stabilize beyond the first quarter of this year and that we will continue to see growth in the global economy. I am excited about our growth prospects, the strength of our business, and the condition of our business as we head into 2005. Now I will turn the call over to Dave Kelsey to review some additional details of our financial performance. Dave?

Thank you, Bill. I'd like to start with some additional comments on our operating performance. As Bill mentioned, our sales exceeded $1 billion for the first time. This growth in sales was broad-based, with our protective segment and our food segment both setting sales records in Europe, Latin America, and Asia-Pacific. Nearly 53 percent of our fourth-quarter sales were generated from outside the United States.

For those participating in the call who would like additional detail, tables posted on our website, SealedAir.com, 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 $308 million for the fourth quarter. Gross profit margin was 30.3 percent compared with 30.2 percent in the third quarter and 31.5 percent in the fourth quarter of 2003. Double-digit increases in resin costs were the major factor in the year-over-year decline in gross margin. Raw material costs were up sequentially also from the third quarter to the fourth quarter, but a combination of volume gains and realized price increases resulted in stable sequential gross profit gross margins.

Marketing, administrative and development expenses increased $12 million to $160 million compared to the fourth quarter of 2003. Approximately one-half or $6 million of this increase was attributable to foreign currency translation. The majority of the balance of the increase reflects our spending on the Company's information systems. As a percent of revenue, these overhead expenses were 15.7 percent, unchanged as a percent of revenue from the fourth quarter of 2003. For all of 2004, marketing, administrative, and development expenses were 16.5 percent of revenue. Looking ahead, we expect to improve on this ratio in 2005.

Restructuring charges totaled $33 million in the fourth quarter. Approximately two-thirds of the restructuring charge represent severance payments related to the elimination of slightly less than 500 positions. Most of the remainder of the charge represents non-cash asset impairment costs. Just under 3/4 of the positions being eliminated were in our European operations with the remainder in the U.S. The large majority of the charges resulted from actions to reallocate work to other facilities in Europe and the U.S., respectfully. Implementation of these plans is on schedule and on budget and we expect annual savings to be 25 to $30 million in 2006.

Operating profit was $115 million. Operating profit as a percent of sales was 11.3 percent compared to 15.9 percent in the fourth quarter of 2003. As stated in our earnings press release, after adjusting for restructuring amounts in both the fourth quarter of 2004 and 2003, year-over-year operating profit was essentially unchanged at $148 million. By segment, protective packaging contributed $55 million, an increase of $5 million or 10 percent over the fourth quarter of 2003. As a percent of sales, operating profit margin for the protective segment was 14.2 percent, comparable to the fourth quarter of 2003. Volume, price and mix gains were sufficient to offset higher raw material costs.

Food packaging contributed $94 million, a decrease of $5 million or 5 percent from the prior year. The food segment operating profit margin was 14.8 percent, up sequentially from 13.4 percent in the third quarter, but down compared to 16.7 percent in the comparable period last year.

Interest expense was $39 million compared to $43 million in 2003. This decrease is primarily attributable to the $173 million face value of funds that we repurchased in December of 2003. Income tax expense for the quarter was $11 million. For the year, our effective tax rate was 33.25 percent. You may recall that we cited a 36 percent effective tax rate in our guidance at the start of 2004. We also disclosed that our ongoing efforts to improve the tax efficiency of our international operations could lead to a lower future effective tax rate. As an aside, Sealed Air has operations in 51 countries, and as I mentioned earlier, generates over half its revenue outside the U.S. So we did in fact lower our effective tax rate in the second quarter of 2004 to 34.25 percent. The further decline in our effective tax rate in the fourth quarter relates to these ongoing programs as well as the tax impact of our debt repurchase and restructuring charges. For guidance purposes, we expect our effective tax rate to be 33.25 percent during 2005.

Diluted earnings per share were 33 percent for the quarter. As shown on the financial exhibits to our earnings press release, the number of diluted common shares outstanding for the fourth quarter of 2004 includes the 9 million shares to be issued under the terms of the asbestos settlement and approximately 6 million shares which would be issuable upon conversion of our 3 percent convertible senior notes.

I'll conclude with some key cash flow and balance sheet items. Our cash balance at December 31st was $412 million, down $105 million for the quarter. This decrease came after we used $232 million to repurchase approximately $200 million face amount of our debt during the fourth quarter. In addition to the $207 million used to redeem all of our 8.75 percent coupon senior notes, we used an additional $25 million to repurchase about $23 million face amount of our 6.95 percent coupon senior notes. For the year, our cash balance increased $47 million after using $232 million to repurchase debt and $86 million to repurchase nearly 1.8 million shares of our common stock. Our year-end accounts receivables totaled $663 million, up $49 million from September 30th. Compared to December of last year, receivables investment increased $47 million, or 8 percent, while our quarter-to-quarter sales increased $82 million or 9 percent.

Inventory investment at December 31st was $418 million, up $12 million during the quarter and up $47 million or 13 percent from December 31. Capital expenditures were $26 million for the fourth quarter. We are continuing to invest in programs to increase capacity at existing facilities, which generally are less capital intensive than constructing new facilities. Speaking of new facilities, the three facilities we recently constructed are now operational.

Our guidance for 2005 capital spending is in the range of the $125 million to $150 million. Among the projects we will be considering will be the expansion of two of the three facilities we recently opened. Total borrowings at year-end, net of our $412 million of cash, were $1,700,000,000 down $71 million during the course of the quarter. Now I'd like to turn the call back to Bill and to your questions.

Thank you very much, Dave. I really appreciate the detail you went into on the cash, which year-over-year is up over 45 -- actually $55 million after buying back some 225 million in debt and $82 million in shares and investing $104 million in capital. It clearly shows the strength of Sealed Air to generate positive cash flow in good times and bad. With that, I'd like to open up the floor to questions.

(Operator Instructions). George Staphos with Banc of America Securities.

Good morning. Maybe you should have a cash flow appreciation day too.

Hey, it goes with Bubble Wrap.

Yes, no, I know. The cash from operations, best we can calculate it, looked to be better then we were expecting. Were there anything -- any items that were unusual in the fourth quarter cash from ops? And how would you guide us for free cash in '05? And when you look at your earnings guidance for '05, what gives you the most confidence in being able to achieve your goals?

Let me let Dave take the first shot at that.

There were no unusual cash items in the fourth quarter, George. But I would point out that the restructuring charge is largely going to be paid out -- those cash expenses for severance will be largely paid out in the first half of 2005. Then the balance, there's roughly $10 million of asset impairment charges, which are a non-cash item. So those will not have an effect in 2005. In terms of cash flow guidance for 2005, as you know, we have limited ourselves to ranges on key operating items and an EPS target. But we see no reason that our cash flow should not stay in the same range of sales that it's run historically.

Got you. And in terms of just confidence on your overall earnings guidance, what gives you the most comfort?

I think, George, the continued sort of strength of the Sealed Air business continues to give us confidence. I mean also, the business, as a think you've heard me say on a number of occasions, very leveraged to volume, and you did see that effect in the fourth quarter.

But I do think a couple of things. Is one, I'm optimistic that the Canadian border will open on schedule in the first half of the year. That we should be exporting beef to Asia sometime kind of midyear. And raw materials, I think have about come pretty close to their peak. So all of that suggests that it's probably maybe optimistic on my part to feel there's more of a tailwind going in it this year than there was a headwind.

Okay. Thanks guys. I'll be back.

J.P. Morgan's Amanda Tepper.

Good morning, guys. I don't have any bubbles to pop. I can just snap my fingers.

It's not the same, Amanda.

I know; it's definitely not as fun.

You've got to stay in the flexibles business.

Over the course of the year, I know you've gotten a lot of questions about whether or not you're trying to stay on top of resin prices by passing them through; and you did one round on protective, but really didn't at all seem to move in lock step on the resin front on the price side. And it looks like it's coming back on volumes. Do you think you're gaining share against some of your competition around the world, perhaps by not being as aggressive on passing through resins? And what are you thinking about price in both food and protective as we go into 2005?

Okay, we -- I guess I'll try to duck your question on share because I think -- we as a business just try to grow our business in any way we can so to speak with understanding what our profit and financial expectations are. I can also add that we've been through the resin cycle, Amanda. I've personally been through it five or six times. And it plays out at the end of the day pretty much the same. So I think and although we've looked at our business model and we've kind of questioned it, I think how we go to market is the right answer for the industry we're in and the products and solutions that we sell. And we continue to watch resin. We continue to be sensitive to it. But we do take a longer-term view, and I do believe that's the right view for all of our shareholders.

So with that longer-term view then, as my follow-up question, if you're right in your optimism that we're getting to about the peak of resin prices, what kind of timing do you think it would take if this is like all the other cycles you've been through, to getting back to 33 percent type gross margins at Sealed Air?

Well, if you look at the supply/demand curve on the polyolefin cycle, it's probably, I would say, 2006, I think, is when you'll see a next sort of shift in capacity. And that's probably a reasonable time frame.

Okay, great. Thanks. I'll come back.

Richard Holohan with Smith Barney.

Good morning. This is a great way to celebrate Bubble Wrap Day with a terrific quarter, guys. I had a question on the food packaging volumes. I know you mentioned that the two areas of particular strength you saw were in the vertical pouches and the case ready. Was there also -- I might have missed the distinction between strength and the year-to-year improvement in beef volumes and the general weakness in the North American market. Can you kind of give some more color in the terms of the volume that you're seeing in the food packaging segment?

Yes, let me say that outside the U.S., the food packaging segment was particularly strong, and I was looking for my kind of notes on that. I think food outside the U.S. was up like 6 to 8 percent in terms of units; food in the fourth quarter was up 2.5. And that's correlating to something like 6 or so outside the U.S. and reasonably flat in the U.S. And the U.S., when I made the comment, you probably heard me say that the U.S. was slightly up in the fourth quarter over the prior year. It had essentially been flat to down for most of the first of the three quarters.

So to put a little flavor on it, volumes outside the U.S., particularly, Asia and Latin America, which did pick up some of the export slack to Japan, were quite good and helped offset the very slow and in the fourth quarter, kind of slight growth in the North American market. Interesting though, Australia now represents roughly 60 to 65 percent of the Japanese beef market. The other 35 to 40 percent are domestic cattle. So it will be interesting to see how this plays out. But we are beneficiaries of beef coming from not only the United States to Japan but also Australia and Brazil.

So I hope that gives you a little bit of a flavor. And like I say, with the Canadian border expected to open in the fourth quarter and some of the resumption of exports of U.S. beef, we should hope to see higher volumes coming out of the U.S.

That's great. And how do you see the Japanese situation playing out? Is that going to be a very slow ramp through '05 once exports resume? Or what kind of a shape do you see that at?

Well, without trying to be politically incorrect, I think any change in Japan is going to be slow.

Got you.

So I wouldn't expect carloads of beef to start moving the day after the announcement. But you are correct in assessing probably a slower ramp-up.

Got you. Great. Thanks very much.

Ghamsham Panjabi with Lehman Brothers.

Hey guys. How are you? Can you give us an estimate of the restructuring savings during the quarter please?

Yes, let me ask Dave.

I think what we've stated, Ghamsham, is that on an annual basis when we're done with all these actions which are going to extend out through the first half of 2005, that our run rate should be 25 to $30 million.

Okay.

It's reasonable to think that we'll get some portion of that in the third and fourth quarters, and we've built that into our EPS guidance.

Okay. And I guess just from -- relative to your updated '04 guidance in October, where did you see the biggest upside apart from the lower tax rate? Was it pure and simple North American food? Or was it food X U.S.? Can you just give us some flavor on that?

I'd say the numbers came in stronger in protective, which as I said in my opening comments, had a good holiday shipping season. And also, food X U.S. Both finished the year quite strong.

Okay, food X U.S. is stronger. But you expected flat North American food for the quarter?

Right. Yes.

Okay. Great. Thank you so much.

Morgan Stanley's Edings Thibault.

Good morning, gentlemen. A few questions. Bill, when you talked about that food X U.S., is that primarily sort of foreign beef share gains into these export markets that the U.S. guys have vacated? Or can you give us a little bit more color?

I'd say basically, there are -- I guess there's three components of it. And I'll try not to indicate the priorities of all of them. But very clearly, one is the foreign pickup of the U.S. beef exports. Clearly, the business in Australia and Latin America, to a degree, are benefiting from the weakness in the U.S. Kind of second is a real solid advances in case-ready outside the U.S. U.S. numbers in case ready were up about 15 percent, and a fair part of -- a fairly significant contributor to that growth -- was case ready outside the United States.

And I guess the third component is our continued thrust in developing markets which are not yet case-ready and they're not yet exporting beef to Asia, but just good, early economic growth of the basic food packaging industry in Poland and Romania and Hungary and Russia, where those, it's clearly market penetration. So all three of those, Edings, are factors in the food performance outside the U.S. being pretty solid in the quarter.

Great. And then a question on cash flow uses going forward. Clearly, 2004 was a challenging year across the operating business, but some very successful financing moves made by you guys have really helped boost the bottom line on a year-over-year basis. What's the target going forward? You have $412 million in cash. That's well above what you've indicated you'd like to hold and reserve to a one -- you know the long '04 settlement of the Cryovac issue here. Are you going to be more aggressive on the share buyback side? What's left in terms of your availability to buy back shares -- your authorization, I should say? Debt pay-down targets? Any kind of additional guidance you can help us with for 2005.

Okay. Sure. Let me first let Dave address it and I may give you kind of higher-level view.

Clearly, the capacity is there, not just from our cash balance but also from our ongoing strong cash generation. But I think our strategy, particularly the strategy we communicate, has a key word of opportunistic. We do still have several million shares approved. I don't know what the exact count is. I think it's between 4 and 5 million shares still authorized under our pre-existing buyback plan. And with close to $2 billion of debt outstanding, there's ample opportunity to opportunistically reduce debt, as well, with free cash flow. So both of those remain options. In the last two years, we have done a mix of both, and we'll continue to look for similar opportunities going forward.

But there's a target on --?

No targets.

And then Edings, let me just sort of complement what Dave said from a strategic standpoint. We continue to look at opportunities to make acquisitions or investments in those product lines and technologies, which complement our business and sort of meet our financial goals. So we continue to turn over a lot of stones in that area.

Can you give us a sort of state of the union on that, Bill, in terms of compared -- kind of what's out there, maybe U.S. or North America versus global opportunities? Are these opportunities -- are these better opportunities than you were seeing a year ago or more real? Anything -- any help you can provide on that would also be appreciated.

Yes, no, there's not much I can provide. I mean other than a few things out there on the radar screen that are blips at this point, there isn't anything actionable right now, Edings. As I say, we've got pretty high criteria and something has to fit our business or our technology or our core competencies reasonably well. So we continue to look and the market -- I don't think is much different this year than it was a year ago in my opinion.

Blips on a radar screen. Thanks a lot, guys.

(Operator Instructions). Rosemarie Morbelli with Ingalls Snyder.

Good morning, all, and congratulations. It's a very good quarter. I was actually expecting gross margin to be slightly down sequentially due to the continuing increases in raw material costs. Could you give us a feel as to what happened for the Company overall in pricing versus raw material costs, and what are your expectations in 05?

Sure. Let me ask Dave. I know that's possibly one of the charts that are on the website. But Dave, do you want to --

Yes, I didn't get a chance to get to it yet.

I'm sorry, Rosemarie, could you repeat the question (multiple speakers) --

What was to the price increases in '04 and what do you expect in '05, particularly based on your comments that you expect raw material costs to stabilize in the second quarter?

I think it's perhaps more germane to your question to look at the price impact in the fourth quarter. And it was -- contributed roughly $10 million to our top-line, 1.1 percent. It was stronger on the protective side and only a half percent increase in the food packaging side. But if you were to look at food outside the U.S., I think we had more pricing ability internationally than we did domestically, given the state of the domestic beef business.

The key contributor in the quarter, as we've said, is more on the volume side, incremental volume in both protective and the international side of the food business is running through existing facilities. So the impact of those incremental sales dollars has a much bigger impact on our margins.

And so when you look now, I know, Bill, you've said that protective was still strong globally. Are there any areas where you actually see some kind of a slowdown -- any particular markets which are beginning to show that they are running out of gas?

Not yet, Rosemarie, not yet. In fact, in protective, I'm really particularly pleased that despite the double or triple increases in raw materials that the protective business was able to hold its operating margins at just about the same percent year-over-year, which is a good performance by that leader team.

But in terms of volume, you haven't seen anything slowing?

No, no. To be honest with you, just trying to think around the world, Asia's holding up well. Japan -- I've read articles in the last couple of days about perhaps Japan plateauing. I haven't really looked at our Japanese numbers in the last couple of days. But that would be about the only place were there's been any sort of commentary, Rosemarie, about perhaps plateauing in growth.

And just two questions on the food packaging, the fact that three more cases of Mad Cow have been discovered in Canada. Does that change anything? So this is one. And then when imports or exports from here resume in Korea and Japan, Australia is not going to give up their acquired share very easily. What is the size of your business in Australia? And can you grow that particular end?

Well, let me go back to your -- I think there have been two more Mad Cows and kind of three altogether, I believe, including the one kind of a year ago. There's been a lot of posturing on when the Canadian border will reopen. And I'm encouraged by after the third case, which was found in early January, that the industry is still confident that the border will reopen as scheduled on March 7th.

I think the key criteria which we shouldn't miss is that the border is reopening for cattle under 30 months old, and that is kind of an added protection against cattle that are affected with BSE, which seems to occur only in older animals.

As far as the rest of our business -- ability to ramp up in Australia and Latin America, which are the two other markets that supply Japan, we are ready in Australia. I think one of the key questions is the size of the cattle herd, which is beyond our business. And I'm not sure how quickly the -- I think it takes three to five years to really have a significant increase in cattle herd. Now in line America, I know the herds are building in Latin America. So perhaps if there's any change in Japanese policy, it may result in more cattle coming out of Latin America.

Okay. Thanks. I'll get back in queue.

Okay. Before we take the next question, I've got a couple that have come over the website or the webcast, which I do feel we should take a couple of questions off of there. The first question was, can you give us a color on CapEx for the year 2005? And some color on the continued weakness in North America, the on-port (ph) -- ongoing import restrictions? I would expect an improvement in '05?

Well, let me take kind of the food side first. And I think you've heard me say that we're still looking at the Canadian border to open late in the first quarter. I think the official date is the 7th of March. Ongoing import restrictions. We believe that Japan will begin importing beef in the U.S. probably in kind of the second half of '05.

Back to the first part of that question, on CapEx, it also comes down -- there's a second question on CapEx and I'll try to address the two of them together. About this 2004 CapEx was 104. 2005, we're saying 125 to 250. And the question is where is the increase going to be focused?

So I'll combine both of those with a flavor on 2005 CapEx. As Dave mentioned in his opening comments, we are really going to further expand and invest in two of the new plants we started up in '04. One is the medical operation which we put a new plant in; it's in South Carolina. And that business has had quite good results in the fourth quarter of '04. And we're looking at further investment in that in '05. And the second, if you remember, we opened a plant in Hungary. And we're looking at further expansions of that plant in '05. So that's kind of a flavor for where the investment is going in '05. And that's also part of the component of why we're increasing our numbers in '05 versus '04.

Next question on the website is, if the announced resin price increases for 2005 were successfully implemented, how much of a headwind in millions of dollars would that be?

I don't think I have a precise number to give you. In fact, I read this morning that there seemed to be some kind of softening of the resin price increases for the first quarter of '05 from a 5 to 6 cents a pound range down to more like a 3, perhaps to a 5-cent a pound range. So that would be favorable to us. And as a think we've said before, that if those increases are implemented, we would go ahead, and if need be, move our selling prices up.

Which sort of answers the next question -- are you considering additional price increases? I think that would depend on what happens to the raw materials as we go through the first quarter.

Next question on the website, discuss assumptions for guidance we have made for foreign beef sales in '05. I think I just answered that question in response to an earlier question; probably second half of '05.

And last question that I think I haven't covered is if oil goes to $50 to $60 per barrel by mid '05 and remains there, can you still improve gross margins and would it get worse in the short-term before it gets better?

Well, it always gets worse in the short-term before it gets better. But I think if you do see that kind of an increase, we would look at further opportunities to raise our selling prices and look at ways to take further costs out of our product.

Okay. With that, operator, can we go back to the telephone questions?

Certainly. (Operator Instructions). Gil Alexander with Darfill (ph) Associates.

Good morning. Congratulations. Could you -- I just don't know. Could you give me an idea of how much beef represented of your sales in '03 and '04?

I don't know. I just don't know, Gil. I mean it's in the -- it's what? 10, 15 -- 15, 18 something. It's a number that's -- it's probably less than 20 percent.

I thank you very much.

Robert Reitzes with Bear Stearns.

Yes, just one question. You were talking about '06 being the peak in resin prices. I'm just -- again, I don't mean to be a stickler. You're talking the end of '06, beginning of '06? And what gives you the reason that you think '06 is the peak, and not '07?

Well, I'm just giving you my own opinion in looking at sort of longer-term supply/demand curves for polyolefins and looking at various consulting reports from people who follow this industry over time. And the pattern has generally been when profit margins on the producer side, which are the chemical producers, begin to get high and they start to get capacity utilization that gets quite up there, say in the 90 percent plus, they begin to add capacity. And it takes three years or so to bring on one of these petrochemical plants. So everything that's going to go online in '06 and '07 essentially has been announced. And our view is that based on what's announced that that should bring capacity and demand more favorable to the demand side than the capacity side. And I couldn't tell you when in '06 it will happen.

Good. Can I get one follow-up too?

Sure.

I happened to be on a call by one of the chemical companies and they were talking about like a 9-cent price increase, February 1 for both polyethylene, polystyrene, and a lot of that's dependent upon China. So I guess my question to you is, have you guys seen the Chinese active in the marketplace? Or do you -- or do you discount what they're saying? Or you want -- just your comments.

The Chinese activity and marketplace tends to be pretty sporadic. It's something that gets turned on and off pretty quickly. Right now, it's not on. It may come on. The Chinese economy can be unpredictable. But I think that the plastic bag market, for example, used to be substantially supplied out of Asia. Earlier in '04, there was a duty put on imported plastic bags. That has the effect of increasing demand for polyethylene in the U.S. and reducing it in Asia. So it's a continued balancing act. But five to 9 cents is not a number that's floating out there on the street today.

Okay. Thanks for your help.

Mark Wilde with Deutsche Bank.

Good morning. Bill, I wondered if you can just take a little bit of time and talk to us about your position down there in Latin America. It looks like it's really positioned to grow as an exporter of particularly beef. And I'm just curious about sort of how you might think about your market share down there right now. And also whether your business in Latin America right now is more weighted to export versus domestic.

Let me try to come back. In Latin America, we're represented in all of the countries. We've got operations in Mexico, in Venezuela, Chile, Argentina, and Brazil. And Latin American growth in the quarter is about 11 percent and the year is about 12 percent. And I'd say that is -- if you asked me to try to give you a little bit of a balance, Argentina is primarily an exporter. The rest of the business has got sizable domestic component to the sales. I mean you look at Mexico and Brazil, both of which have large and very rapidly developing domestic markets. So I would say -- and I'm just doing an estimate here -- I'd say probably more than half the growth is serving the development of the domestic market. I think about a year ago, I commented that packaged meat in Latin America had a very low penetration of somewhere in the 15 to 18 percent range. And as the economy develops, particularly the emergence of the supermarket and higher standards of living, that need and the demand for packaging of meat is increasing at a double-digit rate, and will continue to do so.

If you look at penetration now, I'd say we're probably not much over 20 percent of the available market for meat. So I think over the longer-term, we have a sizable opportunity not only for the export possibilities, but for growth in the domestic market with each of those countries.

Okay. That's helpful. Is there anything just for overall for the Company that we need to be aware of in thinking about seasonality as we move into the first quarter?

The first quarter is probably the Company's slowest quarter. Primarily, if you look at seasonality, the second and fourth tend to be stronger quarters because either you've got holidays in the fourth quarter, which are helpful to both the protective and the food business. During the second quarter, you've got one of the big holidays of the summer for kind of beef consumption -- our traditional Fourth of July, but you do have that. And then the third quarter tends to come in kind of third. And the first quarter tends to come in in terms of our seasonality is probably the lowest.

Okay. Thanks, Bill.

John McNulty with Credit Suisse First Boston.

Good morning, guys. Just one quick question. Based on your press release, you were talking about how you moved the medical equipment or medical bag business into the food business. And I'm wondering, because I know that one was barely running at all last year for your fourth quarter. I'm wondering how much that actually helped your food business this year and what maybe the growth level would have looked like without the medical business in there.

Okay. Well, the medical business was up 8 percent for the year. But as you remember, the first part of the year, we were, I'd say, short on capacity in that we were in a sold-out position. So when the medical line came on stream in the third and fourth quarter, we did see a significant pickup in volumes for the medical business. But the number is still sufficiently small that I'm not sure I would say it had a meaningful effect on the food business.

Okay, that's helpful. And actually, just one last question. On the other income/expense line, the expense was a bit larger than it's been. Is that all the IT spending, or was there anything else in that?

Dave?

John, good morning. The IT expense is up in the marketing, administrative and development category. We had just the normal laundry list of items that don't fit elsewhere on the income statement. Probably the most significant that contributed to the loss was some foreign exchange movements, primarily in Europe.

Okay, great. That's all I was looking for. Thanks a lot, guys.

George Staphos with Banc of America.

Hey, guys. I have two parts to my one question here. I'll make it quick. When we look at case ready, Bill, if we look back, I don't know, let's say three years ago, and we index the number of line installations we had at that time at 100, again index, what would that number look like now at the end of '04?

I know. I think our case-ready numbers are 290 plus -- 290 million plus, in terms of revenue. I have to say it's probably a factor of 3 -- 3, 3.5. Very honestly, George, I don't have the number of lines. I'm just looking at kind of the volume as being a reasonable index of the number of lines. But I don't have the number of lines.

Okay. And then the second question, the restructuring that you commented on in the past, it's obviously quite skewed to one of the segments and to geographies. But as we think about two, three years from now, how will these segments be forming differently? How will the processes have changed? Obviously, you're expecting a fair amount of benefit to the operating profit line. But how will business be done differently? Thanks.

Sure. That's a 35,000-foot question, George. But I think the goal in both of the restructurings that we talked about -- both on the industrial side and the food side and the European side and the U.S. side -- is essentially to streamline the business process, take non-value-added steps out of the process, reduce our cycle time to get product from our supplier to our customer. Those are essentially the three components of most of the changes. There's kind of a fourth -- perhaps a more subtle one -- is to move some production to certain lower-cost environments.

Okay. Of the first three, what's the biggest?

I guess the first three is streamline the processes because there are costs in complicated processes. That's a rather simple, but I think probably the most adequate or the most appropriate answer to your question.

Bill, that's great. Good luck in the quarter.

Edings Thibault from Morgan Stanley.

Thank you, gentlemen. Just a quick one. Could you quantify the impact of higher resin costs that they had in 2004? I mean is there a total dollar number you'd like to put out there? And then, one of the comments you made consistently throughout the year is how the softness in the beef market has prevented you guys from perhaps being as responsive on the price side as you would have liked. Is there a way of quantifying sort of the material impact that that combination has had that sort of true margin loss on the beef packaging side?

Dave, do you want to --?

Yes, I don't have specific numbers to sure with you, Edings. The impact, given that it's global in nature across both segments, is a larger number. The beef impact has been limited, as you know, to North America with somewhat of an offset if you want to look more broadly at the food business by a pickup in sales in the international side of the business and in other meat proteins in North American. But of the two, the resin impact has been more significant.

Okay. And would you characterize yourself as still trying to aggressively pursue pricing options here in the first quarter in order to continue to play catch-up, if you will, to the past movement in prime (ph), potentially some of this present movement in polyethylene prices?

I -- in terms of your statement, I basically agree, but would prefer not to use the word aggressive. Okay? We are pursuing.

Okay. And that's a continuation of really pricing actions that really didn't begin until the -- (multiple speakers) quarter.

Right. We got some November and December price increases which are kind of rolling through.

Okay, great. Thank you very much.

Rosemarie Morbelli with Ingalls Snyder has a follow-up as well.

Just a quick question -- a couple of quick questions -- to look at '05 versus '04 on apples-to-apples basis. You said that the impact of complying with the new rules on the diluted shares was 3 cents for Q4 and 10 cents for the year. So if we take out 3 cents and change in each of the first three quarters, that would give us an apples-to-apples basis?

No, I think the number to back out of our -- whatever number you'd care to use as a base for 2004, you'd back 10 cents out for the impact of the change in accounting for the contingent convertible debt.

So if it was 3 cents in Q4, that, I am assuming, is included in the 10 cents?

Yes, it is.

And so the balance I just share equally between the first three quarters?

Actually, I think the announcement -- it became effective at the announcement date, which was probably not the beginning of the year. Dave?

Yes, but it (multiple speakers) unique ones where they made us change the accounting retroactive to 2003. So our 2003 numbers will actually be different when we file our K. The -- I don't have an easy way to help you spread that remaining 7 cents across the three quarters.

Any particular reason why one quarter should have more than the other two?

Not a particular reason, and I don't think for measurement purposes that if you just wanted to straight line it, you're not going to be that far off the mark, Rosemarie.

Okay. And so fielding to that, then we use a 98.8 million shares fully diluted for each quarter of '04? And this is what we use going forward in '05?

That -- it's going to be a little bit higher.

About 99? About 99 -- 99.4.

For '05?

Right.

Okay. And then lastly, on the interest expense, you said that the cost is going to be 17 million lower for the year due to your buying back some of those bonds. You had an impact of 4 million in Q4 versus '03. So that leaves us a net 13 million for '05 versus '04, the full-year?

No. The fourth quarter of '04 that I referenced relates primarily to the bonds that we bought back in December of '03. There was some impact for the bonds that we repurchased in '04, but not as much as the '03 repurchase. In getting to an actual P&L impact, I'd just point out that the $17 million in interest savings from the debt that we've retired has to be reduced somewhat by the earnings that we were getting from the cash that we were holding on our balance sheet. Now, we weren't making 4 or 5 percent, but we were making some interest income on the cash that we then used to buy back those bonds.

So I -- you need to go through those steps. And one last thing I'll point out on our -- in terms of coming up with the tax-affected impact, those interest deductions do come in the U.S. and our incremental or our marginal tax rate in the U.S. is higher than our overall effective tax rate. So the after-tax impact will be a little bit less on those savings.

Okay. Alright, thanks.

We've got time, I think, for two more questions.

Chris Kapsch with Black Diamond Research.

I was hoping you could talk a little bit about your resin buying and inventory practices. And just curious how much resin inventory you typically keep on hand. And if that changed during the course of '04 as the resin prices were so volatile?

Yes, the answer to both of the parts of your question -- we don't keep a lot of resin on hand. We buy it by the -- I guess it's kind of relative in terms of what we use. We generally get our resin by railcar. And if you'll look at it in terms of our annual consumption, ten railcars is not a lot. So I'd probably say 10 to 20 days at the most raw materials on hand in terms of resins. And we really haven't changed that over the years.

Okay. Did you experience any times of concern regarding the availability of resins as things seemed to be pretty tight helping drive the resin prices higher in '04?

No, no. We'd been through that at times during the cycle. But this particular cycle, that has not been a problem.

Okay. And then you commented a little bit about the gross margin benefit from stronger volumes. I'm just curious if one of the two segments would you characterize as a little bit more volume sensitive than the other?

I think both businesses are relatively sensitive to volume, but I'd say the protective it's probably slightly more upside on the leverage there.

Fair enough. Thanks a lot.

Stuart Sharp with Standard & Poor's.

Good afternoon, everyone. Just a quick question. Assuming that you resume your U.S. beef imports later in the year, how much would you still lose, if any, based on lack of consumption or decrease of consumption? Could you break that out?

Yes, there's been basically very little change in consumption. There actually has been, interestingly enough, very little change in consumption. I assume you're referring to the United States, where the Atkins Diet continues to be reasonably popular. In Japan, there has been a little bit of a drop-off in consumption, but I think it's in the 10 percent range. Interesting, if you've -- and I know, Stuart, you've followed the Company for awhile -- back in 2001 or so when we went through the BSE crisis in Europe, beef consumption in Europe went down probably close to 30 percent at its trough. And in a 13 to 14-month period, worked its way back almost to where it was. So the net loss in consumption in Europe was probably in the low single-digits. Okay?

Okay. That should do it. Thank you.

Okay. I would like to just thank you all for participating in the call today. As we have discussed, I am pleased we're able to finish 2004 on a extremely positive note. In this continued environment of higher raw material cost volatility, I believe that Sealed Air continues to be well positioned to capitalize on growth opportunities in 2005 and beyond.

The ongoing efficiencies resulting from our restructuring, combined with the interest savings generated by our debt reduction, will help place Sealed Air on even a more solid footing as we proceed through the year. These proactive initiatives are just another example of how we managed to successfully navigate our way to solid operating performance and continued cash flow growth in a variety of economic environments.

I would like to end this call by asking you to go out and pop some Bubble Wrap today to help us celebrate this year's Bubble Wrap Appreciation Day. And be sure to use the real thing because only Sealed Air Bubble Wrap cushioning produces the most satisfying pop! It's for this reason and so many more I am personally glad to be a Sealed Air shareholder. Thank you all very much.

Again, thank you all for joining us. That does conclude today's presentation. Have a great day.