希悅爾 (SEE) 2007 Q3 法說會逐字稿

Good morning, everyone and welcome to the Sealed Air conference call discussing Sealed Air's third quarter 2007 results. 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 management's prepared comments, they will be taking questions. (OPERATOR INSTRUCTIONS)

And now at this time, I would like to turn the call over to Ms. Amanda Butler, Director of Investor Relations. Please go ahead, Ms. Butler.

Good morning, everyone. Before we begin our call today, I would like to remind you that statements made during this call stating management's outlook on events that look in the future are forward-looking statements. These statements are made solely on information that is now available to us. Our future performance may be different due to a number of factors. Many of the factors are listed in our most recent Annual Report on Form 10-K. We have also posted supplemental financial information and a reconciliation of non-GAAP measures that we expect to discuss, on our website at www.sealedair.com, in the Investor Information section under Reports and Filings.

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

Thank you, and good morning to everyone. I am Bill Hickey, President and CEO of Sealed Air Corporation. With me on the call today, in addition to Amanda, we have Dave Kelsey, our Chief Financial Officer. As an introduction, I will provide a few highlights of our business for the third quarter. Dave will then review select details of our financial results. After Dave's remarks, we will be happy to take your questions.

As highlighted in the already published earnings announcements this season, macro economic conditions have made the third quarter challenging. And not only for Sealed Air, but for our customers, and their customers. During our comments this morning, Dave and I are going to focus on what we believe are the key takeaways for the quarter, including Sealed Air's ability to successfully navigate through modest economic environments, like we are experiencing today.

Our growth through innovation and strategic diversification has resulted a company whose strengths are, a strong geographic reach that is resulting in continued expansion into the emerging markets, and extensive end market diversification. From packaging for eCommerce fulfillment, to microwavable entree systems, to the packaging of pacemakers. It is this strategic diversification and our solid business fundamentals, that enable us to deliver top-line volume growth, and steady volume growth.

During the third quarter, we increased sales 7% to $1.16 billion, while continuing to invest in ongoing initiatives for future growth and operational efficiency. While our North American sales reflected the slower economic growth rate in the United States, our international sales increased 13%, while the emerging market component as a subset of our international sales increased 22%. Our improved sales performance was primarily driven by volume, which increased approximately 4% in the quarter, but 6% in markets outside of North America.

Geographically, sales strength was led by strong unit volume growth in Latin America, Asia-Pacific, and North America, and by favorable price mix in Europe. By reportable segment, sales growth contribution was led by food solutions, as well as the growing businesses that are part of our other category. Year-to-date our consolidated sales have increased 7%, or 3% excluding the favorable impact of foreign currency translation, to a record $3.4 billion, while generating a 3% volume growth.

Let's take a closer look at our performance by reportable segment. Our Food Packaging business showed solid growth performance in the third quarter, with net sales continuing to grow at 8%, or 4% if you exclude the favorable effect of foreign currency. Volumes were good in the quarter, with strong growth from shrink bag and roll stock sales in North America, and a strong double digit volume growth rate in Latin America. We attribute our success not only to the strengths of our product portfolio worldwide, and a pick-up in equipment sales in Latin America and Europe, but also global end market trends.

These trends include increased cattle to market in Australia for domestic consumption, continued strong double-digit meat export rates, and solid domestic meat consumption in Brazil, and the strength in beef and pork processing in North America during the third quarter. Our European team faced key challenges in the quarter, as they weathered modest volume growth related to ongoing challenges in the cheese market, due to rising milk and dairy prices. Additionally, our Asian teams continue to grow and establish our footprint in China, but in a market facing short-term meat supply shortages, primarily in pork.

Nonetheless, we remain focused on long-term growth, and launched a number of new products worldwide, including a new barrier bag format in Brazil, a new [StarFresh] offering for exporting beef into Europe from Latin America, and a new packaging solution for refrigerated pizza, a high growth area in grocery stores today.

Looking at emerging markets growth, we extended our presence in India, with increased product sales used for both domestic and export meat packaging. Looking ahead, we feel that continued strength in global meat production and protein demand, create a favorable business environment for our Food Packaging business, and we are continuing to innovate to those trends.

Moving on to our higher growth food segment, Food Solutions, we maintained a solid 11% net sales growth in the quarter, or 6% excluding the favorable effects of foreign currency translation. This segment experienced a 5% volume growth rate, with the strongest unit volume growth and price mix increases occurring in North America and Europe. The strong pace of sales this quarter was largely a result of the strength of our product portfolio in North America, strong leading film sales for case ready, steady red meat production, and strength in domestic crop yields, which benefited vertical pouch packaging.

We also saw strong volume growth in Latin America in film and equipment sales, with both contributing to our strong double digit growth rate in the quarter. As mentioned with Food Packaging, our European team was challenged with softer retail conditions in the United Kingdom, and unfavorable weather conditions in the quarter, which hurt the summer barbecuing meat season, and the produced harvest. Nonetheless, European team improved price mix and grew volumes due to pick-up in tray sales across the various formats and material options, increasing unit volume growth in pizza applications, again, one of the faster growing segments in ready to eat meals, by growing our business in vertical pouch packaging, and by modestly growing equipment sales in the quarter.

By key product area, our case ready business grew by 12%, and our vertical pouch packaging sales continued to grow at a 20-plus percent rate in the third quarter. Both of these growth products are developing new formats and pilot programs in markets today, and each is pursuing expansions into new applications and geographies. As you may know, the case ready market is continuing to evolve, and retails continue to experiment with differing formats. We believe that one of our five case-ready formats provide a range of case-ready solutions for retailers, that balance presentation, hygiene, shelf life, and labor savings.

For example, another recognized retailer has opted to launch new stores in North America, with a 100% case-ready meat department. Of particular interest is as we speak, we are introducing a new case-ready format, which we call Mirabella at the Worldwide Food Expo in Chicago, which is opening this week. This new format focuses on space efficiency and material reduction, while retaining labor savings and shelf life, and permits the meat to display a natural bloom, red color, without chemical additives or noxious gases.

As we have said before, the case-ready market will continue to evolve, and we see these changes as a normal course of business, and as we continue to develop new packaging solutions, we look forward to the opportunity to work with all customers on innovative new solutions to meet their business needs.

Finally in the third quarter, we announced the acquisition of Chevron Phillips Chemical’s Oxygen Scavenging Business, which is an extension of our own oxygen salvaging technologies, and is enabling the launch of our new Freshness Plus portfolio, also at today's Worldwide Food Expo in Chicago. We anticipate leveraging this technology, not only in our food segments, but in our Medical Applications business.

Moving on to our Protective Packaging business, the third quarter was especially challenging, with net segment sales increasing a modest 1%. The growth we experienced was largely driven by a 4% volume growth in markets outside of North America, particularly in Asia-Pacific and in Europe. Unfortunately, these gains were largely offset by unfavorable price mix in all regions, weak North American volume, and the unfavorable impact of the previous sale of a small security mailer product line.

Excluding the effects of foreign currency translation and the divestiture, sales were essentially flat in the third quarter. Although we are not satisfied with this performance, we recognize that we faced a headwind in North America, due to the ongoing softness in the economy, and rising raw material costs in the quarter.

Compared to common proxies like corrugated box shipments, which have been down 1.2% year-to-date through September, we feel that our success and diversified position, help insulate our business, and enabled us to hold our position year-over-year. Additionally, we are implementing selective price increases on several protective packaging products with North American customers, that we started to initiate in September, and should contribute to results in the remainder of the year.

Our new paper packing product, Pack-Tiger, which we introduced in June, continues to be well received in the marketplace. We are well on our way to exceeding our goal of 100 systems installed this year, with over 90 systems installed to-date. Revenue from the consumable paper used on the machines is expected to be modest this year as the machines are installed, but should provide an active installed base for future revenue.

Looking at our success in the quarter, we increased unit volume growth in Asia by over 10%, due to the addition of new customers and strengthened products like Instapak Foam-in-Place, equipment sales, and our polyolefin shrink films. In Europe we experienced volume increases in product and equipment systems, including protective mailers, Korrvu suspension packaging, Pack-Tiger, and again Instapak Foam-in-Place products. In Latin America, we grew Korrvu suspension packaging by triple digits. Instapak volumes by double digits, and packaging foam by solid rates. Our global and plateable packaging business grew by 10% in the third quarter.

Looking ahead, we may see slowing economic growth rates on our primary Protective Packaging market. Nonetheless, we will continue to navigate through this environment leveraging our diversified global footprint, and the continued opportunities in stronger categories, such as eCommerce fulfillment, consumer electronics, and supplies to the military.

Lastly, our Other category, increased net sales by 23% during the third quarter, with all regions experiencing double-digit growth rates. The key drivers of growth were unit volume growth in the Medical Applications business in Asia and Europe, and the acquisition of Alga Plastics in the United States, which compliments our European rigid medical packaging business. Excluding the favorable effects of foreign currency translation, net sales would have increased 18% for the quarter.

Earlier in the quarter, we commented on our pending acquisition of certain assets related to Dow's well-recognized ETHAFOAM brand, one of the best known names in the industry. This transaction is still open pending appropriate approvals, but we are excited at the opportunity to extend our Specialty Materials business, with a specialty brand that is used in a wide variety of applications, such as construction, transportation, and applications for the military.

Finally, before I hand it over to Dave, I would like to comment on our EPS expectations for the year, and touch upon what we have issued earlier today in our press release. We successfully navigated through a challenging economic environment in the third quarter, but continued to invest in our future, based on our confidence in our business, and in our growth strategies.

As a result of our investments, we reported a slight decline in diluted earning per share by $0.01 year-over-year, excluding the charge related to the implementation of our global manufacturing strategy. Additionally, our continued investment in new technologies and initiatives included the opening of our state-of-the-art customer service center, and the new technologies such as Biosphere and NanoPort, were dilutive to earnings in the quarter, by approximately an additional $0.01. This dilutive impact is primarily due to the pace of sales for the start-up technology initiatives not being realized as quickly as anticipated. We still believe these technologies represent areas of opportunities and growth for Sealed Air going forward, and we remain committed to their development.

As we look ahead at the fourth quarter, our expectation is that slower economic conditions in our primary regions, North America and Western Europe, will likely persist and may be accompanied by rising petrochemical based raw material costs in North America, due to a trend in higher feedstock costs, and increased export levels of petro-based chemical materials to other parts of the world. As a result, we are expecting to be at the lower end of our previously announced range of $1.65 to $1.75, which reflects our outlook for the remainder of the year.

As there is uncertainty about future raw material price increases in the fourth quarter, we recognize that our results could be further impacted. As we have done in the past, we are prepared to take appropriate pricing actions to lessen the impact of any raw material price increases. However any actions that we might take would likely not have a significant impact until 2008.

At this time, I am going to turn the call over to Dave Kelsey to review some additional details of our financial performance.

Thank you, Bill. As Bill mentioned, our sales were a record $1.161 billion for the quarter, more than 85% of our $80 million of revenue growth, or $70 million, came from our international operations. Volume grew internationally $33 million, or 5.8%, and favorable foreign currency translation contributed $43 million. For the quarter, approximately 54% of our revenue continued to come from outside the United States.

For those participating in the call who would like additional details, tables posted on our website, www.sealedair.com, present the percentage of sales by geographic region, the components of the change in net sales by business segment and by geography, and the impact of foreign currency translation on sales by geographic region.

Moving through our statement of operations, the Company's gross profit was $320 million for the third quarter, compared with $310 million in the third quarter of 2006, Food Solutions gross profit grew $8 million, Protective Packaging gross profit grew $1 million, and the Other category added $3 million, compared to the third quarter of 2006. Food Packaging gross profit declined $2 million, attributable to a disruption to our North American trade business related to a new manufacturing process, and a shift in product mix.

For the total company, resin costs in the quarter were $5 million higher compared to the prices paid for resins in the third quarter of 2006. Costs associated with implementing our global manufacturing strategy were $3 million in the quarter. Marketing, administrative, and development expenses were $186 million, compared to $170 million in the third quarter of 2006. As a percentage of revenue, these overhead expenses were 16%, compared with 15.7% during the third quarter of last year.

Foreign currency translation contributed $7 million, to a $16 million year-over-year increase, but had no impact on these expenses when calculated as a percent of revenue. Operating profit was $134 million, unchanged from the second quarter after the absorption of $12 million of sequentially higher resin costs. Operating profit as a percent of sales was 11.6%, compared to 12.9% in the third quarter of 2006.

In keeping with our change in segment reporting, we now disclose operating profit for each of our three segments, as well as for the Other category. Both the Food Solutions segment and the Other category reported year-over-year increases in operating profit, after reporting declines in the second quarter. Food Solutions operating profit margin was 10.1%, up compared to 9.2% in the second quarter of 2007. The Other category, which includes our Specialty Materials, Medical Applications, and investments in new technologies, reported a year-over-year increase of $500,000 of operating profit.

Our revised Food Packaging segment contributed $50 million of operating profit, a decrease of $6 million, or 10% from the prior year. The Food Packaging segment operating profit margin was 10.8%, down compared to 13% in the comparable period last year. Our revised Protective Packaging segment contributed $52.2 million, a decrease of $1 million compared to the third quarter of 2006. As a percent of sales, Protective Packaging operating profit was 14.1%.

Interest expense was $35 million, essentially unchanged from the third quarter of 2006. Other income for the quarter was $6.5 million, a decrease of $0.5 million compared to last year. Interest income was $4.8 million this year, compared to $3.9 million in last year's third quarter. Income tax expense for the quarter was $33 million, our guidance for total year income tax rate is up slightly from 31.5% to 31.6%.

As the reconciliation table in our earnings press release demonstrates, this rate excludes the impact of the reversal of tax accruals and related interest, and the gain on the sale of an equity method investment, both of which occurred in the first quarter. Diluted earnings per common share were $0.39 for the quarter, compared to $0.41 in the prior quarter. As stated in our earnings press release, this diluted EPS for the quarter includes $0.01 per share related to costs this quarter for our global manufacturing strategy, which has been reported primarily in cost of sales.

Factors impacting our 9 months year-to-date earnings per share of $1.46, include the gain on sale of PolyMask of $0.11 per share, and the reversal of tax accruals and related interest of $0.18 per share, and global manufacturing strategy charges of $.03 per share for the nine months year-to-date 2007.

I will conclude with some key cash flow and balance sheet items. Our combined balance of cash and short-term investments as of September 30 was $419 million, unchanged from the beginning of the quarter. Some noteworthy sources and uses of cash during the quarter were capital expenditures of $47 million, the acquisition of Alga Packaging for $25 million, a dividend payment of $16.2 million, and the repurchase of common stock for $2.3 million.

Our quarter end accounts receivable totaled $792 million, up $44 million from June 30th. Compared to December of last year, receivables and investments increased $93 million, or 13%, while our quarter-over-quarter sales increased $80 million, or 8%. Customer receivable balances outside North America were up double digits, reflecting our growth internationally, and generally longer payment cycles in these markets. Also representative of our international business, VAT receivables were up $15 million year-over-year.

Lastly, foreign currency translation contributed $44 million, or 6%, to the year-over-year increase in receivables. Inventory investment as of September 30 was $604 million, up $32 million during the quarter, reflecting $10 million related to foreign exchange, and higher balances to support growth in emerging markets. Compared to September 30th of last year, inventory investment was up $134 million, or 28%, reflecting the $40 million related to the SAB-108 adjustment we made at year end 2006.

Inventories in the U.S. were up only $3 million year-over-year. The increased investment in inventories outside the U.S. was attributable to the $30 million of foreign currency translation, and a higher balance to support our sales growth internationally.

Total borrowing at the end of June were $1.866 billion, unchanged during the course of the quarter. The outstanding balance of $300 million related to a debt issue that matures in April of 2008, has been moved into current liabilities effective in the second quarter.

Capital expenditures were $47 million for the quarter. Of this spending, $19 million was incurred on projects undertaken as part of our global manufacturing strategy. Looking ahead, our guidance for 2007 capital spending is expected to be at the upper end of our guidance of 175 to $200 million. This projected range is expected to cover our investment in 2007 related to the first phase of our global manufacturing strategy.

In finishing my comments on our financial performance, I would like to summarize the status of our global manufacturing strategy. The $19 million invested in the third quarter brings our year-to-date investment to $45 million, we continue to expect our 2007 investment to total approximately $80 million, primarily for new facilities in China and Latin America. In 2006, the first year of this multi-year program, we invested $14 million.

Thus, additional investment in 2008 of 35 to $50 million, will bring capital investment for the first phase of our strategy, to an expected range of 130 to $150 million. We have also estimated that other costs associated with expanding our global manufacturing base, and establishing centers of excellence will total 90 to $100 million, and will be charged to our P&L over the period from 2006 to 2008. Last year, we incurred expenses of $16 million. This year, we expect to spend an additional $15 million, down from our original estimate of $30 million for 2007.

This change to our 2007 estimate represents revised timing, as we still expect total costs to be 90 to $100 million. Upon completion of this first phase, we continue to project our savings in 2009 will range between 55 and $65 million. Now I will turn the call back to Bill and to your questions.

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

Thank you. Ladies and gentlemen, (OPERATOR INSTRUCTIONS) Gentlemen, we will take the first question from Ghansham Panjabi, Wachovia Securities.

Good morning. Could you, I know you commented on some slowing in Western Europe, but could you give us some insight into what is happening in Asia? It looks like sales is a little bit lower than what you were tracking earlier in the year?

I think the main issue is basically pork supply. There has been a slow-down in pork supply through most of China, pork prices are up like about 40%, and herd sizes have actually shrunk, so that is the principal reason, is we are developing new customers, new applications, but the pork supply has slowed. China may consider actually, there has been some discussion of importing pork, I believe, for the first time since World War II.

Okay, and in just in terms of, your August, early August press release, you announced an enhanced share repurchase program, you have been pretty active buying back stock in the past, especially at current levels, but I don't see any meaningful buybacks during the third quarter, do you see more attractive opportunities elsewhere? Or am I reading too much into it? Thanks.

I will let Dave do that one.

I think you answered the question for us. If you go through the various investments we made in the business in the third quarter, that represented our first priority, starting with capital spending, and related costs for our manufacturing strategy, as well as a number of the new product investments that Bill described in his opening remarks, $25 million for the Medical business acquisition, and we did continue to keep shareholders in mind with the $16 million in dividend payments that we make on a quarterly basis.

Okay. Great. Thank you.

Go next to George Staphos with Banc of America.

Hi, guys, good morning. Maybe since it's the start of the Q&A, we will take the macro question, or kick it off. You know, when you look at the trends you are seeing, for example, frozen pizza is growing for you, if you look at the trends entering fourth quarter, exiting third quarter, what, in your key markets, what do they say about where the U.S. and Europe are heading based on your past experience? What kind of growth could we possibly be seeing out of your core market, say first half of 2008, based on what we are seeing, and based on your experience over time? Thanks.

Sure. Kind of a large macro question.

And I understand there are no guarantees here.

Principal part of Asia, following up on Ghansham's question, there is an animal shortage in Chinese Asia, there is a continued drought in the South Pacific, particularly Australia, so that the numbers there should be pretty consistent through the fourth quarter. I do hope, do expect that, you know, that the Chinese pork production will pick up early next year.

As far as Europe, the key issue there seems to be dairy, the phenomena of price increases in food is occurring around the world, and that has been a factor, particularly in cheese production. I have read recently some of the major cheese companies are experiencing significant cost increases.

But we do expect meat to recover over in Europe, the industrial business continues to probably going to suffer a little bit from the strength of the euro, you know, the euro continues to hit an all-time high, and obviously to the extent that some portion of our protective business in Europe goes into exports, I expect that to be a factor.

On the other hand, I don't think you can get a straight answer on whether the subprime crisis is going to go beyond where it has gone or not, and what the spillover will be, in kind of the U.S. economy, so I don't want to speculate on that. There are people more qualified than me to talk on that, but one of the things you are seeing is the opportunity for pick-up in export business in the U.S., as the dollar continues to slip, so that hopefully will offset what may be an otherwise slower economic growth in the U.S., in terms of domestic consumption, perhaps being partially offset by exports, that could provide some sort of better balance on the Protective business than we saw in the third quarter?

To conclude, slower growth but now guarantees, but it doesn't seem like it is the early '00s or early '90s just yet?

No, no. I don't see that, no.

Thanks, Bill, I will be back.

We will go next to Ross Gilardi with Merrill Lynch

Good morning, thank you. I was just wondering if you could talk a little bit more about your cash flow priorities, and your appetite for doing a larger acquisitions in the current environment?

As we said in the past, we do not comment on acquisitions up until the point that we have something to announce.

Okay. All right. Thanks for that.

And then you know, you mentioned that you are prepared to take pricing actions, you know, to limit the impact of raw material price increases. I am just curious, do you think the pressure on raw material costs certainly seems to be there, so is there anything you are waiting for in particular? Is there anything in the broader competitive environment that prevents you from going out with price increases now?

I think, to go back to our second quarter call, and obviously, there has been some changes since that time, but our collective view was that year-over-year resin prices would be approximately the same. And it would be a flip flop from 2006, 2006 which started out higher resin, and slipped towards the end of the year, the 2007 scenario has been lower in the beginning of the year, coming up higher in the second half of the year. And on that basis, we had only taken selective pricing actions back in September, as I mentioned in my comments on the Protective business.

We are right now looking at, depending on who you talk to, various announcements and projections made, about what raw materials may do in the fourth quarter. We have not seen that yet, so I am not sure we want to shoot without aiming, but we are watching closely what happens, and we will make the decision as soon as we know our costs have gone up.

Okay. Thank you.

We will go next to Mark Wilde with Deutsche Bank.

Bill, I wonder if you could put a little bit more color around some of the price mix issues that you highlighted a few points in the release?

Yes, that is kind of a broad question, and particularly let me talk about the Food side, is on the Food side, we sell everything from sort of high tech extended shelf life packaging, to less sophisticated over wrap pouches, and to the extent that those change over time, it really goes into the price/mix calculation.

The other aspect is price itself, but except for the small amount of price we announced in the Protective side, there has really been no meaningful price change, and the comment is just mix and product portfolios, that is about as simple as I can say it, without getting into the specifics of Product A versus Product B.

Can you talk at all about this article that was in the paper yesterday about kind of controversy around some of these modified atmosphere packaging? I think this is what you were getting at earlier in your comments about case ready?

Yes, yes. The only thing I can say is that there has been concern that some processors and some supermarkets have used carbon monoxide in their offering, and the concern is that carbon monoxide actually makes meat red, I don't want to say artificially, but that is the closest word I can think of, and therefore it is not as natural as it would be otherwise, and concern that it might look fresher than it really is, and I don't want to take a stand on the issue, because obviously, our customers use all sorts of formats, but that seems to be the gist of the concern.

Okay. Thanks, Bill.

We will move next to Richard Skidmore with Goldman Sachs.

Good morning, thank you. Just a quick question, as you look at the top line growth, it has been pretty healthy through the year, but as you look at the operating margins, they have been coming down through the year. Is that primarily driven by resin and the limited ability to really pass that through through the year? Or is it the price/mix issue? And as you look to 2008, would you anticipate to be able to see your margins start to get back on an upward trajectory, or at we at a new level at this point?

There are three factors that I try to put in here, in terms of how they flow through. One obviously is raw materials, which I think we indicated was like 5 million up over last year's third quarter, and 11 million up sequentially from Q2 to Q3. That is one.

The other is our ongoing manufacturing strategy, which as Dave indicated, is a program that will run over a 3-year period, and most of the costs basically hit the cost of goods line, so that they in effect contribute to a lower margin, but they are costs that we feel will be completed, and when this manufacturing strategy project is done, that will lead to the 55 to $65 million in savings that Dave Kelsey mentioned in his comments, which will come back through the cost of goods line.

And the third, the third is that as you saw by our numbers, we are really growing in other parts of the world. A lot of our growth we are seeing in Asia, Latin America, eastern Europe. I think I made the word in my comments, the opening comments that outside, in the emerging markets, you know, the proverbial brick economies our growth is 22%, and in those markets, you are building infrastructure before your sales are coming, so on a marginal basis, you probably have the effect of lower margins coming out of emerging markets, because you are investing for growth in those markets, and as they mature.

For example, in China, our costs compared to the west are higher as a percent of sales because we are really investing for future sales as opposed to current sales, and you mix all of those together, and they have the effect of seeing what you see, which is some deterioration in margin over time, but the reason why I took the manufacturing strategy project under consideration and implementation, is so we can turn that around.

And then just to clarify, the manufacturing strategy, I believe it ends at the end of '08, or early, mid-2009? Is that correct?

Yes, it will be, and the savings, although annual it will be at 55 to $65 million, you may not see it all flow through in '09, but we should see a good part of it.

Thank you very much.

It ramps up.

We will go next to Rosemarie Morbelli with Ingalls & Snyder.

Hi, Bill, could you talk a little bit about the new case-ready solutions, is that for growth 100%, or are you cannibalizing some of your product lines, and what kind of margins do they have?

We just introduced it today, so it is brand new, we are showing it in Chicago, and if anybody on the phone is in the Chicago land area, you are welcome to stop by the Worldwide Food Expo at McCormick Center, but this is a new format, it was actually developed internally about a year and a half ago, we have been going through the development process, and the patenting process.

It is a lower profile tray with an overwrapped film, that gives reasonable shelf life of the 11 to 12 day period, 11 to 14 days. It is a lower material item because there is a smaller footprint on the tray, and it presents a nice red appearance to the meat through the natural oxidation process.

We only have a test customer in the U.S. so I really won't comment on how successful it has been, because it is brands new, but it is just an indication that we are staking out, you know, case-ready as a place where we see a lot of growth and opportunity, because of labor savings, because of hygiene, because of shelf life, and we are continuing to invent and innovate, so that we are always out there with the next generation of case-ready, and we just look at this as another step in the process, Rosemarie.

Okay. Based on what you said though, it sounds as though there will be a certain amount of cannibalization, so the growth rate overall may not jump substantially just because of this new introduction. Am I correct?

Well, there is a good basis for your argument. On the other hand, I will say that to the extent that, you know, supermarkets like to have something different than other supermarkets have, perhaps it opens up new opportunities for case-ready penetration and growth in those markets, which had not wanted to copy what someone else did.

Okay. And if may I ask one more question? In the earlier comments on the press release, you stipulate that the Company's position to weather challenges from the slowing economy and rising raw material costs, and then towards the end in the guidance, you stipulate that rising raw materials costs may affect the fourth quarter results, so I am not too sure how to take those two comments, which seem to contradict one another?

I think the difference is that that we like to look beyond the specifics of the fourth quarter in terms of being able to work our way through, still be profitable, still grow, still invest wisely, still find good ways to return money to shareholders, and work our way through the ups and downs from quarter to quarter.

Thanks a lot.

We will go next to John McNulty with Credit Suisse

This is actually [Elaine Gibb] on behalf of John. How are you?

Okay.

Quick question. Would you be able to quantify the higher costs that you saw this quarter tied to the new product launches? And should we expect these higher level costs to be [inaudible], or are these expected to trail off?

Excuse me, but you are not coming through very clearly.

I am sorry. Can you hear me now?

Yes, that is much better.

Okay. I was wondering if you would be able to quantify the higher costs tied to the new product launches that you discussed for the various businesses, and should we expect to see these costs over the next few quarters, or are they expected to trail off?

I think, let me just suggest that in my comments, I think Dave echoed it too, if you just take the numbers that we stated in our prepared comments, we have got about a penny of costs related to global manufacturing.

Okay.

And you have got about another penny related to some of the newer things, the NanoPore, the Biosphere, the investment in the new customer service center, so that is sort of a $0.02 number, and I think the rest are kind of soft, I can't put my hands on it right now, but $0.02 for things we have actually talked about is a good place to start.

Okay. Okay. Great. And then with regard to acquisitions, can you talk about what your strategy is, or what type of markets you look to make more acquisitions, and what markets particularly?

Yes, I mean Sealed Air has always been a net acquirer over the years. We have purchased a number of businesses, and as both Dave and I mentioned in our comments, we did close on Alga Plastics in the third quarter, and we also announced that we had signed an agreement to purchase the ETHAFOAM business from Dow Chemical, which is still open pending approval by regulatory authorities.

So we have continued to look for businesses that add to our portfolio, or add to our technology, particularly in our stated growth areas of, especially Packaging, Food Solutions, Medical Packaging, and Specialty Materials. Those are the areas where we continue to look for acquisitions of either ongoing businesses or new technologies.

Okay. Great, thank you.

Ladies and gentlemen, we have time for one more question. And that will be a follow-up from George Staphos, Banc of America

Thanks. Hey, Bill.

Back again.

Well, you know, once a quarter right, this is our last chance. Two more strategic questions, I guess, quickly. Do you see Sealed Air over time creating higher return or more value built from evolving maybe into more of a specialty Materials business, as opposed to just a pure play traditional packaging company, and the reason I ask the question, is given the number of smaller investments that we have seen you make, and the new areas we have seen you go in the last year or so. And that had a follow-on. Or do you think, just to finish it up, you create more value in return by just getting larger in your traditional markets?

George, it is hard to gee you a brief strategic response to your brief strategic question, but I guess I will come around to say that, you know, as I thought about Sealed Air over the years, and whether it comes from the original core Protective Packaging business of Sealed Air, or the Cryovac Food Packaging business, or any of the number of acquisitions that we have bought over the years, is in thinking about it, if I look at the core behind all of those businesses, there is a basic material science technology.

Cryovac invented the barrier shrink bag from a materials technology. Sealed Air invented the bubble wrap from the materials technology. We have gone through there with Instapak, we have gone through there with some of the specialty foams. So we are basically playing that balance of where materials technology takes us, and by and large, it has taken us into packaging.

It is also taking us a bit into construction, it is also taking us a bit into insulation, it has also taken us a bit into transportation, I mean, most people may not know, but we do some of the headliners for the high-end automotive companies, that go up above the fabric between the fabric and the roof of the car, we also do copper underlay for a well-known German high priced sedan, which goes between the underbody of the car and the carpet on the floor.

Volkswagen?

Higher end than that, George. (laughter) And we also play in the cold change shipment of high priced pharmaceuticals, so there is a variety of things, and Sealed Air has always looked at growth opportunities outside of packaging, and if I had to say that we were going to broaden our footprint, it would be using some of these core technologies in adjacent markets, looking for new ways to use what we know well, and manufacturing processes that we understand, into applications that may provide better growth opportunities, and better profit opportunities than you may necessarily find in packaging.

That seems to be the better direction based on history. I guess the last one, when you are done with global manufacturing, will you also be done with all the other parallel initiatives that we don't talk as much about? Or you don't talk about, but is certainly costing you something, either expense on the P&L or management attention, when does that date occur? '09, '10?

One thing we haven't talked about for a while is our spending on SAP, which is a critical infrastructure for us to have, given the global nature of our business. We did bring our European food operations up on SAP earlier this year, very successfully, and now we have our Food Business in the U.S. scheduled to come up in June of next year, so we will be running in higher that sort of level loaded information systems expenses, until we get three months or so past that midyear go-live date next year.

So that is something that we view very much as investing in the future success of the business. We are not pulling back there in an effort to manage our SG&A spending as a percent of sales, but that is something we need for future success.

And then you heard me comment, we actually are realigning our customer service organization, so that as a company, we have a unified face to the customer, because now we are serving so many markets with so many different customers around the world, that we were finding that everyone was getting a different answer, depending on where you call around the world.

We are pulling that all together, it is working well, but again, there are costs to do that, there are costs to move people around, and hire and train new people, but that should be done probably by mid-'08, so that is a factor.

There is also some sort of higher burn rate, as we reorganized into our new reportable segments, we are kind of positioning Food Solutions to staff in areas where we see growth, where we did not have a large footprint before, such as aseptic packaging and retort packaging for shelf stable materials, particularly for developing markets where there is not a refrigerated chain in a lot of Latin America, and lot of Asia, and Africa, so we have seen that and we haven't gotten the sales yet.

On the Specialty Materials side, as I answered your comment earlier, is we made a concerted effort to develop applications in insulation, and sustainable materials and in transportation, and in construction, all of which we are probably spending ahead of the revenue, and I know that is probably going to run for another year.

The goal is we are still committed on the stable state to get SG&A well below 16%, well below 16%. I sort of like to say 15% would be a good target, but I don't want you to ask me every quarter how long it will take to get there, but it is probably a comfortable place to be.

It is not necessarily a critique of the investment, what I am trying to get at, I think it is an important factor, is sometime between now and I think 2010, you will have gotten Sealed Air, you hope anyway transitioned really for the next decade, the shackles come off, you get the earnings improvement, you don't have the investment in time and spending. And we will see what kind of earnings power you really have. Anyway, thanks very much.

Thanks, George!

That is all the time we have for questions. Gentlemen, I would like to turn the conference back over to you for any additional or closing comments.

Thank you. I want to thank all of you for participating in the call, as I said earlier, we had a challenging quarter as we managed modest economic conditions in key regions, we had a challenging quarter, but we demonstrated steady progress represented by solid volume growth, and double digit sales growth in emerging markets.

I believe our performance this quarter shows that despite difficult business environments, we can continue to progress on a steady basis. We will continue to invest in Company initiatives that drive long term growth, we have a lot to be pleased about looking at the quarter. Increased sales, solid unit volume, in a slowing economy, ongoing and exciting product introductions and acquisitions, continued improvements in operational efficiency in our supply chain, and a global manufacturing strategy program that remains on-track to position Sealed Air for greater growth, lower costs, and greater flexibility in the near term.

All of these achievements put us in a position to drive sustainable profitable growth, enhance our global leadership, and deliver shareholder value. I am confident we have the right strategy and the right people in place to successfully execute our plans, and deliver enhanced opportunities for growth and sales, earnings, and cash flow.

We have successfully navigating through challenging conditions in the past, and we have demonstrated our ability to insulate our business from significant downturns. We have continued to build upon these trends, which have served us well in the quarter, and will continue to serve us in the future, it is for this and for many more reasons that I am glad and proud to be a Sealed Air shareholder.

Thank you for taking the time to listen to us today.

Thank you, operator.

Thank you gentlemen. That does conclude today's teleconference. We would like to thank everyone for their participation, and wish everyone a great day!