希悅爾 (SEE) 2008 Q2 法說會逐字稿

Good morning, everyone. Welcome to the Sealed Air conference. Today's call is being recorded. Hosting the call today will be Bill Hickey, President and CEO, and David Kelsey, CFO. After management's prepared comments they will be taking questions. (OPERATOR INSTRUCTIONS). We ask that you please limit yourself to one question and a brief follow-up question per caller so that others will have a chance to ask their questions.

Now at this time I'd like to turn the call offer to Amanda Butler, Director of Investor Relations. Please go ahead.

Thank you and good morning, everyone. Before we begin our call today I would like to remind you that statements made during the call stating management's outlook or predictions for the forward 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 and many of these factors are listed in our most recent annual report on form 10-K or quarterly report of 10-Q. We also have supplemental information that we expect to discuss on our website at sealedair.com under quarterly results. Now I will turn it over to Bill Hickey, our CEO. Bill?

Thank you. Good morning to everyone. I'm Bill Hickey, President and CEO of Sealed Air corporation. With me on the call today in addition to Amanda, we have Dave Kelsey. As an introduction, I will provide a few highlights of our business for the second quarter of 2008 and discuss our outlook and action plans. Dave will then review select financial results after his remarks we will take your questions.

Our second quarter results showed a solid increase in sales, both in volume and price mix, despite the challenges of ongoing weak economic conditions. We successfully doubled our product price mix contribution for net sales sequentially in the second quarter, through pricing actions that began in December of 2007. These were reinforced with price increases in April, May and as recently as July 1st. We also achieved the slight increase in unit volume growth while applying these price increases. We've added new business to our food packaging segment, and we continue to see growth in our newly launched products and from our previous acquisitions. Geographically, we continue to see solid sales in the developing regions of the world, with net sales up 17% in Russia and 27% in China in the quarter. Both of these increases exclude the effect of foreign currency translation. I believe these results reflect our experience and ability to balance the short term response to unprecedented input cost increases with our long-term strategic focus on growth and innovations. Despite these efforts yielding positive results, unprecedented raw material cost increases, which we outlined in our press release, negatively affected our operating margin results. As a result, our second quarter diluted earnings per share were $0.38. This excludes the $0.01 charge related to the implementation of our global manufacturing strategy and the $0.03 charge related to the impairment of auction rate securities.

Looking back on the second quarter in a little more detail, I would like to highlight a few key items. Our food packaging business showed steady performance in the second quarter due to solid unit volume and product price mixed growth. Unit volume growth was favorably impacted in North America by steady slaughter rates in the region, which appear to be picking up in the third quarter. We also saw some unit volume growth from the interim effect of accelerated buying prior to the SAP enterprise software launch on July 1st. Internationally, the recovery of the Australian beet business in the second quarter also contributed to unit volume growth. Our growth in product price mix largely reflects the benefits our various price increases implemented since December 2007.

In food solutions, our business was generally solid worldwide except in Europe. Unit volume growth was relatively steady on a year-over-year basis, with the United States showing the highest volume increase at 4.3%. As this business made solid gains in backfilling some lost Case-Ready business, and did have strong vertical pouch packaging sales. This growth was partially offset by a decline in unit volume growth in Europe due to business that we choose to walk away from, in an effort to effectively manage profit margins in that business. Globally, vertical pouch packaging sales remain strong, up 23% in the quarter. And Case-Ready sales outside North America increased over 10% in the second quarter.

I should add that in both our global food businesses, we did not see a large decline in unit volume sales due to rising meat prices. Nor do we expect to in the near term. Instead, we are generally seeing consumers continue to purchase meats at retail, although at times opting for lower price point options such as pork or chicken. And if pressed, consumers will choose smaller cuts or single-sized serve portions to reduce costly food waste. Moving on to our protective packaging segment, second quarter net sales were relatively flat after excluding foreign exchange translation. During the quarter we experienced moderate growth in product price mix, reflecting our various price increase announcements in this business. We saw a moderate decline in unit volumes globally, due to a general slowdown in our customers' manufacturing output, and to a lesser extent, unit volume loss from business that we choose to walk away from. In North America, particularly unit volume rates have been performing well above proxy, such as corrugated box shipments, express mail shipments, overnight deliveries, and globally we saw areas of strength in solutions such as Pack Tiger, Core View and in inflatable bubble wrap. Lastly, our other category net sales increased solidly with all regions experiencing double digit growth rates, driven largely by the addition of Alga Plastics in medical and acquisition of the Ethafoam products in specialty materials.

Before I hand it off to Dave, I would like to discuss our cost reduction and productivity program as well as our updated full year 2008 guidance. Going forward, we anticipate continued economic weakness in North America and western Europe, as well as rising resin prices through the end of 2008. As a result, we announced today our plans to implement a cost reduction and productivity program that is separate to the cost initiatives we previously announced in the previous quarter, as well as separate from our global manufacturing strategy. This program will result on the reduction of our global workforce by approximately 5% across all business segments and functions, and will result in the closure or consolidation of some of our smaller facilities. As outlined in our press release, this program will occur in a phased approach, with the majority of the program to be implemented by the end of 2008.

On a preliminary basis, we expect to incur pretax charges related to the severance component of this program of between 50 and $60 million. This program is expected to achieve annual savings of at least 50 to $60 million beginning in 2009. Again, it is important to note that this program's expected costs and savings are in addition to other ongoing programs such as our global manufacturing strategy. Taken together, we expect the total benefit of this program plus our global manufacturing strategy to better position our company with a more flexible and nimble operational platform. As a result, we expect an increase in our earnings per share of 15 to 20% in 2009, assuming a stable resin environment in that year.

Implementing a program that impacts our employees is always done with care and consideration. However, in addition to existing cost initiatives and price increases, some of which I discussed earlier, I felt it was necessary to take this additional aggressive action. I am confident our decisions will allow us to enter 2009 in a stronger position to focus on the favorable long-term trends that will drive growth for the company. As a result of the ongoing challenges I have already discussed, we now expect our full year 2008 diluted earnings per share to be $1.41 to $1.51, as compared to our previous announced range of $1.64 to $1.74. This range includes charges that were outlined in the press release earlier today. Excluding these charges, we now expect our 2008 earnings to be $1.55 to $1.65 as compared to our previously announced range of $1.75 to $1.85 per share.

This change in our guidance reflects the following updated assumptions. First, we expect full year average raw material costs to be higher than we initially anticipated. Second, we are assuming a new lower full-year effective tax rate of 28.7%. Our assumptions for consolidated unit growth in 2008 had low single digits and our expectations of operating expenses of 16% of sales or less have not changed. I'd like also to note that this revised guidance reflects our continued investments in new materials technology, particularly our NanoPore and biosphere ventures. The dilutive effect of these investments and dilutive effect of the distribution and supply agreement related to our Ethafoam acquisition are expected to total approximately $0.04 to $0.05 per share in 2008. Now I'm going to turn the call over to Dave Kelsey to review some additional details of our financial performance.

Dave?

Thank you, Bill. As Bill mentioned, our sales were $1.279 billion for the quarter. For those participating in the call who would like additional detail, tables posted on our website, SealedAir.com present the components of the change in sales by business segment and by geography, the impact of foreign currency translation on sales by geographic region, and the percentage of sales by geographic region. Gross profit increased $7 million to $330 million in the second quarter. compared to the second quarter of 2007. As a percent of revenue, gross profit declined 2.4% to 25.8%, compared to 2007, but was essentially unchanged sequentially. In addition to resin cost increases and foreign currency translation, another factor affecting our cost of goods sold compared to 2007 was the expense related to the upgrade of our information and technology platform.

The July 1st go live on SAP of our US food and shrink film business brought over 90% of Sealed Air onto a common SAP platform. Costs related to our global manufacturing strategy did not have a meaningful impact on our second quarter gross profit comparison to 2007. Marketing. administrative. and development expenses declined as a percent of revenue in the quarter to 15.9% compared to 16.5% in the second quarter of 2007. Excluding foreign currency translation of $11 million, marketing, administrative and development expenses were essentially flat compared to the second quarter of 2007. Cost containment efforts were implemented early in the first quarter as we assessed that economic conditions were likely to compare unfavorably to our early outlook for 2008. Operating profit declined $8 million from the second quarter of 2007, resulting in total company operating profit as a percent of sales of 9.9%. Food packaging and protective packaging maintained double digit operating margins, experiencing only modest erosion attributable to resin cost increases, as volumes held up well compared to industry indices.

The other category, which includes specialty materials, medical applications, and our investments in new ventures, namely Nanopore vacuum installation and Biosphere sustainable ridges reported a year-over-year decline of $7 million of operating profit during the second quarter. This decline was primarily attributable to the more pronounced impact of resin cost increases on our specialty foams business, along with an interim supply distribution agreement for the Ethafoam product lines. We expect the other category to continue to compare unfavorably to 2007, until we bring our own Ethafoam manufacturing capacity online next year, including our newly announced new facility in Louisville, Kentucky. We also expect to incur additional operating losses in the second half with both Nanopore and Biosphere as we complete the startup phase of commercial production. Ethafoam, nanopore and biosphere are all expected to have significantly improved contributions to our 2009 results.

Interest expense was $30 million in 2008, as compared to $35 million in 2007, primarily reflecting the April retirement of our 5.375% notes. In the second quarter of 2008, we recorded a $10 million pretax charge to recognize an impairment related to a decline in the fair market value of auction rate securities in which we had invested some of our cash. During the quarter, we concluded that the decline in value of three of these securities with a face value of $27 million was other than temporary. The total cost of our holdings of option rate securities is $45 million. Other expense for the quarter was $2 million, compared to other income of $9 million last year. Interest income was $3 million this year, compared to $5 million in last year's second quarter, in part reflecting the use of funds to repay debt in April and lower interest rates paid on our invested cash. Also contributing to the year-over-year decline was a $4 million gain in the second quarter of 2007, as a result of the termination of forward starting interest rate swaps.

Income tax expense for the quarter was $21 million and resulted in an effective income tax rate of 25.5%. The lower tax rate for the quarter resulted from both a lower net effective income tax rate on foreign earnings, as well as benefits associated with the repatriation of certain foreign earnings. For 2008, we expect our total effective income tax rate will be 28.7%. This rate is lower than the 29.6% rate we guided at the end of April, due primarily to the two previous items mentioned. Bill has already commented on our revised earnings per share guidance for 2008 in our preliminary outlook for 2009.

So I'll conclude with some key cash flow and balance sheet items. During the second quarter of 2008, we sold an undivided ownership interest of $135 million of receivables to fund the retirement of a portion of our 5.375% notes. Accordingly, these receivables were removed from our balance sheet. Our quarter end accounts receivable totalled $717 million. down $73 million from December 31st. primarily reflecting the sale. Excluding the sale of these receivables compared to June of last year, customer receivables balances would have increased $98 million or 15%, while our quarter over quarter sales increased $133 million or 12%. Customers receivables balances outside North America were up double digits with foreign currency translation contributing $65 million or 66% to the year-over-year increase.

Inventory investment at June 30th was $655 million, up $13 million during the quarter. The slightly higher investment is attributable to an increase in our international markets due to foreign exchange and seasonal build up, offset by lower investments in the US. Compared to June 30th of last year, inventory investment was up $83 million or 14%. In the US, inventories were up $12 million which includes approximately $2 million due to acquisitions. Outside the US, the increased investment inventories was attributable to $42 million of foreign currency translation and $29 million primarily to support our sales growth internationally. Total borrowings at the end of June were $1.661 billion, a decrease of $221 million as compared to the end of March, primarily due to the retirement of our 5.375% notes. This debt retirement was partially offset by an increase in bank borrowings, but also partially funded by the drawdown of $135 million under our accounts receivable securitization program, which I just referenced. Finally, the outstanding balance of $227 million, related to a debt issue maturing in May 2007 is recorded in current liabilities as of June 30. And now, I'll turn the call back to Bill and your questions.

Thank you, Dave. Operator, I would now like to open the call up and take questions from the participants.

Thank you very much. (OPERATOR INSTRUCTIONS) As a reminder, we ask that you please limit yourself to one question and one brief follow-up question so that more questions can be taken during the call today. And we will go first with Ghansham Panjabi with Wachovia securities.

For your protective patching business, was there any difference in volumes at the beginning of the quarter versus the end of the quarter. Just seems like June was a slower month in general. Just trying to get confirmation on that?

We did not see -- we actually had a price increase on July 1st so June was probably a little bit better than May. But I wouldn't attribute that to anything other than some customers.

Just as a related question, Bill, could you just comment on what -- just your general view on the macro environment. You guys are a global company and you operate in many geographies. Just trying to get your sense of what the what your customers are thinking for the back half of the year. Thanks.

Just an overall global commentary. The industrial economy is soft. Our volumes on protective were down but clearly a lot better than some of the indices that both Dave and I referred to whether it's box shipments, corrugated, overnight deliveries, express mail. Our volumes held up a lot better. We are seeing some of that slow down spill over into Europe. Have not seen it in other parts of the world on a kind of scale. Australia. New Zealand was a little low because of drought. We still have the export problem with beef in Brazil. But fundamentally, I would say slow, low single digit type of activity. That's sort of my observation. But I'm think -- I'm not sure where other people are, but I think it is going to last for a while.

Thanks, Bill.

We will take our next question from George Staphos from Banc of America securities.

Good morning. I appreciate the new format.

One question, George.

I know. One and a follow on. In terms of the restructuring program, Bill. Can you tell us what the genesis of this was and how long you have been working on it and how integrated it is with global manufacturing? And the second question is, when do you anticipate most of the cash associated with the program? In other words, the severance payments and the like will be dispensed? Is it an 2008 or 2009 phenomenon?

I guess, George, we started looking at -- global manufacturing is manufacturing footprint which is putting the facilities where the customers are and where the customers will be.

I understand.

This is more a look at our core business as business has shifted, as business has shifted to other parts of the world we really need to right size the structure in the more developed and more mature parts of the world to be more nimble, be more responsive and I would say that's one of the key reasons. And as far as the cash flow. Due to the fact that most of that 60 to $70 million are severance payments and we expect that the cash flow will run through anywhere from as early as some in the third quarter of 2008 probably in through the third quarter, even the fourth quarter of 2009, depending on the various severance packages, particularly in countries outside the US, where you tend to have rather long severance arrangements. But it should essentially all be washed in terms of through the P&L in 2008 and through the cash flow 2009.

Thank you, Bill.

We will take the next call from Claudia Hueston with JPMorgan.

Thank you very much. Good morning.

Good morning.

You mentioned new business in the food packaging business. I wonder if you could elaborate on that. And then more broadly look across the food packaging business just on the trends you are seeing on a global basis. Thank you.

On food we don't talk about particular customers but I think to say we have got some new business in the US. And there has also been a general pick up in the US business, as processors have brought more meat to market, because of the high price of feed, they are essentially not recovering additional feed costs. So we expect probably end of the second quarter through the third quarter and perhaps into the fourth a pick up in meat processing which should help this year and I think you can appreciate herd size will shrink as a result and probably result in smaller increase in processing in 2009.

As far as around the world, Australia in terms of the business, particularly the food packaging side of the business, went from essentially slightly negative in the first quarter to positive in the second quarter. As we indicated in the first quarter, there were some issues there. In New Zealand there has been a drought so animal weight has been down and that's been a factor. In Brazil -- actually the southern part of Latin America has been quite good and Mexico is up single digits. The market in Brazil has continued to be affected on the food packaging side by the export issues in Europe and I think you heard me comment in my opening remarks that our business in Russia was up quite dramatically in the quarter and also in China and driving a lot of that business is food packaging. We are seeing some recovery in the hog herd and hog production in China after their bout of disease in the fourth quarter and first quarter. So some recovery there. Very positive growth in eastern Europe and Russia.

Thank you very much.

We will take our next question from Rosemarie Morbelli with Ingalls & Snyder.

Good morning, all.

Good morning.

Bill, the food solution is the business that is expected to be the growth engine which is why you are reporting it separately and yet we are not seeing -- I mean the volume side is growing very slowly and you are not showing sequential progress. Could you give us a feel as to what is happening there in the different areas?

Well, I think, I'm not sure I made any comments earlier but what we have been doing is we have been working off a change in Case-Ready format at one of the large retailers in the US. And that had been a significant piece of the food solutions business. And if you really take that out, the numbers are several per cent higher. I'm looking through some of my notes here on the food solutions. I mean, the areas that we want to grow, vertical pouches up 20%. And Case-Ready outside North America is up 10%, Rosemarie. So what you really have is the loss of one component of Case-Ready business in North America, as one retailer has changed to a different format and we are trying to overcome that shortfall.

But when will you anniversary that?

When will we anniversary that?

Yes.

Q1. And the numbers we're talking about is in excess of $50 million per year. It is interesting that most other customers around the world continue to move towards the prepackaged Case-Ready format. And we are still trying to work with all of our customers, even those that are kind of switched out to introduce some of the new formats that result in lower carbon footprints, lower material usage and look a lot more like the traditional store pack. So we are hopeful we will get some of that business back.

If I may ask my second question. You said that you expected the economy down turn to last for a while. Do you think that the new actions that you have taken are enough if 2009 is a duplicate of 2008 or will you have to do more?

I think Rosemarie, if you look at the benefits from global manufacturing strategy, you look at what we have got in this cost reduction program and although no one has asked the question yet, if you look at our pricing actions and expected recovery of that by the end of the year, absent a further down turn as opposed to a continuation, I think we should be well positioned. Very well positioned.

Okay. Thank you.

We will take our next question from Mark Wilde with Deutsche Bank.

Good morning, Bill.

Good morning.

Could you just help us understand sort of the impact of what seems to be going on in the livestock business? You mentioned kind of more volume coming through this year. Probably herd size being down next year. And volume being down. That and with presumably higher meat prices. How does that play out for Sealed Air?

There are ups and downs depending on where you are in the supply chain in the global meat industry there are different impacts of where it hits you. But the fundamental issue is as feed costs have gone up -- okay -- it is less attractive to hold animals unless food prices go up. But food prices have not increased enough to cover feed cost. So that incensed the channel to bring those animals to market. As those animals go to market, at some point you get a supply demand at the consumer level and you reach a trading platform. There is a term used for that. Our business is more driven by kind of the volume of animals that go to market as opposed to the price. Obviously our customers are very sensitive to the price but our business, kind of the more impact on our business is the volume that can go to market. And as more go to market this year in reaction to higher feed cost, it means there will be fewer animals in the feedlots and on the plains in 2009 to go to market at that time. So what you may see is higher animals to market this year and then slow down next year and next year they will probably try to rebuild the herd and as a result they will keep more animals off the market to rebuild the herd so they can go in 2010. It is a complicated equation and I don't pretend to understand all of it but that's at a very high level.

Do you have any sense, Bill, of what the magnitude? We have kind of accelerated slaughter this year and then fewer going next year. What the magnitude of that swing might be? And then financially, what the impact might be on your business from that kind of volume swing?

The magnitudes we are talking about are not dramatic. It is 1.82% up or down. I think the second quarter ended up 1.8% up versus last year. But you are talking in terms of millions of animals. So you're -- at the margin you're probably talking plus or minus single digit range. But at the margin it helps or detracts from our volumes, depending on whether that number is up or down. But it is not -- as I say, it is at the margin market.

Okay. Thanks, Bill.

(OPERATOR INSTRUCTIONS). We will go next to Richard Skidmore with Goldman Sachs.

Good morning. Could you help us better with regards to the price initiatives that you have out there in the marketplace, which segments they are in and then in your guidance what sort of is assumed for resin prices for the rest of the year?

Okay. I'll try as best I can. One -- let me start off with the first point. In terms of our outlook for the year, very different than it was this time last year. I think this time last year, conventional wisdom with resin would be essentially flat. Perhaps down in the second half of 2008. And I think most of Wall Street was kind of subscribed to that view. It has actually turned out to go the other way, as evidenced by the two announcements by Dow Chemical, who is one of our suppliers. But we are essentially looking at resin input cost increases approaching the $200 million increment over 2007 through the year. That includes price increases which are on the table from suppliers weather they get implemented orbit -- or not at this point but they are implemented into the third quarter and beyond. We have factored that into our new guidance. We also are responding with a series of price increases across all our business.

If you look at our numbers in the first half, we had about $75 million of higher input costs between the first and second quarter. We recovered about half of that about $37 million of it in the first and second quarter with the biggest piece of it in the second quarter. As price increases continue to both be implemented and follow on from earlier in the year, that number will pick up to the 200 -- around the 200 million run rate by the end of the year. I think we said in our announcement that by the fourth quarter we will have caught up. Part of the thing you should consider that is probably not a significant number, but we are on LIFO accounting so we probably get a little bit more of the input cost through our P&L than other people that may be on FIFO accounting. So we feel that by the end of the year between our announced and implemented price increases as well as the current view of input cost increases, we should end the year at a run rate which covers all of the costs, and in reality, the reason why our guidance has changed is that as a result of these increases in the processes of getting them through, we'll only have recovered them somewhere in the 80 to 85% of the total input cost this year and that shortfall accounts for basically the difference or substantially the majority of the difference in our change in outlook. Hopefully that perhaps is the longer explanation than you needed but just wanted to give you a little flavor.

That's helpful. With regards to I guess the pricing specifically and given the levels of inflation, is there the ability to actually push prices perhaps a little higher than what your inflation might be suggesting?

We always try to. We always try to.

Thank you.

We will take a follow-up question from George Staphos with Banc of America.

Thanks. Two questions, one following on Rick's question and the other one on Mark's previous question. As far as resin and price go, realizing that you'll catch up by the of the year would that mean in the fourth quarter, given what you know right now that you were at a zero price cost versus fourth quarter 2007, or would it be negative and will it be as you exit the quarter you will have caught up? Second, as far as protein consumption goes, obviously if beef production is down it will be replaced probably by some other proteins. Do you expect that that would help to offset most of the volume loss in 2009 if you see it? And some of these animals tend to need a somewhat more abuse-resistant package? Could you actually see your margins flat to up next year even with volumes down in beef? Thanks.

That's a long follow-up question, George. Go back to the first one. I think if I understood your question right we should be neutral in the fourth quarter.

Okay.

We should be neutral in the fourth quarter. We should have a run rate on a price that is probably 50 million on a run rate.

Okay.

Second question, yes, protein does shift around and there is absolutely no doubt that the tradeoffs between beef or poultry happens depending on price and availability. But as you heard us comment numerous occasions before is that because of the shorter shelf life of poultry that tends to be a less robust pack and so it is not as technically advanced and hence not as profitable. But you're right. What we lose on the roundabouts we will pick up on the straight away.

Okay. Thanks, Bill.

(OPERATOR INSTRUCTIONS). We will go next to Rosemarie Morbelli with Ingalls & Snyder.

Hi, Bill. I guess I still am a little confused on that for material costs versus price. So if you don't mind giving me the idiot proof kind of translation here. You said that your cost was going to be up 200 million for this year. In the first half you only got 37 million of the 75 million higher cost. So you have to somehow recoup another $125 million of higher costs that you are expecting for the second half if I understood properly. And then if I go to another one of your comments, your guidance has changed because you will recover on the 80 to 85% of your higher costs. So if I take 80% of 200 million, let's say, then you will still -- you will recover only 160 million and still be out 40 million by the end of the year. Can you somehow make this simpler?

I think that's what I said Rosemarie, that we won't get it all this year but by the end of the year we will be at a run rate to get it.

I'm trying to translate at run rate to get it.

In the second quarter our run rate on price was around $26 million.

Okay.

Our run rate in the first quarter was a 9 to $11 million when you take price out of the mix component of it. Okay. The third quarter will be a higher number than 25. Okay. And the fourth quarter is even a higher number than that because you have the first quarter price increases adding to the second quarter price increases adding to the third quarter price increases adding to the fourth quarter. Now, the resin curve upward has a slope in the third quarter with what's announced. So that's how the first half is less than half of the full year number. But the way our prices are the second half is more than the first half in terms of the price effect..

So you will still have a gap by the end of the fourth quarter?

That's what I said.

Well, when I heard you say that you will be cut up by it meant to me you had recouped all of the raw material cost increases?

No.

But you won't?

We will be caught up on prices in effect at that time.

Okay. All right. Now I get it. I apologize for that.

That's okay. Thank you.

And if you could elaborate a little bit on the very little growth in your op in Latin America once you exclude FX? Is it mostly the deterioration of the economy in western Europe and the problems in Brazil on the food side or is there another side to the picture?

You're talking in what part of the world?

Europe and Latin America. If you look at your supplemental information, if you exclude FX there is very little growth.

Latin America is primarily Brazil, is primarily the beef business in Brazil. The numbers in Brazil are down mid-single digits and that has effectively offset positive growth in Mexico about 8%, positive growth in Argentina around 9 to 11%. Columbia, which is in the high teens, essentially offset by negative results in Brazil primarily in the beef sector which has been a very big business and exports of beef out of Brazil have been dramatically curtailed because of the import issues with the Europeans.

Do you see that ending at one particular time? Do you have a time frame?

Rosemarie, you are on your third question. I'm trying to be disciplined here. Can you watch it. We are not sure like we said on the first quarter that we don't know when it will end. It is between the Europeans and Brazilians and their active dialogue. Thank you.

Thank you.

We will take our next question from Robert Trout with Goldman Sachs.

Good morning, guys. In your remarks, you mentioned that you had walked away from somewhat unprofitable business in Europe on the food solutions side. I was just wondering what type of margin were you making on that?

Well, I really don't want to suggest what margins we margins we take versus what someone else in the industry may take, but we have a threshold that we feel is important for the service and value we deliver and if customers aren't prepared to step up to that, especially with the round of price increases that we have had, we have essentially walked away.

So was any of that -- would any of that business have negatively impacted your margins in that second quarter? Because I think you were at 7.1% or something like that.

Let me say -- the margins are positive margins they are just not at acceptable levels and I really -- I wouldn't say that -- in fact, it probably improved the margin.

That's helpful. Then I just have a follow-up to Rick's question on resin. We have seen oil kind of come off a bit in the last couple of weeks. Are you guys in your dealings with your resin suppliers, are you at all any more optimistic that perhaps some of these resin increases weren't to go through if oil were to stay at $125 or do you think the supply and demand dynamics are tight enough they will go through any way.

We have essentially factored them into our guidance.

So they go through and just stay in place for the rest of the year. Is that the expectation is.

That's what we have guided too.

Thanks very much.

(OPERATOR INSTRUCTIONS).

Just before, Operator, we have usually had questions come over the Internet from people who have listened to the webcast and unfortunately there are technical difficulties and I show no questions up on our Q&A website, so I apologize for anyone who is trying to get a question asked on the website. For some reason it is not working, but please feel free to call Amanda Butler after the call and she'll will try to address those questions. We will take one more question.

We will take our final question from George Staphos with Banc of America.

When we think about the restructuring and global manufacturing in concert, what kind of improvement in capital intensity within the business do you think this will have for us? Obviously you can't give us dollar by dollar. But can you give us a way of thinking about it? And the follow-on question. Global manufacturing was designed to put more of a footprint in markets where your customers were going internationally and was recognizing the fact that your mature markets were maturing now yet the restructuring now today is furthering that with the restructuring charge and head count reductions. I guess I'm asking why weren't they both announced at the same announced at the same time? Thanks. Good luck in the quarter.

Dave, do you want to address that one?

Sure. George, maybe I can ask you a question first. What exactly are you trying to get at with the capital intensity question? Is that capital spending levels going forward?

Well, yes, but I guess more your level of invested capital. So over time how can -- how will you be able to grow revenues relative to your existing revenue base and the question behind that is your invested capital has gone up quite a bit over the last couple of years with acquisitions and the like. We would like to see that sort of plateau or decline for obvious reasons.

Let me break that into two pieces and the working capital component and the capital spending component. We certainly expect as we move into 2009 and have completed the three major green field projects that were the cornerstone of our global manufacturing strategy, that our baseline capital spending should return to the levels that we were spending at prior to introducing GMS in 2006. In terms of working capital, there are a lot of moving parts there. The startup of these new facilities entails building more inventory in those local markets, but we are also expecting increased revenues related to those new facilities. So it is in conjunction with business growth. At the same time, we are going to eliminate a lot of in transit inventory. Net-net we should see inventory related to these -- (technical issues)

Dave, can you repeat that. You broke up there. I apologize.

On the inventory side it will be building inventory related to these three new facilities but will be avoiding inventory in transit from the shipments into these countries. So net-net, we would hope we have a slight gain in terms of lower inventory balances related to the startup of these facilities. On the receivable side, as we grow in these markets, a lot then depends on foreign exchange. On a constant dollar basis we would expect receivables to grow more or less in line with revenue growth, but acknowledge that in North America, we tend to collect in 30 days or less from many of our customers, whereas in some emerging markets, 60 days is more the norm in those economies, and to be competitive we need to offer 60-day terms. So there will be some increase in receivables related to that makeshift. But we don't see any dramatic change in working capital on a going forward basis out of line with the kind of top line growth we see.

I hope that answers that capital intensity question, George?

Right.

Moving on to the two programs. The global manufacturing strategy was announced in January of 2006 and was formulated in 2005 as we took a long-term view of where our business growth was occurring and it was likely to occur. In Latin America, in central and eastern Europe and in China. And that program was primarily focused on the three greenfield facilities to serve those regions. The restructuring program -- in a way could be linked in a trailing fashion to GMS because were those new plants coming online there is less demand for exported product from western Europe into eastern Europe and western Europe also shipped to Latin America. Likewise, the US plants that shipped to Latin America in Asia are going to see that demand replaced by local production. When you combine that implication with the softer economies that we now see in western Europe and in North America, the compounding effect of those two actions is causing us to revisit our staff levels and in the background, there has also been significant ongoing investment in new technologies. SAP certainly on the software side, but also new technologies on the factory floor. So when you ramp all three of those together, the current cost reduction program that we are just announcing today I think is sort of an unfortunate but necessary next step in insuring that we have an efficient operating base going forward.

Thanks very much, Dave. That was great.

Thank you, George.

That's all the time that we have for questions today. Gentlemen, I would like to turn the conference back to you for any additional or closing remarks.

Despite being a challenging quarter, our business continued to grow while aggressively taking steps to manage our business through a combination of increased pricing action, operating efficiencies and improvements in our cost structures. These actions are not only helping us to manage through an unprecedented raw material costs and challenging economic conditions, but are also advancing our long-term growth initiatives that require a more flexible and equal operational platform to better serve our customers. Looking ahead, we remain committed to our growth and innovation strategies and we will continue to invest in our strong global footprint and a diverse and differentiated product portfolio. Our efforts will position Sealed Air favorably as economic conditions improve and will yield value for our shareholders, customers and partners through 2009 and 2010. It is for these and many more reasons that I continue to be glad and proud to be a Sealed Air shareholder and remain excited about our future prospects. Thank you all for taking time to listen to us today.

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