希悅爾 (SEE) 2009 Q2 法說會逐字稿

Good morning, everyone. Welcome to the Sealed Air conference call discussing the Company's second quarter 2009 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 taking questions. Operator Instructions)

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

Thank you, Shannon. 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 or predictions for 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 these factors are listed in our most recent annual report on Form 10-K. We have also posted supplemental financial information and reconciliations of non US GAAP measures that we expect to discuss, on our website at sealedair.com in the Investor Information section under Quarterly Results.

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

Thank you, Amanda. Good morning, 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, our Chief Financial Officer. During today's call, I would like to highlight our business performance and touch upon our 2009 full year guidance. Dave will then discuss details of our financial results. After Dave's remarks, we will take your questions, both from the telephone lines and from text submitted on our web cast.

Earlier today we reported our second quarter diluted earnings per share of $0.34, which was in line with consensus expectations for the second quarter. This excludes the $0.01 charge for global manufacturing strategy, or GMS. I believe our performance re-enforces the effectiveness of our ongoing expense control efforts. It also reflects the benefits of our GMS program and the cost reduction in productivity programs which combined to deliver approximately $20 million of benefits in the quarter or approximately $40 million year to date. I also highlighted our ability to remain disciplined on price, which was evident in our $23 million price mix contribution in the quarter. Also, the quarter reflected a $60 million reduction in the resin spread versus 2008. Or flat resin prices sequentially.

There are three additional factors that held back potential gross margin expansion in Q2. First, we continue to move forward with our plant startups in Louisville, Kentucky, and Poland. Although this negatively impacted the quarter, we continue to believe that these new facilities, along with other new facilities in China and Mexico, will be positive contributors to profit when the economy does turn around. Second, we reduced inventory by approximately $50 million, which actually had the effect of increasing costs of good by approximately $5 million in the quarter. Lastly, due to the slow economy, we were still selling the remaining inventory purchase from Dow Chemical as part of the FMO acquisition at last December's resin prices. These costs are clearly part of our ongoing business. Whether you work comparisons, it's helpful to understand some of the details behind the reported numbers.

Overall, our results reflected a 220 basis point increase in our gross profit margin, and 160 basis point increase on our operating margin to 11.5% year-over-year. This is also a 2% increase on our operating profit, excluding the impact of foreign currency translation. I should point out that our food businesses achieved a significant increase in operating margins. These business combined achieved 13% increase in their operating profit in the quarter, or a 23% increase in operating profit if you exclude the impact of foreign currency translation. Looking at our top line performance, our sales declined 11%, excluding the impact of currency translation. Our unit volumes declined 12% on a year-over-year basis, but were essentially flat sequentially. This re-enforces our view that our end markets have stabilized. Which is reassuring step towards expected slow recovery in the latter part of the year. During this challenging quarter, our team continued to work to deliver these results in a weak demand environment. I also feel our results are note worthy considering our business has a higher industrial component, and a more diverse international footprint than many companies in our sector.

Looking at our business geographically, or in a tour of the world approach, we saw that our North American sales declined approximately 14% year-over-year, driven primarily by the decline in industrial production and retail sales, which negatively impacted our protective packaging and specialty materials business. To a lesser extent the modest decline in fresh meat production in the United States also contributed to the decrease. In Latin America, we saw sales increase 6%, excluding the impact of currency translation. In fact, if you exclude Brazil, organic sales in the region increased 11% in the quarter. I should note that although Brazilian sales declined, the rate of decline was in the low single digit percent range, reflecting an improvement in the market conditions in Brazil since the first quarter. In Europe, our overall sales declined 12%, excluding the impact of currency translation. We continue to see a year-over-year decline in sales in western Europe, primarily due to a decline in meat consumption and a decline in industrial output. However, the eastern and central European part of our business had a sales increase of 9%, excluding the impact of foreign currency translation. The driver behind this growth was primarily our food business, which continued to generate high single digit percent growth rates in attractive markets such as Russia and Poland.

And finally, the Asia/Pacific region saw total sales decline 8%, excluding the impact of currency translation. Our Australian business saw local currency sales decline 3%. A reflection of flat slaughter rates and a weak meat export market, due to the recent appreciation of the Australian dollar. Balance of the region was negatively impacted by the decline in exports from Asia, which are off 30%-40% around the region. Looking specifically at our developing region sales as a whole, sales declined 1%, excluding the impact of currency translation. This performance really reflects the impact of our Brazilian business, whose own performance improved sequentially, which I previously mentioned.

Looking at our business by reportable segments, I would like to highlight that in our food packaging business all region volumes track to local animal processing rates. I should note that our US volume results were impacted by last year's accelerated buying by our customers in the second quarter. This was ahead of our transition to a new enterprise software system on July 1, 2008. When looking at our food packaging sales performance, excluding this event and the impact of currency translations, our sales are relatively flat versus prior year. Although unit volumes decline, they were in range with what was forecasted, due to contracting herd sizes, ongoing weakness in Brazilian beef exports to Europe and slowdown in meat consumption in Europe, which we have seen for several quarters now. We continue to expect a seasonal volume uptick in the third quarter with summer and the vacation season now in full swing. Also our forecast indicate a pick up in fresh meat production in North America in the second half, with June already showing record high production rates in beef.

Our food solutions business continues to reflect the recessionary environment. Case-ready business saw its sales decline by approximately 2% ,excluding the impact of currency translation. Volumes were relatively flat versus the prior year with strength in our ground meat segment, pizza solutions, and the successful launch of a new deli packed product at two large retailers in the United States. I am also pleased to report that our sales team has done a great job in establishing the new case-ready format, [Mirabla], in Europe. We have strong product presence in France, (inaudible) and now in the UK with a large English retailer signing a new contract for the Mirabla product during the second quarter. Our ready meals sales declined in the quarter as consumers opted for more economical frozen products and prospective customers have slowed their adoption of new products due to the recession. Despite this, we did expand our business with our largest ready meals customer providing them with a unique and differentiated film for use on an aluminum tray application.

In our vertical pouch business, our sales declined approximately 10% excluding the impact of currency translation. In the second quarter which saw a 28 year low in US restaurant foot traffic, our business continued to fair reasonably well, and we believe that some of the decline is attributable to the timing of orders. Related to this factor in Europe, we signed a three year contract with a large multinational food processor, reflecting the ongoing attractiveness of volume that our solution offers. Moving on to the protective packaging segment, this segment's performance continues to reflect the difficult recessionary environment and the global decline in manufacturing output and retail sales. Our sales excluding the impact of currency translation declined approximately 20%, as did our volumes. However, volumes were relatively flat sequentially and in line with proxies such as intramobile shipping rates and international air cargo shipments. They are in line with declining export rates out of countries like China, Taiwan, and Mexico, where many of our protective packaging products are used.

Our business reported no loss of market share, and in fact some slight gains in the challenging environment. What we are seeing in the markets are customers that have destocked, running their business on very lean inventories, almost just in time approach and our remaining cautious about new investments. On a reassuring note, however, we are no longer seeing that sense of panic and downright pessimism in our end markets, which really characterize much of the previous two quarters. Our protective packaging team worked very diligently this quarter to remain disciplined on price. As you can see by our results, we did report a decline of approximately $5 million in product price mix. This decline reflects some customer shifts to more economical choices and some price concessions on our more mature products such as our traditional bubble wrap products and thin foams. We were continuing to be successful in our placements of our new solutions, such as pack tiger, lightweight new air packaging, and even with our priority pack placements being ahead of last year's levels.

And finally, our other category sales performance declined 29%, largely reflecting same recessionary pressures that we are experiencing in our protective packaging business. On a final note which crosses all of our business segments, we have noted that our equipment sales, which as you know represent approximately 10% of our business, are down 35% to 40% depending on the business segment, due to the reluctance of customers to invest in new capital items. Before I hand the call over to Dave, I would like to touch upon our full year 2009 earnings guidance. As you saw in our press release today, we are continuing to hole on to our original guidance range of $1.17 to $1.37, or $1.25 to $1.45 on an adjusted basis.

After reviewing our year to date performance, we feel we are still on track to perform within these ranges. We are maintaining our earlier assumptions regarding raw material prices and expectations for full year benefits from our various cost savings initiatives. Because the range is wide, I would like to comment on our assumption is that if the economy recovery is delayed or is a tepid recovery, we will anticipate being at the lower end of the range. However, if the economy benefits from a stronger recovery and stimulus effects begin to be seen, we would expect to be at the higher end of our range. Now I am going to turn the call over the Dave Kelsey to review some additional details of our financial performance and our liquidity position. Dave?

Thank you, Bill. As Bill stated our sales were $1,028,000,000 for the quarter. For those of you participating in the call and would like additional detail, tables posted on our website, sealedair.com, present the components of the change in net sales by business segment and by geography. The impact of currency translation on sales by geographic region, and the percentage of sales by geographic region. Moving down the P&L statement, gross profit was $288 million, a decrease of $42 million in the second quarter compared to the prior year. Excluding foreign currency translation of $27 million, gross profit would have been $315 million, lower than last year by approximately $15 million. Our lower sales volume, particularly in the protective packaging segment, was the primary contributing factor, which as Bill mentioned, is more sensitive to the recessionary environment than the global decline in manufacturing output and retail sales.

Marking administrative and development expenses decreased $34 million in the second quarter compared to the prior year. On a constant dollar basis, operating expenses were $185 million, lower by $18 million or a decrease of 9% as compared to the prior year. Approximately one-third of the year-over-year improvement is attributable to our cost reduction in productivity program. Also, travel and entertainment expense has been managed down approximately $3 million from the prior year as we made greater use of teleconferencing and required less travel for GMS and SAP related projects. Operating profit decreased $8 million in the second quarter compared to the prior year. Excluding the effects of currency translation, operating profit for the second quarter would have been $128 million, or 2% higher than the prior year, reflecting the benefits from our various cost initiatives and otherwise weak demand environment. Interest expense increased by $8 million in 2009, as compared to 2008. Primarily reflecting the interest on our 12% notes issued in February this year.

In the second quarter of 2009 we recorded charges of $3 million largely in cost of sales related to the implementation of our global manufacturing strategy. We still expect to realize incremental benefits of $20 million in 2009 bringing our cumulative benefits to $45 million and increasing to $55 million in 2010 and there after. Summarizing the cost reduction and productivity program we announced in July of 2008, we have reduced employment by approximately 900 personnel or 5% of our work force from June 30, 2008. We realized approximately $13 million of savings in the second quarter and approximately $26 million of savings year to date. These savings were split almost equally between cost of sales and operating expenses. From a cash flow perspective, we made cash payments of approximately $10 million in the second quarter and approximately $25 million year to date for termination benefit. Majority of the remaining $18 million in payments will be made during the balance of this year with approximately $5 million falling into 2010.

I will conclude with some key balance sheet and cash flow items. Our accounts receivable increased $5 million on a constant dollar basis from March 31, 2009. Also on a constant dollar basis, excluding utilization of our receivables program in June of 2008, accounts receivable would have decreased approximately 12% compared to June of last year. This year's second quarter we did not sell any receivables under our accounts receivable securitization facility. We are well prepared to manage our receivable's balances in the current economic climate. Our day sales outstanding were lower at June 30, 2009 than at June of 2008. Credit collection is one of our many note worthy efforts in the current economy. Inventory investment at June 30 declined $20 million from March 31, 2009. On a constant dollar basis, inventories decreased $48 million. This decline is attributable to a decrease in inventory, primarily in Europe and North America. Part of the decline in North America is attributable to the successful efforts to reduce inventories in our US food segments subsequent to the July 1, 2008 go-live of SAP.

Our Protective packaging segment inventory declined due to the decline in sales volumes. Compared to June 30 of last year, inventory investment was down $127 million. Or $74 million after adjusting for currency translation. A coordinated effort involving sales, supply chain, and customer service, with support from finance and information systems, has drive this exceptional performance. We expect continued improvement in our inventory investment in the second half of 2009. Total net borrowings at June 30 were $1,259,000,000, down $171 million from the end of December. This decrease is attributable to the free cash flow we generated in the first half of 2009. Also as mentioned in our earnings release on July 20, we redeemed all $431 million of our 3% convertible notes, which had an initial put date of June 2010. We used the net proceeds from our 7.875% senior notes issuance and available cash to fund this redemption, which has benefited our balance sheet and effectively extended our next debt maturity to 2013. The February and June senior note issuances and the May and July senior note redemptions will result in net additional $36 million of interest expense for the full year 2009 as compared to the prior year. This replaces earlier guidance of a net additional $25 million increase in interest expense for the full year.

I will conclude by providing some details on Sealed Air's liquidity position. First on June 30 we had slightly less than $800 million of cash and cash equivalents before redeeming our 3% convertible notes on July 20. In addition, we have access to nearly $700 million of committed borrowing capacity, Today our total available liquidity exceeds $1 billion. Free cash flow, one of our key metrics of the management team, gets close attention. As shown in the supplementary information furnished with the financial statements, free cash flow for six months ended June 2009 was a source of $228 million compared to a use of $6 million last year. As I stated previously, our accounts receivable and inventory investment levels were a source of free cash flow year to date. Capital investment is lower in 2009 as well. As work is largely completed on our three new plants in emerging markets. Our range for total capital spending continues to be $100 million to $125 million. To be used for a combination of maintenance and growth projects. Our current liquidity position and our projected free cash flow positioned us to fund both our day to day operations, and the [W.R. Grey] settlement should become payable within the next 12 months. Please note there is still no date certain for the funding of this settlement.

And now I will turn the call back to Bill and to your questions.

Thank you, Dave. Operator, I would like to open the call up to any questions from the participants, and we will follow up with any questions from our web cast participants as well.

Thank you very much. (Operator Instructions) And we will go first to George Staphos with Bank of America.

Thank. Hi guys.

Good morning.

A couple quick questions to start. Number one, was there any appreciable effect on volume do you think, Dave, or Bill, from H1N1? And then the related follow on, can you give us a bit more color on trends within case ready by geography, have you seen a pick up in North America after some of those volume losses occurred in the last couple of years? Thanks.

George, on H1N1, there was an effect, actually if you look -- our numbers in May show pork was really down 27% in May, but that's the total market in terms of information we have. That's not our sales, but the total pulled pork and pork meats from the US government reports show down 27%. We did have slightly down numbers in pork in the second quarter. Our numbers were down more in the 3% to 5% range in North America. In Mexico we did see an effect in pork meat and that was again over a very hectic three week period. So to answer your question is yes, but it was short lived. It was mainly in May.

Could have been a point or two in your food volume couldn't it have been?

I don't think it was a point or two.

Okay. Trying to help you out there. That's okay. On case ready?

On case ready -- case ready volumes are reasonably consistent around the world. The numbers I have is down 11% for the quarter year-over-year. And that is equally spread between North America and Europe. Latin America was more stable in case ready. And Asia was actually also stable in case ready. There is no particular trends. Europe is doing a little better in case ready because [Mirabla] they have been an early adopter of Mirabla in case ready where the US has been a little bit slow on that. That's the quick outlook on it. What was your third piece?

You hit it there. Quick aside, why is Europe adopting Mirabla quicker? Thanks.

Yes, I guess Europe has tended -- you see a lot of the food innovations come out of Europe. Europe tends to be more open to making reasonably quick changes in their packaging formats. And that's the only reason I can attribute it to.

Thanks, guys.

And we will go next to with Ghansham Panjabi Robert W. Baird.

Hey, guys. Good morning. Hey, Bill, as it relates to your guidance, volumes do fail to recover in the second half of the year. Seems like you are pointing to low end of the range. Does that assume that resin stays flat from current levels or assuming a decline in the fourth quarter in resin? Thanks.

I think the resin number we are essentially saying -- our guidance suggested perhaps a slight uptick, but that's kind of still in the cards. There are announced price increased out there. There are announced price increases. But we haven't seen them at this point. Ghansha, a lot of it depends on what you see for coming on stream in the Middle East.

Given what you announced from a restructuring standpoint but putting it in context with the volume declines you are seeing, is there other plans to expand the scope of your restructuring plans? Thanks.

Dave, you want to address that?

I'm sorry, I didn't catch that -- restructuring plan? You are referring to the plan that we announced in June of last year?

Yes.

Okay . Right now we were still seeing benefit as we mentioned, $13 million in the second quarter. I think any further actions will depend on what happens in the economy in the second half of the year. As Bill indicated, we think we are well positioned to address increased volume when the economy comes back, and I will emphasize when and not if. And so we want to make sure that we have that readiness to serve capacity

Okay. Thank you.

And we will go next to Claudia Hueston with JPMorgan.

Thanks very much. Good morning.

Good morning.

Following up on the question on the guidance, I just want to be clear that -- has your sort of outlook for EBIT changed? Has the guidance -- did your guidance before take into account the incremental interest expense and the increase in the share count that you will see for the rest of the year? Are things -- is the operating profit outlook better now versus last quarter?

I will let Dave answer but share count actually goes down, Claudia.

Yes, down, sorry.

The guidance we gave back at the start of the year which is the $1.25 to $1.45, so we have been consistent with that since January, did assume the 12% notes that we issued in the first quarter. The more recent financing we did in June does have about a $0.03 dilutive effect for the balance of the year, but we are absorbing that into the guidance range rather than change our guidance.

Okay. That's helpful. And then, what's the timing for the startup of the new facilities? In other words, when should those costs that have been hurting your results a little bit start to go away?

Actually third quarter Louisville is on stream. Poland actually came on stream end of the second quarter. So they will be flowing through normal operations, both of them, in the third quarter. But unfortunately they will be underutilized, Claudia, because of the lower volumes in the economy. They will be running as part of normal operations.

Thank you very much.

And we will go next to Al Kabili with Macquarie.

Hi, thanks guys. I was wondering if you could comment a little bit on price tends throughout the quarter and what you saw there in competitive activity.

I just comment generally that there continues to be reasonable price pressure due to lower resin prices. Although you see if you look at the price volume mix numbers, which are posted on the website, actually for the quarter price continued to be positive in the protective business. Little softer on the food business and primarily because the number of contracts that we do have with certain large customers do ratchet down automatically based on index costs. So you will see that on the food side and a little bit of a ratcheting down in costs, little up in protective through the second quarter. Competitive activity continues to be primarily price based. There is a number of people in our space, both on the food and protective side, that continue to try to seek share by lowering prices. We were countering best way we know how is to work on the value of our offer and continue to show the benefits of the in-use cost of our products versus the purchase price of the competitors.

Okay. And then to follow up on that, can you just comment on kind of exiting the quarter, what price the trends look like, kind of exiting the quarter. Then also recent volume trends, have you seen any kind of a pick up more recently in volume trends? Thank you.

I will answer the second part of your question first because I just looked at that yesterday afternoon. Volume trends continue to stable. Volume trends continues stable in terms of no appreciable pick up in terms of what we are looking at either in orders per day or sales per week. They are tracking pretty consistently. We have not experienced an upturn in the economy at this point yet. On the look forward on price, we are probably looking at flat pricing through the food side of the business through the second half of the year and perhaps an additional 3% or so concessions on the protective side.

Great. Thanks a lot, and good luck in the quarter.

Thank you.

And we will go next to Richard Skidmore with Goldman Sachs.

To follow up on that volume question, Bill, can you talk more about protective and what you are seeing in the protective business, specifically on volumes and why you think you have not yet seen any meaningful or at least slight improvement on the protective side.

Well, protective volumes have been reasonably flat since probably February. If you look at kind of a graph of sales from February through -- even through early in the third quarter, it's essentially a reasonable flat line which -- and it's reasonably consistent in US and North America, which are two biggest markets. I had the benefit of being in Asia back in May, the end of May, and went to some of our protective customers in May. A number of companies in China whose principal business is to export to the US and Europe were running at less than 50% of capacity. And that is as recently as May, and a number of them were feeling that they wouldn't see turnarounds until probably third quarter when they hope that the US customers will begin to look for holiday orders, which generally hit Asia in the August/September period.

Now protective is more of a coincident indicator, so I wouldn't look at protective as being a leading indicator, because I know most of the media and most analysts are saying that leading indicators are looking more positive. If you actually look at the production cycle,we are usually the last product to be ordered. A lot of our manufacturing customers will order their raw materials and go through the production cycle, and since most of our protective products are one to three days lead time, we are generally at the end of the cycle. So by the time the products are ordered from us, the early signs of recovery are starting to happen. So if I look at the last couple recessions in 2001 or 1991, we tended to be more coincident with the market. And I wouldn't expect it to be any different at this time.

Okay. Then to follow up. The geographic mix then, it sounds like maybe North America is kind of down similar to what may be corrugated packaging down the 10% or 12% in the quarter, and Asia and Europe are down something larger than the 20% volume decline that you posted for this segment. Is that correct?

Yes. That is fairly right. Although Europe is a little bit lower than North America but not down as low as Europe -- or Asia.

The other thing that we tracked, I think we mentioned back on our first quarter call is the experience that 3M has had in their industrial and transportation sector and their electronics and communications sector. Both of which match up against a lot of the end markets globally that we sell to in protective. And looking at the 3M earnings release last week, they were down 21% in volume in their industrial businesses and 27% in their electronics business. We feel very comfortable we are tracking exactly what's going on in the economy.

Thank you.

And we will go next to Peter Ruschmeier with Barclays Capital.

Good morning. I wanted to follow up with your comments, Bill, on equipment sales being down 35%, 40% and whether those kinds of numbers are sustainable, and how soon the customer need to replenish, almost regardless of the economic outlook, or is this something that could remain weak? And do you have much visibility the next couple quarters on those equipment sales coming back?

Let me answer your question. I am of the view that probably like a lot of people is that some point people are going to have to replace equipment. Have to replace inventory. To me it's a matter of time. I know our prospect list is good. We were able to place even in this environment $1 million piece of equipment with a customer in Europe. The prospect list is good. It hasn't converted to orders yet. Our visibility in equipment generally goes out only five to six weeks. I can't see it on the horizon yet at this point.

Okay. That's helpful. And also hoping you could elaborate -- I didn't quite follow your commentary initially, Bill, on passing the legacy higher resin costs through the higher costs from December. I would think following that logic you would be passing through lower resin costs from 1Q, 2Q, which I would think will be showing up as a benefit in 3Q and 4Q?

Let me try to keep this simple. At the end of December, we canceled a supply agreement that we had with Dow chemical. When we bought the [Ethefoam] business, we bought the product line but not the manufacturing facility. So we entered into a supply agreement, which ran for an 18 month period. Where Dow chemical would supply us with the Ethefoam product while we built the capacity to manufacture that product ourselves. We wanted to cancel that agreement at the end of December. However, we knew our new plants would not be up and running until early 2009. So we ordered several months worth of inventory from Dow chemical, which we received in December at a transfer price per the acquisition agreement that we anticipated we would sell through the first quarter. Because of the slowdown in the economy, a fair amount of that inventory carried over into the second quarter. We actually sold almost all of it, with the balance at the end of the second quarter being only several million dollars. We were selling December inventory in both the first and the second quarter, and that is the impact that flows through cost.

Okay.

Hopefully that was simple enough.

That is helpful. And just not to belabor the point, but is the cash flow benefit note worthy in terms of your cash production costs of making that product relative to your purchase price? Is that a note worthy item of flux as we look at 3Q versus what you experienced in the first half?

There is I think we said last year sometime that on an annual basis, on an annual basis, the difference between making the product ourselves and buying it under the supply agreement, can be as much as $0.05, $0.04 to $0.05 per share.

Very helpful, thanks very much.

And we will go next to Mark Wilde with Deutsche Banc.

Good morning, Bill. Good morning, Dave.

Good morning.

Just curious -- is is there a point where the volume don't pick up or don't pick up appreciably, that you think about more capacity rationalization?

That's one someone always has to think about. And to say not only in capacity rationalization but we just put in four new plants in the last 18 months. Four new state of the art plants that have actually added to our capacity over the last 18 months. To come right to your question, we were looking at it and we do look at it. And if need be, we will take the necessary action.

Okay. And then as a follow on, Dave Kelsey, can you talk about what you are doing to watch potential credit losses? I am thinking particularly of potential problems with some of the big meat packers. One of the big poultry companies goes out of business earlier this year.

Yes. The best way to do that is to try our best to see into the future. We do have longstanding relationships with most of our customers. So we have various early warning systems in terms of looking at their order trends. We have people with very good industry knowledge that are regularly collecting information from the market, so that we have historically done a very good job in avoiding balance run-ups prior to a customer getting into serious trouble. And our ability to recover on the back end has also been very good. As long as that customer stays in business in a restructuring mode, it needs to continue to package its end product. If we are the preferred supplier as they get into trouble, we are usually the preferred supplier as they restructure, which has tended to work to our benefit. I think even more important in terms of our focus in the domestic situation, is the global situation in the emerging markets. And we have people on the ground in those markets that have the same close customer contact that we have with our customers in North America and Europe. So it is a time of certainly high diligence in this environment. So far we are very pleased with the performance relative to our accounts receivable.

Thanks, Dave. That's helpful.

I just want to remind you if you listen to Dave's comment earlier, he said basically days sales outstanding are better. In fact, yesterday afternoon I went through a list of our credit exposures, and I will tell you the group has done a very, very good job on keeping tight reins on potentially problem accounts. Next, operator.

And we will go next to Rosemarie Morbelli with Ingalls & Snyder.

Good morning, all.

Good morning.

Bill, could you give us more detail on the consumer interest and the pilot test that you refer to in your press release? In which categories are they and what could be the potential size and timing of those new products?

Well, I think the one we talked about is in case ready Mirabla, which I think as I think you may have seen the product. We did show it in Atlanta when we had some people down to pack forum. It is a tray with a much lower profile than the earlier versions of case ready. Because of the technology, the top film can actually touch the meat in the tray without changing the color of the meat, keeping the meat red. It looks much more like store packed meat. The other item which is in my quote earlier in the press release, in the business week article there was a collage of our marinate on demand, which allows the consumer to buy a fresh piece of meat with a marinate package right next to it in the same overall wrap with a [frangible] seal. That was being introduced by one of our customers in the north central part of the country. The third is the deli packed product. Those are the three new items that were referred to in our communications and press release.

Nothing on the packaging -- protective packaging side?

We have automation continues to drive and protect the package. The thing that we are bringing to the market in protective packaging is more automated systems. You heard me saying in my prepared comments priority pack, which is probably to answer an earlier question, is different trend than the equipment trend overall. Priority pack, which is actually our highest priced protective packaging system piece of equipment, actually had a sales increase because the customer benefits in terms of labor savings and productivity far, far out weigh what the customers were doing before. So they are willing to step up to that investment with a very short payback.

Thanks. That is very helpful. If you could talk about any sign, or lack thereof, of pick up on the ecommerce side? Is it as bad as the rest of protective, or do you see a little light at that end?

It's a little bit, I look at the numbers and I'm drawing kind of a -- take a couple of accounts that I know if you see the protective being down close to 20%. Some are the ecommerce are more down than the 12% to 13% on the ecommerce side. While the retail piece, which is the over the counter sales of bubble wrap, is probably down more than 20%. But those that go through ecommerce for filament which is not the consumer segment, but is a different segment for us on ecommerce is more13% to 15%.

Thanks a lot.

And we will go next to George Staphos with Bank of America.

Thanks. A couple of questions for a bigger picture to wrap up, at least from our side. Bill, first off what do you think the impact if any will there be from some of the recent consolidation that we have seen within the flexible packaging sector? Could it make for more competition? Or do you think perhaps it might bring more focus on returns within the sector? How do you think about that? Then I have a follow on.

Sure. Any answer I have will be speculation.

I understand.

I mean, if you look at other industries, consolidation has generally led to more discipline in the marketplace. So I would -- I see that more likely than not, but I'm not going to predict behaviors of other companies and other organizations. But in other industries I have looked at, and you can see it over time, that has generally been the trend.

And I guess to finish the thought, you aren't as concerned perhaps about any kind of pick up from competition then?

Well, it's interesting. I don't think the competition kind of changes. They just form different parts of different organizations. Basically they are still there.

Okay. The other question I had and I will turn it over, the implication in your guidance some of the earlier comments is that ultimately when the economy recovers, obviously your volumes will pick up and you would expect to see an improvement in earnings progression and cash flow and the like, and that's understandable. But when I will go back and look at the longer term trends. In periods where volumes have been strong for you in prior years, there are margin pressure. When you get some margin relief like we had this year, volumes have been under pressure because of the economy. And your EBITDA, while it's been stable, and that's not bad, it's been between, call it $650 million and $750 million over the last ten years. As we look out to the future, what do you think the reasons are going forward as the economy picks up you will be able to see that leverage in your margins and also in your earnings per share? Thanks, guys. Good luck in the quarter.

Let me answer your question, and also go back and be sure that I gave you the right answer on case ready. I think I gave you the sales number and I get the impression you asked for the volume number. The volume number is essentially flat in North America. And slightly negative in Europe on a case ready unit volume. The number I gave you for down 11% is a sales number globally for case ready, which includes some of the pricing and mix issues issues. Volumes are flat, slightly down in Europe and the sales number the 11% I gave you was the sales number. Okay?

Now coming back to sort of what's different this time, well, I think that the global manufacturing strategy has redesigned so the manufacturing footprint for the company. So we have lowered our break even costs. We lowered our ongoing cost structure. And we can still crank out the same amount of sales. So the leverage on the upside is substantially more than it had been five years ago. And I consider that really a positive for the longer term. The second is when you go through the really turn down in the economy, I know earlier in the year late last year a number of people asked numerous times about how does Sealed Air usually perform in an economic downturn? And the references we looked at, we looked at 2001, we looked at 1991. We looked at 1982, and in all of those downturns, the protective business never declined more than single digits.

But clearly as we are all finding out, the dramatic downturn in the economy this time around has exceeded those three recessions. The numbers I look at, and I'm sure you see the same thing, is that this downturn is perhaps the worst since the great downturn of the 1930s. The numbers we felt earlier about trying to weather our way through the low single downturns in protective, clearly didn't turn out to be the case, but it has forced us to really look at how we go to market. How we produce and how we sell. And we will learn and take the benefit of that learning through the upturn. I mean, we are as lean as we ever been, and we are smarter than we ever been. We have really gone through a detailed analysis of what it costs to serve all of our customers. What it costs to produce and deliver all of our products. And the information availability on a global basis through the new technology we have in the SAP system is amazing how much more we know and how quickly. The combination of taking costs out of the business that we cannot allow to creep back in, and using the information technology we have to manage products and customers. I think that we will be able to be more profitable on the upturn this time around than we had been in 1982 and 1991 and 2001.

Thanks. We will turn it over and pick it up next time.

I have a couple of quick questions on the internet I like to go through. Some of them have probably been covered. One person asked what do we mean by currency translation. Is that another way of saying a stronger US dollar? That's correct. The dollar is stronger, our earnings in other parts of the world have been less, and that's what I mean by currency translation.

Someone asked me to refresh what new capacities come on stream in emerging markets over the last 18 months. We have brought on a new factory in China. We brought on a new factory in Poland. We brought on a new factory in Mexico. And we brought on a new factory in Louisville, Kentucky, in the US. Those factories, three of them serve the food business. And three of them serve a combination of the protective business and of the specialty materials business. Our footprint there is a lot of growth in the future is going to come out of those markets, and we wanted to produce in places where our costs are much lower than the manufacturing production we previously had to serve those markets in the US and western Europe.

Someone asked that we finished raising cash to fund the Grey settlement. Let me ask Dave to address that quickly.

As mentioned in my scripted remarks, we have $1 billion plus liquidity in July. The Grey obligation today is about $725 million. So we are well set to fund that Grey settlement when it comes due.

And the very last question from the internet is a comment that last quarter we mentioned that the sales personnel were calling for price increases that we are starting to gain new customers. This is happening. We are signing up new business, particularly in some of the newer products. Obviously the economy has had a factor on that. But as we look at our business, we have not lost any significant customers. At customers where we had long term relationships. We definitely see volumes are down, and we are continuing to place new systems in the protective side particularly with packed tiger and our new high speed inflatable bubble material. We are -- actually for the first time, we had a customer ask us to slow it down because it was so fast. With that, I would like to wrap up the call here.

And before we leave today, I would like to recognize all of Sealed Air people around the world who help drive innovation, which is a real source of pride and our long term success. During the quarter our innovation gained recognition in a number of places. Including our marinate on demand product, which was showcased in the business week review of the grocery store of the future. And additionally, our renew-a-pack bake ware product from our BioSphere venture won the DuPont award for packaging innovation in the area of sustainability. We are proud of our accomplishments which give us great momentum for the second half of the year when we will be launching several new products in a the market.

And lastly, thank you for participating in the call. We are looking ahead to the second year. Focus on expense control, recognizing the benefits of our various costs and productivity initiatives, and delivering measurable value for our customers and share holders while navigating through one of the most challenging economies in our lifetimes. Thank you very much for taking the time to listen.

Once again that does conclude today's conference. We thank you for your participation.