Executive Summary / Key Takeaways

• Sealed Air Corporation is undergoing a significant transformation, reorganizing into distinct Food and Protective verticals to enhance customer focus, improve operational agility, and drive tailored growth strategies.
• Recent performance, particularly in Q1 2025, shows resilience with consolidated Adjusted EBITDA margin expansion driven by productivity and cost takeout, despite a net sales decline influenced by foreign currency and Protective segment weakness.
• The Food segment demonstrates solid performance and volume growth, benefiting from competitive share gains and strength in specific end markets like case-ready solutions and fluids, offsetting pressures in areas like U.S. beef shrink bags.
• The Protective segment faces ongoing market challenges and portfolio gaps, but management is accelerating transformation efforts, including commercial execution improvements, portfolio optimization (fiber mailers, hybrid automation), and cost reduction, targeting a volume inflection in the second half of 2025.
• The company is prioritizing deleveraging, targeting a net debt to Adjusted EBITDA ratio of approximately 3.0 times by the end of 2026, supported by strong free cash flow generation despite increased restructuring payments.

Setting the Scene: A Packaging Powerhouse Undergoing Strategic Evolution

Sealed Air Corporation stands as a leading global provider of packaging solutions, recognized for iconic brands like CRYOVAC food packaging, BUBBLE WRAP protective packaging, LIQUIBOX liquids systems, and AUTOBAG automated systems. The company serves diverse end markets, including fresh proteins, fluids, medical, e-commerce, logistics, and industrials, integrating sustainable materials, automation, equipment, and services to address critical customer challenges like food safety, product protection, and operational efficiency.

The company's history includes significant strategic moves, such as the sale of Diversey in 2017 and the acquisition of Liquibox, which expanded its presence in the fluids and foodservice markets. More recently, Sealed Air has embarked on a fundamental transformation, shifting from a regional operating structure back to a vertical alignment centered on its two core businesses: Food and Protective. Completed by the fourth quarter of 2024, this reorganization aims to align commercial, innovation, and supply chain teams directly with their respective end markets, fostering greater accountability, speed, and customer intimacy. This strategic pivot is intended to unlock the underlying potential of each distinct business and position the company for long-term sustainable growth.

Central to Sealed Air's value proposition is its differentiated technology. In the Food segment, CRYOVAC solutions leverage advanced material science to create high-performance packaging that extends shelf life, reduces food waste, and enhances food safety. These technologies offer tangible benefits, such as improved barrier properties that can extend product freshness and reduce spoilage by quantifiable percentages compared to standard packaging, leading to lower costs and increased yield for food processors. The company's automation offerings, like AUTOBAG systems, further enhance efficiency by automating packaging processes, reducing labor dependencies and increasing throughput velocity for customers. While specific, universally applicable quantitative metrics comparing every technology aspect to all alternatives are not always publicly detailed, the stated goal and observed market traction in areas like case-ready solutions highlight the perceived value of these integrated material and equipment systems.

In the Protective segment, proprietary technologies underpin solutions like BUBBLE WRAP packaging and Instapak foam. These technologies are designed to provide superior product protection during transit, minimizing damage and associated costs for customers. The company is actively investing in R&D to evolve its portfolio, particularly focusing on sustainable alternatives like fiber mailers (e.g., Jiffy and Boss Mailer) and hybrid automation solutions (e.g., hybrid auto baggers). The stated goal for these initiatives is to close sustainability-related portfolio gaps, participate more fully in growing market segments like e-commerce where fiber is gaining traction, and offer customers substrate-agnostic options. While the scale-up of new offerings like fiber mailers has been slower than anticipated, market reception is reported as strong, and the company is accelerating efforts to commercialize these solutions. The strategic intent is to leverage innovation to regain market share lost in areas facing sustainability pressures and enhance the competitive moat beyond traditional plastic-based offerings.

The competitive landscape for Sealed Air is dynamic and includes large, diversified players like Berry Global (BERY), Amcor (AMCR), Sonoco (SON), and Packaging Corporation of America (PKG), as well as more specialized or regional competitors. While precise, directly comparable market share figures for all niche competitors are challenging to ascertain, Sealed Air holds a significant position, particularly in its core Food and Protective segments. Competitors offer a range of flexible, rigid, and protective packaging solutions, often competing on price, scale, or specific material expertise. For instance, while some rivals may offer products at a lower unit cost, Sealed Air aims to differentiate through the total value proposition of its integrated solutions, emphasizing performance metrics like shelf-life extension, processing efficiency, and automation capabilities. The company's strategic shift to a vertical structure is partly a response to this competitive environment, seeking to sharpen focus and execution within each market to better compete against both broad-line and specialized rivals. Customer and supplier dynamics, including raw material price fluctuations and the evolving demands of large e-commerce and industrial clients, also play a crucial role in shaping the competitive intensity and the company's strategic responses.

Performance and Operational Execution

Sealed Air's recent financial performance reflects a company actively managing through a challenging macroeconomic environment while executing its strategic transformation. In the first quarter of 2025, consolidated net sales were $1,272.5 million, a decrease of 4.3% compared to $1,329.6 million in the prior-year period. This decline was primarily attributable to unfavorable foreign currency translation and lower volumes in the Protective segment. On a constant currency basis, net sales decreased by a more modest 2.0%.

Despite the top-line pressure, the company demonstrated profitability improvements. Gross profit in Q1 2025 was $391.7 million, down 2.3% from $400.8 million in Q1 2024. However, the gross profit margin expanded by 70 basis points, from 30.1% to 30.8%, primarily driven by productivity benefits and lower operating costs. Selling, general and administrative expenses increased by 2.7% to $190.5 million, partly due to CEO severance costs, but productivity benefits from the CTO2Grow program provided a partial offset. Operating profit remained relatively stable at $183.4 million compared to $185.0 million in the prior year.

Adjusted EBITDA, a key profitability metric, saw a slight decrease of less than 1% on a reported basis but increased by 2% on a constant currency basis to $276.3 million in Q1 2025. The Adjusted EBITDA margin improved by 80 basis points to 21.7%, primarily driven by cost takeout and productivity efficiencies, which helped to offset unfavorable net price realization.

Performance varied significantly between the two segments. The Food segment reported net sales of $852.1 million in Q1 2025, a decrease of 1.9% reported but an increase of 1.0% on a constant currency basis. This constant currency growth was driven by favorable pricing actions and marginal volume growth, particularly in case-ready solutions which grew low single digits. Food Adjusted EBITDA increased by 6.9% reported and 10.0% constant currency to $202.7 million, resulting in a strong Adjusted EBITDA margin of 23.8%, up 200 basis points year-over-year. This performance was attributed to lower operating costs, including productivity benefits from the CTO2Grow program, partially offsetting unfavorable net price realization. The Food business is described as resilient, benefiting from share gains and strength in specific end markets like retail case-ready and fluids, despite some volatility in U.S. protein markets.

In contrast, the Protective segment continued to face headwinds, with net sales of $420.4 million in Q1 2025, down 8.8% reported and 7.6% on a constant currency basis. This decline was primarily driven by lower volumes, particularly in fulfillment and industrial applications, and unfavorable price realization. Protective Adjusted EBITDA decreased by 17.4% reported and 16.0% constant currency to $73.9 million, leading to a lower Adjusted EBITDA margin of 17.6%, down 180 basis points. The decrease was mainly due to lower volumes and unfavorable net price realization, partially offset by productivity benefits. Management noted that the large customer churn experienced in 2024, particularly in North America fulfillment, has now been fully lapped, which is expected to improve year-over-year comparisons starting in Q2 2025. Sequential Protective margin improved by 280 basis points compared to Q4 2024, indicating some operational progress.

Operational efficiency remains a key focus. The CTO2Grow program, initiated in 2023, continues to yield benefits. For the three months ended March 31, 2025, the program incurred cash expenses of $9.0 million and generated incremental cost benefits of $16.0 million. The company expects full year 2025 incremental cost benefits from CTO2Grow to be approximately $64.0 million, with cash outlays of around $85.0 million. These cost reduction efforts are crucial for offsetting market pressures and improving overall profitability.

Liquidity and Balance Sheet Strength

Sealed Air maintains a solid liquidity position and is actively focused on strengthening its balance sheet through deleveraging. As of March 31, 2025, the company held $335.2 million in cash and cash equivalents. While a significant portion of this cash is held outside the U.S. ($309.0 million), management believes U.S. cash balances and committed liquidity facilities are sufficient for domestic needs.

The company utilizes accounts receivable securitization programs and factoring agreements, which provide access to liquidity by selling or borrowing against trade receivables. As of March 31, 2025, $132.0 million was outstanding under accounts receivable securitization programs, and factoring/supply chain financing programs resulted in $149.2 million in gross amounts factored during Q1 2025. These programs are accounted for as secured borrowings or true sales, impacting the presentation of receivables and cash flows but contributing to overall liquidity.

Total debt stood at $4,404.2 million as of March 31, 2025. The company's net debt leverage ratio was 3.7 times at the end of Q1 2025, down from 3.9 times a year prior. Management has set a clear target to reduce the net debt to Adjusted EBITDA ratio to approximately 3.0 times by the end of 2026, highlighting a commitment to deleveraging.

Free cash flow generation is a key priority supporting this deleveraging goal. In Q1 2025, free cash flow was a use of $12.0 million, compared to a source of $78.0 million in Q1 2024. This anticipated use of cash was primarily driven by higher incentive compensation and tax payments, partially offset by lower interest payments and reduced capital expenditures ($43.9 million in Q1 2025 vs. $47.1 million in Q1 2024). Despite the Q1 use, the company's focus on working capital management and overall profitability improvements are expected to support strong free cash flow generation throughout the year, contributing to debt reduction efforts.

The company was in compliance with its debt covenants, including the maximum leverage ratio covenant of 4.50 to 1.00, with a calculated ratio of 3.30 to 1.00 as of March 31, 2025.

Outlook and Forward Strategy

Sealed Air has reaffirmed its full year 2025 guidance ranges for sales, earnings, and free cash flow, reflecting a prudent outlook in a low visibility environment. The guidance contemplates tariffs currently in effect and modest volume softness in both segments driven by customer cautiousness, offset by an improved foreign currency outlook.

For the full year 2025, the company expects net sales in the range of $5.1 billion to $5.5 billion, implying approximately 1% growth at the midpoint excluding an expected 2% foreign currency headwind. Adjusted EBITDA is projected to be between $1.075 billion and $1.175 billion, representing approximately 1% year-over-year growth at the midpoint, or about 3.5% growth on a constant currency basis. This Adjusted EBITDA outlook assumes a margin of approximately 21%. Full year Adjusted EPS is guided to be in the range of $2.90 to $3.30 per share, with the midpoint representing 2% constant currency growth. Free cash flow is expected to be approximately $400 million, reflecting continued strong cash generation despite higher restructuring payments. Capital expenditures are anticipated to be around $220 million.

Looking specifically at the second quarter of 2025, management anticipates a sequential increase in sales in both segments, with net sales around $1.3 billion, Adjusted EBITDA around $270 million, and Adjusted EPS around $0.71. This reflects an expected improving trend within the Protective portfolio and more favorable turkey and pork outlooks in Food compared to Q1.

The strategic rationale underpinning this outlook is the expectation that continued cost control and productivity initiatives, including the incremental benefits from the CTO2Grow program, will largely offset anticipated volume softness and unfavorable net price realization. The transformation into vertical segments is expected to drive improved execution and operational leverage, particularly in the second half of 2025, as the benefits of reorganized commercial teams, streamlined supply chains, and portfolio optimization efforts begin to materialize.

While the Food segment is expected to maintain its momentum, the outlook for Protective remains cautious, with market weakness anticipated to persist. However, the company is targeting a volume inflection in Protective in the second half of 2025, driven by the full lapping of prior-year churn and the acceleration of transformation initiatives aimed at improving commercial execution and closing portfolio gaps like fiber mailers and hybrid automation.

Risks and Challenges

Despite the strategic transformation and operational focus, Sealed Air faces several notable risks and challenges that could impact its performance and the investment thesis. Macroeconomic conditions, including potential recessionary and inflationary pressures, remain a significant concern, influencing customer demand patterns, particularly in the more cyclical Protective segment. Changes in raw material pricing and availability, while currently more stable than in recent years, could reintroduce volatility and pressure margins if not effectively managed through pricing and supply chain actions.

Competitive intensity is high across both segments. In Protective, the void fill sector faces excess capacity and pricing pressure, exacerbated by shifts towards alternative materials like fiber, where Sealed Air is working to close portfolio gaps and regain share. While Sealed Air is the largest Protective packaging business globally, maintaining market position requires continuous innovation and effective commercial execution against both large diversified competitors and specialized players.

Geopolitical risks, including uncertainties related to ongoing conflicts and evolving global trade policies, could impact supply chains, introduce tariffs, and affect foreign currency exchange rates, potentially influencing financial results and market dynamics. The company has operations and cash balances in regions like Argentina (classified as highly inflationary) and Russia, which expose it to specific foreign currency risks.

Within the Food segment, while generally resilient, the company faces potential volatility in specific protein markets, such as the anticipated compression in the North American beef cycle, which could pressure volumes in certain product lines like shrink bags. Management is monitoring for potential consumer trade-downs, although the CRYOVAC portfolio is positioned to serve a range of protein types.

Executing the ongoing transformation, including fully operationalizing the vertical structure, enhancing leadership capabilities, and successfully implementing cost reduction and portfolio optimization initiatives, carries inherent execution risks. The timing and extent of expected benefits, particularly the targeted volume inflection in Protective, are subject to market conditions and the pace of internal execution.

Environmental regulations and litigation, including claims related to substances like PFAS, represent potential liabilities, although management currently believes accrued amounts are adequate and excess liability will not be material.

Conclusion

Sealed Air is navigating a complex market landscape through a decisive strategic transformation. The reorganization into focused Food and Protective verticals, coupled with accelerated cost reduction and operational efficiency initiatives, forms the core of its strategy to restore underlying fundamentals and drive future growth.

While the Protective segment continues to face significant cyclical and structural challenges, the resilience and competitive gains demonstrated by the Food segment provide a stable foundation. The company's commitment to deleveraging, supported by expected strong free cash flow generation, is a clear positive for shareholders. Key to unlocking further value will be the successful execution of the Protective turnaround, including closing portfolio gaps in areas like fiber and automation and improving commercial effectiveness to regain lost market share.

Investors should monitor the progress of the Protective segment's volume recovery, the realization of targeted cost savings, and the company's ability to maintain pricing discipline amidst competitive pressures and raw material fluctuations. Sealed Air's technological differentiation in both food safety and protective solutions, coupled with its integrated material and equipment offerings, provides a potential moat, but sustained investment in innovation and agile execution will be critical to capitalizing on market opportunities and delivering on its long-term growth and deleveraging targets. The reaffirmed 2025 guidance signals confidence in the near-term trajectory, but the path to consistent, profitable growth hinges on the successful realization of the ongoing transformation's full potential.