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Sealed Air Corp (SEE) Q3 2017 Earnings Conference Call Transcript

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Sealed Air Corp. (NYSE: SEE)
Q3 2017 Earnings Conference Call
Nov. 8, 2017, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Sealed Air third-quarter 2017 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star and then zero on your touchtone phone to reach an operator. As a reminder, this conference is being recorded. I'd like to introduce your host for today's conference, Miss Lori Chaitman, vice president of investor relations. Ma'am?

Lori C. Chaitman -- Vice President of Investor Relations

Thank you, and good morning everyone. Before we begin our call today, I'd like to note that we have provided a slide presentation to help guide our discussion. This presentation can be found on today's webcast and can be downloaded from our IR website at sealedair.com. I would like to remind you that statements made during this call stating management's outlook or predictions for the future are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in the section entitled forward-looking statements in our earnings release, which applies to this call. Additionally, our [inaudible, audio cuts out] [00:04:13] differ due to a number of factors.

Many of these factors are listed in our most recent annual report on form 10K, and as revised and updated on our close quarterly report on form 10Q and current reports on form 8K. Which you can also find on our website at sealedair.com, or at the FCC's website at FCC.gov. We will also discuss financial measures do not conform to US gap. You may find important information on our use of these measures and their reconciliation to US gap in the financial tables we've included in our earnings release. Included in today's presentation on slide 3, you will find US gap financial results that complement some of the non-US gap measures used throughout the presentation. Now, I'll turn the call over to Jerome Peribere, President and CEO. Jerome?

Jerome A. Peribere -- President and Chief Executive Officer

Thank you, Lori, and good morning everyone. On our call today, we will cover our third-quarter results, outlook for the year-end, and provide an update on our capital allocation strategy post the close of the Diversey. You will have also the opportunity to hear from Ted Doheny, who will be taking over as CEO from me on January 1, and be still our acting chief financial officer. But, before all and relevant to my retirement, I take this opportunity to let you know that I ran my first New York -- my first marathon in New York last Sunday. Thanks to my son Alexi and my friend Allen. For those of you who are up to the challenge, you will be rewarded for life. But, don't worry, I will not turn into Forrest Gump in my retirement. Back to business.

You can see that in the third quarter, net sales growth accelerated to 6% on an as-reported basis, and 5% in constant dollars. Adjusted EBITDA margin was 19%. Our performance in the third quarter continued to improve compared to the first half of the year, when we delivered 3% constant dollar top-line growth and 18% margin. This momentum is continuing into the fourth quarter, and we have -- and we are delivering on our 2017 outlook as a result of our higher sales and our pricing and cost disciplines. In fact, we are executing on our long-term profitable growth strategy that we outlined at the analyst's day in June 2015. Remember, at that time, we set a 3-year sales growth target or 4 to 5% for each of those two divisions.

We said that we expected sales growth to accelerate throughout the period of 2016 to 2018. And, that these growths would be led by volume thanks to our market-maker innovative strategy. In 2016, we didn't see much movement on the top line and exited the year with an increase of just 1% constant dollar sales growth. However, our growth has been improving each quarter since the fourth quarter of 2016. In the fourth quarter of last year, we started delivering one -- in constant currency, 1% sales growth. In the first quarter of this year, in constant dollars, we delivered 3% growth. In the second quarter, we delivered 4% growth. Now, in the third quarter, we are reporting 5% constant currency sales growth.

And, showed the temporary -- an incredibly steep PE raising cost increases of 13% or $0.10 per pound since August, and 15 cents year-to-date not have surprised all our industry. Those sales gain would have translated into the bottom line already. The good news is that I said temporary cost increases, and also that we have implemented our announced product care and food care price increases on September 1 and October 1, respectively. This is where our confidence comes in as we head into year-end. We are seeing rapid adoption of our game-changing solutions. We're seeing healthy end-market demand, particularly in North America and Asia. Our now-famous operational disciplines are taking hold. On September 6, we close the Diversey sale.

When we announced the transaction on, in March 2017, we increased our share repurchase program and we said that we would pay down debt, address stranded costs, and target selective M&A that was aligned with our strategic direction. So, September 30, we repurchased approximately 15.5 million shares valued at $677 million, through a combination of open markets and accelerated share repurchase programs, including an [inaudible] [00:09:30] that is currently ongoing. We paid $1.1 billion in debt, bringing our total debt balance down to $3.3 billion. We have already made progress on our cost structure and will continue to do so heading into next year. We also closed two acquisitions. A small strategic food packaging company in Brazil, Deltaplam, which closed in August.

Then, in October, we close the Fagerdala acquisition, the protective packaging company based in Singapore that significantly expands our product present in Asia. As all of you know, on September 9, I announced my retirement effective December 31, 2017. I have really enjoyed my time at Sealed Air, and I'm extremely proud of what we have become, thanks to the vision and determination of our management team, and our 14,000 global employees, who I want to recognize here. We have built a winning culture. A culture that is obsessed with creating new value for our customers. We take the responsibility of being the industry leader and the market-maker by creating new markets with disruptive innovations and instilling discipline throughout the industries we serve.

Our long-term profitable growth strategy is well underway, and we continue to gain traction globally, as you can see from our sales growth. Focusing all of our efforts on some very key megatrends. Our journey as a knowledge-based company continues with many exciting opportunities ahead. I am very confident that under Ted, Bill, and the entire leadership team, the organization will continue to thrive and generate significant value for our customers, shareholders, and employees. Bill joined Sealed Air in 2013 and has been on this journey alongside our senior leadership team. Ted and I continue to work closely together to ensure a seamless and successful transition.

We have been spending time in Charlotte, North Carolina, and have also -- and are also traveling around the world with our senior team to meet with customers and employees. Let me now move back to our third quarter results in more detail. Turning to slide 6, where we highlight our results by region. We experienced constant dollar year-over-year growth across all regions. North America once again was our fastest-growing region at 7%, with sales is up to, up 9% in food care, and up 4% in product care. Sales in EMEA, Asia-Pacific, and Latin America increased in the range of 2% to 3%. I want to highlight that product care sales in Asia Pacific were up 15% in the third quarter, led by volume growth. On slide 7, you can see our volume and price mixed trends by division and by region.

As we anticipated, top-line performance was primarily driven by 5% volume growth, with positive trends across all regions. Food care volumes were up 5%, with 9% growth in North America, and positive trends in both Latin America and EMEA. Product care volumes were up 6%, driven by our largest regions, North America and EMEA increasing 4% and 7%, respectively. Overall, price mix was relatively neutral to our top-line results. Keep in mind that our pricing actions in product care went into effect as of September 1, and in foot care, for our non-formula customers, effective October 1. Now, let's turn to slide 8 and review food care results in more detail. Food care sales were $716 million and adjusted EBITDA was $168 million, or 22% of sales.

Sales were up 4% in constant dollars compared to last year, due to higher volumes. Our margin compressed year-over-year, primarily due to timing of raw material cost [inaudible] [00:14:10] and higher input costs. It is important to note, however, that sequentially, EBITDA margins improved 60 basis points, as formula started to align better with higher input costs, and we continued to focus our focus on expense management. Our performance in North America, which accounted for 51% of food care sales, was driven by the ongoing adoption of our cage-ready platform across all protein, including seafood, and higher equipment sales. We capitalized on [audio cut out] [00:14:48] market demand in all 14 segments, led by an increase in slaughter rates of more than 5% in the beef sector.

We expect our business in North America to continue outpacing the market in Q4. Although, keep in mind we tougher year over your comparables on volume to come. EMEA, which accounted for 22% of food care sales, was essentially flat compared with last year. We are continuing to see adoption of our new product in an environment where the protein market is growing modestly. But, this was upset by timing of equipment sales. Heading into year-end, we anticipate improving top-line trends with the growing coming -- with growth coming from both equipment and new product sales. APAC accounted for 15% of food care, with Australian and New Zealand accounting for close to 70% of our sales in this region. Australia and New Zealand declined in the quarter as a result of further deterioration in the dairy market.

But, an encouraging data point to share is that for the first time in over a year, slaughter rates were relatively flat with prior year. The beef cycle is now near bottom, and we expect growth to return late 2018. Latin America represented the remaining 12% of sales, with Mexico, Brazil, and Argentina accounting for approximately 80% of food care sales. Constant dollar sales were up 3%, led by growth in Argentina, and stabilizing trends in Brazil. This was upset by a temporary decline in Mexico where our business was impacted by the earthquake late in the quarter. But, heading into year-end, we anticipate improving trends in both Brazil and Mexico, albeit slow with continued [audio cuts out] [00:16:56] Central America. For the full year 2017, we expect food care to increase sales approximately 3.5% in constant dollars. Adjusted EBITDA margin are expected to be approximately 22%.

Slide 9 highlights results from our product care division. Product care net sales were $450 million and adjusted EBITDA was $87 million, or 21% of net sales. You can see in the EBITDA bridge, that compared to last year, higher volumes were upset by a negative mixed end price cost spread. Product care margins improved sequentially by hundred basis points. This improvement was primarily related to higher volumes, years on our pricing actions, and cost management. North American and EMEA accounted for approximately 85% of project care sales, and were up 4% and 7%, respectively. APAC had another strong quarter, with 15% growth led by China and Japan.

Our advanced product portfolio, including inflatables, ice packs, dense wrap, and flow wrap continue to gain significant traction as our e-commerce and fulfillment customers optimize and automate their distribution channels. In Western Europe, I want to highlight that in the third quarter, we benefited from accelerated execution of automated solutions [audio cuts out] [00:18:32] growth of our consumables after record level of equipment installs over the last 12 months, and pockets of strength across some of the industrial segments. With the acquisition of Fagerdala, we tripled our manufacturing footprint in China, and as you would expect, there are synergies to leverage and meaningful cross-selling opportunities. For the full year of 2017, we expect product care to increase sales approximately 6% on a constant dollar basis.

Which would include $20 million in sales from Fagerdala. Adjusted EBITDA margins are expected to be approximately 20%, and this implies a Q4 constant dollar year-over-year growth of approximately 10% and adjusted EBITDA margins of 21%. Let me now turn the call over to Bill to review our overall sales and EBITDA bridges and outlook heading into year-end. Bill?

Bill Stiehl -- Acting Chief Financial Officer

Thank you, Jerome. Slides 11 and 12 [audio cuts out] [00:19:40] sales and EBITDA bridges for Q3 and 9 months ending September 30. My comments will focus on slide 11, which highlights our third-quarter results from continuing operations on a year-over-year basis. You can see that our top-line performance was primarily led by higher volumes of $55 million favorable currency of $13 million. Adjusted EBITDA was $217 million, or 19% of sales. Volume contributed $23 million in Q3, which was partially offset by unfavorable mix and price cost spread of $16 million. Operating expenses decreased $10 million, and restructuring savings were $4 million. Currency had a favorable impact on adjusted EBITDA of $3 million. Adjusted earnings per share from continuing operations were 46 cents in the third quarter compared to 41 cents in Q3 of 2016. Our adjusted tax rate for continuing operations was 31%.

On slide 12, we present our sales and EBITDA bridges for the nine months ending September 30. In the EBITDA bridge, we see that higher volumes were essentially offset by unfavorable mix and price cost spread. Turning to slide 13, free cash flow is presented on a consolidated basis which includes results from continuing and discontinued operations. For the nine months ended September 30, consolidated free cash flow, excluding payments related to the sale of Diversey, was a source of cash of $267 million. Capex was $127 million. [Audio cuts out] [00:21:35] were $453 million, and restructuring costs for $49 million. Aligned with our typical free cash flow seasonality, working capital, and other assets and liabilities were a use of cash of $70 million.

Turning to our outlook on slide 14, for top-line, we now expect sales to be approximately $4.4 billion, an increase of 6% on as-reported basis. Favorable FX is expected to have an impact of approximately $40 million. Constant dollar growth is expected to be approximately 4.5%, including sales from Fagerdala of $20 million. Our major currency exposures include the euro, which was approximately 13% of net sales in Q3, the Australian dollar, 5%, and the Mexican peso, British pound, Canadian dollar, and Brazilian real, were each approximately 3% of net sales. 2017 adjusted EBITDA from continuing operations is expected to be approximately $830 million, which includes $7 million from favorable FX. Corporate expenses are now estimated to be $115 million. Our net interest expense for 2017 is estimated at $185 million. Depreciation and amortization is forecasted to be $160 million.

We now expect our adjusted tax rate to be 30% for the full year 2017. Our outlook for adjusted earnings-per-share is unchanged at 175 to 180. Our adjusted EPS outlook is based on 190 million shares, which reflects the weighted average full year effect of share repurchases through September 30. Let's now turn to slide 15 and review our free cash flow outlook. As a reminder, we present free cash flow on a consolidated basis, which includes our outlook for continuing operations, and results from discontinued operations. We continue to expect free cash flow to be approximately $400 million. This forecast excludes cash payments related to the sale of Diversey.

To calculate our free cash flow outlook, we start with an estimated, consolidated, adjusted EBITDA of approximately $1 billion, which includes our full year 2017 outlook from continuing operations of $830 million. We anticipate cash interest payments to be $200 million and cash tax payments to be $160 million. Restructuring cash costs, excluding efforts dedicated to reducing separation-related costs, are estimated to be $55 million. Capital expenditures are forecasted to be $175 million, of which $165 million represents Sealed Air continuing operations. Restructuring-related capex is expected to be $20 million in 2017 and is included in the $175 million capex estimate.

Working capital and other assets and liabilities is now expected to be a use of cash of approximately $40 million, as compared to our previous guidance of a use of cash of $65 million. As you know, a large portion of our free cash flow is typically generated in the second half of the year, with the fourth quarter being our strongest quarter for cash generation. I would like to now pass the call over to Ted who will provide us with early insights and thoughts on our future opportunities and strategic direction. On behalf of the senior leadership team and our employees, we would like to welcome you to Sealed Air and congratulate you on your new role.

Ted Doheny -- Chief Operating Officer and CEO-designate

Thank you, Bill. As Jerome indicated, I started at Sealed Air mid-September, and my short story is that I like the company, even more, looking inside than I did analyzing it from the outside. I've been traveling the world to meet with employees and customers, and have also had the opportunity to visit some of our facilities, including spending time with the talented team from Fagerdala in China. My previous experience has been with two iconic and market-leading companies in the equipment, service, and solution space. When I was approached about the opportunity with Sealed Air, I saw another iconic company that has successfully transformed over these past five years from a product-driven to market-driven company.

As I learn more about Sealed Air, I see that we have an exciting opportunity to now move from being a leading company in the packaging industry to being a world-class company solving the most complex challenges in packaging with automated solutions. Sealed Air's reputation of being a true innovative leader within the global packaging segment is impressive, and our pipeline of automation in both product care and food care is creating, even more, opportunity to further reimagine the business, and think outside the box, and maybe even outside the package. In 2018, we'll build off our sales growth in 2017, and gain share in the markets we serve. We will execute our strategy with both sales and profit growth, as well as operational excellence that will demonstrate incremental margin improvement over 2017.

We'll continue to allocate capital as we outlined with share buybacks and strategic M&A. With 1.4 billion remaining under the authorized share buyback program, we'll continue to be active in the market with open market and accelerated share repurchases. On M&A, we'll focus on companies that expand our market presence geographically, and take the renovations to adjacent markets. We'll look for technology and automation companies that further enhance our food care and product care businesses that solve our customers' toughest packaging challenges. Our organic growth, M&A strategy, and focus on operational excellence will take our business to the next level of performance.

We plan on sharing our 2018 and long-term profitable growth plans with you in the coming months, including an investor day [audio cuts out] [00:28:24] Before we open up the call for questions, I'd like to remind you, our first fourth-quarter earnings call is tentatively scheduled for Thursday, February 8. So, with that Vince, that concludes our prepared remarks. Please, open call for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press star and the one on your touchtone phone. If your question has been answered, or you'd like to remove yourself from the queue, you can do so by pressing the pound key. Again, that is star and then one. Our first question's from Scott Gaffner of Barclays. Your line is open.

Scott Gaffner -- Barclays Capital, Inc.

Thanks. Good morning and congratulations, Jerome, not only on the retirement, but the marathon.

Jerome A. Peribere -- President and Chief Executive Officer

Thank you.

Scott Gaffner -- Barclays Capital, Inc.

Congrats to Ted and Bill as well. My question was, Jerome, really if I look at, to your point, you've had this significant margin pressure related to resin prices year-to-date. If I look at slide 12 in the deck there's, right, $54 million of mix and price cost spread. Can you help us parse that mix versus price cost spread out so that we can sort of think about this on a go-forward basis if and when resin prices start to decline?

Jerome A. Peribere -- President and Chief Executive Officer

First of all, you have seen with all our competitors that everybody in the industry has been surprised by the pace of the cost increase in resin, and the number. Let me remind you, 15 cents since the beginning of the year. That's almost 20%. And, 10 cents since August 1, that's about 13%. Here we are talking about P. I'm not talking about nylon. I'm not talking about other raw materials, which went up in a very deep way. This is in light of us having, in food care, a sizable part of our business which is formula-driven. Remember also that in the month of July and before, we were thinking, and not only us, everybody was thinking that because of the capacity additions coming on stream, prices were not gonna go up, there were gonna come down.

So, yes, we did have margin squeeze. I would call it margin compression. As I said in my prepared remarks, we are seeing that this is temporary. And, that as a result of that, we are gonna do what we have done the last round when resin prices when down. We are going to recoup our -- the quality of our business. So, I'm really not worried. We are going to start seeing this, in my mind, definitely in 2018 depending on the pace, again, at which resins are gonna be coming down.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please.

Operator

 

Thanks. Our next question's from Brian Maguire of Goldman Sachs. Your line is open.

Brian Maguire -- Goldman Sachs

Hey, good morning. I'll also add my congratulations to everybody on their new roles, including you, Jerome.

Jerome A. Peribere -- President and Chief Executive Officer

Thank you.

Brian Maguire -- Goldman Sachs & Co., LLC

My question is sort of really on price mix and just a lack of lift there. I guess I would've thought by now we'd start to see some of the formula-based pricing from earlier in the year when resin started to move up kick in. I was just wondering if there's some offsetting factors on there on the mixed side of things. Maybe you could just comment on the overall pricing environment outside of the moves in resin. We've heard from a couple of other guys in the industry about some pricing pressure just in response to weak end demand in some other food-related products. Weak customer margins. Are you seeing any pressure to pass through some of that deflation that we're seeing in food these days? These price increases that you've announced for September 1 and October 1, are you getting any significant customer pushback to those so far?

Jerome A. Peribere -- President and Chief Executive Officer

Let me start with the last part of your question. Our September 1 product care price increase went through fully. Our October non-formula pricing food care price increase went in fully. Why? Because we had PE margins and [inaudible] [00:33:11] and so on margin compression, and we also had other type of inflation, including freight. For those of you who don't know, the post-Harvey had consequences on freight costs, availability of trucks, needing to buy resins on the spot market, and all of those kind of things. Because our priority number one was to unite our customers who were in difficult times for supplies themselves, et cetera. We did not spare any effort, nor any money in making sure that we would have absolutely no disruption. Did that cost money? Absolutely.

But, what is absolutely important to understand is what I said exactly 5 years ago, in January, in 2012 when I said we are the market leader. The market leader has a responsibility. The responsibility for the market leader is to be disciplined and to lead on price. Yes, we do need to be leading on price. We have lead on price, which is why we stood extraordinarily firm. Yes, we did hear that some competitors were not as disciplined. That their problem. We, in order to keep investing the amount of money are we investing in innovation, in order to bring them, our customers, the revolutionary solution that we're bringing them and surprise them by adding value, tremendous new value to them, we need to be able to have the funds and the resources, and therefore keep investing at the pace we're investing, and by the way accelerating, to bring those solutions in automation, in new products, etcetera, etcetera.

So, that is the context. Next to that, and this is why we are already slightly improving on our margins compared to the first half of the year. As a result of having the September 1 price increase in product care. So, do we have competition? Yes, we do have competition. But, you have customers who are price-driven customers, which are not the ones we want. You have customers who are value customers, which those we want. We [audio cuts out] [00:35:53] to continue thanks to our solutions to add new and much higher value than it would from a slight price concessions. Do we have market skirmishers here and there? Of course, but not very much more than before. Depending on the country, including the US, we have some competitors who are a bit desperate in taking business. This is normal.

Lori C. Chaitman -- Vice President of Investor Relations

 

Operator, can we jump to the next question, please?

Operator

 

Our next question is from George Staphos of Bank of America Merrill Lynch. Your line is open.

George Leon Staphos -- Bank of America Merrill Lynch

Thanks, everyone, good morning. Thanks for the details. Again, congratulations to everybody and welcome. Also, thanks to Carol for all her efforts the last couple years. I wanted to come back to the margin question a little bit differently. Can you tell us, maybe, in rank order priority, what gives you confidence that in 2018 that you'll be able to leverage the very, very good volume growth to date? Presumably, positive volume growth into 2018 into stronger EBITDA. Will it be more from the pricing? Will it be more from the formula lags turning more favorably? And what, Ted, do you think at [audio cuts out] [00:37:16] excellence add to the margin picture for 2018? Thank you.

Jerome A. Peribere -- President and Chief Executive Officer

Thanks, George. I'll start and Ted will continue. George, all of the above and our innovation. Which means that you saw that we have renewed with constant currency growth in the fourth quarter of 2016. And, since then, it's been on and on and accelerating. The comparables are gonna get a little bit tougher, but it is our innovation which is fueling all of this. The success of the strategy that we have embarked into in product care moving to automation. The very successful B+ acquisition of August of 2015 continues at a fast pace. The deployment of those automation technologies in Japan and China in Europe and in North America, are a tremendous success. Also, our automation in food care with [unintelligible] [00:38:37] and all the others, and our case ready, which is really starting to take hold. We're very confident that we are exactly on the pace to do and execute on what we said back in June of 2015 when we gave the 16 to 2018 look during our analyst's day. It is actually amazing to see how what we said at that time is happening. Your question -- [Crosstalk] [00:39:09]

George Leon Staphos -- Bank of America Merrill Lynch

Jerome. Jerome --

Jerome A. Peribere -- President and Chief Executive Officer

Back to your question on margin, we have formula in food care, and they've been a little bit slower to kick in because they would have kicked in -- they were supposed to kick in from the third quarter as resins were coming down and as formulas was coming up. Leading to margin expansion. As resins came up, you see that this phenomenon is this slightly delayed. We have proven to you in the past that in an environment like the one we're going to live through probably through the end of this year and into early next year, we are going to restore our margins. You had a [inaudible] [00:40:03] Ted on the operation -- [Crosstalk] [00:40:05]

George Leon Staphos -- Bank of America Merrill Lynch

Just in terms of what you just discussed, just quickly, what's most important? Is it the innovation? Is it the price? Or, is it the formulas? I just wanna again, stack rank, if that's possible. If not, I understand.

Jerome A. Peribere -- President and Chief Executive Officer

I can't thank stack because I don't have the detail of every single number there, but it is all of the above. We do have a tremendous pull from our innovation. You know that depending on the division, some of those kick in faster than some others. The operation trade is to be approved by the retailer. This is done through -- and we talked about this on the cycle of innovation. In some product care, it comes faster. We've seen all of those benefits. There is discipline in this thing. The good thing about Sealed Air is that we say what we do and we do what we say. We are a disciplined organization. We are executing on it. We demand value from our customers because we know we are bringing them tremendous value in the total cost to serve operations that they run.

George Leon Staphos -- Bank of America Merrill Lynch

On op excellence?

Ted Doheny -- Chief Operating Officer and CEO-designate

Yeah. Well, let me segue those two going into three, because you're talking about 18. Internally, that's the one that I'm possessive about. On the pricing, just to make a comment, Jerome has just done a tremendous job. One thing I just wanna let you, George, and everybody know, that I'll be taking over as the chief pricing officer from Jerome. So, feel comfortable with that. Some of the pricing opportunities we have, I think, are in the business that we need to look at and push. Pricing for certain options, other things that are there. So, we have some pricing opportunity going forward. On the innovation side, as Jerome highlighted, that's been really exciting for me in just my first six weeks to see how we're at the table, not with itty-bitty but with the big players. Jerome's introduced me.

I've gotten to meet some of the major players. We're there talking about their biggest problems. If we stay in that commodity-based where some of our competitors are, then we have to live with the pricing. Then, we'll bring up operational excellence. We gotta continue to drive our costs down. With these innovations, for instance, a statistic on flat-screen TVs going to the Internet. Over half of them are being shipped. The number one problem that major e-commerce customers are having is damage. How can we fix that? We're at the table to do that. The second problem is making it easy and environmentally friendly for where it shows up. We're in a conversation not, what the price of your product? Can you help us solve the problem?

Bring that solution across. We have some really cool innovative technology that we're talking about the solution and there's no conversation, what was widget A versus widget B last year? That ties innovation into the pricing and the margin that you wanna see. The third piece is the operational excellence. I think we have an opportunity to really drive the business to world-class level in operational excellence. We've had a huge disruption in the business with the sale of Diversey. Really bringing the team together, looking at our facilities around the world. What can we do to bring some operational excellence to the bottom line in 2018? I think we have some opportunities there. And, give you bridgeable items. We're not giving any guidance on 2018, but just to give you some thoughts on what we're looking at.

George Leon Staphos -- Bank of America Merrill Lynch

Thank you.

Lori C. Chaitman -- Vice President of Investor Relations

 

Operator, next question, please.

Operator

 

Thank you. Our next question's from Ghansham Panjabi, of Bayer. Your line is open.

Matthew Krueger -- Robert W. Baird & Co., Inc.

This is actually Matt Krueger sitting in for Ghansham. Bill and Ted, congratulations and Jerome, it's obviously been a pleasure working with you over the years. On behalf of the team, good luck as you head into the future.

Jerome A. Peribere -- President and Chief Executive Officer

Thank you.

Matthew Krueger -- Robert W. Baird & Co., Inc.

As for my question, given the significant improvement in 2017, and the related tougher comparison, what are your volume growth expectations for the North American food care basically, specifically, as we head into end of the year and specifically as we think about 2018?

Jerome A. Peribere -- President and Chief Executive Officer

I'm not gonna give you a guidance for 2018, but in 2017, for the rest of the year we have, in my prepared remarks, I made a comment about that. We said that we are expecting about 2.5% and, or 4%. Altogether, would you say, four? Lori said four.

Lori C. Chaitman -- Vice President of Investor Relations

4.5%.

Jerome A. Peribere -- President and Chief Executive Officer

4.5%, Lori said. Actually, what does this mean? It means that the momentum keeps on. It means that we have the North American cycle in full swing [audio cuts out] [00:45:27] all good and strong. The slaughter rate is good and strong. We are right now in the middle of the quarter and there is nothing else to say than that. We're also looking at other crossings, and the reason why we are, and it is as successful, and you hear about the beef cattle cycle at 5% slaughter rate increase, but you see our total business being very solid. You know that our rates, our meats, our cattle, beef prices, or beef products are only a part of the whole thing. We are having success with our case-rated solutions all over.

There is change in the marketplaces including in North America with our case-rated solutions because the market is changing, because of the need for sustainability, because, for example, California having banned foam trays and those kind of things. Therefore, you have MAP, modified atmosphere packaging, and you have our Darfresh, which is kicking in very nicely. We're confident, 2018 you're gonna see that there is -- that the comparables are a bit easier, but when Ted is going to give you guidance for the company and by businesses in February, there is this momentum in there. This is not a commodity business. The momentum is there.

Matthew Krueger -- Robert W. Baird & Co., Inc.

That's very helpful. Thank you.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please.

Operator

 

Our next question's from Chip Dillon at Vertical Research. Your line is open.

Chip Dillon -- Vertical Research Partners

 

Yes, good morning and congratulations to all. All the best to you Jerome, as you move on to the next place, next phase.

Jerome A. Peribere -- President and Chief Executive Officer

Thank you.

Chip Dillon -- Vertical Research Partners

My question has to do with thinking about e-commerce. I know it's still relatively small but growing very quickly and obviously, a big factor as we think about product care. I know in the past it's tended to be in products that are growing but yet have smaller margins. I just didn't know as you think about, Ted, the future, how you think that proportion will grow as a percentage of the total segment. What you think the ultimate margin impact will be from e-commerce?

Jerome A. Peribere -- President and Chief Executive Officer

You will love the investor day when it comes. You will get under the tent on our e-commerce 3PL solutions. Having said that, and let me stay with the present, Ted will talk about the future. With regards to the present, we have a slight negative mix which is being corrected. I can't say day after day, but month after month as we are introducing our automation solutions and innovations. Which are not only automation solutions. There are some very big phone companies who launch new products and they have our solution as the product that in which their phones are packed to the Internet. This is big business. It is this innovation. It is the need for not only addressing dimensional weight, which is the number one cash cost operation in the cost to serve of e-commerce.

Number one is dimensional weight, which means freight cost. Number two is labor productivity, is labor. Number three, damage when the items are [inaudible] [00:49:31] Number one, it is the cost of packaging. What we do is reducing freight costs. Is improving labor productivity. Eliminating damage. We do that with a little slowest, smallest cost component which is our packaging costs and the solution which add total value to our customers. Yes, these e-commerce and 3PL business is growing much faster, and the margins are improving quarter after quarter, as we are direct our -- as we introduce our innovation and our solution. That's important to understand because it was an issue in 2016. A little bit in the beginning of 2017, and it is being gradually and nicely corrected. Ted? Future of product care?

Ted Doheny -- Chief Operating Officer and CEO-designate

Sure. To answer the question to tie into the operational excellence again, if we're gonna commit to operating margin leverage, consistent and reliable, that means the product portfolio has gotta match. If you look at e-commerce, not mentioning any customer names, but imagine one of the largest e-commerce companies buying a food company it's gonna bring us together pretty quickly. That means that we're gonna be shipping most of this stuff and extending the shelf life that has made food care the dominant player in the industry. Now, the shelf life has to go to the trunk line, to the plane life. They're having to solve these problems with us.

The problems that we're bringing in are actually in the solutions. In the product care to the point of where we get e-commerce quickly because that's moving. Everybody sees these products showing up at their homes. You don't wanna see the polystyrene or, as I'm being trained by Jerome, or the Styrofoam, all over your house. It's a problem. You don't want to see these packages that you're unpacking. You can even hurt yourself. So, we're working on some innovative designs. I mentioned the flat screen TVs, over half are now being purchased on the Internet.

Our solutions they were working on, when you pull that out of the box, make it nice and pretty. Maybe, do you really need a box? Do you need that Styrofoam that you're throwing away? The margins, to answer your question, have to be in line with our portfolio higher than our portfolio as we bring these new innovations. How are we doing it? We're saving our customers a tremendous amount of money that's pulling the solutions. So, short answer, the new innovations for product care have to be at higher margins than the existing portfolio.

Chip Dillon -- Vertical Research Partners

Thank you.

Lori C. Chaitman -- Vice President of Investor Relations

Operator?

Operator

Thank you. Our next [audio cuts out] [00:52:33] Freuchtel of Suntrust. Your line is open.

Jason Freuchtel -- SunTrust Robinson Humphrey, Inc.

Good morning everyone, and congratulations.

Jerome A. Peribere -- President and Chief Executive Officer

Morning, Jason.

Jason Freuchtel -- SunTrust Robinson Humphrey, Inc.

Fagerdala seems like an ideal acquisition target given exposure to Asian technology. Can you spend some time elaborating on the attractive aspects of Fagerdala, and are these aspects potentially telling of what you're looking for in future acquisitions? Thank you and good luck on your next marathon, Jerome.

Jerome A. Peribere -- President and Chief Executive Officer

Thank you.

Ted Doheny -- Chief Operating Officer and CEO-designate

You want me to take this one?

Jerome A. Peribere -- President and Chief Executive Officer

I'll just start because I was intimately [inaudible] [00:53:10] in the early negotiations and I tell you that most companies look at the products and they look at the segment in which the targets, in which the target participles, et cetera. What I did really look at is, according to your management, we all know that when you buy a Chinese company in China, you have to do your due diligence extremely tightly, because you sometimes never know what you buy. We bought a Singaporean company which has operations and its major operations in China. We bought quality, quality, quality. What we also bought is superb management. That is really very important. On top of that, we bought an extraordinarily efficient fabricator. Ted has traveled with Ken to see their operation and will make comments. The short story is that he was very impressed with what we intended to do. Remember, fabrication is not what we do. We want to be Chinese in China. We are becoming Chinese in China. This is extremely important. Ted?

Ted Doheny -- Chief Operating Officer and CEO-designate

That's a good summary and as Jerome highlighted, in my six weeks, I got to spend a week in China looking the operation, and actually two full days with Ken. And got to meet the Fagerdala team. If we look at the product on why this makes sense strategically, as Jerome highlighted it's an integrated manufacturer. Instead of us selling the polyethylene to an integrator and letting them do that value add, this is what they do and they do really, really well. As Jerome said, they win in China. I got to witness this. I got to meet with the three, their three largest customers who happened to be the largest PC manufacturers in the world [audio cuts out] [00:55:23] so they're at the table. They're talking now what they can do to be their committed supplier in this area.

Also, those suppliers are asking them, can we move that now to those other facilities around the world. Not only does it have geographic growth potential for integrated packaging, it also has the potential to go outside. The second piece on there is the China piece. That being in China, I wish I didn't have so much experience on China. That you have to be in China, you have to be Chinese to win in China. I was extremely impressed with their management team. Three full days from the top watching the people on the shop floor, seeing their facilities. Boy, they do things very, very different than we do. I think the compliment there is gonna be exciting for us. They win in China, and the customers, these major PC manufacturers are asking, can we bring that solution outside of China as we grow this business? Pretty exciting opportunity for us.

Lori C. Chaitman -- Vice President of Investor Relations

Operator?

Operator

Thank you. Our next question's from Tyler Langton of JPMorgan. Your line is open.

Tyler J. Langton -- JPMorgan Securities, LLC

Good morning, thank you. Just had a question on corporate expense. I know you lowered the guidance to $115 from $125, so I was just wondering what was driving that. Then, also just to see if there's any change to your, the longer-term outlook, which I think was reducing unallocated by $25 million by 2018, and then reducing stranded cost by about half in two years.

Bill Stiehl -- Acting Chief Financial Officer

Yes, thank you for your question. One of the things that I've noticed with the Sealed Air management team over the years of being here is our ability to quickly adapt to changing business conditions and also to contract spending when the conditions actually merit that action. This, along with our initial actions to reduce the unallocated and the stranded costs is why we're now estimating our corporate expenses to be approximately $115 million for the full year 2017. Ted and I have actually been meeting quite a bit working together on our specific plans to address these stranded costs, as well as unallocated cost going forward. We'll continue to support the growth initiatives while at the same time addressing stranded costs.

Relative to the types of costs, we've said that we have [audio cuts out] [00:58:11] unallocated costs and they're actually going to be offset by transition services agreement revenue. That TSA revenue actually began September 6 when we close the Diversey transaction. They will go forward on a 12 to an 18-month period beginning in September of '17, and will also then give us time to specifically reduce those unallocated costs. Meanwhile, for the $20 million of stranded costs, we are absolutely on track and we're very confident that our 24-month target, which is 24 months since the separation, is achievable and we will work toward that goal.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, we have time for one more question, please.

Operator

Yes, ma'am. Our last question is from Edlain Rodriguez, of UBS. Your line is open.

Edlain Rodriguez -- UBS Securities, LLC

Thank you, and welcome Ted and Bill, and Jerome, good luck.

Jerome A. Peribere -- President and Chief Executive Officer

Thank you.

Edlain Rodriguez -- UBS Securities, LLC

Just one quick question on the timing of the share buyback, the remaining share buyback. Now, what's going to determine how aggressive are? I mean, in terms of what's remaining, should we expect, over the next several quarters, is it gonna be longer than that? Is it gonna be within a year? Just want to get a sense on what you think in there, Ted.

Ted Doheny -- Chief Operating Officer and CEO-designate

Sure. We have $1.4 billion remaining on the share buyback program. As we stated, we used 190 million shares for the guidance that we gave for the balance of 2017. We don't actually disclose specific plans, but you can actually expect us to be very active in the market for the balance of 2017 through our normal methods of ASR's and OMR plans.

Bill Stiehl -- Acting Chief Financial Officer

Yeah. Just for the capital allocation story there, to commit to the share buyback, because we've announced, but also looking at that, what is the M&A, strategic M&A opportunities we're looking at? Not to give you a specific number, but we're gonna be active in the market and follow up with our commitment there on the buybacks.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, I want to thank everybody for your questions, but before we conclude the call, I'd like to pass the call back to Ted for some closing remarks. Ted?

Ted Doheny -- Chief Operating Officer and CEO-designate

Great. Thanks, Lori. As we wrap up, I would just like to take the opportunity to thank Jerome for his passion and commitment to creating significant value at Sealed Air. For me personally, it's been a pleasure spending this time in the transition with Jerome and making an introduction to the people, our customers. I just want to share with you in front of your investment friends a big thank you from me personally. Vince, that concludes our call this morning. We look forward speaking to all of you in the new year. Thanks, everyone.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.

Duration: 63 minutes

Call participants:

Lori C. Chaitman -- Vice President of Investor Relations

Jerome A. Peribere -- President and Chief Executive Officer

Bill Stiehl -- Acting Chief Financial Officer

Ted Doheny -- Chief Operating Officer and CEO-designate

Scott Gaffner -- Barclays Capital, Inc.

Brian Maguire -- Goldman Sachs & Co., LLC

George Leon Staphos -- Bank of America Merrill Lynch

Chip Dillon -- Vertical Research Partners

Matthew Krueger -- Robert W. Baird & Co., Inc.

Jason Freuchtel -- SunTrust Robinson Humphrey, Inc.

Tyler J. Langton -- JPMorgan Securities, LLC

Edlain Rodriguez -- UBS Securities, LLC

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