Sealed Air Corp (SEE) — Q1 2015 Earnings Call Transcript

Thank you, and good morning, everyone. Before we begin our call today, I would 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 future performance may differ due to a number of factors. Many of these factors are listed in our most recent annual report on Form 10-K and, as revised and updated, on our quarterly report on Form 10-Q, which you can also find on our website at sealedair.com. We also discuss financial measures that do not conform to U.S. GAAP. You may find important information on our use of these measures and their reconciliation to U.S. GAAP in the financial tables that we have included in our earnings release. Please note that we will end the call by 9:30 today. Now I'll turn the call over to Jerome Peribere, our President and CEO. Jerome?

Thank you, Lori, and good morning, everyone. I hope you've had the chance to review our press release and earnings results for the first quarter. I am very pleased with our results, marking a strong start to the year. We maintained our discipline throughout the quarter and achieved our objectives despite facing significant currency headwinds. Our net sales of $1.7 billion reflect a decrease of 4.4% as reported, but in constant dollars, they increased by 3.5% compared to the first quarter of last year. Each division and all regions showed growth in constant-dollar sales and a favorable price/mix. The combination of improved price/mix and reduced input costs led to a gross margin increase of over 200 basis points, with strong performance in both Food Care and Product Care. We reported adjusted EBITDA of $284 million or 16.3% of net sales, despite $22 million from unfavorable currency translation. This represents a margin improvement of 260 basis points, and in constant dollars, we saw a 22% increase compared to last year. Food Care achieved an adjusted EBITDA of 21.7%, while Product Care's was 20%. Although Diversey Care faced the greatest challenges due to currency fluctuations, it still realized a 6% increase in adjusted EBITDA on a constant-dollar basis. I will leave the discussion of the financials and business trends to Carol and our guest executive speaker, Ken Chrisman, who is the President of our Product Care division. Before I hand the call over to Carol and Ken, I want to highlight a few points. As we have communicated numerous times, we are committed to a disciplined approach to portfolio management, focusing on innovation and evolving into a knowledge-based company. In line with this strategy, we acquired the assets of Intellibot Robotics, a startup company based in the U.S. that developed robotic commercial floor cleaning machines. Intellibot is currently the only seller of advanced robotic floor care machines outside of the consumer market. These intelligent machines utilize sensors for navigation and are connected to the cloud for data monitoring, optimization, troubleshooting, servicing, and software upgrades. The robotic technology can accommodate various sensor types, allowing for seamless integration of new features as they become available. The merging of Intellibot Robotics’ expertise with Diversey Care's leading position in mechanical cleaning will accelerate growth in robotics and the Internet of Things within the floor cleaning sector. We are still in the early stages of implementing robotics and automation in the cleaning and hygiene industry; we are excited to welcome the initial team of artificial intelligence specialists from Intellibot to Sealed Air Diversey Care. In early April, we finalized the sale of our North American trays and pads business, a noncore asset within our Food Care division. While we had established ourselves as the global leader in food-grade absorbent pads, this business was quickly becoming commoditized and facing intense pricing competition. It was heading toward a profit margin of less than 10%, and the North American trays and pads business generated around $200 million in sales in 2014, with approximately $50 million in the first quarter. I also wanted to share two important organizational decisions. First, we have decided to build and own the campus in Charlotte, North Carolina for financial reasons. After a thorough financial analysis, we found that owning this campus is more economical than signing a long-term lease. This modern global headquarters will house our three divisional headquarters and our largest R&D center. Proceeds from the trays and pads business sale and the sale of our building in Racine will finance about two-thirds of this capital investment. Consequently, we have increased our CapEx budget from $180 million to $210 million in 2015. Secondly, effective in April, we will realign the countries in the Asia, Middle East, Africa, and Turkey regions, previously known as the AMAT region. We are also realigning the Japan, Australia, and New Zealand region, and moving forward, we will report network sales of Europe, Middle East, Africa, and Turkey under the EMEA region. The remaining regions will include Asia, Australia, New Zealand, and Japan, reported as Asia-Pacific. We believe this realignment will enhance local focus and empower regional and divisional leaders to create more cross-selling opportunities and expedite decision-making. For today's call, Q1 results will be presented according to the historic regions, as these changes are just being implemented. We will share sales trends based on the new regional alignment at our Analyst Day on June 18 and during our Second Quarter Earnings Call on July 30. With that, let’s begin with an overview of our financial results. Carol?

Thank you, Jerome. On Slide 4, we present our performance by region for the first quarter. I will highlight sales trends on a constant-dollar basis as compared to last year, unless otherwise noted. In the first quarter, Latin America and the region comprised of Japan and Australia and New Zealand were our fastest-growing regions, with constant-dollar growth of 7% and 5%, respectively. On a reported basis, both regions were down mid-single digits. Constant-dollar growth in Latin America and Japan/ANZ was driven by strength in our Food Care business with increased demand in Argentina, Mexico, and Australia. The AMAT region was up 3% in the quarter, with positive trends in India and Africa for both Food Care and Diversey Care. North America sales were up 3% compared to last year, with 3% growth in each of our divisions. Europe was also up 3% in the quarter in constant dollars but down 13% as reported. We delivered 7% constant-dollar sales growth in the U.K. and 1% growth in Spain. France, Italy, Germany, and Switzerland were flat to down 1%, and Holland was down in the mid-single digits. The 7 countries I just referenced accounted for approximately 20% of first quarter consolidated sales. Russia and Poland had solid performance, with Russia delivering nearly 50% constant-dollar sales growth and Poland delivering 7% growth. Turning to Slide 5, let me walk you through our net sales and adjusted EBITDA performance on a year-over-year basis. We delivered $1.7 billion in sales, an increase of 3.5% in constant dollars; unfavorable currency translation had an impact on net sales of $146 million or 8%, mostly due to the declines in the euro and the Russian ruble. Net sales on an as-reported basis were down 4.4%. Favorable price/mix was 3.2% or $58 million, and volume was up slightly. Adjusted EBITDA increased 13% on a year-over-year basis to $284 million or 16.3% of net sales. For the total company, the increase in adjusted EBITDA was largely due to favorable mix and price/cost spread of $56 million. Cost synergies also made a positive contribution of $17 million in the quarter. SG&A and other expenses increased by $18 million, with wage inflation being our largest driver. As a reminder, our annual compensation increases occur April 1 each year. Unfavorable currency translation had an impact on adjusted EBITDA of $22 million. We delivered a 210-basis-point improvement in adjusted gross profit margin and a 260-basis-point improvement in adjusted EBITDA margin compared to the prior year. On a constant currency basis, our adjusted EBITDA increased 22% as compared to last year's results. Adjusted earnings per share for the quarter was $0.54 as compared to $0.33 in the first quarter last year. Currency negatively impacted EPS by $0.05. The tax rate for Q1 2015 was 25% as compared with 21% for Q1 2014. In the first quarter, we repurchased approximately 1.4 million shares for a total value of approximately $64 million. As communicated on our last earnings call, our EBITDA leverage ratio target is 3.5x to 4x. We believe this is an optimal leverage ratio for our company. We are currently evaluating options that will enable us to increase returns to our shareholders while maintaining our target leverage. On Slide 6, we outlined our price/mix, volume trends, and sales growth on a constant-dollar basis by division and by region. As you can see, we had constant-dollar sales growth and favorable price/mix in every division and in every region. And this is our fourth consecutive quarter where we delivered at least 3% constant-dollar sales growth despite our global rationalization efforts. I will now turn the call over to Ken, who will provide you with a more detailed review of Product Care as well as highlight the performance of Diversey Care and Food Care.

Thank you, Carol. Slide 7 showcases the outcomes from our Product Care division. Before we delve into the quarter's results, I want to discuss the organizational adjustments we've implemented in Product Care to enhance growth and operational efficiency. Starting January 1, we restructured Product Care into Global Performance Packaging, accounting for about 40% of Product Care sales, and Global General Packaging, which represents approximately 60%. Global Performance Packaging encompasses our unique proprietary platforms centered on cushioning and damage prevention, such as Instapak, automated systems, core view, and specialty foams. Global General Packaging includes our more widely distributed solutions like utility products, including bubble wrap and Cell-Aire foam, alongside faster-growing items like mailers, inflatable bubble, and paper systems. We've also established a dedicated global sales team to target the rapidly growing e-commerce sector and our automated systems. Our comprehensive innovative product line, paired with our packaging design expertise and global presence, gives us a strong competitive edge across various industries, including e-commerce. With this restructuring, we are confident in our position to capitalize on future growth prospects. It's important to note that while we are concentrating on growth opportunities, we remain dedicated to maintaining earnings quality, and our customer and product rationalization efforts are ongoing. Let's examine our first quarter results. Net sales experienced a slight increase in constant dollars, with a favorable price/mix of 3.4% amid a volume decline of 2.3%. The favorable price/mix stems from our success in pivoting towards higher-performance packaging and maintaining our pricing discipline. First quarter volume was affected by rationalization activity in general packaging across all regions. Now, regarding adjusted EBITDA, Product Care achieved adjusted EBITDA margins of 20%, equating to $76 million in the first quarter. The increase in adjusted EBITDA of 9% compared to the first quarter of 2014 was primarily due to favorable price/mix, decreased input costs, and cost synergies, which outweighed the negative impact of foreign exchange. In constant dollar terms, adjusted EBITDA rose by 16%. We remain on course to enhance EBITDA growth and margin expansion in 2015. Slide 8 highlights the performance of our Diversey Care division. Net sales for Diversey Care, adjusted for constant currency, rose by 1.5% in the first quarter. We saw a nearly 2% increase in favorable price/mix, with positive trends across all regions and relatively flat volume. In constant dollars, AMAT sales grew by 4%, driven by mid-single-digit growth in China and double-digit growth in India. North America sales increased by 3% on volumes up just over 2%, marking the fifth consecutive quarter of sales growth in that region. Slight increases were observed in Latin America and Australia/New Zealand, while sales in Europe remained stable. In Europe, sales were up in the U.K., France, and Italy. From a global market perspective, our strongest sectors in the quarter included building service contractors, hospitality, and health care. In February, we revealed a 5-year global contract with Carlson Rezidor Hotel Group, expanding from our previous 4-year EMEA contract. This partnership covers over 1,300 hotels across 105 countries and territories. Alongside the acquisition of Intellibot Robotics that Jerome mentioned, Diversey Care launched an innovative small scrubber, the TASKI 2100 Micro, featuring IntelliTrail, a GPS-enabled remote monitoring tool for TASKI machines. Diversey Care posted an adjusted EBITDA of $41 million, accounting for 8.8% of net sales in the quarter. As expected, currency translation adversely affected our quarterly performance. However, excluding the impact of foreign exchange, adjusted EBITDA rose by 6% compared to the previous year. Additionally, despite flat top line growth in Europe, we achieved record-high EBITDA margins in that region. Besides foreign exchange impacts, we continued to invest in research and development and sales and marketing to spur future growth, which counterbalanced the margin improvements we realized in Europe. We still anticipate a rise in constant-dollar EBITDA and margin expansion for the full year. Slide 9 presents the results from our Food Care division, which had an exceptional quarter. In the first quarter, Food Care sales climbed by 5.8% in constant dollars, with a favorable price/mix of 3.8% and a 2% increase in volume. The countries with the most rapid growth included Australia, the U.K., Russia, Mexico, and Argentina, all of which achieved double-digit growth. Developing regions, including Latin America, AMAT, and Eastern Europe, saw a 15% increase, with Latin America growing by 12% and AMAT by 5%. Both Europe and JANZ reported a 7% rise, while North America grew by 3%. We enjoyed favorable price/mix in nearly every region except AMAT, which saw a slight decline due to an unfavorable mix. Volume trends were positive across all regions, apart from Latin America, which faced pricing adjustments due to currency devaluations. In Europe, we surpassed the protein market's growth, which increased in low single digits, owing to a more favorable mix driven by demand for our new products and our ongoing pricing discipline. We also experienced double-digit growth in equipment solution sales during the quarter. In North America, despite a nearly 6% drop in cattle production, our sales rose in the single digits, driven by increased demand for fresh red meat, due to new product adoption and a focus on value selling. We anticipate that these markets will continue to decline, but at a slowing rate compared to the last 6 to 9 months. Furthermore, we saw robust sales in smoked and processed meats and poultry, both of which were up around 4% to 5% in the quarter. Although we expect these positive trends to persist in pork, we are keeping a close watch on the poultry market following the recent avian influenza outbreak. From a product perspective, I want to highlight that during the first quarter, our Darfresh On Tray package received the Highest Achievement Award from the Flexible Packaging Association's annual Awards and Innovation Showcase. This packaging enhances visibility and extends shelf life for both consumers and retailers, while processors experience improved operational efficiency and a reduction of up to 40% in top film with no material waste. Regarding Food Care's adjusted EBITDA performance, we achieved an adjusted EBITDA of $191 million or 21.7% of net sales, a 20% increase from last year, mainly driven by an improved mix of premium products, pricing strategies, and cost synergies. In 2015, we expect to continue benefiting from the increased adoption of our new products, along with a continued emphasis on value selling, albeit partially countered by currency pressures and formula pricing. Nonetheless, we are on track to achieve adjusted EBITDA growth and margin expansion. Now I'll hand the call back to Carol to discuss our cash flow and outlook. Carol?

Thank you, Ken. Turning to Slide 10. Free cash flow was the source of $63 million for the first 3 months of the year. Excluding the $235 million tax refund received related to the Grace settlement, this compares favorably to a use of $31 million in the three months ending 2014 due to higher earnings and an improvement in operating working capital management. As many of you know, the company focuses its management of operating working capital on a 13-month average target. For the 13-month period ending March 31, 2015, the average for operating working capital as a percent of net sales was 16%. This represents a 230-basis-point improvement compared to March 31, 2014. CapEx was $21 million, and cash restructuring costs were $22 million for the 3 months of Q1 2015. Our updated outlook for 2015 is reflected on Slide 11. We now expect net sales to be approximately $7.1 billion as compared to our previously provided guidance of $7.4 billion. Unfavorable currency is expected to be approximately 9% or nearly $700 million as compared to our previous guidance of approximately 7% or $550 million. Our current outlook assumes a euro rate of $1.10. Additionally, our previous outlook included approximately $200 million in sales for the trays and pads business. This disposition does not qualify under the accounting rules for treatment as discontinued operations. Therefore, prior years and Q1 2015 will continue to include North America trays and pads, but we will have no benefit from this business going forward. Excluding the impact of the divestiture and currency headwinds, we anticipate an organic growth of approximately 3%. This compares to our previous guidance of approximately 2.5%. Adjusted EBITDA is now expected to be in the range of $1.14 billion to $1.16 billion, which compares to our previous guidance of $1.15 billion to $1.18 billion. This reflects a slight reduction for the removal of the trays and pads business, as well as the increased FX headwinds. Currency is now estimated to have a negative impact on adjusted EBITDA of approximately $100 million as compared to our previous forecast of approximately $80 million. If you exclude the FX headwinds and $15 million impact of the divestiture of our trays and pads business, adjusted EBITDA guidance would have been above the high end of our previous range. Adjusted earnings per share is expected to be in the range of $2.08 to $2.15 as compared to 2014 adjusted earnings per share of $1.86. Currency is expected to negatively impact earnings per share by approximately $0.35. Our constant currency earnings per share would be approximately $2.43 to $2.50. Our interest expense for 2015 is now expected to be $245 million as compared to our previous forecast of $255 million. We anticipate our tax rate to be approximately 25% in 2015. We are revising our free cash flow guidance to $575 million from $600 million to reflect the lower adjusted EBITDA forecast and higher CapEx, partially offset by lower cash interest payments. Free cash flow outlook also excludes the $235 million tax refund we received during the first quarter related to the Grace settlement. As Jerome mentioned, owning the campus in Charlotte instead of signing a long-term lease is the right economic decision. The decision has led to an increase in our CapEx budget to $210 million from our original forecast of $180 million, of which approximately $75 million is related to these restructuring activities. While the proceeds from the sale of the trays and pads business and the sale of our Racine facility are not part of free cash flow, they have, in fact, resulted in cash receipts. These proceeds will be reflected in investing activities on our cash flow statement, which sits below free cash flow. During the quarter, we entered into a cross-currency swap for U.S.-based debt to euro-denominated, increasing our euro-based debt exposure to 14% from the previous 4% level. This transaction, combined with higher cash balances, reduces our cash interest payments to $240 million for the year as compared to our previous expectation of $255 million. Other key elements of our free cash flow have not changed. Cash restructuring costs, excluding restructuring CapEx, are still expected to be $120 million. We are on track to recognize $50 million in cost synergies in 2015 from our restructuring efforts. This concludes my prepared remarks. But before I open the call to questions, I would like to remind you that our second quarter earnings call is tentatively scheduled for Thursday, July 30, at 8:30 a.m. We are also hosting our Analyst Day on Thursday, June 18, in New York City. I look forward to seeing you at our Analyst Day and to speaking with you again in the future. With that, operator, can you please open up the call for questions?

I guess my question, Jerome, would be on Diversey Care and the progress you think it's making, particularly whether you think you'll be able to sustain both volume growth and margin improvement in the future. Which regions are you having the most difficulty doing that now?

Thanks, George, that's a great question. Firstly, it's important to note that Diversey Care, which operates outside of the U.S., has been significantly impacted by currency fluctuations. In the first quarter, we experienced a 9% negative translation at the sales level, resulting in a $45 million loss. This has particularly affected us. However, we are now seeing growth in the U.S., where we recorded a 4% increase in sales, which is promising. Our global hospitality market is performing exceptionally well with double-digit growth, and our healthcare sector in North America is also very strong. Currently, we face short-term challenges in Russia and certain parts of the Middle East. The reduction in travel and spending by Russians in the hospitality sector, driven by local political and economic issues, has impacted locations like Dubai and tourism in Russia. We believe this situation will improve over time. Regarding China, Diversey Care saw middle-single-digit growth in the first quarter, which is disappointing compared to our usual double-digit growth, primarily due to slower hotel openings amid the real estate crisis. Nevertheless, we are seeing good growth in local restaurant and quick-service chains. While some international chains are struggling, we are optimistic about improvements ahead. Brazil has been challenging due to economic hardship and currency devaluation affecting the entire company, including Diversey Care. Despite these challenges, I remain positive. We achieved 6% EBITDA growth in constant currency for Diversey Care, driven by substantial innovation. Although the Intellibot startup won't immediately impact sales, it is expected to provide significant long-term benefits for our business, especially in key segments like hospitality and healthcare where we aim to expand.

A question to start out is really around resin. I think there were a lot of concerns that with resin prices or oil falling, you might have to start giving back price, and it looks like in the quarter, that really wasn't much of an issue. Now we're already starting to see resin push back higher, in some cases. So I guess, can you walk us through how the conversations with customers are progressing around that topic and also maybe how to think about the price versus raw material mix going forward over the next couple of quarters?

Let me start with that one, John, and good morning. You've seen what we've been doing on price/mix in the divisions that are heavily affected by resins, specifically Food Care and Product Care. In Food Care, we achieved a price/mix of 2.8% in the first quarter, with the majority being price increase. In North America, the price/mix for Food Care is indeed 2.8%, while globally it stands at 3.8%. In Product Care, globally, the price/mix is 3.4%, and in North America, it's 4.2%. We are actively focusing on pricing, and our customers recognize the value we provide. The key point is that our packaging costs often have a negative impact. This means that the costs associated with damage from broken products in Product Care or food waste due to short shelf life are significantly higher than the packaging cost itself. Therefore, our focus isn't just on reducing packaging costs by small amounts; instead, it's about minimizing food waste and damages. These meaningful discussions with our customers enable us to price based on the value we deliver, which is extremely important. Perhaps Ken can provide additional insights on this.

Thank you, Jerome. From a Product Care standpoint, we experienced 4.2% growth in price/mix in North America in Q1. This is primarily due to our strong pricing discipline in the general packaging segment of our business. As Jerome mentioned, dim weight is becoming a factor in North America, unlike before. Our ability to effectively communicate the value of our packaging is alleviating much of the pricing pressure we face. While there is some pricing pressure, we have managed to counter it by clearly conveying our value. Additionally, we are observing a favorable shift in our mix as we focus on developing higher-performance solutions within our performance packaging portfolio. This combination has certainly benefited us in Q1, and we anticipate that it will continue to do so moving forward.

I just wanted to follow up on John's question, the previous question. Maybe, Ken, to you on the Product Care side, it seems like there's some pretty sizable recent resin inflation in Europe, which has historically been kind of one of the tougher Product Care areas to operate. And I wanted to see how you thought you are equipped to handle that. And then offhand, if you could, I think within the 2% volume decline, how the performance packaging performed.

Al, thanks for that question. In the first quarter, we saw overall price/mix growth in Europe of 2.4%. Unlike North America, where much of that was in price, in Europe, much of it was really in mix. So a lot of movements. We do expect our price to continue to see improvement in Europe, but the mix, the upselling, and the selling value is really where we're seeing benefits in our European business. So our profitability is growing there very rapidly. We're still going through some customer and product rationalization in general packaging, but overall, the effect of some new products and a favorable mix is driving success for us in Europe.

Look forward to seeing the robots in action at the analyst meeting.

You will.

I guess my question is this: Just given all the changes in your portfolio over the past three years, asset sales, customer rationalization initiatives, etcetera, can you give us an updated sense as to how to think about your current volume baseline versus what you think are normalized levels across each of your segments? And maybe we could just start with Protective Packaging, just given your guest speaker there.

We are currently evaluating our volume and identifying what is effective. Our anticipated growth is coming from the investments we are making in innovation across our business. By maintaining a disciplined approach to pricing, we are witnessing sales growth. Additionally, we are beginning to understand how we can achieve sustained volume growth, driven by new products and our strong product portfolio in performance packaging. This portfolio is the most comprehensive we’ve ever had, and we believe it will propel us forward. The dedicated e-commerce sales team also plays a crucial role in this growth. In terms of market strategy, we are shifting from focusing primarily on products to concentrating on markets. We are increasing our resources in e-commerce, third-party logistics, and electronics, which are growing at a rate faster than the overall market. While our volume trends reflect these changes, it’s crucial to highlight that, apart from our rationalization efforts, we are still seeing healthy single-digit volume growth.

On the Food Care side, we experienced significant volume growth in the first quarter, with sales in Australia increasing by about 12%. However, this growth is not sustainable due to the extremely high cattle kill rate at this time, which is expected to decline in the coming quarters and may slightly impact our sales. Overall, we are pleased with the North American chicken market, which has shown strong growth, aided by numerous new product launches. Our Darfresh product was successfully introduced in Europe and will launch in North America in the second quarter, while our Optidur line is also set to expand in the U.S. soon. We achieved notable volume penetration in Russia despite a challenging environment in Eastern Europe. Looking ahead, we anticipate a slight increase in volume later in the year compared to current levels.

It's James Armstrong for Chip. My question is on the CapEx. According to Slide 11, it's up about $30 million. Could you help us with the total cost of the Charlotte campus and how this spending will flow? And offsetting that, what are the proceeds of the Racine, Wisconsin building sale and also the trays/pads business?

We won't be providing details on the trays and pads business at this moment. We did mention in the cash flow statement that it’s around $25 million, and there could be an additional amount that will come into play from an escrow account when we leave the building later this year. So, it’s about $25 million. Regarding the total value of the Charlotte campus, it's estimated to be around $120 million, with part of that being paid in 2015 and the rest in 2016.

This is Alex Hutter on for Phil. In Product Care, can you talk about the margin differential in general versus performance? And maybe help us quantify that. And then how do you see that progressing with the 60-40 split you talked about as you move towards your longer-term margin goals?

Okay, great question. I will say that performance packaging has better margin performance than general packaging, which is why we're emphasizing that space. We are putting more resources into our performance packaging business across the globe to drive its growth, and we are working on rationalizing our general packaging business to ensure that we have the right total cost, that we have the best cost to serve in that market space. Also say with the strategy, we're able to focus on critical growth sectors in e-commerce, 3PL, and electronics. Some of that does lift general packaging, but it lifts the growth part of general packaging as our system solutions, paper systems, inflatable bubble are our higher-value systems in general packaging.

This is Gabe. Carol, I have a question for you regarding CapEx. What part of the CapEx guidance is allocated for the new Charlotte facility? If I take the $75 million in restructuring costs out of the $210 million total, I'm left with $105 million. Can you tell me what the maintenance CapEx is, and also include any return-oriented capital? Additionally, could you share where some of that spending is occurring by region or product line?

Thank you, Gabe. The increase in CapEx from our previous $180 million to $210 million is primarily driven by the new campus in Charlotte. This will account for our spending in 2015. It's important to note that the decision is economically sound for several reasons, one of which is that this campus will house our largest R&D center. The cost of an R&D center is significantly higher than that of a standard office building, more than double the cost. While we will benefit from this investment, it complicates leasing, as no lessor would want to finance it due to its non-transferability if we vacated the premises. The cost in a net lease scenario would have been much higher than our cash costs, even with interest. At the end of the lease, we would own nothing, while this investment will allow us to own a valuable asset that will help attract talent and support innovation and growth. Regarding maintenance CapEx, it is slightly under $100 million. Everything from $100 million to $180 million this year, including restructuring investments, is expected to provide a positive return for the company. We are continuously investing to enhance product quality and innovate, such as with the Darfresh On Tray. Additionally, we are ensuring our assets are strategically located in growth regions. We anticipate our growth to be especially strong in developing areas like Asia-Pacific, Eastern Europe, and Latin America, which are key focuses for our investments.

I'm just curious, Carol, kind of following on CapEx. As growth continues to accelerate offshore and in some of those emerging markets, are you going to need to increase kind of the capital budget to fund that growth on new sites?

No, thank you, Mark, and good morning. Actually, we have always indicated that we expect our capital expenditures to be around $200 million a year. This amount gives us ample room for maintenance, quality, and innovation investments, which we do not anticipate changing. Next year, we will have a slightly higher capital expenditure due to the restructuring we have communicated, which will also include the remaining investments for the Charlotte campus. However, we believe that $200 million is sufficient to support our current business. Typically, our spending is well below that, excluding any restructuring costs, and we maintain healthy investments in innovation. Additionally, the Diversey Care business is characterized by low capital intensity. When comparing our capital expenditure requirements to many of our peers, we have a significantly lower investment requirement relative to our total operating costs while achieving some of the highest returns in the industry. Therefore, in terms of maximizing the value from our capital, we rank very highly.

Jerome, a couple of questions, if you haven't touched on this before. One, can you tell us what the EBITDA was for the trays business that was sold?

Well, Alex, what we have shared is that Jerome noted early in his comments at the beginning of the call that the business was facing a lot of competitive pricing pressure and had quickly become commoditized due to certain low-value entrants in the marketplace. As a result, the business was on track to go below a 10% fully burdened EBITDA margin. It had performed higher than that in the past, and what we communicated regarding our guidance is that removing the pads and trays business has led to a reduction in our estimated adjusted EBITDA for the full year of about $15 million.

So the reason for this disposition is fairly obvious. That's not the kind of company I want to have or portfolio I want to have. If you produce those trays, you have to have state-of-the-art manufacturing equipment, which we didn't have, and you have to have a very lean company with no R&D and with no service. That's not who we are. We are fastly moving towards becoming a knowledge-based company, which is selling value. And this is why, interestingly enough, you're seeing in the same quarter, a disposition of a commodity product and an acquisition of a technology. And you're going to see the same trend in terms of acquisitions in the future, startups or specific technologies which are going to help us become who we want to become.

Maybe just a follow-up for Ken, referencing the dedicated e-commerce sales force. I was wondering if it's possible to give any color in terms of the level of growth you're seeing in e-commerce. Maybe to ask the question in another way, I think at the Analyst Day, you said e-commerce was about 12% of segment sales. With the growth that you've been seeing there and the rationalizations in general use packaging, is there a way to kind of size what percentage of Product Care could be e-commerce in the next couple of years?

Anthony, that's a great question. We are currently assessing the size of e-commerce, and we’re encountering some challenges in defining it accurately. Many entities claim to be part of the e-commerce space when they are not. We are focusing on value-added warehouse and distribution companies that can utilize our small parcel packaging solutions for fulfillment. We have allocated dedicated resources in North America, Europe, and China specifically for e-commerce due to its rapid growth. Moreover, this growth is coupled with a surge in sophistication; the packaging needs have evolved from merely seeking the lowest-cost options to requiring an experience that extends the retail environment. Consequently, we are investing more resources into this area. E-commerce is expanding at a faster rate than the overall market, warranting our attention. It is also reaching a maturity where our value proposition and performance packaging solutions are starting to gain traction, an area where we historically faced challenges. Thus, we are committing a substantial amount of resources specifically to this market initiative.

I have a two-part question. In your cash flow statement, you indicated that you purchased 69 million shares by the end of the quarter. This suggests you have about 20 million remaining for the rest of the year. First, is it safe to assume that you have mostly utilized this remaining capacity in April? Secondly, does reaching a point of limited capacity for buybacks alter your perspective on the costs associated with refinancing those higher expenses? Additionally, how does the board evaluate the costs compared to the potential delay in using that excess cash while maintaining leverage between 3.5x and 4x?

Thank you, Brian. So at this point, we have used just about all of our restricted payment baskets. And as I noted in my prepared remarks, we were committed to this 3.5x to 4x leverage target. We feel like it is the optimal level. And based then on our cash flow guidance and our strong cash flow-producing capabilities, we will be looking for options to return value to shareholders. As we have shared in the past, we look at kind of a net present value impact in terms of refinancing. When we get within probably a 50-basis-point differential, knowing that interest rates can move one way or another, we will take a slightly negative impact. And rates have been very attractive, so we are looking more frequently at our opportunities to be able to return value to shareholders.

Thank you, everyone, for joining our call today. Operator, I'll pass the call back to you now.