SEE Q1 2025: Protective Volume Decline Narrows to 4% as Churn Laps, Margin Leverage Emerges

2025-05-06 | By EarningsIQ Research

SEE’s Q1 revealed early traction in its protective turnaround, with volume declines moderating and cost actions driving margin expansion despite softer sales. The company’s dual-segment reorganization is showing operational benefits, especially as customer churn in protective laps and North America stabilizes. Management reaffirmed full-year guidance, balancing tariff mitigation and cautious volume assumptions amid persistent macro and trade policy uncertainty.

Summary

• Protective Stabilization: Volume declines narrowed as churn lapped, indicating progress in turnaround efforts.
• Margin Lift from Cost Actions: Productivity and supply chain integration offset sales softness, expanding margins in both segments.
• Visibility Remains Low: Management maintains guidance, citing tariff mitigation but highlighting persistent demand and policy uncertainty.

Performance Analysis

SEE’s first quarter performance highlighted a disciplined focus on cost control and operational restructuring amid ongoing top-line pressure. Total sales declined modestly, with the food segment posting slight organic growth and protective experiencing a more pronounced, but improving, volume drop. The company’s cost and productivity initiatives delivered a notable margin uplift, as adjusted EBITDA margin expanded by 80 basis points year over year, even as overall net sales fell. This margin resilience was achieved despite flat pricing at the enterprise level, with protective facing continued price pressure offset by incremental gains in food.

Within food, net sales grew organically as pricing actions and pass-through mechanisms supported results, though North America remained flat and Asia saw declines. Protective’s sales declined 8% organically, largely due to a 6% volume drop concentrated in North America. However, volume losses are expected to moderate further in Q2 as large customer churn is now fully lapped. Free cash flow was negative in the quarter due to incentive and tax payments, but leverage improved to 3.7x, with a clear path toward 3.0x by 2026.

• Protective Volume Decline Moderates: Volume down 6% in Q1, expected to improve to down 4% in Q2 as churn laps.
• Food Margin Strength: Segment margin rose to 23.8%, up 200 basis points, driven by cost takeout and productivity.
• Cash Flow Usage Expected: Q1 free cash flow negative on incentive and tax timing, but liquidity remains robust.

Operational leverage from supply chain integration and cost actions is now visible in segment margins, setting a stronger foundation for the second half despite lingering macro headwinds.

Executive Commentary

Strategic Positioning

1. Dual-Segment Realignment Drives Accountability

SEE’s return to dedicated food and protective business units, each with integrated supply chain and commercial teams, has improved responsiveness and accountability. This structure enables tailored strategies for each market, facilitating faster adaptation to volatility and clearer ownership of outcomes. The company’s incentive alignment and leadership refresh are also fostering a growth and ownership mindset across the organization.

2. Protective Turnaround Gains Traction as Churn Laps

Protective’s volume declines are narrowing as the Amazon-related churn is now fully lapped. The North American go-to-market overhaul, with investments in field sales and customer engagement, is reducing churn and improving customer feedback. EMEA and Asia are stabilizing or growing, shifting the focus to North America for further improvement. Management sees opportunity to win back share and drive operational leverage as transformation initiatives take hold.

3. Food Segment Resilience and Portfolio Breadth

Food continues to show resilience amid protein market volatility, with growth in case-ready solutions and a diversified protein packaging portfolio. The business is positioned to benefit from consumer trade-downs, as Cryovac, fresh protein packaging, covers a wide range of proteins from premium beef to poultry and processed meats. International markets, especially Australia and Latin America, are offsetting U.S. softness, and dairy packaging is a growing opportunity in Europe and Oceania.

4. Tariff Mitigation and Supply Chain Flexibility

SEE’s predominantly domestic-for-domestic production model shields it from direct tariff shocks, while proactive supply chain adjustments and pricing actions further limit exposure. The company is leveraging USMCA, United States-Mexico-Canada Agreement, exemptions and shifting sourcing as needed. Where exposure remains, especially in food, contract structures enable pass-through pricing, and ongoing mitigation efforts are in place for potential future policy shifts.

5. Cost Structure Optimization Fuels Margin Expansion

Cost takeout and productivity initiatives, including back-office shifts and network optimization, are delivering margin gains and freeing up resources for growth investment. Management is targeting $90 million in cost savings this year and is evaluating further opportunities for the second half, balancing efficiency with customer-facing investment to maintain service levels and agility.

Key Considerations

SEE’s Q1 marks a pivotal phase as its transformation efforts begin to translate into operational and financial traction, but the macro and trade environment remain fluid, requiring continued vigilance.

Key Considerations:

• Protective Churn Lapping: Large customer churn, particularly the Amazon fill-air exit, is now fully lapped, setting the stage for sequential volume improvement.
• Margin Expansion from Cost Actions: Supply chain integration, productivity, and cost takeout are driving segment margin gains, even as sales remain pressured.
• Tariff and Trade Policy Uncertainty: Ongoing global tariff shifts and USMCA exemptions require continuous supply chain adaptation and pricing vigilance.
• Food Segment Mix Sensitivity: U.S. protein market volatility and potential consumer trade-downs could shift mix, but SEE’s broad portfolio provides flexibility to capture demand across protein categories.
• Balance Sheet Deleveraging: Despite Q1 cash flow usage, SEE is on track to reduce leverage to 3.0x by end of 2026, supporting long-term capital flexibility.

Risks

SEE faces persistent risk from macroeconomic softness, especially in industrial and fulfillment end markets, as well as ongoing trade and tariff uncertainty that could disrupt supply chains or pressure volumes. While management’s mitigation efforts have minimized direct tariff exposure, downstream demand impacts and competitive pricing pressure, particularly in protective, remain material concerns. Visibility into the second half is limited, and further deterioration in consumer or industrial sentiment could challenge volume recovery and margin preservation.

Forward Outlook

For Q2 2025, SEE guided to:

• Net sales of approximately $1.3 billion
• Adjusted EBITDA of $270 million
• Adjusted EPS around $0.71

For full-year 2025, management reaffirmed guidance, reflecting:

• Tariffs in effect and mitigation efforts
• Modest volume softness in both segments, offset by a more favorable FX outlook

Management emphasized that second half performance will depend on evolving trade policy, macro demand trends, and the realized impact of ongoing cost and productivity initiatives. Further visibility is expected by the next earnings call.

• Protective segment expected to improve as churn laps and transformation gains traction
• Food segment stability outside U.S. and China, with watchpoints on U.S. protein mix

Takeaways

SEE’s Q1 demonstrates early operational wins from its transformation, but the path forward is shaped by external volatility and the company’s agility in execution.

• Protective Turnaround Progress: Volume declines are moderating, with North America stabilizing and international regions showing growth or stabilization, reflecting the impact of transformation efforts.
• Margin Expansion Outpaces Sales Softness: Cost and productivity gains are translating into higher margins, even as top-line pressure persists, underscoring the effectiveness of supply chain and organizational restructuring.
• Second Half Hinges on External Dynamics: Investors should monitor trade policy developments, macro demand signals, and SEE’s ability to sustain cost discipline and volume recovery, especially in protective.

Conclusion

SEE’s Q1 2025 marks a turning point for its protective segment as volume declines narrow and margin leverage emerges from transformation efforts. The company’s dual-segment structure and cost discipline are delivering tangible results, but the outlook remains closely tied to macro and trade policy developments. Continued agility and customer-centric execution will be crucial in sustaining momentum through the second half.

Industry Read-Through

SEE’s experience highlights the critical value of supply chain localization and segment-focused organizational structures in navigating tariff volatility and shifting demand. The narrowing of protective volume declines and lapping of major customer churn is a signal for the broader packaging and industrial supply sectors that transformation efforts can yield measurable improvement, even in challenging markets. Cost takeout and operational agility are proving to be key levers for margin preservation, with implications for peers facing similar macro and trade headwinds. The company’s ability to pass through costs and flex its portfolio mix in food packaging also offers a roadmap for competitors managing consumer trade-downs and protein market volatility.

SEE Materials Packaging Transformation Protective Food Packaging Tariffs Margin