Sealed Air Corporation Q2 2010 Earnings Call Transcript

Jul.28.10 | About: Sealed Air (SEE)

Sealed Air Corporation (NYSE:SEE)

Q2 2010 Earnings Call

July 28, 2010 11:00 am ET

Executives

Amanda Butler - Director of IR

William Hickey - President and CEO

David Kelsey - SVP and CFO

Analysts

Sara Majers - Wells Fargo Securities

Richard Skidmore - Goldman Sachs

Peter Ruschmeier - Barclays Capital

Rosemarie Morbelli- Ingalls & Snyder

Mark Wilde - Deutsche Bank

Al Kabili - Macquarie

Ariel Avila - JPMorgan

Stewart Scharf - Standard & Poors

Operator

Good morning, everyone, and welcome to the Sealed Air conference call discussing the company's second quarter 2010 results. Leading the call today, we have William V. Hickey, President and Chief Executive Officer; and David H. Kelsey, Senior Vice President and Chief Financial Officer. After managements' prepared comments, they will be taking questions. (Operator Instructions)

And now, at this time, I'd like to turn the call over to Amanda Butler, Director of Investor Relations.

Amanda Butler

Thank you, Pam, and good morning everyone. Before we begin our call today, I'd like to remind you that statements made during this call stating management's outlook or predictions for the future are forward-looking statements. These statements are made solely on information that is now available to us. Our future performance may be different due to a number of factors. Many of these factors are listed in our most recent annual report on 10-K, which you can find on our website at sealedair.com.

And now, I will turn the call over to Bill Hickey, our CEO.

William Hickey

Thank you, Amanda, and good morning, everyone. During today's call, I will be highlighting our business performance for the second quarter, and Dave will discuss details of our financial results. After Dave's remarks, we will take your questions both from the phone lines and via text on our webcast. I understand that this morning is a busy morning for earnings releases, so we'll try to move along very smartly.

Yesterday evening, we reported a 15% increase on our second quarter earnings per share of $0.38. Excluding $0.03 related to foreign currency exchange gains from our Venezuelan subsidiary in 2010 and a $0.01 impact from GMS in 2009, we reported a 3% increase on our adjusted EPS to $0.35 per share in the quarter.

As a reminder, we have elected to exclude any foreign currency translation, gains or losses, from Venezuela in 2010 due to the significant currency fluctuations in that country. We did, however, have a $0.02 foreign exchange loss in the quarter, which is reported in other income. And excluding that item, which records we're responsible for, on an operating income basis, we're essentially in the line with the consensus of last year estimates for the second quarter.

Sales increased 6% to $1.1 billion, reflecting approximately 5% higher volume and 3% favorable foreign exchange, which were partially offset by 1% lower price mix.

Our Protective Packaging segment stood out in the quarter with strong 12% volume growth. While volume growth in our Food Packaging segment was modest in the quarter, it exceeded customer production volumes during the same period.

Total company price mix remained below last year's level, but we did see marked improvement in the second quarter as we started to see the benefits of our April pricing actions later in the quarter. Although been official, the price increases did not offset the surge in resin costs that we experienced in the quarter when resin prices peaked in the month of April in most regions.

In light of these factors, our business demonstrated solid growth in the second quarter in several areas. First, our industrial packaging business volume growth was stronger than expected and above normal seasonal trends. Looking at protective packaging, North American volumes increased 10% and Europe achieved a solid 11% volume growth. We expected this level of growth to moderate slightly in the second half of the year, primarily due to the year-over-year comparisons.

Additionally, we are seeing strong reception of new solutions and technologies like our CT-301 Shrink Film where our new proprietary technology is extending our range of offerings and bringing us new customers. We will be reinforcing this product line with two additional launches later this year. So we're very excited about the growth prospects in shrink films and where we can extend this exciting new technology across our broader product portfolio.

We have observed significant growth in equipment demand with a 36% sales increase in equipment, which includes a 3% favorable impact from foreign exchange. This order rate currently exceeds production rates, reflecting solid backlogs going into the third quarter. Additionally, orders appear to largely reflect new installations versus replacements, which suggest that these equipment sales will lead to future incremental material sales opportunities.

Developing regions grew in the quarter, both on a year-over-year and the sequential basis. Our China sales were a little weaker, which you may have seen in our financials under the Asia Pacific region, but this was expected due to pre-buying in our medical business in the first quarter, as customers built inventory ahead of our formulation license renewal.

Overall, we saw solid growth throughout the quarter in countries like Mexico, Brazil and Southeast Asia, as our businesses did not see any economic weakness or slowdown in these economies. We believe that this growth remains on track through the balance of the year.

Europe has been a topic of much interest in the last few months, and I have to say that we are encouraged by the solid 5% volume growth rate in the region, which was largely driven by our industrial packaging business, but also by a 3% volume growth rate in food packaging.

So we believe we have turned the corner in the second quarter and our daily sales reports through late July support this view and as we are already saying, improved food volumes and ongoing growth in industrials and in the developing regions. We continue to be excited about the second half of the year and expect to accelerate sales and earnings going forward.

Before we discuss our earnings guidance, I'd like to highlight a few key points on each of our primary business segments. As I mentioned earlier, the food packaging business exceeded customer production rates with modest growth in the quarter in the first half of the year.

Looking ahead, the full year prospects look solid, with industry data suggesting North America beef production up 4% to 5% in the second half of the year. This compares to a minus 1% to minus 4% customer production rates in the first half of the year. Additionally, contract price adjustments to recover higher resin costs go into effect in the third quarter. Thus our second quarter price remained unfavorable on a year-over-year basis.

We excelled in two key areas in the quarter. First, equipment sales were up over 39%, which includes a 4% favorable impact from foreign exchange; and secondly, 8% volume growth in Latin America where our team did a solid job throughout the quarter by expanding the presence of our product lines in this important region.

Looking at developing regions, the business saw no slowdown in economies like Brazil, Mexico and China related to food packaging demand, and we anticipate that trend going forward. So looking ahead, a pickup in customer production volumes, new customer contracts, incremental price, and continued success in shifting pilot projects into commercial sales around our recently launched solutions are expected to bring mid to upper single digit percent constant dollar sales growth in the second half versus the prior year.

The food solutions business continued to experience improvement in the quarter, with a 1% volume increase, with the strongest demand occurring in June and in the Asia-Pacific and European regions. We were pleased to see that European performance improved both year-over-year and sequentially with a 4% sales increase over the first quarter.

The primary drivers behind the pickup in sales in Europe are from solid volume growth in our ready meals portfolio related largely to pizza and to equipment demand. Although European case ready sales were not ahead of last year, the region did see improved demand in the portfolio due to an expanded development program for whole chickens in the Middle East, and ongoing market growth in our Mirabella and Darfresh formats.

Also in the quarter, we saw signs of consumers starting to return to more convenience oriented and higher-priced point products at retail. This reinforced our view that the food industry is starting its slow recovery process.

Looking closely at the two primary product portfolios, case-ready and vertical pouch packaging, first, case-ready sales decreased by 1%, which included a 1% unfavorable impact from foreign exchange. However, we did see an 8% sales increase in case-ready in North America, and over a 20% increase in case-ready in Latin America, as our market programs continued to expand the products' presence in these parts of the world.

A great example of this type of growth is in the Americas, where in Canada, we have just launched case-ready with two large retailers, one of which is a division of a leading multinational retailer. This growth in the Americas was offset by weakness in Europe, which I previously indicated.

Number two, vertical pouch packaging showed the greatest growth this quarter in this segment as sales increased 5% which included a 1% unfavorable impact from foreign exchange. Growth was strongest in North America and the Asia-Pacific region, where sales increased by over 30%.

Looking ahead to the second half, we expect this segment to see similar constant dollar sales growth as our food packaging business. Improving retail conditions, combined with incremental price from both second quarter and early third quarter increases will help drive top-line growth, so also will ongoing successful market growth of our case-ready products in developing markets like Russia and the successful transition of pilot projects into commercial sales.

As you saw in our financials, protective packaging segment was a standout segment this quarter, as the business drove over two-thirds of our volume growth. When looking at the 12% volume growth versus the prior year, I am pleased to report that volumes are up at all regions of the world, including the 10% and 11% increases in North America and Europe, which I discussed earlier.

I also would like to point out that the segment saw approximately 20% growth in Latin America and in Asia-Pacific region, as the business continued to develop new customer relationships. Interesting, European growth was broader than most would have expected, including growth in countries like Portugal and Spain.

Naturally, the strongest sales increase was achieved in Northern Europe, Scandinavia, France and Germany, where the industrial output remained solid. Contributing to the growth was our very successful new product programs, which are getting strong reception and selling above both planned and prior year rates.

These new products include our Instapak complete and (Fastfill) packaging solutions. Additionally, we have achieved strong growth in proprietary solutions such as our traditional Instapak foam-in-place product and in Korrvu suspension packaging.

Looking ahead to the second half of the year, we're expecting constant dollar sales growth in the high single digits as we see ongoing benefits from the economy, new solution sales, and both our April price actions and the European price announcement issued this month.

To wrap up before I hand the call to Dave, I would like to reaffirm our full year EPS guidance which is a $1.48 to $1.68 on a reported basis, or $1.50 to $1.70 if adjusted to exclude a $0.02 charge related to the GMS program.

As I stated earlier in the call, the first half year surge in raw materials and slower food customer production volume are both abating, and second half 2010 results are expected to outperform our first half performance. This positions us to achieve a full year EPS within the mid range of our earnings guidance.

As I mentioned, ongoing modest improvements in the economy, combined with accelerated constant dollar sales from product adoptions and the benefits of our pricing actions will be the key drivers to this growth.

Additionally, we assume foreign exchange to be a net positive by 1% to 2% for the full year. We also see additional benefits from our steadfast commitment to innovation throughout the economic downturn. During this time, we have been developing a strong pipeline of proprietary technologies and applications that have been in development with customers for several quarters now.

We expect to start commercializing many of these in late 2010, as several projects reach market stage and are positioned to generate value for our business.

At this point, I am going to turn the call over to Dave to review some additional details on our financial performance and our liquidity.

David Kelsey

Thank you, Bill. As presented in the financial statements that accompanied our release, sales were $1.089 billion for the quarter. Moving down to P&L, gross profit for the quarter increased 4% or $12 million to $301 million. Excluding favorable currency translation of $7 million, gross profit would have been $5 million higher than 2009.

Gross profit growth was largely driven by volume growth in the industrial businesses, which Bill previously touched upon. Also contributing to our higher gross profit were benefits realized from our supply chain productivity improvements and from the benefits of producing products in our new, low-cost facilities in developing regions.

These benefits were partially offset by approximately $45 million of increased resin cost and $13 million of unfavorable price mix compared to last year. Second quarter marketing, administrative and developmental expenses increased 1% or $2 million to $172 million. Excluding unfavorable foreign currency translation of $3 million, these expenses would have remained flat.

The higher sales volumes that we achieved in the quarter required higher sales and marketing support costs, which were offset by lower provisions for variable incentive compensation expenses, mainly due to revenue levels in our food businesses and the impact of higher resin cost. We are still estimating operating expenses to be 16% to 17% of net sales for the full year, in line with our guidance at the beginning of the year.

Operating profit was $129 million, or 11.9% of revenue. After adjusting for $4 million of favorable foreign currency translation, operating profit would have been $7 million higher than 2009. Our industrial businesses reported a combined 52% increase in operating profit as compared to last year, which was offset by a combined 5% decline in operating profit in our two food businesses.

We expect the operating profits of our food businesses to improve in the third quarter, as we realized benefits from our previously announced pricing actions in contract pricing adjustments, as well as the volume opportunities that Bill mentioned.

Interest expense increased by $3 million in the second quarter of 2010 compared to 2009, reflecting additional interest of $7 million on the 7-7/8% notes issued in June of last year, partially offset by a reduction of $4 million resulting from the redemption of the 3% convertible notes in July of last year.

As mentioned in our press release, we recognized $7 million of foreign currency exchange gains related to our subsidiary in Venezuela. Due to the unpredictable foreign currency environment in Venezuela, with the resulting (Bolivar) fluctuations in exchange rates, we are excluding any gains or losses we may recognize related to these changes in exchange rates from our adjusted earnings per share. While this exchange gain is sizeable, our Venezuelan subsidiary represents less than 1% of our consolidated revenues and our consolidated assets.

Other expense was $3 million in the second quarter. This amount includes net foreign currency exchange losses, primarily relating to an inter-company loan we are in the process of paying off.

I'll now conclude with some key cash flow and balance sheet items. Cash and cash equivalents increased $36 million in the second quarter to $663 million at June 30. During the quarter, we paid dividends of $19 million and invested $11 million in our previously announced new facility in Brazil designed for expanded capacity.

In the quarter, we also used $8 million to complete a small bolt-on acquisition which provides us with the opportunity to develop a new unique technology platform, offering both cost savings and revenue growth opportunities for existing and new proprietary applications.

As this is a technology investment, we anticipate an ongoing development phase in 2010 and expect the initial commercialization of products in 2011.

Our receivables remained flat from March 31, 2010 on a reported U.S. dollar basis. Excluding foreign currency translation of $22 million which reflects the declining euro in the period, our receivables increased $23 million, in line with our increases in sales volume.

Inventory investment increased $10 million during the quarter. Excluding foreign currency translation of $13 million, also mainly due to the weakening euro, inventories increased $23 million. At June 30, inventory levels were higher in North America and Europe, mainly in our food businesses, reflecting peak resin costs in April and a buildup of inventories in anticipation of increased sales volumes from normal seasonality in these businesses.

Debt, net of cash, and cash equivalents at June 30 was $921 million, down $33 million from March 31 of this year. Also at June 30, we had no amounts outstanding under our global or European credit facilities, or our accounts receivable securitization program. Our available committed borrowing capacity was $750 million at June 30 of 2010.

As shown in the supplemental information with the financial statements, we generated $181 million of free cash flow in the first six months of 2010. Cash flow from operating results was comparable to last year, but working capital swung to usage from the source last year as we responded to the recovery of the global economy.

We continue to expect free cash flow to exceed $300 million in 2010. And as we noted in our press release this morning, we did announce a dividend increase that is going to be a modest additional payout that will not in any way affect our ability to exceed the free cash flow targets of $300 million.

Capital investment in the first six months was $4 million lower than 2009 as work is completed on three new plants we opened in developing regions as part of our GMS program.

Our total year capital investment for 2010 is still expected to be in the range of $80 million to $100 million to be used for a combination of maintenance and growth projects. This range includes our recent investment in Brazil, and is consistent with our annual investment before commencing our GMS projects in 2006.

Finally, our current available liquidity and our projected free cash flow position us to fund both our day-to-day operations and the W.R. Grace settlement, should it become payable within the next 12 months.

Now I'll turn the call back to Bill and to your questions.

William Hickey

Operator, can we open the call now to questions from the participants? And we'll follow-up with any text questions from our webcast participants as well.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question will come from the line of Ghansham Panjabi from Robert W. Baird.

Unidentified Analyst

Good morning. It's actually (Matt Wooten) sitting in for Ghansham. For your present increases, they are going to be implemented in July or are they going to be layered in throughout the months of Q3?

David Kelsey

Depending on the various adjustments in contract placing, and they go through July to October, I think the list I saw. So actually (inaudible) goes in the fourth quarter.

Unidentified Analyst

And then as a follow-up, the improvement in Europe, is that a function of market recoveries in those regions, share gains, combination of both?

David Kelsey

It's probably both. I was looking to Spain. They get better after the World Cup. And hopefully that part of add-back was rather late in the quarter to have any impact.

Operator

Your next question will come from the line of George Staphos from Bank of America.

Unidentified Analyst

It's (Benjamin Wong) sitting in for George. Bill, thanks for the color on the beef production. Can you talk about the outlook for perhaps beef consumption for the rest of the year?

William Hickey

Yes, I think our numbers, depending on who you look at, it's up somewhere between 2% and 5% depending on which of the (exports) you look at. The number we are using is about 4 in our outlook, and I say the range is 2 to 5 depending on who you look at, and that's compared to being down in the first half.

Unidentified Analyst

And as a follow up, can you provide any additional details on volume trends in protective, maybe parse it out by the different product lines?

William Hickey

Actually I looked at the product line growth this morning, and they were particularly good across all parts of the business. Actually my favorite product Bubble Wrap was up 13% in the quarter. That's the one that I remember. I think Mailers were up a bit. Instapak was probably the slowest growth of the group. The Instas were high. Instapak was probably still close to 10% though. I think Amanda has those numbers here. By and large though, the range of growth across Protective was pretty well across the range of products.

Operator

Your next question will come from the line of Sara Majers from Wells Fargo Securities.

Sara Majers - Wells Fargo Securities

I may have missed it, but did you tell us the incremental resin costs in the quarter?

David Kelsey

It was about $45 million dollars.

Sara Majers - Wells Fargo Securities

Okay, and that's versus this last year or this quarter?

David Kelsey

That's the year-over-year increase.

Sara Majers - Wells Fargo Securities

And just a follow-up, how much of the margin contractions in packaging do you attribute to the lagging recovery of price versus what might be attributable to productivity or volumes?

David Kelsey

I would say that most of it is price related, given the way the contracts layer in, sometimes as long as an annual reset basis. So there does tend to be a 3 to 6 month lag on average to movements in resin prices. Well, volume was not up significantly in the food business, it was up modestly. So we really didn't see a change in the overall productivity in the manufacturing operations in those businesses.

Operator

Your next question will come from the line of Richard Skidmore from Goldman Sachs.

Richard Skidmore - Goldman Sachs

Just like to focus on W.R. Grace for a moment. Any update on potential timing? And can you add any color on how W.R. Grace impacts your results sequentially? I think it's a couple of pennies a quarter, but just wanted to clarify.

William Hickey

Yes, let me just go through. There's still no date certain. I think the message is, they are positive. I think Grace actually had a conference call for their earnings release last week or so ago, and they sort of indicated this was their sort of first step to becoming a public company. So read the tea leaves.

I also understand that Grace has signed up to present their financial investors conference in September. Again, read the tea leaves. We are watching closely, but we don't have any certainty as to when that will be. In the meantime, we do carry the $40-odd million of interest cost per year on an ongoing basis. And I think the number is somewhere between $0.10 and $0.13 depending upon how you figure the taxes on that. But that's about the range. I think we said a penny a month and that probably rough number is about reasonable.

Richard Skidmore - Goldman Sachs

And then just to follow-up. You just raised your dividend a little bit with this press release. But is there any thought to maybe more aggressively returning cash to shareholders before the W.R. Grace settlement or would you really want to wait until that gets settled before doing something more meaningful with regards either to the dividend or share repurchase?

William Hickey

Let's just say, stay tuned.

Operator

The next question will come from the line of Peter Ruschmeier from Barclays Capital.

Peter Ruschmeier - Barclays Capital

Just a follow-up with the previous question. Have you included any benefit in your $1.50 to $1.70 ex-GMS from lower interest expense?

David Kelsey

No. I think we say that are our outlook for the year excludes any impact from finally settling the Grace matters.

Peter Ruschmeier - Barclays Capital

And just on a higher level, I guess in terms of looking at the second half of the year, you talk about prices being up, strong volumes, resin costs presumably will be down sub-magnitude. In light of these positives, I am curious if you could highlight perhaps some of the negatives that would enable you to get to the bottom end of your range, because we are having a hard time getting at the bottom end of your range.

William Hickey

You do have a sort of provide for that probability, although I don't think it's high. If you listen to the former Fed Chairman, you could go back again and something unpredictable on resin. I think those would be the things that I would say are path downside risks.

Peter Ruschmeier - Barclays Capital

Right. But there is nothing specific as it relates to startup costs in Brazil or anything unusual about costs?

William Hickey

No, nothing in our own business.

Operator

Your next question will come from the line of Rosemarie Morbelli from Ingalls & Snyder.

Rosemarie Morbelli- Ingalls & Snyder

Dave, could you give us a better feel as to where the equipment sales are going, any particular category that is stronger than another?

David Kelsey

I think they are all up, Rosemarie. What surprised me was Europe. Actually what surprised me very much is that European equipment sales are up, but I understand there are some tax incentives by some of the authorities in Europe that are helping to drive interest on our customers to increase investments in equipment. But I can't sing aloud any particular category. And of course, equipment affects both the food packaging, the food solutions and the protective business, all of which have the equipment components. And I don't have the breakdown of what that 36% is by segment, but I'd say it's up across the board.

Rosemarie Morbelli- Ingalls & Snyder

Okay. So you are not selling more equipments for food applications than you are in protective, for example?

David Kelsey

A little bit more, but not much.

Rosemarie Morbelli- Ingalls & Snyder

Okay. Looking at the operating margin, protective at 14.1%, is that a sustainable level or can you improve further from that? And regarding the food packaging, can you get back to the average of 14% you had in 2009 by the end of this year?

David Kelsey

We are looking to improve both of them, Rosemarie.

William Hickey

And the whole management team is committed to improve both of those.

Rosemarie Morbelli- Ingalls & Snyder

So we should not see for protective anything lower than the 14% in this quarter?

William Hickey

My crystal ball is obviously not perfect, but as we increased volume, the protective business is very leveraged to volume.

Rosemarie Morbelli- Ingalls & Snyder

Can you get that particular business in optimum conditions? Do you have a feel for that?

William Hickey

If you go back to 2006 or '05, in that range, it was 16.3% or 16.4%. So that's the good bogie out there.

Operator

And you next question will come from the line of Mark Wilde from Deutsche Bank.

Mark Wilde - Deutsche Bank

Just curious when you talked about the European strength, particularly in protective, is there any way to get a sense of how much of that is sort of consumer non-durables driven versus sort of durable goods, because we hear a lot about the strength of German exports right now for example?

William Hickey

Well, it's interesting. Let me tell you about protective. If you look at it, we've sort of divided Europe in the three groups. The first group called group one, which is countries which are still doing slow, and that's Spain, Greece and the U.K. We've got group two where conditions are coming back slowly, France and Italy. Then you got group three, which as you know is the industrial export countries where there is a clear recovery and volumes are up well over double digits, and that's Germany and Scandinavia. There is a lot export component to the growth we are seeing in Europe. And of course, that's probably benefited from the weaker Europe.

Mark Wilde - Deutsche Bank

And just another follow-on question. I think you answered some of this with Peter Ruschmeier's questions. What do you think are sort of the biggest risks if there is anything beyond just the economy for you as you look at the second half, because the case you've laid out for us is really quite encouraging for the second half for Sealed Air?

William Hickey

They're still at risk. I mean I know depending on who you read and even the export economists cannot agree on the second half of 2010. So I don't consider myself smart enough to be in that category.

But primarily, those are the things I see. I mean you do have the wildcard that happens every half a dozen or a dozen years or so, if you remember back to the Katrina where you do get a hurricane in the Gulf that just disrupts petroleum production, which could cause an unusual spike our outrage in resin. But those you can't project.

Operator

Your next question will come from the line of Al Kabili from Macquarie.

Al Kabili - Macquarie

I guess, Bill, a question on the outlook for mid-to-high single-digit sales growth on a currency adjusted basis, if I got that right, if you could just kind of help us parse out how much price is included in that versus volume?

William Hickey

Dave has actually done the numbers.

David Kelsey

The roadmap we're following, Al, is some improvement on volume which was 4.5% in the first half of the year. And then as the price actions kick in, in a more meaningful fashion in the second half, we would expect to get in the 3% range from price. So you put those two together and we do get to that mid-to-upper level single-digit range.

Al Kabili - Macquarie

Okay. And then as far as pricing goes, do you feel you'll be caught up to resin completely in the third quarter. And also, given the fact that resin has recently declined in price, is there a potential for even a year-over-year benefit on price cost as it relates to resin?

David Kelsey

On the pricing catch-up, we will be there in the second half of the year, most likely solidly there in the fourth quarter. So if the curve is run as they've run in the past, as that price level continues into the first half of next year, we do stand to recover the $100 million-plus of higher resin costs that we're looking at in 2010 compared to last year.

With regard to the fall off in pricing, clearly some of the commodity resins are off of their April peaks. But if you look at a curve for the last 12 months to 18 months, even at the end of June and going into July, resin pricing is still significantly higher than it was at the beginning of the year and significantly higher than it was a year ago. So the relief is welcome, but it's hardly a rollback to 2009 levels.

William Hickey

What I would add to Dave's comment which I think may be helpful for you to understand how we look at resin and how maybe you factor it in your own outlook is remember that we buy probably half our resin outside the United States. And again, half the resin is commodity and half is not.

And in Europe, actually there is an increase in resin prices, which is why during my comment I mentioned that we were having a price increase in the protective business in Europe in July, because although resin has declined in the U.S. in May and June, it actually has gone up in Europe, so that you need to be price-sensitive when you're looking at the outlook for Sealed Air to factor in the half our resin is outside the U.S. and follows a different curve. Eventually they average out, but they do have different leads and lags and then the fact that only half of it responses to the commodity curve.

Operator

Your next question will come from the line of Ariel Avila from JPMorgan.

Ariel Avila - JPMorgan

Just a couple of question. One, did you notice any variations in demand as the quarter progressed?

William Hickey

I guess my spin is that April was probably the worst month in the quarter. April was very disappointing. May was very good. June was good, almost very good. So the trend has generally been upward, not necessarily a straight line.

Ariel Avila - JPMorgan

And that's been across geographies?

William Hickey

And that's been pretty much across geographies.

Ariel Avila - JPMorgan

And then just on the OpEx, can you talk about what currencies were favorable to you that led to the offset of the weakening euro?

David Kelsey

It's primarily in the markets that have a significant commodity part of their economy. So the Canadian dollar, the Australian dollar and the Brazilian real have all strengthened against the dollar. On a year-to-date basis, as shown by our price volume and mix analysis, we are coming out ahead on foreign exchange.

And one thing to reflect back on is that the euro was weak against the dollar in the first half of last year before peeking at over $1.50 in December and then going back down to I think at a low of $1.19, and it's back up to $1.30. So it's been extremely volatile, but we feel confident that the balance of currencies will get us to the numbers we're projecting.

Operator

Your next question is a follow-up from the line of Sara Majers from Wells Fargo Securities.

Sara Majers - Wells Fargo Securities

I'm just wondering, given the steady volume growth in food packaging and the declining customer production rates, if you feel that any of that was due to maybe a pre-buying in front of the contract reset? And if so, how that might impact volumes in Q3 for that segment?

William Hickey

No, we've actually picked up new business. Primarily as rates have gone down, we have offset some of that by acquiring some major new pieces of business, which were actually signed up in Q2, minor shipments made to them in the end of Q2 and will pick up for the second half.

Operator

Your next question will come from the line of Stewart Scharf from Standard & Poors.

Stewart Scharf - Standard & Poors

Can we talk a little about your case-ready packaging business and how new competition is affecting your pricing and strategies?

William Hickey

Case-ready, we haven't seen any new competition. We heard a lot about it for a few years, but we haven't seen any. I think it's seven formats of case-ready, and we look at it depending on the customer, the market and the consumer interest. We can sort of provide a variety of case-ready alternatives.

So we really got the total system. We're not just selling a piece of it. We're selling the tray. We're selling the lid. We're selling the equipment. And we're providing service and support to our customers. And I think that gives us a pretty strong place to be.

And we're continuing the work on the next generation of case-ready. Case-ready is still a $450 million business for us. As we said earlier, it's continuing to grow in the U.S. We do have a couple of customers in Europe who were particularly hard hit by the recession and whose actually meat sales have moved to lower-quality cuts. So that's why the European numbers were kind of negative for the quarter.

But on a global basis, case-ready numbers are still positive. We do believe our seven offerings, plus two or three we have in the lab, will continue to give customers the most choice, the most opportunity and we think the best combined offering you can get in the marketplace.

Operator

Your next question is a follow-up from the line of Rosemarie Morbelli.

Rosemarie Morbelli - Ingalls & Snyder

Bill, when we look at the price mix, in the U.S., it was a negative 0.5% and in international it was a negative 2%. Do you have a feeling as to why the difference, is it more price, is it more mix? Can you give us a better idea to what was going on in both areas?

William Hickey

I'll let Dave respond to that one, Rosemarie.

David Kelsey

Well, as Bill mentioned, just as the case in point in Spain, where we have a large case-ready customer that has moved to different cuts of meat, and that has an impact on the types of packaging materials that we can sell into a market when there is that shift in consumer demand.

So I think from our perspective, there is nothing unusual that distinguishes what we're experiencing in North America versus what we're experiencing in our international markets, with the one exception is that on the pricing side, Rosemarie, I think as we've said in the past, it's primarily in North America where we have the pricing formulas that have the lags built into them. Most of what we do overseas is on list prices that get adjusted periodically based on market conditions.

Rosemarie Morbelli – Ingalls & Snyder

And just one last question. On the protective side, you had a price mix of 0.3%, if I am reading it right, and volume 11.8%. Did you have a negative mix that was offset by high price? Could you give us a better feel as to what was going on there? And are there any markets which are doing better than others?

David Kelsey

I think as Bill mentioned, we've seen an improvement across the board in our products in the protective area. So the price and mix, I don't think there is anything going on below the surface that we would call attention to. So I don't know if there is a lot of color that I can add to the numbers that are on the table, Rosemarie.

Rosemarie Morbelli – Ingalls & Snyder

Okay. And in terms of the markets you are serving, did electronics do better than (lamps) and other type of products like that? I mean what do you see out there looking at really the marketplace, the bigger picture?

William Hickey

If I look at kind of Bubble Wrap, which was up 13%, and price in Bubble Wrap was up I think about 1% or 2% in terms of price in terms of Bubble Wrap. I don't remember the numbers. I looked at prior to the call.

Bubble Wrap has undergone a couple of changes in mix as we've added recycled content. The pricing point comes down a little bit, because we are using less expensive materials. And that's probably a mix factor. So the 13% in sales has probably got a little bit of a negative factor of mix and a positive factor in price. That's about the simplest way I can say it.

Operator

Your next question is a follow-up from the line of George Staphos.

George Staphos - Bank of America

Two quick questions. One, Europe, do you think you're past the crisis point in terms of fundamentals and volume? From what we could see from the press release, certainly it was both in the region and in the businesses. Do you think we're now trending higher from where we'd been first quarter and fourth quarter?

And then separately, it was nice to see a raise to dividend. I'm not sure if you've gotten this question or not, but what do you think the next mile markers or timing events might be where you could further use the balance sheet and cash flow position to leverage the returns to the shareholders?

William Hickey

On your first question, George, we did cover a little bit of that, but I don't mind highlighting it again for you quickly. Europe was 11% on the protective side and about 5% on the food side, both of which were the best numbers we've seen in a couple of quarters.

I'd like to think that Europe is turning back up, but I also mentioned we've got three groups of countries in Europe and the business breaks up that way. Group one, which for most of our businesses are still slow, still very smudge in the recession or final stages of it, and that's the Spain, Greece and the U.K. Then you've got group two where we are seeing an improvement and where France and Italy we're up high single digits. And then you've got group three companies where there is a solid recovery and good increase in our business such as Scandinavia and Germany where numbers are up well over double digits.

And I think those are fair amount export-driven if you look at German and Scandinavian economies, and I think they have also been more frugal in terms of their financial policies. So clearly, we're being carried in Europe by a couple of strong countries with a couple of weak ones still behind. I'm not confident enough to say that we have kind of the laggards come out of the woods yet. I'm just not sure, but I'm hopeful.

On your second point, I'll just say that I think we're still waiting for the gabble to go down on the Grace settlement.

David Kelsey

But we feel good enough about the business and the strength of the cash flow. That we really felt it was the Board that increased the dividend and exhibit that confidence and returned some of our great cash flow to shareholders.

William Hickey

Operator, there are no other questions?

Operator

No. Gentlemen, I will turn the conference back over to you for any additional closing remarks.

William Hickey

I want to thank you all for your time and participation today. I know it was a very busy morning for earnings calls. Again, we feel our team's turned the corner, and the second half looks much better than the first half. Economic improvement, combined with improved customer production in the food sector should complement our existing growth in the industrial business, our expansion in developing regions, the strong acceptance of our new products and solid management of our placing actions will allow us to grow somewhat above macroeconomic rates in the second half of the year.

So I'll reaffirm that it's for this and for the higher dividend that I'm proud to be a Sealed Air shareholder. Thanks for taking the time to listen.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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