Brian Sullivan; Executive Director Assistant Treasurer and Investor Relations; Sealed Air Corp
George Staphos; Analyst; BofA Securities, Inc.
Anthony Pettinari; Analyst; Citigroup, Inc.
Ghansham Panjabi; Analyst; Robert W. Baird & Co. Incorporated
Michael Roxland; Analyst; Truist Securities, Inc.
Matthew Roberts; Analyst; Raymond James & Associates, Inc.
Good day, and thank you for standing by. Welcome to the Q3 2024 Sealed Air earnings conference call. (Operator Instructions) Please also be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brian Sullivan, Investor Relations. Brian, please go ahead.
Thank you, and good morning, everyone. With me today are Patrick Kivits, CEO; and Dustin Semach, President and CFO. Before we begin our call, I would like to note that we have provided a slide presentation to supplement the call. Please visit sealedair.com where today's webcast and presentation can be downloaded from our Investor Relations page.
Statements made during this call, stating management's outlook or estimates for future periods are forward-looking statements. These statements are based solely on the 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 and slide presentation, 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 as revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K.
We discuss financial measures that do not conform to US GAAP. You will find important information on our use of these measures and their reconciliation to US GAAP in our earnings release. Included in the appendix of today's presentation, you will find US GAAP financial results that correspond to the non-US GAAP measures we reference throughout the presentation.
I will now turn the call over to Patrick and Dustin. Operator, please turn to slide 3. Patrick?
Thank you, Brian, and thank you for joining our third quarter earnings call. Before we dive in today's earnings discussions, I would like to take a moment to update you on the progress we have made on the actions outlined during our last earnings call.
Over the past few months, I've been engaging with our largest customer's distribution partners to gain deeper insight into how we can meet their needs and address their packing challenges. Separately, I've connected with our investors to get their perspectives on the opportunities ahead for creating shareholder value. Through these discussions, it became clear that reorganizing into 2 verticals, Food and Protective, was a critical foundational step to enhance our customers' experience and maximize shareholder value.
Each business is distinct with unique end markets, customer base, innovation needs and manufacturing assets. We are returning to our core value proposition as a company, combining industry-leading material science, best-in-class services and differentiated automation offering to deliver world-class packaging solutions. As we refine our strategy, serving our customers and addressing their critical packaging challenges remains a guiding principle.
Next, we need to ensure we have the right team in place to drive accelerated progress in each vertical. We focused on bringing in talent from other packaging companies with strong commercial and portfolio expertise looking for leaders that have successfully improved commercial execution and navigated sustainable portfolio shifts while consistently delivering sales and profit growth.
The first critical hire was Byron Racki who now leads our Protective vertical. With over 20 years of experience in the packaging industry and strong commercial acumen, Byron brings valuable knowledge in fiber, similar to my own background. And he has successfully navigated substrate and packaging format transitions in his previous roles. He is spearheading the turnaround of our Protective business.
In October, we brought up Steve Flannery as Head of our Food vertical. With over 25 years of experience at Avery Dennison, Steve has held leadership roles across sales, innovation, marketing and operations. He has led businesses in multiple geographies, driving market-leading innovations and fostering a team-based culture that consistently delivered robust sales and earnings growth. Steve will build on the momentum within our Food business and unlock further growth.
Emile Chammas continues to be our Chief Operating Officer, leading our efforts to optimize the supply chain for both Food and Protective, ensuring each prospective supply chain is stable for those end markets and expected service levels.
We also hired Belinda Hyde as our Chief People Officer, who will focus on enhancing the employee experience, cultivating a high-performance culture and ensuring we have the right leadership and capabilities across the organization.
Lastly, our President and Chief Financial Officer, Dustin Semach is partnering closely with me to develop a long-term plan to create shareholder value and drive a product transformation across the business.
Beyond strengthening the management team, we are also enhancing the Board. In October, the Board appointed Tony Allott as a new Director. Tony is an experienced senior executive in the packaging sector. He successfully led Silgan for over 16 years as President and Chief Executive Officer, where he created significant shareholder value. He continues to serve as Silgan's Chairman. We look forward to leveraging his expertise in leading packaging companies with diversified portfolios to help accelerate our transformation.
With our Food and Protective presence now in place, we have aligned our operating units, innovation, customer service and automation functions within each vertical. These changes will enable each vertical to swiftly adapt to market trends, leverage their global scale, enhance customer focus and execute their respective growth strategies. This represents a significant milestone in our transformation and I'm eager to build on this foundation as we continue to evolve the business towards achieving long-term sustainable growth.
I would like to highlight some early successes resulting directly from the transformation actions we have initiated. With a dedicated Food commercial teams now aligned to each local end market and fully focused on execution, our Food business is delivering above market growth in each of our end markets and across most product lines. This above-market performance is driven by a mix of commercial excellence, new product launches and competitive wins.
On the Protective side, while volumes in the business continues to be soft, we are gaining traction in the market with our sustainable packaging solutions. We recently announced a partnership with a large retail customer, Best Buy, to provide a suite of high recycled content and fiber-based products to help reduce the amount of virgin plastic used in their packaging. Additionally, we collaborated with them to arrange the collection of plastic waste from their distribution centers for recycling.
Beyond this example, we continue to position our portfolio to match our customers' sustainability needs while still addressing their most critical packaging challenges.
With that said, we still have much more work ahead of us. Over the next couple of months, we will focus on operationalizing each vertical. On Protective, we are continuing to work through sustainability-related portfolio gaps, improving commercial execution and infusing talent throughout the organization.
On Food, we are focused on accelerating growth outside of our shrink bags business with case-ready and fluid and liquid solutions, successfully navigating sustainable packaging transitions and improving pricing dynamics. Until we see improvements in volume and price performance, we are accelerating our cost takeout initiatives to further rightsize each vertical and drive overall profitability.
Before I hand it over to Dustin for a business update, I would like to take a moment to discuss the impacts of Hurricane Helene. Hurricane Helene's path impacted many of our plants and sites across South Carolina and Western North Carolina, affecting over 1,500 employees. These locations experienced challenges across many aspects of their infrastructure. Our team quickly mobilized to ensure that first, our people and their families were taken care of; and second, to restore normal operations.
Despite these challenges, our team members kept us operational and ensure each other's safety, minimizing the impact on the quarter and to our customers. It was really inspiring to witness our team come together to support one another, their communities and our company.
I'm excited to be here and look forward to updating you on our transformation and 2025 outlook in February. With that, I'll turn it over to Dustin to give an update on the business and our outlook. Dustin?
Dustin Semach
Thank you, Patrick. Let's turn to slide 4 to review Sealed Air's third quarter performance. We closed the quarter with sales of $1.35 billion and adjusted EBITDA of $276 million, each down 3% compared to last year on a reported basis. Our third quarter results reflect a continued solid performance in Food, persisting challenges in Protective and strong productivity benefits, including our cost takeout initiatives.
Adjusted earnings per share in the quarter of $0.79 were up 3% compared to a year ago. Our adjusted tax rate was 24% compared to 25.7% in the same period last year. The decrease in tax rate year-over-year was driven by the jurisdictional mix of income and nonrecurring discrete items in the prior year. Our weighted average diluted shares outstanding in the third quarter of 2024 was 146 million.
Turning to slide 5. In the third quarter, organic sales were down 2% driven by lower pricing across both the Food and Protective segments. On a year-over-year basis, relative to prior quarters, third quarter pricing was sequentially less negative as the carryover pricing actions from 2023 started to diminish.
Volumes were relatively flat year-over-year for the quarter with growth in the Food segment across all regions, offset by declines in Protective in Americas and EMEA. Third quarter adjusted EBITDA of $276 million decreased $9 million or approximately 3% compared to last year with margins of 20.5%, down 10 basis points.
This performance was mainly driven by lower volumes and unfavorable net price realization in Protective, partially offset by higher volumes and favorable net price realization in Food, and lower operating costs, mainly driven by productivity benefits, including cost takeout initiatives.
Moving to slide 6. Food net sales of $898 million for the quarter were up approximately 1%. Lower pricing primarily in Americas and EMEA was more than offset by positive volume growth in all regions, driven by strength in protein end market demand and share gains within our bags and case-ready solutions.
In the third quarter, the global protein markets were net positive by approximately 1%. Continued strength in Australian cattle cycles, stronger-than-anticipated US beef production and robust pork demand more than offset declines in poultry production caused by Avian flu outbreaks affecting North American turkey flocks.
Meat increased consumer demand in the protein markets, we further drove competitive lens. Our case rate solutions experienced high single-digit growth, driven by the ongoing recovery of the roll stock business where we lost share in previous years due to resin shortages and by market share gains in the retail space with our trades and lending offerings. Protein sales, however, declined as customers continue to exercise caution in deploying capital.
Food adjusted EBITDA of $206 million in the third quarter was up 6% with margins at 22.9%, up 120 basis points compared to last year. The increase in adjusted EBITDA was mainly driven by volume growth and net price realization.
Transitioning to Protective. Third quarter net sales of $447 million were down 8% as anticipated in our Q2 guidance. Industrial portfolios remained weak due to subdued manufacturing activities in the developed world. Volume in fulfillment portfolio has declined approximately 10%, driven by the slowdown in equipment automation and continued pressure within void-fill product lines.
In our APAC region, volumes grew approximately 1% in the quarter as the gain in box rightsizing automation offset weakness in industrial and fulfillment portfolios. In the Americas and EMEA regions, volume performance remained largely unchanged from the prior quarter. Sustainability pressures on the void-fill product lines, ongoing weakness in the industrial sector and lower automation sales continue to negatively impact our results.
Protective adjusted EBITDA of approximately $75 million in the third quarter was down 21% year-over-year with margins at 16.9%, down 260 basis points. The decrease in adjusted EBITDA was driven by lower volume and unfavorable net price relation, partially offset by productivity benefits, including cost takeout initiatives.
On slide 7, we review our third quarter net sales by region. On an organic basis, America was down 2%, primarily due to lower pricing. Volumes were down 1%, driven by continued softness in protective portfolios, partially offset by strength in Food. EMEA declined 6% organically, driven by lower pricing across both segments and volume declined in Protective. APAC was up 3% organically as tailwinds from Australian cattle cycle and the gain in fulfillment automation more than offset lower pricing and continued weakness in our other Protective portfolios.
Now let's turn to free cash flow and leverage on slide 8. With the focused efforts of our teams around the world, we delivered strong free cash flow of $323 million as of the third quarter year-to-date. This is well above the $183 million a year ago when excluding payments and deposits for resolution of certain prior year's US tax matters.
Our teams continue to focus on improving working capital, which as a percentage of sales has improved by 120 basis points year-over-year as we continue to improve payables and inventory velocity.
We maintained our focus on deleveraging the balance sheet and ended the quarter with a net leverage ratio of 3.7x. Our total liquidity position was $1.4 billion, including $386 million in cash and the remaining uncommitted and fully undrawn revolver. We are highly confident in achieving our net debt to adjusted EBITDA target of below 3.5x by the end of 2025.
Let's turn to slide 9 to review our 2024 outlook. Our third quarter results were largely in line with expectations. We are pleased with the continued momentum in our Food business. At this point, we expect our Protective volumes to remain soft in the fourth quarter due to continued portfolio challenges and overall market dynamics. As a result, in total, we expect our Q4 volumes to be slightly up year-over-year in Q4 with the strength in Food being partially offset by weakness in Protective.
Heading into the fourth quarter, we expect sales to be approximately $1.3 billion, consistent with the midpoint of our sales guidance with year-over-year volume performance improving slightly versus the third quarter levels for both businesses. We continue to expect adjusted EBITDA to be in line with the midpoint of our guidance range, mainly driven by continued cost control actions.
We are raising the midpoint of adjusted EPS to be at the higher end of the previous range, driven by lower interest expense, effective tax rate and depreciation and amortization expense, reflecting improved discipline around capital deployment. We're also raising the midpoint of our free cash flow guidance to $400 million, reflecting the continued improvement in working capital.
We will be working with the new management team over the coming months to operationalize each vertical and fully form the growth strategies and transformation plans for each business. This will inform our outlook for 2025 and beyond. In the meantime, we are accelerating our cost reduction and operational excellence initiatives to drive profitability.
Turning to slide 10. I'm very excited about the reorganization into Food and Protective verticals and their new leadership teams. As Patrick mentioned earlier, the transformational steps we have taken will position each business and Sealed Air as a whole for long-term growth and success.
With that, Patrick and I look forward to your questions. Operator, we would like to begin the Q&A session.
Operator
(Operator Instructions)
George Staphos, Bank of America Securities.
George Staphos
My question is on fourth quarter and in particular, how Protective plays out. So traditionally, again, fourth quarter tends to be, over time, a bit better versus 3Q. And nonetheless, if I'm doing my analysis correctly based on your guidance, we're looking at down sequentially both year-on-year and in the quarter. Protective is obviously weak.
I think you said, though, both segments should be up sequentially in volume, both Food and Protective. So can you talk a little bit further about what is happening, assuming it's in Protective that's driving that fourth quarter versus last year and the year ago? And in particular -- or in addition, can you talk about what kind of growth you're seeing between fiber and poly, if you will, within Protective?
Dustin Semach
George, you have Dustin here. So a couple of comments just to clarify one as you think about kind of the guidance for the full year. When you look at both businesses, they're going to step up sequentially, right? So if you think about Food, you're looking at roughly $920 million coming off the quarter of $898 million in Q3. When you look at Protective, you're seeing we landed the quarter for Q3 $447 million, and we'll be stepping up to roughly $460 million in the fourth quarter.
That implies we're still down, but the commentary is around the fact that we're actually -- it's performing better in the sense that Q3, we're down roughly 8%, and it would imply Q4 is going to be down roughly 6%.
And so what's driving that? So one is you do get that sequential step up in Protective, that's being driven by seasonality, largely associated with the holiday season, which at this point in time, we still see -- we perceive to be strong, particularly in the US And so that's reflected in that particular number.
The growth in fiber versus poly, just keep in mind, and this commentary I'll make it specific relative to Protective is that you're still only looking at that business about 15% in the fiber base. Fiber is performing better than poly. But at that size, it's not going to be able to compensate relative to the declines we're seeing in some of our other broader portfolios.
But the other clarifying point I'll make is that, just keep in mind, too, that was in Protective, not all equal or relative to how each of the portfolios are behaving. If you look at our APS business, this is -- the mailers and the auto bagging, that could be fiber and/or poly, is performing -- has performed well throughout the year. If you think about inflatables, they're performing well. It's just in other areas of portfolio specifically as we've related to void-fill, et cetera that we're seeing that pressure. Hopefully, that answers your question.
Operator
Anthony Pettinari, Citi.
Anthony Pettinari
Just following up on George's question, understanding you don't have a crystal ball on the economy, is it possible to kind of update just even directionally, when you might expect to see flattish year-over-year volumes in Protective?
And then just looking at parts of that business, when does void fill -- when is it kind of shrunk to a point where declines are not maybe big enough to move the needle on overall segment volumes? And is there a point where automation comps get easier on a year-over-year basis?
Patrick Kivits
It's Patrick. Just let me start by saying, as a reminder, I think doesn't hit on that. So the overall void fill and mailers, this is where most of the fiber transition takes place, is roughly 10% of our business in Protective, right? So that's roughly the size of it in total.
So I had the opportunity to visit the exhibition this week in Chicago. And if you look at all of the changes you're seeing in that space, a lot of people commented on -- they're surprised how many paper offerings we actually have in the market. And obviously, we will not -- we will continue to drive focus on all of our existing e-commerce offerings, if you will, as we pivot towards more fiber-based offering in that space.
So in the next couple of months, I referenced the Best Buy win, which is a really significant one, which actually showcases that, yes, we may have been late to the party with fiber-based offerings in this space. But our offering is a really good one. And I do think we will continue to drive further growth in that space. It's a little bit too early to tell how much that will do to the mailer space at this point.
We'll come back to you on that in February. But at the grand scheme of things in these side of vehicles we're using in our portfolio shift our go-to-market changes that I talked about in order to drive to a turnaround in that space.
Dustin Semach
And so -- and then just to follow on a couple of Patrick's comments. So right now, we're working with the coming months going back to the points about understanding the market. But in general, just the comments in the script around fully forming those growth strategies overall transformation plans in February and then we will have a better idea of how we see Protective playing out across 2025 and beyond.
A couple of points you made about void fill specifically in terms of benefits going into next year. Keep in mind that talked about the specific Amazon loss at the beginning of the year was in our guidance, but then void fill deteriorated further than that. You are going to have a wrap. So the comp going into next year in void fill is going to be much better than this year just because you're past that one, that large customer loss.
And then automation, in general, it's a great question. We talked about this year has been challenging due to capital deployment, et cetera. A lot of that's an extension of last year. The market dynamics are getting more favorable with rate cuts, et cetera.
And what we've seen across this year is our book-to-bill ratio in both Food and Protective has largely been 1:1. And so implying that we're coming into 2025 in a much better starting point relative to our backlog and our ability to drive flattish to growth in our automation space, which will also benefit from a materials perspective.
So give us some time, and we'll come back and we're going to put this all together over the next couple of months.
Operator
Ghansham Panjabi, Baird.
Ghansham Panjabi
I just wanted to go back to the operating structure shift into 2 distinct verticals. Can you sort of put that change in context for us on a historical basis? Are you basically just going back to a structure of the companies had in place a few years back and then there was a shift? And also, what do you expect the positive changes will be coming out of this operating model shift, including the leadership changes that you've announced there?
Patrick Kivits
Ghansham, great question. So let me start by saying this is -- so we were organized as a vertical organization towards the end of 2018. We changed this to a more regional focused organization, and we are going back to the model of verticals. But it's not just rearranging the deck shares. I'd like to make that very, very clear. Because this is really about a different way of going to market, a different look at our value proposition and our portfolio, right? So it's not just the rearrangement of those tax shares, as I mentioned earlier.
What is important here to mention is that we would like people to wake up every day to -- to be concerned about the growth in the areas that they're responsible for. And by doing this on a vertical basis, this is where people have things in common. This is where I came to drive that growth strategy.
What is important on the go-to-market is we -- maybe in the last couple of years, we've been really focused on new aspirational, sometimes visionary initiatives. And these were great by themselves. But at the end of the day, it's sort of defocused or it was hiding the real problem that we have, the sort of secular decline that we had in Protective.
So we're moving away from that, and we're looking at our go-to-market because with that some of our distribution partners that I met in the last couple of months, really got the perception that we were starting to compete with them to alternative channels, right, through maybe e-commerce or maybe through online ordering tools.
And we have reinforced the message with them that they are a very important part of our go-to-market strategy. It's not an easy model to implement. And that's why we're getting all of the feedback to say how can we really drive -- get traction with our salespeople and their salespeople where rubber meets the road. So the go-to-market is a very important one.
The second one, as I highlighted before, the portfolio shift from plastic-based offerings to fiber-based offerings, this will continue to be pushed very strongly in the organization and into the market. So those are the things that you will see, changed market approach and also changed portfolio predominantly in the Protective side and on the Food side, we will drive more towards further growth in areas that we're currently underpenetrated.
Dustin Semach
Yes. And just to complement a couple of comments Patrick made is -- Ghansham, is specifically to shifts innovation, customer service, we talked about getting closer to the customer proximity. So innovation in itself has been reorganized and then specifically customer service. And you go back to improving that 3 -- stool on the service side. Those are 2 fundamental shifts.
And the comment you made around when they expect the kind of improvements associated with it, you already see it today within Food because keep in mind, the operating model shift we made earlier in the year. You've seen the Food business perform. We're talking about share gains, not just in one region or one product line, but across all regions and most product lines.
So Food's already benefiting from that focus and Protective and the comments that Patrick's alluded to around the go-to-market change as well as the portfolio shift. There's more of a focus there in Protective and that's where we'll see in between now and kind of February, we're going to continue to lay out transformation plan there and give you more clarity in February.
Operator
Stefan Diaz, Morgan Stanley.
Stefan Diaz
So you mentioned in the prepared remarks stepping up the CTO2 Grow initiative. I believe the previous cost takeout number was $140 million to $160 million. Do you have an update for that number? And then maybe if you could also highlight some of the additional actions you're taking as far as cost takeout versus before?
Dustin Semach
Okay. This is Dustin speaking. So if you go back to the original intent of the program, we talked about $140 million to $160 million of cost takeout savings as we announced this back in the middle of -- middle to later part of 2023. We're on track right now for the $90 million, and we talked about it across a number of different buckets, right? This is related to network optimization, across our supply chain, it's related to G&A, back-office as well as touching other areas of go-to-market that we're largely noncustomer-facing.
And so we continue to execute on that. And what we talked about originally was next year, but it was going to be roughly $50 million. And if you look how the volume drop we've had in Protective in Q3 and Q4, we're now reevaluating that and looking to step that up as we go into next year. We haven't landed on exactly what that will be, and that work will complete over the next 2 to 3 months, will be factored into kind of our outlook for 2025. But that's the intention.
So we, at this point, have at least another $50 million already baked in, in terms of actions that we're taking that will continue to roll through next year. And then we have another kind of X amount that we're working through to determine that. And our commitment is that we're going to be driving profitability, right? That's the main message I want to leave you with on that point.
And so in terms of areas that we're focused on, it is largely in those same buckets that we talked about. But I would say there's a more primary focus on Protective than relative to Food due to the performance of each of those individual businesses. And that's one of the great benefits of moving to the models that we're going to is being able to better really understand those cost structures because they're now aligned to each individual vertical.
Operator
Josh Spector, UBS.
Joshua Spector
I wanted to follow up again on some of the comments around the 2 segments and the different Presidents. So you talked a lot about the operational side, which is good to see. I guess the question is really strategically, does this change anything? So you're investing more, I guess, in Protective to improve it. Does that change your willingness to look at any divestment opportunities or carve-outs within there? So how are you thinking about that today versus maybe 3, 6 months ago?
Patrick Kivits
I think it's a very good question. So at the moment, we're really laser focused on operationalizing all of the changes that we're making. We do believe that feedback from our distribution partners that we are on the right path in terms of the go-to-market. We do -- we are confident that the fiber offering is going into the right direction.
The accountability, clear line of sight, those are the issues that we've been trying to address with this verticalization. So I do think we have a lot of opportunities right now to improve our business as we go forward. We will always look into opportunities for footprint rationalization or areas where we think we're maybe not that successful in future or the markets aren't growing that much. But in the grand scheme of things, I think we are very comfortable where we are today with all of the changes we're making, and we are going to drive change in those organizations.
Operator
Mike Roxland, Truist Securities.
Michael Roxland
Just quickly, I wanted to follow up on the comments on that shifted to 2 verticals. Obviously, you established these distinct operating units. But how do you now fully separate each business such that if you were to parse out Protective, there would be -- the synergies would be minimized?
And then just quickly on Food. I think you've been guiding -- Food margin is about 21%. In 3Q, you round up around 22.9%. What exactly occurred during the quarter that allowed you to be? And how should we think about that margin progression in 4Q?
Patrick Kivits
Mike, great question. I'll start with the verticals, and I'll let Dustin answer the Food question on the margin. So the reason for changing or putting our verticals back in place and changing the operating model there is really about the organizational effectiveness.
So I mentioned earlier before -- earlier that you want people to wake up every day to just focus on the areas they're responsible for. We create a clear line of sight. We will create clear accountabilities with P&L structure with subject matter experts in order not to lose traction in the market because I think that's where we have been in the last couple of years.
The benefit of doing that is having innovation in our verticals means that now when rubber meets the road, you have one individual that's responsible for that, and we no longer have the situation where we start finger-pointing.
And we have innovations that actually are based on customer pool rather than trying to develop something that we think a customer need without really asking. So that is the basic premise we're doing this. Obviously, that gives us optionality in the future, but the real focus has been on driving that verticalization to get a stronger operational effectiveness. Dustin?
Dustin Semach
And so just to complement that comment, going back to the prior statement that I made as well. Obviously, going through the reorganization, the way that we are, it is giving us a chance to really look at that cost structure and really take a step back and ask ourselves what is really needed to support our growth expectations for each business and take a look at it in a very different way.
And so I think of it less from a dis-synergy standpoint, how do we maximize the value of each individual business and get them back to driving towards long-term sustainable growth, which I'm highly confident that we have the opportunity in both businesses as demonstrated today based on how Food is already operating.
And going back to Food margin, we benefited this year from the volume growth, right? We talked about it. We are driving volume growth across all the regions, across the businesses themselves, different product lines. You're creating an opportunity for higher utilization across our network. And so you're seeing that come through in the margin pull-through. We expect that business to operate still in the low 20s, right, where -- you could have a point of difference every quarter or 2 depending on how you're operating.
And so -- but right now, any expectation above and beyond that, we would think about in terms of reinvestment economics going forward in terms of how we can continue to unlock further growth in the areas that Patrick outlined earlier.
Operator
Chris Parkinson, Wolfe Research.
It's Andrew on for Chris. I just want to delve into Food volume trends, both in this quarter and looking into the fourth quarter in '25. Would you mind walking through protein substrate and sort of the success of new products and how those 2 have interplayed and what you expect going forward?
Dustin Semach
Okay. I'll make a couple of comments, right? Just to kind of reorient again, you're looking at Food overall. And in Q3, we talked about driving kind of low single-digit growth, 2.4% from a volume perspective. It's really 4% underlying strength. We talked about in Q2, that pull forward of some of the tomato season that would have pulled forward back into Q2. So again, Q3, very strong. We're going to expect a similar performance in Q4.
One of the big changes this year from a market perspective that we talked about is that the US beef cycle has actually been much more -- better than we'd originally anticipated coming into the year. But just keep in mind that you're going to see that become more challenging in Q4 and going into 2025. I would say that's been a market -- it's been a market headwind this year, but a slight one where we thought it was going to be higher. And going into next year is going to be a little bit heavier relative to impacting our volume, particularly in bags.
But outside of that, I would tell you that our Latin American beef cycles and our competitive gain share there is just pulling through, EMEA is performing very well. And we talked about that in Q1 and Q2 as well, and you're seeing a lot of competitive wins in that business continue to ramp up with the volume being very strong in Q3 as well as Q4.
And so our expectation is those competitive wins as well as the -- just the progress we're making across a number of our different product lines outside of just our core bags business, we'll -- that momentum will continue into Q4, but also into 2025, albeit the market dynamics in terms of proteins, we're still evaluating that, recognizing that US beef stock a lot better this year, you're delaying some of the impact. You're pushing it further into 2025, and we're still working through that, and we'll have a better understanding of what that means to the overall business and our outlook in February.
Operator
(Operator Instructions)
Arun Viswanathan, RBC Capital Markets.
(Operator Instructions)
Edlain Rodriguez, Mizuho.
Edlain Rodriguez
Just a quick one for me, and that's about the guidance. I mean Patrick, of course, you're new to the firm. So it's been like -- this is like the third quarter in a row where you have exceeded your expectation. So it's very likely that the guide for 4Q is as conservative as the prior quarters.
But question for me is like where is the uncertainty coming from? Like what's the driving results higher than you initially expected? Is it a question of volume visibility? Is it cost? Like what's making 2 quarters different from what you expected just a couple of months before that?
Patrick Kivits
Yes. Great question. I think as we went into Q3, this is really about the volume development in Protective. I think we anticipated a different volume situation in the Protective business. We continue to see strength in our Food business, which I think is really strong despite some of the headwinds we had in certain cattle cycle in certain regions, and we're very well hedged there. But at the end of the day, that's the main uncertainty in terms of our guidance going forward.
Dustin Semach
Yes. So a couple of comments I'll complement there. One is, if you look at Q3 relative to your point around meeting or being expectations, on the top line, it was relatively tight, I would say, relative to our expectations. So both businesses came in Protective in the way that we thought as well as Food. On the bottom line, there are some benefits, and that's largely coming from leverage in terms of how we're optimizing within our plants and some of the cost takeout and some of the timing of that.
But again, I would say if you look at Q3, it's more modest relative to Q2 and Q1. And so as we go into Q4, I would tell you that if you go back to the beginning of the year and say what's played out throughout the year, our Food business has gotten better and better and better, right? And our Protective business has actually gotten worse from our original expectation.
If you go back to the beginning in Q1, we would have, at that point, thought more of an L-shape recovery, but some inflection towards the end of the year, particularly in Q4. And our outlook has changed, right? That's been the downside. So the strength in our Food business has been continuously offset by the weakness in our Protective business due to the portfolio challenges we've had and that we're working through. And so that to me is what's set up our view of guidance.
When we look at Q4, we think that that's what we're guiding towards is what we expect to actually happen. And so that's -- it's reflective of that. So it's not intended to be conservatism per se.
Operator
Gabe Hajde, Wells Fargo Securities.
Gabe Hajde
I'm going to try one more time. You kind of gave us a top line number, Dustin, for Food and Protective. And you talked about maybe some sequential strengthening actually or seasonally speaking, for Protective. I know price/cost was a little bit worse in Protective versus Food, in fact, it was positive. So is there anything discrete in the fourth quarter for some of these hurricane or weather impacts that you alluded to that you haven't quantified for us?
And then the variability on cash flow is still $100 million, which is obviously wider than the EBITDA range. I appreciate -- I think I know it's probably working capital related. But once you get to your desired level, I don't know when exactly that will be, maybe give us some insight into that, but then we should be stable and then it will move with growth in the company? Or is there something that could unwind maybe next year or so we got to be mindful of that on the working capital side?
Dustin Semach
Yes. And so Dave, I appreciate all those -- all that commentary. So let me start with discrete events related to Q4. We don't see at this point in time. Anything that we believe that would have happened as far as Hurricane Helene has been factored into the guidance you have. There's no material discrete impact to our business. And that's really a testament. Patrick made the remarks earlier in the script, that's really a testament to our teams and their ability to drive everything that they did. So we're really pleased with that.
Patrick Kivits
And maybe to build on that, Dustin. So if you remember, the hurricane just happened 2 business days before the end of the quarter, right? So I think we were able to manage the quarter pretty well. So some of the costs were just a carry over between these 2 quarters, but at the end of the day, it wasn't material.
Dustin Semach
And so the other comment I would make kind of shifting from there relative to the working capital and as well as the free cash flow comment. Look, we're really pleased what we've been able to drive this year. And what we're committed to and what we've always been committed to is driving a high conversion from adjusted net income into free cash flow, right, which we expect that to be the same going into next year.
The onetime benefit I gave that you would have this year is the restoration of our compensation pools, right? As a reminder, last year, right, we talked about the fact that we're benefiting from the -- in fact, we're going to be very low, think of it as executive compensation, and that's played a factor this year.
And it's -- and on a positive note, if you actually look at the 1,100 adjusted EBITDA at the midpoint, that's also factoring in a $30 million step-up in our compensation expense due to the restoration of those compensation pools, which you would have remembered during our original guidance and outlook for 2024.
So we do expect working capital. I would say it's largely normalized now. There's still a little bit of opportunity probably in inventory going into next year. But we don't see -- because next year, we'll factor in the fact that we'll be paying out bonuses more in line with historical expectations, at least at this point in time.
And so I think that this -- we still expect a very strong year for next year free cash flow. It will be somewhat determined, obviously, based on our profit outlook once we get to February, and we still expect very high conversion. And we wouldn't expect our ability to de-lever and hit the commitments that we've outlined, and we still feel it's fully intact and within our control at this point.
Operator
Philip Ng, Jefferies.
Philip Ng
Congrats on the strong quarter. I guess from a high level, I would say demand for Food has been pretty solid. So my question is really, is there a scope for positive price/mix when we look out to 2025? Have you started having those conversations?
Separately, pricing in Protective seems to be fairly stable. Any color on the competitive landscape, your ability to kind of maintain price? So ultimately, Dustin, I'm trying to get at is there opportunity for price/cost actually -- I'm sorry, net price to flip positive in 2025 in either of your 2 businesses?
Dustin Semach
Yes. So I really appreciate the question as it relates to kind of price/cost dynamics for each individual business. And you're correct. And what you said, obviously, if you look at Q4, what's implied in our guide beyond the overall kind of low single-digit growth that we have for volumes, which is kind of commensurate with the prior 3 quarters, you're also seeing price, the spread come down almost in was flattish, right, which is obviously a very positive indication in terms of going into next year.
There are still some pressures within the Food business related to some of the largest industrial processors, particularly in their businesses going into next year. But we still -- we see pricing dynamics more favorable going into next year than where we sit today.
Now I'll caveat that and say that, obviously, input costs, resin costs are obviously a big factor into that. They've been very stable this year, and we talked about the positivity around reducing a lot of volatility. And so we do think the wrap-around effect going next year is going to be a better pricing cost dynamic than we had in 2024. To what extent for Food, we're still working through. And that will be kind of thought through kind of over the next 3 to 4 months.
On Protective, there are still pricing price, right? It's definitely narrowed because a lot of that comes down in terms of the price reductions due to a number of things kind of working through the supply chain, but really the bring down on resin happened across '23 into '24. So that wrap-around effect. You still feel it to some degree, but it's narrowed again similar to Food, but not quite to the same degree. So you'll see about a 1% reduction in price in Q4, which will obviously have a tail going into next year.
A lot of that is coming from competitive dynamics, particularly in the areas that we talked about where you have deterioration in volumes. Like poly, void fill. So it's not just that there's a volume loss there, but because there's less volume to grab right now, you're seeing a lot more pricing pressures across the competitive landscape in that particular area.
But again, in a similar vein, we seem to be more positive going into next year than we experienced in 2024. To what extent, and does that mean it will be positive overall, from an NPR relative to the -- if you -- just as a reminder, we're down -- it's improved throughout the year, but we're down about negative $60 million this year. So TBD, but we do expect it to be better. It's a great question.
Operator
Matt Roberts, Raymond James.
Matthew Roberts
I know we spent a lot of time talking about fiber, but maybe I'll try to get in one more here. Patrick, you did say you spoke to many distributors and customers over the last couple of days. So maybe help me understand specifically where your fiber product lacks versus peers?
I mean what products or changes are there in the pipeline that we could expect to see? How long would it take to commercialize any of those new products to stop the erosion you're seeing in mailer and void-fill areas? And what type of investment would it require to ramp those up?
Patrick Kivits
Thank you, Matt. So start with the mailer side. So as you're replacing plastic mailers with the bubble wrap on the inside, the traditional JP mailers, if you will, the perception of the protection of those products is actually very different. As you -- so people are actually compromising from moving from plastic to fiber-based products and the protective nature of that fiber-based mailer is actually very important.
So one of the things I think we've been lacking a little bit as I came into the organization and looked at some of our competitive offerings, it's like even though in theory, our product is as protective as the alternative offering in the market, it wasn't perceived that way. So we're working on the perception and actually the protection so that we can get a better mailer out in the market. And there's some prototypes that we're actually launching at the moment and that are in a very good condition and actually can help us drive sales in that space.
So as far as the void filler goes, I think in general terms, our focus has been on the mailers because the void is such -- under pressure quite a bit and people are trying to design out the void because it's a challenge per se. Now there is still very solid volume growth in the space, but it's really about getting the sweet spot in terms of all of the different applications you have in terms of what kind of protection do you need. So again, the protection there is critically important, but it is more going hand-in-hand with automation.
So if you go to the timing of things, and I'll get to your question around what kind of investment does it require. So the timing of the paper mills will go faster because we have a lot of offerings already available, and we have fine-tuned -- sharpened the pencil in that offering quite substantially. So that is faster.
When it comes to the capital investment, I think we're in a good position on the capital investment. It's not as capital intense, as for instance, on our Food business. So it's easier to implement. And then as far as the void filling goes, this is more an interplay between automation and the paper that you're using. So that is something that will be a little bit longer in terms of our portfolio change being effective.
Operator
George Staphos, Bank of America Securities.
George Staphos
It's on Protective as well. So one, what are your views on Instapak and how important that is in the portfolio on a going-forward basis? Relatedly, in terms of Protective, does the affinity for sustainability to focus on fiber versus poly vary depending on whether we're talking with a large distribution company or e-tailer or a smaller one? I would imagine, but maybe this is incorrect. The smaller distribution guys, the guys more in the street don't care as much, but if you could help us understand that.
And then lastly, as you move this transformation over time to fiber versus plastic, recognizing no guarantees here because it's still nascent days for you, does it make the business more or less price competitive? Do you think it makes your pricing more variable, less predictable or more if you move to fiber over time?
Patrick Kivits
Thank you, George. Great question. So let me start with the question you asked about -- So where I see the difference is really more between products that touch the consumer and products that go into a more industrial space. Those are the biggest shifts that I see.
Yes, there will be differences between larger and smaller consumers, but it is actually more pronounced when it comes to products touching consumer. And that goes back to your Instapak question. So Instapak typically hits more in the industrial space because our products are typically heavier, more -- higher value and the industrial segment is much more price sensitive and much less driven by consumer preferences who want to get out of poly and going into paper.
So these are areas actually that I think Instapak is an important part of our portfolio. That is an area that from a fiber-based shift is much less under pressure because simply fiber-based products will not give these products the same level of protection. And that is important as we move forward, plus the other thing is the curbside recycling for consumers is a very different ballgame than the recycling opportunities you have in industrial. So more price sensitive and does feel recyclability is more available.
So from that point of view, I do believe there is a difference between the different segments, but not necessarily as much in the small and larger space, more in terms of where the product touches the consumer or not.
So then let's talk a little bit about the pricing. So I talked about as we develop more fiber-based alternatives, it is really important to us that we become more substrate agnostic. And why am I saying that? That is very important as we develop our equipment that we have a drop in. So customers have choices. So whether they use poly or they use fiber-based alternative, we do have that opportunity.
Now typically, just by nature of how much more material we use on the paper side, it's going to be more expensive to use a fiber-based product than a poly product. Customers have that choice now. So I do think the price predictability is relatively stable from that point of view.
But what is more critically important to us as an organization is that people want to go shop for fiber-based products, they don't have to go somewhere else. They can use the fiber-based option that we're offering them and potentially just a drop-in, in the equipment that we're using today.
Operator
This concludes the question-and-answer session. I would now like to turn it back to CEO, Patrick Kivits, for closing remarks.
Patrick Kivits
So I'd like to thank everyone for the time today. I look forward to updating you over the coming quarters on the progress we are continuing to make to transform Sealed Air. And lastly, I'd like to close by thanking the global Sealed Air team for their efforts in solving our customers' most critical packaging challenges every day. Thank you.
Operator
Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
