Sealed Air Corporation (SEE) Q3 2021 Earnings Call Transcript

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Sealed Air Corporation (SEE -0.92%)
Q3 2021 Earnings Call
Nov 2, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by, and welcome to the Third Quarter 2021 Sealed Air Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Lori Chaitman, Vice President of Investor Relations.

Lori C. Chaitman -- Vice President of Investor Relations

Thank you, and good morning, everyone. With me today are Ted Doheny, our CEO; and Chris Stephens, our CFO. Before we begin our call today. I would like to note that we have provided a slide presentation to help guide our discussion. Please visit our website where today's webcast and presentation can be found and downloaded from our IR website at sealedair.com. I would like to remind you that statements made during this call, stating management's outlook or predictions for future periods, are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in the section entitled, Forward-Looking Statements, in our earnings release, 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 and as revised and updated on our quarterly reports on Form 10-Q, and current reports on Form 8-K, which you can also find on our website at sealedair.com or on the SEC's website at sec.gov.

We also 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 U.S. GAAP in our earnings release. Included in the appendix of today's presentation, you will find U.S. GAAP financial results that correspond to the non-US GAAP measures we reference throughout the presentation.

I will now turn the call over to Ted. Operator, please turn to Slide 3. Ted?

Edward L. Doheny -- Chief Executive Officer, President & Director

Thank you, Lori, and thank you for joining our third-quarter earnings call. We appreciate your interest in SEE and hope you and your families are staying safe and healthy. We're working through very exciting and challenging times as we continue to transform SEE. You can see on Slide 3, our strategy to become a world-class digitally driven company, automating sustainable packaging solutions.

On today's call, I'll recap our third quarter 2021 performance. I'll share our strategy for growth and automation, digital, and sustainability, within our global core markets. Chris will review our financial results and outlook in more detail. I will end with closing remarks before opening the call for Q&A.

Let's turn to Slide 4 for a review of our third quarter 2021 results. Net sales increased 13% in constant dollars with volume growth of 5% and price realization of 8%. Adjusted EBITDA increased 4%, higher volumes and pricing efforts helped mitigate inflationary pressures and supply disruptions, yet our industry-leading margins were still under pressure at 19.2% compared to 21% last year. On a per-share basis, adjusted earnings of $0.86 were up $0.04 compared to last year. We generated free cash flow of $223 million in the first nine months of the year, which compared with $292 million in the first nine months of last year. Our SEE Operating Engine is performing. SEE Touchless Automation & Sustainable Packaging Solutions are generating demand, growth, and delivering productivity savings. I want to highlight our SEE Operating Model on Slide 5, which defines where we're taking SEE and what you should expect us to deliver. Our innovations in Automation, Digital and Sustainability continue to gain momentum and are driving our growth above our traditional packaging markets. We are targeting adjusted earnings-per-share growth of greater than 10% and free cash flow conversion of more than 50%.

Our SEE Operating Model generates significant cash from our purpose-driven approach to capital allocation. To fuel our growth, we are increasing our Capex investments for innovation in Touchless Automation. Through SEE Venture's Investments, we're using our balance sheet to incubate disruptive technologies and new business models to accelerate our pace of innovation and speed to market. We continue to return value to our shareholders through share repurchases and dividends. We further strengthened our capital structure with a $600 million new bond issuance in the third quarter. For SEE, this is our first secured, investment-grade bond in the company's history. The proceeds were used to pay down existing debt.

Let's turn to Slide 6, which highlights our market-driven solutions powered by our iconic brands. We encourage you to visit our website, where you can read about our innovation and customer success stories. We create measurable value for our customers through automated and sustainable solutions that are designed to maximize food safety, minimize waste, protect goods and deliver productivity savings.

Sales in our Automation portfolio, which includes equipment, services and spare parts, have increased approximately 20% [Phonetic] year-to-date, accounting for 8% of our total sales. Autobag Systems, our fastest-growing automated solution, with year-to-date sales up more than 25%, and bookings up approximately 50%. For proteins, equipment, spare parts and service, sales are up double digits, year-to-date. Our protein automation pipeline continues to grow across all regions, with major food producers committing to our SEE Touchless Automation future. Our automated equipment in service sales have a strong pull-through for a high-performance sustainable materials. Our unique approach to automation has strengthened, with our digital solutions.

Through our SEE Mark Smart Packaging, enabled with our patented digital printing, we are creating Touchless Digital Connectivity from our operations to our customers, and to consumers' homes. This level of connectivity is transformational for our customers. It enables us to be embedded into our customers' operations, where we can drive significant savings to their bottom line. Our customers are buying into our automation future. In addition to growth in automation, the recovery in foodservice and our innovations and fluids are driving increased demand for our high-performance, sustainable Cryovac barrier bags pouches in case-ready applications across all regions.

In the quarter, our fastest growing Food Solutions was our Cryovac Pouches, designed for fluids and liquids with double-digit sales growth. We continue to benefit from the industrial recovery and strength automation designed for e-commerce fulfillment. We're seeing significant shift in our fulfillment portfolio toward automation and sustainable solutions. In Industrials, we delivered mid-to-high single-digit volume growth. In Fulfillment, we experienced double-digit volume growth in automation, paper systems, and temperature assurance solutions. Although, we face global supply challenges across our business, our team is doing a nice job of minimizing disruptions and delivering on increased demands.

I'd also want to highlight that we recently launched a new innovative BubbleWrap on-demand inflator system, designed for industrial and fulfillment customers. You can see the illustration of this system, on the right side of this Slide. It features smart technology that recognizes the type of film that's loaded and easily switches between material types, whether it's inflatable cushioning, pouches, or air pillows.

SEE is becoming an automation company. On Slide 7, you can see how we are making this happen. For the full year, we expect to exceed our $425 million sales target or over 12% growth in Equipment, System and Service. We're confident in our ability to exceed our 2025 target of over $750 million, which is more than $500 million will come from Equipment and Systems.

Over the last 12 months, our bookings are up significantly, even though supply disruptions persist. The pandemic accelerated demand for automation. As I noted earlier, we're highlighting the success of our Autobag systems portfolio, with bookings up approximately 50% year-to-date, and more than 60% since the start of the pandemic. The accelerated systems demand will drive up to 7 times, future pull-through for Materials and Services over the equipment lifecycle. We currently are experiencing a significant increase in all Autobag material orders and we're investing in innovation and capacity expansions to meet this increased demand. Our year-over-year bookings growth in Auto box is also notable. Our Touchless Automation value proposition resonates with customers as we're generating significant operational savings and taking our strategic partnerships to the next level.

Let me now turn to Slide 8 and talk about Sustainability. Sustainability is in everything we do and it starts with our purpose-driven culture and values to how we innovate and invest to generate growth. Sustainability is core to our responsible sourcing of raw materials, our carbon footprint, as well as our efforts to advance circularity of packaging materials with our customers and suppliers. You can see on this Slide, our environmental goals and our sustainability pledge. Our long-term targets are ambitious and lead the industry toward a better future.

As it relates to climate change, we are doing our part with an ambitious pledge to achieve net-zero carbon emissions across our operations by 2040. We continue to take actions in our own facilities to reduce energy consumption, with incremental investments in Touchless Automation and renewable energy sources. We are making significant progress on our 2025 Sustainability Pledge, with approximately 50% of our solutions already designed for recyclability, which have reached approximately 20% recycled into a renewable content in those solutions. We designed our high-performance materials with recyclability in mind, to make sustainability more affordable, and to create a pathway for a circular economy. You can see on this Slide how Touchless Automation is transforming our operations, our customers' operations, and enabling a circular economy. We're innovating in smart packaging, incorporating digital technology and delivering supply chain efficiency, sustainability, and brand engagement with our customers.

We are excited to share that in early October, we published our Global Impact Report that highlights our ESG priorities and commitments, related initiatives, our progress, and performance. We highlight how SEE is shaping the future of the packaging industry and progressing toward our bold environmental targets.

I'll now pass the call to Chris to review our results in more detail. Chris?

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Thank you, Ted, and good morning, everyone. Let's start on Slide 9 to review our quarterly net sales growth by segment and by region. In Q3, net sales totaled $1.4 billion, up 14% as reported, up 13% in constant dollars. Food was up 12% in constant dollars versus last year, and Protective increased 13%. The Americas and EMEA were both up double digits, with Americas up 14% and EMEA up 13%. APAC was up 6% versus last year.

On Slide 10, you see organic sales volume and pricing trends by segment and by region. In Q3, overall volume growth was up 5%, with favorable price of 8%. Let's start with volumes. Food volumes were up 6% with growth across all regions. Americas up 5%, EMEA 6%, and APAC 7%. Protective volumes were up 4%, led by EMEA with 16% growth, followed by APAC up 4%, and Americas, essentially flat to prior year.

Q3 price was favorable 8% with the Protective at 10%, and food at 7%. Formula-based pass-throughs, primarily in Food North America, are now better aligned with input costs. For the full year 2021, we now expect to realize more than $275 million in price, given additional pricing announcements since our last call, as well as timing of formula-based pricing.

As we head into 2022, we will be announcing additional price increases, effective December 1, and in response to continued inflationary pressures. This increase will vary based on region and product offering and will average between 5% and 10%. We are engaging directly with our customers to meet increased demand with automation and alternative solutions that drive productivity savings.

On Slide 11, we present our consolidated sales and adjusted EBITDA walks. Having already discussed sales, let me comment on our Q3 adjusted EBITDA performance of $271 million, which was up 4% compared to last year. Margins of 19.2% were down 180 basis points. Despite favorable pricing in the quarter, you can see how the inflationary environment and supply challenges weighed on our results with an unfavorable price cost spread of $18 million.

Operational cost decreased approximately $3 million relative to last year, with Reinvent SEE productivity gains and a $5 million benefit related to an indirect tax recovery in Brazil. Our SEE Operating Engine is performing with 40% leverage on our higher volumes. In the month of September, price cost spread turned favorable. In Q4, we expect this favorable trend to continue. Adjusted earnings per diluted share in Q3 was $0.86 compared to $0.82 in Q3 2020. Our adjusted tax rate was 24.9% compared to 20.6% in Q3 2020. The prior-year tax rate included a benefit of US GILTI regulations issued in 2020. Our weighted average diluted shares outstanding in the quarter were $151 million.

Turning to Slide 12. Here we provide an update on Reinvent SEE, which is now the foundation of our SEE Operating Engine. We have achieved $43 million of benefits in the first nine months of the year, and remain on track to realize approximately $65 million in 2021. Turning to segment results on Slide 13, starting with food. In Q3, food net sales of $797 million were up 12% in constant dollars. Cryovac Barrier Bags and pouches were up for the second consecutive quarter versus last year, and combined, accounted for nearly 50% of the segment sales. Sales in case-ready and roll stock applications were also up as food service recovers and retail demand remained strong.

Equipment, Parts and Service sales, which account for 7% of the segment, were up low-single-digits in the quarter. As Ted noted, we are experiencing strong demand in protein automation, and continue to build our pipeline. Adjusted EBITDA of $169 million in Q3 increased 11% compared to last year, with margins at 21.2% and 40 basis points. Higher volumes, favorable pricing, and productivity gains offset elevated costs.

On Slide 14, we highlight Protective segment results. In constant dollars, net sales increased 13% to $609 million. Relative to last year, Industrial was up more than 15% and fulfillment up approximately 7%. We faced supply chain disruptions throughout the quarter and leveraged our broad portfolio and global footprint to meet customer demands where possible.

As a reminder, approximately 55% of our Protective sales are derived from industrial end markets and the remaining 45% from fulfillment and e-commerce. Adjusted EBITDA of $103 million decreased 5.5% in Q3, with margins at 16.9%, down 350 basis points versus last year. We incurred transitory headwinds, including non-material inflation and labor challenges, which more than offset higher volumes and pricing actions.

Let's turn to free cash flow on Slide 15. In the first nine months of 2021, we generated $243 million of free cash flow. Relative to the same period last year, higher earnings and lower restructuring payments were offset by the impact of higher employee-related costs, cash tax payments, and Capex investments to support growth and innovation. On Slide 16, we outline our purpose-driven capital allocation strategy, focused on creating economic value. We maintain a strong balance sheet while driving attractive returns on invested capital and supporting profitable growth initiatives.

As Ted mentioned, I want to highlight that during Q3, we executed a $600 million five-year senior secured bond at 1.573%. The proceeds of this offering were used to pay down $425 million senior unsecured notes at 4.875%, due in 2022, and $175 million pre-payable term loan debt. To support our growth initiatives, we are focusing our Capex on Touchless Automation, Digital, and Sustainability. We are expanding our capacity in equipment to align with customer demands and support continued growth. We are investing in smart packaging and digital printing and see opportunities to expand our presence in attractive growth markets and geographies. We are managing our product portfolio with discipline to ensure alignment with our growth strategy.

As it relates to returning capital to shareholders, we have repurchased 6.6 million shares, for $329 million year-to-date September, reflecting confidence in our future growth. At quarter-end, we have approximately $970 million remaining under our authorized repurchase program.

Let's turn to Slide 17 to review our updated 2021 outlook given our performance year-to-date through September. Our net sales we now estimate are approximately $5.5 billion or up approximately 12% as reported growth to reflect the favorable demand environment and pricing actions. This compares to our previous range of $5.4 billion to $5.5 billion. We expect a favorable currency impact of approximately 1.5%. Given the current environment, we now anticipate adjusted EBITDA in the range of $1.12 billion to $1.4 billion.

On a reported basis, adjusted EBITDA is expected to grow 6.5% to 8.5%. This compares to our previous guide of $1.12 billion to $1.5 billion. For adjusted EPS, we expect to be in the range of $3.50 to $3.60, the higher end of our previous guidance. This assumes depreciation and amortization of $230 million and adjusted effective tax rate of approximately 26%, and approximately 152.5 million average shares outstanding.

And lastly, our outlook for free cash flow is expected to be in the range of $520 million to $540 million. There is no change to our outlook for 2021 Capex of approximately $210 million, and Reinvent SEE restructuring associated payments of approximately $40 million. For cash taxes, we anticipate approximately $110 million, which is net of a $24 million tax refund associated with the retroactive application of the revised US GILTI regulations.

As we close out the year and enter 2022, we are executing on our growth strategy, driving productivity and aligning our business with our SEE Operating Model. With that, let me now pass the call back to Ted for closing remarks. Ted?

Edward L. Doheny -- Chief Executive Officer, President & Director

Thanks, Chris. Let's turn to Slide 18, where we have our purpose statement which is how we will make our vision a reality. Before we open up the call for questions, I wanted to thank our people for their tireless efforts to take care of our business in this difficult environment. Demonstrating our ability to grow and expand our presence globally, considering the inflationary pressures in global supply disruptions, is a true reflection of the talent we have at SEE. We are differentiating ourselves in the markets we serve with a can-do, get-it-done culture. We're reinventing where we are taking SEE and driving our performance to world-class, where we're [Phonetic] at the table with our customers, solving their most critical packaging challenges with automated and sustainable solutions. Our strategy is working and continues to gain momentum. We are purpose-driven to create long-term value for our stakeholders and making our world better than we found it.

With that, I'll now open the call for questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from George Staphos with Bank of America. Your line is open.

George Leon Staphos -- BofA Securities -- Analyst

Hi. Thanks, operator. Hi, everyone. Good morning. Thanks for all the details. I wanted to ask a question on growth, framed with some of your strategic initiatives, Ted. So, within Automation, I think as of the second quarter, sales were up around 26% year-on-year, year-to-date, and if I'm remembering correctly, you're up approximately 20% as of the nine-month period. We recognize, there's a lot of good things going on in Automation, if I'm remembering the numbers correctly, where are you seeing the deceleration?

And relatedly, within Protective, you called out supply chain headwinds. It's notable that EBIT was down in the quarter, even though you did a really good job relative to 2Q and 1Q on price cost, can it quantify what was going on in Protective relative to the growth rate there?

Thank you very much.

Edward L. Doheny -- Chief Executive Officer, President & Director

Good. Thanks, George. And I'll try to tag team that with Chris. I think we picked up three things, and maybe, we'll talk about 2022, which you kind of had an inference there. So if you look at Equipment, and if I can point to our deck on the Equipment Slide, which is Slide 7, if you unpack what's going on with Equipment, year-to-date, as you highlighted, we highlighted up over 20% in the quarter, there was a little bit of on the actual shipments, on the sales, there was some slowdown. It was less and it was high-single-digit, but the slowdown was due to comps from last year, but also supply disruptions. As you're dealing with -- other equipment companies are out there, I don't want to go through all those issues, but they're real and getting the equipment installed, etc., etc.

So, what we're really focusing on, and by the way, we're working with our customers on all those issues, are really focusing on as we really transform this into an Equipment company is, what are the bookings, how are the bookings doing? The bookings are still very, very strong, And they are strong across the board, so not worried about that. We got a lot of issues in place, and actually again, we're using the Equipment story handle the situations with our customers because their number one issue is labor shortages. So we are right there with them and solving that. So actually, when we talk about some of our thoughts in 2022, you'll see why this is what we're quite confident this momentum will build forward.

The second part of the question, I might try to get Chris to tag team on that, and that is what's going on with the bridge with the Protective, and...

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Sure. Yeah, so, George, let me just read your [Phonetic] comment around Protective. And you kind of highlighted the fact that we had good growth in the quarter but saw the margin pressure, and unfortunately, you're going to hear kind of a consistent theme given -- with the supply chain disruptions that we faced during the quarter that we continue to manage through. Good in terms of the growth, but those incremental costs are impacting our margins. So, those transitory impacts higher freight costs, I think about the labor challenges, etc. to get that volume out. We have experienced some headwinds. So, although we felt good about the growth, the conversion, if you will, the margin profile and Protective, unfortunately, was negatively impacted in the quarter. And that's what you see in our results.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please?

Operator

Thank you. Next question is from Ghansham Panjabi with Baird. Your line is open.

Ghansham Panjabi -- Robert W. Baird & Co. Incorporated -- Analyst

Hi, good morning. Just on your comment, Chris, about price cost inflecting positively in September. I just want to check in to see if it's on both segments or is it just skewed toward one? And then, what Protective comparisons get quite a bit more difficult from a volume standpoint, 4Q onwards, obviously there is considerable supply chain constraints -- Auto EM, and just industrial markets, in general. How do you sort of see that playing out?

And then, related to that, how does that impact your ability to deliver -- it's all machines, pretty linearly, just given all the constraints that Ted sighted in terms of shortages, etc. on parts?

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Sure. Yeah, sure, Ghansham. Thank you. So, a few questions. So, maybe just to hit the price cost spread, because in my prepared remarks, we talked about that September, we did see that favorable terms [Phonetic]. So, we're finally catching up as it relates to price, relative to the input cost increases that we've experienced all year, pretty evenly split. It's not a huge number. Let me just kind of calibrate it that way. It's not a huge number. We're just glad to see it be positive and pretty much reflected both in Food and Protective. That momentum, we expect to continue. So our guide, if you will assume that we're going to get incremental to our sequential improvement from Q3, roughly $40 million to potentially $50 million of incremental prices, if you expect it to be able to achieve the midpoint of our guide for full-year, and then how that relates back to fourth quarter.

And then maybe, your specific question relative to Protective volumes continue to be strong, I made my comments earlier in terms of the margin profile, we're doing everything we can to be able to meet that demand heading into Q4. So it's great to get that volume, granted, we'd like to see better margin improvement, but at the same time, we recognize that this is a temporary kind of -- transitory type of challenges that we're working through. And our supply chain team is doing the best they can to get product to our facilities to able to satisfy that demand.

So, that kind of answers your delivery question in terms of being able to deliver on our customers' needs.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please.

Operator

Thank you. Our next question is from Anthony Pettinari with Citi. Your line is open.

Bryan Burgmeier -- Citi -- Analyst

This is actually Bryan Burgmeier sitting in for Anthony. You guided to $275 million in price increases for this year, which is the same number you gave on the last call, so is the raise to organic growth guidance entirely driven by volume? And based on what you've already said publicly, how much will prices be up in 2022?

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Sure, Bryan. So you're right. I mean -- our midpoint last quarter's call, in terms of the topline, and then as we moved forward in terms of adjusting and tightening that range, specifically around $5.5 billion for the full year, it is driven by volume. So, it's our expectation of volume. Although we're hopeful to be able to achieve better than that to $275 million, as I mentioned in my prepared remarks, that's hopefully what we'll see. We're counting on it in terms of our EBITDA range guidance for the full year, but we would expect to be at or better than that to $275 million. So -- it seems we've done a nice job working that, literally partnering with our customers to make sure that demand is satisfied. Everyone recognizes the environment we're in relative to these inflationary pressures, and we're working our best with customers to be able to satisfy their demand, at the same time, as we commented, help their operations from a productivity point of view.

Edward L. Doheny -- Chief Executive Officer, President & Director

Yeah, Bryan, let me just add on one thing, as you're alluding to, if you go to our Slide 5 with what's happening in the fourth quarter and on price, which has been the big issue for us. We've had three quarters, we've been chasing those endpoint costs. So we -- as Chris highlighted in his prepared remarks, we saw a turn in September. So that's what's giving us confidence to hit that -- our fourth quarter, and really building into the momentum into 2022. So, if you look at our Slide, you could see where we're giving you this is where the model is driving. So, to unpack that a little bit for you, if you look at our organic sales, that's been strong this year. We're looking to that momentum to continue to be strong and actually exceed that going into next year. And then you add price on top of that, so you see some strong volumes into 2022. And then the conversion on that, on the earnings, is going to be with the price now going positive in the quarter. You're going to see a pretty significant change in our profitability in the fourth quarter compared to the first three quarters being ahead on the price, if you see not only our operating leverage on the volume that we've been consistently hitting well over that 30%, you're going to see the price coming in it as well.

Going into 2022, we're still going to have some supply constraints and we still -- or think we're going to have those inflationary pressures. So, they're happening. It's going to be a little bit different than the resin because we do think that should be starting to flatten but just to catch up on all the other inflationary costs. But we still think we're going to be ahead, and we think our EBITDA growth percentage is going to outweigh our sales. So, we're going to have some margin expansion going into next year, and then, that flows with getting over 10% on EPS and our cash generation. So, we're seeing this momentum in the fourth quarter being led by price, taking us into a strong 2022.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please.

Operator

From Larry De Maria with William Blair. Your line is open.

Lawrence De Maria -- William Blair -- Analyst

Thanks. Good morning. Just changing gears a little bit. Ted, you mentioned disruptive technology, any examples, obviously, except for the [Phonetic] Automation, just around alternative to plastics, and commercial wins you may be seeing there? And then secondly, on your -- on the Reinvent SEE, obviously way ahead of schedule. Any update there and how should we conceptualize that going forward into next year?

Edward L. Doheny -- Chief Executive Officer, President & Director

Sure. And welcome, Larry, into our stock. It's nice having an equipment guy following us. So I'll do the first part and talk about some disruptive technologies, and I'll let Chris handle the Reinvent SEE progress.

So, if we look at our Slide 8 and believe our sighting, when we talk about what are we doing in Sustainability, what are we doing with Automation? So, if you look at this picture, what we do, we have roughly a billion pounds of resin, and plus, add to 250 million pounds of paper to go in produce 30 billion packages. So, that's the big picture of what we do. So to your question on disruptive technology, we're bringing automation into our facilities; we're actually bringing some pretty unique operations creating some touchless systems that are enabling us to change how we make a product. In this example that we have here on this slide, this is where we're taking in our food business instead of taking our -- creating the bag, we fold them up into a box, we are now fully automating that and putting into a high-density roll. So, actually we're finishing making the bag in our customers' operations. So, in this one example here, this is a order that's coming in, is we're actually able to now go to a high-density roll, finished making the bag in our customers' operations, we're eliminating in this one example 87,000 boxes a year. So, a dramatic carbon footprint change, dramatic environmental change, but also the productivity, and it's saving customers labor, which is significant.

So, very disruptive, and then now we're bringing our high mid to -- high-performance materials into the system, introducing some of the digital technology, actually printing right there now in our customers' facilities versus where we used to print in our plants. So, this is orders in process and this is where our future is going to be. And then, you can see, taking it all the way to the consumer in the home, bringing our digital technology, so that you can see through the package, know what material it's made out of, know what's going on with the protein inside. So, pretty excited about making this happen and this is -- this reality is happening as we speak, especially right now in the protein market.

So, to turn to your Reinvent SEE question.

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Sure. So, Larry, let me kind of address [Phonetic] your Reinvent SEE question, given the successful program, you're right, pretty much coming up toward the end of the program in '21, I don't expect meaningful carry over into '22. But what we're trying to do, at least profile out, is that this has really become the foundation of our SEE operating engine, meaning every year, the productivity generation of the company to exceed inflation is the goal. We're going through our planning period right now for 2022, not to say we won't be too inconsistent with our SEE Operating Model, in terms of how you think about our performance over time. So, we plan on updating investors in the February timeframe when we close out '21 and provide more specific guidance relative to 2022.

But I would comment, there is nothing that we're seeing as a major concern kind of heading into 2022. We're working through these transitory costs, we're getting the favorability of price as we mentioned, driving productivity in our operations, feeling good about where we are in terms of return, but there is more work to do. So, there is a lot going on with the operations right now. So we're going to present -- we're going to finalize our plan coming up, and we'll give more color in the February time frame and specifically talk to productivity inflation relative to 2022.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please.

Operator

Thank you. It's from Chris Parkinson with Mizuho. Your line is open.

Kieran de Brun -- Mizuho -- Analyst

Hi, good morning. This is Kieran on for Chris. I was just wondering if you can provide a little bit more color on kind of the volume trends that you saw in the quarter in Protective and food, but specifically by region? It seems like EMEA was particularly strong, if you can just parse that out and talk about what you see into the fourth quarter and maybe a little bit into '22, that would be helpful? Thank you.

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Sure. So, as you can see in our supplemental side specifically around the growth in Protective and food, given our segments as well as the regions, but really strong, strong performance across the board. EMEA, specifically, that we highlighted given the volume growth of 10%, just very strong. So, we look at it that -- that's continuing, despite the supply challenge as well as the price increases that we're introducing, being able to retain that business and look to grow it. And that's kind of what we see. The favorability of industrial and fulfillment has been very strong. There is some tougher comps when we kind of compare quarter-over-quarter, but the volume, we're feeling really good about.

Edward L. Doheny -- Chief Executive Officer, President & Director

Just looking at [Phonetic] one thing there is we're looking at the business and we've mentioned Protective. A piece that we feel like we're behind is actually that we had great gains with our European, Middle East, and Africa region on the volumes, but we are a little bit late on the price there. So, we think that's an opportunity going forward as we look at the Protective, and that's what you're seeing in the numbers, where, although, we're behind and we're kind of anticipating a catch-up in the fourth quarter and into 2022.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please.

Operator

Thank you. From Josh Spector with UBS. Your line is open.

Joshua David Spector -- UBS Investment Bank -- Analyst

Yeah. Hey guys. Thanks for taking my question.

I guess, just to dig into Food volume a little bit more. If I look at your performance in the second quarter and third quarter, somewhat consistent on a two-year stack. When I look at your fourth-quarter guide, it seems to imply a bit of a slowdown. And I don't know if there is something from a reopening or mix that's impacting that or is there something else that I'm missing or if my interpretation is wrong. So, any comments there and what you're seeing in 4Q? And early thought perhaps on how you're thinking about volume growth there to '22 here, would be helpful. Thanks.

Edward L. Doheny -- Chief Executive Officer, President & Director

Yeah. Hi, Josh. Just real high level it's -- we're dealing in the fourth quarter, which you see in the implied guidance is it's relatively flat, and we still have the persistent labor challenges, etc. The opportunity there is where we see the volume coming in on the food service. So we feel that is going to overcome, but right now, you read [Phonetic] guide, right now it's flat. So, going -- go into 2022, that's where we feel confident that we can see food service coming back. We see really the automation coming in strong into the food side. So, we should have the pickup. So, for right now, in the fourth quarter, flat to slightly up, but we think we have opportunities going into 2022 in getting that, not only the volume but then catching up on the price. So, that's the opportunity we have for food going into 2022.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please.

Operator

Thank you. Is from Mark Wilde with Bank of Montreal. Your line is open.

Mark Wilde -- Bank of Montreal -- Analyst

Hi, Ted. Hi, Chris.

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Hi, Mark.

Edward L. Doheny -- Chief Executive Officer, President & Director

Hey, Mark

Mark Wilde -- Bank of Montreal -- Analyst

Ted, I wanted to just talk a little bit more about sort of Automation and the timing roll-through as you see it. I mean, you can imagine, I guess after COVID last spring and all the issues in the meatpacking plants that these manufacturers are keen to kind of reduce the amount of labor, but in practical terms, how long does it take them to kind of work this through the budget, and the sort of the reengineering of all of these facilities, so how long could this sort of reconfiguration and increased automation trend? How long could it take for this to play out, in your view, and what would be the kind of the cadencing? [Phonetic]

Edward L. Doheny -- Chief Executive Officer, President & Director

No. Great, great question, Mark. Obviously, you're asking the question with knowledge there, because it depends. The big systems are probably a two-year to three-year timing. What we're excited about, we've been working on this for a while. So, actually, in the quarter, we actually were able to secure some longer-term major automation wins in the protein space. So, those will be building up over the cadence of the next one year to two years, and we'll see that.

Now, the rest of the portfolio and that's where we gave you a little bit of a detail on the -- our automation Slide, where we wanted to unpack Autobag and actually show you what's going on with Autobag as we looked at our acquisition of Automated Packaging Systems because we're now looking like an equipment company, we are tracking bookings. And we actually gave a signal to the team -- actually, now within the signals, a direct command over nine months ago, we're going to have to double our capacity, and this is with Autobag. So, just unpacking that, we do some food in -- with the Autobag as well, so -- which I'm pleased to see that we are out -- we are catching up. We are behind because the book-to-bill is higher than we would like. Our lead times are longer than we'd like, but we're seeing that the -- we even went public with our Capex announcement there, over $30 million, we are catching up.

And again, going into 2022, we think this will be able to support that significantly strong growth rate that we have for equipment. So, I think we're well on our way to exceed the target to get over that $750 million over the next five -- three years, five years, four years, whatever it is. But so it -- it does. You are right. But these are long-term projects, which actually is exciting because we're embedded with our customers. We're working with their layouts. How do we get our equipment in place and actually embedded into those systems. So, long -- long answer simple, the big stuff, the big systems, the multimillion-dollar systems are probably two years to three years in planning and execution, but the Autobag systems, those are a matter of less than three months. And it should be in weeks and that's what we're working on.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please.

Operator

Thank you. From Mike Roxland with Truist Securities. Your line is open.

Michael Roxland -- Truist Securities -- Analyst

Thanks there. Good morning, Ted, Chris, Lori. Appreciate you taking my questions. Just wanted to follow up on the machinery and automation bookings. Obviously, this has been stressed a lot during the call. As the labor shortage continues to persist and I would argue has gotten worse, over the last few months, what has been [Phonetic] the cadence in your machinery bookings? Have you seen an acceleration in those sales, bookings corresponding to the deteriorating labor situation? And then, relatedly, you mentioned that machinery sales have been impacted by a shortage of materials, can you just provide some more color around what some of the gating factors are there? Did that worsen during the quarter and what are you seeing regarding that shortage thus far in 4Q? Thank you.

Edward L. Doheny -- Chief Executive Officer, President & Director

Okay, good. So again, if we take a look at that Slide and we talk about the equipment business and the cadence, you're going to hear us using the language, as an ex-equipment guy myself, you're going to hear us using language like choppy and -- because these are bigger numbers that are coming in, and they come in at a different time. So, as our pipeline grows, we'll have a smoothing of this. But -- so, but in the quarter, some of the issues that I mentioned already is for getting some of those equipment installs on a sales basis in the quarter. We had some starts and stops, so we think we'll have some recovery in that in the fourth quarter, but still very strong. The bookings, though, are up significantly. So, could the bookings even be higher? Probably. That's why we got to add capacity because those lead times are stretching. So the -- to the cadence, and where you asked a question about -- labor, right now this is the hardest thing out there in the market today. Can we help our customers with their labor shortages, and Automation is the answer.

So, lots of investment going on in place. We're working with our customers, taking care of these supply shortages. But I want to separate, one thing that you said, just to understand why we are so excited about our equipment strategy, equipment is one piece, the pull-through of the materials is the other aspect of this. So, not only had we Autobag, specifically, we've had to invest into the material side of that as well. So, our materials are up because the pull-through -- we're actually going to be selling materials faster.

The last piece on the equipment is we mentioned equipment plus systems. So these large systems that we're selling, not only didn't have the equipment, some traditional equipment we've had in the past, some new equipment, but also it's full systems. So we're putting in robotics, we're putting in conveyance systems, we're putting in -- WMS systems with our customers. So, the dollar amount is much higher, and we're making the margin is on the savings of the full system. So, it's much different that [Phonetic] we've done in the past and we're going to be giving better and better visibility on how we measure this and how we forecast it going forward.

Michael Roxland -- Truist Securities -- Analyst

Okay.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please.

Operator

Thank you. Is from Phil Ng with Jefferies. Your line is open.

Philip Ng -- Jefferies -- Analyst

Hey, guys. Ted, congrats on a good quarter in a choppy environment. I know you [Speech Overlap] yeah. UPS and the containerboard manufacturers have actually called out strong underlying demand but their customers have been constrained by supply chain labor. And it sounds like you're seeing some of that. So, just curious, as we kind of head into the holiday shopping season, what are your customers signaling to you, particularly in Protective, as you kind of lap some of these tougher comps? And when we look out to perhaps 2022, how are you thinking about volumes and that mix dynamic evolving next year?

Edward L. Doheny -- Chief Executive Officer, President & Director

Well, I think I'll do the first part and, Chris, if you want to add [Speech Overlap]

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Sure. I'll provide the '22 color.

Edward L. Doheny -- Chief Executive Officer, President & Director

Yeah. So, as far as where is that going, and obviously you mentioned UPS -- we're a tight partner with UPS. So, they have our stuff actually in their innovation centers. So, as those at-home purchases continue and going through the holiday season, we think we'll see more of the equipment for the automation, but that's already planning for '22. What we're going to see in the next few months is more of what we already have in place coming through with more of our discrete mailers, discrete products. So right now, it's more on the material issues to getting those taken care of, on those bottlenecks.

As far as going into next year, it's going to be our new stuff that's going to help us with comps this year. Can we get those new products out there, can we get the automation out there, and can we also get some of our geographic issues taken care of? We're investing in our geographies around the world. So, to handle that comp for next year, which we still feel pretty good about, I'll let Chris talk a little bit about 2022. We think we can maintain those volumes and the incremental volumes on the Protective side as well as the food.

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Sure. Maybe before I talk about 2022, just to add to Ted's comments relative to maybe the third quarter as well as the fourth quarter, given supply and instructions, think about labor challenges, etc., it seems when we assessed it for Q3, we felt we were kind of roughly $20 million of opportunity lost, if you will, as it relates to these disruptions in Q3. As that same specific question relative to Q4, a little bit less, but still kind of in this, call it, $15 million range. So we're -- there were tens of millions of dollars, unfortunately, being -- not necessarily lost, some of it's going to move to the right, but it's definitely impacting our performance even though our performance is very good. So, kind of working through these supply challenges.

If we turn to just 2022, just to give some high-level thoughts. The volume -- the operating model that we're driving to this 3% to 5%, given the favorable dynamic, we expect to see on price cost spread, we would expect to have that organic growth within that 3% to 5% category. But then you add on top of that, what we would expect in terms of price being greater than the material inflation, or get the price benefit of that. So, we're more in the 6% to 7% growth as we see it right now for 2022. Now, going through the planning period, this assumes -- or has a lot of assumptions for material availability, working through these transitory items, which we're working through, but we feel good about the volumes, underlying volume is there, getting labor in place, getting through these disruptions, and continue to execute is where we're focused.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, next question, please.

Operator

Thank you. Is from Salvator Tiano with Seaport Research.

Salvator Tiano -- Seaport Research Partners -- Analyst

Yeah, hi. Thanks for taking my questions. So, a couple of things. Firstly, just building on what you just mentioned about next year organic sales being a little bit higher than normal because of price cost, does this mean also we should assume that your EBITDA growth should be at the top end of the 5% to 7% growth rate next year or even above it?

And also, just briefly on capital allocation. You have $300 million in cash and free cash flow coming through in Q4; based on the full-year guidance, what are your thoughts about that you -- we saw you slowed down buybacks with regard to M&A or restarting the buy -- or going back to the -- to repurchase shares even more?

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Sure, Salvator. Thanks for your questions. So, maybe just the EBITDA performance for the full year, given our updated guidance for 2021, and then as we think about 2022, early stages, really just focused on the EBITDA margin expansion. The fact that we expect to be favorable on that price cost spread heading into 2022, given the volume growth and we're converting -- today we're converting incremental volumes close to 40%. So, having that good momentum makes us feel good about it. However, a lot of assumptions built into what I just said and we're working through to make sure we have a good profile. But I can tell you that, internally, how we're driving is to convert that incremental volume a greater than 30%, you've heard us say that in the past. And margin expansion may be a little bit challenging, but we're driving -- we're up to -- a 21% EBITDA margin business is what we're targeting in terms of our thoughts.

Then you mentioned a second item, just relative to the cash generation that we have expected for the full year, as we kind of commented, small number, where -- we had an incremental share repurchase in the quarter. So, the amount of, I'll call it dry powder, we have to deploy in the business, and I'll let Ted comment as well because we just put out a press release this morning since we finalized it on the Reflectix [Phonetic] divestiture, which we expect to get roughly after-tax proceeds between $40 million and $50 million for that. So -- so the cash proceeds to use to redeploy into the business will be available to us, and as we execute on that, share repurchase is an item, as we know, we recently increased the dividend. We're very optimistic that the pipeline of opportunities for M&A will be there. Of course, that takes the other side to agree. So, we'll work through it.

So maybe, Ted, some color on the capital allocation and the excess cash flow we [Phonetic] have.

Edward L. Doheny -- Chief Executive Officer, President & Director

Yeah, the -- so just to specifically and -- the press release just did hit on our Reflectix business. So -- and that's what we were communicating, always trying to be transparent. If you go to our capital allocation Slide 16, we're again, purpose-driven. And if you just look in this section, we talk about invest and acquire, there is an implied word, invest, acquire and divest to accelerate growth. So, as we look at our product portfolio, we are continuously analyzing our portfolio; where does it match and can we use our portfolio to actually fuel our growth. So, just the Reflectix is a nice business. It focuses though on HVAC and construction, not something that is connected to our strategy, but a very nice business. So the buyer is getting a nice business and we're going to take those proceeds and continue invest where we're taking the business and driving into our, automation, digital and sustainability growth plans.

So, the other piece in here, as we look at our capital allocation, as Chris talked to, we're being very opportunistic. We talked about the share repurchase. I've mentioned before, our stocks hit a new low, so we're also communicating those investors that are coming in. And this model is generating close to $2 billion of cash over the next three years. So, being purpose-driven, where we put that cash, is going to be how do we fuel this growth going forward. So, good question. And want to, just to the employees that are going to Reflectix, we really appreciate what you did, and to the buyer, you've got a great business. And it's all part of optimizing our portfolio.

Lori C. Chaitman -- Vice President of Investor Relations

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

Operator

Excellent. And my last question is from Adam Samuelson with Goldman Sachs. Your line is open.

Adam L. Samuelson -- Goldman Sachs -- Analyst

Yes, thank you. Good morning, everyone.

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

Good morning, Adam.

Adam L. Samuelson -- Goldman Sachs -- Analyst

Morning. So, I was hoping maybe touch on this a little bit, but as we're thinking about '22, you expressed a good level of confidence on the volume side, maybe on a global basis, but maybe just thinking about where things are, where the confidence level is particularly high, and maybe some of those end markets that are -- that have been a bit more challenged or a bit more of a caution area, so on the positive side, I would think about e-commerce in the U.S.; maybe and inversely [Phonetic], red meat in Brazil or in Australia, industrial kind of production base, Protective businesses in Europe? I'm just trying to think about where is the high and low-end of the spectrum you're most -- and a little bit more watchful on the volume outlook?

Edward L. Doheny -- Chief Executive Officer, President & Director

Okay, I'll do the first part. Yeah, it's a good question. And again, as we're looking to grow the business, how do we grow it by product, how do we grow it by geography, and how do we grow it by market? So, just to have some quick thoughts and then some -- the secular trends that we're focused on, which I'm always going back to, it's this, first thing is Automation and that applies to the whole portfolio because what's being driven is these labor shortages. As we package again our 30 billion [Phonetic] packages that we do a year, that we're covering all market. This labor challenge is ubiquitous; it's everywhere. So now, going into some of the markets or the geographies that we think we have this year, maybe, we are a little behind on, we think we have some potential, is we're pretty bullish on what's going to happen with the turnaround with the European, Middle East, and Africa. Had a tough catch-up on the cost going up fast and the price. We think we're going to get that. We have some really interesting innovations that are going into the European market, especially on that other challenge of sustainability, introducing some paper products into e-commerce.

We do very well with our Bubble Wrap, our pillows, etc., and we're investing in some pretty interesting technology on the paper side for -- that's going to show up in the e-commerce, being really pulled quickly into the European markets, but that's going to be global. So, we see that's exciting for 2022 growth.

On the food side, we see our expansion beyond proteins, obviously fresh red meat, where we do really well. But the growth in that 22% part of our portfolio is going to be on the Automation, and we're really excited that we're seeing some of those big Automation opportunities actually now going forward. Some of the equipment -- some of those should be hitting in 2022. So, that's globally, all over the world. And then, the other piece is going -- taking food beyond fresh red meat. You heard us talk about the liquids and fluids being up over 20%. So, bringing the Cryovac's pouch to that but as you see in this Slide, if you look at our market Slide, you'll see going into liquids such as spirits, as wine. But next to that, is a million-dollar piece of equipment that's actually filling those pouches that we're putting into a box and creating a full system. Those are some exciting markets that we're going after. You look at the side pouch system we have, actually packaging food. And you would have called that -- we would have, not you, we would have called that a Protective business in the past, but that's why we're becoming really market-driven with these great products and systems.

And so, we see some expansion into the parts of the food business where we didn't play before, especially on the equipment side, where we may have done the pouches, but now we can do full equipment. And again, saving our customers significant amounts of money on their productivity. And again, labor shortages, where they just can't get the labor right now.

So, going into 2022, we think we've got lots of opportunities. Again, just to close the call, the momentum of the fourth quarter, building into 2022. We're excited about the future and I want to thank everybody for the time on the call.

And operator, I think that's it for us today and look forward to when we talk next. Thank you.

Lori C. Chaitman -- Vice President of Investor Relations

Operator, we're ready to close out the call. Thank you.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Lori C. Chaitman -- Vice President of Investor Relations

Edward L. Doheny -- Chief Executive Officer, President & Director

Christopher J. Stephens -- Senior Vice President & Chief Financial Officer

George Leon Staphos -- BofA Securities -- Analyst

Ghansham Panjabi -- Robert W. Baird & Co. Incorporated -- Analyst

Bryan Burgmeier -- Citi -- Analyst

Lawrence De Maria -- William Blair -- Analyst

Kieran de Brun -- Mizuho -- Analyst

Joshua David Spector -- UBS Investment Bank -- Analyst

Mark Wilde -- Bank of Montreal -- Analyst

Michael Roxland -- Truist Securities -- Analyst

Philip Ng -- Jefferies -- Analyst

Salvator Tiano -- Seaport Research Partners -- Analyst

Adam L. Samuelson -- Goldman Sachs -- Analyst

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