Sealed Air Banks on Acquisitions & Innovation, Costs High

On Nov 8, we issued an updated research report on Sealed Air Corporation SEE. The company is poised to benefit from acquisitions, innovative products, Reinvent SEE Strategy, restructuring programs, and growth in fresh food and e-commerce markets. However, weaker volumes in the Product Care segment thanks to slowdown in the global industrial market and input cost inflation remain concerns.

Upbeat Prospects for 2019

Sealed Air anticipates net sales of $4.8 billion for fiscal 2019. The guidance reflects year-over-year growth of approximately 1.5% on reported basis and 4.5% in constant dollars. Acquisitions are expected to contribute 4% of growth in revenues. Sealed Air’s adjusted EBITDA for fiscal 2019 is pegged at $890 million. EBITDA margin for the year is projected at 19.8-20%. The company projects adjusted earnings per share at $2.70-$2.80. The mid-point of the guided range indicates year-over-year growth of 10%.

While the Zacks Consensus Estimate for Sealed Air’s earnings per share for 2019 is $2.78, the same for revenues stands at $4.80 billion. The estimate for revenues and earnings per share indicates year-over-year growth of 1.47% and 11.2%, respectively.

Savings from Restructuring to Aid Margins

In December 2018, Sealed Air announced a reformation plan — Reinvent SEE Strategy — and a fresh restructuring program, in a bid to drive earnings. The new strategy is focused on innovations, SG&A productivity, product-cost efficiency, channel optimization and customer-service enhancements. One of the most vital aspects of this strategy involves investment in technology and resources focusing on new and existing high-growth markets. Moreover, the new strategy will fuel Sealed Air’s growth by supporting packaging innovations for fresh food and e-commerce.

Sealed Air will combine the new program with its ongoing restructuring program. Both programs are likely to lead to total annualized savings of $250 million through 2021.

Acquisitions: A Key Catalyst

Sealed Air acquired Automated Packaging Systems, Inc. during the second quarter of 2019. This acquisition will strengthen its portfolio and drive growth in e-commerce, fulfillment and food packaging markets. The earlier buyout of AFP, Inc. expanded Sealed Air’s protective packaging solutions in the electronics, transportation and industrial markets with custom-engineered applications.

The company has also acquired Fagerdala, to improve its manufacturing footprint in Asia, expertise in foam manufacturing and fabrication, and commercial organization to enhance sales in the consumer electronics, medical equipment and devices, automotive, temperature assurance, and e-commerce fulfillment sectors. AFP and Fagerdala align well with the ship-in-own-container (SIOC) trend in e-commerce. This trend is transforming e-commerce packaging as more distributors want manufacturers to have their primary packaging parcel ready.

Poised Well for the Long Run

Sealed Air’s top line will be supported by enhanced demand for its core product portfolio, recently-introduced innovations, strong fresh food markets and e-commerce activities. The company is witnessing increased demand for essential and high-performing packaging solutions that extend shelf life, reduce waste and drive customer productivity. Furthermore, ongoing momentum in high-growth geographies such as Brazil, Russia, China and Southeast Asia will continue as demand increases for packaged proteins and convenience meals.

In addition, expected benefits from reducing costs, driving operational excellence and commercializing new innovations, and favorable global business trends will aid the company in improving margins.

Price Performance

Over the past year, shares of Sealed Air have gained 14.5% against the industry's decline of 25.7%.

Headwinds

Decelerating global industrial market and the U.S.-China trade war have been impacting Product Care segment’s volumes. Increasing raw material prices and higher freight charges remain headwinds. In fiscal 2019, currency headwind is expected to negatively impact net sales by approximately $145 million and adjusted EBITDA by $30 million.

Zacks Rank & Key Picks

Sealed Air currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Sharps Compliance Corp SMED, Tennant Company TNC and Casella Waste Systems, Inc. CWST. While Sharps Compliance and Tennant sport a Zacks Rank #1 (Strong Buy), Casella Waste Systems carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sharps Compliance has an expected earnings growth rate of 500% for the current year. The stock has appreciated 15% in a year’s time.

Tennant has a projected earnings growth rate of 29.82% for 2019. The company’s shares have rallied 27% over the past year.

Casella Waste Systems has an estimated earnings growth rate of 37.7% for the ongoing year. The company’s shares have gained 34% in the past year.

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