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Sealed Air (SEE) Q3 Earnings In Line, Maintains '17 EPS View

Sealed Air Corporation SEE reported third-quarter 2017 adjusted earnings per share of 46 cents, up 12% year over year. Earnings came in line with the Zacks Consensus Estimate.

Including special items, the company posted earnings of 33 cents per share, compared with 32 cents per share recorded in the year-ago quarter.

Total revenues increased 6.2% year over year on a reported basis to $1.13 billion in the quarter. Revenues beat the Zacks Consensus Estimate of $1.11 billion. Currency had a positive impact on total net sales of 1% or $13 million. Net sales on a constant dollar increased 5% primarily on volume growth. North America sales increased 7%, Asia Pacific posted 3% growth followed by both EMEA and Latin America rising 2%.

Cost and Margins

Cost of sales went up 8.6% year over year to $769million. Gross profit edged up 2% to $362 million. Gross margin contracted 150 basis points (bps) to 32.0% in the quarter.

SG&A expenses increased 5% to $192.7 million from the prior-year period. Adjusted earnings before interest, taxes and $217 million compared with $213 million in the prior-year quarter. Adjusted EBITDA margin was 19.2% compared with 20.0% in the prior-year quarter.

Sealed Air Corporation Price, Consensus and EPS Surprise

 

Sealed Air Corporation Price, Consensus and EPS Surprise | Sealed Air Corporation Quote

Segment Performance

Food Care: Net sales inched went up 5.9% year over year to $716 million. Currency had a positive impact of 2% or $10 million. On a constant dollar basis, net sales increased 4%. Volume growth of 9% was noted in North America, 3% in Latin America and 1% in EMEA which was offset by a dip in volumes in Asia Pacific.  Adjusted EBITDA inched up 2% year over year to $158 million. Favorable impact of volume and foreign currency were offset by higher raw material costs and non-material costs including salary and wage increases.

Product Care: The segment reported net sales of $415 million, up 6.8% year over year on a reported basis and 6% on a constant dollar basis. Currency had a positive impact on Product Care’s net sales of 1% or $3 million. Volume increased 4% in North America, over 7% in EMEA and Latin America, and 17% in Asia Pacific. However, adjusted EBITDA decreased 2% to $87 million due to higher raw material and freight costs as well as unfavorable product mix.

Financial & Other Updates

In September, Sealed Air completed the sale of Diversey to Bain Capital for $3.2 billion, which enabled the company to accelerate share repurchases, pay down approximately $1.1 billion in debt and target selective acquisitions. This is a step in its transformation and enables it to enhance strategic focus on the Food Care and Product Care divisions along with simplifying operating structure.

On Oct 2, 2017, Sealed Air acquired Fagerdala Singapore Pte Ltd., a manufacturer and fabricator of polyethylene foam, for $100 million in cash. The buyout of Fagerdala will considerably expand Sealed Air’s presence in Asia. Notably, Fagerdala’s proficiency in foam manufacturing and fabrication will enable Sealed Air to offer a full portfolio of differentiated solutions, such as automated fulfillment systems and operational excellence consultative services, to consumers.

Cash and cash equivalents were $1305 million as of Sep 30, 2017, a substantial increase from $333.7 million as of Dec 31, 2016. Cash flow from operating activities was $333 million during the nine-month period ended Sep 30, 2017, down from $468.4 million in the prior-year comparable period.

As of Sep 30, 2017, Sealed Air’s net debt came in at $2 billion, much lower than the $3.809 billion as of Dec 31, 2016 due to repayment of debt following the sale of Diversey.

The company repurchased approximately 9.7 million shares for $426 million during the reported quarter. This brings the year-to-date total repurchases to 15.5 million shares for $677 million. The repurchases have been made through a combination of open market repurchases and Accelerated Share Repurchase (“ASR”) programs.

Guidance

For full-year 2017, Sealed Air anticipates sales of $4.4 billion, higher than the previous guidance of $4.3 million and reflecting a 5% increase over 2016. Currency is expected to have a favorable impact of $40 million on revenues and $7 million on adjusted EBITDA. Adjusted EBITDA is estimated to be at $830 million, changed from the previous guidance of $825-$835 million. Adjusted EPS is likely to be in the range of $1.75-$1.80 for 2017.

Share Price Performance

Year to date, Sealed Air has grossly underperformed the industry with respect to price performance. While the stock dipped 3.8%, the industry recorded growth of 10.8%.

Zacks Rank & Key Picks

Currently, Sealed Air carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the sector include Caterpillar Inc. CAT, Terex Corporation TEX and H&E Equipment Services, Inc. HEES. All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar has expected long-term growth rate of 10.33%.

Terex has expected long-term growth rate of 11.25%.

H&E Equipment Services has expected long-term growth rate of 15.55%.

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