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Ba1 Rating by Moody's for Sealed Air - Analyst Blog

Posted
12/18/2013 12:18:00 PM
By: Zacks.com
Referenced Stocks:CFR;CLW;MCO;PKG;SEE

Moody's Investors Service - the rating unit of Moody's Corporation ( MCO ), has assigned Ba1 rating to the proposed senior secured term loan B of Sealed Air Corporation ( SEE ). Moody's also affirmed the stable ratings outlook for Sealed Air.

In addition, the rating agency reaffirmed Sealed Air's Ba3 corporate family rating (CFR). The rating reflects the company's scale, its broad geographic exposure and low customer concentration of sales. Further, Sealed Air's probability of default (PDR) rating has been confirmed at Ba3-PD.

These ratings came on the back of Sealed Air's good customer rapport. Sealed Air has maintained long-term relationships with many of its top customers. The company also has sufficient liquidity. Moreover, the confirmation of Moody's ratings reflects successful innovation and the company's continuous investment in research and development (R&D).

The company is also an industry leader in certain segments. Around 50% of sales are from food and food processing related end markets. Sealed Air is likely to gain from price hikes of most of its products in the Food Care and Product Care units, in North America.

However, Moody's is cautious about weakness in certain credit metrics, a disparate product line and the concentration of sales in cyclical and event-risk prone segments.  The rating is also restrained due to significant competition in the fragmented market and uncertainty of the timing of the asbestos-related liability and related tax refunds.

However, Moody's stated that the ratings could be downgraded if Sealed Air does not maintain adequate liquidity and deterioration in credit metrics. Further, if debt to earnings before interest, taxes, depreciation and amortization (EBITDA) remains above 5.3x and EBITA interest coverage remains below 2.2 times, Moody's could revise downward the current rating.

In the third quarter of 2013, Sealed Air's adjusted earnings from continuing operations improved 39% year over year to 39 cents per share. Total revenues also climbed 2% year over year to $1.93 billion. Volumes improved 1.4% and a price/mix contributed 1.5% to the increase.

Sealed Air raised its adjusted earnings per share guidance for 2013 to the range $1.25 to $1.30 from $1.10 to $1.20. Outlook for net sales were also modified to $7.7 billion from $7.7 to $7.9 billion. The company's Integration & Optimization Program is expected to generate cost savings and benefits of roughly $195 million to $200 million by the end of 2014.

Recently, Sealed Air agreed to sell its rigid medical packaging business to Milwaukee-based private equity firm Mason Wells for $125 million. The proceeds are likely to be utilized to repay debt and thus reduce interest expense resulting in contribution to margins.

Elmwood Park, N.J.-based Sealed Air is a major specialty packaging service provider to a diverse range of end markets. The company operates in the U.S. and in 50 other countries producing packaging and performance-based materials, and equipment systems serving food, medical, industrial and consumer applications.

Sealed Air currently holds a Zacks Rank #1 (Strong Buy).

Other favorably-ranked stocks in the same industry include Clearwater Paper Corporation ( CLW ) and Packaging Corporation of America ( PKG ), both with a Zacks Rank #1(Strong Buy).



CLEARWATER PAPR (CLW): Free Stock Analysis Report

MOODYS CORP (MCO): Free Stock Analysis Report

PACKAGING CORP (PKG): Free Stock Analysis Report

SEALED AIR CORP (SEE): Free Stock Analysis Report

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