Markets
ATR

Sealed Air Tops Earnings on Favorable Mix, Volume; Ups View - Analyst Blog

Sealed Air Corporation 's SEE second-quarter 2015 adjusted earnings per share of 60 cents increased 43 year over year. The figure also surpassed the Zacks Consensus Estimate of 54 cents, posting a positive earnings surprise of 11%. The improvement was driven by favorable mix and price/cost spread, cost synergies and positive volume trends, partially offset by unfavorable currency translation, impact of the divestiture of the North American foam trays and absorbent pads business and higher selling, general and administrative (SG&A) expenses.

Including special items, viz. restructuring and other associated costs, earnings came in at 13 cents per share compared with 28 cents in the year-ago quarter.

Sealed Air Corporation - Earnings Surprise | FindTheBest

Total revenue dipped 9.6% on a reported basis to $1.785 billion in the quarter. Revenues, however, beat the Zacks Consensus Estimate of $1.773 billion. On a constant dollar basis, net sales increased 0.5%. Currency had a negative impact of 10.1% on net sales, favorable product price/mix was 2.4% while volume increased 0.9%.

Region-wise, sales were led by 8.7% growth in Latin America, followed by 3.6% rise in Asia Pacific. Sales increased 2.9% in Europe, Middle East and Africa, and 2.4% in North America.

Cost and Margins

Cost of sales declined 13% year over year to $1.12 billion. Gross profit declined 3% year over year to $665 million. Gross margin expanded 260 basis points (bps) year over year to 37.3% in the quarter.

SG&A expenses decreased 10% to $407 million from $454 million last year. Operating profit increased 18% year over year to $235 million. Operating margin improved 300 bps to 13.1%.

Adjusted earnings before interest, taxes and depreciation and amortization (EBITDA) went up 8% to $308 million from $284 million a year ago. Adjusted EBITDA margin expanded 280 bps to 17.2% year over year driven by margin expansion across all divisions.

Segment Performance

Food Care: Net sales in this segment went down 12% year over year to $847 million. On an organic basis, net sales increased 4.2%, with favorable product price/mix of 2.7% and volume growth of 1.5%. Currency had a negative impact of 10.4% on net sales. Adjusted EBITDA increased 10% year over year to $174 million. Adjusted EBITDA margins expanded 410 bps to 20.5% aided by favorable mix and price/cost spread, cost synergies and positive volume trends, partially offset by unfavorable currency translation and the divestiture of the North American foam trays and absorbent pads business.

Diversey Care: In this segment, net sales were $535 million, down 8% year over year on a reported basis. On a constant dollar basis, net sales increased 3.8% with volume increasing 1.6% and favorable price/mix of 2.2%. Currency had a negative impact of 11.8% on the segment's sales. Adjusted EBITDA decreased 4.6% to $69 million from $72 million. However, adjusted EBITDA margins expanded 40 bps to 12.9%, thanks to favorable price/cost spread, cost synergies and positive volume trends, partially offset by unfavorable currency translation and higher SG&A expenses.

Product Care: The segment reported net sales of $381 million, down 7% year over year on a reported basis. On a constant dollar basis, net sales remained flat as favorable product price/mix of 1.3% was offset by a volume decline of 1.6%. Currency had a negative impact of 6.5%. Adjusted EBITDA increased 9.7% to $79 million year over year. Adjusted EBITDA margins expanded 310 bps to 20.7% driven by favorable price/cost spread as well as cost synergies, partially offset by lower sales volumes, unfavorable currency translation and higher SG&A expenses.

Financial Updates

Cash and cash equivalents were $569 million as of Jun 30, 2015, up from $322.6 million as of Dec 31, 2014. Cash flow from operating activities in the first half of 2015 was $463 million compared with usage of $756 million in the prior-year comparable period. In Mar 2015, the company received a tax refund of $235 million related to a Settlement agreement payment. Excluding the tax refund, cash flow provided by operating activities in the first half came in at $228 million, compared with cash used by operating activities of $756 million in the prior-year period.

Free cash flow was an inflow of $406 million in the first half compared with usage of $811 million in the year ago-comparable period, excluding the Settlement agreement.

The company's net debt decreased to $3.89 billion as of Jun 30, 2015 from $4.09 billion as of Dec 31, 2014. This decrease was mainly due to increase in cash reflecting the tax refund related to the Settlement agreement payment and cash generated from operating activities, partially offset by amounts paid as dividends and share repurchases.

During the quarter, Sealed Air repurchased approximately 1.8 million shares for roughly $86 million. As of Jul 28, 2015, the company repurchased 5.9 million shares for nearly $293 million. On Jul 14, the board authorized a new repurchase program of up to $1.5 billion.

During the quarter, Sealed Air issued $400 million of 5.5% senior notes due 2025 and €400 million of 4.5% senior notes due in 2023. Net proceeds from the offering were used to repurchase the $750 million of 8.375% senior notes due 2021. The company expects annualized interest expense savings to be almost $20 million.

Guidance

For 2015, Sealed Air expects net sales to be approximately $7.1 billion. The company anticipates an unfavorable impact of 9% from foreign currency translation. Excluding the negative currency impact and the trays and pads divestiture, organic net sales are expected to increase about 3% on a constant dollar basis.

Sealed Air, however, increased its adjusted earnings per share guidance to a range of $2.24 to $2.28 from $2.11 to $2.18. This reflects higher net earnings and share repurchases through Jul 28, 2015.

Adjusted EBITDA is now estimated in the range of $1.16 billion to $1.7 billion, up from $1.14 billion to $1.16 billion, which reflects the sale of the trays and absorbent pads business and includes roughly $110 million of unfavorable currency translation.

For 2015, Sealed Air anticipates capital expenditures of approximately $210 million and cash restructuring payments of almost $120 million. Free cash flow is expected to be nearly $585 million, excluding the tax refund of roughly $235 million received in Mar 2015 related to the Settlement agreement payment.

Peer Performance

Owens-Illinois, Inc.'s OI second-quarter 2015 adjusted earnings of 60 cents per share declined 25% year over year but beat the Zacks Consensus Estimate of 58 cents.

Sealed Air carries a Zacks Rank #2 (Buy). A couple of stocks worth considering in the same industry are AptarGroup, Inc. ATR and Fibria Celulose SA FBR . While AptarGroup sports a Zacks Rank #1 (Strong Buy), Fibria Cellulose carries a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

SEALED AIR CORP (SEE): Free Stock Analysis Report

OWENS-ILLINOIS (OI): Free Stock Analysis Report

APTARGROUP INC (ATR): Free Stock Analysis Report

FIBRIA CELULOSE (FBR): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

ATR SEE OI

Other Topics

Earnings Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More