Sealed Air's EPS and Revenues Up - Analyst Blog

Sealed Air Corporation (SEE) delivered adjusted EPS of 46 cents for the fourth quarter ended December 31, 2010, on par with the Zacks Consensus Estimate. Earnings per share in the quarter manifested a 15% increase over 40 cents in the year-ago quarter. Growth across all of its segments, productivity gains as well as tight control of expenses and pricing actions led to the improvement.

During the quarter, the company recorded a losses on debt redemption of 14 cents per share, a restructuring charge of 1 cent per share related to its Global Manufacturing Strategy (GMS), a 3 cents per share restructuring charge related to closure of its European manufacturing facility and a 1 cent per share gain on sale on other-than-temporary impairment of available-for-sale securities.

In the previous year quarter, Sealed Air recorded a restructuring charge of 3 cents per share pertaining to the company's Global Manufacturing Strategy (GMS). Netting these gains/charges, the company reported an EPS of 29 cents in the quarter compared with 37 cents in the year-earlier quarter.

Sealed Air's sales increased 5% year over year to $1.21 billion and was above the Zacks Consensus Estimate of $1.20 billion. Volumes increased 7% in the quarter.

Costs & Margin Performance

In dollar terms, cost of sales increased 8% year over year to $877.4 million and based on sales, it increased 170 basis points to 72.6% in the reported quarter. Adjusted gross profit was flat year over year at $335 million but gross margin contracted 160 basis points to 27.7%.

Marketing, administrative and development expenses dipped 7% year over year to $189.8 million and based on sales, expenses dipped 210 basis points to 15.7%. Sealed Air's adjusted operating income upped 10% year over year to $145.1 million, with operating margin also going up by 50 basis points to 12%.

Segment Performance

Sales at the Food Packaging segment went up by 6% to $533.6 million driven by a 6% hike in volumes fueled by increased volumes in North America and Europe of 7% and 9% respectively. Price/mix was negatively affected by the volatility of the foreign currency environment in Venezuela and selectively lower pricing associated with higher customer volume commitments. Operating profit increased 17% to $78.4 million, and segment margin shot up 140 basis points to 14.7%.

The Food Solutions segment posted sales growth of 4% to $247.2 million due to 6% higher volumes, primarily driven by an 11% increase in Europe and steady price/mix.  Operating profit increased 43% to $27.7 million and segment operating margin expanded 300 basis points to 11.2% ascribed to leveraging higher volumes and tight control of expenses.

The Protective Packaging segment posted the highest year-over-year growth of 19% amongst the segments to reach sales of $345 million. The outperformance was driven by volumes growth of 8% reflecting improving industrial production rates in North America and Europe. Price/mix was however 1% lower due to selective pricing actions, the introduction of new thinner profile products and the timing of December price increase.

Operating profit declined 9% to $38 million with operating margin contracting 190 basis points to 11% due to charges associated with the December announcement of the closure of a small factory in Europe. Adjusting for the costs of the closure, operating profit would have been $45 million with operating margin of 13%.

The Other Category segment's sales posted a 3% increase to $83.4 million driven by 8% higher volumes reflecting growth in both Specialty Materials and Medical Applications. Price/mix was 2% lower primarily due to volume rebates in the Medical Applications business. The segment reported a loss of $2 million, primarily from its new ventures investments.

Fiscal 2010 Performance

Sealed Air's adjusted EPS for fiscal 2010 was $1.60, up 11% from $1.44 in fiscal 2009. During fiscal 2010, the company recorded a loss on debt redemption of 14 cents per share, foreign currency exchange gain 2 cents per share related to a Venezuelan subsidiary and 3 cents per share restructuring charge each for GMS and European manufacturing facility closure and a 2 cents per share gain on sale of other-than-temporary impairment of available-for-sale securities.

In 2009, Sealed Air recorded a penny each for loss on redemption and loss on sale of other-than-temporary impairment of available-for-sale securities and 7 cents per share restructuring chare pertaining to GMS. Including these, the company reported an EPS of $1.44 in fiscal 2010 compared with $1.35 in the earlier year.

Fiscal 2010 revenues increased 6% year over year to $4.49 billion, outperforming the Zacks Consensus Estimate of $4.48 billion. Full year volumes increased 5%.

Financial Position

As of December 30, 2010, Sealed Air had cash and cash equivalents of $676 million, down from $762 million as of September 30, 2010. Free cash flow for fiscal 2010 was $342 million compared with $338.5 million in $501 million in fiscal 2009.

At the end of the year, the debt-to-capitalization ratio improved to 60% compared with 66% as of September 30, 2010.

Sealed Air expects capital expenditures in fiscal 2011 to be $150 to $175 million and free cash flow to exceed $300 million.

Outlook

Sealed Air expects full-year 2011 EPS to range between $1.75 and $1.90. The guidance range is based on expectations of a modest rate of economic recovery and an average constant dollar sales growth rate in the 5% to 7% range.

Further, the company assumes a low-to-mid single-digit percent average increase in resin costs over the year, a slightly unfavorable impact on net sales from foreign currency translation, depreciation and amortization of property and equipment of $145 million, amortization of non-cash, long-term, share-based compensation of $30 million, interest expense of $150 million and an effective income tax rate of 27.0%.

Elmwood Park, New Jersey-based Sealed Air Corp. is a major specialty packaging services provider catering to a diverse set of end-markets. The company operates in the United States and in 50 other countries with packaging and performance-based materials and equipment systems under several market leading brands serving food, medical and an array of industrial and consumer applications.

The company reports its operations in four segments: Food Packaging, Protective Packaging, Food Solutions and the Other Category segment. Sealed Air competes with the likes of Bemis Company, Inc. (BMS), Sonoco Products Co. (SON) and privately held Printpack, Inc.

 
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