Sealed Air Faces Competitive Threats Amid Market Challenges: Analyst Cautions About Debt Issues, Challenging US Cattle Cycle

Truist Securities analyst Michael Roxland reiterated a Hold rating on Sealed Air Corporation SEE, lowering the price target from $43 to $38.

According to the analyst, Sealed Air is facing various headwinds in both the Food and Protective segments, inhibiting EBITDA and volume growth.

Roxland notes that the company's key Cryovac business is under threat from increasing competition, particularly from Amcor Plc's AMCR acquisition of Moda, which enhances its competitive stance in food packaging.

Roxland adds that SEE is facing weakness in retail demand as consumers are opting for lower-cost proteins, impacting the demand for SEE's Cryovac roll-stock products.

SEE is limited in its ability to reduce debt in 2023 due to a $175 million IRS tax settlement payment, as highlighted by the analyst.

This apart, SEE is negatively impacted by a challenging US cattle cycle, though partly offset by improvements in the Australian cattle cycle, as noted by the analyst.

Roxland expects SEE to face negative net price realizations due to higher labor costs and other non-material inflation, and greater incentive compensation.

The analyst lowered the FY23 EPS estimate to $2.83 from $2.84. For FY24, the analyst decreased the EPS estimate to $2.95 from $3.10.

Despite the challenges, the analyst notes that better volumes and cost savings are partly offsetting the impacts of negative net price and higher incentive compensation.

According to the analyst, SEE has addressed the operational issues that Liquibox experienced in the 2Q, indicating a resolution to previous operational challenges.

The analyst believes that SEE might continue to pursue strategic portfolio pruning, especially around businesses with no automation potential, indicating a focused approach to optimizing the business portfolio.

Price Action: SEE shares are trading lower by 4.16% to $31.48 on the last check Tuesday. 

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.