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Zacks Investment Research
On Jun 8, we issued an updated research report on Sealed Air Corporation SEE. The company is expected to benefit from focus on innovations, growth in the global protein market, restructuring actions and acquisitions. However, stranded costs following the Diversey sale and increasing raw material prices remain headwinds for Sealed Air.
Upbeat Outlook for 2018
Expected benefits from reducing costs, driving operational excellence and commercializing new innovations combined with favorable global business trends poises the company well for improved 2018 results. Sealed Air projects net sales of approximately $4.75-$4.80 billion for 2018, a constant dollar growth rate of approximately 4.5%. Adjusted earnings per share are anticipated to be $2.45-$2.55, the mid-point of which reflects healthy year-over-year growth of 38%.
The company is witnessing strong customer acceptance and increased adoption with the seafood and convenience segments. Further, ongoing momentum in high-growth geographies such as Brazil, Russia, China and Southeast Asia will continue in 2018 as demand increases for packaged proteins and convenience meals. Further, in North America and EMEA, the ongoing shift to fresh foods, combined with Sealed Air’s sustainable innovative packaging, is driving above market growth.
Innovations to Boost Top Line
Sealed Air’s top-line will be supported by enhanced demand for its core product portfolio, recently-introduced innovations and accelerated growth in the global protein market along with the e-commerce sector. Additionally, the company believes that market differentiation of revolutionary innovation is gaining significant traction in each of its divisions.
The company should benefit from the commercialization of new products. Sealed Air is winning new customers globally given its innovative platforms including the Internet of Things, Intellibot robotics, clean-in-place solutions, biodegradable chemistry, dry lube and others. Furthermore, it is exploring opportunities to expand existing relationships and grow its own brand into new channels.
Restructuring to Aid Margins
Sealed Air strives to target incremental, profitable growth opportunities in adjacent markets and expand presence in high-growth geographies. Regarding mergers and acquisitions, the company is looking at options for technology, equipment and automation opportunities that enhance business and are accretive to earnings.
The company is focusing on creating profitable growth, driving operational excellence, and developing a high-performance organization in order to deliver long-term value. The company is also focusing on reducing cost structure. Through the Sealed Air Restructuring Program, the company expects to generate incremental cost savings of $130-$150 million per annum by the end of 2019.
Diversey Care Sale to Aid Focus on Core Business, Costs a Woe
Sealed Air has divested its Diversey Care division as well as the food hygiene and cleaning business within the Food Care division for gross proceeds of $3.2 billion in September 2017. Notably, this is a step in Sealed Air’s transformation and will enable it to enhance strategic focus on the Food Care and Product Care divisions along with simplifying operating structure.
The sale provided the company the financial flexibility to accelerate share repurchases, pay down approximately $1.1 billion in debt, taking its total debt balance down to $3.3 billion.
However, stranded costs following the Diversey sale, increasing raw material prices remain headwinds. Moreover, Sealed Air continues to invest in R&D, sales and marketing. Even though these investments will drive future growth, it will affect margins in the near term.
The company’s e-commerce business carries lower margins. Consequently, volume gains have not translated to EBITDA growth. With a major portion of its product focus tied to the food and beverage end markets, weak economic conditions could negatively impact demand for Sealed Air’s product offering and demand for its customer's products as customers would be less willing to invest in innovative offerings. This would impact sales and margins.
In the past year, Sealed Air has underperformed the industry it belongs to. The stock dipped 0.8% while the industry gained 4.3%.
Sealed Air carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in in the same sector include Axon Enterprise, Inc. AAXN, Caterpillar Inc. CAT and Terex Corp. TEX. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Axon Enterprise has a long-term earnings growth rate of 25%. Its shares have appreciated 170% over the past year.
Caterpillar has a long-term earnings growth rate of 13.3%. The company’s shares have been up 46% in the past year.
Terex has a long-term earnings growth rate of 21%. The stock has gained 14% in a year’s time.
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