Sealed Air (SEE) Tops Q2 Earnings, 2nd Half View Stronger

Sealed Air Corporation’s (NYSE:SEE) second-quarter 2016 adjusted earnings per share of 65 cents increased 2% year over year. The figure beat the Zacks Consensus Estimate by a penny, delivering a positive surprise of 2%. Leveraging growth opportunities in targeted regions and end markets, along with focusing on new product adoption and operational disciplines, the company delivered solid margin performance in all the three core divisions. This led to the overall solid performance.

Including special items, earnings came in at 25 cents per share, up 92% from the year-ago quarter.

Total revenue declined 3% on a reported basis to $1,727 million in the quarter. Revenues missed the Zacks Consensus Estimate of $1,743 million. The Food Care divestitures had a negative impact on total sales of $15 million while currency had a negative impact of $593 million. Latin America and Asia Pacific fell 11.3% and 3.5%, respectively. EMEA and North America were also down 1.6% and 2.5%, respectively, on an as reported basis.

Cost and Margins

Adjusted cost of sales declined 5% year over year to $1,064 million. Adjusted gross profit went down 0.4% to $663 million. Gross margin expanded 110 basis points (bps) to 38.4% in the quarter.

SG&A expenses shrunk 0.4% to $406 million from the prior-year period. Adjusted operating profit decreased 2% to $230 million. Operating margin expanded 10 bps to 13.3%.

Adjusted earnings before interest, taxes and depreciation and amortization (EBITDA) were $229.5 million, compared with $234.9 million in the year-ago quarter. Favorable price/cost spread, restructuring savings, the reimbursement of previously incurred environmental expenses, and positive volume trends were partially offset by $9 million of unfavorable currency translation, divestitures of $3 million as well as salary and wage inflation and higher non-material manufacturing expenses.

Segment Performance

Food Care: Net sales dropped 5% year over year to $802 million. Adjusted EBITDA also declined 6.3% to $163 million.

Diversey Care: In this segment, net sales were $532 million, down 0.6% on a reported basis. Adjusted EBITDA surged 25% to $86 million from $69 million in the year-ago quarter.

Product Care: The segment reported net sales of $374 million, down 2.5% year over year on a reported basis. Adjusted EBITDA dipped 1% to $78.8 million.

Financial Updates

Cash and cash equivalents were $297.5 million as of Jun 30, 2016, down from $358 million as of Dec 31, 2015. Cash flow from operating activities in the first half of 2016 was $181 million, a drastic decline from $456 million in the prior-year period. During the quarter, Sealed Air repurchased approximately 0.4 million shares of its common stock for approximately $20 million.

Guidance

The company expects stronger performance in the second half of the year supported by enhanced demand for its core product portfolio, recently introduced innovations, and accelerated growth in the global protein market and e-Commerce sector. Further, the anticipated impact from currency headwinds will be lower than previously projected.

For 2016, Sealed Air reiterated its net sales guidance of approximately $6.85 billion, up from the previous figure of $6.8 billion. This is based on the assumption of an unfavorable influence of approximately $275 million from foreign currency translation.

Adjusted EBITDA is estimated in the range of $1.17 billion to $1.18 billion, which assumes $45 million of unfavorable currency translation. Sealed Air expects adjusted EPS to be on the higher end of its guidance range of $2.52 to $2.60.

Free cash flow is projected to be approximately $550 million, including capital expenditure of approximately $275 million and cash restructuring payments of approximately $110 million.

Sealed Air currently carries a Zacks Rank #3 (Hold).

Peer Performance

Sonoco Products Co. (NYSE:SON) reported second-quarter 2016 adjusted earnings of 73 cents per share, ahead of the Zacks Consensus Estimate of 68 cents as well as management’s guidance range of 65–70 cents. On a year-over-year basis, earnings edged up 7% from the year-ago level of 63 cents.

Crown Holdings (NYSE:CCK) reported second-quarter 2016 adjusted earnings per share of $1.19, which surpassed the Zacks Consensus Estimate of $1.10 and increased 16% year over year. The year-over-year upside was bolstered by stronger beverage can volumes and improved European Beverage performance. On a reported basis, earnings came in at $1.21 per share, an increase from $1.02, in the year-ago quarter.

Other Stocks to Consider

A better stock worth considering in the sector is Packaging Corporation of America (NYSE:PKG) which carries a Zacks Rank #2 (Buy).