Sealed Air (SEE): Acquistions To Drive Growth, Risks Stay

We issued an updated research report on Sealed Air Corporation (NYSE:SEE) on Jun 17, 2016. The company is poised to benefit from acquisitions, focus on growth opportunities, effective cost management and savings from restructuring. However, unfavorable foreign currency translation, increase in restructuring costs and increased debt levels remain concerns.

In 2015, Sealed Air acquired Intellibot Robotics LLC in a move to expand its floor-cleaning business. The buyout will accelerate the growth of robotics as well as “the Internet of Things” in the floor-cleaning market. Sealed Air also acquired B+ Equipment in 2015 which solidifies its position in the growing e-commerce market with a solution that focuses on reducing the cost of shipping and increasing productivity. Moreover, Sealed Air plans to accelerate its investment in both equipment and data analytics.

Notably, Sealed Air’s ongoing Earnings Quality Improvement Program (EQIP), an initiative to deliver meaningful cost savings and network optimization, is estimated to generate annualized savings of approximately $90–$110 million by the end of 2016. It estimates annualized savings of approximately $80 million–$85 million by the end of 2018 from another restructuring program, The Fusion Program, which was announced in Dec 2014.

The company also expects volume growth to improve throughout the year as it completes rationalization efforts and increases its foothold in the rapidly growing fulfilment markets. Additionally, ongoing productivity improvements, adoption of more advanced product portfolio and early successes with the Change the Game initiatives will accelerate future growth and drive margin expansion.

However, Sealed Air anticipates growth in 2016 to be partially offset by a continued slowdown in Australia and New Zealand, and persistently weak economic conditions in both Brazil and Venezuela. It cautions that second-quarter results will be down on a year-over-year basis primarily due to formula pricing in Food Care.

Sealed Air generates approximately 70% of its revenues from operations outside the U.S. Hence, it will continue to face foreign currency-related challenges. Sealed Air faces an unfavorable influence of approximately $400 million or 6% on its 2016 revenues, while adjusted EBITDA will be hurt by $65 million.

The company expects to incur aggregate costs of approximately $275 million–$285 million in relation to its new restructuring program, the Fusion Program, which is expected to be nearly complete by the end of 2017. The majority of the costs are likely to be incurred till 2017.

Finally, despite Sealed Air’s efforts to reduce debt, total debt was $4.7 billion as of Mar 31, 2016 compared with $4.5 billion as of Dec 31, 2015. Debt-to-capitalization ratio remained high at 89% as of Mar 31, 2016. Increased interest levels will also put pressure on margins.

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

Stocks to Consider

Some better-ranked stocks in the same sector are Berry Plastics Group, Inc. (NYSE:BERY) , Packaging Corporation of America (NYSE:PKG) and Sonoco Products Co. (NYSE:SON) . All these stocks carry a Zacks Rank #2 (Buy).


SONOCO PRODUCTS (SON): Free Stock Analysis Report

SEALED AIR CORP (SEE): Free Stock Analysis Report

PACKAGING CORP (PKG): Free Stock Analysis Report

BERRY PLASTICS (BERY): Free Stock Analysis Report

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