|SEE-It's been on the watch list for some time. Sold BMS awhile back. Packaging my biggest weighted sector in my portfolio.|
Sealed Air's EPS and Revenues Up
Zacks Equity Research, On Monday January 24, 2011, 3:15 pm EST
Sealed Air Corporation (NYSE: SEE - News) 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%.
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%.
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.
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. (NYSE: BMS - News), Sonoco Products Co. (NYSE: SON - News) and privately held Printpack, Inc.
SONOCO PRODS CO (SON): Read the Full Research Report
SEALED AIR CORP NEW (SEE): Read the Full Research Report
BEMIS INC (BMS): Read the Full Research Report
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