Food care business provides complete solutions to many sectors such as poultry, dairy, beverage, fish and seafood, bakery and snack, ready meals, agriculture and many more. This particular sector generates half of Sealed Air Corp.’s (SEE, Financial) total revenue. Food is one of the basic needs for human beings. As years have passed, packaging of foods has improved. These packaging companies play a great role as everything depends on them. Sealed Air is one the prominent players in this food packaging industry.
This Elmwood Park, New Jersey-based company doesn’t confine its business in food packaging. Its other services include hygiene solutions, fabric care, infection prevention and packaging designs, and many more. The company mainly operates in four segments: Food care, diversey care (described on the company’s website) as "sustainable cleaning, sanitation and hygiene solutions"), product care, and another category, which includes its medical applications and new venture businesses.
Diversey care provides solutions for floor, kitchen, infection prevention, restroom, speciality foodservice, insect control and others. It boasts of a portfolio of well-reputed brands, which includes Cryovac- brand food packaging solutions, Bubble Wrap- brand cushioning and Diversey- cleaning and hygiene solutions.
The company reported a strong third quarter despite currency headwinds and ongoing global economic uncertainties, particularly in emerging markets. It is banking on low input costs. This has helped to combat currency headwinds. Sealed Air is shifting from product focus to market focus to cater value added selling to the customers. The company is aiming at a sales target and adjusted EBITDA of around $900 million and 20% by 2020. It is concentrating on innovation, waste reduction and increase in productivity levels. It is rolling out new models that leverage its operational expertise with knowledge management.
The company’s unwavering dedication to the customers’ success and focus on delivering high quality earnings enabled it to deliver year-over-year organic growth in sales and adjusted EBITDA and generate solid free cash flow.
Strong third quarter
Third quarter 2015 net sales of $1.75 billion decreased by 11.6% on a reported basis. Currency had a negative impact on net sales of 11.7% or $230 million. Adjusting for currency translation and the divestiture, net sales increased 2.7% on an organic basis. Favourable price/mix was 2.1% on higher volumes of 0.6%. Europe, Middle East and Africa were the fastest growing region, increasing net sales by 4.2% on a constant dollar basis. Latin America and Asia Pacific delivered constant dollar net sales growth of 3.1% and 2.7%, respectively. On an organic basis, North America delivered 1.2% net sales growth.
Third quarter 2015 net earnings on a reported basis were $87 million, or 42 cents per diluted share, which was $61 million, or 28 cents per diluted share in the prior year quarter. Net earnings in the third quarter of 2015 included $57 million of special items. Net earnings in the third quarter of 2014 included $51 million of special items, primarily consisting of restructuring and other associated costs, and loss on debt redemption and refinancing activities.
Adjusted EPS was 70 cents for the third quarter 2015 (which was 53 cents in the prior year quarter).
Share repurchases
During the third quarter 2015, the company repurchased approximately 11.3 million shares for approximately $576 million. Year-to-date through Oct. 23, the company has repurchased 14.5 million shares for approximately $726 million.
Adjusted EBITDA for the third quarter 2015 was $300 million, or 17.2% of net sales, (which was $302.3 million, or 15.3% of net sales, in the prior year quarter). Adjusted EBITDA margins expanded 190 basis points compared to last year.
Cash flow and net debt
Cash flow provided by operating activities in the nine months ended Sept. 30 was $679 million. In March, the company received a tax refund of $235 million related to the payment of funds in connection with the Settlement agreement.
Capital expenditures were $112 million in the nine months ended Sept. 30 compared to $94 million in the nine months ended Sept. 30, 2014.
Free cash flow, defined as net cash used in operating activities less capital expenditures, was an inflow of $331 million in the nine months ended Sept. 30.
Projections for 2015
The company expects the following:
- The company estimates net sales to be approximately $7.0 billion for the full year 2015.
- Adjusted EBITDA is estimated to be approximately $1.165 billion.
- The company is increasing its forecast for adjusted EPS to approximately $2.32 from its previously provided outlook in the range of $2.24 to $2.28.
- Free cash flow is expected to be approximately $560 million as compared to previously provided guidance of $585 million.
Positive attributes
- Margins have accelerated
- Big international exposure
- Good track record of earnings
- Portfolio of widely recognised brands
In the news
In alignment with the company’s disciplined approach to portfolio management and focus on innovation, Sealed Air recently announced the acquisition of B+ Equipment, a privately-held company headquartered in France, and the sale of its European trays business. B+ Equipment designs, manufactures and services automated packaging equipment for order fulfilment operations. This acquisition is not material to Sealed Air’s consolidated financial results.
Sealed Air also announced it had entered into an agreement to sell the European trays business to Faerch Plast A/S, a European food packaging solutions provider. This business is reported in Sealed Air’s Food Care division and generated net sales of $71 million in 2014 and $44 million in the nine months ended Sept. 30. The transaction is expected to close in the fourth quarter of 2015.
(Source: Company’s website)
On a concluding note
Overall, Sealed Air is a solid company with impressive third quarter results. Sealed Air’s vision is to create a better way of life and the company is constantly working on its vision. In this globalized world, packaging demand is constantly increasing and people have also changed their spending patterns for better hygiene and solutions for day-to-day activities. This will pave the way for Sealed Air to strengthen its position in the near future. I feel bullish that Sealed Air will continue its trend and won’t let its valued investors as well as customers down in the long run.
Disclosure: I do not hold any position in the company.
