On Feb 11, we issued an updated research report on Sealed Air Corporation SEE. The company is poised to gain on its Reinvent SEE Strategy, restructuring programs, growth in fresh food and e-commerce markets, and acquisitions.
Robust Q4 Results
The company recently delivered second-quarter 2018 results wherein adjusted earnings per share of 75 cents surpassed the Zacks Consensus Estimate of 67 cents and also rose 29% year over year. Total revenues increased 2.6% year over year on a reported basis to 1,260 million. The figure outpaced the Zacks Consensus Estimate of $1,114 million.
Upbeat Outlook for 2019
For fiscal 2019, the company anticipates net sales at $4.8 billion, reflecting year-over-year growth at approximately 2% on as reported basis and 5% in constant dollars. While the Food Care segment’s sales are expected to grow 4%, the Product Care segment is anticipated to advance 5.5%. Adjusted EBITDA from continuing operations is anticipated to be $925-$945 million for fiscal 2019, up 4-6% from adjusted EBITDA of $890 million in fiscal 2018. The company forecasts adjusted EPS to be in the range of $2.65 to $2.75 compared with the $2.50 reported in 2018.
Sealed Air's top-line will be supported by enhanced demand for its core product portfolio, recently-introduced innovations, strong fresh food markets and the e-commerce sector. The company is witnessing increased demand for essential and high-performing packaging solutions that extend shelf life, reduce waste and drive customer productivity.
Reinvent SEE Strategy to be a Game Changer
In December 2018, Sealed Air announced a reformation plan — Reinvent SEE Strategy — along with a fresh restructuring program, in a move to drive its growth and earnings. The new strategy is focused on innovations, SG&A productivity, product-cost efficiency, channel optimization and customer-service enhancements. The strategy will help the company deal with critical packaging challenges, in turn, improving customer services.
One of most vital aspects of this strategy involves investment in technology and resources focusing on new and existing high-growth markets. This step will double Sealed Air’s innovation rate over the next five years. The company also aims at simplifying its operational structure and expanding SEE Operational Excellence by upgrading end-to-end processes throughout the company. Further, Sealed Air will be able to drive its market share in existing and adjacent markets by leveraging the company’s extensive distribution network. It will continue to invest in digital systems and processes, in order to enhance cycle time and awareness. Consequently, the new strategy will fuel Sealed Air’s growth by supporting packaging innovations for fresh food and e-commerce, and increasing operating leverage target above 40% per year, beginning in 2019.
Savings from Restructuring to Aid Results
Sealed Air’s Reinvent SEE strategy includes a new three-year restructuring program that is anticipated to drive total annualized savings in the range of $215 million to $235 million by the end of 2021. Of this, approximately $45 million is projected to be realized in 2019. The company will combine the new program with its ongoing restructuring program. The existing program will be completed this year while the new program will be concluded by the end of 2021. Both the programs are likely to lead to total annualized savings of $240-$260 million from 2019 through 2021. In 2019, total annualized savings from both programs are expected to be approximately $70 million.
Acquisitions to Bolster Results
The company recently acquired AFP, Inc., a leading, U.S.-based fabricator of specialty packaging solutions. It expands Sealed Air's protective packaging solutions in the electronics, transportation and industrial markets with custom-engineered applications. The buyout complements the Fagerdala acquisition which was completed in 2017. The company had acquired Fagerdala to leverage its manufacturing footprint in Asia, expertise in foam manufacturing and fabrication. It will help Sealed Air grow sales in the consumer electronics, medical equipment and devices, automotive, temperature assurance, and e-commerce fulfillment sectors. AFP and Fagerdala align well with the ship-in-own-container (“SIOC”) trend in e-commerce. This trend is transforming e-commerce packaging as more distributors want manufacturers to have their primary packaging parcel ready.
In the past year, shares of Sealed Air have inched up 1% against the industry’s decline of 5%.
Zacks Rank & Other Stocks to Consider
Sealed Air currently carries a Zacks Rank #2 (Buy).
A few other top-ranked stocks in the Industrial Products sector are Axon Enterprise, Inc AAXN, Alarm.com Holdings, Inc. ALRM and Mueller Industries, Inc. MLI. These three stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Axon has expected earnings growth rate of 14.5% for 2019. The company’s shares have rallied 98% in the past year.
Alarm.com has expected earnings growth rate of 7.8% for 2019. The stock has climbed 74% in a year’s time.
Mueller Industries has expected earnings growth rate of 2.2% for 2019. Its shares have gained 21% in the past year.
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