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Sealed Air (SEE) Up 25.5% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Sealed Air (SEE). Shares have added about 25.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sealed Air due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Sealed Air Q3 Earnings Beat Estimates, Lowers '22 View

Sealed Air reported third-quarter 2022 adjusted earnings per share of 98 cents, which surpassed the Zacks Consensus Estimate of 91 cents. The bottom line figure improved 14% year over year as favorable net price realization and productivity improvements helped offset the impact of lower volumes.

Including special items, the company delivered net earnings per share of 91 cents compared with the prior-year quarter’s 71 cents.

Total revenues were $1,400 million in the reported quarter, flat with the year-ago quarter. The top line missed the Zacks Consensus Estimate of $1,470 million. Currency had an unfavorable impact of 5%, while price had a favorable impact of 13%. Meanwhile, volumes were down 7%.

Sales in America rose 3% year on year, while EMEA and APAC witnessed declines of 6% and 5%, respectively.

Cost and Margins

Cost of sales declined 3.6% year over year to $967 million. Gross profit was $434 million, which marked a 7% improvement from the year-ago quarter’s $404 million. The gross margin expanded to 31% from the prior-year quarter’s 28.7%. Selling, general and administrative expenses increased by 3% from the last-year quarter to $196 million.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was around $293 million in the quarter, which increased 8% from the prior-year period. Adjusted EBITDA margin was 20.9% compared with the prior-year quarter’s 19.2% as favorable net price realization offset lower volume.

Segment Performance

Food: Net sales increased 4% year over year to $830 million. Volumes were down 4%, owing to food retail market declines across the Americas and EMEA regions and the adverse impact from prior supply disruptions. Pricing actions had a favorable impact of 13%.

Currency fluctuations had an unfavorable impact of 5%. Adjusted EBITDA was $185.3 million, up 9% from the last year’s quarter, as favorable price realization and productivity improvements helped offset the impact of lower volumes.

Protective: The segment reported net sales of $571 million during the quarter under review, down 6% from the prior-year quarter. The divestiture of Reflectix had an unfavorable impact of 2%, while currency impacted sales by 5%.

Pricing had a positive impact of 12%, while volumes slumped by 12% owing to recessionary pressures in the industrial and fulfillment markets. The segment’s adjusted EBITDA increased 6.6% year over year to $109 million as favorable net price realization helped offset lower volumes.

Financial Updates

Cash flow from operating activities was around $321 million in the first nine-month period of 2022 compared with $378 million in the prior-year comparable period. The company paid cash dividends of $90 million in the first nine-month period of 2022 and repurchased 4.5 million shares.

As of Sep 30, 2022, Sealed Air’s net debt was $3.4 billion, up from $3.1 billion as of Dec 31, 2021. As of the end of the third quarter of 2022, the company had $1.4 billion of liquidity available, which comprised $249 million in cash and $1.12 billion of undrawn, committed credit facilities.

2022 Guidance

For 2022, Sealed Air expects net sales between $5.65 billion and $5.75 billion, down from its earlier provided range of $5.85 to $6.05 billion. The company anticipates adjusted EBITDA in the range of $1.21 to $1.23 billion, revised from the prior range of $1.22 to $1.25 billion.

Adjusted earnings per share is now forecast in the band of $4.05 to $4.15. The company had earlier provided a range of $4.05 to $4.20. Sealed Air lowered its free cash flow expectations to $460 to $500 million, from the earlier stated $510-$550 million for the ongoing year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Sealed Air has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sealed Air has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Sealed Air belongs to the Zacks Containers - Paper and Packaging industry. Another stock from the same industry, AptarGroup (ATR), has gained 12% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

AptarGroup reported revenues of $836.86 million in the last reported quarter, representing a year-over-year change of +1.4%. EPS of $0.95 for the same period compares with $0.94 a year ago.

For the current quarter, AptarGroup is expected to post earnings of $0.77 per share, indicating a change of -17.2% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.5% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for AptarGroup. Also, the stock has a VGM Score of C.

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