Sealed Air (SEE) Declines 20% in a Year: Will It Recover?
The performance of packaging stocks has lately been reflecting the weak demand in the industry as the current inflationary pressures have weighed on consumer spending. Customers are also working to lower their high inventory levels. One of the major players in the Containers - Paper and Packaging industry Sealed Air Corporation SEE has not been immune to this, having declined 20.4% over the year. The industry meanwhile has gained 0.7%, whereas the S&P 500 has risen 3.9% in the same timeframe.
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Weak Volumes Hurt SEE’s Results
In 2022, Sealed Air witnessed a drop in volumes that intensified over the course of the four quarters. Volume decline reached 10.4% in the fourth quarter. Overall, the company reported a 6% year-over-year decline in volume in 2022. This trend continued in the first quarter of 2023 as well, with the company reporting 9.3% lower volumes.
The volume decline was more pronounced in the Protective segment where it was down 11% in 2022 and 18% in the first quarter of 2023. This reflected the recessionary pressures in the industrial and fulfillment markets. In the Food segment, volumes decreased 2% in 2022 and 2.6% in the first quarter of 2023. This was driven by food retail market declines and the impact of supply disruptions.
The company anticipates pressure on volume growth to persist in the upcoming quarters. Customer destocking is also anticipated to continue.
Supply-Chain Issues, High Interest Expense Ail
In 2022, Sealed Air experienced supply disruptions such as the limited availability of certain raw materials and equipment components. During the first quarter of 2023, many of these shortages related to raw materials lessened but the company still noted supply shortages for certain equipment components and long lead times to procure these equipment components.
Also, SEE’s total debt to total capital ratio remained high at 0.93 as of Mar 31, 2023. The figure is much higher than the industry’s 0.63. Consequently, interest expense is expected to be $275 million, indicating a 4.7% year-over-year increase.
Due to the abovementioned headwinds, Sealed Air projects adjusted earnings per share to be in the range of $3.50 to $3.80 for 2023. Compared to adjusted earnings per share of $4.10 in 2022, the guidance indicates a decline in the range of 7% to 15%.
Pickup in Volume Imminent, Acquisitions to Aid Growth
Volumes are expected to pick up eventually as the situation normalizes and customers lower their inventory. Growing demand for automated and sustainable packaging solutions that maximize food safety, protect goods, reduce waste and deliver savings to customers through productivity will drive Sealed Air’s food and protected packaging segments. The recent strategic acquisition of Liquibox is expected to boost results. The acquisition is highly complementary to the Cryovac Fluids & Liquids business and will further the company’s vision to become a leader in fluids and liquid packaging.
Around 63% of Sealed Air’s revenues come from the packaging of protein, foods, fluids and goods for the medical and life sciences industries. The food segment will benefit from the shift in demand for case ready, shrink bags and pre-packaged meals and snacks designed for home consumption. In the medical and life sciences portfolio, demand for protected packaging solutions for medical supplies, pharmaceuticals and personal protective equipment remains high. It is also benefiting from growth in online shipments of medical equipment and pharmaceuticals.
Sealed Air continues to capitalize on the global e-commerce growth and increased demand for recyclable materials, fiber-based solutions and automated packaging. Thus, with around 74% of the its revenues originating from essential end-markets, the company will deliver solid top-line performance.
Strategic Initiatives to Aid Growth
The company’s Reinvent SEE Strategy program that was implemented in 2018 was focused on innovations, SG&A productivity, product-cost efficiency, channel optimization and customer-service enhancements. This year, the company has embarked on the Reinvent SEE 2.0 initiative, which will advance the next phase of its transformation as it continues to build on the success of Reinvent SEE.
Per the new program, the company will focus on expanding the Fluids & Liquids Vertical segment by leveraging Cryovac and Liquibox. It will aim to enhance its competitive capabilities by combining highly complementary solutions within the fluids & liquids business while generating strong synergies and accelerating innovation. The company will expand and grow its portfolio of automation solutions and also advance prismiq digital packaging and printing solutions. Sealed Air will broaden and diversify its product portfolio with new sustainable innovations while expanding the digital e-commerce platform.
Zacks Rank & Stocks to Consider
Sealed Air currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks from the Industrial Products sector are Worthington Industries, Inc. WOR, The Manitowoc Company, Inc. MTW and W.W. Grainger, Inc. GWW. WOR and MTW sport a Zacks Rank #1 (Strong Buy) at present, and GWW has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Worthington Industries has an average trailing four-quarter earnings surprise of 14.9%. The Zacks Consensus Estimate for WOR’s fiscal 2023 earnings is pegged at $5.65 per share. The consensus estimate for 2023 earnings has moved 22.6% north in the past 60 days. Its shares have gained 57.9% in the last year.
Manitowoc has an average trailing four-quarter earnings surprise of 256.3%. The Zacks Consensus Estimate for MTW’s 2023 earnings is pegged at $1.12 per share. The consensus estimate for 2023 earnings has moved 7.8% north in the past 60 days. MTW’s shares have gained 88.3% in the last year.
The Zacks Consensus Estimate for Grainger’s 2023 earnings per share is pegged at $35.86, up 1% in the past 60 days. It has a trailing four-quarter average earnings surprise of 9.1%. GWW gained 68.4% in the last year.
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