Sealed Air (SEE) Down 10.3% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Sealed Air (SEE). Shares have lost about 10.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Sealed Air due for a breakout? 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 catalysts.
Sealed Air Q2 Earnings Beat Estimates, Revenues Miss
Sealed Air has reported second-quarter 2023 adjusted earnings per share of 80 cents, which surpassed the Zacks Consensus Estimate of 68 cents. The bottom line fell 21% year over year due to lower volumes.
Including special items, the company delivered net earnings per share of 65 cents compared with the prior-year quarter’s 77 cents.
Total revenues were down 2.6% year over year to $1,381 million in the reported quarter. The top line missed the Zacks Consensus Estimate of $1,416 million.
Currency had an unfavorable impact of 1.7%, while price had a favorable impact of 2%. Meanwhile, volumes were down 8.2% year over year. Our model predicted currency to have an unfavorable impact of 1% and pricing to favor sales by 1.6%. We predicted volumes to decrease 6.5% year over year. The variance is mainly due to the ongoing destocking in the industrial and fulfillment sectors.
Sales in the APAC (in constant dollars) rose 6% year over year, while sales in the Americas witnessed a decline of 2%. Sales in EMEA were flat year over year.
Costs and Margins
The cost of sales fell 1.7% year over year to $962 million. The gross profit was $418 million, which marked a 4.6% decline from the year-ago quarter’s $438 million. The gross margin contracted to 30.3% from the prior-year quarter’s 30.9%.
SG&A expenses decreased 6.8% from the last-year quarter to $186 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were around $280 million in the quarter, which decreased 4.5% from the prior-year period. The adjusted EBITDA margin was 20.3% compared with the prior-year quarter’s 20.7%, courtesy of lower volumes, partially offset by earnings generated from Liquibox.
Segmental Performance
Food: Net sales increased 9% year over year to $881 million. However, the figure missed our estimate of $904 million. Volumes were flat, while pricing actions had a favorable impact of 3%. We expected volume to be down 1% and pricing to be up 1.9%. Currency fluctuations had an unfavorable impact of 3%. Our model predicted currency to negatively impact the segment’s sales by 0.4%.
Adjusted EBITDA was $191 million, up 14% from the last year’s quarter, owing to gains from the Liquibox acquisition. The reported figure also surpassed our estimate of $188 million.
Protective: The segment reported net sales of $500 million in the quarter under review, down 18% from the prior-year quarter. We expected net sales of $525 million. Currency had an unfavorable impact of 0.4%. Pricing had a positive impact of 1%, while volumes fell 19% due to continued market pressures, and destocking in the industrial and fulfillment sectors.
Our model predicted currency to negatively impact by 1.7%, and price to positively impact by 1.2%. We expected volume to fall 13.8% in the quarter. The segment’s adjusted EBITDA decreased 24% year over year to $96 million, driven by lower volumes. We expected adjusted EBITDA to be $105 million.
Financial Updates
Cash used in operating activities was around $7 million in the first half of 2023 against an inflow of $213 million in the prior-year comparable period. The company paid out cash dividends of $60 million in the first six months of 2023.
As of Jun 30, 2023, Sealed Air’s net debt was $4.7 billion, up from $3.2 billion as of Dec 31, 2022. As of the end of the second quarter of 2023, the company had $1.10 billion of liquidity available, which comprised $285 million in cash and $811 million of undrawn, committed credit facilities.
2023 Guidance
For 2023, Sealed Air expects net sales between $5.40 and $5.60, down from the previously stated $5.85-$6.10 billion. SEE anticipates an adjusted EBITDA of $1.075-$1.125 billion compared with the previously stated $1.25-$1.30 billion. Adjusted earnings per share (EPS) are forecast to be $2.75-$2.95. Previously, the company expected an adjusted EPS of $3.50-$3.80.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -32.91% due to these changes.
VGM Scores
Currently, Sealed Air has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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. It's no surprise Sealed Air has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Sealed Air is part of the Zacks Containers - Paper and Packaging industry. Over the past month, AptarGroup (ATR), a stock from the same industry, has gained 3.8%. The company reported its results for the quarter ended June 2023 more than a month ago.
AptarGroup reported revenues of $895.91 million in the last reported quarter, representing a year-over-year change of +6.1%. EPS of $1.23 for the same period compares with $0.96 a year ago.
For the current quarter, AptarGroup is expected to post earnings of $1.27 per share, indicating a change of +33.7% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.5% over the last 30 days.
AptarGroup has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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