A month has gone by since the last earnings report for Sealed Air (SEE). Shares have lost about 3.2% 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 its most recent earnings report in order to get a better handle on the important drivers.
Sealed Air's Earnings Trump Estimates in Q2, View Up
Sealed Air delivered second-quarter 2019 adjusted earnings per share of 80 cents, surpassing the Zacks Consensus Estimate of 64 cents and improving 25% year over year. Results can be attributed to strong execution of the company’s Reinvent SEE strategy which was introduced in December 2018 to drive growth and earnings power.
Including special items, the company reported net earnings per share of 16 cents compared to the prior-year quarter’s 52 cents.
Total revenues went up to $1,161 million in the reported quarter from the year-ago quarter’s $1,155 million. The figure, however, missed the Zacks Consensus Estimate of $1,167 million. Unfavorable currency impact lowered total net sales by $41 million.
Cost and Margins
Cost of sales edged down 1.1% year over year to $782.7 million. Gross profit improved 4% year over year to $378.3 million. Gross margin came in at 32.6% compared with 31.4% in the comparable period last year.
SG&A expenses flared up 38% to $266.2 million, year on year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $237 million in the quarter compared with $218 million reported in the prior-year quarter. Adjusted EBITDA margin was 20% compared with 19% in the prior-year quarter, driven by the company’s Reinvent SEE initiatives, productivity improvement and restructuring savings, partly offset by higher operating costs.
Food Care: Net sales dipped to $711 million during the June-end quarter, from $713 million in the prior-year period. Adjusted EBITDA increased 15% year over year to $155.6 million.
Product Care: The segment reported net sales of $450 million in the reported quarter compared with $442 million in the prior-year quarter. Adjusted EBITDA was up 7% to $84 million.
Cash and cash equivalents were $222.2 million as of Jun 30, 2019, down from $271.7 million as of Dec 31, 2018. Cash flow from operating activities was around $169.3 million in six-month period ended Jun 30, 2019 compared with $36.6 million in the prior year comparable period.
As of Jun 30, 2019, Sealed Air’s net debt came in at $3.36 billion, up from $3.20 billion as of Dec 31, 2018. In the first-half 2019, the company repurchased 1,560,000 shares for $67 million and paid dividends worth $50 million.
Sealed Air has completed the acquisition of Automated Packaging Systems, Inc. (“APS”) for $510 million. The acquisition will strengthen its portfolio to drive growth in e-commerce, fulfillment and food packaging markets. Sealed Air is expected to generate around $15 million annualized, run-rate productivity synergies by the end of 2021.
Sealed Air has updated its guidance for current year. The company now projects adjusted earnings per share at $2.70-$2.80 compared with the prior projection of $2.65-$2.75.
Net sales are projected at $4.85 billion compared with the previous estimate of $4.8 billion. Acquisitions are expected contribute $190 million towards revenues, of which APS will contribute approximately $120 million. Adjusted EBITDA is estimated to lie between $950 and $960 million compared with the prior guided $925 million - $945 million. Nevertheless, currency is anticipated to have an unfavorable impact of approximately $130 million on net sales and $25 million on adjusted EBITDA.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -7.52% due to these changes.
At this time, Sealed Air has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
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 #2 (Buy). We expect an above average return from the stock in the next few months.
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