Shares of Sealed Air Corporation SEE have gained 29.1% year to date, aided by its stellar fourth-quarter 2018 results, 2019 outlook, as well as the recently-announced Reinvent SEE Strategy. Also, expected savings from restructuring programs, focus on innovations, and the growing demand in fresh food and e-commerce markets will likely fuel the momentum, in the forthcoming periods.
Sealed Air, a Zacks #3 (Hold) Ranked stock, has a market cap of roughly $7.1 billion. The company has expected long-term earnings per share growth of 8.9%. Additionally, Sealed Air has an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of all three scores.
The stock’s 29.1% year-to-date appreciation has outshone the industry’s growth of 16.1%. Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:
Upbeat Q4: Sealed Air’s fourth-quarter 2018 adjusted earnings per share rose 29%, year over year, to 75 cents. Total revenues increased 2.6% year over year on a reported basis to 1,260 million in the reported quarter. The company beat the Zacks Consensus Estimate on both counts.
Strong Outlook: For full-year 2019, the company anticipates net sales of $4.8 billion, reflecting year-over-year growth of approximately 2% on reported basis and 5% in constant dollars. The company’s sales came in at $4.73 billion in full-year 2018. Adjusted EBITDA from continuing operations is expected to be $925-$945 million for the current year, up 4-6% from adjusted EBITDA of $890 million in the prior year. The company forecasts adjusted EPS to be in the range of $2.65-$2.75, the mid-point of which reflects 8% year-over-year growth.
Healthy Growth Projections: For full-year 2019, the Zacks Consensus Estimate for earnings per share is pegged at $2.72, projecting year-over-year growth of 8.8%, while the same for 2020 indicates a rise of 9.8% to $2.99. Further, the Zacks Consensus Estimate for 2019 earnings moved up 1%, over the past 90 days, while the same for 2020 has moved 2% north.
Positive Earnings Surprise History: The company outpaced estimates in the trailing four quarters, recording average positive earnings surprise of 6.49%.
Reinvent SEE Strategy to be a Game Changer: Last December, Sealed Air announced a reformation plan — Reinvent SEE Strategy — along with a fresh restructuring program, in a move to drive growth and earnings. The new strategy is focused on innovations, SG&A productivity, product-cost efficiency, channel optimization and customer-service enhancements.
One of the 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 across the company.
Strong Demand in Fresh Food and E-commerce to Sustain Demand: With the aid of its strategy, Sealed Air will be able to drive 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 2019.
Restructuring Efforts to Aid Margins: 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-$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 is anticipated to conclude by the end of 2021. Both programs are likely to result in total annualized savings of $240-$260 million from 2019 through 2021. Total annualized savings from both programs are expected to be approximately $70 million in 2019.
Stocks to Consider
A few better-ranked stocks in the Industrial Products sector are Zebra Technologies Corporation ZBRA, Albany International Corp. AIN and Mueller Industries, Inc. MLI, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Zebra Technologies has a projected earnings growth rate of 13.3% for 2019. Its shares have gone up 33.5%, year to date.
Albany International has an expected earnings growth rate of 35.8% for the ongoing year. The stock has gained 16.2% in the year-to-date period.
Mueller Industries has an estimated earnings growth rate of 2.2% for the current year. Its shares have surged 35.9%, year to date.
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