Why Is Sealed Air (SEE) Up 0.9% Since Last Earnings Report?
It has been about a month since the last earnings report for Sealed Air (SEE). Shares have added about 0.9% in that time frame, underperforming 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 catalysts.
Sealed Air Q1 Earnings Beat Estimates, Hikes '21 View
Sealed Air reported first-quarter 2021 adjusted earnings per share of 78 cents, surpassing the Zacks Consensus Estimate of 71 cents. The bottom line also improved 7% year over year on higher volumes and benefits from the company’s Reinvent SEE initiatives, somewhat offset by raw material inflation and higher costs related to the winter storm supply chain disruptions.
Including special items, the company delivered net earnings per share of 68 cents compared with the prior-year quarter figure of 74 cents.
Total revenues were up 8% year over year to $1.27 billion in the reported quarter highlighting strength in e-Commerce, food retail and equipment, and pickup in industrial activity. Further, the top line beat the Zacks Consensus Estimate of $1.22 billion.
Cost and Margins
Cost of sales climbed 10.5% year over year to $866 million. Gross profit increased 3% year over year to $401 million. Gross margin contracted 160 basis points to 31.7% from the prior-year quarter’s 33.1%.
SG&A expenses declined 3% to $1895 million year over year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to $268 million in the quarter, up 6% from the prior-year quarter. Adjusted EBITDA margin was 21.2% compared with the prior-year quarter’s 21.6%. Benefits from higher volume and productivity improvements helped negate the impact of global supply chain disruptions related to Winter Storm Uri.
Segment Performance
Food: Net sales inched up 1.7% year over year to $702 million. Strength in food retail and automated equipment was partially negated by continued weakness in food service due to the impact of COVID-19. Adjusted EBITDA was up 0.4% year over year to $110 million. Gains from Reinvent SEE productivity improvements were offset by raw material inflation and higher costs related to the winter storm supply chain disruptions.
Protective: The segment reported net sales of $565 million in the quarter under review, up 17% from the prior-year quarter led by continued strength in e-Commerce, fulfillment and automated equipment as well as recovery in industrial segments. Adjusted EBITDA advanced 18% year over year to $110 million driven by volume growth and Reinvent SEE productivity improvements, partially negated by raw material inflation and higher costs related to the winter storm supply chain disruptions.
Financial Updates
Cash flow from operating activities was around $80 million in the first quarter of 2021 compared with $41 million in the prior-year quarter. During the reported quarter, Sealed Air paid cash dividends of around $26 million and made share repurchases worth $177 million.
As of Mar 31, 2021, Sealed Air’s net debt was $3.4 billion, up from $3.2 billion as of Dec 31, 2020. As of the quarter-end, the company had approximately $1.5 billion of liquidity available, which comprised $370 million in cash and $1,133 million of undrawn, committed credit facilities.
2021 Guidance Updated
For 2021, Sealed Air expects net sales in the range of range of $5.25 billion to $5.35 billion, higher than the prior expectation of $5.1 billion to $5.2 billion. This indicates an increase of 7% to 9% growth as reported and 6% to 8% in constant dollars.
Adjusted EBITDA is projected between $1.12 billion and $1.15 billion, updated from its previous range of $1.10 billion to $1.13 billion in 2021. Adjusted earnings per share is now anticipated in the band of $3.40 to $3.55. The mid-point of the range suggests year-over-year growth of 9%.The company had earlier provided a guidance range of $3.25-$3.40.
Free cash flow is estimated between $520 million and $570 million. The company plans capital expenditures of around $210 million for the year and Reinvent SEE restructuring, and associated payments of around $40 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
Currently, Sealed Air has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Sealed Air has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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