Will Sealed Air (SEE) Pull a Surprise Again in Q2 Earnings?

We expect Sealed Air Corporation SEE to beat expectations when it reports second-quarter 2016 results, before the market opens on Jul 28.

Why a Likely Positive Surprise?

Our proven model shows that Sealed Air is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP: Sealed Air’s Earnings ESP stands at +1.56%. This is because the company’s Most Accurate estimate is 65 cents, whereas the Zacks Consensus Estimate is pegged at 64 cents. A favorable ESP serves as a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: Sealed Air currently has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, #2 or #3 have a significantly higher chance of beating earnings. Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.

The combination of Sealed Air’s Zacks Rank #3 and +1.56% ESP makes us reasonably confident of an earnings beat.

Surprise History

Sealed Air outpaced the Zacks Consensus Estimate in each of the trailing four quarters with an average positive surprise of 22.52%. In the last reported quarter, the company posted a positive earnings surprise of 4.17%.

What's Driving the Better-than-Expected Earnings?

Sealed Air will benefit from acquisitions, focus on growth opportunities, effective cost management and savings from restructuring. The specialty packaging service provider recently obtained Tampereen Teollsuussähkö Oy (TTS-Ciptec). The buyout will boost its customers’ sustainability needs by providing improved cleaning systems.

Further, the company’s ongoing productivity improvements, adoption of more advanced product portfolio and early successes with the Change the Game initiatives will accelerate growth. Sealed Air witnessed customer adoption and further market penetration across all protein sectors in its case-ready platforms. Darfresh on Tray and ready meals continue to gain significant momentum globally.

Moreover, Sealed Air reported rapid expansion of fluid-based solutions including its vertical pouch packaging as well as its aseptic offerings. In the hygiene business, the company is experiencing sustained growth with its direct food contact solutions for food safety, and knowledge-based services to optimize water and energy usage.

However, on the negative side, Sealed Air cautions that its second-quarter results will be down on a year-over-year basis primarily due to formula pricing in Food Care. Overall, unfavorable foreign currency translation, increase in restructuring costs and enhanced debt levels remain headwinds for the company.

Stocks That Warrant a Look

Here are some other companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Allegion Plc ALLE has an Earnings ESP of +2.25% and a Zacks Rank #2.

Ball Corp. BLL has an Earnings ESP of +1.01% and a Zacks Rank #3.

Colfax Corp. CFX has an Earnings ESP of +2.56% and a Zacks Rank #3.

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