Sealed Air Corporation (SEE) reported first-quarter 2012 adjusted net earnings of 18 cents per share, missing the Zacks Consensus Estimate of 21 cents and lagging behind the year-ago quarter’s earnings of 34 cents.
On a reported basis, the company had a loss of 3 cents per share compared with earnings of 34 cents.
Total revenues jumped 70% year over year to $1.92 billion, beating the Zacks Consensus Estimate of $1.91 million. Acquisitions contributed 66% to the growth while the balance was derived from price mix (2%) and volumes (2%).
Cost and Margins
Cost of sales increased 55% year over year to $1.27 million in the quarter. Gross profit jumped 110.3% to $649.7 million. Consequently, gross margin soared 650 basis points (bps) to 33.9% in the quarter.
Marketing, administrative and development expenses increased at a whopping rate of 160.5% to $478.1 million in the quarter. Adjusted operating profit increased 22.2% to $150.7 million. However, adjusted operating margin contracted 300 bps to 7.9%.
Segment Performance
Food Packaging Segment: Net sales increased 3% year over year to $488.2 million, up 2% on constant dollar basis with a 2% contribution from price mix. Global volumes increased due to growth in Australia/New Zealand and EMEA partially offset by growth in North America and unfavorable impact of currency translation. Adjusted operating profit increased 4.5% to $65.4 million in the quarter.
Food Solutions Segment: Net sales were $238.2 million, up 4% on reported and constant dollar basis. Price mix contributed 3% and volumes 1%. Adjusted operating profit increased 37.1% to $26.6 million.
Protective Packaging Segment: The segment reported net sales of $345.6 million, up 3% (or 4% on a constant dollar basis). Volumes contributed 3%. Adjusted operating profit increased 15.9% to $46.7 million in the quarter.
Diversey Segment: Net sales were $750.9 million in the quarter. Adjusted operating profit was $3.7 million compared to $1 million a year ago.
Financial Updates
Cash and cash equivalents were $538.5 million as of March 31, 2012, compared with $722.8 million as of December 31, 2011. Long-term debt excluding current portion amounted to $4.99 billion as of March 31, 2012, compared to $5.01 billion as of December 31, 2011.
Free cash flows were $29.8 million during the first quarter versus $56.3 million a year ago. Capital expenditure was $29.2 million in the quarter compared to $19.5 million in the prior-year quarter.
Debt-to-capitalization ratio improved to 62.2% as of March 31, 2012, compared with 63.1% as of December 31, 2011.
Outlook for 2012
The company expects adjusted earnings in the range of $1.50-$1.60 per share and cash earnings in the range of $2.10-$2.20 per share. Net sales are expected to remain at the lower end of the previous guidance of $8.2-$8.3 billion.
Further, free cash flows are expected in the range of $450-$475 million and net debt target is pegged at $4.9 million. The company expects adjusted EBITDA of $1.2 billion.
Our Take
With the Diversey acquisition, Sealed Air expanded its presence beyond specialty packaging solutions. This combination is expected to further enhance Sealed Air’s earnings per share and free cash flow generation. However, the ongoing weakness in the European economy has made the situation challenging as it has significant exposure to the European market. Sealed Air faces competition from companies like Bemis Company (BMS) and Sonoco Products Co. (SON).
Currently, we have a long-term Neutral recommendation on Sealed Air. The stock retains a short-term Zacks #4 Rank (Sell).
BEMIS (BMS): Free Stock Analysis Report
SEALED AIR CORP (SEE): Free Stock Analysis Report
SONOCO PRODUCTS (SON): Free Stock Analysis Report
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