On Sept 19, we upgraded our recommendation on Sealed Air Corporation (SEE) from Neutral to Outperform. This was based on strong second-quarter 2013 results, expected benefits from its restructuring programs, Diversey acquisition and price hikes.
Why Upgraded?
Sealed Air’s second-quarter adjusted net earnings more than doubled to 35 cents a share from prior-year quarter, helped by strong growth in Asia, Middle East, Africa and Turkey (AMAT) and Latin America, and modest growth in North America, margin expansion in the Food & Beverage and Institutional & Laundry divisions, benefits from pricing initiatives, and focus on manufacturing and operational improvements.
Sealed Air managed to improve overall volumes by 2.4% year over year driven by volume increases in all its segments barring Medical Applications and New Ventures (Other Category). The company plans to further hike prices in the second half of 2013 to counter material cost increases and the lag that the company experienced in pricing in the first half.
Sealed Air’s Integration & Optimization Program will generate cost savings and benefits of approximately $195 million to $200 million by the end of 2014. The company is expected to realize an additional $90 million of benefits in 2013. The company announced an additional restructuring plan with projected annualized savings of $80 million by 2015.
The Diversey acquisition in 2011 is the second largest in the company’s history, just behind the $4.8 billion purchase of the Cryovac food-packaging business in 1998 from W.R. Grace & Co. With this acquisition, Sealed Air expanded its presence beyond specialty packaging solutions, offering the most comprehensive portfolio of solutions and industry expertise in food safety and security, facility hygiene and product protection. This combination is expected to further enhance Sealed Air’s earnings per share and free cash flow generation.
Other Stocks to Consider
Other stocks with favorable Zacks Rank in the same industry are PH Glatfelter Co. (GLT), with a Zacks Rank #1 (Strong Buy), and Rock-Tenn Company (RKT) and Sonoco Products Co. (SON), both carrying Zacks Rank #2 (Buy).
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