Sealed Air Has Important Drivers

In this article let's take a look at Sealed Air Corporation (SEE, Financial), a leading global manufacturer of a wide range of food and protective packaging materials and systems.

Well-Known Brands

The company has a portfolio of widely recognized brands, including Cryovac (R) brand food packaging solutions, Bubble Wrap(R) brand cushioning and Diversey (TM) cleaning and hygiene solutions, ensures a safer and less wasteful food supply chain, protects valuable goods shipped around the world, and improves health through clean environments

A Price Hike

On Feb 2014, due to the escalation of its raw materials among others input costs, in particular polyethylene, nylon and benzene, the company announced price increases in the range of 3% to 8% within the company’s Food Care and Product Care divisions in North America. “As our raw materials costs continue to rise in 2014, we will remain steadfast to a pricing strategy to recover these costs. In 2014 alone, suppliers of polyethylene (PE), nylon, and benzene, large inputs to our products, have announced significant price increases on top of significant increases in 2013.Most recently in North America, PE suppliers announced price increases of $0.04 effective February 1, 2014, with further announced increases March 1, 2014. To date these increases range between 21% and 28% since January 1, 2013.Benzene prices have increased 25% over the past three months and nylon is increasing $0.10 or 6%,” said Jerome A. Peribere, President & CEO, Sealed Air.

Financial Flexibility

The firm completes a settlement agreement with the W. R. Grace bankruptcy case. “We will no longer incur interest on the settlement, which amounted to $48M in 2013. Additionally, we anticipate meaningful cash tax benefits over the next several years that will provide cash that we can use to continue to add value to our business”, the company said. This will benefit from cash tax benefits over the next years and will provide with more financial flexibility.

Earnings Program

In May 2013, Sealed Air announced another restructuring program, 2013 Earnings Quality Improvement Program (EQIP) to deliver meaningful cost savings and network optimization. Under this program the firm projects $80 million to $110 million of annual savings between 2013 and 2015, at a cost of $130 million to $150 million. It plans to focus on cost-cutting strategies.

Relative Valuation, EPS and Price Performance

In terms of valuation, the company sells at a trailing P/E of 38.3x, trading at a premium compared to the industry mean.

This ratio indicates that the stock is relatively overvalued when compared to competitors such as Bemis Co. Inc. (BMS, Financial) and Sonoco Products Co. (SON, Financial).

Earnings per share (EPS) have decreased in the first-quarter 2014 to $0.33 per share. In the next graph we can see the EPS evolution and the forecast for each quarter.

In the next table we can appreciate the quarterly earnings surprise history:

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In the next graph we include the stock price because EPS often lead the stock price movement. As we can appreciate in the chart, the price performance in the last year showed an interesting upward trend.

Final Comment

As outlined in this article, the restructuring program that the company is engaged are driving financial and operational excellence and improving the quality of our business. We think that value initiatives as well as pricing disciplines will help to boost the company´s revenues in the future.

I would recommend investors to consider adding the stock for their long-term portfolios. Hedge fund gurus have also been active in the company in the first quarter of 2014. Joel Greenblatt (Trades, Portfolio) has taken long positions.

Disclosure: Omar Venerio holds no position in any stocks mentioned.