Sealed Air (SEE) Down 25.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Sealed Air (SEE). Shares have lost about 25.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sealed Air due for a breakout? 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 drivers.

Sealed Air Q4 Earnings & Revenues Top Estimates, Up Y/Y

Sealed Airreported fourth-quarter 2019 adjusted earnings per share of 78 cents, surpassing the Zacks Consensus Estimate of 74 cents and improving 4% year over year. The results can be attributed to strong execution of Reinvent SEE strategy, which was introduced in December 2018 to drive earnings growth and productivity improvements.

Including special items, the company reported net earnings per share of 80 cents compared with the prior-year quarter figure of $1.28.

Total revenues of $1,299 million in the reported quarter were up 3% from the year-ago quarter figure of $1,260 million. The figure beat the Zacks Consensus Estimate of $1,298 million. Acquisitions contributed 6.2% to total revenues, partially offset by an organic sales decline of 1.6%.

Cost and Margins

Cost of sales increased 1% year over year to $870 million. Gross profit improved 8% year over year to $429 million. Gross margin came in at 33.1% compared with 31.7% in the comparable period last year.

SG&A expenses climbed 6% to $216 million, year on year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $271 million in the quarter compared with $248 million in the prior-year quarter. Adjusted EBITDA margin was 21% compared with 20% in the prior-year quarter, driven by the company’s Reinvent SEE initiatives and favorable price cost spread and acquisitions. This was partially offset by higher operating costs, lower volumes and unfavorable foreign currency.

Segment Performance

Food Care: Net sales declined 2% year over year to $760 million. Adjusted EBITDA improved 5% year over year to $171 million.

Product Care: The segment reported net sales of $539 million in the reported quarter, up 10% from the prior-year quarter. Adjusted EBITDA was up 25% year over year to $107 million.

Financial Updates

Cash and cash equivalents were $262 million as of Dec 31, 2019, down from $272 million as of Dec 31, 2018. Cash flow from operating activities was around $511 million in 2019 compared with $428 million in the prior year. Capital expenditures were $190 million for 2019 compared with $169 million in 2018. The increase can primarily be attributed to increased investment to drive growth and improve cost productivity.

As of Dec 31, 2019, Sealed Air’s net debt came in at $3.6 billion, up from $3.2 billion as of Dec 31, 2018. In 2019, the company repurchased 1.6 million shares worth $67 million and paid out dividends worth $99 million. The company has $708 million remaining under its current authorized share repurchase program.

2019 Results

Sealed Air reported adjusted earnings per share of $2.82 in 2019, up 13% from the prior-year figure of $2.50. Earnings missed the Zacks Consensus Estimate of $2.78. Including one-time items, the bottom line came in at $1.89, up 101% from 94 cents in 2018. The bottom line also came in higher than management’s guidance of $2.70-$2.80.

Sales rose 1.2% year over year to around $4,791 million from the prior-year figure of $4,733 million. The top line missed the Zacks Consensus Estimate of $4,792 million.

Guidance

Sealed Air’s guidance for adjusted earnings per share for 2020 is at $2.85-$2.95. The mid-point of the range suggests year-over-year growth of 3%.

Net sales are projected at $4.9-$4.95 billion, indicating an improvement of 2% to 3% on a reported basis and 3% to 4% in constant dollars. Adjusted EBITDA is estimated to lie between $1.01 billion and $1.03 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.3% due to these changes.

VGM Scores

Currently, Sealed Air has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Sealed Air has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.