Sealed Air Reports Third Quarter Results

Reinvent SEE Strategy Driving Earnings Growth; Reaffirms 2019 Earnings and FCF Outlook
Wednesday, November 6, 2019
  • Net Sales of $1.2 billion, up 3% as reported and 5% in constant dollars
  • Net Earnings of $80 million or EPS of $0.51, up 6%
  •      Adjusted Net Earnings of $100 million or Adjusted EPS of $0.64, up 5%
  • Adjusted EBITDA of $241 million, up 10% as reported and 12% in constant dollars
  • Adjusted EBITDA margin expanded 130 basis points to 19.8% of Net Sales

CHARLOTTE, N.C., November 6, 2019 – Sealed Air Corporation (NYSE: SEE) today announced financial results for the third quarter 2019.

“Our third quarter results reflect continued strong execution of our Reinvent SEE strategy. In constant dollars, we delivered 12% Adjusted EBITDA growth on 5% higher sales with Adjusted EBITDA margin expanding 130 basis points to 19.8%,” said Ted Doheny, Sealed Air's President and CEO.

“We continue to see increased demand for our innovative and sustainable solutions across fresh food and protective packaging, which is easing top-line pressure from a slowdown in global industrial demand and currency headwinds. By accelerating sustainable innovations and driving productivity and cost efficiency across the business, we remain on track to achieve our full year 2019 earnings and free cash flow outlook. We are confident our strategy will continue to create value for SEE customers, shareholders and employees,” continued Doheny.

Unless otherwise stated, all results compare third quarter 2019 to third quarter 2018 from continuing operations. Year-over-year financial discussions present operating results from continuing operations as reported, on an organic basis and on a constant dollar basis. Organic refers to changes in unit volume and price performance and excludes acquisitions in the first year after closing, divestiture activity, and the impact of currency translation. Constant dollar refers to changes in net sales and earnings, excluding the impact of currency translation. Additionally, non-U.S. GAAP adjusted financial measures, such as Adjusted Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), Adjusted Net Earnings, Adjusted Diluted Earnings Per Share ("Adjusted EPS") and Adjusted Tax Rate, exclude the impact of specified items ("Special Items"), such as restructuring charges, restructuring associated costs, gains and losses related to acquisition and divestiture of businesses, special tax items ("Tax Special Items") and certain infrequent or one-time items. Please refer to the supplemental information included with this press release for a reconciliation of U.S. GAAP to Non-U.S. GAAP financial measures.
 
Business Highlights
Food Care net sales of $730 million, as reported, were relatively unchanged versus prior year results. Currency fluctuations had a negative impact on Food Care net sales of 3%, or $20 million. On a constant dollar basis, net sales increased 3%, primarily driven by volume growth of 2% and sales from acquisitions of 1%. Organic volume increased across all regions. Overall, price had a negligible impact on Food Care sales. Adjusted EBITDA increased 10% to $160 million, with margin expansion of 190 basis points to 22%. Currency fluctuations had a $4 million unfavorable impact on Adjusted EBITDA. Adjusted EBITDA growth was driven by Reinvent SEE initiatives, including productivity improvements and restructuring savings, favorable price cost spread and higher volumes, partially offset by unfavorable currency and higher operating costs. Higher operating costs were primarily related to labor inflation, increased incentive compensation and non-material manufacturing costs.

Product Care net sales of $489 million increased 7% as reported. Currency fluctuations had a negative impact of 1%, or $5 million on Product Care net sales. On a constant dollar basis, net sales increased 8%, as a result of $56 million in sales contributions from acquisitions, primarily Automated Packaging Systems. Against continued macroeconomic headwinds, particularly in the industrial sector, organic volume declined 5% on relatively flat pricing trends. Adjusted EBITDA increased to $84 million, up 10% from $76 million. Adjusted EBITDA was negatively impacted by a $7 million non-cash inventory step-up charge associated with the Automated Packaging Systems acquisition. Adjusted EBITDA margin of 17% increased 60 basis points due to Reinvent SEE initiatives and favorable price cost spread, partially offset by lower volumes, the inventory step-up charge and higher operating costs. Higher operating costs were primarily related to labor inflation, increased incentive compensation and non-material manufacturing costs.
 
Third Quarter 2019 U.S. GAAP Summary
Net sales of $1.2 billion increased 3% on an as reported basis. Currency had a negative impact on total net sales of $25 million or 2%. Net earnings on an as reported basis were $80 million, or $0.51 per diluted share, which was unfavorably impacted by $20 million of Special Items, after tax. Restructuring and restructuring associated costs of $15 million, net of tax, was the largest component of Special Items. This compares to third quarter 2018 net earnings of $76 million, or $0.48 per diluted share, which was unfavorably impacted by $21 million of Special Items.

The effective tax rate in the third quarter 2019 was 22.3%, compared to 30.6% in the third quarter 2018. The third quarter 2019 effective rate was favorably impacted by the benefit of research and development tax credits related to prior periods.
 
Third Quarter 2019 Non-U.S. GAAP Summary
Net sales increased 5% in constant dollars reflecting organic growth in Food Care and contributions from recent acquisitions. On a constant dollar basis, sales increased 4% in North America, 5% in EMEA, 3% in Asia Pacific and 21% in South America. South America growth was driven by USD-based indexed pricing combined with a 3% increase in volume.

Adjusted EBITDA increased 10% to $241 million, compared to $219 million in 2018. Currency fluctuations had an unfavorable impact of $4 million or 2% on Adjusted EBITDA in the third quarter 2019. On a constant dollar basis, Adjusted EBITDA increased 12%. The improvement in Adjusted EBITDA was primarily due to Reinvent SEE initiatives and favorable price cost spread, partially offset by higher operating costs, lower volume and the non-cash inventory step-up charge noted above.

Adjusted earnings per diluted share was $0.64 for the third quarter 2019 compared to $0.61 in the same period a year ago. Third quarter adjusted EPS includes a negative impact of $0.04 from the Automated Packaging Systems acquisition, which is net of $0.07 in charges related to the non-cash purchase accounting items of acquired intangible amortization and the inventory step-up charge.
The Adjusted Tax Rate was 28.5% in the third quarter 2019, compared to 27.8% in the third quarter 2018.
 

Cash Flow and Net Debt
Cash flow provided by operating activities for the nine months ended September 30, 2019 was an inflow of $251 million, compared to an inflow of $150 million for the nine months ended September 30, 2018.

Capital expenditures were $142 million for the nine months ended September 30, 2019 versus $115 million in the nine months ended September 30, 2018, primarily driven by increased investment in Reinvent SEE initiatives and innovations to support growth. Free Cash Flow, defined as net cash provided by operating activities less capital expenditures, was an inflow of $110 million in the nine months ended September 30, 2019, compared to an inflow of $35 million in the nine months ended September 30, 2018.

Sealed Air used cash in investing activities of $453 million to fund acquisition activity largely related to Automated Packaging Systems.
Net Debt, defined as total debt less cash and cash equivalents, increased to $3.7 billion as of September 30, 2019 from $3.2 billion as of December 31, 2018. The increase in net debt is attributable to the new Term Loan A, primarily used to finance the Automated Packaging Systems acquisition.
 
Outlook for Full Year 2019
Sealed Air now expects net sales of approximately $4.8 billion, which represents an increase of approximately 1.5% as reported and 4.5% in constant dollars compared to 2018. This compares to the previously provided sales guidance of $4.85 billion. Acquisitions are on track to contribute $190 million, or 4% growth, of which Automated Packaging Systems will contribute approximately $120 million. The Company expects currency to have an unfavorable impact of approximately $145 million on net sales. This compares to unfavorable currency of $130 million on net sales in the previous guidance.

The Company reaffirms its 2019 outlook for Adjusted EBITDA, Adjusted EPS and Free Cash Flow.  Adjusted EBITDA and Adjusted EPS are expected to remain in the range of $950 to $960 million and $2.70 to $2.80, respectively, but now includes an estimated unfavorable foreign currency impact of $30 million versus $25 million in our prior guidance. The Company continues to expect 155 million diluted average shares outstanding and an Adjusted Tax Rate of 26% for the full year 2019. Sealed Air expects Free Cash Flow to be approximately $180 million, no change from prior guidance.

Conference Call Information
Date:        Wednesday, November 6, 2019
Time:        10:00 a.m. (ET)
Webcast:        www.sealedair.com/investors

A supplemental presentation will be available on the Company’s website at www.sealedair.com/investors.

Contact: 

Investors
Lori Chaitman
lori.chaitman@sealedair.com
516.458.4455

Media
Pam Davis
pam.davis@sealedair.com
980.833.4084