Upgrading Sealed Air to Outperform

Sealed Air Corporation (SEE - Analyst Report) recently reported its third quarter results. The company posted earnings of 38 cents per share, beating the Zacks Consensus Estimate 33 cents as well as prior-year EPS of 28 cents.

Through its stringent cost-control measures and global manufacturing strategy, the company managed to offset the impact of lower sales on its earnings. The company’s global manufacturing strategy, along with its cost reduction program, resulted in approximately $20 million in savings during the quarter.

Sealed Air is pursuing a multi-year global manufacturing strategy to revitalize its bottom line. The company plans to build manufacturing plants close to the markets it serves, with the bulk of production being transferred overseas. Under the first phase of this strategy, the company expects to realize cumulative savings of around $45.0 million in 2009 and $55.0 million in 2010.

Apart from its global manufacturing strategy, the company is also focused on managing its overhead costs. The company realized incremental savings of $38 million year-to-date and this program is expected to result in annual savings of at least $50.0 to $60.0 million starting from 2009.

Though the company reported an 11% decline in total sales for the quarter, it witnessed improved market conditions in some of the developing nations. The company’s sales increased in double digits in Russia, Poland and the Ukraine. The company also saw an improvement in the Latin American region during the quarter. Given its global footprint, Sealed Air is well poised for long-term growth, especially in the markets outside North America.

Based on the improved outlook as well as the company’s efforts to revitalize its bottom-line, we are upgrading the rating on the stock from Neutral to Outperform.

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