A month has gone by since the last earnings report for Sealed Air (SEE - Free Report) . Shares have lost about 0.2% 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 catalysts.
Sealed Air Q2 Earnings & Revenues Surpass Estimates
Sealed Air reported second-quarter 2020 adjusted earnings per share of 76 cents, surpassing the Zacks Consensus Estimate of 54 cents. However, the bottom line declined 5% year over year. Benefits from the company’s Reinvent SEE initiatives, favorable price cost spread, and contribution from the Automated acquisition was partially offset by lower organic sales volume, unfavorable foreign currency translation and higher adjusted tax rate.
Including special items, the company reported net earnings per share of 64 cents compared with the prior-year quarter figure of 16 cents.
Total revenues declined 1% year over year to $1,151 million in the reported quarter. The top line, however, beat the Zacks Consensus Estimate of $1,076 million. Currency negatively impacted sales by 4%.
Cost and Margins
Cost of sales decreased 5% year over year to $761 million. Gross profit improved 3% year over year to $390 million. Gross margin was 33.9% compared with 32.6% in the prior-year quarter.
SG&A expenses plunged 31% to $185 million year over year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $260 million in the quarter, up 10% from $237 million in the prior-year quarter. Adjusted EBITDA margin was 22.6% compared with 20.4% in the prior-year quarter, driven by the company’s Reinvent SEE initiatives, favorable price cost spread, and contribution from the Automated acquisition. This was partially offset by lower organic sales volume and unfavorable foreign currency translation.
Food: Net sales declined 5% year over year to $673 million. Adjusted EBITDA improved 9% year over year to $169 million.
Protective: The segment reported net sales of $478 million in the reported quarter, up 6% from the prior-year quarter. Adjusted EBITDA was up 9% year over year to $91 million.
Cash and cash equivalents were at around $290 million as of Jun 30, 2020, up from $262 million as of Dec 31, 2019. Cash flow from operating activities was around $213 million in the first half of 2020 compared with $169 million in the prior-year period. As of Jun 30, 2020, Sealed Air’s net debt was $3.5 billion, down from $3.6 billion as of Dec 31, 2019.
For 2020, Sealed Air now expects net sales to be $4.725-$4.775 billion. Foreign currency is now expected to have a negative impact on net sales of approximately $120 million. In February, the company had provided sales guidance of $4.9 billion to $4.95 billion, which included an estimated unfavorable currency impact of approximately $40 million.
Adjusted EBITDA is expected between $1.01 billion and $1.03 billion, same as the February 2020 guidance. However, foreign currency is now expected to have a negative impact of approximately $25 million higher than the prior expectation of an unfavorable impact of $8 million. Adjusted earnings per share is expected in the band of $2.85- $2.95. Free cash flow is expected in the range of $350-$375 million, compared with $350 million communicated in February 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.91% due to these changes.
At this time, Sealed Air has a strong Growth Score of A, a grade with the same score on the momentum front. 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sealed Air has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.