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Sealed Air (SEE) Gains 43% YTD: What's Driving the Rally?

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Shares of Sealed Air Corporation (SEE - Free Report) have been appreciating so far this year, courtesy of improved top and bottom-line performance in the three quarters of 2021 and an upbeat guidance for the current year. The company has been benefiting from the ongoing strength in packaging demand for food, medical supplies and consumer staples, and increased e-commerce activity. Apart from strong demand for automated equipment and sustainable packaging solutions, SEE is also witnessing higher food service demand. The company’s Reinvent SEE Strategy has been contributing to its earnings performance.

Sealed Air has an expected long-term earnings per share growth rate of 9.6%. The company has a trailing four-quarter earnings surprise of 6.5%, on average.

The company’s current-year earnings estimates have been revised upward by 1% over the past 30 days, while the same for 2022 has moved north by 2%. The Zacks Consensus Estimate for earnings for 2021 is currently pegged at $3.56, which suggests year-over-year growth of 11.6%. The same for 2022 stands is $4.11, indicating year-over-year improvement of 15.5%.

Share Price Performance

The stock has gained 41.4% year to date, compared with the industry’s growth of 9.3%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Driving Factors

Solid Results So Far This Fiscal: Sealed Air has delivered year-over-year improvement in both revenues and adjusted earnings per share in all the three quarters of 2021. Overall revenues improved 12% year over year to $4 billion in the first nine-month period of 2021. Sales in the Food segment in the period went up 8% on favorable pricing and higher volumes with increases across all regions, primarily driven by rising demand in the global food service industry compared to last year and increased automated equipment sales. The Protective Segment’s sales were up 18%, on higher volumes on surging industrial segment demand, strength in automated equipment, sustained momentum in e-commerce and higher demand across all regions.

Favorable pricing due to price actions to offset rising input cost led to the improved results as well. Adjusted earnings in the first nine month period of 2021 came in at $2.43, up 6% year over year on higher volumes and benefits from the company’s Reinvent SEE initiatives.

Upbeat Guidance: For 2021, Sealed Air expects net sales of $5.5 billion, indicating an increase of 12% as reported and 11% in constant dollars. The company now expects adjusted EBITDA between $1.12 billion and $1.14 billion for the current year. The adjusted earnings per share are anticipated in the band of $3.50 to $3.60. The mid-point of the guidance implies year-over-year earnings growth of 11%.
Strong Demand to Fuel Top Line: Around 63% of Sealed Air’s revenues stem from packaging of protein, foods, fluids and goods for the medical and life sciences industries. The food care business continues to gain from the shift in demand for case ready, shrink bags and pre-packaged meals and snacks designed for home consumption amid the pandemic-induced restrictions.

In the medical and life sciences portfolio, demand for protected packaging solutions for medical supplies, pharmaceuticals, and personal protective equipment remains high. It has been gaining from growth in online shipments of medical equipment and pharmaceuticals. The company has been witnessing increased demand for temperature assurance packaging solutions that ensure safe and secure distribution of COVID-19 vaccines. Further, e-commerce sales, which contribute around 14% to the company’s sales, have been on the rise amid the stay-at-home scenario.  Sealed Air continues to capitalize on global e-commerce growth and increased demand for recyclable materials, fiber-based solutions and automated packaging.

Ongoing Benefits From Reinvent SEE Strategy: In December 2018, Sealed Air announced a reformation plan — Reinvent SEE Strategy — along with a fresh restructuring program to drive growth. The new strategy is focused on innovations, SG&A productivity, product-cost efficiency, channel optimization and customer-service enhancements. One of the most vital aspects of this strategy involves investment in technology and resources focused on new and existing high-growth markets. The company achieved $43 million benefits from Reinvent SEE in the first nine-month period of 2021, which puts it on track to realize benefits of around $65 million for the full year.

Automation & Acquisitions Remain Catalysts: Sealed Air’s focus on automation, digital and sustainability is expected to drive above-market growth in its core business. The company’s pipeline for automated equipment continues to improve, and it has set a target of over $500 million by 2025.

The acquisition of Automated Packaging Systems strengthened Sealed Air’s automated solutions and sustainable packaging offerings. The buyout of AFP, Inc. expanded its protective packaging solutions in the electronics, transportation and industrial markets with custom-engineered applications. AFP along with the prior acquisition of Fagerdala align well with the ship-in-own-container (SIOC) trend in e-commerce. This trend is transforming e-commerce packaging as more distributors want manufacturers to have their primary packaging parcel ready. These acquisitions and investments that the company has been making in its core business are likely to drive growth.

Zacks Rank

Sealed Air currently carries a Zacks Rank #3 (Hold).

A Look at Other Packaging Stocks

Berry Global Group (BERY - Free Report) has been gaining from strength in its food & beverage and healthcare end markets, and recovery in the construction space. Its focus on improving operational productivity, along with its partnerships across the value chain, bode well. Shares of BERY have gained 21% in the past year.

The Zacks Consensus Estimate for Berry Global’s fiscal 2022 earnings fiscal 2022 earnings has been revised upward by 15% in the past 30 days. The company has a trailing four-quarter earnings surprise of 16.5%, on average. The company has a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amcor plc’s (AMCR - Free Report) sales have been benefiting from the stay-at-home trend amid the pandemic. Both the Rigid Packaging and Flexible Packaging segments are performing well through a combination of organic growth and disciplined cost control. The company’s shares have gone up 2% in the past year.

The Zacks Consensus Estimate for Amcor’s fiscal 2022 earnings indicates year-over-year growth of 8%. AMCR has a trailing four-quarter earnings surprise of 1.2%, on average. The company carries Zacks Rank of 3.

Sonoco Products Co. (SON - Free Report) has been gaining from elevated at-home eating trends. The Industrial Paper Packaging segment will benefit from strong demand. The company's focus on optimizing businesses, productivity improvement, standardization and cost control will drive the results. Shares of SON have gained 5% in the past year.

The Zacks Consensus Estimate for Sonoco’s ongoing-year earnings indicates a year-over-year growth of 3.5%. It has a Zacks Rank of 3 and a trailing four-quarter earnings surprise of 3%, on average.