A month has gone by since the last earnings report for Sealed Air (SEE - Free Report) . Shares have lost about 7.3% 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 its most recent earnings report in order to get a better handle on the important drivers.
Sealed Air Q1 Earnings Top Estimates, Revenues Miss
Sealed Air delivered first-quarter 2019 adjusted earnings per share of 59 cents surpassing the Zacks Consensus Estimate of 57 cents and improving 16% year over year. Results can be attributed to productivity and cost savings from the company’s Reinvent SEE strategy which had been introduced in December 2018 to drive growth and earnings power.
Including special items, the company reported net earnings per share of 41 cents against the year-quarter’s loss of $1.25.
Total revenues decreased 1.6% year over year on a reported basis to 1,113 million in the reported quarter. The figure also fell short of the Zacks Consensus Estimate of $1,131 million. Unfavorable currency impact lowered total net sales by $53 million or 5%.
Cost and Margins
Cost of sales fell 1.3% year over year to $748 million. Gross profit dropped 2.4% to $365 million. Gross margin contracted 30 bps to 32.8% in the first quarter of 2019.
SG&A expenses rose 9% to $212 million from the prior-year quarter’s figure. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $216 million in the quarter compared with $205 million reported in the prior-year quarter. Adjusted EBITDA margin was 19% compared with 18% in the prior-year quarter, driven by the company’s productivity improvement initiatives and lower input costs, partially offset by higher operating costs and decline in volume.
Food Care: Net sales declined 2% year over year to $680 million in the first quarter of fiscal 2019. Adjusted EBITDA increased 6% year over year to $143 million.
Product Care: The segment reported net sales of $433 million in the reported quarter compared with $435 million in the prior-year quarter. Adjusted EBITDA declined 4% to $75 million.
Cash and cash equivalents were $236 million as of Mar 31, 2019, down from $272 million as of Dec 31, 2018. Cash flow from operating activities was around $65 million in the first quarter of 2019 compared with an outflow of $34 million in the prior-year quarter.
As of Mar 31, 2019, Sealed Air’s net debt came in at $3.3 billion, up from $3.2 billion as of Dec 31, 2018. In the first quarter of 2019, the company repurchased around 406,000 million shares for $18 million and paid dividends worth $25 million.
Sealed Air also announced an agreement to acquire Automated Packaging Systems, Inc. (“APS”) for $510 million. The acquisition will strengthen portfolio to drive growth in e-commerce, fulfillment and food packaging markets. Automated Packaging Systems is a leading manufacturer of high-reliability, automated bagging systems. Sealed Air will make a payment of $510 million for the acquisition, which is expected to close early in the third quarter of 2019. The transaction is expected to be accretive to adjusted EBITDA in 2019.
Sealed Air maintained adjusted earnings per share guidance at $2.65-$2.75 for fiscal 2019. Net sales growth is projected to be approximately 2% on reported basis and 5% in constant dollars. Adjusted EBITDA from continuing operations is expected to lie between $925 and $945 million. Currency is anticipated to have an unfavorable impact of approximately $130 million on net sales and $25 million on adjusted EBITDA.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Sealed Air has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly 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.