It has been about a month since the last earnings report for Sealed Air (SEE - Free Report) . Shares have lost about 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 its most recent earnings report in order to get a better handle on the important drivers.
Sealed Air Q3 Earnings Surpass Estimates, Improve Y/Y
Sealed Air reported third-quarter 2019 adjusted earnings per share of 64 cents, surpassing the Zacks Consensus Estimate of 63 cents and improving 5% year over year. The results can be attributed to strong execution of the company’s Reinvent SEE strategy, which was introduced in December 2018 to drive earnings growth.
Including special items, the company reported net earnings per share of 51 cents compared with the prior-year quarter figure of 48 cents.
Total revenues went up to $1,219 million in the reported quarter from the year-ago quarter’s $1,186 million. However, the figure missed the Zacks Consensus Estimate of $1,235 million. Unfavorable currency impact lowered total net sales by $25 million.
Cost and Margins
Cost of sales inched up 1% year over year to $827 million. Gross profit improved 7% year over year to $392 million. Gross margin came in at 32.2% compared with 30.8% in the comparable period last year.
SG&A expenses climbed 15% to $222 million, year on year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $241 million in the quarter compared with $219 million in the prior-year quarter. Adjusted EBITDA margin was 20% compared with 18% in the prior-year quarter, driven by the company’s Reinvent SEE initiatives and favorable price cost spread, partially offset by higher operating costs, lower volumes.
Food Care: Net sales inched up 0.3% to $730 million during in the third quarter, from the prior-year quarter figure of $727 million. Adjusted EBITDA improved 10% year over year to $159.6 million.
Product Care: The segment reported net sales of $489 million in the reported quarter compared with $459 million in the prior-year quarter. Adjusted EBITDA was up 10% year over year to $84 million.
Cash and cash equivalents were $200 million as of Sep 30, 2019, down from $271.7 million as of Dec 31, 2018. Cash flow from operating activities was around $251 million in nine-month period ended Sep 30, 2019 compared with $150 million in the prior-year comparable period.
As of Sep 30, 2019, Sealed Air’s net debt came in at $3.7 billion, up from $3.20 billion as of Dec 31, 2018. In the nine-month period ended Sep 30, 2019, the company repurchased shares worth $67 million and paid out dividends worth $74 million.
Sealed Air has affirmed its guidance of adjusted earnings per share at $2.70-$2.80. However, net sales are projected at $4.8 billion compared with the previous estimate of $4.85 billion. Acquisitions are expected contribute $190 million toward revenues (4% of growth), of which Automated Packaging Systems will contribute approximately $120 million.
Adjusted EBITDA is estimated to lie between $950 and $960 million. Nevertheless, currency is anticipated to have an unfavorable impact of approximately $145 million on net sales and $30 million on adjusted EBITDA.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
At this time, Sealed Air has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sealed Air has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.