Yahoo Finance Sealed Air (SEE) Gains From Solid Demand Despite Cost Headwinds
Sealed Air Corporation SEE continues to implement plans focused on innovations, product cost efficiency, channel optimization and customer-service enhancements, which are likely to drive its margin in the near term. Strong demand for automated equipment and sustainable packaging solutions will drive Sealed Air’s food and protected packaging segments.
However, the company has been witnessing a decline in volume over the past quarters. The decline in the food retail market is impacting the Food segment, whereas recessionary pressures in the industrial and fulfillment markets are denting the Protective segment’s margin.
Shares of this Zacks Rank #3 (Hold) company have lost 31.5% in a year compared with the industry’s fall of 5%.
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Strong demand for automated equipment and sustainable packaging solutions is expected to drive Sealed Air’s food and protected packaging segments. Its protein automation pipeline continues to grow across all regions, with major food producers committing to its SEE Touchless Automation future. Its fluid solutions portfolio, which consists of Cryovac Barrier Bags and pouches, for condiments, soups and sauces, is witnessing growth on demand rebound. In the protective segment, continued growth in e-commerce and fulfillment, and higher demand in industrial end markets will contribute to growth.
Around 63% of Sealed Air’s revenues come from the packaging of protein, foods, fluids and goods for the medical and life sciences industries. The food care business continues to benefit from the shift in demand for case ready, shrink bags, and pre-packaged meals and snacks designed for home consumption. In the medical and life sciences portfolio, demand for protected packaging solutions for medical supplies, pharmaceuticals, and personal protective equipment is high. SEE is also benefiting from growth in online shipments of medical equipment and pharmaceuticals.
For 2023, Sealed Air expects net sales between $5.85 billion and $6.10 billion. The guidance indicates an year-over-year increase of 4-8%, which includes a favorable impact of 6% from the Liquibox acquisition and an unfavorable currency impact of 1%. SEE anticipates adjusted EBITDA of $1.25-$1.30 billion. Adjusted earnings per share are forecast to be $3.50-$3.80. Notably, the company earlier stated $4.05-$4.20. Sealed Air projects a free cash flow of $475-$525 million for 2023.
However, Sealed Air has been facing supply-chain disruptions and higher raw material costs from various factors, including general inflationary pressure, limited availability of certain raw materials, and global transportation disruptions. On top of this, the company has faced higher freight costs associated with the sourcing and movement of raw materials due to overall tight market conditions. These factors have been weighing on its margin performance. The company has increased its R&D investments for innovation and automation, which will weigh on margins.
In 2022, Sealed Air witnessed a 6% year-over-year overall volume decline. In the Food segment, volumes decreased 3% in the fourth quarter of 2022, driven by food retail market declines across the Americas and EMEA regions, and the adverse impacts of prior supply disruptions. In Protective, volumes were down 20% in fourth-quarter 2022, resulting from recessionary pressures in the industrial and fulfillment markets. The company anticipates pressure on volume growth to persist in the upcoming quarters.
Stocks to Consider
Some better-ranked stocks from the Industrial Products sector are Encore Wire Corporation WIRE, OI Glass, Inc. OI, and Illinois Tool Works Inc. ITW. WIRE flaunts a Zacks Rank #1 (Strong Buy) at present, and OI and ITW have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Encore Wire has an average trailing four-quarter earnings surprise of 146.8%. The Zacks Consensus Estimate for WIRE’s 2023 earnings is pegged at $19.76 per share. The consensus estimate for 2023 earnings has moved north by 1.7% in the past 60 days. Its shares gained 52.5% in the last year.
OI Glass has an average trailing four-quarter earnings surprise of 16.4%. The Zacks Consensus Estimate for OI’s 2023 earnings is pegged at $2.57 per share. This indicates an 11.7% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved 16% north in the past 60 days. OI’s shares gained 72.5% in the last year.
The Zacks Consensus Estimate for Illinois Tool Works’ fiscal 2023 earnings per share is pegged at $9.53, suggesting an increase of 3.9% from that reported in the last year. The consensus estimate for fiscal 2023 earnings rose 1.3% in the last 60 days. ITW has a trailing four-quarter average earnings surprise of 0.9%. Its shares gained 18.4% in the last year.
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