Sealed Air (SEE) Rides on Solid End-Market Demand Amid Cost Woes
Sealed Air (SEE) is poised to benefit from the solid end-market demand, savings from the Reinvent SEE strategy and focus on investments.
On Sep 10, we issued an updated research report on Sealed Air Corporation SEE. The company is benefiting from strong end-market demand and anticipated benefits from its Reinvent SEE Strategy which will contribute to its bottom-line growth. The company’s focus on acquisitions, product innovation and investment in automation will drive growth.
Sealed Air has an expected long-term earnings per share growth rate of 9.6%. It has a trailing four-quarter average earnings surprise of 10.9%.
Solid End-Market Demand to Drive Growth
Strong demand for automated equipment and sustainable packaging solutions continue to drive growth in the food and protected packaging segments. In food, the retail channel and protein exports are expected to be solid. Sealed Air has been witnessing higher food service demand compared to last year owing to the reopening of restaurants and other public venues. In fact, its fluid solutions portfolio, which comprises Cryovac Barrier Bags and pouches for condiments, soups and sauces, is witnessing growth on this demand rebound. The Food segment’s 50% of sales are generated from these categories. In protective, continued growth in e-commerce and fulfillment, and higher demand in industrial end markets are likely to fuel growth. E-commerce sales, which contribute around 14% to the company’s sales, have been on the rise amid the stay-at-home scenario.
Reinvent SEE Strategy to Boost Margin
Sealed Air’s Reinvent SEE Strategy, which is focused on innovations, SG&A productivity, product-cost efficiency, channel optimization and customer-service enhancements, has been driving earnings growth. One of the most vital aspects of this strategy involves investment in technology and resources, focusing on the new and existing high-growth markets. The company achieved $28-million benefits from Reinvent SEE in the first half of the current year and remains on track to realize benefits of around $65 million in the remaining period of the year.
Consistent Focus on Investments
Sealed Air’s focus on automation, digital and sustainability is likely to drive market-beating growth in its core business, allowing it to expand into new and adjacent markets. The company’s SEE automated solutions strategy is driving growth for the next phase of its Reinvent SEE business transformation. Sealed Air is meeting customers' most critical needs for safety, productivity and labor scarcity with its touchless automated solutions. It expects equipment sales to grow 12% in 2021 to more than $250 million. The company’s pipeline for automated equipment continues to improve, and it has set a target of more than $500 million by 2025. Sealed Air is investing more than $30 million in capacity expansion to meet the strong demand for equipment solutions. These investments along with the company’s acquisitions of Automated Packaging Systems, AFP, Inc, and Fagerdala will drive growth.
Upbeat 2021 View
Sealed Air expects net sales in the range of $5.4 billion to $5.5 billion for the current year. This indicates a year-over-year increase of 10-12% as reported and 8-10% in constant dollars. The adjusted EBITDA is projected between $1.12 billion and $1.15 billion in 2021. The adjusted earnings per share is anticipated in the band of $3.45 to $3.60. The mid-point of the range suggests year-over-year growth of 11%.
Meanwhile, Sealed Air’s margins continue to be affected by the rising raw material and freight costs. Therefore, the company announced to hike prices by 5-10% across all products effective Sep 15 to counter the impact of rising input costs.
Share Price Performance
The stock has gained 28.2% so far this year, outperforming the industry’s growth of 11.9%.
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Zacks Rank & Stocks to Consider
Sealed Air currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the Industrial Products sector include Encore Wire Corporation WIRE, Deere & Company DE and Lincoln Electric Holdings, Inc. LECO. While Encore Wire sports a Zacks Rank #1 (Strong Buy), Deere and Lincoln Electric carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Encore Wire has a projected earnings growth rate of 332.6% for fiscal 2021. So far this year, the company’s shares have gained 45%.
Deere has an estimated earnings growth rate of 117.5% for fiscal 2021. The company’s shares have gained 36.3%, so far this year.
Lincoln Electric has an expected earnings growth rate of 45.1% for 2021. The stock has appreciated 22%, year to date.
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