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Sealed Air Grows on Favorable Trends, Higher Input Costs Ail

On Sep 7, we issued an updated research report on Sealed Air Corporation SEE. Expected benefits from reducing costs, driving operational excellence and commercializing innovations, combined with favorable global business trends, position the company well for improved 2018 results despite inflated raw material prices.
Gears Up for Better 2018 Results
For 2018, Sealed Air projects net sales of approximately $4.75, estimating a constant-dollar growth rate of approximately 7%. Adjusted earnings per share are anticipated to be $2.45-$2.55, the mid-point of which reflects healthy year-over-year growth of 38%.
The Zacks Consensus Estimate for earnings for fiscal 2018 is at $2.52, projecting 39% year-over-year growth on the back of 7% rise in revenues to $4.76 billion. Results will be driven by the company’s efforts to cut costs, and drive operational excellence and innovations. Also, favorable global business trends remain a tailwind.
Innovations, E-Commerce Growth to Boost Results
Sealed Air's top line will be supported by enhanced demand for its core product portfolio, recently-introduced innovations and strong fresh food markets along with the demand from the growing e-commerce sector. It is witnessing increased demand for essential and high-performing packaging solutions that extend shelf life, reduce waste and drive customer productivity.
The company should benefit from the commercialization of new products. Sealed Air is winning new customers globally, given its innovative platforms — including the Internet of Things, Intellibot robotics, clean-in-place solutions, biodegradable chemistry, dry lube and others.
Acquisitions Drive Growth
Over the last year, the company has been active on the acquisition front. In August 2017, it acquired Deltaplam, a Brazilian manufacturer of flexible packaging. Deltaplam utilizes superior extrusion technology to create recyclable and high-value solutions. This acquisition fortifies Sealed Air’s position in Latin America and expands its portfolio of consumer unit packaged solutions. Further, it extends its reach into several new market segments.
In October 2017, Sealed Air acquired Fagerdala Singapore ., a manufacturer and fabricator of polyethylene foam, which is expected to considerably expand its presence in Asia. Notably, Fagerdala's proficiency in foam manufacturing and fabrication is likely to enable Sealed Air to offer a full portfolio of differentiated solutions such as automated fulfillment systems and operational excellence consultative services to its consumers.
The company also recently acquired AFP, Inc., a leading U.S.-based fabricator of specialty packaging solutions. The buyout complements the Fagerdala acquisition and expands Sealed Air's protective packaging solutions in the electronics, transportation and industrial markets, with custom-engineered applications.
Restructuring to Aid Margins
The company is focusing on creating profitable growth, driving operational excellence and developing a high-performance organization in order to deliver long-term value. It is also focusing on reducing the cost structure. Through the Sealed Air Restructuring program , it expects to generate incremental cost savings of $130-$150 million per annum by the end of 2019.
Currency and Cost Headwinds Ail
For 2018, currency headwinds are anticipated to negatively impact net Sales and adjusted EBITDA by $20 million and $5 million, respectively. Moreover, increasing raw material prices remain headwinds. Further, Sealed Air continues to invest in R&D, sales and marketing. Even though these investments will drive future growth, it will affect margins in the near term.
In the past year, shares of Sealed Air have declined 8% against the industry's growth of 2%.
Sealed Air currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the same sector include Atkore International Group Inc. ATKR, Lawson Products, Inc. LAWS and W.W. Grainger, Inc. GWW. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Atkore International has a long-term earnings growth rate of 10%. The stock has rallied 44% in a year's time.
Lawson Products has a long-term earnings growth rate of 18%. Its shares have been up 45% in the past year.
Grainger has a long-term earnings growth rate of 13%. The company's shares have appreciated 112% over the past year.
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