Sealed Air Corporation (SEE) has reported its fiscal 2011 second quarter results posting an EPS of 37 cents, a penny below from the year-earlier quarter.
The quarter noted costs related to the proposed acquisition of Diversey of 3 cents per share, which was a one-time item. Excluding this, the adjusted EPS amounted to 40 cents versus 35 cents in the year-ago quarter and above the Zacks Consensus Estimate of 38 cents.
Total revenue in the reported quarter increased 11% year over year to $1.21 billion in the quarter, slightly above the Zacks Consensus Estimate of $1.20 billion. The successful implementation of recent pricing actions primarily in North America and Europe contributed 3% to the sales.
Costs and Margins
Cost of sales increased 13% year over year to $888.3 million in the reported quarter. Gross profit was up 8% year over year to $324.0 million; however, gross margins decreased 90 basis points year over year to 26.7%.
Marketing, administrative and development expenses soared 10% year over year to $188.6 million in the quarter. Operating profit at $129.1 remained unchanged from the prior-year quarter. However, operating margins declined 130 basis points year over year to 10.6% in the reported quarter.
Segmental Performance
Food Packaging: The segment reported net sales of $501.9 million, up 9% on the year over year basis, or 4% on a constant dollar basis, with 3% contribution from higher price/mix. Volumes contributed 1%, driven by a 4% increase in Europe primarily to higher equipment demand and a 1% increase in North America representing solid U.S. volume growth which was partially offset by lower volumes in Canada.
Operating profit was up 8% year over year to $62 million during the quarter.
Food Solutions: The segment reported total revenue of $261.9 million, up 15% year over year in the reported quarter. The sales increased 7% on a constant dollar basis, with a 4% contribution from higher price/mix largely in North America and Europe. Volumes were up 3% mainly due to a 10% increase in Europe, which was partially offset by a 7% decline in North America.
Income from operations increased 9% year over year to $25 million in the reported quarter.
Protective Packaging: The segment’s sales amounted to $353.5 million, up 10% year over year. On a constant dollar basis sales increased 5%, with a 4% contribution from higher volumes, led by increased demand in North America and Asia-Pacific primarily due to expanded customer relationships and higher demand for new solutions. Price-mix was up 1%.
Operating income increased 2% year over year to $46 million, in the reported quarter.
Other: This segment reported net sales of $95.3 million versus $81.2 million in the year-earlier quarter. On a constant dollar basis sales increased 10%, along with a 9% contribution from volumes, driven by increased demand in Europe and Asia-Pacific for both Specialty Materials and Medical Applications solutions. Price/mix was higher by 1%.
Operating profit declined to $2 million compared with $3 million due to spending on a recently acquired technology-based venture.
Financial Position
As of June 30, 2011, cash and cash equivalents increased to $705 million from $662.2 million as of June 30, 2010.
Free cash flow at the end of the second quarter was $61.5 million, declining from $180.7 million at the end of the prior-year period.
As of June 30, 2011, the debt-to-capitalization ratio improved to 54% from 57% as of March 31, 2011 and 59% as of December 31, 2010.
Diversey Acquisition Announcement
Sealed Air recently announced that it will acquire Diversey Holdings, Inc., a leading solutions provider to the global cleaning and sanitization market, in a transaction valued at approximately $4.3 billion.
The deal is still subject to the satisfaction of customary closing conditions and certain foreign regulatory approvals.
Outlook
Management reaffirmed its full year EPS guidance in the range of $1.75 to $1.85, not including the effect of the above acquisition and Sales growth in the range of 5% to 7%. Capital expenditure is now projected in the range of $225 to $275 million. We currently have a Zacks #3 Rank (short-term Hold rating) on the stock.
Elmwood Park, New Jersey-based Sealed Air Corp. is a major specialty packaging services provider catering to a diverse set of end-markets. The company operates in the United States and in 50 other countries.The company reports its operations in four segments: Food Packaging, Protective Packaging, Food Solutions and the Other. Sealed Air competes with the likes of Bemis Company, Inc. (BMS), Sonoco Products Co. (SON) and privately held Printpack, Inc.
