Sealed Air Corporation (SEE) delivered adjusted EPS of 34 cents for the first quarter ended March 31, 2011, falling short of the Zacks Consensus Estimate of 38 cents. Earnings per share in the quarter dropped 6% from the EPS of 36 cents in the year-ago quarter. Sealed Air’s results were impacted by an unfavorable spread between selling prices and raw material and other energy-based costs in the quarter and an adverse year-over-year comparison in other (expense) income due to foreign exchange losses and gains.

During the quarter, the company’s adjusted and reported EPS were the same. The company recorded a restructuring charge of 1 cent per share related to its Global Manufacturing Strategy (GMS) in the prior-year quarter, resulting in a GAAP EPS of 35 cents.

Sealed Air’s sales however increased 6% year over year to $1,128 million and was above the Zacks Consensus Estimate of $1,126 million. Volumes increased 3% in the quarter.

Costs & Margin Performance

In dollar terms, cost of sales increased 8% year over year to $819.5 million and, based on sales, increased 90 basis points to 72.6% in the reported quarter. Adjusted gross profit inched up 2% to $309.3 million but gross margin contracted 100 basis points to 27.4%.

Marketing, administrative and development expenses increased 6% year over year to $186 million and, based on sales, remained flat at 16.5%. Sealed Air’s adjusted operating income declined 3% year over year to $123.3 million, with operating margin also going down by 100 basis points to 10.9%.

Segment Performance

Sales at the Food Packaging segment went up by 6% to $474.9 million driven by 2% higher price/mix primarily from the benefits of prior North American pricing actions, as well as contract price adjustments in that region.  Volumes increased 2%, largely driven by a 4% increase in North America. Operating profit increased 11% to $62.6 million, and segment margin went up 40 basis points to 13.2%.

The Food Solutions segment posted sales growth of 4% to $228.8 million with 3% higher price/mix largely in North America and Europe, reflecting the benefits of prior pricing actions and favorable formula price adjustments on certain products.  Volume performance was relatively steady overall. Volumes in international regions grew 4%, but were offset by a 6% decline in the U.S. Operating profit decreased 7% to $19.4 million and segment operating margin contracted 100 basis points to 8.5%.

The Protective Packaging segment posted a year-over-year growth of 9% to reach sales of $335 million. Volumes increased 7% led by increased demand in North America and Europe primarily due to improving industrial production rates in those regions. Price/mix was 1% higher, reflecting the benefits of prior pricing actions across most regions. Operating profit inched up 1% to $40 million with operating margin contracting 100 basis points to 11.9%.

Sales from the Other Category climbed 1% to $89.7 million. Volumes increased 1% and price/mix was higher by another 1%. The segment’s operating profit dropped to $1 million from $7.6 million in the year -ago quarter due to lower unit volumes in the Medical Applications business and ongoing investments in new technology based ventures.

Financial Position

As of March 31, 2011, Sealed Air had cash and cash equivalents of $696 million, up from $676 million as of December 31, 2010. Free cash flow for the quarter was $53.6 million compared with $96.4 million in the year -ago quarter.

As of March 31, 2011, the debt-to-capitalization ratio improved to 57% compared with 59% as of December 31, 2011.

For fiscal 2011, Sealed Air projects capital expenditures in the range of $125 million to $150 million, compared with the earlier expectation of $150 million to $175 million, due to changes in project timings.  

Outlook

Sealed Air expects full-year 2011 EPS to range between $1.75 and $1.85, revised downward from the earlier guidance of $1.75 to $1.90. The guidance range is based on average constant dollar sales growth rate in the 5% to 7% range. Further, the company assumes a low-teen percent average increase in resin costs over the year and a favorable impact on net sales from foreign currency translation.

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 with packaging and performance-based materials and equipment systems under several market leading brands serving food, medical and an array of industrial and consumer applications. The company reports its operations in four segments: Food Packaging, Protective Packaging, Food Solutions and the Other Category segment. Sealed Air competes with the likes of Bemis Company, Inc. (BMS), Sonoco Products Co. (SON) and privately held Printpack,Inc.

 
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