EUR 850.00 For Business Accounts Only

Morningstar | Sealed Air Reports 3Q Results in Line With Earlier Warning; Maintaining $47 FVE

There were no surprises in Sealed Air's third-quarter earnings release, as the company had already warned investors that it was behind pace to achieve its prior guidance for the year. While the detail remained high level, CEO Ted Doheny announced his intent to exceed an earlier 2018 cost-savings target of $30 million by an additional $10 million on an annualized basis. We had already baked in expectations for improving operating margins in the medium term. Without concrete details on what additional changes will be made, we've left our forecasts unchanged. Accordingly, our $47 per share fair value estimate and narrow-moat rating remain intact. Product care performance was weak, as we had expected. Volumes declined by roughly 2%, despite modest growth in business-to-business shipping volumes and solid demand in e-commerce applications. Management cited weak volume performance in its commodity products, such as basic shrink-wrap products, where a higher cost of production has limited its ability to compete. A bifurcated strategy has now been proposed. Sealed Air will either focus on high value systems which are complex but relatively turn-key packaging solutions, or focus purely on costs in businesses enduring a secular decline. This strikes us as reasonable, though we expect management will need to make additional R&D investments to facilitate growth in the higher-value segment of its business. Food care performance remained strong, with both price/mix and volume contributing to 2% top-line growth despite foreign exchange headwinds. Profit margins also moved closer to last year's levels. Going forward, the segment should benefit from growing emerging-market caloric intake and increased packaged-food consumption in many parts of the world. We think management would struggle to push margins much higher, without either losing business to competitors or encouraging new players to enter.