Morningstar | Shares Move Toward Our Increased $48 Fair Value Estimate as Sealed Air Makes Solid Progress in 2018. See Updated Analyst Note from 08 Feb 2019
Sealed Air still has much progress to make on its restructuring following the sale of Diversey, as the fourth quarter closed out a year that remained in line with our expectations. Management expects to incur about $115 million in restructuring costs during 2019. Restructuring will both remove stranded costs as it adjusts to a smaller post-divestiture business, and reduce headcount and SG&A costs in redundant business functions between the remaining segments. As these actions unfold, we expect adjusted EBITDA margins to recover to roughly where they were in 2017. We've modestly increased our fair value estimate to $48 per share from $47, primarily due to time value of money effects. Our narrow-moat rating is unchanged.Sealed Air's Food Care segment fared well, maintaining a 2% volume growth rate through the fourth quarter, while seeing an uptick in price/mix, partly offsetting headwinds from a stronger dollar. The successful combination of higher prices and restructuring savings was evident in segment margins, which rose to 21% during the quarter, up more than 200 basis points from the year prior. Although we think near-term cost-saving programs could raise adjusted margins further still, our forecast assumes they merely remain flat at roughly 20%, with wider margins merely attracting additional competition.
Product Care sales growth proved more stubborn, with little in the way of either price or volume gain during the fourth quarter. Despite an ongoing shift by most e-commerce firms toward flexible packaging solutions, Sealed Air's fastest growing product line remained inflatable bubble wrap. As Sealed Air invests in new mailer and box elimination solutions, we think the company could significantly reinvigorate organic growth. We see the most room for margin expansion in this segment as the company updates its product line, reintegrates into customer supply chains, and can turn its focus from volume to price growth.
Sealed Air is a global provider of packaging solutions for the food, e-Commerce, electronics and industrial markets. The company serves an array of end markets including food and beverage processing, food service, retail, commercial and consumer applications, by providing food safety and security, product protection and equipment. The company's segments include: Food Care, which serves perishable food processors, predominantly in chilled, smoked and processed meat, poultry and dairy-solid markets worldwide, and maintains positions in target applications; and Product Care, in which its solutions are designed to protect goods in shipping.
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