Packaging

Sealed Air Reports Second Quarter 2013 Results

Tuesday 06. August 2013 - Q2 Adjusted EBITDA Increased 21.5% to $276 million or 14.1% of Net Sales

Q2 Adjusted EPS of $0.35, Reported EPS of $0.26 per share
Sealed Air Corporation (NYSE:SEE) today announced financial results for second quarter 2013. Net sales for the second quarter 2013 totaled $2.0 billion. Adjusted EPS was $0.35 for the second quarter and Adjusted EBITDA was $276.3 million, or 14.1% of net sales. On a reported basis, net income was $56.3 million, or $0.26 per share.
Unless otherwise stated, all results compare second quarter 2013 results to second quarter 2012 results and are presented on a continuing operations basis, excluding Diversey Japan, which we sold in November 2012 and which results have been presented as discontinued operations. Reported information is defined as U.S. GAAP. Year-over-year net sales discussions present both reported and constant dollar performance. Constant dollar excludes the impact of currency translation. Additionally, non-U.S. GAAP adjusted financial measures, such as Adjusted EBITDA and Adjusted Net Earnings, exclude the impact of special items, such as restructuring charges and other one-time items. Cash-settled Stock Appreciation Rights granted as part of the Diversey acquisition (“SARs”) did not have a material impact to second quarter 2013 results. For comparison purposes, SARs income was $9.1 million in the second quarter 2012. Additional detail on SARs is provided in the supplemental information.
Commenting on these results, Jerome A. Peribere, President and Chief Executive Officer, said, “During the second quarter, we were able to drive strong growth in AMAT and Latin America and modest growth in North America, which helped mitigate a soft global economy, particularly in Europe. We also delivered Adjusted EBITDA margin expansion on a year over year basis in our Food & Beverage and Institutional & Laundry divisions, offset by lower margin performance in Protective Packaging. Our second quarter results demonstrate the benefits we are experiencing from our pricing initiatives and focus on manufacturing and operational improvements.”
“We ended the second quarter with confidence that our plan to improve Sealed Air’s quality of earnings is underway. Our performance in the second quarter across key financial and operational metrics is a true testament to our leadership team and their commitment to deliver on the objectives we have put in place. Going forward, we will continue to further penetrate the global marketplace with innovative products and value-added solutions. We are maintaining our 2013 guidance of net sales in the range of $7.7 to $7.9 billion and are tracking toward the high-end of our Adjusted EBITDA range of $1.01 billion to $1.03 billion and Adjusted EPS range between $1.10 and $1.20,” continued Mr. Peribere.
Second Quarter Highlights:
Second quarter net sales of $2.0 billion increased 3.2% on a constant dollar basis and 1.9% on a reported basis. Volume and product price/mix increased by 2.4% and 0.8%, respectively. Reported regional net sales increased 9.4% for AMAT (Asia, Middle East, Africa and Turkey), 7.6% for Latin America, and 2.1% for North America, partially offset by 1.5% lower net sales in Europe and 3.0% in JANZ (Japan/Australia/New Zealand). Additionally, second quarter net sales to Developing Regions1 increased 9.4% on a constant dollar basis and 6.8% on a reported basis, accounting for 25.7% of global net sales.
Adjusted EBITDA for the second quarter increased 21.5% to $276.3 million, or 14.1% of net sales, primarily driven by manufacturing and operating efficiencies. Excluding the impact of SARs, Adjusted EBITDA increased 26.6% to $276.4, or 14.1% of net sales, compared to $218.4 million, or 11.3% of net sales, in 2012. Incremental cost synergies under the 2011-2014 Integration and Optimization Program were approximately $20.0 million for the second quarter of 2013 and resulted from headcount reductions, elimination of redundant costs, plant consolidations and procurement and logistics savings. Reported operating profit was $168.9 million for second quarter 2013 compared with $108.4 million in 2012.
Adjusted EPS was $0.35 for the second quarter, compared with 2012 Adjusted EPS of $0.16. On a reported basis, second quarter 2013 EPS was $0.26 per share as compared with a loss of $0.07 per share in 2012. Second quarter 2013 reported EPS includes $19.0 million of special items (net of taxes) primarily comprised of restructuring charges associated with the previously announced 2013 Earnings Quality Improvement Program. Second quarter 2012 reported loss per share included $55.1 million of special items primarily comprised of restructuring charges associated with the 2011-2014 Integration and Optimization Program and an impairment on an equity method investment. Our core tax rate was 23.8% for second quarter 2013, compared with 27.1% for second quarter 2012.
Second Quarter Segment Review
Food & Beverage (F&B) Division
Net sales of $946.5 million increased 3.9% on a constant dollar basis and 2.6% on a reported basis. F&B achieved 2.5% higher volumes, led by strength in AMAT and Latin America and a slight increase in North America. Volume declined slightly in Europe and JANZ. Price/mix was higher by 1.4%, primarily due to a 5.1% increase in Latin America and positive trends in North America, Europe and AMAT. JANZ was the only region with unfavorable price/mix. Regionally, constant dollar net sales increased 18.0% in AMAT, 13.2% in Latin America, 2.4% in North America, and 0.6% in Europe. JANZ was the only region that reported a decline in constant dollar net sales of 2.8%.
F&B Adjusted EBITDA increased 24.2% to $138.9 million, or 14.7% of net sales, compared with $111.8 million, or 12.1% of net sales, in 2012. Excluding the impact of SARs, Adjusted EBITDA increased 26.9% to $139.1 million, or 14.7% of net sales, compared with $109.6 million, or 11.9% of net sales, in 2012. This increase was primarily due to higher volumes, more favorable price/mix, manufacturing efficiency improvements and cost synergies associated with the 2011-2014 Integration and Optimization Program. Reported operating profit was $103.7 million for second quarter 2013, compared with $69.8 million in 2012.
Institutional & Laundry (I&L) Division
Net sales of $569.8 million increased 3.0% on a constant dollar basis and 1.7% on a reported basis. I&L achieved 1.5% higher volumes with growth in all regions except for Europe, which reported a 1.7% decline. Pricing was up 1.5% with positive trends in all regions. Regionally, constant dollar net sales growth was led by 11.9% in Latin America, 10.1% in AMAT and 2.5% in North America, offset by a 1.2% decline in Europe.
I&L Adjusted EBITDA increased 16.6% to $70.8 million, or 12.4% of net sales, compared with $60.7 million, or 10.8% of net sales, in 2012. Excluding the impact of SARs, Adjusted EBITDA increased 31.4% to $70.7 million, or 12.4% of net sales, compared with $53.8 million, or 9.6% of net sales, in 2012. This increase was primarily due to higher volumes, cost containment and cost synergies associated with the 2011-2014 Integration and Optimization Program. Reported operating profit was $37.2 million for second quarter 2013, compared with $20.9 million in second quarter 2012.
Protective Packaging (PP) Division
Net sales of $394.3 million increased 1.8% on a constant dollar basis and 0.9% on a reported basis. Protective Packaging achieved 3.8% higher volumes, offset by 2.0% lower price/mix. The unfavorable product mix in the second quarter was attributable to the continued weakness in the global economy and increased sales to the e-commerce market segment. Regionally, constant dollar net sales were led by 2.6% growth in North America, offset by a 0.7% decline in Europe.
PP Adjusted EBITDA decreased 2.1% to $56.1 million, or 14.2% of net sales, compared with $57.3 million, or 14.7% of net sales, in 2012, primarily due to unfavorable product mix. Reported operating profit was $44.0 million for second quarter 2013, compared with $46.7 million in 2012.
Medical Applications and New Ventures (Other Category)
Net sales of $50.9 million increased 1.0% on a constant dollar basis and 0.4% on a reported basis. Favorable price/mix of 2.1% was partially offset by a 1.1% decline in volume. Regionally, modest growth in Europe was offset by declines in North America and AMAT.
Adjusted EBITDA increased to $4.8 million, compared with $2.5 million in 2012. Reported operating loss was $4.0 million, including a $5.5 million write-down of a non-strategic asset.
Cash Flow and Net Debt
Net cash provided by operating activities was $62.9 million for the six months ending June 30, 2013 and is net of $62.5 million of restructuring and SARs payments. This compares with cash used of $61.7 million in the six months ending June 30, 2012, and is net of $62.7 million of restructuring and SARs payments. Capital expenditures were $51.2 million in the six months ending June 30, 2013 as compared to $66.4 million in the same period a year ago. Free Cash Flow, defined as cash flow from operating activities less capital expenditures, was a source of $11.7 million in the six months ending June 30, 2013, as compared with a use of $128.1 million during the six months ending June 30, 2012. This year-over-year increase primarily reflects higher net earnings and lower capital expenditures.
Compared to December 31, 2012, the Company’s net debt increased $63.4 million to $4.8 billion. This increase is due to lower cash as a result of seasonal inventory growth, certain annual incentive compensation payments, and payments related to the refinancing of the Company’s 7.875% senior notes due 2017. The Company refinanced these notes with new 5.25% senior notes due 2023. Net debt includes the W. R. Grace settlement liability of $901.0 million that increased by $24.1 million due to additional accrued interest in the six months ending June 30, 2013.
Outlook for Full Year 2013
The Company is maintaining its 2013 guidance of net sales in the range of $7.7 to 7.9 billion and tracking toward the high-end of the Adjusted EBITDA range of $1.01 billion to $1.03 billion and Adjusted EPS range between $1.10 and $1.20. Our core tax rate for 2013 is expected to be approximately 25%.
Adjusted EPS guidance excludes the impact of special items. It also excludes the payment of the W. R. Grace settlement, as the exact timing of the settlement is unknown. Final payment of the W. R. Grace settlement is expected to be accretive to Adjusted EPS by approximately $0.13 annually following the payment date under the assumption of using a substantial portion of cash on hand for the payment and ceasing to accrue interest on the settlement amount. Additionally, guidance excludes any non-operating gains or losses that may be recognized in 2013 due to currency fluctuations in Venezuela.