Business News

Sealed Air Reports Second Quarter 2009 Results

Thursday 30. July 2009 - Food Businesses’ Operating Profit Increased 13%; Protective Packaging Volumes Stable Sequentially; Generated Free Cash Flow of $228 Million Year to Date

Sealed Air Corporation (NYSE:SEE) reported second quarter 2009 earnings per share of $0.33, which includes a charge of $0.01 per share related to the global manufacturing strategy (GMS) and restructuring and other charges. This compares with earnings per share of $0.34 in 2008, which included a charge of $0.03 per share related to the impairment of investments in auction rate securities and $0.01 per share related to GMS. Excluding these charges, second quarter 2009 earnings per share would have been $0.34, compared with 2008 earnings per share of $0.38.

Commenting on the Company’s operating performance, William V. Hickey, President and Chief Executive Officer, stated:

“While we did not see volume recovery in the quarter, our results tracked generally in line with first quarter unit volume rates. We did achieve a 2% year over year increase in our consolidated operating profit excluding the impact of currency translation, which was largely based on the strength of our food businesses. While our food businesses’ combined operating profit increased 23% excluding currency translation, this gain was offset by the ongoing impact of the global recession on our Protective Packaging and Specialty Materials businesses.

The quarter also exemplified two key characteristics of our brand – innovation and financial strength. Our innovative solutions continued to generate customer interest, new pilot tests and industry recognition. We were the only packaging company to receive coverage in a Business Week review of the grocery store of the future. Additionally, year to date we generated $228 million in free cash flow versus a use of $6 million last year. To strengthen our liquidity position, we issued $700 million in new senior notes, retired the remaining $137 million of our outstanding 6.95% Senior Notes and, in July, redeemed all $431 million of our 3% Convertible Senior Notes.”

Second Quarter Financial Highlights

Net sales decreased 20% to $1.03 billion in the quarter, compared with $1.28 billion in 2008. The decrease primarily resulted from a $158 million reduction in unit volumes principally in Protective Packaging and a $117 million unfavorable effect of currency translation, which was partially offset by a $24 million favorable effect of product price/mix primarily in Food Packaging. Excluding the unfavorable effect of currency translation, net sales would have decreased 11%.
Cost of sales decreased $209 million, or $118 million excluding a favorable effect of currency translation. This decrease resulted primarily from the impact of lower unit volumes and approximately $60 million in lower average petrochemical-based raw material costs. Benefits from GMS and the 2008 cost reduction and productivity program continued to help offset the impact of lower unit volumes.
Marketing, administrative and development expenses decreased $34 million, or $18 million excluding a favorable effect of currency translation. This decrease reflects tight control of expenses.
Operating profit was $118 million, or 11.5% of net sales. This compares with $126 million, or 9.9% of net sales, for the second quarter of 2008.
Free cash flow was a source of $228 million year to date compared to a use of $6 million last year. This increase was attributable to a $194 million net increase in cash from working capital items, including the use of our accounts receivable securitization program, and a $52 million decline in capital expenditures. (See the supplementary information provided regarding free cash flow, a non-U.S. GAAP measure.)
Business Segment Review

Food Packaging Segment

Food Packaging’s second quarter net sales decreased 14% to $449 million compared with $519 million last year. Excluding an unfavorable effect of currency translation, segment net sales would have decreased 3%.

This decline in net sales primarily reflects the impact of pre-buying by customers in the second quarter of 2008 in advance of our enterprise software launch in the U.S. on July 1st. Food Packaging experienced positive product price/mix in all regions in the second quarter of 2009.

Operating profit was $62 million in the quarter, or 13.9% of Food Packaging net sales. This is approximately 10% higher than prior year, or 18% higher excluding a $5 million impact of currency translation. This compares with $57 million, or 11.0% of net sales, in 2008. The increase in operating profit was primarily due to lower average petrochemical-based raw material costs.

Food Solutions Segment

Food Solutions’ second quarter net sales decreased 15% to $220 million compared with $259 million last year. Excluding an unfavorable effect of currency translation, segment net sales would have decreased 4%.

This decline in net sales primarily reflects lower unit volumes in Europe due to reduced meat consumption attributable to economic conditions. The decline was partially offset by the positive impact of product price/mix in all international regions.

Operating profit was $22 million in the quarter, or 10.2% of Food Solutions net sales. This is approximately 22% higher than prior year, or 39% higher excluding a $3 million impact of currency translation. This compares with $18 million, or 7.1% of net sales, in 2008. The increase in operating profit was primarily due to lower average petrochemical-based raw material costs and, to a lesser extent, favorable product price/mix, both of which were partially offset by the decline in unit volumes mentioned above.

Protective Packaging Segment

Protective Packaging’s second quarter net sales decreased 28% to $282 million compared with $392 million last year. Excluding an unfavorable effect of currency translation, segment net sales would have decreased 22%.

This decline in net sales was primarily due to lower unit volumes in North America and Europe, which reflected continuing weakness in economic conditions in those regions and was generally in line with production, export and shipping trends. These results were relatively stable on a sequential basis.

Operating profit was $33 million in the quarter, or 11.5% of Protective Packaging net sales. This is approximately 34% lower than prior year, or 29% lower excluding a $2 million impact of currency translation. This compares with $49 million, or 12.6% of net sales, in 2008. The decrease in operating profit was primarily due to the decline in volumes and product price/mix, partially offset by lower average petrochemical-based raw material costs.

Other Category

Other category’s second quarter net sales decreased 29% to $77 million compared with $109 million last year. Excluding an unfavorable effect of currency translation, Other net sales would have decreased 22%.

This decline in net sales was primarily due to lower unit volumes in Europe and North America in the Specialty Materials business, which reflected the weak economic conditions in those regions.

Operating profit was essentially flat at $2 million in the quarter, or 1.9% of Other net sales compared with 2.1% of net sales in 2008.

Recent Financial Transactions

In May, we retired the remaining outstanding 6.95% Senior Notes due May 15, 2009 on their maturity date. These notes had a face value of approximately $136.7 million. The face value of these notes, along with $5 million of accrued interest, was paid primarily with available cash.

In June, we completed an offering of $400 million of senior notes due 2017 with a coupon of 7.875%. Subsequently, in July we redeemed all $431.3 million of the 3% Convertible Senior Notes due 2033, using the net proceeds from the 7.875% Senior Notes and available cash.

As a result of the June issuance of the 7.875% Senior Notes and the July redemption of the 3% Convertible Senior Notes, for the full year, we expect to incur a net $11 million of additional interest expense, a $3 million pre-tax loss on the redemption of debt and a reduction of approximately 6 million shares to our 2009 weighted average number of diluted common shares outstanding.

2009 Outlook and Earnings Guidance

Commenting on the Company’s outlook, Mr. Hickey stated:

“We look to a seasonal volume increase in our food businesses in the third quarter and a slow recovery in our Protective Packaging and Specialty Materials businesses later this year and into 2010. These latter two industrial-based businesses represent approximately 32% of our revenue year to date. During the balance of the year we will continue to focus on keeping costs out of the business and will maintain stringent management of our operating expenses. We will remain disciplined with our pricing initiatives and will continue to expand our portfolio and competitive position with several important product launches scheduled for the second half of the year. I believe that the combined impact of all of these efforts continues to position us strongly for recovery in our markets later in the year.”

The expected full year 2009 earnings per share continues to be in the range of $1.17 to $1.37. This includes charges of $20 million net of taxes, or $0.08 per share, expected to be incurred relating to GMS. Excluding this item, the full year 2009 earnings per share guidance continues to be in the range of $1.25 to $1.45.