Business News

Sealed Air Reports Third Quarter 2009 Results

Thursday 29. October 2009 - $0.34 Earnings Per Share in the Quarter; $0.38 Adjusted Earnings Per Share, 36% Increase From Prior Year; 9% Sequential Sales Growth in Protective Packaging

Sealed Air Corporation (NYSE:SEE) reported third quarter 2009 earnings per share of $0.34, compared with earnings per share of $0.05 in 2008. Excluding the items detailed in the table below, third quarter 2009 earnings per share would have been $0.38, compared with 2008 earnings per share of $0.28.


Reconciliation of Diluted Net Earnings per Common Share
Three Months Ended
September 30,
Nine Months Ended
September 30,
2009 2008 2009 2008
U.S. GAAP diluted net earnings per common share $ 0.34 $ 0.05 $ 0.99 $ 0.73
Net earnings effect resulting from the following(1):
Global manufacturing strategy and restructuring and other charges 0.02 0.01 0.03 0.04
Impairment of available-for-sale securities 0.01 0.01 0.01 0.04
Loss on debt redemption 0.01 – 0.01
Cost reduction and productivity program restructuring charge – 0.22 – 0.21
Reversal of tax accruals, net, and related interest – (0.01 ) – (0.01 )
Adjusted diluted net earnings per common share $ 0.38 $ 0.28 $ 1.04 $ 1.01

(1) The items included in the table above are net of income taxes where applicable.
Commenting on the Company’s operating performance, William V. Hickey, President and Chief Executive Officer, stated:

“Our results for the third quarter reflect the actions we have taken to manage through the challenging economy. We are executing our plan well, we are continuing to tightly control expenses, and are effectively managing price/cost/mix variances. The result was a 390 basis point improvement in adjusted operating margin to 12.3%, and a 36% increase in adjusted earnings per share to $0.38. Sequentially, on a constant dollar basis, we saw a 6% increase in sales in Protective Packaging and stable sales in our two food businesses. We remain focused on customers and on driving innovation as evidenced by Protective Packaging’s recent introduction of five new products in early October.

Cash generation continues to be strong, with an incremental $111 million in the quarter resulting in $339 million in positive free cash flow year to date. With all the steps we have taken over the past year, we are well positioned for the current economic environment and we expect to see meaningful benefits when markets improve.”

Third Quarter Financial Highlights

Net sales decreased 11% to $1.08 billion from $1.22 billion in 2008. Excluding the unfavorable effect of currency translation, sales decreased 5%. The decline reflected a 4% reduction in unit volumes principally in the industrials businesses and a 1% unfavorable effect of product price/mix.
Cost of sales decreased $157 million, or $104 million excluding a favorable effect of currency translation. This decrease resulted primarily from approximately $60 million in lower average petrochemical-based raw material costs and the impact of lower unit volumes. Benefits from the Global Manufacturing Strategy (GMS) and the 2008 cost reduction and productivity program also contributed to the lower cost of sales.
Operating profit was $130 million, or 12.1% of net sales. This compares with $39 million, or 3.2% of net sales, for the third quarter of 2008. Excluding charges related to GMS and the cost reduction and productivity program, operating profit would have been $133 million, or 12.3% of net sales, as compared with $103 million, or 8.4% of net sales in 2008.
Benefits from GMS, the cost reduction and productivity program and travel and expense savings were approximately $20 million in the quarter.
The effective income tax rate decreased to 23.6% from 26.1% in the second quarter of 2009, primarily reflecting the benefits of tax credits identified in the third quarter.
Free cash flow was a source of $339 million year to date compared to $75 million last year. This increase was attributable in part to a $173 million net increase in cash from working capital items, including the use of our accounts receivable securitization program, and an $82 million decline in capital expenditures. (See the supplementary information provided regarding free cash flow, a non-U.S. GAAP measure.)
Third Quarter Business Segment Review

The following net sales discussions exclude the impact of currency translation, which we refer to as “constant dollar net sales”. The attached financial statements present results in accordance with U.S. GAAP and the Components of Change in Net Sales section provides further details on the impact of currency translation.

Food Packaging Segment

Food Packaging recorded a constant dollar 4% increase in net sales, which primarily reflected a favorable comparison in higher unit volumes in North America due to the impact of pre-buying by customers in the second quarter of 2008 in advance of our enterprise software launch on July 1, 2008. After adjusting 2008 for this estimated buy-in, 2009 sales would still have improved compared to last year.

Operating profit increased 72% to $64 million in the quarter, or 13.7% of Food Packaging net sales. This compares with $37 million, or 7.7% of net sales, in 2008. Last year’s margin reflected lower volumes and record high resin costs.

Food Solutions Segment

Food Solutions recorded a constant dollar 4% decrease in net sales, which primarily reflected lower unit volumes in Europe due to reduced meat consumption attributable to economic conditions.

Operating profit increased 25% to $21 million in the quarter, or 9.3% of Food Solutions net sales. This compares with $17 million, or 6.7% of net sales, in 2008. The increase in operating profit was primarily due to lower average petrochemical-based raw material costs.

Protective Packaging Segment

Protective Packaging recorded a constant dollar 15% decrease in net sales, which was primarily due to lower unit volumes in North America and Europe, reflecting continuing weakness in economic conditions in those regions and continues to be generally in line with production and shipping trends.

Operating profit increased 5% to $41 million in the quarter, or 13.5% of Protective Packaging net sales. This compares with $40 million, or 10.5% of net sales, in 2008. The increase in operating profit was primarily due to lower average petrochemical-based raw material costs.

Other Category

Other category recorded a constant dollar 20% decrease in net sales, which was primarily due to lower unit volumes in North America in the Specialty Materials business, reflecting ongoing weak economic conditions in that region.

Operating profit decreased 29% to $5 million in the quarter, or 5.9% of Other net sales. This compares with $7 million, or 6.5% of net sales in 2008. The decrease in operating profit was primarily due to the decline in volumes, partially offset by product price/mix and lower average petrochemical-based raw material costs.

2009 Outlook and Earnings Guidance

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

“For the fourth quarter, we expect to continue to realize the benefits from our various programs, to remain disciplined on operating expenses, and to experience only a modest increase in raw material prices. However, we do remain cautious on fourth quarter sequential sales growth due to the uncertainty in consumer confidence and discretionary spending, particularly during the upcoming holiday shopping season.”

As a result, our full year 2009 earnings per share guidance is now expected to be in the range of $1.27 to $1.35 as compared to our previous guidance of $1.17 to $1.37. This includes full year charges of $20 million net of taxes, or $0.08 per share, for GMS related projects and $4 million net of taxes, or $0.02 per share, related to the loss on debt redemption and impairment of available-for-sale securities recorded in the third quarter. Excluding these items, our full year 2009 earnings per share guidance is now expected to be in the range of $1.37 to $1.45 as compared to our previous guidance of $1.25 to $1.45.

Updated assumptions include a full year effective income tax rate of approximately 26.0%, reduced from 27.7% and capital expenditures of approximately $80 to $100 million, reduced from $100 to $125 million.