Sealed Air (SEE 33.10, -2.18, -6.18%) fell more than 10% to four-year lows in early
trade after the company guided third quarter earnings below consensus yesterday
afternoon. The company also lowered its fiscal 2018 forecast.
Sealed Air is a packaging company best known for Cryovac food packaging and Bubble Wrap.
The company guided for third quarter EPS of $0.60-0.61/share, roughly 10% below estimates. Net sales grew 5% to $1.2 bln, in-line with estimates. Revenue grew 5% excluding the foreign exchange (FX) headwind, reflecting the company's global market leadership across the specialty fresh food and e-commerce markets.
"Our third quarter profitability was adversely affected by currency headwinds and higher than expected raw material and freight costs. More specifically to Product Care, we experienced higher absorption costs due to lower global volumes in our utility business, which accounts for 30% of the division's sales," said Ted Doheny, Sealed Air's President and CEO.
On the positive side, he added, "We see a clear opportunity to improve our profitability and Free Cash Flow in 2019 by accelerating improvements in our manufacturing processes, overall business productivity and time to market of our innovative solutions."
For fiscal 2018, Sealed Air lowered adjusted EPS guidance to $2.40-2.45, adjusted EBITDA to $870-880 mln from $890-910 mln and net sales to $4.7 bln from $4.75 bln. Just under half of the net sales guidance reduction comes from FX headwinds.
This is the third materials company to warn about higher raw materials costs in a week. Both PPG (PPG) and Trinseo (TSE) cited that issue when lowering expectations last week. The strong dollar and higher material costs (mostly oil) will likely serve as a recurring theme this earning season.
Higher oil prices make plastic more expensive, which can impact many sectors and industries. What's more, those higher costs are likely to get passed down, eventually impacting consumers.
At pre-market prices, the stock traded at ~13x fiscal 2018 EPS and ~9x EBITDA.
Analysts at Bank of America Merrill Lynch downgraded the stock to Neutral this morning.
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