08/06/2020 | Press release | Distributed by Public on 08/06/2020 15:18
Solving Critical Packaging Challenges in a Global Crisis
Thursday, August 6, 2020
CHARLOTTE, N.C. - Sealed Air Corporation (NYSE: SEE) today announced financial results for the second quarter 2020.
'We are navigating through the challenges of the COVID-19 pandemic with a focus on business continuity and our purpose - 'to protect, to solve critical packaging challenges, and to leave our world better than we found it'. Our broad product portfolio, global scale and organizational agility have enabled us to respond to significant changes across the markets and geographies we serve.
As compared to last year, in the second quarter, Adjusted EBITDA was up 10% and Adjusted EBITDA margin expanded 220 basis points on constant dollar sales growth of 3%. The increase in earnings generated higher cash flow from operations in the first half of the year,' said Ted Doheny, Sealed Air's President and CEO.
'Our results demonstrate progress towards world-class. Despite adversity, we are driving our Reinvent SEE transformation faster. We are accelerating investments in automation to address market needs as we move to a 'touchless' environment in our own operations and with our customers. Our leadership in packaging innovation, sustainability, food safety, minimizing waste and protecting valuable goods, is more critical than ever.
Our execution so far in 2020 and increased clarity of customer demand for our essential packaging solutions give us the confidence to re-issue guidance for the full year, amidst continued overall market uncertainty,' continued Doheny.
Unless otherwise stated, all results compare second quarter 2020 to second quarter 2019 results from continuing operations. Year-over-year financial discussions present operating results from continuing operations as reported. Year-over-year comparisons are also made on an organic basis or constant dollar basis, which are non-U.S. GAAP measures. Organic refers to changes in unit volume and price performance and excludes acquisitions in the first year after closing, divestiture activity and the impact of currency translation. Constant dollar refers to changes in net sales and earnings, excluding the impact of currency translation. Additionally, non-U.S. GAAP adjusted financial measures, such as Adjusted Earnings Before Interest Expense, Taxes, Depreciation and Amortization ('Adjusted EBITDA'), Adjusted Net Earnings, Adjusted Diluted Earnings Per Share ('Adjusted EPS') and Adjusted Tax Rate, exclude the impact of specified items ('Special Items'), such as restructuring charges, restructuring associated costs, gains and losses related to acquisition and divestiture of businesses, special tax items ('Tax Special Items') and certain infrequent or one-time items. Please refer to the supplemental information included with this press release for a reconciliation of U.S. GAAP to Non-U.S. GAAP financial measures.
In the second quarter, net sales in Food (previously named Food Care) were $673 million, a decrease of 5% as reported. Currency negatively impacted Food sales by $36 million, or approximately 5%. On a constant dollar basis, net sales were approximately flat. Volume was down $13 million, or 2%, primarily driven by lower equipment sales, the slowdown in the food service industry and certain food processing plant closures in North America, partially offset by continued strength in the food retail market. Price was favorable $10 million or 1%, due to US dollar based-indexed pricing in South America. Adjusted EBITDA increased 9% to $169 million, or 25.1% of net sales, up 320 basis points compared to the prior year. The increase in Adjusted EBITDA was attributable to favorable price/cost spread and Reinvent SEE initiatives, which included productivity improvements and restructuring savings, and was partially offset by lower organic sales volume and unfavorable foreign currency translation.
Second quarter net sales in Protective (previously named Product Care) were $478 million an increase of 6% as reported. Currency negatively impacted Protective sales by $6 million, or 1%. On a constant dollar basis, net sales increased $34 million, or 8%. The Automated Packaging Systems ('Automated') acquisition contributed $73 million in sales. Organic volume declined 8%, or $36 million, largely due to the impact of COVID-19 on the global industrial manufacturing sector, partially offset by strength in e-Commerce and distribution of essential goods. Adjusted EBITDA was $92 million, or 19.1% of sales, compared to $84 million, or 18.7% of sales, in the prior year. The increase in Adjusted EBITDA was attributable to contributions from the Automated acquisition and Reinvent SEE initiatives partially offset by lower organic sales volume.
We are monitoring the impact of COVID-19 on all aspects of our business and geographies, including the impact on our employees, customers, suppliers, business partners and distribution channels. Our established crisis management teams, which are comprised of our cross functional and regional leaders, continue to assess the evolving situation and have implemented business continuity plans at both the regional and headquarter levels. The health and safety of Sealed Air's global employees, suppliers and customers continue to be the Company's top priority.
Net sales of $1.2 billion decreased 1% as reported. Currency had a negative impact on total net sales of $42 million or approximately 4%.
Net earnings were $100 million, or $0.64 per diluted share. Special Items had a negative impact of approximately $18 million on net earnings in the quarter, which was largely due to restructuring and restructuring associated charges of $14 million ($11 million, net of taxes). This compares to net earnings in the second quarter 2019 of $26 million, or $0.16 per diluted share, which was unfavorably impacted by $100 million of Special Items. Prior year Special Items included a charge of $59 million ($44 million, net of taxes) in connection with a settlement agreement with Novipax Holdings LLC, and $51 million ($36 million, net of taxes) in restructuring and restructuring associated charges.
The effective tax rate in the second quarter 2020 was 30.8%, compared to 32.5% in the second quarter 2019.
Net sales increased 3% on a constant dollar basis. Contributions from the Automated acquisition were $73 million or approximately 6%. This was partially offset by a decline in organic volume of $49 million or 4%. Asia Pacific organic volume was up 3% while North America, EMEA and South America declined 6%, 5% and 1%, respectively.
Adjusted EBITDA was $260 million, or 22.6% of net sales in the second quarter 2020 compared to $237 million, or 20.4% in 2019. Currency fluctuations had an unfavorable impact of $8 million, or 3% in the second quarter 2020. The improvement in Adjusted EBITDA was due to Reinvent SEE initiatives, favorable price/cost spread, and contributions from the Automated acquisition, partially offset by lower organic sales volume and unfavorable foreign currency translation.
The Adjusted Tax Rate was 27.5% in the second quarter 2020, compared to 19.4% in the second quarter 2019. The lower prior year tax rate was primarily due to the release of a valuation allowance for Reinvent SEE related profitability improvements in South America.
Adjusted earnings per diluted share was $0.76 for the second quarter 2020 compared to $0.80 in the second quarter 2019, largely due to the higher adjusted tax rate.
Cash flow provided by operating activities for the six months ended June 30, 2020 was an inflow of $213 million, compared to an inflow of $169 million for the six months ended June 30, 2019. The increase in cash from operating activities was primarily due to higher Adjusted EBITDA partially offset by increased net trade working capital investment. Net trade working capital, which is defined as customer receivables and inventory less customer advance payments and accounts payable, was a use of cash of $100 million in the current year compared to $61 million for the six months ended June 30, 2019. The increase was primarily due to a purposeful inventory build during the quarter for COVID-19 contingency planning. Capital expenditures were $84 million for the six months ended June 30, 2020 compared to $94 million in the same period last year. Free Cash Flow, defined as net cash provided by operating activities less capital expenditures was an inflow of $129 million in the six months ended June 30, 2020, compared to an inflow of $75 million in the six months ended June 30, 2019.
During the six months ended June 30, 2020, the Company paid cash dividends of $51 million.
Net Debt, defined as total debt less cash and cash equivalents, was $3.5 billion as of June 30, 2020 compared to $3.6 billion at December 31, 2019. As of June 30, 2020, Sealed Air had approximately $1.3 billion of liquidity available, comprised of $290 million of cash and undrawn, committed credit facilities of $1,053 million. The Company does not have any debt maturities until August 2022.
For the full year 2020, Sealed Air now expects net sales in the range of $4.725 billion to $4.775 billion, which represents (1%) to flat as reported and 1% to 2% growth in constant dollars. Foreign currency is now expected to have a negative impact on net sales of approximately $120 million. This compares to sales guidance communicated in February 2020 of $4.9 billion to $4.95 billion, which included an estimated unfavorable currency impact of approximately $40 million.
Adjusted EBITDA is expected to be in the range of $1.01 billion to $1.03 billion, which is consistent with the guidance communicated in February 2020. However, foreign currency is now expected to have a negative impact on Adjusted EBITDA of approximately $25 million, compared to the Company's previous forecast of an unfavorable impact of $8 million. Adjusted EPS is expected to be in the range of $2.85 to $2.95, which is based on approximately 156 million shares outstanding and an anticipated Adjusted Tax Rate of approximately 27%. Adjusted EPS, shares outstanding and the tax rate are also consistent with the Company's guidance communicated in February 2020.
Free cash flow is expected to be in the range of $350 million to $375 million, which compares to $350 million communicated in February 2020.
Sealed Air Corporation will host a conference call and webcast on Thursday, August 6, 2020 at 10:00 a.m. (ET) to discuss our Second Quarter 2020 Results. The conference call will be webcast live on the Investors homepage at www.sealedair.com/investors. A replay of the webcast will also be available thereafter.
Sealed Air is in business to protect, to solve critical packaging challenges and to leave our world better than we found it. Our portfolio of leading packaging solutions includes CRYOVAC® brand food packaging, SEALED AIR® brand protective packaging and BUBBLE WRAP® brand packaging, which collectively enable a safer, more efficient food supply chain and protect valuable goods shipped around the world. Sealed Air generated $4.8 billion in sales in 2019 and has approximately 16,500 employees who serve customers in 124 countries.
We routinely post important information for investors on our website, www.sealedair.com, in the Investors section. We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investors section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.
Non-U.S. GAAP Information
In this press release and supplement, we have included several non-U.S. GAAP financial measures, including Net Debt, Adjusted Net Earnings and Adjusted EPS, net sales on an 'organic' and a 'constant dollar' basis, Free Cash Flow, Adjusted EBITDA and Adjusted Tax Rate, as our management believes these measures are useful to investors. We present results and guidance, adjusted to exclude the effects of Special Items and their related tax impact that would otherwise be included under U.S. GAAP, to aid in comparisons with other periods or prior guidance. In addition, non-U.S. GAAP measures are used by management to review and analyze our operating performance and, along with other data, as internal measures for setting annual budgets and forecasts, assessing financial performance, providing guidance and comparing our financial performance with our peers and may also be used for purposes of determining incentive compensation. The non-U.S. GAAP information has limitations as an analytical tool and should not be considered in isolation from or as a substitute for U.S. GAAP information. It does not purport to represent any similarly titled U.S. GAAP information and is not an indicator of our performance under U.S. GAAP. Non-U.S. GAAP financial measures that we present may not be comparable with similarly titled measures used by others. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. For a reconciliation of these U.S. GAAP measures to non-U.S. GAAP measures and other important information on our use of non-U.S. GAAP financial measures, see the attached supplementary information entitled 'Condensed Consolidated Statements of Cash Flows' (under the section entitled 'Non-U.S. GAAP Free Cash Flow'), 'Reconciliation of Net Earnings and Net Earnings Per Common Share to Non-U.S. GAAP Adjusted Net Earnings and Non-U.S. GAAP Adjusted Net Earnings Per Common Share,' 'Reconciliation of Net Earnings to Non-U.S. GAAP Total Company Adjusted EBITDA,' 'Components of Change in Net Sales by Segment' and 'Components of Change in Net Sales by Region.' Information reconciling forward-looking U.S. GAAP measures to non-U.S. GAAP measures is not available without unreasonable effort
We have not provided guidance for the most directly comparable U.S. GAAP financial measures, as they are not available without unreasonable effort due to the high variability, complexity, and low visibility with respect to certain Special Items, including restructuring charges, gains and losses related to acquisition and divestiture of businesses, the ultimate outcome of certain legal or tax proceedings, and other unusual gains and losses. These items are uncertain, depend on various factors, and could be material to our results computed in accordance with U.S. GAAP.
This press release contains 'forward-looking statements' within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 concerning our business, consolidated financial condition and results of operations. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as 'anticipate,' 'believe,' 'plan,' 'assume,' 'could,' 'should,' 'estimate,' 'expect,' 'intend,' 'potential,' 'seek,' 'predict,' 'may,' 'will' and similar references to future periods. All statements other than statements of historical facts included in this press release regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expected future operating results, expectations regarding the results of restructuring and other programs, anticipated levels of capital expenditures and expectations of the effect on our financial condition of claims, litigation, environmental costs, contingent liabilities and governmental and regulatory investigations and proceedings.
The following are important factors that we believe could cause actual results to differ materially from those in our forward-looking statements: global economic and political conditions, currency translation and devaluation effects, changes in raw material pricing and availability, competitive conditions, the success of new product offerings, consumer preferences, the effects of animal and food-related health issues, the effects of epidemics or pandemics, including the COVID-19, changes in energy costs, environmental matters, the success of our restructuring activities, the success of our financial growth, profitability, cash generation and manufacturing strategies and our cost reduction and productivity efforts, changes in our credit ratings, the tax benefit associated with the Settlement agreement (as defined in our 2019 Annual Report on Form 10-K), regulatory actions and legal matters and the other information referenced in the 'Risk Factors' section appearing in our most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, and as revised and updated by our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Any forward-looking statement made by us is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether because of new information, future developments or otherwise.