Strong Demand to Drive Sealed Air (SEE) Amid Rising Costs
This story originally appeared on Zacks
Sealed Air Corporation SEE is benefiting from strong demand for its automated equipment and sustainable packaging solutions. The company’s focus on acquisitions, product innovation and investment in automation will also contribute to growth. While anticipated gains from its Reinvent SEE Strategy will boost earnings, ongoing supply chain challenges in the industry and higher input costs are likely to offset some of these gains in the near term.
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Solid End-Market Demand to Fuel Revenues
Strong demand for automated equipment and sustainable packaging solutions continues to drive growth in Sealed Air’s food and protected packaging segments. In food, the retail channel and protein exports are expected to be solid. Its protein automation pipeline continues to grow across all regions, with major food producers committing to its SEE Touchless Automation future. Meanwhile, the company has been witnessing higher food service demand compared to last year owing to the reopening of restaurants and other public venues. Backed by this, its fluid solutions portfolio, which comprises Cryovac Barrier Bags and pouches for condiments, soups and sauces, is witnessing growth. These categories account for 50% of the Food segment’s sales. In protective, continued growth in e-commerce and fulfillment, and higher demand in the industrial end markets are likely to drive growth. E-commerce sales, which contribute around 14% to the company’s sales, have been on the rise amid the stay-at-home scenario.
Automated Solutions to Act as a Key Catalyst
Sealed Air’s focus on automation, digital and sustainability is likely to boost market-topping growth in its core business, enabling it to expand into new and adjacent markets. The company’s SEE automated solutions strategy is driving growth for the next phase of its Reinvent SEE business transformation. Sealed Air is meeting customers’ most critical needs for safety, productivity and labor scarcity with its touchless automated solutions. It expects equipment sales to be up 12% in 2021 to more than $250 million. The company’s pipeline for automated equipment continues to improve, and it has set a target of more than $500 million by 2025. Sealed Air is investing more than $30 million in capacity expansion to meet the strong demand for equipment solutions. These investments along with the company’s acquisitions of Automated Packaging Systems, AFP, Inc, and Fagerdala will stoke growth.
Reinvent SEE Strategy to Drive Margins
Sealed Air’s Reinvent SEE Strategy, which is focused on innovations, SG&A productivity, product-cost efficiency, channel optimization and customer-service enhancements, has been driving its earnings growth. One of the most vital aspects of this strategy involves investment in technology and resources, and focusing on the new and existing high-growth markets. So far this year the company achieved $43 million benefits from Reinvent SEE, which puts it on track to realize its target of benefits of around $65 million for the full year.
Supply Chain Headwinds, Cost Inflation Persist
So far this year, the company has been encountering supply chain disruptions and higher raw material costs resulting from various factors including general inflationary pressure, limited availability of certain raw materials, and global transportation disruptions. On top of this, the company faced higher freight costs associated with the sourcing and movement of raw materials due to overall tight market conditions. These factors have been weighing on its margin performance. Even though Sealed Air has implemented price increases throughout the year, the associated timing lag on these increases and formula-based pricing has led to contraction of gross margins. The company anticipates the ongoing supply disruptions to result in longer lead times for some of its customers, which might impair its ability to fulfill customer orders. This is likely to hurt its results.
Share Price Performance
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Over the past year, Sealed Air’s shares have gained 47.2%, compared with the industry’s growth of 15.7%.
Zacks Rank and Stocks to Consider
Sealed Air currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Industrial Products sector include Casella Waste Systems, Inc. CWST, Encore Wire Corporation WIRE and Heritage-Crystal Clean, Inc. HCCI. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Casella Waste has an anticipated earnings growth rate of 3.4% for fiscal 2021. The company’s shares have increased 44% in a year.
Encore Wire has an estimated earnings growth rate of 491% for the current fiscal. Over a year’s time, the company’s shares have surged a whopping 171%.
Heritage-Crystal Clean has a projected earnings growth rate of 553% for the current year. The stock has appreciated around 65% in the past year.
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