Sealed Air Reports Second Quarter 2012 Results

Second Quarter Highlights

• Sales of $2 billion, a 67% increase from acquisitions and 2% organic sales growth
• Pro forma sales decline of 4%, or a 1% increase at constant dollar rates
• Cost synergy benefits of $23 million
• 2012 outlook revised on challenging economic conditions and foreign exchange effect
• New cost saving measures in the Integration & Optimization Program increase benefits to $195 to $200 million by end-2014

ELMWOOD PARK, N.J.--(BUSINESS WIRE)--Aug. 2, 2012-- For second quarter 2012, Sealed Air Corporation (NYSE:SEE) reported sales of $2.0 billion, a 65% increase over 2011, including a 67% increase from the Diversey acquisition, a 2% increase in organic sales, and a 4% unfavorable foreign currency translation. Sales volume performance improved slightly and reflected unit volume growth in all regions except EMEA, due to a 3% volume decline in Europe. On a pro forma basis, sales decreased 4%. Excluding the unfavorable impact of foreign exchange, pro forma sales increased 1% from 2% higher price and 1% lower unit volumes.

For the second quarter 2012, Sealed Air reported a loss of $0.07 per share after a $0.27 per share unfavorable effect from special items. This compares with reported net earnings per common share (EPS) of $0.37 in 2011. On an adjusted basis, second quarter 2012 EPS was $0.20 compared with second quarter 2011 adjusted EPS of $0.40.

Adjusted EBITDA was $243 million in the quarter, or 12.1% of net sales, which includes unfavorable foreign currency of $10 million. On a pro forma basis, 2011 adjusted EBITDA would have been $305 million or 14.6% of net sales. Benefits from cost synergies and a favorable price/cost spread from prior pricing actions were not enough to offset the unfavorable effects of lower unit volumes, foreign exchange translation, a negotiated labor agreement and costs associated with manufacturing consolidation and productivity improvement activities. Second quarter 2011 pro forma adjusted EBITDA also benefited from a reduction in variable compensation recorded by Diversey.

Commenting on our operating performance, William V. Hickey, President and Chief Executive Officer, stated:

“The fundamentals of our business model remain strong. Despite uneven demand patterns, organic sales in developing regions increased by over 10% on a pro forma basis, we increased our market penetration, and we delivered cost synergy benefits to plan.

Nonetheless, we are disappointed by our adjusted EBITDA results, which were lower than we expected. Persistent weakness in our customers’ end markets and cautious order patterns became more challenging in the latter part of the quarter as European economic conditions further declined and our food businesses navigated through challenging protein production trends.

As a result of increasing macroeconomic weakness in Europe and slowing China exports, we began implementing new cost saving measures across all businesses to align our cost structure for a slower pace of recovery than initially anticipated. We believe the results of these efforts will yield an adjusted EBITDA for full year 2012 that is in line with last year’s at constant dollar rates.”

Second Quarter Segment Review

The following year-over-year net sales discussions present both actual and constant dollar sales performance. The “constant dollar” results exclude the impact of currency translation. Additionally, “adjusted operating profit” results exclude restructuring and special items. The balance of the discussion is presented on a U.S. GAAP basis.

Food Packaging Segment

Sales were flat on a reported basis, or 4% higher on a constant dollar basis, with 3% higher price/mix from prior Latin and North American pricing actions and standard contract adjustments. Volumes increased 1% led by 7% volume growth in Latin America. Strong volume in Latin America was muted by approximately 2% lower volumes in both North America and EMEA on lower customer production rates. Operating profit decreased 26% to $46 million, or 9.3% of net sales, compared with $62 million or 12.4% of net sales in 2011. On an adjusted basis, operating profit decreased 22% to $48 million, or 9.7% of net sales, due to unfavorable product mix, a negotiated labor agreement, and certain costs associated with manufacturing consolidation activities.

Food Solutions Segment

Sales decreased 6% on a reported basis, or decreased 2% on a constant dollar basis, with steady year-over-year price/mix performance and 2% lower volumes. The decline in constant dollar sales was largely due to lower equipment sales in EMEA due to a challenging 2011 comparison, timing of orders in 2012, and weakening economic conditions in Europe. These factors were partially offset by 4% constant dollar sales growth in North America from positive price/mix and higher volumes. Excluding the effect of equipment sales on volume performance, Food Solutions’ volumes would have held relatively steady on a year-over-year basis. Reported operating profit increased 4% to $26 million, or 10.6% of net sales, compared with $25 million or 9.6% in 2011. Adjusted operating profit increased 10% to $28 million, or 11.2% of net sales, on solid price/cost management.

Protective Packaging Segment

Sales decreased 3% on a reported basis, or increased 1% on a constant dollar basis, with slightly higher volumes and relatively steady price/mix performance compared with the prior year. We achieved 2% higher volumes in North America due to the gradual economic recovery in the region and strength in new solutions targeting e-commerce applications. This growth was partially offset by 3% lower EMEA volumes due to weakening economic conditions in Europe. Reported and adjusted operating profit decreased 7% to $43 million, or 12.5% of net sales, compared with an operating profit of $46 million or 13.1% of net sales in 2011.

Diversey Segment (includes pro forma information for 2011 results)

Pro forma sales decreased 7% to $816 million in the quarter, which compared to $876 million in 2011. On a constant dollar basis, second quarter 2012 sales decreased 1% to $869 million. The constant dollar sales results reflect an estimated 2% higher price from prior pricing actions and 3% lower volumes primarily in the EMEA and North American regions. Operating profit was $30 million in the quarter, or 3.7% of net sales, which compares with a pro forma $67 million in 2011. On an adjusted basis, operating profit was $41 million, or 5.0% of net sales, which includes an unfavorable currency translation of $7 million. This compares with a pro forma adjusted operating profit of $77 million, or 8.8% of net sales in 2011. While the segment benefited from a positive price/cost spread and cost synergies of $15 million, these were more than offset by an unfavorable year-over-year comparison in variable compensation expenses, and the unfavorable effect of an investment in resources to support strong growth in the Asia Pacific region.

Other Category

Sales increased 2%, or 7% on a constant dollar basis, with 6% higher volumes, 1% from an acquisition and steady price/mix performance. Volume growth was largely from our Medical Applications business in the Asia-Pacific region due to favorable comparisons with the prior year. Reported and adjusted operating profit increased to $3 million, or 3.2% of net sales.

Other Matters

Effective Tax Rate

In the second quarter, our $7 million pretax loss was increased by a $7 million tax provision resulting in a $14 million net loss. The tax provision increase resulted from restructuring efforts, including both taxes incurred with respect to restructuring and expenses with a zero or low tax benefit. Our core tax rate for the quarter was 28.6%.

Free Cash Flow and Net Debt

We generated free cash flow of $102 million and prepaid our second quarter 2013 term loan installments of $30 million in the quarter.

Our net debt held steady at approximately $5.33 billion, including the W. R. Grace settlement payable. During the quarter, we used cash for working capital reflecting sequential growth in the business, as well as dividends, restructuring payments, and tax payments.

Synergies and 2011-2014 Integration & Optimization Program

We announced our 2011-2014 Integration & Optimization Program in the fourth quarter of 2011. In the second quarter, we expanded this program to address increasing macroeconomic weakness and have identified additional expense reduction opportunities. We expect these new actions to provide an incremental $20 million of benefits in 2012 and a further $50 million in 2013. We expect these actions and our prior program estimates to yield an annual savings of approximately $195 to $200 million by the end of 2014. We now expect approximately 40% of these benefits to be realized in Cost of Sales and 60% in SG&A.

The 2011-2014 Integration & Optimization Program is summarized as:

The actual timing of future costs and cash payments is subject to change due to a variety of factors that may cause a portion of the spending and benefits to occur later than we now expect. Additionally, changes in foreign exchange translation may impact future costs and benefits.

Revenue Synergies

We achieved estimated annualized synergy revenue of approximately $15 million year-to-date and are engaging with over 100 targeted accounts to close additional opportunities. We continue to target $70 million in revenue synergies by the end of 2013.

2012 Outlook

Commenting on our outlook, Mr. Hickey stated:

“We are executing well on our integration plan as demonstrated by a smooth launch of our European Principal Company in May and announced an additional facility closure in Europe. We continue to have tremendous opportunity ahead. While we are confident in our strategy and ability to create value, in the short term, we are revising our 2012 outlook to reflect increasing macroeconomic concerns. We now expect our full year 2012 sales and adjusted EBITDA performance to be essentially flat with pro forma 2011 on a constant dollar basis.”

Our full year 2012 guidance has been revised to an Adjusted EPS of $1.00 to $1.10 and a Cash EPS of $1.60 to $1.70 compared with $1.50 to $1.60 and $2.10 to $2.20, respectively.

Our guidance is based on the following revised assumptions:

• Foreign exchange translation reflects late July 2012 exchange rates for our basket of currencies. This includes a U.S. dollar/euro rate of 1.22/1.00;
• Net sales are expected to be approximately $7.7 billion, including the unfavorable impact of approximately $400 million of currency;
• Cost of sales is expected to be approximately 66% of net sales compared with approximately 65%;
• Adjusted EBITDA is expected to be approximately $1,050 to $1,075 million, including the unfavorable impact of approximately $40 million of currency;
• Free cash flow of $425 to $450 million compared with $450 to $475 million;
• Integration & Optimization Program benefits of $90 million compared with $70 million;
• Net debt target of $4.95 billion compared with $4.9 billion;
• Modest raw material inflation compared with a 3% to 5% initial estimate;
• Amortization of non-cash compensation of $40 million compared with $55 million;
• Capital expenditures of $130 to $140 million, compared with $180 to $190 million; and
• Core tax rate of approximately 30%, compared with 27%.

Our full year 2012 guidance assumptions outlined in our fourth quarter 2011 earnings release related to SG&A as a percent of net sales, depreciation and amortization, interest expense, cash taxes, and our full year average fully diluted common share count have not changed. Our adjusted EPS guidance excludes the payment of the W. R. Grace settlement, as the exact timing of the settlement is unknown. Final payment of the W. R. Grace settlement is expected to be accretive to adjusted EPS by approximately $0.13 annually following the payment date under the assumption of using a substantial portion of cash on hand for the payment and ceasing to accrue interest on the settlement amount. Additionally, guidance excludes any non-operating gains or losses that may be recognized in 2012 due to currency fluctuations in Venezuela.

Web Site and Conference Call Information

William V. Hickey, our CEO, and Carol P. Lowe, our CFO, will conduct an investor conference call today at 11:00 a.m. (ET) to discuss our earnings results. The conference call will be webcast live on our web site at http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.sealedair.com%2F&esheet=50364446&lan=en-US&anchor=www.sealedair.com&index=1&md5=2b8bd1fef362de87f67ede23bddf618e in the Investor Information section. The link to the event can be found on the Investor Information home page as well as under the Presentations & Events tab. Listeners should go to the web site prior to the call to register and to download and install any necessary audio software. A replay of the webcast will also be available on the Company’s web site.

Investors who cannot access the webcast may listen to the conference call live via telephone by dialing (888) 679-8034 (domestic) or (617) 213-4847 (international) and use the participant code 60911860#. Telephonic replay will be available beginning today at 12:00 p.m. (ET) and ending on Thursday, August 23, 2012 at 11:59 p.m. (ET). To listen to the replay, please dial (888) 286-8010 (domestic) or (617) 801-6888 (international) and use the confirmation code 81512731.

Business

Sealed Air is a global leader in food safety and security, facility hygiene and product protection. With widely recognized and inventive brands such as Bubble Wrap^® brand cushioning, Cryovac^® brand food packaging solutions and Diversey^TM brand cleaning and hygiene solutions, Sealed Air offers efficient and sustainable solutions that create business value for customers, enhance the quality of life for consumers and provide a cleaner and healthier environment for future generations. On a pro forma basis, Sealed Air generated revenue of $8.1 billion in 2011, and has approximately 26,300 employees who serve customers in 175 countries. To learn more, visit http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.sealedair.com%2F&esheet=50364446&lan=en-US&anchor=www.sealedair.com&index=4&md5=99ced6b66a4eda92d83ff9c2f6dcb8c9.

Non-U.S. GAAP Information

In this press release and supplement, we have included several non-U.S. GAAP financial measures, including adjusted EPS, adjusted Cash EPS, net sales on a "constant dollar" basis, adjusted gross profit, adjusted operating profit, adjusted net earnings, free cash flow and EBIT, EBITDA and Adjusted EBITDA. We present results and guidance, adjusted to eliminate the effects of specified items that would otherwise be included under U.S. GAAP, to aid in comparisons with other periods or prior guidance. We may use adjusted EPS, net sales on a constant dollar basis, adjusted net earnings, adjusted gross profit, adjusted operating profit, measures of cash flow, net debt, and EBITDA figures to determine performance-based compensation. Our management uses financial measures excluding the effects of foreign currency translation in evaluating operating performance. Management believes that this information may be useful to investors. For important information on our use of non-U.S. GAAP financial measures, see the attached supplementary information entitled “Explanatory Note on Use of Non-U.S. GAAP Financial Information,” “Reconciliation of U.S. GAAP Gross Profit and Operating Profit to Non-U.S. GAAP Adjusted Gross Profit and Operating Profit,” “Reconciliation of U.S. GAAP Diluted Net (Loss) Earnings Per Common Share to Non-U.S. GAAP Adjusted Diluted Net Earnings per Common Share,” “Non-U.S. GAAP Free Cash Flow,” ”Reconciliation of Net (Loss) Earnings Available to Common Stockholders to Non-U.S. GAAP EBIT, EBITDA and Adjusted EBITDA,” “Components of Change in Net Sales - Business Segments and Other” and “Components of Change in Net Sales-Geographic Region.”

Non-U.S. GAAP free cash flow may not represent residual cash available for discretionary or non-discretionary expenditures that are not deducted from this measure, including mandatory debt servicing.

Forward-Looking Statements

This press release and supplement contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by such words as “anticipates,” “believes,” “plan,” “assumes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans to,” “will” and similar expressions. Examples of these forward-looking statements include 2012 financial expectations and assumptions associated with our 2011-2014 Integration & Optimization Program, availability and pricing of raw materials, success of our growth programs, economic conditions, and the success of pricing actions. These statements reflect our beliefs and expectations as to future events and trends affecting our business, our consolidated financial position and our results of operations. A variety of factors may cause actual results to differ materially from these expectations, including general domestic and international economic and political conditions affecting packaging utilization; changes in our raw material and energy costs; credit ratings; competitive conditions and contract terms; currency translation and devaluation effects, including Venezuela; the success of our financial growth, profitability and manufacturing strategies and our cost reduction and productivity efforts; the effects of animal and food-related health issues; pandemics; environmental matters; regulatory actions and legal matters; and the successful integration of Diversey. For more extensive information, see “Risk Factors” and “Cautionary Notice Regarding Forward-Looking Statements,” which appear 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. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether as a result of new information, future events, or otherwise.