Sealed Air Reports Fourth Quarter and Full Year 2014 Results

• Increased 2014 Adjusted EBITDA by 7.5% to $1.12 Billion and Generated Free Cash Flow of $612 Million, excluding the W. R. Grace & Co. Settlement payment
• 2014 Adjusted EPS of $1.86 Increased 34%; Reported EPS of $1.20
• Company provides outlook for 2015 Net Sales, Adjusted EBITDA, Adjusted EPS and Free Cash Flow

CHARLOTTE, N.C.--(BUSINESS WIRE)--Feb. 10, 2015-- Sealed Air Corporation (NYSE:SEE) today announced financial results for fourth quarter and full year 2014. Commenting on these results, Jerome A. Peribere, President and Chief Executive Officer, said, “2014 was a very strong year for Sealed Air – we generated over $600 million of Free Cash Flow, expanded Adjusted EBITDA margins by 90 basis points to 14.4% compared to 2013 and delivered margin expansion across our three divisions. Despite currency headwinds in the fourth quarter, we exceeded our expectations across all key metrics in the quarter and for the year.”

“In 2015, we expect lower input costs combined with our continued focus on earnings quality improvements to offset unfavorable currency translation. Our outlook for Adjusted EBITDA is expected to be in the range of $1.15 billion to $1.18 billion as compared to 2014 Adjusted EBITDA of $1.12 billion. We will continue to stay disciplined on our value-added selling approach and ‘Get Fit and Change the Game’ initiatives, both of which are expected to contribute to margin expansion. Additionally, we expect to generate approximately $600 million in Free Cash Flow in 2015,” continued Mr. Peribere.

Unless otherwise stated, all results compare fourth quarter 2014 results to fourth quarter 2013 results and are presented on a continuing operations basis. The Rigid Medical Packaging business, which the Company sold in December 2013, has been presented as discontinued operations. Reported information is defined as U.S. GAAP. Year-over-year net sales discussions present both reported and constant currency performance. Constant currency sales performance excludes 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 Core Tax Rate, exclude the impact of special items, such as restructuring charges, cash-settled stock appreciation rights (“SARs”) granted as part of the Diversey acquisition and certain other one-time items. Please refer to the financial statements included with this press release for a reconciliation of U.S. GAAP to Non-U.S. GAAP financial measures.

Business and Financial Highlights

• Food Care net sales of $985 million in the fourth quarter and $3.8 billion in 2014 increased approximately 3.0% and 3.6% on a constant currency basis, respectively. Favorable product price/mix was 3.5% in the quarter and 4.0% for the full year on relatively flat volume in both periods. Currency had a negative impact on Food Care net sales of 5.7%, or $59 million, in the fourth quarter and 3.0%, or $117 million, in 2014. Food Care delivered Adjusted EBITDA margin of 17.5% in the fourth quarter, an increase of 170 basis points, and 17.5% in 2014, an increase of 140 basis points. These results were attributable to favorable mix and price/cost spread as well as cost synergies, partially offset by unfavorable currency translation and higher Selling, General & Administrative (SG&A) costs.
• Diversey Care delivered positive volume and favorable price/mix trends in the fourth quarter and for the full year. Volume and price/mix trends combined with continued strength in emerging markets resulted in fourth quarter net sales of $536 million, an increase of 4.1% in constant currency, and 2014 net sales of $2.2 billion, an increase of 3.0% in constant currency. Currency had a negative impact on Diversey Care net sales of 5.9%, or $33 million, in the quarter and 2.4%, or $53 million, in 2014. Diversey Care delivered Adjusted EBITDA margins of 10.9% in the fourth quarter and 11.3% in 2014. Throughout the year, Diversey Care’s focus on eliminating low margin business and implementing cost savings initiatives was offset by investments in sales and marketing and non-material inflation. Specifically related to the fourth quarter, Adjusted EBITDA margins were negatively impacted by unfavorable currency translation and supply chain costs.
• Product Care net sales of $432 million in the fourth quarter and $1.7 billion for the full year delivered constant currency growth of 4.6% and 3.7%, respectively. Favorable product price/mix was 4.0% in the quarter and 3.5% in 2014 on relatively flat volume in both periods. Product Care delivered Adjusted EBITDA margin of 17.9% in the fourth quarter, an increase of 80 basis points, and 17.7% in 2014, an increase of 120 basis points. The division’s performance in the quarter and for the year was attributable to favorable mix and price/cost spread as well as cost synergies, partially offset by higher SG&A expenses.
• In the fourth quarter 2014, the Company issued $425 million aggregate principal amount of 4.875% senior notes due 2022 and $425 million aggregate principal amount of 5.125% senior notes due 2024. Net proceeds from the offering were used to repurchase $750 million aggregate principal amount of 8.125% senior notes due 2019. The Company amended and restated its senior secured credit facilities totaling $2.13 billion in July 2014. The amended and restated facilities combined with the senior notes issuance provided extended maturities, increased covenant flexibility and reduced interest expense. The Company expects annualized interest expense savings to be approximately $30 million.
• The Fusion Program (“the Plan”), a new restructuring program consisting of projects across the Company’s three divisions and functional support, was approved by the Board of Directors in December 2014. The Company currently estimates that it will incur aggregate costs of approximately $275 million to $285 million, of which the net cash cost is expected to be in the range of $210 million to $220 million. The Plan is expected to be substantially complete by the end of 2017 and estimated to generate annualized savings of approximately $80 million to $85 million by the end of 2018. Details pertaining to the Fusion Program were previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 24, 2014.

Fourth Quarter and Full Year 2014 Summary

Fourth quarter 2014 net sales of $2.0 billion decreased 1.9% on a reported basis and increased 3.3% in constant currency. For the full year 2014, net sales totaled $7.8 billion, a reported increase of 0.8% and 3.2% in constant currency. Favorable product price/mix was 3.0% in the quarter and 3.2% in 2014 on flat volume. Currency had a negative impact on net sales of $105 million in the fourth quarter and $183 million in 2014.

In the fourth quarter 2014, the Company delivered higher sales across all regions on a constant currency basis as compared with the fourth quarter 2013. Latin America and Asia, Middle East, Africa and Turkey (“AMAT”) were the fastest growing regions, increasing sales by 8.4% and 6.8%, respectively. North America delivered constant currency net sales growth of 2.3%, Europe increased 2.2% and Japan, Australia and New Zealand (“JANZ”) was up 0.8%. For the full year 2014, constant currency net sales increased 8.4% for Latin America, 6.9% for AMAT and 2.8% for North America. Net sales in JANZ increased 1.9% and Europe was up slightly by 0.7%. The Company experienced improving business trends in Europe throughout the year. Additionally, 2014 net sales from Developing Regions¹, which accounted for 25.7% of net sales, increased 8.1% in constant currency and were essentially unchanged on an as reported basis compared to last year.

Adjusted EBITDA for the fourth quarter 2014 was $282 million, or 14.3% of net sales, compared to $270 million, or 13.4% of net sales, in 2013. The margin increase in the fourth quarter was primarily attributable to favorable mix and price/cost spread as well as cost synergies, partially offset by higher SG&A costs and unfavorable currency translation. The higher SG&A expenses were partly attributable to an increase of approximately $17 million in performance compensation recorded in the fourth quarter 2014, as compared to the same period a year ago, in recognition of the strong full year-over-year performance in Adjusted EBITDA, working capital management and other key financial metrics.

Full year 2014 Adjusted EBITDA was $1.12 billion, or 14.4% of net sales. This represents a 7.5% increase compared to Adjusted EBITDA of $1.04 billion in 2013, or 13.5% of net sales. This increase was primarily due to favorable mix and price/cost spread and cost synergies, partially offset by higher SG&A costs and unfavorable currency translation. Incremental cost synergies in 2014 under previously announced restructuring programs were approximately $97 million and primarily resulted from headcount reductions, elimination of redundant costs, plant consolidations and procurement and logistics savings.

On a reported basis, fourth quarter 2014 EPS was $0.31, which included $0.28 per share of special items primarily consisting of a loss recorded on the repurchase of 8.125% senior notes and restructuring and other associated costs. This compares to fourth quarter 2013 EPS of $0.02, which included $0.37 per share of special items primarily consisting of a $50 million ($0.23 per share) increase to the Company’s income tax provision resulting from an increase in its valuation allowance with respect to the deferred tax asset related to the W. R. Grace & Co. Settlement agreement (“Settlement agreement”). Adjusted EPS was $0.59 for the fourth quarter. This compares to Adjusted EPS of $0.39 in 2013. The core tax rate was 9.4% in the fourth quarter 2014, compared to 18.8% in the fourth quarter 2013. Our core tax rate in the quarter benefited from the December enactment of the extenders legislation, containing certain favorable foreign tax provisions and extending the research & development credit for the entire year, as well as favorable earnings mix, with more taxable income than previously anticipated in low taxed jurisdictions.

For the full year 2014, reported EPS was $1.20, which included $0.66 per share of special items, mostly due to the loss on the repurchase of the senior notes, and restructuring and other associated costs. This compares to full year 2013 reported EPS of $0.44, which included $0.95 per share of special items, mostly due to restructuring charges and the increase in the valuation allowance discussed above. Adjusted EPS for the full year 2014 was $1.86, as compared to $1.39 in 2013. The core tax rate was 22.1% in 2014, compared to 20.7% in 2013.

The Company repurchased approximately 5.4 million shares of its common stock in 2014 for $184 million at an average price of $34 per share. This includes 1.5 million shares purchased under a 10b5-1 share trading plan for $54 million at an average price of $36 per share and approximately 3.9 million shares for $130 million at an average price of $33 per share purchased from the WRG Asbestos PI Trust in the second quarter 2014. During the fourth quarter 2014, the Company repurchased approximately 1.4 million shares for approximately $50 million, at an average price of $36. Since January 1, 2015, the Company has repurchased approximately 498,000 shares for $21 million or at an average price of $41 per share.

Cash Flow and Net Debt

Cash flow used in operating activities in 2014 was $202 million, which includes the $930 million payment in February 2014 pursuant to the Settlement agreement and an excess tax benefit of $38 million related to the 18 million shares of Common Stock issued pursuant to the Settlement agreement. Excluding the Settlement agreement payment and excess tax benefit, cash flow provided by operating activities was $766 million, which is net of $108 million of restructuring and $21 million of SARs payments. This compares with cash provided by operating activities of $625 million in 2013, which is net of $107 million of restructuring and $46 million of SARs payments. Capital expenditures were $154 million in the full year 2014 compared to $116 million in the full year 2013.

Free Cash Flow, defined as net cash used in operating activities less capital expenditures, was a use of $356 million in 2014. Excluding the Settlement agreement payment, accrued interest and excess tax benefit, Free Cash Flow was a source of $612 million, compared with a source of $509 million in 2013. The year-over-year improvement was attributable to higher earnings and working capital management.

Compared to December 31, 2013, the Company’s net debt decreased $241 million to $4.1 billion as of December 31, 2014. This decrease was primarily a result of cash generated from working capital and operating activities, partially offset by amounts paid for dividends and share repurchases.

Outlook for Full Year 2015

The Company estimates net sales to be approximately $7.4 billion for the full year 2015, which assumes an unfavorable impact of approximately 7% from foreign currency translation. Excluding the impact of foreign currency translation, on a constant currency basis, net sales are expected to increase approximately 2.5%. Adjusted EPS is expected to be in the range of $2.08 to $2.18. This represents an estimated increase of 12% to 17% compared with 2014 Adjusted EPS of $1.86. Adjusted EPS guidance excludes the impact of special items. The Company’s core tax rate for 2015 is expected to increase to approximately 25%.

Adjusted EBITDA is estimated to be in the range of $1.15 billion to $1.18 billion, including approximately $80 million of unfavorable currency translation. This compares with 2014 Adjusted EBITDA of $1.12 billion.

For 2015, the Company anticipates capital expenditures of approximately $180 million and cash restructuring payments of approximately $120 million. The Company anticipates 2015 Free Cash Flow to be approximately $600 million, excluding the tax refund of approximately $245 million related to the Settlement agreement payment.

Business

Sealed Air Corporation creates a world that feels, tastes and works better. In 2014, the Company generated revenue of approximately $7.8 billion by helping our customers achieve their sustainability goals in the face of today’s biggest social and environmental challenges. Our portfolio of widely recognized brands, including Cryovac® brand food packaging solutions, Bubble Wrap® brand cushioning and Diversey® cleaning and hygiene solutions, ensures a safer and less wasteful food supply chain, protects valuable goods shipped around the world, and improves health through clean environments. Sealed Air has approximately 25,000 employees who serve customers in 175 countries. To learn more, visit www.sealedair.com.

Website Information

We routinely post important information for investors on our website, www.sealedair.com, in the "Investor Relations" section. We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under SEC Regulation FD. Accordingly, investors should monitor the Investor Relations 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 Adjusted Net Earnings and EPS, net sales on a "constant dollar" basis, Adjusted Gross Profit, Adjusted Operating Profit, Free Cash Flow and Adjusted EBITDA, as our management believes these measures are useful to investors. We present results and guidance, adjusted to exclude the effects of certain specified items (“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 non-U.S. GAAP measures to U.S. GAAP 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 U.S. GAAP Condensed Consolidated Statements of Operations to Non-U.S. GAAP Adjusted Condensed Consolidated Statements of Operations and Non-U.S. GAAP Adjusted EBITDA,” “Segment Information,” and “Components of Change in Net Sales by Segment.” Information reconciling forward-looking non-U.S. GAAP measures to U.S. GAAP measures is not available without unreasonable effort.

Forward-Looking Statements

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 “anticipates,” “believes,” “plan,” “assumes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans to,” “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: the expected cash tax benefits associated with the Settlement agreement (as defined in our 2013 Annual Report on Form 10-K), global economic and political conditions, changes in our credit ratings, changes in raw material pricing and availability, changes in energy costs, competitive conditions, success of our restructuring activities, currency translation and devaluation effects, the success of our financial growth, profitability, cash generation and manufacturing strategies and our cost reduction and productivity efforts, the effects of animal and food-related health issues, pandemics, consumer preferences, environmental matters, 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 are 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 as a result of new information, future developments or otherwise.