Sealed Air posts Q1 earnings of US$71.8M, compared with earnings of US$2.7M a year ago, as gain on W. R. Grace settlement agreement offsets foreign currency exchange losses; sales flat at US$1.83B

ELMWOOD PARK, New Jersey , April 30, 2014 (press release) – Sealed Air Corporation (NYSE: SEE) today announced financial results for the first quarter 2014. Commenting on these results, Jerome A. Peribere, President and Chief Executive Officer, said, “First quarter 2014 net sales of $1.8 billion increased 2.8% on a constant dollar basis compared to last year primarily due to favorable price/mix of 3.4%. We delivered favorable product price/mix across all divisions and all regions, which contributed to a year-over-year improvement of 160 basis points in gross profit margin. We also increased Adjusted EBITDA margin by 110 basis points to 13.8% as compared to 12.7% in the previous year.”

“We have made tremendous progress engaging our customers on our value-added solutions and how we ‘Re-imagine™ the industries they serve.’ We will continue to focus on improving our product mix and delivering the most innovative solutions to the marketplace. Our first quarter performance is a true testament to our strong market leadership position and commitment to improving the quality of earnings. We are on track to achieve the high-end of the range we previously provided for full year Adjusted EBITDA of $1.050 billion to $1.070 billion. We are also increasing our Free Cash Flow outlook to approximately $425 million,” Peribere continued.

All results presented in this release include results on a continuing operations basis and reflect the change in the Company’s segment structure as previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 2014. 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 dollar performance. Constant dollar sales performance excludes the impact of currency translation. Additionally, non-U.S. GAAP adjusted financial measures, such as Adjusted Earnings Before Interest, Taxes and Depreciation and Amortization (“Adjusted EBITDA”), Adjusted Net Earnings, Adjusted Diluted Earnings Per Share (“Adjusted EPS”) and 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.

Business and Financial Highlights

Net sales in the Food Care division of $904 million were unchanged compared to last year. On a constant dollar basis, Food Care net sales increased by 3.9% primarily due to favorable price/mix of 4.1%, partially offset by a slight decline in volume. Adjusted EBITDA increased 9.5% to $160 million or 17.6% of net sales. This compares to Adjusted EBITDA in the first quarter 2013 of $146 million or 16.1% of net sales. The 150 basis point improvement in Adjusted EBITDA margin was due to favorable mix and price/cost spread as well as cost synergies, partially offset by non-material inflation and negative currency translation.
The Diversey Care division reported net sales of $505 million, a 1.5% decline compared to last year. On a constant dollar basis, net sales increased 1.2% with favorable price/mix of 3.2% partially offset by a 2.0% decline in volume. Adjusted EBITDA increased 4.5% to $45 million or 8.8% of net sales. This compares to Adjusted EBITDA in the first quarter 2013 of $43 million or 8.3% of net sales. The 50 basis point improvement was primarily attributable to a more favorable customer mix, improved pricing trends and cost synergies, partially offset by lower volumes, non-material inflation and negative currency translation.
The Product Care division reported net sales of $394 million, a 1.7% increase compared to last year. On a constant dollar basis, net sales increased by 2.6% primarily due a favorable price/mix of 2.1% and a slight increase in volume. Adjusted EBITDA increased 12.0% to $70 million or 17.8% of net sales. This compares to Adjusted EBITDA in the first quarter 2013 of $63 million or 16.2% of net sales. The 160 basis point improvement was largely attributable to favorable mix and price/cost spread as well as cost synergies.
First Quarter 2014 Summary

First quarter 2014 net sales of $1.8 billion were unchanged on a reported basis compared with first quarter 2013. On a constant dollar basis, net sales increased 2.8%. The Company delivered constant dollar sales growth in all regions, except Europe which declined 1.6%. Latin America increased 9.9%, AMAT1 increased 7.2%, North America increased 3.5% and JANZ2 increased 1.3%. Additionally, first quarter 2014 reported net sales from Developing Regions3 increased 7.9% in constant dollars, accounting for 25.0% of total net sales. Favorable product price/mix of 3.4% was slightly offset by a 0.6% decline in volume.

Adjusted EBITDA for the first quarter 2014 increased 8.9% to $252 million, or 13.8% of net sales. This compares to first quarter 2013 of $231 million, or 12.7% of net sales. The 110 basis point improvement in Adjusted EBITDA margin in the first quarter 2014 was primarily attributable to a more favorable mix and price/cost spread and cost synergies, partially offset by non-material inflation, lower volumes and $8 million negative currency translation.

Reported first quarter 2014 net earnings were $72 million, or $0.33 per share, which included special items largely comprised of foreign currency exchange losses related to Venezuelan subsidiaries and costs associated with previously announced restructuring programs, offset by a gain on the W. R. Grace & Co. Settlement agreement, which primarily consisted of the release of certain tax and other liabilities. This compares to reported net earnings of $1 million in the same period a year ago. Adjusted Net Earnings were $71 million or $0.33 per share in the first quarter 2014. This compares to Adjusted Net Earnings of $50 million, or $0.23 per share in the first quarter 2013. The tax rate in the first quarter 2014 was 21.4% as compared with 18.3% in the first quarter 2013.

Cash Flow and Net Debt

As previously disclosed, on February 3, 2014, the Company funded the W. R. Grace & Co. Settlement and related accrued interest with $555 million of accumulated cash and cash equivalents and $375 million from committed credit facilities, contributing to the net cash used in operating activities of $938 million in the three months ended March 31, 2014. Excluding the payment of the Settlement agreement, cash used by operating activities was $8 million, which is net of $27 million of restructuring and $14 million of SARs payments. This compares with cash used in operating activities of $38 million in the three months ended March 31, 2013, which is net of $24 million of restructuring and $17 million of SARs payments. Capital expenditures were $28 million for the three months ended March 31, 2014 and $26 million for the three months ended March 31, 2013.

Free Cash Flow, defined as net cash used in operating activities less capital expenditures, was a use of $966 million in the three months ended March 31, 2014. Excluding the Settlement agreement payment, Free Cash Flow was a use of $36 million, compared with a use of $63 million during the same period a year ago. Compared to December 31, 2013, the Company’s net debt increased $61 million to $4.4 billion as of March 31, 2014. This increase was a result of net cash used for working capital items, including seasonal inventory growth, certain annual incentive compensation payments and higher interest payments.

Outlook for Full Year 2014

The Company reaffirmed previously provided outlook for net sales and Adjusted EPS. Net sales are expected to be approximately $7.7 billion or relatively flat compared to 2013 with organic growth offset by rationalization and an estimated unfavorable impact of more than 2% from foreign currency translation. Adjusted EPS is expected to be in the range of $1.50 to $1.60 as compared with 2013 Adjusted EPS of $1.39. The Company is increasing its expected Tax Rate to approximately 27% from the previously provided estimate of approximately 25% for the full year 2014.

The outlook for Adjusted EBITDA is estimated to be at the high-end of the previously provided range of $1.050 billion to $1.070 billion as compared with 2013 Adjusted EBITDA of $1.038 billion. The Company is increasing its Free Cash Flow outlook to approximately $425 million from the previously provided outlook of $410 million. The forecast for capital expenditures and cash restructuring charges remain unchanged at approximately $170 million for capital expenditures and approximately $150 million for restructuring. The Company’s Free Cash Flow target excludes the Settlement payment.

SEALED AIR CORPORATION
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1)
(Unaudited)
(In millions, except per share data)
           
    Three Months Ended
    March 31,
    2014     2013
          Revised(2)
Net sales $ 1,827.7     $ 1,828.9  
Cost of sales   1,186.7       1,216.7  
Gross profit   641.0       612.2  
As a % of total net sales   35.1 %     33.5 %
Selling, general and administrative expenses   447.4       434.7  
As a % of total net sales   24.5 %     23.8 %
Amortization expense of intangible assets acquired   31.2       31.9  
Stock appreciation rights expense(3)   0.5       18.0  
Costs related to the acquisition and integration of Diversey   0.9       0.4  
Restructuring and other charges (credits)   6.1       (0.2 )
Operating profit   154.9       127.4  
Interest expense   (78.5 )     (90.8 )
Foreign currency exchange losses related to Venezuelan subsidiaries(4)   (15.0 )     (13.1 )
Gain on Settlement agreement, net(5)   21.1       -  
Loss on debt redemption   (0.4 )     (32.3 )
Other income (expense), net   0.4       0.3  
Earnings (loss) from continuing operations before income tax provision   82.5       (8.5 )
Income tax provision (benefit)   10.7       (9.2 )
Effective income tax rate   13.0 %     108.2 %
Net earnings from continuing operations   71.8       0.7  
Net earnings from discontinued operations(2)   -       2.0  
Net earnings available to common stockholders $ 71.8     $ 2.7  
           

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