Reinvent SEE Drives 2019 Growth, Continued Growth Expected in 2020
Tuesday, February 11, 2020
CHARLOTTE, N.C., February 11, 2020 – Sealed Air Corporation (NYSE: SEE) today reported financial results for the fourth quarter and full year 2019.
“In 2019, we exceeded our commitments on earnings and cash flow despite weak global industrial activity and modest sales growth. Our fourth quarter and full year results reflect strong execution of our strategy,” said Ted Doheny, Sealed Air's President and CEO.
“We continue to make great progress on our journey to world-class with Reinvent SEE improving productivity and strengthening our earnings power. In 2020, we expect sales growth of 2% to 3% and Adjusted EBITDA growth of 5% to 7%, with solid free cash flow. Our focus on delivering the best products at the right price and making them sustainable is creating value for our customers, shareholders, employees and society,” continued Doheny.
Unless otherwise stated, all results compare fourth quarter 2019 results to fourth quarter 2018 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.
Fourth Quarter Financial and Business Highlights
Food Care net sales of $760 million decreased 2%, as reported, compared to prior year results. Currency negatively impacted Food Care by $16 million or 2%. Organic sales were essentially flat. Adjusted EBITDA grew 5% to $171 million, or 22.5% of net sales, up 150 basis points compared to the prior year. The increase in Adjusted EBITDA was primarily attributable to Reinvent SEE initiatives, including productivity improvements, restructuring savings and favorable price/cost spread. Currency fluctuations had a $4 million unfavorable impact on Adjusted EBITDA.
Product Care net sales of $539 million were up 10% as reported. Currency negatively impacted Product Care by $3 million or 1%. Sales generated from the acquisition of Automated Packaging Systems contributed $70 million, or approximately 14%. Organic sales declined $17 million, or 4%, primarily due to the global industrial slowdown. Adjusted EBITDA grew 25% to $107 million, or 19.8% of net sales, up 230 basis points compared to the prior year. The increase in Adjusted EBITDA was primarily attributable to Reinvent SEE initiatives, the addition of Automated Packaging Systems and favorable price/cost spread, partially offset by organic volume decline.
Fourth Quarter and Full Year 2019 U.S. GAAP Summary
Fourth quarter net sales of $1.3 billion increased 3% as reported. Currency had a negative impact on total net sales of $19 million or 2%.
Fourth quarter 2019 net earnings were $124 million, or $0.80 per diluted share. Net earnings included a benefit of $3 million from Special Items, after tax, primarily related to the benefit of Tax Special Items of $29 million. Tax Special Items were largely driven by a one-time net tax benefit resulting from tax optimization initiatives associated with Reinvent SEE and restructuring activities. The tax benefit was mostly offset by other Special Items, the largest of which were a $12 million loss, net of tax, recognized on the redemption of 6.50% notes due 2020 and $7 million, in restructuring associated costs, net of tax. This compares to fourth quarter 2018 net earnings of $199 million, or $1.28 per diluted share. Prior year results were favorably impacted by $129 million of tax benefits resulting from nonrecurring items including a decrease to the previously recognized estimate of the one-time tax on unrepatriated earnings (U.S. Tax Reform transition tax) and the recognition of deferred tax assets associated with tax optimization initiatives.
The effective tax rate in the fourth quarter 2019 was 8.2%, compared to (68.3)% in the fourth quarter 2018. The effective tax rate in the fourth quarter 2019 was favorably impacted by tax optimization initiatives associated with Reinvent SEE and restructuring activities. The effective tax rate in the fourth quarter 2018 was favorably impacted by the finalization of the transition tax calculation associated with U.S. Tax Reform.
For the full year 2019, net sales of $4.8 billion increased 1% as reported. Currency had a negative impact on total net sales of $137 million or 3%.
Full year 2019 net earnings were $294 million, or $1.89 per diluted share. Net earnings were unfavorably impacted by $145 million of Special Items, after tax. Restructuring and restructuring associated costs of $76 million, net of tax and $44 million, net of tax, recorded in the second quarter in connection with a settlement agreement with Novipax Holdings LLC were the largest components of Special Items during the year. Net earnings for the full year 2018 of $150 million, or $0.94 per diluted share, were unfavorably impacted by $251 million of Special Items, including $222 million for Tax Special Items such as the U.S. Tax Reform transition tax.
The effective tax rate for full year 2019 was 20.7%, compared to 67.2% for full year 2018. The 2019 tax rate was favorably impacted by tax optimization initiatives associated with Reinvent SEE and restructuring activities. The 2018 rate was negatively impacted by the transition tax associated with U.S. Tax Reform.
Fourth Quarter and Full Year 2019 Non-U.S. GAAP Summary
In the fourth quarter 2019, on a constant dollar basis, net sales increased $57 million, or approximately 5%, reflecting sales from acquisitions of $78 million, or 6.2%, partially offset by an organic sales decline of $21 million or 1.6%.
Adjusted EBITDA was $271 million, or 20.9% of net sales, compared to $248 million, or 19.7% of net sales for the fourth quarter 2018. The improvement in Adjusted EBITDA was primarily due to Reinvent SEE initiatives, price/cost spread and acquisitions, partially offset by higher operating costs, lower organic volume and the impact of unfavorable foreign currency.
Adjusted EPS was $0.78 for the fourth quarter 2019. This compares to Adjusted EPS of $0.75 in the fourth quarter 2018.
The Adjusted Tax Rate was 28.8% in the fourth quarter 2019 compared to 28.9% in the fourth quarter 2018.
For the full year 2019, on a constant dollar basis, net sales increased 4% reflecting sales from acquisitions of $195 million. Organic sales were flat compared to full year 2018. By region, organic sales increased 27% in South America, primarily on U.S. Dollar-based indexed pricing, and declined in North America and Asia Pacific (APAC). Organic sales in Europe, Middle East and Africa (EMEA) were relatively flat.
Adjusted EBITDA was $965 million, or 20.1% of net sales, compared to $890 million, or 18.8% of net sales for full year 2018. The improvement in Adjusted EBITDA was primarily due to Reinvent SEE initiatives, price/cost spread and acquisitions, partially offset by the impact of higher operating costs, unfavorable foreign currency and lower volume.
Adjusted EPS was $2.82 for full year 2019, including $0.04 dilution from Automated Packaging Systems. The Company had 155.2 million diluted shares outstanding. This compares to Adjusted EPS of $2.50 for full year 2018 based on 160.2 million diluted shares outstanding.
The Adjusted Tax Rate was 26.4% for full year 2019, compared to 27.5% for full year 2018.
Cash Flow and Net Debt
Cash flow provided by operating activities for the full year 2019 was $511 million, compared to cash provided by operating activities of $428 million in the prior year. The increase in operating cash flow was primarily driven by higher Adjusted EBITDA and working capital improvements. Capital expenditures were $190 million for the year ended December 31, 2019 compared to $169 million in the year ended December 31, 2018. The increase in capital expenditures is primarily driven by increased investment to drive growth and improve cost productivity. Free cash flow, defined as net cash provided by operating activities, less capital expenditures, was $321 million for the full year, compared to $259 million in the prior year.
The Company repurchased 1.6 million shares for net cash outflow of $67 million during the year ended December 31, 2019. The Company has $708 million remaining under the current authorized share repurchase program. The Company also paid cash dividends of $99 million, which represents $0.64 per share, during the year ended December 31, 2019.
During the fourth quarter, $425 million 4.00% senior notes due 2027 were issued. The proceeds of the offering were used to repurchase and discharge the $425 million 6.50% senior notes which were due in 2020.
Net Debt, defined as total debt less cash and cash equivalents, increased to $3.6 billion as of December 31, 2019 from $3.2 billion as of December 31, 2018. The increase in Net Debt is primarily attributable to the term loan A, used to finance the Automated Packaging Systems acquisition.
Outlook for Full Year 2020
For the full year 2020, Sealed Air expects net sales in the range of $4.9 billion to $4.95 billion, which represents an increase of 2% to 3% growth as reported and 3% to 4% in constant dollars. Adjusted EBITDA is expected to be in the range of $1.01 billion to $1.03 billion. The Company forecasts Adjusted EPS 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%.
Free Cash Flow in 2020 is expected to be approximately $350 million, with capital expenditures of approximately $200 million and Reinvent SEE and other restructuring associated payments of approximately $100 million.
Conference Call Information
Sealed Air Corporation will host a conference call and webcast Tuesday, February 11, 2020 at 10 a.m. (ET) to discuss Fourth Quarter and Full Year 2019 Results. The conference call will be webcast live on the Investors homepage. A replay of the webcast will 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.