Sealed Air Reports 4Q, Full Year 2014 Results

Sealed Air Corporation announced financial results for fourth quarter and full year 2014.
 
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.
 
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.
 
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.
 
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.
 
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.
 
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 Dec. 31, 2013, the company’s net debt decreased $241 million to $4.1 billion as of Dec. 31, 2014.
 
“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,” said Jerome A. Peribere, president and CEO. “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,” Peribere added. “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.”
 
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. 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.
 
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.
 
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.
 
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. 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 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 EBITDA is estimated to be in the range of $1.15 billion to $1.18 billion. This compares with 2014 Adjusted EBITDA of $1.12 billion. 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.