Sealed Air (SEE)
Q1 2011 Earnings Call
April 27, 2011 11:00 am ET
Amanda Butler - Director of Investor Relations
David Kelsey - Chief Financial Officer and Senior Vice President
William Hickey - Chief Executive Officer, President and Director
Peter Ruschmeier - Barclays Capital
Sara Magers - Wells Fargo Securities, LLC
Ghansham Panjabi - Robert W. Baird & Co. Incorporated
Alex Ovshey - Goldman Sachs Group Inc.
Albert Kabili - Macquarie Research
Rosemarie Morbelli - Ingalls & Snyder LLC
Philip Ng - Jefferies & Company, Inc.
Mark Wilde - Deutsche Bank AG
Christopher Manuel - KeyBanc Capital Markets Inc.
Unknown Analyst -
Previous Statements by SEE
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Good morning, everyone, and welcome to the Sealed Air conference call discussing the company's first quarter 2011 results. This call is being recorded. Leading the call today, we have William V. Hickey, President and Chief Executive Officer; and David H. Kelsey, Senior Vice President and Chief Financial Officer. After management's prepared comments, they will be taking questions.
And now, at this time, I'd like to turn the call over to Amanda Butler, Director of Investor Relations. Please go ahead, Ms. Butler.
Thank you, Jennifer, and good morning, everyone. Before we begin our call today, I would like to remind you that statements made during this call, stating management's outlook or predictions for the future, are forward-looking statements. These statements are made solely on information that is now available to us. We encourage you to review the information in the section entitled Forward-looking Statement in our earnings release, which apply to this call. Additionally, our future performance may be different due to a number of factors, and many of these factors are listed in our most recent annual report on Form 10-K, which you can find on our website at sealedair.com. We also discuss financial measures that do not conform to U.S. GAAP, you may find important information on our use of these measures and the reconciliation to U.S. GAAP in the financial table that we have included in our earnings release today.
And now, I'll turn the call over to Bill Hickey, our CEO. Bill?
Thank you, Amanda, and good morning, everyone. During today's call, I would like to discuss our first quarter 2011 business performance, our revised guidance and then have Dave detail a few financial items. Once Dave and I have concluded our prepared remarks, we'll be happy to take any questions.
This morning we reported our first quarter 2011 earnings up $0.34, which compares to reported first quarter 2010 earnings of $0.35 or $0.36 per share on an adjusted basis. Our earnings performance was primarily impacted by the timing of the recovery of higher raw material and transportation cost, which combined, were approximately $40 million higher than the prior period. We recovered about 50% of that higher cost with our $19 million increase in positive price mix. The balance had a net unfavorable impact on EPS of approximately $0.09 per share in the first quarter. In addition, there was an unfavorable $0.02 per share impact in Q1 from foreign exchange losses and gains. The rising commodity cost impacted profitability margin by approximately 90 basis points in the first quarter. While we are very disappointed to see any decline in margin, we are pleased by the relative resilience shown in our business as compared to the other peak resin periods, such as in early 2008 when margins declined in the range of 200 to 300 basis points.
We attribute the improved performance in 2011 to the benefits of timely pricing actions, execution of those pricing actions, productivity initiatives, the completion of our global manufacturing strategy, ongoing tight control of expenses, steady headcount, and an increasing mix of new products and services in our portfolio. Overall, the fundamentals of our business remains solid in the first quarter. Our consolidated sales increased 6% to $1.1 billion. Our constant dollar sales, which exclude foreign currency translation, increased 5%, which is consistent with our guidance for the year. We maintained good volume momentum with a 3% volume increase in the quarter. Interestingly, by geography, the two more industrialized regions of the world, the United States and Europe, led the volume growth. The U.S. achieved a 4% volume increase and was followed closely by Europe with 6% higher volumes. In Europe, I am pleased to report that all of our segments achieved volume growth in the quarter, aided by ongoing economic recovery, as well as solid demand for our solutions.
Looking by business segment, Protective Packaging led volume gross with a 7% increase. Again, driven by North America and Europe, which both grew at a comparable 7% rate due to ongoing strength in their industrial sectors. Secondarily, our Food Packaging business achieved 2% volume growth. Their volume growth was primarily driven by 6% higher volumes in the U.S., which was largely attributable to solid animal production rates which tracked higher by approximately 2% to 3% compared to last year, and by new customer relationships which were largely established in mid-2010.
Before I move on to price mix, I would like to note that the pace of our volume growth was slightly muted by volume weakness in our Australian Food Packaging business due to flooding in that region earlier in the year. Also, we faced very challenging year-over-year comparison in our medical business in China due to pre-buying in the first quarter of 2010. Combined, these two factors equated to approximately 1 percentage point of unit volume growth. In both cases, we expect more normalized growth in the second quarter.