Sealed Air (SEE)

Q3 2011 Earnings Call

October 26, 2011 11:00 am ET


Tod S. Christie - Interim Chief Financial officer and Treasurer

Amanda Butler - Director of Investor Relations

William V. Hickey - Chief Executive Officer, President and Director


George L. Staphos - BofA Merrill Lynch, Research Division

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Chip A. Dillon - Vertical Research Partners Inc.

Philip Ng - Jefferies & Company, Inc., Research Division

Unknown Analyst -

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Mark Wilde - Deutsche Bank AG, Research Division

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division



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Good morning, everyone, and welcome to the Sealed Air Conference Call discussing the company's third quarter 2011 results. This call is being recorded.

Leading the call today, we have William V. Hickey, President and Chief Executive Officer; and Tod S. Christie, Treasurer and Interim Chief Financial Officer.

[Operator Instructions] 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.

Amanda Butler

Thank you, and good morning, everyone.

Before we begin our call today, I'd 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. And we encourage you to review the information in the section entitled Forward-looking Statements in our earnings release, which applies to all business calls. 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 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.

And now, I'll turn the call over to Bill Hickey, our CEO. Bill?

William V. Hickey

Thank you, Amanda, and good morning to everyone. Today's call marks the first discussion with investors following the close of the Diversey acquisition on October 3. As I commented earlier this month, the addition of Diversey marks the beginning of an exciting new era of opportunity for Sealed Air, our employees and our customers. And today I can say with pride that we are the new leader in food safety and security, facility hygiene and product protection. Protecting what you eat and drink, protecting the places you go and protecting the valuable products you use everyday.

As we noted in our press release earlier today, we have made solid strides in our integration planning process, have expanded the addressable areas for cost synergies and are in active discussions with customers and partners in expanding sales and revenue opportunities. We have a lot to get through on the call today, and I thought I would like to ensure that we have ample time for Q&A. I will spend the next few minutes highlighting our legacy Sealed Air third quarter 2011 business performance, and then Tod will detail key financial items. We will then review Diversey Holdings third quarter results, which are currently preliminary and unaudited. We will finish with our outlook for the balance of the year and then take your questions.

We reported third quarter legacy Sealed Air 2011 earnings per share results of $0.41 per share, which compares to $0.43 in 2010. Excluding the $0.07 related to acquisition expenses, our adjusted earnings per share increased 12% over 2010's third quarter to $0.48.

Additionally, we reported a 2% increase in adjusted EBITDA to $196 million, and generated $127 million of free cash flow in the quarter. These achievements reflect solid fundamentals in our core business in a weakening economy, aided by favorable foreign exchange but driven by higher price and volume results, tight control of expenses and approximately $7 million in productivity benefits. Together, these factors helped to offset nearly $40 million in higher petrochemical raw material and freight cost in the third quarter.

I would like to point out that resin-based raw material cost were trending favorably in the third quarter on a sequential basis, but only at a very modest rate. In fact, our average price per pound improved only 2% sequentially in the third quarter, with the most notable price benefits coming in the month of September.

We expect to recognize additional benefits in the fourth quarter as we anticipate continued sequential improvements in resin cost. Nonetheless, our full 2011 average price per pound remains in the low teens percent higher than 2010 prices. In response to the higher input cost, we have been focusing on raising our selling prices to recover these higher costs. It has been particularly difficult in this slowing economy to recover higher input cost when demand has been tepid at best. We have had to step back from some volume to realize our pricing. Most of the stepping back was with price-focused buyers that do not always agree with our value proposition, but I am confident we can get these customers back anytime with an attractive price offer. In managing our business, we have been very sensitive to strategically balancing price actions and sales volumes across our portfolio.

Overall, the fundamentals of the business remained very solid in the quarter, with 10% reported top-line growth, or 4% increase on a constant dollar basis which includes the impact of foreign exchange. In fact, we achieved over a 3% constant dollar sales growth in all of our geographical regions around the world.

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