Sealed Air (SEE)

Integrated packaging solutions provider Sealed Air Corporation (NYSE:SEE) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 4.3% year on year to $1.27 billion. The company expects the full year’s revenue to be around $5.3 billion, close to analysts’ estimates. Its non-GAAP profit of $0.81 per share was 20.9% above analysts’ consensus estimates.

Company Overview

Founded in 1960, Sealed Air Corporation (NYSE: SEE) specializes in the development and production of protective and food packaging solutions, serving a variety of industries.

Industrial packaging companies have built competitive advantages from economies of scale that lead to advantaged purchasing and capital investments that are difficult and expensive to replicate. Recently, eco-friendly packaging and conservation are driving customers preferences and innovation. For example, plastic is not as desirable a material as it once was. Despite being integral to consumer goods ranging from beer to toothpaste to laundry detergent, these companies are still at the whim of the macro, especially consumer health and consumer willingness to spend.

Competitors in the packaging industry include Crown Holdings (NYSE:CCK), Ardagh Group (NYSE:ARD), and Silgan Holdings (NASDAQ:SLGN)

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Sealed Air grew its sales at a sluggish 1.9% compounded annual growth rate. This was below our standards and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Sealed Air’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.2% annually. Sealed Air isn’t alone in its struggles as the Industrial Packaging industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, Sealed Air’s revenue fell by 4.3% year on year to $1.27 billion but beat Wall Street’s estimates by 0.5%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

Sealed Air’s unit economics are better than the typical industrials business, signaling its products are somewhat differentiated through quality or brand. As you can see below, it averaged a decent 30.8% gross margin over the last five years. Said differently, Sealed Air paid its suppliers $69.21 for every $100 in revenue.

Sealed Air produced a 30.8% gross profit margin in Q1, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Sealed Air has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.2%.

Analyzing the trend in its profitability, Sealed Air’s operating margin decreased by 2.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Sealed Air generated an operating profit margin of 14.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sealed Air’s weak 1.5% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Sealed Air’s two-year annual EPS declines of 7.5% were bad and lower than its two-year revenue performance.

In Q1, Sealed Air reported EPS at $0.81, up from $0.78 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Sealed Air’s full-year EPS of $3.18 to shrink by 4.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Sealed Air has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.1% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Sealed Air’s margin dropped by 4.2 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Sealed Air broke even from a free cash flow perspective in Q1. The company’s cash profitability regressed as it was 6.8 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Sealed Air hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 16.5%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Sealed Air’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Sealed Air reported $335.2 million of cash and $4.50 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.11 billion of EBITDA over the last 12 months, we view Sealed Air’s 3.8× net-debt-to-EBITDA ratio as safe. We also see its $125.7 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Sealed Air beat analysts’ EPS expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 2.3% to $28.15 immediately following the results.

Updated: July 10, 2025 at 11:57 PM EDT

Before investing in or passing on Sealed Air, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Sealed Air falls short of our quality standards. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its projected EPS for the next year is lacking.

Sealed Air’s P/E ratio based on the next 12 months is 10.8x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $37.33 on the company (compared to the current share price of $32.70).