KeyBanc Downgrades Sealed Air On Demand Weakness, Other Risks

There are several concerns surrounding Sealed Air Corp SEE, including weak volume trends, levered balance sheet, the recent termination of its CFO and the initiation of a massive restructuring program, according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Adam Josephson downgraded Sealed Air from Sector Weight to Underweight, while keeping the price target at $39.

The Thesis

Sealed Air recorded a 1.4% decline in its organic volumes in the first quarter due to soft demand in its Product Care segment, Josephson said in the note.

This segment had experienced volume declines for the past three quarters and trend could continue in the second quarter, given the weakening global economy. Josephson said this volume weakness in the Product Care segment may be the reason why management had not reiterated its 2019 organic sales growth guidance when it provided other guidance three weeks ago.

A restructuring program of the magnitude initiated by Sealed Air are typically difficult to execute and often not very successful, Josephson said. He highlighted that the company's cash restructuring payments had exceeded pre-tax restructuring savings since 2013, which is not a sign of success.

Referring to the ongoing SEC investigation, the analyst mentioned that the outcome was uncertain, but what is clear is that “there's no potential upside and only potential downside from that.”

Price Action

Shares of Sealed Air traded lower by 2.2% at $42.67 on Monday.

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