Sealed Air has announced financial results for first quarter 2017, as well as outlook for the complete year.
Commenting on these results, Jerome A. Peribere, President and Chief Executive Officer, said, “2017 is a transformational year for Sealed Air. In March, we announced the sale of Diversey to Bain Capital Private Equity in a transaction valued at $3.2 billion. This transaction marks a significant milestone for both New Sealed Air and Diversey and we are committed to a timely and successful separation. For Sealed Air, the divestiture gives us an even greater focus on executing our profitable growth story and the financial flexibility to invest in our core business.”
Peribere continued, “Our first quarter performance demonstrates our commitment to renewed growth and high quality earnings. We were pleased North America delivered 7% volume growth as a result of increased demand for our protein packaging and e-Commerce solutions. Looking forward, we expect continued momentum on the top line and improved earnings throughout the remainder of the year.”
Unless otherwise stated, all results compare first quarter 2017 results to first quarter 2016 results from continuing operations. Diversey refers to the Diversey Care and food hygiene and cleaning business. As a result of the Diversey transaction, we have also changed our segment reporting structure effective as of January 1, 2017. Food Care now includes the Medical Applications businesses which were previously reported under 'Other'. Additionally, Food Care now excludes the food hygiene business, which is a component of Diversey and classified as discontinued operations. Year-over-year financial discussions present operating results from continuing operations as reported, and on a constant dollar basis. Constant dollar refers to unit volume and price/mix performance and excludes the impact of currency translation from all periods referenced.
Additionally, non-U.S. GAAP adjusted financial measures, such as Adjusted Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“Adjusted EBITDA”), Adjusted Net Earnings, Adjusted Diluted Earnings Per Share (“Adjusted EPS”) and Adjusted Tax Rate, exclude the impact of special items, such as restructuring charges, charges related to the sale of Diversey, charges related to ceasing operations in Venezuela, cash-settled stock appreciation rights (“SARs”) granted as part of the original Diversey acquisition and certain other infrequent or one-time items. Please refer to the supplemental information included with this press release for a reconciliation of Non-U.S. GAAP to U.S. GAAP financial measures.
First Quarter 2017 Highlights by Division
Food Care net sales of $656 million increased 2.7% as reported. Currency had a positive impact on Food Care net sales of 0.6%, or $4 million. On a constant dollar basis, net sales increased 2.1% due to positive volume growth of 3.1% partially offset by lower price/mix of 1.0%. Volume growth of 9% in North America and 1% in Latin America were partially offset by declines in Europe, Middle East and Africa (EMEA) and Asia Pacific. Adjusted EBITDA of $142 million or 21.7% of net sales was primarily attributable to positive volume trends, which were partially offset by unfavorable mix and price/cost spread.
Product Care net sales of $377 million in the first quarter were up 2.5% as reported and 3.6% on a constant dollar basis. Currency had a negative impact on Product Care net sales of 1.1%, or $4 million. Sales volume increased 5.0% with positive trends across all regions. This was offset by unfavorable price/mix of 1.4%. North America volumes were up 5.5% as a result of continued strength in e-Commerce. Adjusted EBITDA of $74 million or 19.7% of net sales was attributable to volume growth, which was more than offset by higher raw material costs and unfavorable mix of e-Commerce products.
On March 27, 2017, Sealed Air announced it had entered into a definitive agreement to sell Diversey to Bain Capital Private Equity, a leading global private investment firm, for $3.2 billion. The transaction is expected to close in early September.
In conjunction with the announced divestiture, Sealed Air's Board of Directors authorized an increase of the share repurchase program by an additional $1.5 billion of Sealed Air common stock. With this increase, the total authorization for future repurchases under the program is approximately $2.2 billion.
First Quarter 2017 U.S. GAAP Summary, Continuing Operations
Net sales of $1.0 billion increased 2.6% on an as reported basis. Currency had a negative impact on total net sales of 0.1%, or $1 million. As reported, net sales in Latin America and North America increased 7.2% and 5.9% respectively. Asia Pacific was up 3.1% as reported while EMEA declined 6.7%.
Net loss from continuing operations on a reported basis was $54 million, or $(0.27) per diluted share as compared to $75 million, or $0.37 per diluted share in the first quarter 2016. Net earnings in the first quarter 2017 were unfavorably impacted by $139 million of special items, including $127 million of tax expense recorded in accordance with the pending sale of Diversey. Special items negatively impacting the first quarter of 2017 also included costs incurred related to the sale of Diversey, and restructuring and other restructuring associated costs.
Net earnings in the first quarter 2016 included $8 million of special items, primarily consisting of restructuring and other restructuring associated costs, a loss on the sale of our European food trays business, and a loss on the remeasurement of our Venezuelan operations.
The effective tax rate in the first quarter of 2017 was 165.1%, compared to the effective tax rate of 19.0% in the first quarter of 2016. The effective tax rate in the first quarter of 2017 was negatively impacted by previously discussed tax expense related to the pending sale of Diversey, which was partially offset by a $9 million tax benefit on share-based compensation and a $5 million benefit related to statute of limitations expirations and audit settlements. The effective tax rate in the first quarter of 2016 was favorably impacted by a $10 million tax benefit on share-based compensation.
First Quarter 2017 Non-U.S. GAAP Summary, Continuing Operations
Net sales on a constant dollar basis increased 2.7%. North America was up 5.7% followed by Latin America, which delivered constant dollar sales growth of 5.5%. Volumes increased 3.8% with positive trends across the all regions except EMEA. Volumes in North America increased 7.4% and Latin America was up 1.4%. Constant dollar sales were relatively flat in Asia Pacific while EMEA declined 3.5%.
Adjusted EBITDA for the first quarter 2017 was $182 million, or 17.6% of net sales, compared to $186 million, or 18.5% of net sales for the first quarter of 2016. Adjusted EBITDA included $34 million of Corporate expenses in the first quarter of 2017, of which $8 million reflected costs that were previously allocated to Diversey but not included in net income from discontinued operations. Corporate expenses were $30 million in the first quarter of 2016, and included $5 million of costs that were previously allocated to Diversey, but which were not included in net income from discontinued operations.
Adjusted EPS was $0.43 for the first quarter 2017. This compares to Adjusted EPS of $0.42 in the first quarter 2016. The Adjusted Tax Rate was 13.6% in the first quarter 2017, compared to 18.8% in the first quarter 2016. The Adjusted Tax Rate in the first quarter of 2017 was favorably impacted by $9 million of tax benefit on share-based compensation and $6 million benefit related to statute of limitations expirations and audit settlements. The Adjusted Tax Rate in the first quarter of 2016 was favorably impacted by a $10 million tax benefit on share-based compensation.