North American Packaging Challenges Will Dampen Volumes But Spur Progress

Key Takeaways

• Margin gains and operational improvements are challenged by weak demand, shifting consumer preferences, and ongoing exposure to volatile input costs and regulatory pressures.
  
• Growing sustainability trends and automation offer future potential, but risks remain from slower innovation, changing customer dynamics, and limited strategic flexibility.
  
• Negative demand trends, margin pressures, and external volatility threaten Sealed Air's revenue growth, making it more dependent on internal cost savings to maintain financial stability.

Catalysts

Provides packaging solutions in the United States and internationally, Europe, the Middle East, Africa, and Asia Pacific.

• While Sealed Air is seeing some margin improvement and early signs of progress in its Protective segment due to operational turnaround efforts and expansion of fiber-based and hybrid packaging solutions, the company faces persistent headwinds from slower global economic growth and consumer demand shifts toward lower-cost food and private label options. This creates ongoing pressure on volumes and limits the company's ability to drive meaningful near-term revenue growth, especially in North America.
  
• Although there is long-term opportunity from the growth of e-commerce and automation in packaging-areas where Sealed Air has invested in Autobag and hybrid solutions-consolidation among major packaging customers and changing purchasing patterns toward sustainability-focused brands could reduce Sealed Air's pricing power and compress margins for its traditional products.
  
• While the secular shift toward sustainability offers potential upside for Sealed Air's investment in recyclable and substrate-agnostic products, the company remains exposed to heightened regulatory scrutiny and consumer backlash against single-use plastics. If Sealed Air cannot innovate at the pace required or quickly capture market share with new materials, market share loss and weaker revenue could result over the medium term.
  
• Despite ongoing operational improvements and network streamlining under the Reinvent SEE initiative, the heavy reliance on petroleum-based raw materials and supply chain volatility continues to expose Sealed Air to unfavorable net price realization and input cost fluctuations. This negatively impacts net margins and reduces the ability to consistently improve earnings.
  
• The company's strategy to reduce debt and focus on organic growth rather than M&A may limit its flexibility to respond to rapid market or regulatory shifts, while ongoing uncertainty around global trade, tariffs, and protein production cycles further clouds visibility for sustained revenue and earnings growth in coming years.

Sealed Air Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Sealed Air compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Sealed Air's revenue will decrease by 0.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 5.6% today to 10.1% in 3 years time.
• The bearish analysts expect earnings to reach $552.6 million (and earnings per share of $3.74) by about August 2028, up from $299.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, down from 14.4x today. This future PE is lower than the current PE for the US Packaging industry at 22.3x.
• Analysts expect the number of shares outstanding to grow by 0.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.14%, as per the Simply Wall St company report.

Sealed Air Future Earnings Per Share Growth

Risks

• Secular demand headwinds are emerging, as persistent shifts in consumer behavior-such as trading down to lower-priced proteins and bulk packaging, and away from premium cuts and smaller packages-are resulting in reduced volumes in key end markets, which could limit revenue growth in both Food and Protective segments.
  
• The U.S. beef cycle, a historically high-margin business segment for Sealed Air, is facing multiyear volume declines of 3 to 4 percent annually through 2026, with only a gradual recovery expected by 2028; this will create persistent pressures on both revenue and segment-level margins, especially given the significant size of this portfolio in North America.
  
• Sustained deflationary trends in petroleum-based raw materials, particularly polyethylene, coupled with customer and competitive pressures on pricing, have led to negative net price realization in the Protective segment, which compresses gross margins and may persist absent a return to an inflationary environment.
  
• The company's increased reliance on internal cost takeout and productivity initiatives to offset volume and revenue declines indicates potential challenges in returning to top-line growth, making net earnings and free cash flow more vulnerable should cost savings opportunities diminish or execution falter.
  
• Ongoing volatility from global trade policy changes, shifting tariff regimes, and procurement complications for specialty resins add uncertainty to supply chain stability and input costs, heightening the risk of earnings volatility and impairing Sealed Air's ability to maintain financial flexibility in a turbulent external environment.

Valuation

• The assumed bearish price target for Sealed Air is $31.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Sealed Air's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $31.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $5.5 billion, earnings will come to $552.6 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $29.32, the bearish analyst price target of $31.0 is 5.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.