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Sealed Air targets 'bleeders' in attack on margin weakness

Sealed Air Corp., a major plastics converter known for such brand names as Bubble Wrap and Cryovac, is taking a beating from rising polyolefin prices, poor pricing discipline on its own products, weak margins and bad debts. The company has launched what it describes as an aggressive quality of earnings improvement program, which will include divestitures, improved purchasing practices, and pricing controls.  

The company has launched what it describes as an aggressive quality of earnings improvement program, which will include divestitures, improved purchasing practices, and pricing controls.  

"We have taken some people and isolated them in the marketing function to make sure that they are in charge of pricing," said  Jerome Peribere, president and CEO of Sealed Air. "We are the leader. We need to be leading in pricing discipline." He made the comments in a recent conference call with analysts.

Polyolefin price increases took effect Sept. 1, Peribere said, and the company boosted prices where it could Nov. 1. Some contracts do not allow immediate pass-on price increases.

He also said "this is an opportunity to get rid of some of our bleeders. We do have some low-margin businesses, which we either get what we need or we are going to move out."

On Thursday, Sealed Air announced the $125 million sale of its rigid medical packaging division to Milwaukee private equity firm Mason Wells Buyout Fund III L.P. The transaction is expected to close by the end of the year.  Sealed Air had formed the rigid medical packaging business through three previous acquisitions: Nelipak Holdings, Alga Plastics and ATE Costa Rica. The division has facilities in the U.S., Costa Rica, Ireland and the Netherlands.

"The transaction is another step in our commitment to a disciplined approach to portfolio management," said Peribere in a press release. "Our rigid medical business has a strong global position but no longer presents a strategic fit for us. By further focusing our portfolio, we can maximize our investment in new innovations which are core to our market-driven business."

"Sealed Air remains committed to the medical packaging industry and will continue to manufacture medical and pharmaceutical films," Peribere said.

The shale gas mirage

Sealed Air's situation reflects the interesting predicament of North American polyolefin converters who are facing rising prices despite all of the favorable publicity surrounding the "shale gas revolution".

According to third party sources, North American polyethylene contract prices rose a nickel a pound in September. The price hike stuck because of tight supplies and foreign demand. Dow and Ineos announced another nickel hike. Prices for general-purpose film grades went from $1 a pound in August to $1.05 a pound in September. Strong operating rates at ethylene crackers have helped keep ethylene prices high.

Meanwhile, ethylene producers have been aggressively moving to lower cost ethane feedstocks derived from shale gas operations.  According to a presentation this month at the Global Plastics Summit by IHS, annual cash margins for ethylene derived from ethane have increased 10-fold in the past four years. Converters will not benefit from the shale gas boom until new crackers built specially to operate on ethane have an effect on the market. That could take three or four years.

In 2012, Sealed Air has a reported net loss of $1.3 billion on net sales of $7.6 billion.

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