Air supply
Sealed Air moves beyond Bubble Wrap
Bill Hickey is making money out of thin air. Hickey is the CEO of Sealed Air, a Saddle Brook, N.J., company whose most famous product is Bubble Wrap. The $4 billion firm makes the wrappings that protect things, from vulnerable high-tech gadgets to perishable seasoned turkey breasts. The common element: Most products are made by blowing air between layers of plastic or other materials. It's a steady, if unspectacular, business but one that is surprisingly innovative. It is also one that appeals to value-minded investors like Warren Buffett and the Davis family of mutual funds.
The headquarters of this plain-Jane company is located in a midrise office building a stone's throw from the interstate that also houses an insurance company's claims office. Unadorned is the way Hickey likes it, and that approach translates to the bottom line. Sealed Air is a conservatively managed company with an attention to the nuts and bolts of finance. It is something of a legend in financial markets for the one-time $40-a-share dividend the company paid out in 1989 (almost equal to its stock price then), at a time when many boring firms with sturdy balance sheets were targets of corporate raiders. "It was a gutsy move," says former Smith Barney analyst Richard Holohan. "Bill Hickey was the chief financial officer at the time."
But stodginess doesn't mean a lack of originality. Bubble Wrap, after all, came about when engineers attempted to make a textured form of wallpaper only to stumble on the famous product that has entertained many a young child.
Today, though, Bubble Wrap accounts for just 10 percent of the company's business. Food packaging, the outgrowth of the 1998 purchase of Cryovac, accounts for more than half of Sealed Air's revenues. This segment includes individual packages for meats and other edibles that food processors such as Tyson and Hormel sell to grocery stores, as well as large-scale pouches and containers for use in cafeterias and institutional settings. Even the venerable Bubble Wrap has evolved into flexible packages that protect shipments of computer parts and other valuable products. "We decided in the late '80s that focusing strictly on industrial packaging didn't give us the room for growth and global expectations," says Hickey. "Food packaging is by far a larger market."
While the move might have been a strategic--and ultimately worthwhile--attempt to diversify its business, Cryovac did not come without a cost. The firm was a spinoff of W. R. Grace, a company embroiled in asbestos litigation. Some of those liabilities eventually ensnared the Cryovac unit, too, although it never made or used asbestos in its products, and Sealed Air ended up paying $838 million in cash and stock to settle asbestos-related lawsuits. In addition, the company has also had to deal with mad cow disease and the resulting drop in meat consumption.
But now Cryovac is proving its worth as the company's development tracks global demographic changes. As countries move from agriculture-based societies to industrial ones, their populations tend to eat out more and favor prepackaged foods. And all that requires special packaging to prevent ingredients from spoiling. "We're in our 51st country," says Hickey. "Over the long cycle, the human condition does improve as people live better, eat better, and consume more." The new packaging isn't just for food. In China, Sealed Air now sells plastic for intravenous fluid pouches as hospitals replace traditional glass bottles.
The initiatives are starting to pay off. Last month, the company posted sales growth of 9 percent for the fourth quarter, reaching $1 billion in quarterly sales for the first time, and boosted its earnings forecast for this year. Wall Street applauded: The stock is up more than 10 percent in recent weeks. Now that's as exciting as playing with Bubble Wrap.
This story appears in the February 28, 2005 print edition of U.S. News & World Report.
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