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Two analysts and top management from six sector firms examine the packaging & containers sector in this special 32-page Packaging & Containers issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info532.htm.

TWST: Who are their customers? What do these companies produce?

Mr. Tiss: If you just broaden it out for a second, the customers are food, beverage, personal care, household products and all different kinds of consumer products (lotions, perfumes, fragrance, cosmetics, and many related products). The companies make everything from glass bottles, food cans, beverage cans and plastic bottles to flexible packaging, which would include anything from a bacon wrap and the stuff they wrap marinated ribs in at the Price Club, to potato chip bags and those products in standup pouches like Capri Sun. So it’s really all over the lot; anything made out of plastic film is basically in the packaging industry. Also, some of the companies touch on the paper side of things like hair color boxes, cigarette boxes, microwave boxes and things like that — Pringles containers.

TWST: How have the stocks performed in 2001 and year to date 2002?

Mr. Tiss: They’ve almost doubled in the last two years. If you look back over five years, the companies have underperformed like crazy — less than half the market return for the first three of the five-year period. In these last two years, they have almost caught back up again.

TWST: What has changed in the past two years?

Mr. Tiss: Well, I would say recession. Usually, these are early- and late-cycle stocks. So when economic uncertainty is right around the corner, or we’re in it — or it looks like it’s going to continue — these stocks tend to do a lot better than the overall market. It may be related psychologically, but in reality, these are pretty “steady Eddie,” 4% to 6% internal growth rate companies that can deliver anywhere from 6% EPS growth in a recession to 15% plus in a more robust economy. What caused them to underperform was the same thing. Who wants a 10%, 12% or 15% earnings growth company, when you can buy Cisco and JDSU that are going to grow 50% a year every year for the rest of our lives? Packaging is just not competitive in that scenario. But people have changed their expectations and have said, “Hey, you know what, 10% to 12% earnings growth is not so bad,” and all of a sudden these stocks are back.

TWST: Have any of the end markets performed better or worse?

Mr. Tiss: Not really. Paper is usually more cyclical, because more paper-related packaging is sold to the industrial side of the economy than other areas. I would say plastics continues to grow a lot faster than metal and glass, overall.

TWST: As we are moving into Q102 earnings season right now, what are you anticipating?

Mr. Tiss: I think it’s going to be pretty steady earnings growth again. I will tell you in a second what happened in 2001. But I think that, for the whole first half of 2002, we should continue in low double-digit earnings growth almost across the board. That’s more from an operating basis than it is from the elimination of goodwill amortization.

TWST: And Sealed Air?

Mr. Tiss: Yes, last is Sealed Air (NYSE:SEE). What’s attractive to me about them is that about 35% of the company is protective packaging. That would include the plastic bubbles that they ship items in — there is a huge product line there. This is very tied to the shipping levels going around the country. Protective packaging is about a 9% volume-growth business in a normal economy, and it’s a negative 2% or 3% in a recession. Actually, it’s been closer to 0% in this recession in terms of growth. However, as we switch from 0% back to maybe 5% or 6% volume growth going forward, Sealed Air can get a very nice boost in its earnings from a bit of cyclical rebound. So that’s my one play for cyclical rebound. Also, if you back up, Sealed Air has been the highest quality packaging company historically, in terms of returns, free cash flow generation and shareholder value creation. Anything you want to look at — they have a fantastic track record in that area.

This special issue includes:

1) Outlook for Packaging Companies - In an in-depth (2,400 words) Analyst Interview, Scott Davis, Vice President at Morgan Stanley, examines the outlook for the sector including and shares specific stock recommendations.

2) Packaging Stocks - In an in-depth (4,000 words) Analyst Interview, Joel Tiss, Senior Vice President at Lehman Brothers, Inc., examines the outlook for the sector including and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of six sector firms examine the outlook for their firm and the sector.