We are maintaining our Neutral recommendation on
Bemis Company Inc.
), a global manufacturer of flexible packaging products and
pressure sensitive materials. Shares of Bemis currently retain a
Zacks #2 Rank (short-term Buy rating).
Looking at Bemis' second quarter numbers, EPS increased 6% to 54
cents, surpassing the Zacks Consensus Estimate but net sales
declined 4.2% year over year to $1.3 billion, in line with the
Zacks Consensus Estimate. Unit volumes in the Flexible Packaging
segment declined, affecting the company's financial performance
during the quarter.
For the third quarter, the company expects adjusted EPS in the
range of 51 cents to 57 cents. For 2012, EPS guidance has been
lowered to a range of $2.00 and $2.10 due to lower-than-expected
volume expectation and weaker foreign currency exchange rates.
Acquisitions completed during the second half of 2011 aided
results in the quarter. Bemis has successfully grown through
acquisitions. Last year, the company acquired Mayor Packaging in
China, which gives the company a high-barrier footprint focused on
the growing food packaging market in the region. Bemis also bought
Shield Pack in North America, which will provide the company access
to the high-barrier bulk liquid market with more expansion
opportunities. Both are nascent markets for Bemis.
In 2012, Bemis plans to expand the newly acquired facility in
China to meet the growing demand from current customers and
accommodate the increasing opportunities for its business in that
region. In North America, the company is investing in its
high-barrier thermoformable sheets for barrier cups and trays.
Bemis has embarked on an aggressive cost reduction program by
reducing headcount, closing nine facilities and shifting production
to other facilities. This is expected to yield annualized cost
savings of around $50 million beginning 2013. The total program
cost is expected to be $141 million.
Of the nine total locations identified, four were already closed
by the end of June and the company plans to close the remaining by
the end of the year. Savings from these restructuring efforts
should help mitigate the weakness in volumes and raw material cost
Bemis generates significant and consistent free cash flow, which
places it well to pay a sizable and increasing dividend. Bemis
upped its quarterly dividend by 4.2% to 25 cents per share, marking
the 29th consecutive year that the company has hiked its dividend.
Bemis has been consistently paying dividend since 1922 and has been
in S&P's list of Dividend Aristocrats since 2008. The
restructuring initiatives will also help in generating significant
cash flow going forward.
Resin cost, the largest input cost to Bemis' Flexible Packaging
Segment, which impacted results last year, have been relatively
moderate during the first half of 2012 and is expected to remain so
for the second half of this year, leading to margin expansion.
On the flipside, economic conditions are negatively impacting
volumes as consumers cut back on their spending. Volume for the
second half of the year will be flat compared to the first half due
to sluggish US packaged food demand. Overall volume in 2012 is
expected to decline by about 2% to 3% from 2011 levels.
Bemis derives approximately 21% of its business from South
America and an 11% from Europe. Currency fluctuations, particularly
in Euro or Real put the company's revenues at risk. Bemis' volume
in Brazil has been weak mainly due to the slowdown in domestic
economy and also due to slowdown in exports.
The volatility in the Brazilian Real had a dampening effect on
Bemis' exports from that country. Given the scenario in Europe,
volume growth in the region will remain muted for some time.
Neenah, Wisconsin-based Bemis Company is a major supplier of
flexible packaging and pressure sensitive materials used by leading
food, consumer products, healthcare and other companies worldwide.
Bemis competes with the likes of
Sealed Air Corporation
Sonoco Products Co.
Avery Dennison Corporation
AVERY DENNISON (AVY): Free Stock Analysis
BEMIS (BMS): Free Stock Analysis Report
SEALED AIR CORP (SEE): Free Stock Analysis
SONOCO PRODUCTS (SON): Free Stock Analysis
To read this article on Zacks.com click here.