On July 4, we maintained our Neutral recommendation on
Bemis Company Inc.
) based on expected benefits from its cost reduction program,
stable raw material costs and acquisitions. However, weak volume,
cautious consumer spending environment, weakening European
economic outlook and rising food costs remain major concerns for
this global manufacturer of flexible packaging products and
pressure sensitive materials.
Bemis Company's first-quarter EPS increased 8% to 53 cents, but
net sales declined 4% year over year to $1.255 billion.
Management expects adjusted EPS in the range of 57 cents to 63
cents for the second quarter of 2013 and between $2.30 and $2.45
In the fourth quarter of 2011, Bemis had embarked on an
aggressive cost reduction program by reducing headcount, closing
nine facilities and moving the production to other facilities.
Bemis realized $7.5 million in cost savings from its facility
consolidation program in the first quarter and remains on track
to realize an additional $37 million in 2013. The annualized
savings rate of $50 million is expected to be achieved during the
second quarter of 2013. Savings from these restructuring efforts
should help mitigate the weakness in volumes and raw material
Resin is the most expensive raw material for Bemis' Flexible
Packaging Segment. Resin cost headwinds, which impacted results
in 2011, have been relatively moderate since 2012 and are
expected to remain flat in 2013 as well. This will aid margins in
a weak volume environment.
Bemis has successfully grown through acquisitions. In 2011, the
company acquired Mayor Packaging in China, which gave the company
a high-barrier footprint focused on the growing food packaging
market in the region. Recently, Bemis continued its expansion
efforts in the region with the acquisition of Chinese
manufacturer of specialty films Foshan New Changsheng. With
flexible packaging demand slowing in North America, expansion in
emerging markets is a good option.
On the flipside, economic conditions are negatively impacting
volumes as consumers cut back on their spending. Volumes have
been declining at a low to mid single-digit rate over the last
seven quarters. Furthermore, Bemis derives approximately 11% of
its business from Europe. In the first quarter, margins of Global
Packaging and Pressure Sensitive Materials segments were down
year over year due to sluggish conditions in Europe. Given the
scenario in Europe, volume growth in the region will remain muted
for some time.
Other Stocks to Consider
Other stocks in the industry that are currently performing well
and have a good visibility include
Mobile Mini, Inc.
), with a Zacks Rank # 1 (Strong Buy),
Avery Dennison Corporation
) with a Zacks Rank #2 (Buy).
AVERY DENNISON (AVY): Free Stock Analysis
BEMIS (BMS): Free Stock Analysis Report
MOBILE MINI INC (MINI): Free Stock Analysis
ROCK-TENN CO (RKT): Free Stock Analysis
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