Mixed Quarter for Bemis - Analyst Blog


Bemis Company Inc. ( BMS ) reported first quarter 2012 adjusted earnings of 49 cents per share, up 4.3% from the 47 cents in the year-ago quarter. The result surpassed the Zacks Consensus Estimate of 47 cents and were at the higher end of management's EPS guidance in the range of 43 cents - 49 cents.

Unit volumes in the Flexible Packaging segment declined, affecting the company's financial performance during the quarter.

Including charges of 2 cents related to acquisitions and a charge of 5 cents pertaining to a facility consolidation activity in the reported quarter, EPS stood at 42 cents, down 11% from 47 cents in the year-ago quarter.

Net sales slid 1.5% year over year to $1.30 billion, missing the Zacks Consensus Estimate of $1.33 billion by a small margin. Acquisitions completed during the second half of 2011 had a positive impact of 1.6% but were offset by lower unit volume in the flexible packaging business segment and unfavorable currency translation.

Cost of products sold decreased 2% to $1.07 billion in the quarter. Gross profit inched up 0.5% to $230 million. Selling, general, and administrative expenses increased 2% to $129 million. Adjusted operating income declined 6% to $97 million.

Segment Performance

Net sales from the Flexible Packaging segment amounted to $1.16 billion, down 1.7% year over year. Lower unit sales volumes and an unfavorable impact of currency translation of 1.5% mitigated the 1.8% benefit from acquisitions completed in the second half of fiscal 2011. However, adjusted segment operating profit increased 1.4% to $117.9 million from $119.5 million, thanks to benefits from cost reductions that somewhat offset the negative impact of lower unit sales volumes.

Net sales from the Pressure Sensitive Materials segment totaled $145.3 million, a marginal increase of 0.2% from the year-ago quarter, due to increased sales of higher value products, partially offset by the negative impact from currency translation of 2.1%. Segment operating profit was $9.7 million, a 2% drop from $9.9 million recorded a year ago.

Financial Update

As of March 31, 2012, Bemis had cash and cash equivalents of $113 million, up from $110 million as of December 31, 2011. Total debt of the company remained flat at $1.57 billion at the quarter, compared with that of fiscal 2011 end. The debt-to-capitalization ratio improved marginally to 48.8% as of March 31, 2012 from 49.8% as of December 31, 2011.

Total cash flow from operating activities for the quarter was $48.8 million versus an outflow of $9.3 million in the prior-year quarter. The company utilized its cash flow to pay dividends of $26.1 million and $23.7 million toward capital expenditures.

Facility Consolidation

Bemis has embarked on an aggressive cost reduction program by shutting down five facilities and moving the production to other facilities. This is expected to yield annualized cost savings of around $40 million beginning 2013. The total program cost is expected to be $83 million, of which $388.4 million has been expensed in 2011, $8.3 million in the first quarter of 2012 and the balance is expected to be spent over 2012. Total cash paid for the program is expected to be approximately $52 million.

2012 Outlook

In 2011, food cost inflation increased retail grocery costs, negatively impacting consumer demand. This trend is expected to continue in the first half of 2012 and, consequently, Bemis sales volumes are to be sluggish compared to 2011. However, it expects volumes to improve in the second half of the year driven by its customer initiatives.

Management expects adjusted EPS in the range of 51 cents to 57 cents for the second quarter of 2012. For 2012, EPS is expected to be within $2.05 and $2.20. Capital expenditures are estimated at around $175 million, which includes expansion of Bemis' capacity in China, the addition of high barrier capacity in Brazil and added capacity in order to support increased customer demand for products from Bemis' barrier platform in North America.

Our Take

Weak volume, higher pension expense, a weakening European economic outlook and rising input costs remain major causes of concern. However, savings from the Bemis cost reduction program due to the shutting down of unproductive facilities will help offset weakness in volumes and raw material cost inflation. Shares of Bemis currently retain a Zacks #3 Rank (short-term Hold rating).

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 ( SEE ) and Avery Dennison Corporation ( AVY ).

AVERY DENNISON ( AVY ): Free Stock Analysis Report
BEMIS ( BMS ): Free Stock Analysis Report

SEALED AIR CORP ( SEE ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: AVY , BMS , SEE



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