Bemis' Q3 Earnings In Line, Sales Miss - Analyst Blog

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Bemis Company, Inc. ( BMS ) reported third-quarter 2013 adjusted earnings of 60 cents per share, in line with the Zacks Consensus Estimate and the year-ago quarter. Earnings were at the midpoint of management's guidance range of 57 cents - 63 cents per share.

Including facility consolidation and acquisition-related integration charges and gain on sale of land and building, earnings per share in the reported quarter stood at 52 cents, up 15.6% from 45 cents in the year-ago quarter. The prior-year quarter earnings included facility consolidation and gain on the divestiture of Clysar and gain on the sale of land and building.

Net sales slid 2.3% year over year to $1.258 billion, short of the Zacks Consensus Estimate of $1.29 billion. Negative impact of currency translation and the reduction of certain low margin sales related to the facility consolidation program offset the net benefit of improved price mix over generally lower unit sales volumes.

Cost of products sold decreased 2.8% to $1.011 billion in the quarter. Gross profit remained flat at $247 million. Gross margin expanded 50 basis points to 19.7% in the quarter, the highest level since 2009. Selling, general and administrative expenses decreased 1% to $127 million. Adjusted operating income remained flat at $108 million. Operating margin increased 20 basis points to 8.6% in the quarter.

Segment Performance

Net sales from the U.S. Packaging segment amounted to $750.7 million, down 3% year over year, reflecting the impact of the sale of its Clysar thin gauge shrink film plant at the end of May as part of Bemis' facility consolidation program. Excluding the effect of the sale of the Clysar facility, net sales increased modestly during the quarter, reflecting a net increase in price and mix, offset by a decline in unit sales volume.

Adjusted segment operating profit decreased 9% to $97.6 million from $107.5 million, hurt by lower volume, partially offset by the benefit of a higher proportion of sales of value-added products.

Net sales from the Global Packaging segment declined 1.8% to $371 million. The acquisition of Foshan New Changsheng Plastics Films Co. during the third quarter of 2013 aided sales by 4.8%. However, a weaker Brazilian currency and production that was discontinued due to the facility consolidation had a negative impact on sales. Adjusted segment operating profit increased 16.9% to $28 million due to the favorable impact of improved price/mix.

Net sales from the Pressure Sensitive Materials segment totaled $137 million, up 1.2% year over year. Favorable currency translation and higher unit sales of technical products were offset by lower unit sales of value-added graphic products. Segment operating profit was $7.9 million, up 2.6% from $7.7 million reported in the year-ago quarter.

Financial Update

As of Sep 30, 2013, Bemis had cash and cash equivalents of $155 million, up from $114 million as of Dec 31, 2012. Total debt of the company increased to $1.45 billion as of Sep 30, 2013 from $1.42 billion as of Dec 31, 2012. The debt-to-capitalization ratio was at 46.2% as of Sep 30, 2013 compared with 46.5% as of Dec 30, 2012.

Total cash flow from operating activities for the first nine months of fiscal 2013 was $262 million compared with $290 million in the prior-year comparable period.

In July, Bemis expanded its Asia-Pacific foothold with the purchase of Foshan New Changsheng Plastics Films Co. (NCS). Headquartered in China, Foshan New Changsheng Plastics Films is a specialty film manufacturer. The acquisition is expected to have no significant impact on Bemis' earnings results for 2013. Incremental net sales from NCS are expected to be approximately $60 million annually, and the acquisition of this film platform is expected to provide cost and logistics benefits to support Bemis' broader Asia-Pacific growth strategy.

2013 Outlook

Management expects adjusted EPS in the range of 50 cents to 56 cents for the fourth quarter of 2013. For 2013, EPS is projected to range between $2.24 and $2.30, lower than the previous guidance of $2.30 to $2.40 per share. The guidance has been reduced to reflect the expected impact of a weaker Brazilian currency and increased costs associated with mechanical and electrical issues encountered during the transition of production equipment from plants closed as part of the facility consolidation.

The incremental savings of the facility consolidation activities are expected to be around $50 million in 2013. Bemis expects cash flow from operating activities to total approximately $400 million in 2013. The company reiterated its guidance for capital expenditures in 2013 to a range of $130 million to $140 million.

Our Take

Weak volume, cautious consumer spending environment, sluggish European economic outlook remain major concerns. However, savings from the Bemis cost reduction program and benefits from acquisitions will help offset these headwinds.

Neenah, WI-based Bemis Company is a global manufacturer of flexible packaging products and pressure sensitive materials sold primarily to the food industry. The company also sells its products to other customers in the chemical, agri-business, medical, pharmaceutical, personal care, electronics, automotive, construction, and graphic industries. Bemis currently carries a Zacks Rank #4 (Sell).

Peer Performance & Expectations

Among the peers of Bemis Company, Packaging Corporation of America ( PKG ) posted third-quarter earnings per share of 91 cents, up 65% from 55 cents in the year-earlier quarter and beat the Zacks Consensus Estimate of 89 cents.

Sonoco Products Co. ( SON ) reported third-quarter 2013 adjusted earnings of 63 cents per share, up 14% from 55 cents earned in the year-ago quarter and managing to surpass the Zacks Consensus Estimate of 61 cents.

Another peer, Graphic Packaging Holding Co. ( GPK ) is expected to report third-quarter results on Oct 30. The Zacks Consensus Estimate currently stands at 13 cents, representing a 20% year-over-year increase.

BEMIS (BMS): Free Stock Analysis Report

GRAPHIC PKG HLD (GPK): Free Stock Analysis Report

PACKAGING CORP (PKG): Free Stock Analysis Report

SONOCO PRODUCTS (SON): 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 Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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