Bemis Misses Ests, Grows Annually - Analyst Blog

Bemis Company Inc. (BMS) reported fourth-quarter 2010 adjusted EPS of 49 cents, falling short of the Zacks Consensus Estimate of 59 cents, but in line with management's guidance of 48 to 53 cents per share.

On a year-over–year basis, EPS increased 9% to over 45 cents per share in the year-ago period. The improvement was driven by a 38% climb in revenues particularly led by robust performance at the Flexible Packaging segment.

The reported quarter's adjusted EPS excluded acquisition related integration costs pertaining to the acquisition of Alcan Food Packaging Americas of 1 cent.

The year-ago quarter's EPS excluded the financing impact of 10 cents for the aforesaid acquisition and transaction costs of 9 cents for the same. Including these items, EPS stood at 48 cents in the reported quarter and at 23 cents in the year-earlier quarter.

Revenue

Total revenue of Bemis for the quarter was $1.25 billion, a 38% increase from the year-ago quarter, but failed to meet the Zacks Consensus Estimate of $1.28 billion. The increase included organic sales growth of 4% and acquisition contributed 34%. The revenue increase was driven by a 44% growth recorded in the Flexible Packaging segment.

Cost & Margin Performance

Cost of products sold increased to $1,017.6 million and as a percentage of revenue; it increased 110 basis points to 81.5%. Even though gross profit went up 30% to $231.1 million, gross margin dipped 110 basis points to 19%.

Selling, general and administrative expenses were $121.7 million, up 25% year-over-year. As a percentage of revenue, selling, general and administrative expenses dipped 110 basis points to 9.7%. Operating profit in the quarter was $100 million, up 35% over the previous year quarter and operating margin was 8%, a 20-basis point contraction year-over year.

Segment Update

Flexible Packaging: Sales improved 44% year over year to $1,111.8 million in the quarter. Acquisitions accounted for 39.7% of the sales increase. Increased sales across most of the segment's market categories including meat and cheese, dairy and liquids, dry foods, medical and pharmaceutical packaging added another 4.6% to the increase.

The segment reported an adjusted operating profit (excluding special items) of $120.8 million, a 33% climb from $90.7 million in the prior-year quarter. Segment margin contracted 90 basis points to 10.9% year-over-year reflecting lower operating margins of the Food Americas operations acquired in March 2010 partially offset by increased sales of value-added product.

Pressure Sensitive Materials: Segment sales inched 1% to $137 million in the quarter. Currency translation had a negative impact of 2.5% on net sales. Operating profit at the segment was $7.2 million, up 1% from the prior-year quarter and segment margin improved marginally to 5.3% from 5.2% in the year-ago quarter affected by currency translation.

Fiscal 2010 Performance

Bemis reported fiscal 2010 adjusted EPS of $2.12, up 14% compared with $1.86 in the prior year. The adjusted EPS was in line with management's guidance range of $2.10 to $2.15. Fiscal 2010 marked the second year of double digit EPS growth for Bemis. Fiscal EPS of $2.12 however fell short of the Zacks Consensus Estimate of $2.14.  

Fiscal adjusted EPS excluded certain special items viz. charges for purchase accounting for inventory and order backlog (9 cents), acquisition related integration costs (5 cents) and transaction related costs (9 cents), financing costs (6 cents) pertaining to the acquisition of Alcan Food Packaging Americas.

The prior year EPS excluded transaction related costs (20 cents), financing costs (19 cents) and bridge financing fees (6 cents) pertaining to the acquisition of Alcan Food Packaging Americas, severance cost (2 cents), administrative sales tax assessment (3 cents) and gain on sale of land and building (2 cents). Including these items, the company reported EPS of $1.83 in fiscal 2010 compared with $1.38 in the prior year.

Revenues were $4.84 billion, an increase of 38% year over year, driven by a 31% growth from acquisitions and 1.8% increase from currency effects. Revenues however fell short of the Zacks Consensus Estimate of $4.86 billion.    

Financial Update

As of December 31, 2010, Bemis had cash and cash equivalents of $60.4 million, compared with $92.5 million as of September 30, 2010. Net cash provided by operating activities during the year decreased to $368 million from $476 million in the prior year. driven by an increase in working capital during 2010. 

Bemis used its strong cash flow from operations to fund $101.9 million in common stock dividends; $113.2 million of capital expenditures; $45.8 million of share repurchases; and to reduce the debt which funded the 2010 Food Americas acquisition.

Capital expenditures for 2010 totaled $113.2 million, in line with management's guidance of approximately $115 million. As of December 31, 2010, debt-to-capitalization ratio marginally improved to 40.6% from 41.1% as of December 31, 2009.

During the year, Bemis successfully completed the integration of Alcan Food Packaging Americas which was acquired on March 1, 2010.

2011 Guidance

Management expects EPS for the first quarter of 2011 to be in the range of $0.50 to $0.55 and for fiscal 2011, in a range of $2.33 to $2.48.  Guidance for 2011 includes an increase in pension expense of approximately $10 million and an effective income tax rate of 36.5%.

Further, management continues to pursue a tender offer for the outstanding preferred shares of Bemis' Brazilian subsidiary, the purchase of those shares is not reflected in the guidance. 

In 2011, management expects capital expenditures to be approximately $150 million and depreciation and amortization expense to be approximately $215 million.

Our Take

Bemis has successfully grown through acquisitions. Its latest acquisition was the Food Americas operations of Alcan Packaging, which expanded the company's global presence with Food Americas flexible packaging facilities in the United States, Canada, Mexico, Brazil, Argentina and New Zealand.

The successful integration of Food Americas acquisition and related cost savings synergies, research and innovations, efficient business techniques to reduce its operational costs and encourage savings, strength in demand for packaging products positions the company to post solid results in the upcoming quarters.

However, continued weakness in the European region, higher pension expense and raw material cost pressures remain concerns. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

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 Avery Dennison Corporation (AVY), Amcor Ltd. and privately held Printpack, Inc.

 
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