Bemis Misses Zacks Estimates - Analyst Blog

Bemis Company Inc. (BMS) reported third-quarter 2010 adjusted EPS of 57 cents, falling short of the Zacks Consensus Estimate of 60 cents, but in line with management's guidance of 55 to 60 cents per share. On a year-over–year basis, the company maintained its streak of double-digit growth so far in 2010 with a 19% climb over 48 cents per share in the year-ago period. The improvement was driven by a 44% climb in revenues particularly led by robust performance at the Flexible Packaging segment.

The reported and year-ago quarters' adjusted EPS excluded transaction-related costs pertaining to the acquisition of Alcan Food Packaging Americas of 1 cent and 3 cents, respectively. The year-ago quarter's EPS also excluded the financing impact of 8 cents for the aforesaid acquisition, a 2-cent gain per share on sale of land and building and a 6-cent per share charge for bridge financing fees. Including these items, EPS stood at 56 cents in the reported quarter and at 33 cents in the year-earlier quarter.

Revenue

Total revenue of Bemis for the quarter was a record $1,294.3 million, a 44% increase from the year-ago quarter, but failed to meet the Zacks Consensus Estimate of $1,324 million. The increase included organic sales growth of 8% and acquisition contributing 36%. Both the segments posted year-over-year increases with Flexible Packaging leading the performance with a 51% growth.

Cost & Margin Performance

Cost of products sold increased 46% to $1,052 million and, as a percentage of revenue, it increased 130 basis points to 81.3%. Even though gross profit went up 35% to $242.2 million, gross margin dipped 130 basis points to 19%.

Selling, general and administrative expenses were $114 million, up 19% year over year due to the impact of the Food Americas acquisition in March 2010. As a percentage of revenue, selling, general and administrative expenses dipped 190 basis points to 8.8%. Operating profit in the quarter was $128.2 million, up 52% over the previous year quarter and operating margin was 10%, a 50-basis point expansion year over year.

Segment Update

Flexible Packaging: Sales improved 51% year over year to $1,152 million in the quarter. Acquisitions accounted for 42% of the sales increase, while favorable currency translation added 1%. 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 8% to the increase.

The segment reported an adjusted operating profit (excluding special items) of $136.3 million, a 33% climb from $102.4 million in the prior-year quarter. Segment margin contracted 160 basis points to 11.8% year over year reflecting lower operating margins of the Food Americas operations acquired in March 2010 and the negative impact of lower profits in the European operations compared with the region's record operating performance in the prior-year quarter.

Pressure Sensitive Materials: Segment sales totaled $142 million, up 5% year over year driven primarily by higher unit sales volumes across all product lines and geographies. Currency effects however affected sales by 4.4%.

Operating profit at the segment was $7.6 million, up 41% from $5.4 million in the prior-year quarter. Segment margin improved 140 basis points year over year to 5.4%, reflecting sales volume growth.

Financial Update

As of September 30, 2010, Bemis had cash and cash equivalents of $92.5 million, compared with $80.3 million as of June 30, 2010. Net cash provided by operating activities during the first nine months ended September 30, 2010 decreased to $249 million from $395 million in the comparable year-ago period.

In July, Bemis completed the sale of its discontinued operations for net cash proceeds of $75.2 million. These proceeds as well as cash provided by operations were used to fund $25.4 million of capital expenditures, pay $25.5 million of common stock dividends, repurchase $29.2 million of its common stock, and reduce debt outstanding by $96.4 million. As of September 30, 2010, the debt-to-capitalization ratio thus improved to 42% from 45% as of June 30, 2010.

Guidance

Management expects fourth-quarter 2010 adjusted EPS to be in the range of 48 cents to 53 cents. Its full-year 2010 adjusted EPS guidance stands in the range of $2.10 to $2.15. Guidance excludes the impact of acquisition financing costs of 6 cents per share for the first two months of 2010 prior to the completion of the Food Americas acquisition. Further, it does not include severance charges, acquisition related professional and legal fees, or purchase accounting adjustments for inventory and order backlog.

Management expects capital spending to total $115 million in full-year 2010, down from its previous projection of $140 million reflecting the benefits of the Food Americas acquisition integration and Bemis' ongoing production efficiency initiatives. Depreciation and amortization expense is projected to be $210 million for 2010.

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 additional Food Americas flexible packaging facilities in the United States, Canada, Mexico, Brazil, Argentina, and New Zealand.

The ongoing successful integration of Food Americas acquisition and related cost saving synergies, research and innovations, efficient business techniques to reduce its operational costs and encourage savings, strength in demand for packaging products will together help offset continued weakness in the European region and raw material cost pressures. We currently have a Zacks #2 Rank (short-term Buy 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 (BMS): Free Stock Analysis Report
 
Zacks Investment Research