Bemis Company (BMS) Beats Q2 Earnings on Pricing discipline

Bemis Company, Inc. (BMS) reported second-quarter 2014 adjusted earnings of 65 cents per share, up 6.6% from 61 cents earned in the year-ago quarter. The reported figure also surpassed the Zacks Consensus Estimate by a penny. Notably, earnings per share came near the upper end of management’s guidance range of 61–66 cents.

Including facility consolidation and other costs, earnings per share in the year-ago quarter was 51 cents, as compared with this Bemis’ second quarter 2014 earnings marked an increase of 27.5%.

Net sales slid 4.3% year over year to $1.242 billion and fell short of the Zacks Consensus Estimate of $1.276 billion. Excluding the impact of currency, acquisitions, and divestitures, net sales were flat year over year.

Cost of products sold decreased 4.7% to $996 million in the quarter. Gross profit declined 2% year over year to $246 million. Gross margin expanded 40 basis points (bps) to 19.8% in the quarter. Gross margin was at the highest level since 2009 driven by continued pricing discipline and improved sales mix.

Selling, general and administrative expenses decreased 9% to $119.8 million. Adjusted operating income increased 5.7% year over year to $110.8 million. Operating margin expanded 80 bps to 8.9% in the quarter.

Segment Performance

Net sales from the U.S. Packaging segment amounted to $726 million, down 7.1% year over year. The divestitures of the Clysar business in 2013 and the Paper Packaging Division in 2014 affected sales by 6.6% and lower volumes in less differentiated product categories had a negative impact of 0.5%. Adjusted segment operating profit remained flat at $101 million.

Net sales from the Global Packaging segment declined 0.7% year over year to $371.8 million. Currency translation had a negative impact of 5.8%, primarily due to the Brazilian Real, while the 2013 acquisition of the extrusion platform in Foshan, China benefitted net sales by 5.2%. Excluding the impact of currency translation and the acquisition, Global Packaging net sales were flat year over year. Increased unit sales of healthcare packaging were partially offset by the impact of generally lower consumption levels in South America. Adjusted segment operating profit fell 1.8% to $26.6 million from $27 million in the year-ago quarter.

Net sales from the Pressure Sensitive Materials segment totaled $144 million, up 1.6% year over year. A 2% benefit from favorable currency translation was offset by lower unit sales of roll label and technical products. However, the segment witnessed higher sales of value-added graphics products. Segment adjusted operating profit was $9.8 million, increasing 63% from $6 million in the prior-year quarter.

Financial Update

As of Jun 30, 2014, Bemis reported cash and cash equivalents of $127 million versus $141.7 million as of Dec 31, 2013. The company’s total debt increased to $1.48 billion as of Jun 20, 2014 from $1.44 billion as of Dec 31, 2013. Cash flow from operating activities was $70.4 million in the first half of fiscal 2014, down from $102.4 million in the prior-year comparable period. Bemis repurchased 1 million shares worth $40.9 million in the second quarter.

2014 Outlook

Management expects adjusted earnings per share (EPS) in the range of 65–70 cents for the third quarter of 2014. For full-year 2014, the company raised the lower end of its EPS guidance to a new range of $2.45 to $2.55 per share from the previous range of $2.40 to $2.55.

Bemis expects cash flow from operations for 2014 to be approximately $450 million. This revised expectation reflects cash expenses associated with the May 2014 closure of a manufacturing plant in Stow, OH and tax payments related to the gain on the sale of the Paper Packaging division. Capital expenditures are projected to be approximately $175 million.

Our Take

Bemis will benefit from healthy customer order levels and commercialization of new business at an accelerated pace, which will support the expected unit volume and profit margin growth in 2014. Its new product innovations have created positive momentum to support continued performance improvement through the second half of 2014. However, rise in commodity costs and volatile economic conditions will remain headwinds in the near term.

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.

Currently, Bemis has a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Sealed Air Corporation (SEE), Graphic Packaging Holding Co. (GPK) and MeadWestvaco Corporation (MWV). While Sealed Air Corporation holds a Zacks Rank #1 (Strong Buy), Graphic Packaging and MeadWestvaco Corporation carry a Zacks Rank #2 (Buy).