Bemis Company, Inc. (BMS) reported a record adjusted earnings of 67 cents per share in third-quarter 2014, up 11.7% from 60 cents earned in the year-ago quarter. Earnings were in line with the Zacks Consensus Estimate and company’s guidance range of 65–70 cents.
Including facility consolidation and other costs, earnings per share came in at 61 cents in third-quarter 2014 as compared with 55 cents in the year-ago quarter, marking an increase of 10.9%.
Operational Update
Net sales slid 2.1% year over year to $1.098 billion and fell short of the Zacks Consensus Estimate of $1.226 billion. Excluding the impact of currency, acquisitions and divestitures, net sales increased 2.5% year over year.
Cost of products sold decreased 2.2% to $877.5 million in the quarter. Gross profit declined 1.6% year over year to $220.7 million. Gross margin expanded 10 basis points (bps) to 20% 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 7.3% to $104.6 million. Adjusted operating income increased 1.6% year over year to $128 million. Operating margin expanded 50 bps to 11.7% in the quarter.
Segment Performance
Net sales from the U.S. Packaging segment amounted to $716.7 million, down 4.5% year over year. Adjusted segment operating profit declined 2.4% year over year to $95 million.
Net sales from the Global Packaging segment increased 2.9% year over year to $381.5 million. Currency translation had a negative impact of 2.5%. Excluding the impact of currency translation, Global Packaging net sales increased 5.4% year over year, reflecting unit volume growth in addition to favorable sales price and mix. Adjusted segment operating profit rose 17.5% to $32.9 million from $28 million in the year-ago quarter.
Financial Update
As of Sep 30, 2014, Bemis had cash and cash equivalents of $126 million versus $141.7 million as of Dec 31, 2013. The company’s total debt increased to $1.45 billion as of Sep 30, 2014 from $1.44 billion as of Dec 31, 2013. Cash flow from operations was $191.5 million for the period of nine months ended Sep 30, 2014, down from $262.4 million in the prior-year comparable period.
2014 Outlook
Management expects adjusted earnings per share (EPS) in the range of 53–58 cents for the fourth quarter of 2014. For full-year 2014, the company trimmed EPS guidance to a new range of $2.26 to $2.31 per share from $2.45 to $2.55 per share, after considering the results of discontinued operations.
Bemis also lowered its outlook for cash flow from operations for 2014 in the range of $375 to $400 million from $450 million. This revised expectation reflects inflation, the timing of the Pressure Sensitive Materials divestiture and higher levels of working capital. Capital expenditures are reiterated at approximately $175 million.
Business Update
On Sep 8, Bemis announced that it is selling its global Pressure Sensitive Materials (MACtac) business to a California-based private equity firm, Platinum Equity, in order to raise $170 million in cash to fund the growth of its flexible packaging business. The sale is expected to close in the fourth quarter of 2014. The sale of this business will allow the company to focus on strategic opportunities in high-barrier flexible packaging, medical and pharmaceutical packaging.
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 #4 (Sell). Some better-ranked stocks in the sector include Sonoco Products Co. (SON), Advanced Emissions Solutions, Inc. (ADES) and Alamo Group, Inc. (ALG). All these stocks carry a Zacks Rank #2 (Buy).
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