Bemis Company, Inc. (BMS) is set to release its fourth-quarter 2014 results before the opening bell on Jan 29, 2015. The manufacturer and seller of packaging products has beaten the Zacks Consensus Estimate in two out of the trailing four quarters with an average positive surprise of 0.83%.
Let’s see how things are shaping up for this announcement.
Factors to Watch For
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.
In addition, Bemis divested its Pressure Sensitive Materials (MACtac) business in order to raise $170 million in cash in the third quarter of 2014. The funds will be utilized in the growth of its flexible packaging business where margins are higher and growth prospects are substantially greater.
Also, in Apr 2014, Bemis completed the divestment of its Paper Packaging Division to Hood Packaging Corporation. These divestments will allow the company to focus on strategic opportunities in high-barrier flexible packaging, medical and pharmaceutical packaging, and in emerging markets.
In addition to the divestitures, Bemis closed nine plants as part of its facility consolidation program. The company would continue to benefit from these cost reduction efforts.
Further, Bemis will benefit from the fall in oil prices, as cheaper oil means lower gasoline prices. This, along with an improving employment scenario, will lead to a positive turn in consumer spending patterns and improve packaging demand, thereby facilitating Bemis’ growth.
However, the fourth quarter tends to be a seasonally lighter one for Bemis. Management expects adjusted earnings per share (EPS) in the range of 53–58 cents for the fourth quarter of 2014. For 2014, the company trimmed its 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 guidance reflects inflation, the timing of the Pressure Sensitive Materials divestiture and higher levels of working capital. Capital expenditures are reiterated at approximately $175 million.
Weak non-durable consumer spending and inflation of food & beverage items could cause volumes in some of the company’s key end markets to remain sluggish in the foreseeable future. This tough volume environment will continue to weigh on Bemis’ results.
Earnings Whispers
Our proven model does not conclusively show that Bemis will beat earnings estimates this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: The Earnings ESP for Bemis is -1.79% — the difference between the Most Accurate estimate of 55 cents and the Zacks Consensus Estimate of 56 cents.
Zacks Rank #2: Bemis currently holds a Zacks Rank #2, which when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Berry Plastics Group, Inc. (BERY) has an earnings ESP of +3.85% and a Zacks Rank #2. It is expected to report results on Jan 30.
ABB Ltd. (ABB) has an earnings ESP of +14.29% and a Zacks Rank #3. It is expected to report results on Feb 5.
Century Aluminum Co. (CENX) has an earnings ESP of +7.69% and a Zacks Rank #2. It is slated to report results on Feb 19.
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