Bemis Company Inc. (BMS) reported second quarter 2011 earnings of 51 cents per share compared with 58 cents per share in the year-ago quarter. Reported earnings were in line with management’s guided range of 48 cents to 54 cents per share but exceeded the Zacks Consensus Estimate by a penny.
The increase in raw material prices, particularly specialty resin, adversely affected the company’s financial performance during the quarter.
Net sales improved 7.9% year over year to $1.37 billion, including a favorable impact of 3.4% from currency translation. Net sales in the quarter marginally missed the Zacks Consensus Estimate of $1.38 million.
Gross profit increased 1.6% year over year to $234 million, despite higher cost of products sold (9.6% to $1.14 billion). Operating income, however, declined 6.4% to $105.3 million.
Segment Performance
Net sales from the Flexible Packaging segment amounted to $1.22 billion, up 8.1% year over year, driven by favorable currency translation and higher selling price of products.
Segment operating profit was $116.3 million (9.5% of net sales) compared with that of $130.1 million (11.5% of net sales) reported a year ago. The drop in segment profit was due to higher raw material costs through the first five months of 2011.
Net sales from the Pressure Sensitive Materials segment totaled $151.5 million, up 5.8% year over year. The improvement was attributable to favorable currency translation that drove net sales of the segment by 5.7% in the quarter. Segment operating profit was $11.8 million (7.8% of net sales) compared with $11.7 million (8.2% of net sales) recorded a year ago.
Financial Update
As of June 30, 2011, Bemis had cash and cash equivalents of $72.7 million compared with $60.4 million as of December 31, 2010. Total debt of the company was $1.46 billion at the end of the second quarter of 2011 versus $1.29 billion of debt at the end of the fourth quarter in 2010.
Cash flow from operating activities was $82.9 million in the first half of 2011 compared with $128.7 million in the year-ago period.
Bemis purchased 3.8 million shares of its common stock for $123.1 million in the first six months of the year. Thus, as of June 30, 2011, the company had 5.7 million shares remaining under its current authorization.
2011 Guidance
Management expects adjusted EPS in the range of 56 cents to 61 cents for the third quarter of 2011. In addition, adjusted earnings per share for the full year 2011 are projected between $2.08 and $2.18. Capital expenditures are expected to be approximately $125 million for fiscal 2011.
Our Take
Bemis has adopted a disciplined business model to ensure efficiency and effectiveness in the face of weak demand experienced in the last two years. This initiative was taken to reduce operational costs and encourage savings and investments in prospective opportunities, and to pay back debt if the situation permits.
Moreover, the company spends heavily in research and developmental activities to live up to the expectation of its existing customers as well as to attract new potential customers. R&D expense was $17.6 million during the first half of 2011 compared with $14.3 million during the same period in 2010.
However, rising raw materials prices, especially polymer resins, have significantly impacted the company through increased costs, thereby putting downward pressure on its margins.
Further, Bemis has faced deterioration in its liquidity position, with reduced cash flow and rising debt balance.
Thus, keeping these in mind, the shares of Bemis Co. Inc. are maintaining a Zacks #3 Rank, which translates into a short-term Hold rating. Alongside, the shares also have a Neutral recommendation for the long term.
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