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Bemis (BMS) Q4 Earnings Top, Agility Plan to Drive Growth

Zacks Equity Research

Bemis Company, Inc. BMS delivered fourth-quarter 2017 adjusted earnings per share of 63 cents, beating the Zacks Consensus Estimate of 61 cents.. However, earnings dropped 6% year over year.

 

Including one-time costs, Bemis reported a loss of 44 cents per share against earnings of 64 cents per share reported in the prior-year quarter.

 

Operational Update

 

Net sales edged up 2% to $1,004 million from $988 million recorded in the year-ago quarter. Revenues also beat the Zacks Consensus Estimate of $986 million.

 

Cost of products sold went up 5% year over year to $810 million in the quarter. Gross profit declined 10% to $194 million from $216 million in the prior-year quarter. Gross margin contracted 250 basis points (bps) to 19.3% in the quarter.

 

Selling, general and administrative expenses decreased 3% to $94 million from $97 million incurred in the year-ago quarter. Adjusted operating income declined 10% year over year to $109 million. Adjusted operating margin contracted 140 bps to 10.8% in the quarter.

 

Bemis Company, Inc. Price, Consensus and EPS Surprise

 

Bemis Company, Inc. Price, Consensus and EPS Surprise

Bemis Company, Inc. price-consensus-eps-surprise-chart | Bemis Company, Inc. Quote

Segment Performance

Effective fourth-quarter 2017, Bemis realigned its segment reporting from the previous two reportable segments to three reportable segments — U.S. Packaging, Latin America Packaging, and Rest of World Packaging.

The U.S. Packaging business segment, which constitutes all food, consumer, and industrial products’ packaging related manufacturing operations located in the United States, remains unchanged. The previous Global Packaging has been segregated to Latin America Packaging and Rest of World Packaging business segments.

The Latin America Packaging segment includes all food and non-food packaging-related manufacturing operations located in Latin America. The Rest of World Packaging business segment includes all food and non-food packaging-related manufacturing operations located in Europe and Asia-Pacific as well as medical device and pharmaceutical packaging manufacturing operations in the United States, Europe, and Asia.

Net sales at the U.S. Packaging segment improved 1.8% year over year to $643 million. Segment operating profit dipped 5% to $89 million from $94 million in the prior-year quarter.

Net sales at the Latin America Packaging segment dipped 0.6% year over year to $179 million. Segment operating profit slumped 59% to $6.2 million from $15.2 million recorded in the year-ago quarter.

Net sales at the Rest of World Packaging segment increased 3% year over year to $182 million. Segment operating profit dipped 5% to $89 million from $94 million in the prior-year quarter.

Financial Update

At the end of the fiscal 2017, Bemis had cash and cash equivalents of $71 million, a decline from $74 million at the end of 2016. Cash flow from operations came in at $379 million during fiscal 2017 compared with $437 million in last year.

At the end of the fiscal 2017, Bemis’ total debt increased to $1.55 billion compared with $1.53 billion at the end of fiscal 2016.

Fiscal 2017 Performance

Bemis reported earnings per share of $2.39 in fiscal 2017, down 11% from $2.69 reported in fiscal 2016. Earnings came near the high end of the company’s guided range of $2.35-$2.40. Earnings beat the Zacks Consensus Estimate of $2.37. Including one-time items, earnings was $1.02 compared with $2.48 in the prior year.

Revenues inched up 1% year over year to $4.05 billion, surpassing the Zacks Consensus Estimate of $4.03 billion.

Guidance for Fiscal 2018

The company projects earnings per share to lie within $2.75 and $2.90. The range includes an expected 31 cents benefit related to U.S. tax reform at the mid-point of the range. Also, the mid-point of the range reflects an 18% year-over-year rise in earnings.  The guidance reflects the benefit from the U.S. tax reform and the company’s initiatives to improve cost structure through the fix portion of its Agility plan.

The company expects cash from operations in the range of $420-$450 million. Management expects capital expenditures for 2018 between $156 million and $160 million.

“Agility” Plan for Future Growth

To fix, strengthen, and grow its business Bemis launched an improvement plan called “Agility” in 2017. As part of this three-pronged approach, the “fix” aspect involves its previous restructuring and cost savings plan announced in June and September. Of the targeted pretax annual savings of $65 million, $4.1 million was realized in 2017.

In fiscal 2018, Bemis anticipates to realize approximately $35 million of benefit, with the balance in fiscal 2019. To implement the plan, Bemis will incur costs (pretax) in the range of $110-$125 million. The plan includes optimizing manufacturing capacity, consolidating office space, and reducing SG&A cost structure and other costs.

The “strengthen and grow” aspects of Agility includes simplifying product portfolio and organizational structure, rebalancing R&D efforts to focus on manufacturing improvements, and deliberately pursuing targeted areas of growth in its North American business. These actions will lay the foundation for future growth.

Share Price Performance

Bemis' shares have been underperformed its industry with respect to price performance in the past three months. The stock has gained 1.5%, while the industry recorded growth of 3.6%.

Zacks Rank & Key Picks

Currently, Bemis carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same space include Caterpillar Inc. (CAT), H&E Equipment Services, Inc. (HEES) and Applied Industrial Technologies, Inc. (AIT). H&E Equipment and Komatsu flaunt a Zacks Rank # 1 (Strong Buy) while Caterpillar carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar has an expected long-term earnings growth rate of 10.3%. Its shares have appreciated 43% over the last three months.

H&E Equipment Services has an expected long-term earnings growth rate of 18.6%. The company’s shares have surged 76% over the past three months.

 

Applied Industrial Technologies has an expected long-term earnings growth rate of 12%. Its shares have gone up 37% over the past year.

 

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