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Bemis Rides on Restructuring Plan, Hurricane Effect a Woe

Zacks Equity Research

On Nov 16, we issued an updated research report on Bemis Company, Inc. BMS, maker of flexible packaging products and pressure sensitive materials. The company is likely to benefit from successful implementation of restructuring and cost-savings plan, modifications of business model and focus on innovation. However, its quarterly performance will be affected by hurricane-related impact as well as restructuring expenses.

Restructuring & Cost Savings to Aid Top Line

Notably, Bemis completed the analysis of its restructuring and cost-savings plan during third-quarter 2017. The step will allow the company to align its manufacturing and administrative cost structures efficiently with current business environment.

Per the plan, the company will close four manufacturing facilities. Work performed at these facilities will be transferred to other Bemis locations. Closure of two of these facilities has been initiated this year and the rest will commence in 2018. Benefits from these four plant closures will be approximately $17 million, when fully realized.

The company will also lower its administrative support cost structure to align with the current business environment. It will reduce 8% of global administrative workforce. Total savings will be approximately $35 million, when fully implemented. Additionally, Bemis has identified numerous opportunities for cost efficiency across a variety of operational and administrative activities, plus functions that will lead to savings of $8 million.

Business Model Reform Will Drive Growth

Further, Bemis remains focused on enhancing and modifying its business model, involving near-term profitability improvements. Its strengthening of business involves simplifying and better managing the product portfolio and organizational structure. The company is also rebalancing its R&D efforts to focus on manufacturing improvements such as waste reduction and leveraging investments.

Hurricane-Related Impact to Hurt Earnings

Bemis lowered its 2017 adjusted earnings per share guidance to the range of $2.35-$2.40 due to anticipated hurricane-related effect in the fourth quarter as well as lower unit volume projections for the fourth quarter from some of its U.S. customers.

Bemis’ performance is expected to be impacted by the escalating raw material prices due to hurricanes. In Latin America specifically, the company will experience a raw material headwind during the fourth quarter due to the current economic environment, which has made the increased input costs more challenging to cope with. It also predicts that fourth-quarter earnings will be hurt by lower production levels at its health-care packaging facility in Puerto Rico due to the aftermath of the storms.

Restructuring Expenses Will Dent Income

Per the 2017 restructuring plan, Bemis estimated total pre-tax costs between $100 million and $125 million. Of that amount, pre-tax cash expense is estimated between $70 million and $80 million. Cash of around $10 million will impact 2017, $40 million will impact 2018 and the remainder will be recorded in 2019. The expense will drag Bemis’ profit in the near term.

Share Price Performance

Shares of the company have underperformed the industry in a year. The stock has lost 6.9% against the industry’s 9.1% growth during the period.

Zacks Rank & Key Picks

Bemis carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industrial product space are Nine Dragons Paper (Holdings) Ltd. NDGPY, Caterpillar Inc. CAT and Cimpress N.V. CMPR, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nine Dragons Paper has a long-term earnings growth rate of 18%. Its shares are up 106.7% year to date.

Caterpillar has a long-term earnings growth rate of 10.3%. Year to date, its shares have surged 47.1%.

Cimpress has a long-term earnings growth rate of 13.3%. Its shares have rallied 30% during the same time frame.

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