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Bemis Tops Q1 Earnings by a Penny

Zacks Equity Research

Bemis Company, Inc. (BMS) reported first-quarter 2014 adjusted earnings of 58 cents per share, up 9.4% from 53 cents earned in the year-ago quarter. The reported figure also surpassed the Zacks Consensus Estimate by a penny. Notably, earnings per share came within management’s guidance range of 55–60 cents.

Including facility consolidation and other costs, earnings per share in the year-ago quarter was 47 cents. As compared to this, in the reported quarter, Bemis’ earnings came in at 48 cents per share, marking an increase of 2%.

Net sales slid 1.4% year over year to $1.237 billion mainly due to unfavorable currency translation. Sales fell short of the Zacks Consensus Estimate of $1.255 billion. Decline in sales was mainly due to lower sales volumes caused by adverse weather conditions and inflationary pressure in Brazil.

Cost of products sold increased 1% to $1.02 billion in the quarter. Gross profit declined 11% year over year to $214.6 million. Gross margin contracted 200 basis points (bps) to 17.3% in the quarter. Selling, general and administrative expenses decreased 6% to $122.7 million. Adjusted operating income declined 21% year over year to $78.8 million. Operating margin contracted 160 bps to 6.4% in the quarter.

Segment Performance

Net sales from the U.S. Packaging segment amounted to $738 million, down 1% year over year. Adjusted segment operating profit decreased 3.8% to $91.8 million from $95.4 million.

Net sales from the Global Packaging segment declined 3.2% year over year to $356.8 million. Adjusted segment operating profit fell 4.7% to $24.1 million from $25.3 million in the year-ago quarter.

Net sales from the Pressure Sensitive Materials segment totaled $142.8 million, up 1.6% year over year. Segment adjusted operating profit was $10.5 million, increasing 36% from $7.7 million in the prior-year quarter.

Financial Update

As of Mar 31, 2014, Bemis reported cash and cash equivalents of $152 million versus $141.7 million as of Dec 31, 2013. The company’s total debt increased to $1.44 billion as of Mar 31, 2014 from $1.42 billion as of Dec 31, 2013. Cash flow from operating activities was $12.5 million in the reported quarter, compared with $8.4 million in the prior-year quarter.

Bemis repurchased 1.1 million shares worth $43.2 million in the first quarter. The company increased its quarterly cash dividend by 4% to 27 cents per share, marking the 31st consecutive annual increase.

In Mar 2014, Bemis completed the sale of its Paper Packaging Division. A $9.4 million pre-tax gain was recorded on the sale, as part of other non-operating income in the quarter.

2014 Outlook

Management expects adjusted earnings per share (EPS) in the range of 61–66 cents for the second quarter of 2014. For full-year 2014, the company reiterated EPS in the band of $2.40 to $2.55.

Bemis reiterated its projection that cash flow from operating activities will exceed $500 million in 2014. The company expects capital expenditures of $175 million for the full year.

Our Take

We believe that 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. 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 #3 (Hold). Investors interested in the containers industry could also consider stocks like Berry Plastics Group, Inc. (BERY) and Crown Holdings Inc. (CCK), both of which carry a Zacks Rank #2 (Buy).

Notably, another peer of Bemis, MeadWestvaco Corp. (MWV) will release its first-quarter 2014 results on Apr 30.

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