Inflation & Rising Expenses to Impede Bemis' (BMS) Growth
On Jun 26, we issued an updated research report on Bemis Company, Inc. BMS. The company’s performance will likely be impacted by raw material inflation and elevated expenses. Challenging economic environment in Brazil will also hurt the stock’s growth.
Let’s illustrate the factors in detail.
Inflation to Pull Bemis' Margins Down
Bemis' gross margin contracted 60 basis points (bps) year over year to 19.3% in first-quarter 2018. Adjusted operating margin also shrunk 50 bps to 9.8% in the quarter. Bemis will likely witness material price inflation of 2-3% globally, as well as the impact of exceeding annual pay for performance targets in 2018.
In Latin America, specifically, the company is expected to experience a raw material headwind due to the current economic environment, which has made passing the increased input costs to customers more challenging. This, in turn, will dampen its margin performance.
Escalating Expenses to Hurt Earnings
Notably, Bemis anticipates that SG&A (selling, general and administrative) expenses will flare up year over year this year. The company also estimates total restructuring and other plan-related cash payments related to the 2017 restructuring plan to be around $75-$85 million for 2018. These elevated expenses will hurt the company’s earnings.
Dismal Brazil Economy a Concern
Bemis’ operating profit in Latin America was significantly down in Q1 as compared to the prior-year quarter, due to the prevalent challenging economic environment in Brazil. In Latin America, the company expects volumes to be relatively flat in 2018 as compared to the prior year, as the economic environment has not yet recovered to the anticipated level.
Downward Estimates Revision
In addition, the downtrend in Bemis’ estimates over the past 30 days reflects bearish investor sentiments. The Zacks Consensus Estimate edged down 0.4% to $2.79 for 2018 and 1% to $3.06 for 2019.
Price Performance
The company has underperformed the industry it belongs to in the past year. The stock has lost around 11%, while the industry recorded loss of 1%.
Zacks Rank & Stocks to Consider
Bemis currently carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the same sector include DMC Global Inc. BOOM, Actuant Corporation ATU and Chart Industries, Inc. GTLS. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
DMC Global has a long-term earnings growth rate of 20%. Its shares have appreciated 270%, over the past year.
Actuant has a long-term earnings growth rate of 15.6%. The company’s shares have rallied 23%, in the past year.
Chart Industries has a long-term earnings growth rate of 26.9%. The stock has gained 96% in a year’s time.
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