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Bemis (BMS) Q3 Earnings Top, Trims '17 View on Low Volumes

Bemis Company, Inc. BMS reported third-quarter 2017 adjusted earnings per share of 70 cents, down 7% year over year. However, earnings beat the Zacks Consensus Estimate of 64 cents. Results in the quarter were affected by challenging economic environment in Latin America due to political instability.

Including one-time costs, earnings came in at 61 cents per share compared with 72 cents reported in the prior-year quarter.

Operational Update

Net sales edged up 0.8% to $1,035 million from $1,027 million recorded in the year-ago quarter. Revenues also beat the Zacks Consensus Estimate of $1,026 million.
 

Bemis Company, Inc. Price, Consensus and EPS Surprise

 

Bemis Company, Inc. Price, Consensus and EPS Surprise | Bemis Company, Inc. Quote

Cost of products sold went up 3% year over year to $827 million in the quarter. Gross profit dipped 8% to $207.7 million from $225 million in the prior-year quarter. Gross margin contracted 180 basis points (bps) to 20.1% in the quarter.

Selling, general and administrative expenses decreased 1% to $94.6 million from $95.8 million incurred in the year-ago quarter. Adjusted operating income plunged 12% year over year to $103.1 million. Adjusted operating margin contracted 140 bps to 10% in the quarter.

Segment Performance

Net sales at the U.S. Packaging segment improved 2.2% year over year to $672 million driven by higher unit volumes.  Segment operating profit dipped 1% to $99.6 million from $100.8 million in the prior-year quarter. Previously-negotiated contractual selling price reductions on select products, partially offset by manufacturing efficiencies and the benefits of increased unit volumes led to the decline.

Net sales at the Global Packaging segment inched down 1.8% year over year to $362.8 million. Currency translation had a positive impact of 0.5%. Organic sales dipped 2.3% due to unfavorable mix of products sold, partially offset by sales price increases. Global Packaging unit volumes were relatively flat year over year, due to  weak volumes in the Latin American business, offset by net volume growth in the remaining regions of the Global Packaging Segment. Segment operating profit slumped 32% to $24.6 million from $36.2 million recorded in the year-ago quarter.

Financial Update

At the end of the third quarter, Bemis generated cash and cash equivalents of $44.7 million, which decreased from $74.2 million at the end of 2016. Cash flow from operations came in at $299.5 million during the nine-month period ended Sep 30, 2017, compared with $348.4 million in the comparable period last year.

At the end of the reported quarter, Bemis’ total debt increased to $1.551 billion compared with $1.545 billion at the end of 2016.

Restructuring & Cost Savings

During the third quarter, Bemis completed the analysis of its restructuring and cost savings plan to properly align manufacturing and administrative cost structures. Further, it intends to better position the company in the current business environment and for the long-term. In Sep 2017, Bemis announced the remaining details of its restructuring and cost savings plan to reduce its fixed manufacturing and administrative cost structures. Pre-tax annual savings run rate is projected at $65 million. Estimated total pre-tax costs to implement the plan is projected in the range of $100-$125 million. Of that total, pre-tax cash expense is estimated between $70 million and $80 million.

Per the plan, Bemis close four manufacturing facilities. Work performed at these facilities will be transferred to other Bemis locations. Closure of two of these facilities have 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.

Bemis will consolidate a portion of its administrative facilities, benefits from which will be approximately $5 million when fully executed. The company will also lower administrative support cost structure to align with the current business environment. Bemis will reduce 8% of the 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 and functions which will lead to  $8 million  of savings.

Guidance

Bemis lowered 2017 adjusted earnings per share guidance range to $2.35-$2.40 from the prior range of $2.35-$2.50. The lower guidance reflects lower unit volume expectations for the fourth quarter from some of Bemis’ U.S. customers and also some anticipated hurricane-related impacts in the fourth quarter.

The company maintained cash from operations guidance range to $400-$425 million. Management expects capital expenditures for 2017 between $185 million and $200 million to support its undergoing projects.

Share Price Performance

Bemis' shares have been underperforming its industry with respect to price performance. In a year, the stock has dropped 7.7%, while the industry recorded growth of 16.6%.

Zacks Rank & Key Picks

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

Some better-ranked stocks worth considering in the sector include Briggs & Stratton Corporation BGG, Sun Hydraulics Corporation SNHY and Lakeland Industries, Inc. LAKE. All three stocks boasts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Briggs & Stratton Corporation BGG has an earnings ESP of 8.62% in the trailing four quarters. Sun Hydraulics has an average earnings surprise of 3.47% in the last four quarters, while Lakeland Industries has an average earnings surprise of 18.01%.

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