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On July 4, we maintained our Neutral recommendation on Bemis Company Inc. (BMS - Analyst Report) based on expected benefits from its cost reduction program, stable raw material costs and acquisitions. However, weak volume, cautious consumer spending environment, weakening European economic outlook and rising food costs remain major concerns for this global manufacturer of flexible packaging products and pressure sensitive materials.
Bemis Company’s first-quarter EPS increased 8% to 53 cents, but net sales declined 4% year over year to $1.255 billion. Management expects adjusted EPS in the range of 57 cents to 63 cents for the second quarter of 2013 and between $2.30 and $2.45 for 2013.
In the fourth quarter of 2011, Bemis had embarked on an aggressive cost reduction program by reducing headcount, closing nine facilities and moving the production to other facilities. Bemis realized $7.5 million in cost savings from its facility consolidation program in the first quarter and remains on track to realize an additional $37 million in 2013. The annualized savings rate of $50 million is expected to be achieved during the second quarter of 2013. Savings from these restructuring efforts should help mitigate the weakness in volumes and raw material cost inflation.
Resin is the most expensive raw material for Bemis’ Flexible Packaging Segment. Resin cost headwinds, which impacted results in 2011, have been relatively moderate since 2012 and are expected to remain flat in 2013 as well. This will aid margins in a weak volume environment.
Bemis has successfully grown through acquisitions. In 2011, the company acquired Mayor Packaging in China, which gave the company a high-barrier footprint focused on the growing food packaging market in the region. Recently, Bemis continued its expansion efforts in the region with the acquisition of Chinese manufacturer of specialty films Foshan New Changsheng. With flexible packaging demand slowing in North America, expansion in emerging markets is a good option.
On the flipside, economic conditions are negatively impacting volumes as consumers cut back on their spending. Volumes have been declining at a low to mid single-digit rate over the last seven quarters. Furthermore, Bemis derives approximately 11% of its business from Europe. In the first quarter, margins of Global Packaging and Pressure Sensitive Materials segments were down year over year due to sluggish conditions in Europe. Given the scenario in Europe, volume growth in the region will remain muted for some time.
Other Stocks to Consider
Other stocks in the industry that are currently performing well and have a good visibility include Mobile Mini, Inc. (MINI - Snapshot Report), with a Zacks Rank # 1 (Strong Buy), Rock-Tenn Company (RKT - Snapshot Report) and Avery Dennison Corporation (AVY - Analyst Report) with a Zacks Rank #2 (Buy).