On Aug 22, we issued an updated research report on Bemis Company, Inc. . The company is poised to gain from its initiatives to improve cost structure through the Agility plan and investment in growth projects. However, raw material inflation, unfavorable currency translation and challenging economic environment in Brazil are expected to dent the company’s performance in the near term.

 

Let’s analyze these factors in detail.

 

 

To fix, strengthen, and grow its business, Bemis rolled out an improvement plan — Agility — in fiscal 2017. The plan includes optimizing manufacturing capacity, consolidating office space, and reducing SG&A cost structure as well as other costs. It also includes simplification of product portfolio and organizational structure along with rebalancing R&D efforts and deliberately pursuing targeted areas of growth in the North American business. These actions will lay the foundation for future growth.

 

Of the targeted pretax annual savings of $65 million, $4.1 million was realized in fiscal 2017. In fiscal 2018, Bemis anticipates to realize roughly $35 million of benefit, with the balance in fiscal 2019.

 

Bemis’ earnings per share outlook is pegged at $2.75-$2.85 for full-year 2018. The mid-point of the earnings guidance range reflects a year-over-year rise of 17%. The company anticipates effective tax rate for the full year to be approximately 23%. Both the Latin America and Rest of World segments are expected to deliver 100 basis points of profit improvement for the full year. Bemis remains focused on improving operating performance and expansion of business both in the near and long-term. The guidance also reflects the company’s initiatives to improve cost structure through the Agility plan.

 

 

Bemis expects capital expenditures for fiscal 2018 to be between $156 million and $160 million. Of this, about $55 million is for environmental matters, health and safety at plants, and around $100 million is targeted for select growth projects and asset-recapitalization projects. In February 2018, it approved an increase of 3.3% in the quarterly cash dividend to 31 cents per share which marked the company’s 35th consecutive annual increase in dividend.

 

 

Amcor and Bemis have announced that they will combine in $6.8 billion all-stock transaction. The combination will create a global leader in consumer packaging. The combined entity will have a worldwide presence with a broader product portfolio, increased product differentiation as well as enhanced operating capabilities. It will also leverage Bemis’ extensive U.S. manufacturing base and strengths in material science and innovation.

 

The transaction will be effected at a fixed exchange ratio of 5.1 Amcor shares for each Bemis share, resulting in Amcor and Bemis shareholders owning approximately 71% and 29% of the combined company, respectively. The combined company will have total revenues of $13 billion, EBITDA of $2.2 billion, annual cash flow after capital expenditure of more than $1 billion.

 

 

Bemis will experience 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 will bear the brunt of raw material headwind in 2018 owing to the current economic environment, which has made passing the increased input costs to customers more challenging. This will impact its margin performance. The political instability and challenging economic environment in Brazil will also impact volumes in the region. Further, unfavorable currency translation due to the devaluation of Brazilian Real and Argentine Peso will impact near-term results. 

 

 

 

Bemis has outperformed its industry with respect to price performance over the past year. The stock has gained around 19%, while the industry has recorded growth of 2%.

 

 

Bemis currently carries a Zacks Rank #3 (Hold).

 

Some better-ranked stocks in the same space include W.W. Grainger, Inc. (GWW Quick QuoteGWW - Free Report) , Lawson Products, Inc. and Atkore International Group Inc. (ATKR Quick QuoteATKR - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Grainger has a long-term earnings growth rate of 12.5%. Its shares have appreciated 128%, over the past year.

 

Lawson Products has a long-term earnings growth rate of 17.5%. The company’s shares have gained 45% in a year’s time.

 

Atkore International has a long-term earnings growth rate of 10%. The stock has rallied 78% in a year’s time.

 

 

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