Bemis Company, Inc. (BMS - Free Report) is set to embark on a restructuring and cost savings program in 2017 that includes closure of two manufacturing facilities along with cutting down of its administrative support cost structure. These efforts are likely to generate total cost savings of $55–$60 million and help improve efficiency and margins, consequently paving the way for long-term growth.
Bemis’s first-quarter 2017 adjusted earnings per share dipped 3% year over year to 58 cents, affected by lower-than-expected unit volumes and operational issues in the U.S. Packaging segment. During the first-quarter conference call, Bemis lowered adjusted earnings per share to the range of $2.50–$2.60 for the full year 2017 from the prior range of $2.85–$3.00. Compared with the earnings per share of $2.69 in 2016, the mid-point of the new guidance range reflects a year-over-year decline of 5%. The lowered guidance reflects the impact of lower volume expectations from the core U.S. customer base and near-term operating inefficiencies in the U.S. Packaging business.
Moreover, the company continues to bear the brunt of a flat-to-declining U.S. packaged food market. Reflecting these headwinds, Bemis' shares have been underperforming the Zacks categorized Containers-Paper/Plastics sub industry. In the last one year, the stock dropped 8.3%, while the industry recorded growth of 19.9%.
During the first-quarter conference call, the company had stated that it will focus on improving the financial and operational performance of the U.S. Packaging segment. It also declared the evaluation of all aspects of the business such as manufacturing footprint, SG&A as well as direct and indirect spending.
In line with this, the company has come up with definitive plans to close two manufacturing facilities, one in 2017 and the other in 2018. The work performed at these facilities will be transferred to other Bemis locations. The company anticipates benefits of $10 million from these two plant closures. Meanwhile, Bemis will continue to evaluate opportunities to consolidate additional facilities.
To align with the current business environment, the company will reduce administrative support cost structure. To obtain this objective, Bemis will lay off approximately 300 positions, or 5% of the global administrative workforce, over the next three years. Impacted employees will receive job placement assistance and severance benefits. This move will lead to cost savings of approximately $20 million over the next three years.
Bemis Company, Inc. Price