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Bemis' EPS Beats, Revenues Miss

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Bemis Company Inc. (BMS - Free Report) reported third quarter 2012 adjusted earnings of 60 cents per share, up 7% from the 56 cents in the year-ago quarter. The result surpassed the Zacks Consensus Estimate of 54 cents and was above the management’s EPS guidance in the range of 51 cents - 57 cents. Decline in overall unit volumes affected the company’s financial performance during the quarter.

Including charges of 1 cent related to acquisitions and a charge of 14 cents pertaining to a facility consolidation activity in the reported quarter, EPS stood at 45 cents, down 15% from 53 cents in the year-ago quarter.
Net sales slid 5% year over year to $1.29 billion, falling short of the Zacks Consensus Estimate of $1.32 billion. Acquisitions had a positive impact of 1.1% but were offset by lower unit volume in the flexible packaging business segment and unfavorable currency translation.
Cost of products sold decreased 8% to $1.04 billion in the quarter. Gross profit increased 10.5% to $247 million. Selling, general and administrative expenses increased 15% to $128 million. Adjusted operating income increased 7% to $108 million.
Segment Performance
Net sales from the Flexible Packaging segment amounted to $1.15 billion, down 5% year over year. Lower unit sales volumes and an unfavorable impact of currency translation of 4.7% mitigated the 1.3% benefit from acquisitions, higher selling prices and improved sales mix. However, adjusted segment operating profit increased 11.5% to $132.8 million from $119.1 million.
Net sales from the Pressure Sensitive Materials segment totaled $135.4 million, a decline of 4.5% from the year-ago quarter, due to negative impact from currency translation of 4.3%. Segment operating profit was $7.7 million, a 3.8% drop from $8 million recorded a year ago due to the negative impact of currency translation.
Financial Update
As of September 30, 2012, Bemis had cash and cash equivalents of $123 million, up from $113 million as of June 30, 2012. Total debt of the company reduced marginally to $1.50 billion as of September 30, 2012 compared with $1.55 billion as of June 30, 2012. The debt-to-capitalization ratio decreased to 48.1% as of September 30, 2012 from 49.8% as of June 30, 2012
Total cash flow from operating activities for the first nine months of fiscal 2012 increased to $290.2 million from $250.5 million in the comparable period of 2011. The company plans to utilize its cash flow to reduce its debt burden with a target to reduce the ratio of net debt to adjusted EBITDA to approximately 2.0 times. During the quarter of 2012, Bemis acquired two small flexible packaging distributors for the Australian market for $19.1 million. 
2012 Outlook
Management expects adjusted EPS in the range of 47 cents to 52 cents for the fourth quarter of 2012. For 2012, EPS guidance has been increased to a range of $2.10 to $2.15 from the previous guidance of $2.00 to $2.10 due to stronger third quarter earnings. Capital expenditures are estimated at around $150 million for 2012. 
Our Take
Weak volume, cautious consumer spending environment, weakening European economic outlook and rising food costs remain major causes of concern. However, savings from the Bemis cost reduction program due to the closure of unproductive facilities will help offset these pressures. In addition, moderation in resin costs should help stabilize margins. Shares of Bemis currently retain a Zacks #2 Rank (short-term Buy rating).
Neenah, Wisconsin-based Bemis Company is a major supplier of flexible packaging and pressure sensitive materials used by leading food, consumer products, healthcare and other companies worldwide. Bemis competes with the likes of Sealed Air Corporation (SEE - Free Report) and Avery Dennison Corporation (AVY - Free Report) .

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