Bemis' Q3 net income down 9.1% year-over-year to US$55.9M on lower unit volumes in nearly every market category; sales up 4.9% to US$1.36B on currency translation, higher selling prices
October 26, 2011
– Bemis Company, Inc. (NYSE-BMS) today reported its 2011 third quarter results:
Highlights of the third quarter 2011:
“At Bemis, we have responded to lower volume levels by reducing our workforce. In addition, we are undertaking optimization initiatives that will result in the closing of several small plants globally and leveraging our most efficient facilities and proprietary technologies over the next year. These initiatives are possible because of the progress we have made in activities around specification consolidation and production efficiency. Efforts associated with these activities are expected to reduce fixed costs and optimize our facilities to create a manufacturing platform from which to expand in the future.”
Total Bemis net sales were $1.36 billion for the third quarter of 2011, a 4.9 percent increase from $1.29 billion for the same period of 2010. Sales growth included a 2.3 percent increase due to currency translation. The remaining increase in net sales reflects higher selling prices offset by lower unit sales volumes.
Diluted earnings per share from continuing operations for the third quarter of 2011 was $0.53 compared to $0.56 per share for the same quarter of 2010. Excluding professional fees and other acquisition associated costs incurred, adjusted diluted earnings from continuing operations would have been $0.56 per share for the current quarter compared to $0.57 per share in the same quarter of 2010.
FLEXIBLE PACKAGING BUSINESS SEGMENT
Bemis’ flexible packaging business segment reported net sales of $1.22 billion. This represents a 5.5 percent increase compared to net sales of $1.15 billion for the third quarter of 2010. Currency effects increased net sales by 2.1 percent. The remaining sales growth reflected higher selling prices compared to the third quarter of 2010, partially offset by lower unit sales volumes. Segment operating profit for the third quarter of 2011 was $117.4 million, or 9.7 percent of net sales, compared to operating profit of $133.9 million, or 11.6 percent of net sales for the same period of 2010. Excluding the impact of purchase accounting charges and integration costs, operating profit as a percentage of net sales would have been 9.8 percent for the third quarter of 2011 compared with 11.7 percent for the same period of 2010. The effect of currency translation increased operating profit in the third quarter of 2011 by $1.8 million compared to the same quarter of 2010. Raw material cost increases in 2011 have negatively impacted operating margins as a percentage of net sales, and lower unit volumes across most market categories have resulted in additional negative margin pressure.
Commenting on the flexible packaging segment results, Theisen said, “We have addressed the raw material cost increases from the first half of the year with selling price adjustments, many of which were implemented during the third quarter. The benefits of these price adjustments were more than offset by the negative impact of generally lower unit sales volumes this quarter. Food price inflation has led to retail consumer price increases and reduced consumer demand for many of our customers’ packaged food products during this period of economic weakness. In North America, we experienced lower unit volumes in the majority of our market categories. In Europe, a decline in unit volumes was substantially offset by higher selling prices and better sales mix. Unit volumes in our South American operations were also lower in most market categories, and recent currency fluctuations have driven the price of both imported and domestic raw materials higher in that region, putting further pressure on our operating results.
“We have made progress in optimizing production between facilities and reducing specifications to improve manufacturing efficiency. We expect our ongoing optimization efforts to position us well to maximize performance in the future as volumes strengthen and new products are commercialized.”
PRESSURE SENSITIVE MATERIALS BUSINESS SEGMENT
Net sales from the pressure sensitive materials business segment for the third quarter of 2011 were $141.8 million, about even with the third quarter of 2010. Currency effects increased net sales by 3.8 percent. For the third quarter of 2011, operating profit totaled $8.0 million, or 5.6 percent of net sales, compared to operating profit for the third quarter of 2010 of $7.6 million, or 5.4 percent of net sales. Currency effects increased operating profit for the quarter by $0.3 million. Both net sales and operating profit performance reflect the impact of lower unit volumes offset by higher selling prices and lower period costs.
OTHER OPERATING (INCOME) EXPENSE, NET
For the third quarter of 2011, other operating income and expense included $4.9 million of fiscal incentive income, an increase of $1.4 million compared to $3.5 million for the third quarter of 2010. Government fiscal incentives are associated with net sales and manufacturing activities in certain operations in Brazil and are included in flexible packaging segment operating profit.
OTHER NON-OPERATING (INCOME) EXPENSE, NET
Other non-operating income included a $1.1 million gain on the sale of excess land during the third quarter of 2011.
CAPITAL STRUCTURE AND CASH FLOW
Total debt as of September 30, 2011 was $1.6 billion, an increase of $124 million from the balance of $1.5 billion at June 30, 2011. Total cash flow from operating activities for the quarter ended September 30, 2011 was a record $169 million. Cash available for the quarter was used to fund shareholder dividends, capital expenditures, the acquisition of the Mayor Packaging business, the acquisition of the preferred shares of a subsidiary, and the purchase of 1.2 million shares of Bemis common stock. As of September 30, 2011, the remaining share repurchase authorization was 4.5 million shares.
2011 EARNINGS OUTLOOK
Commenting on the fourth quarter, Theisen said, “We expect unit volumes to continue to decline during the fourth quarter, and we are aggressively reducing costs to restore margins and support growth in the future. Our ongoing optimization activities will position Bemis to improve operating performance, while leveraging our proprietary technologies to deliver superior solutions to our customers.”
Management expects adjusted diluted earnings per share for the fourth quarter of 2011 to be in the range of $0.36 to $0.42. Fourth quarter severance charges associated with the optimization activities are expected to be in the range of $0.04 per share and will save about $0.06 per share in annualized costs beginning in 2012. These optimization related costs are not included in management's quarterly guidance.
Adjusted diluted earnings per share for the full year 2011 is expected to be in the range of $1.90 to $1.96 per share. Capital expenditures are expected to be approximately $125 million for the full year 2011.
PRESENTATION OF NON-GAAP INFORMATION
This press release refers to non-GAAP financial measures: adjusted operating profit, adjusted operating profit as a percentage of net sales, and adjusted diluted earnings per share from continuing operations. These non-GAAP financial measures adjust for factors that are unusual or unpredictable. These measures exclude the impact of certain amounts related to acquisition related expenses including transaction expenses, due diligence expenses, professional and legal fees, purchase accounting adjustments for inventory and order backlog, integration expenses, the cash portion of any acquisition earn-out payments recorded as compensation expenses, changes in fair value of deferred acquisition payments, and goodwill and intangible asset impairment charges. This adjusted information should not be construed as an alternative to results determined in accordance with accounting principles generally accepted in the United States of America (GAAP). It is provided solely to assist in an investor's understanding of the impact of these items on the comparability of the Company's on-going business operations.
INVESTOR CONFERENCE CALL
Bemis Company, Inc. will webcast an investor telephone conference regarding its third quarter 2011 financial results this morning at 10 a.m., Eastern Time. Individuals may listen to the call on the Internet at www.bemis.com under “Investor Relations.” Listeners are urged to check the website ahead of time to ensure their computers are configured for the audio stream. Instructions for obtaining the required, free, downloadable software are available in a pre-event system test on the site.
ABOUT BEMIS COMPANY, INC.
Bemis Company is a major supplier of flexible packaging and pressure sensitive materials used by leading food, consumer products, healthcare, and other companies worldwide. Founded in 1858, the Company is included in the S&P 500 index of stocks and reported 2010 net sales of $4.8 billion. The Company’s flexible packaging business has a strong technical base in polymer chemistry, film extrusion, coating and laminating, printing, and converting. Headquartered in Neenah, Wisconsin, Bemis employs over 20,000 individuals worldwide. More information about the Company is available at our website, www.bemis.com.
Industry Intelligence Editor's Note: In an omitted table, Bemis reported Q3 net income of US$55.85 million. For the same period a year ago, the company recorded net income of US$61.42 million.