MINNEAPOLIS--Oct. 26, 2005-- Bemis Company, Inc. today reported quarterly diluted earnings of $0.41 per share for the third quarter ended September 30, 2005, equal to the third quarter of 2004 and in line with management's previously disclosed guidance. Net sales for the third quarter of 2005 increased 22.2 percent to $870.1 million from $711.9 million in the same quarter of 2004. Excluding the impact of acquisitions, net sales increased by 6.0 percent.
"This is a challenging business environment that requires skillful management of purchasing, inventory, production capacity planning, pricing, order backlog management and customer relations," said Jeff Curler, Chairman, President and Chief Executive Officer of Bemis Company, Inc. "In recent months, we have improved our ability to manage the impact of volatile flexible packaging raw material costs by modifying procedures and policies to better align input costs and selling prices. Our production facilities are operating with improved efficiency, and we continue to be a reliable source of innovative products for our customers. I am confident that we are well positioned to capture growth opportunities and meet the challenges of 2006."
Flexible packaging, representing about 83 percent of the total company net sales for the quarter, reported net sales of $723.0 million in the third quarter of 2005, an increase of 26.5 percent from the same period of 2004. Excluding the impact of acquisitions, net sales increased by 6.3 percent. Price increases and sales mix changes combined to achieve the reported sales growth while unit sales volume and currency effects were neutral compared to the third quarter of 2004. Operating profit for the third quarter of 2005 was $89.0 million, an increase of 19.2 percent from the third quarter of 2004. Operating profit as a percentage of sales was 12.3 percent for the third quarter compared to 13.1 percent for the same period of 2004.
Commenting on the results of the quarter, Curler stated, "While we have achieved sequential improvement in each of the last two quarters, flexible packaging operating margins remain under pressure compared to the prior year profit levels. Certain resin costs have increased substantially during the third quarter after 12 months of record prices and volatility. Total unit sales volume remains even with last year, however certain markets continue to show signs of strong growth. Our business leaders are successfully driving costs out of production processes and building capacity for high-demand products. Sales of proprietary film products in European markets also continue to strengthen, providing opportunity for future margin growth with changes in sales mix. Our South American operations are delivering solid sales and operating profit in line with our expectations. We are investing in all three regions of the world to enhance capacity for new products, and we expect margin growth in 2006 to be fueled by relief of capacity constraints."
Pressure Sensitive Materials
Pressure sensitive materials reported net sales of $147.2 million in the third quarter of 2005, an increase of 5.0 percent from the third quarter of 2004. This increase was driven by volume improvements in label products offset by the resulting shift in sales mix to lower priced products. Currency effects on net sales were neutral to the quarter. Operating profit for the third quarter of 2005 was $9.6 million compared to $7.9 million in the third quarter of 2004. Operating profit during the third quarter of 2005 included a $0.9 million gain on the sale of a closed facility, while operating profit in the third quarter of 2004 included restructuring and related charges of $1.1 million. Excluding the impact of the restructuring related activities, operating profit as a percentage of net sales was 5.9 percent in the third quarter of 2005 compared to 6.4 percent in the same period of 2004.
"Attention to cost control and a focus on quality customer service together with new, high performance products have combined to deliver improving operating margins from our label product markets," Curler noted. "This has led to increased sales of label products which have lower margins compared to our higher margin graphic and technical products. As our targeted growth strategy gains traction and momentum in the higher margin markets, we expect improved sales mix in our pressure sensitive materials business to drive higher operating margins in future periods."
Other Costs (Income), Net
Other costs and income for the three months ended September 30, 2005, primarily reflects a $0.9 million gain on the sale of a pressure sensitive materials plant that was closed in 2003. During the third quarter of 2004, other costs and income included $3.4 million of equity income from the Company's Brazilian joint venture, Itap Bemis Ltda. With the purchase of our joint venture partner, Dixie Toga in January 2005, Itap Bemis Ltda is now accounted for on a consolidated basis and the related results for the third quarter of 2005 are included in flexible packaging operating profit.
Total debt as of September 30, 2005, was $839.2 million, an increase of $299.6 million from December 31, 2004. This increase primarily reflects the impact of the January 2005 acquisition of Dixie Toga for about $250 million cash price and $32.9 million of assumed debt. Debt to total capitalization was 35.2 percent at September 30, 2005, compared to 26.7 percent at December 31, 2004.
Cash provided by operations increased to a record $143.8 million during the third quarter of 2005. Working capital improvements were a major contributor to this quarter's strong cash flow. During the quarter, the Company repurchased 600,000 shares under the 10b5-1 plan announced during the third quarter. Bemis also purchased an additional 1.3 million shares on the open market during the third quarter. The cost to purchase the total 1.9 million shares of common stock was $49.5 million. Bemis has a remaining repurchase authorization of 2.8 million shares.
Interest expense for the third quarter of 2005 increased to $9.8 million compared to $4.1 million during the same quarter of 2004. Of the total $5.7 million increase, $3.7 million is attributable to the acquisition of Dixie Toga, and the remainder is related to higher interest rates compared to the third quarter of 2004.
2005 Earnings Outlook
While management is confident that Bemis is well positioned to succeed in this volatile raw material cost environment, short-term margin pressure may continue. Management expects fourth quarter 2005 diluted earnings per share to be in the range of $0.37 to $0.40 per share. This range results in a total year earnings estimate of $1.46 to $1.49 per share and excludes the impact of any tax charges related to the potential repatriation of unremitted foreign earnings being considered under the provisions of the American Jobs Creation Act of 2004.
Management expects capital expenditures for the total year to be in the range of $175 million to $185 million. This estimate reflects strong fourth quarter capital spending expected on current projects including a dedicated printing press and equipment related to additional business, expanded capacity for meat packaging in Europe, and a license for a global enterprise resource planning system to be implemented over the next several years.
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