Bemis Q3 Profit Down 15%, Job Cuts Planned
Wednesday, October 31, 2007
Press release from the issuing companyBemis Company Reports Third Quarter 2007 Results
NEENAH, Wisc. - October 30, 2007 - Bemis Company, Inc. today reported quarterly diluted earnings of $0.40 per share for the third quarter ended September 30, 2007, compared to $0.45 per share for the same quarter of 2006. Diluted earnings per share for the third quarter of 2006 included restructuring and related charges totaling $0.03 per share. (See attached schedule: "Reconciliation of Non-GAAP Data".)
Net sales for the third quarter of 2007 were $905.7 million, comparable to net sales of $903.3 million for the same period of 2006. Currency benefits contributed 3.3 percent to net sales for the current quarter.
"Reduced demand for many food and consumer products in North America has adversely impacted our capacity utilization this quarter," said Jeffrey Curler, Chairman and Chief Executive Officer. "Several of our operations have reduced workforce levels, and all of our business units are focused on immediate cost reduction. We intend to accelerate sales and profit growth by strengthening our sales efforts in our target markets. Combined with opportunities related to our new packaging products, we expect to improve our competitive position and build positive sales and profit growth momentum going forward."
Flexible packaging, which represented about 82 percent of total Company net sales during the quarter, reported net sales of $745.4 million in the third quarter, a decrease of 0.5 percent compared to net sales of $749.1 million for the third quarter of 2006. Currency related sales growth of 3.1 percent was more than offset by lower sales volumes in several markets. Segment operating profit for the third quarter of 2007 was $81.5 million, or 10.9 percent of net sales, which included restructuring and related charges of $0.1 million. Segment operating profit for the third quarter of 2006 was $92.0 million, or 12.3 percent of net sales, which included restructuring and related charges of $5.1 million. Excluding restructuring and related charges, segment operating profit as a percentage of net sales would have been 11.0 percent in the third quarter of 2007 compared to 13.0 percent a year ago. Currency benefits added $1.9 million to operating profit in the third quarter of 2007.
Commenting on the results of this business segment, Curler said, "Softening consumer demand in many food and consumer product markets has negatively impacted our manufacturing cost absorption. In response, we are reducing workforce levels and lowering overall costs in order to match capacity with current market demand and improve our competitive position. We intend to leverage these cost control measures to gain market share.
Our medical device packaging business completed the transition to its new European plant and coating equipment, temporarily increasing costs and reducing production efficiencies in this quarter. We are pleased with customer response to our new facilities and capacity, and we are now well positioned to serve this high growth market and expand into the global pharmaceutical market."
Pressure Sensitive Materials
Third quarter net sales from the pressure sensitive materials business segment were $160.2 million, a 3.9 percent increase from the third quarter of 2006. Currency effects accounted for all of this growth in net sales. Segment operating profit for the third quarter of 2007 was $9.1 million, or 5.7 percent of net sales, compared to the third quarter of 2006 when segment operating profit was $11.4 million or 7.4 percent of net sales. Currency benefits added $0.4 million to operating profit for the third quarter of 2007.
"While our label products sales are growing modestly in the competitive North American market with niche products and quality customer service, sales of our higher margin graphic products weakened sequentially from the second quarter of 2007," said Curler. "Production inefficiencies coupled with higher energy costs in the third quarter have eroded operating margins in our European operations where most of our graphic products are produced. Our business teams are taking action to immediately reduce costs and increase profitability."
Other Costs (Income), Net
For the third quarter of 2007, other costs and income included $7.2 million of financial income compared to $5.5 million for the third quarter of 2006. Bemis recorded a $4.7 million restructuring charge related to employee costs in the third quarter of 2006, which was substantially offset by the $4.4 million favorable resolution of a litigated foreign excise tax liability.
Capital Structure and Cash Flow from Operations
Total debt to total capitalization was 35.9 percent at September 30, 2007, compared to 33.0 percent at December 31, 2006. Total debt as of September 30, 2007 was $916.9 million, an increase of $127.1 million from the balance of $789.8 million at December 31, 2006. The increase in borrowing primarily reflects the impact of an accelerated share repurchase program executed on August 3, 2007 for $117.9 million. Cash flow from operations of $104.5 million in the third quarter of 2007 was used to fund capital expenditures of $44.3 million and dividend payments totaling $21.8 million during the quarter.
4th Quarter 2007 Earnings Outlook
Bemis expects challenging market conditions to continue through the remainder of 2007 and is focused on improving its cost structure to match anticipated fourth quarter volume levels. Multiple raw material cost increases have been announced by suppliers, which will put added pressure on operating profit levels for the next few quarters. In light of these factors, management' s current forecast for diluted earnings per share for the fourth quarter of 2007 is in a range of $0.39 to $0.42 per share.
Management continues to expect capital expenditures to be in the $175 to $185 million range for 2007. With several multiyear expansion projects now completed or nearing completion, capital expenditures for 2008 are expected to be lower than 2007 levels.
Presentation of Non-GAAP Information
Some of the information presented in this press release reflects adjustments to "As reported" results to exclude certain amounts related to the Company' s restructuring initiative. This adjusted information should not be construed as an alternative to the reported results determined in accordance with generally accepted accounting principles in the United States of America (GAAP). It is provided solely to assist in an investor' s understanding of the impact of the Company' s restructuring initiative on the comparability of the Company' s operations. A reconciliation of the GAAP amounts to the non-GAAP amounts is included with this press release. Additional details related to these non-GAAP disclosures are provided in the Form 8-K that the Company filed with the Securities and Exchange Commission today.
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