Bemis Reports Lower Q2 Results and Lowers Guidance
Press release from the issuing company
MINNEAPOLIS--July 27, 2005-- Bemis Company, Inc. today reported quarterly diluted earnings of $0.38 per share for the second quarter ended June 30, 2005, 9.5 percent lower than second quarter earnings of $0.42 per share in 2004. Second quarter net sales increased 23.4 percent to a record $879.9 million from $712.9 million in the second quarter of 2004. Excluding the impact of acquisitions, net sales increased by 7.6 percent.
"This quarter's performance has improved from the first quarter, but continues to reflect margin pressures associated with higher costs and limited volume growth," said Jeff Curler, Bemis Company Chairman, President and Chief Executive Officer. "Selling prices have been adjusted to reflect higher flexible packaging raw material costs, but margin improvement has been impacted by customer order patterns and generally higher operating costs. We have focused engineering efforts on cost reduction, improved production efficiency and successful implementation of new capacity in areas of strong demand. While we expect the second half of 2005 to improve over the first half, we have reduced our earnings per share expectations for the total year."
Flexible packaging, representing about 82 percent of total company net sales, reported net sales of $724.7 million in the second quarter, an increase of 28.4 percent compared to the same quarter in 2004. Excluding the impact of acquisitions, net sales increased by 8.5 percent, primarily reflecting price increases. Currency effects accounted for about one percent of sales growth. Operating profit for the second quarter was $80.7 million, an increase of 2.7 percent from $78.6 million in the second quarter of 2004. As a percentage of net sales, operating profit decreased to 11.1 percent from 13.9 percent a year ago.
Commenting on the flexible packaging business segment results for the quarter, Curler said, "Higher resin costs, a shift in customer order patterns and a highly competitive environment have dampened operating profit in 2005. While selling prices have been adjusted to reflect the higher raw material costs, the process took longer than anticipated and much of the benefit will be recognized during the second half of the year. We are receiving new business with value added products in both North America and Europe, although the scaling up of orders is taking longer than anticipated. Our joint venture in Mexico, which has struggled during the past year, will benefit during the second half of the year from new operations management and continued support from our North American flexible packaging management team. We continue to be very pleased with our recent acquisition of Dixie Toga. While the results for the second quarter were modestly accretive to earnings per share, Dixie Toga's business is seasonally stronger during the second half of the year."
Pressure Sensitive Materials
Second quarter net sales from the pressure sensitive materials business segment rose to $155.2 million, a 4.4 percent increase from the second quarter of 2004. Currency effects increased net sales by about 2.4 percent. Operating profit for the second quarter of 2005 was $9.3 million, equal to operating profit for the second quarter of 2004. As a percentage of net sales, operating profit decreased to 6.0 percent from 6.3 percent a year ago.
Commenting on the results of the pressure sensitive materials business segment, Curler said, "Operating margins in our pressure sensitive materials business have stabilized after several years of volatility. We continue to focus our efforts on improving sales mix and providing product innovation to the graphics and technical products markets. We are excited about the opportunities for new business in this segment and anticipate steady operating profit improvement as this business grows."
Other Costs (Income), Net
Other costs and income includes a $0.5 million restructuring charge related to the sale of a plant that was closed during 2003, and $0.8 million of currency exchange loss. During the second quarter of 2004, other costs and income included $2.8 million of equity income from the Company's Brazilian joint venture with Dixie Toga. In 2005, this joint venture is accounted for on a consolidated basis and the related results for the second quarter of 2005 are included in flexible packaging operating profit.
Total debt as of June 30, 2005 was $845.8 million, an increase of $306.2 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 35.4 percent at June 30, 2005, compared to 26.7 percent at December 31, 2004.
Interest expense for the second quarter of 2005 increased to $9.9 million compared to $3.9 million during the same quarter of 2004. Of the total $6.0 million increase, $3.0 million is attributable to acquisition financing for Dixie Toga, $0.7 million is related to debt assumed in the acquisition, and the remainder is related to higher interest rates compared to the second quarter of 2004.
2005 Earnings Outlook
Management expects each quarter of 2005 to show sequential improvement and expects third quarter 2005 diluted earnings per share to be in the range of $0.40 to $0.43 per share. Management is lowering guidance for the full year 2005 to $1.50 to $1.55 per share to reflect reduced customer volume trends and a change in the planned sales mix.
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