Bemis Company Reports Record Sales for Q4 and 2003
Press release from the issuing company
MINNEAPOLIS--Jan. 22, 2004-- Bemis Company, Inc. today reported quarterly diluted earnings of $0.71 per share for the fourth quarter ended December 31, 2003. Restructuring and related charges for the fourth quarter of $0.07 per diluted share were included in these results. In addition, current quarter results reflect approximately $0.01 per diluted share of benefit from currency translation. Fourth quarter net sales were $664.3 million compared to $630.6 million in the fourth quarter of the prior year, a 5.4 percent increase, of which currency translation accounted for about 2 percent.
For the full year 2003, the Company reported diluted earnings of $2.73 per share. Restructuring and related charges of $0.19 per diluted share were included in these results. Results for 2003 also reflect approximately $0.05 per diluted share of benefit from currency translation. Net sales in 2003 were $2.6 billion, an 11.2 percent increase over net sales in 2002. Acquisitions made during the latter half of 2002 accounted for 6.6 percent of this net sales growth and currency translation benefits accounted for about 3 percent.
"I am excited about our opportunities as we enter 2004," said Jeff Curler, Bemis Company President and Chief Executive Officer. "Unit sales volumes strengthened during the fourth quarter in a number of our flexible packaging markets including shrink bag packaging, confectionery products and snack foods, as well as in the roll label pressure sensitive materials market. Bemis is well positioned to benefit from improving economic conditions. Our 2003 flexible packaging restructuring program has allowed us to refocus on the demands of our markets in 2004."
Flexible packaging, representing nearly 80 percent of total company net sales, delivered net sales of $521.7 million in the fourth quarter. This is an increase of 4.0 percent from $501.7 in the fourth quarter of the prior year. Net sales growth was primarily attributable to increased sales in markets for shrink bag packaging, confectionery products and snack foods. Operating profit for the fourth quarter was $66.4 million, a decrease of 7.3 percent from the fourth quarter of 2002. As a percentage of net sales, operating profit decreased to 12.7 percent from 14.3 percent a year ago. Operating profit included $3.1 million of restructuring and related charges for the fourth quarter of 2003. The remaining decrease in operating profit reflects the impact of competitive pricing and lower sales volume in polyethylene and paper packaging product lines, partially offset by increased operating profit in our high barrier product lines.
For the total year, net sales of flexible packaging increased 12.3 percent to $2.1 billion. Of this total increase, 8.4 percent was a result of acquisitions completed during the latter half of 2002. Operating profit decreased to $263.7 million or 12.6 percent of net sales compared to $289.1 million or 15.5 percent of net sales in 2002. Current year operating profit included $13.9 million of restructuring and related charges. The 2003 restructuring program resulted in the closing of three flexible packaging plants during the third quarter of 2003. Lower operating profits in flexible packaging also reflect increased raw material costs and competitive pricing pressures combined with higher pension expenses.
Commenting on the flexible packaging results, Curler stated, "With our flexible packaging restructuring efforts essentially completed, we are aggressively pursuing new market expansion for our existing technologies and investments in innovative new technologies. Our successful ICE film products will continue to expand into new markets in North America, and we expect to officially launch the product line in Europe with the start-up of two film lines in Finland during the summer of 2004. Our polyethylene product line is integrating laminations, easy open technologies and other consumer convenience features into its packaging products, which will improve sales mix in the coming year."
Pressure Sensitive Materials
Fourth quarter net sales from the pressure sensitive materials business segment were $142.6 million, a 10.7 percent increase from the fourth quarter of 2002. Currency translation contributed about 5 percent, or about half of that net sales growth. This business segment reported operating profit of $3.8 million or 2.7 percent of net sales for the quarter, including $2.7 million of restructuring and related charges. This is compared to earnings performance of this segment during the fourth quarter of 2002 of $10.1 million or 7.8 percent of net sales. Increased sales volumes for roll label products offset lower sales volumes for higher margin graphic and technical products, which negatively impacted the 2003 profit levels.
For the total year, net sales for pressure sensitive materials were $534.1 million, a 7.0 percent increase from the net sales of 2002, substantially due to the benefits of currency translation. Operating profit was $16.3 million or 3.1 percent of net sales in 2003, including restructuring and related charges of $2.7 million reported during the fourth quarter. This compares to operating profit of $27.3 million or 5.5 percent of net sales in 2002.
Commenting on the results of the pressure sensitive materials business segment, Curler said, "We are beginning to see sustained improvement in unit sales volumes in the roll label product markets. We launched a new high performance roll label adhesive product in December that is receiving positive attention from our customers. Once our restructuring efforts are completed in 2004, we will have substantially improved our capacity utilization and reduced fixed costs in that product line."
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fourth quarter of 2003 were $63.5 or 9.6 percent of net sales compared to $59.3 million or 9.4 percent of net sales for the fourth quarter of the prior year. For the year ended December 31, 2003, selling, general and administrative expenses totaled $256.7 million compared to $229.3 million for 2002, or 9.7 percent of net sales for each year. Legal fees and associated costs related to the terminated transaction with UPM-Kymmene and the ongoing investigation into the label industry have been expensed as incurred. Such expenses were insignificant to the fourth quarter of 2003 but totaled $1.8 million in the same quarter of 2002. For the full years 2003 and 2002, these expenses totaled $3.2 million and $1.8 million, respectively. Selling expenses in 2003 have generally increased with the acquisition of two businesses during the latter half of 2002, the establishment of a coordinated European sales force and the introduction of new products in both North America and Europe. Increased pension expense has also impacted this category of expenses in 2003.
Other Costs (Income)
Other costs (income) include certain restructuring charges for employee severance and related benefits, building closure and equipment removal. Such costs totaled $3.4 million for the fourth quarter and $8.9 million for the total year 2003. Also included in other costs (income) are the results of operations in our Brazilian joint venture, Itap/Bemis, of which Bemis owns 33 percent. Bemis' share of the results of operations of this joint venture improved to $1.3 million for the fourth quarter of 2003 compared to $0.4 million during the same period of the prior year, and $3.2 million for the total year 2003 compared to breakeven in 2002.
Total debt to total capitalization was 31.4 percent at the end of the year compared to 40.5 percent at the end of 2002. The Company used strong cash flow to reduce outstanding debt by $124 million during 2003 in addition to making a tax-deductible, voluntary pension contribution in August of 2003 of $40.0 million. Cash flow provided by operating activities was $311.1 million in 2003 compared to $286.7 million in 2002, reflecting good working capital controls.
During 2003, the Company recorded net pension expense of approximately $10 million, compared to $3.2 million of pension income in 2002. In August of 2003, the Company made a voluntary contribution of $40.0 million to the Company's U.S. defined benefit pension plans. At December 31, 2003, the financial assumptions used to measure the cost of the company's defined benefit pension plans were adjusted in accordance with SFAS No. 87, Employers' Accounting for Pensions. The Company reduced its expected long-term rate of return on assets, lowered its discount rate, and lowered the expected rate of salary increases. As a result of the improvement in the funded status of the Company's largest defined benefit pension plan during 2003, a reduction of the additional minimum liability recorded in 2002 has been recognized on the Company's balance sheet as of the balance sheet date. The effect of this reduction in the minimum liability was to increase other comprehensive income (net of tax), a component of equity, by approximately $25 million. Pension expense for 2004 is currently estimated to be about $25 million, an increase of $15 million from the levels of 2003. Based upon current actuarial estimates and assumptions, pension expense is not expected to increase significantly after 2004. The Company does not expect to be required to make cash contributions to its U.S. defined benefit pension plans during 2004.
2004 Earnings Outlook
For the first quarter, which is historically the slowest quarter of the year for the company, Bemis expects results to improve over last year's results to a range of $0.67 to $0.72 per diluted share, which includes an estimated $.01 per share for restructuring and related charges primarily related to completion of the restructuring activities within the pressure sensitive materials business segment. For the full year 2004, management expects to deliver diluted earnings per share in the $3.15 to $3.30 range, including charges of $0.02 per diluted share related to restructuring activities announced in 2003.
Capital expenditures for 2004 are estimated to be $130 to $135 million, approximately equal to total depreciation and amortization for the year. Management expects cash flow from operations to be strong again in 2004, and will continue to prioritize opportunities for strategic acquisitions, investments in new technology, necessary plant expansion, dividends and share repurchases.
Bemis Company, Inc. will Webcast an investor telephone conference regarding its fourth quarter 2003 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". However, they 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.
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