Bemis prepares for challenging 2012

US flexible packaging supplier Bemis has reported its results for the full-year and fourth quarter of 2011, and said it is making changes to its manufacturing footprint in 2012 to create ‘positive profit momentum’.
 
Company president and chief executive officer Henry Theisen said: ‘We faced a challenging environment in 2011, as dramatic resin price increases and softening customer demand impacted our performance throughout the year. As we enter 2012, we are making changes to our manufacturing footprint in order to meaningfully reduce expenses and create positive profit momentum going forward.’
 
Theisen was speaking after Bemis reported quarterly diluted earnings of US$0.19 per share for the fourth quarter ended December 31, 2011. It said diluted earnings per share would have been US$0.45 for the fourth quarter of 2011, excluding the effect of facility consolidation and acquisition related integration charges. 2011 adjusted diluted earnings per share were US$1.99, reflecting the negative impact of higher raw material costs and lower unit sales volumes during 2011, Bemis said.
 
A recent study by PCI Films Consulting reported that Bemis has a 20 percent share of North America’s converted flexible packaging market, more than twice that of its nearest competitor and way ahead of all others operating in the NAFTA region.
 
For the full-year 2011, net sales were US$5.32 billion, an increase of 10.1 percent compared to net sales of US$4.84 billion in 2010. Acquisitions contributed approximately 4.8 percent to net sales growth. The remaining organic sales growth primarily reflects selling price increases partially offset by lower unit sales volume.
 
Other highlights for the full-year period include cash flow from operations up to US$416.6 million, an increase of 13.2 percent from 2010, and acquisitions of barrier packaging manufacturing companies in China and North America providing Bemis with a route to expand its geographic and market application reach.
 
Net sales of US$1.27 billion for the fourth quarter of 2011 represented a 1.7 percent increase from US$1.25 billion for the same period of 2010. Acquisitions increased net sales by approximately 1.8 percent.
 
During the fourth quarter of 2011, Bemis initiated a facility consolidation program to improve efficiencies and reduce fixed costs. As a part of this program, both administrative and production workforce levels were reduced during the fourth quarter. Bemis has also announced the planned closure of five facilities, two of which were completed by early January. Most of the production from these five facilities will be transferred to other Bemis facilities.
 
Charges associated with the facility consolidation-related activities totaled US$38.4 million, including US$26.3 million of employee-related costs and US$12.1 million of fixed assets-related expenses. Management expects to recognize additional pre-tax charges related to these efforts of approximately US$45 million over the next 15 months, primarily associated with accelerated depreciation, equipment relocation and lease termination expenses.
 
In the Bemis flexible packaging business segment, full-year net sales of US$4.75 billion represented an increase of 11.1 percent compared to 2010. Acquisitions increased net sales by approximately 5.4 percent. The remaining increase in net sales was driven by higher selling prices partially offset by the impact of lower unit sales volumes of packaging for certain applications such as bakery, confectionery, pet food, and health and hygiene products.
 
Operating profit for the period was US$424.9 million, or 8.9 percent of net sales, compared to US$468.5 million, or 11.0 percent of net sales, in 2010. Excluding the effect of special charges, operating profit would have been US$463.2 million, or 9.8 percent of net sales, for 2011, compared to US$488.5, or 11.4 percent of net sales, for 2010. The net effect of currency translation increased operating profit in 2011 by US$5 million compared to 2010. The lower percentage of operating profit to net sales in 2011 reflects the impact of higher raw material costs during the first half of the year and lower unit sales volumes during the second half of the year.
 
In the fourth quarter, flexible packaging business segment net sales increased two percent to US$1.13 billion for the fourth quarter of 2011 compared to the same period of 2010, due entirely to the impact of acquisitions. The steady net sales levels for the fourth quarter reflect generally higher selling prices and improved sales mix offset by lower unit sales volumes in the fourth quarter of 2011 compared to the same period of 2010.
 
Flexible packaging operating profit for the fourth quarter of 2011 was US$74.8 million, or 6.6 percent of net sales, compared to US$119.5 million, or 10.7 percent of net sales, for the same period of 2010. Excluding the effect of special charges, flexible packaging operating profit, as adjusted, would have been US$111.4 million, or 9.8 percent of net sales, for the fourth quarter of 2011. Currency translation increased operating profit by US$1.6 million during the quarter. The decrease in operating profit as a percentage of net sales primarily reflects the impact of lower unit sales volumes in 2011.
 
Commenting on the results of flexible packaging segment, Theisen said: ‘Operating performance in our flexible packaging business reflects the negative impact of higher raw material costs and lower unit sales volumes.
 
‘We have taken aggressive action to reduce fixed costs by reducing administrative headcount and adjusting our factory workforce to meet our current business needs. We are consolidating business into more efficient facilities in order to improve production and scheduling efficiency in the future.
 
‘Once completed, these actions will drive improvement in our sales mix and operating profit. We are also well positioned to profitably benefit from the growth of high barrier packaging in emerging markets such as Brazil and China, and we will invest in new capacity in 2012 in each of those regions to support that growth.’
 
Commenting on the year ahead, Theisen said: ‘As we enter 2012, we expect unit sales volumes to be generally equal to 2011. Food cost inflation increased retail grocery costs for consumers in 2011, which negatively impacted consumer demand for many of our customers' products. This trend is expected to continue through the first half of 2012. We expect our facility consolidation program to substantially reduce fixed costs and improve operating efficiencies.’