EUR 850.00 For Business Accounts Only

Morningstar | Bemis Maintains Decent Performance Despite Rising Input Costs; Maintaining $59 FVE

Although Bemis and its peers are fighting higher freight and input costs, margins climbed in two of three segments for the company, due in part to restructuring. North America remained relatively weak. The company generated just over 3% in organic sales growth, but operating income fell roughly 4% from the prior year. However, we think Bemis' plan to shrink its U.S. footprint should eventually boost operating rates and margins. In addition, shareholders should benefit from the still-on-track deal with Amcor. With our outlook unchanged, we maintain our $59 per share fair value estimate  and narrow moat rating.

Performance in U.S. packaging was fairly weak relative to the prior year, with segment operating margins down 80 basis points to 13.6%. Although Bemis raised prices, volumes fell 2% due to a planned facility shutdown. Items including increased freight costs and incentives for customers and employees were more than enough to offset improvements under the agility program. Although we assume some margin recovery, we think much of Bemis' agility program is required just to maintain margins. Most of the benefit will come from higher operating rates as packaged goods companies gradually grow volumes, and Bemis rightsizes its footprint.

Bemis' international performance was fairly strong, given its operations in countries battling inflation and weak economic conditions. Organic growth was 4.4% in the Latin America packaging segment, excluding currency, though inflation led to a 24% currency headwind on sales. Segment income, surprisingly, rose to $8 million on higher margins despite economic weakness and inflation. The rest-of-the-world packaging segment drove organic sales growth of 6%, and margins expanded to nearly 12% due to operating leverage and higher-margin healthcare sales. Despite near-term challenges in both segments, we think much of Bemis' future growth will hinge on both growth in emerging-market packaged good consumption and increasing healthcare needs.