EUR 850.00 For Business Accounts Only

Morningstar | Bemis Makes Steady Progress on Restructuring in 2Q; Maintaining $49 FVE. See Updated Analyst Note from 26 Jul 2018

Bemis' second-quarter results gave us slightly more confidence that the company will be able to turn its declining margins around over the coming six to 12 months. Each segment mustered positive organic sales growth and operating margins finally have begun to firm up. Management trimmed the high end of its guidance range by 5 cents because of currency headwinds in Brazil, but that hasn't changed either our short- or long-term outlook for the business. We maintain our $49 per share fair value estimate and narrow-moat rating for Bemis.

In the U.S. packaging segment, margins firmed up substantially. Operating margins were 13.1%, up 1% from the prior-year period due to the benefits of restructuring and a more favorable mix. The segment also generated 3.4% in organic sales growth despite having closed a facility in Tennessee which was not included in the quarter. Although we expect full-year margins for the segment to fall from 2017 levels, we expect to see improvement in both 2019 and 2020 as a leaner footprint improves overall profitability via better operating rates.

Bemis' two global segments also performed well excluding currency impacts. Latin America packaging managed organic growth of 8.8%, almost double that of the prior year, and the product mix proved far more profitable as segment income more than tripled. We think margins will have additional room to grow over the coming years, dependent on at least some stabilization in Brazil's economy. Rest of world packaging similarly almost doubled margins versus the prior year, with a richer product mix driving much of the gain. Management has guided to both segments expanding margins by roughly 1% for the year, which should be achievable.