Bemis Company Incorporation (BMS) reported second-quarter 2010 adjusted earnings of 58 cents per share, beating the Zacks Consensus Estimate of 56 cents. Results also compare favorably with adjusted earnings of 50 cents per share in the year-ago period. The 16% year-over-year improvement was largely driven by accretive acquisitions, manufacturing savings and sales mix improvements.

Including expenses related to purchases accounting for inventory and order backlog of 2 cents per share and acquisition related integration costs of 4 cents per share, Bemis Company reported earnings of 52 cents per share, up from 47 cents reported in second quarter 2009. Its prior-year quarter incurred transaction-related costs, primarily for the acquisition of Alcan Food Packaging Americas, of 3 cents per share.

Total revenue of Bemis Company for the quarter was $1.3 billion, a substantial increase of 47% from $0.9 billion in second quarter 2009. The increase included organic sales growth of 6.5%. Revenue increases at both its segments led to the overall revenue climb. Revenue reported by the company was almost in line with the Zacks Consensus Estimate.

Cost of products sold increased to $1.0 billion, up from $0.7 billion in second quarter 2009.

Selling, general and administrative expenses were $112.1 million, up from $8.7 million in the prior-year quarter. Interest expense in the quarter increased three-fold to $18.5 million from the prior-year quarter. The increase in both expenses compared with the prior-year quarter is due to the impact of the Food Americas acquisition in March 2010.

Operating profit reported by Bemis in the quarter was $112.3 million, up from $84.4 million in the prior-year quarter.

Bemis reported net income of $61.9 million, up 25% from $49.6 million reported in second-quarter 2009.

Segment Update

Flexible Packaging: Sales improved 54% year over year to $1.13 billion in the quarter. Acquisitions accounted for 45% of the sales increase, while favorable currency translation increased sales by 2.8% and higher sales of value-added products and improved unit sales volume contributed 5.8% to the increase.

Bemis reported a segment-adjusted profit of $133.0 million or 11.8% of sales in the quarter, up from $102.6 million or 14.0% of sales in the prior-year quarter. Including expenses related to purchases accounting for inventory and order backlog of $3.5 million and acquisition-related integration costs of $3.9 million, reported operating profit was $125.6 million or 11.1% of sales, compared with $102.3 million or 13.9% of sales in second-quarter 2009. The prior-year quarter included severance costs for reduction in workforce of $0.3 million.

Pressure Sensitive Materials: Segment sales totaled $143.2 million, up 7.8% year over year. Unit volume growth in both European and North American operations and across all product lines largely contributed to the year-over-year increase.

Operating profit at the segment was $11.7 million or 8.2% of sales, up from $42.9 million or 2.2% of sales n the prior year quarter.

Financial Update

Cash and cash equivalents of Bemis declined considerably to $80.3 million at quarter end from $1.1 billion at the end of fourth quarter 2009. Long-term debt increased to $1.4 billion at the end of the quarter from $1.2 billion at the end of fourth quarter 2009. Bemis used cash to reduce its debt balance by $60 million during the quarter.

Subsequent to the end of the quarter, Bemis completed the sale of parts of its food packaging business for $82 million, and used the proceeds to further pay off debt.

Net cash provided by operating activities in the first half of 2010 decreased substantially to $124.1 million from $267.3 million in the first half of 2009. Capital expenditure decreased to $39.3 million in the first half of 2010 from $45.3 million in the prior-year period.

Dividend

During the second quarter of 2010, Bemis paid a quarterly dividend of 23 cents per share to shareholders of record as of May 17, 2010.

Guidance

Management expects third-quarter 2010 adjusted earnings to be in the range of 55 cents to 60 cents per share. It also raised the full-year 2010 adjusted earnings guidance to a range of $2.10 to $2.20 per share from the previously guided range of $2.00 to $2.15 per share. Guidance excludes the impact of acquisition financing costs for the first two months of 2010 before the Food Americas acquisition was completed, which represented 6 cents per share.

Management expects capital spending to total $14 million in full-year 2010. It also expects capital spending to increase in the second half of 2010. Depreciation and amortization expense is projected to be $210 million for 2010.

Owing to the ongoing successful integration of Food Americas acquisition, increase in unit volume in product lines, improvement in sales mix and World Class Manufacturing improvements, Bemis is well positioned to post solid results in the upcoming quarters.

However, results of Bemis can be affected by unfavorable currency translation. Also, a high level of debt keeps us on the sidelines. We remain Neutral on Bemis Company. The quantitative Zacks #3 Rank (Hold) for the company does not indicate any clear directional pressure on the stock over the near term.
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