“This quarter, we closed the last of the nine facilities in our facility consolidation program, achieved our highest gross margin since 2009, and reduced working capital levels,” said Henry Theisen, Bemis Company's president and CEO. “Our focused efforts to improve our long term sales mix and return on invested capital trends have been effective. Stronger unit volumes in high barrier liquid packaging reflect the trend toward flexible pouches in the United States. We continue to make strategic growth investments in both Latin America and China which we expect to deliver sales growth in our Global Packaging segment beginning in 2014. We achieved double digit growth in adjusted earnings per share this quarter in spite of Brazilian currency headwinds and continued weakness in our European pressure sensitive graphic products market.”
Highlights of the Second Quarter of 2013:
• Adjusted diluted earnings per share increased 13.0% to $0.61, compared to $0.54 in the second quarter of 2012, in line with management's guidance for the quarter.
• Gross profit as a% of net sales improved to 19.4% compared to 17.8% in the second quarter of 2012.
• Facility consolidation charges totaled $20.9 million and the final plant closing was completed in May 2013
• The Clysar thin gauge shrink film plant was sold for a pre-tax gain of $5.9 million and net cash proceeds of $30.4 million.
• Management established adjusted diluted earnings guidance for the third quarter of 2013 in the range of $0.57 to $0.63 per share, and updated total year 2013 earnings guidance to the range of $2.30 to $2.40 per share.
On May 29, 2013, Bemis completed the sale of its Clysar thin gauge shrink film plant. Annual net sales of Clysar films were approximately $70 million and were sold primarily through distributors. Net proceeds of the transaction totaled $30.4 million. A $5.9 million pre-tax gain on the sale was recorded as part of other non-operating income during the second quarter of 2013 and was excluded from the calculation of adjusted diluted earnings per share.
On July 1, 2013, Bemis acquired Foshan New Changsheng Plastics Films Co., LTD (NCS), a specialty film manufacturer located in Foshan, China. NCS is a supplier to Bemis' food packaging plant in Dongguan, China and other specialty film product customers. The acquisition is expected to be neutral to Bemis' earnings results for 2013. Incremental net sales from NCS are expected to be approximately $60 million annually, and the acquisition of this film platform is expected to provide cost and logistics benefits to support Bemis' broader Asia-Pacific growth strategy.
For the second quarter of 2013, U.S. Packaging net sales of $780.9 million represented a decrease of 1.0% compared to the same period of 2012, primarily reflecting the impact of the sale of the Clysar plant at the end of May. Since early 2012, Bemis' facility consolidation program has resulted in the closure of six U.S. Packaging segment manufacturing facilities. Most of the production at these facilities was relocated to the remaining manufacturing locations, while other low margin production was discontinued. Excluding the impact of production that was discontinued as part of the facility consolidation program, as well as the sale of the Clysar facility, net sales increased modestly during the second quarter reflecting a net increase in unit sales volume compared to the second quarter of 2012.
U.S. Packaging segment operating profit for the second quarter of 2013 was $80.3 million, or 10.3% of net sales, compared to $77.9 million, or 9.9% of net sales, in 2012. Facility consolidation program costs negatively impacted results during each period. Excluding these costs, segment adjusted operating profit for 2013 would have been $101.5 million, or 13.0% of net sales, compared to $90.2 million, or 11.4% of net sales, in 2012. Improved profitability primarily reflects the benefits of the facility consolidation related cost savings during the second quarter.
For the second quarter of 2013, Global Packaging net sales of $374.4 million represented a decrease of 2.0% compared to the second quarter of 2012 reflecting the weaker Brazilian currency. The acquisition of Micris during the third quarter of 2012 increased net sales by about 1.6%, while the closing of two plants in the fourth quarter of 2012 decreased net sales by about 3.5%. Excluding the impact of currency, acquisitions, and plant closures related to Bemis’ facility consolidation program, net sales increased by approximately 1.9%. Compared to the second quarter of 2012, selling price increases were partially offset by lower unit sales volume in several applications.
Global Packaging segment operating profit for the second quarter was $27.4 million, or 7.3% of net sales, compared to $18.4 million, or 4.8% of net sales, for the same period in 2012. Facility consolidation activities and acquisition-related integration costs impacted results during each period. Excluding these items, segment adjusted operating profit would have been $27.1 million, or 7.2% of net sales, compared to $27.4 million, or 7.2% of net sales, in 2012. The net effect of currency translation decreased operating profit during the second quarter of 2013 by $0.8 million.
Pressure Sensitive Materials net sales totaled $141.8 million for the second quarter, nearly unchanged compared to the same period in 2012. Currency translation increased net sales by 0.8% during the period. Higher unit sales of low margin label products in the North American operations offset lower sales for value-added graphic products from the European operations.
Second quarter operating profit was $6.0 million, or 4.2% of net sales, compared to $10.9 million, or 7.7% of net sales, for the second quarter of 2012. Lower operating margins during the quarter primarily reflect poor performance in the European pressure sensitive materials business.
Commenting on the year ahead, Mr. Theisen said, “We continue to expect total 2013 unit sales volume levels to be consistent with 2012, accompanied by a generally stable raw material cost environment. With the facility consolidation activities substantially completed, we are focused on continuous improvement to achieve our goals of gross margins expansion, healthy earnings per share growth, and strong cash flow generation. In this low-growth global economic environment, our core business is growing modestly, and we are executing a strategy to deliver on those goals.”