Per a Bloomberg report, packaging products-maker Bemis Company Inc. (NYSE:BMS) is the takeover target of Australian company, Amcor Limited. Following the report, Bemis’ shares surged 10% to close at $46.90 on Sep 7.
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Amcor is working with advisers in order to prepare a bid for Neenah, WI-based Bemis, which has a current market capitalization of $4.47 billion. The company offers multilayer polymer, blown and cast film structures as well as injection molded plastic and folding carton packaging products. Its products are utilized in producing packaging for food, medical, pharmaceutical, personal care, electronics, and industrial applications. It sells its products through direct sales force in North America, Latin America, Europe, and Asia-Pacific.
Is Bemis Worth a Takeover Bid?
Bemis’s recent results were nothing to write home about. In the first half of 2017, the company’s earnings declined 17%. In both the quarters of 2017, Bemis’ earnings failed to match the Zacks Consensus Estimate. In the trailing four quarters, the company has posted a negative average earnings surprise of 5.89%. During second-quarter conference call, Bemis lowered 2017 adjusted earnings per share guidance range to $2.35-$2.50 from the prior range of $2.50-$2.60, citing the impact of sharp contraction and tough economic environment in Brazil. The mid-point of the guidance reflects a year-over-year decline of 10%.
The estimates for third-quarter 2017, fiscal 2017 and fiscal 2018, have moved south in the past 30 days, reflecting the negative outlook of analysts. For the third quarter, the estimate has gone down 11% to 64 cents per share. For fiscal 2017, the estimate has dipped 6% to $2.40 in the past 30 days. For fiscal 2018, the estimate has gone down 6% to $2.67 per share.
During March, certain of Bemis’ large U.S. core consumer packaged goods customers lowered volume projections for the balance of 2017. These lower volumes, along with the operational inefficiencies associated with the lower volumes, will impact Bemis’ sales and earnings for 2017. Further, the political instability and challenging economic environment in Brazil continues to impact business.
During March, certain of Bemis’ large U.S. core consumer packaged goods customers lowered volume projections for the balance of 2017. These lower volumes, along with the operational inefficiencies associated with the lower volumes, will impact Bemis’ sales and earnings for 2017. Further, the political instability and challenging economic environment in Brazil continues to impact business.
In June, Bemis announced details about its restructuring and cost savings plan to improve profitability, primarily in the U.S. and Latin American businesses by reducing manufacturing and administrative cost structure. These efforts are likely to generate total cost savings of $55–$60 million, with savings starting in 2017 and fully realized during 2019.
In the past year, its shares have declined 4.5% in contrast with 9.3% rise recorded by the industry. The company continues to bear the brunt of a flat-to-declining U.S. packaged food market. In eight of the past nine years, volumes in the core flexible packaging business have been flat to down as Bemis continues to struggle within a complex supply chain. The stock price underperformance could make shareholders welcome an offer by Amcor.
Bemis is currently trading at a forward 12-month Enterprise Value/ EBITDA (EV/EBITDA) ratio of 10.3 while the industry’s 12-month forward EV/EBITDA ratio is pegged higher at 12.4. This implies that the stock is cheap at current levels.
Manifold Benefits to Amcor
Amcor Limited provides packaging solutions in Western Europe, North America, Australia, New Zealand, and internationally. The company manufactures rigid plastic containers for a range of beverage and food products. It also manufactures flexible and film packaging for the food and beverage industry as well as pet food packaging; and medical and pharmaceutical, fresh produce, and snack food segments. The company also offers flexible packaging for specialty folding cartons for tobacco packaging and other industries; and packaging solutions for home and personal care products.
If the takeover happens, it, would make Amcor the world's fourth-biggest packaging company surpassing can maker Ball Corporation (NYSE:BLL) but behind big three paper and pulp businesses — International Paper Company (NYSE:IP) , WestRock Company and Oji Holdings Corporation. The transaction would be in sync with the Amcor’s long endeavor to shift from metal and glass to plastics. Further, Bemis would increase exposure to the Americas from around a third of revenues to more than half.
Bemis currently carries a Zacks Rank #4 (Sell). A better-ranked stocks in the same space includes Avery Dennison Corporation (NYSE:AVY) which flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Avery Dennison Corporation has an estimated long-term earnings growth rate of 7%.
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