Is It Time To Dump Bemis (BMS) Stock From Your Portfolio?

Global manufacturer of flexible packaging products and pressure sensitive materials Bemis Company Inc. (NYSE:BMS) seems to be underachieving of late. This Zacks Rank #4 (Sell) stock has yielded a negative year-to-date return of 3.4%. Let’s delve deeper to find out what’s weighing upon investor sentiment.

Estimates Revised Downward

All the seven estimates available for Bemis have moved down in the last 60 days for both fiscal 2017 and 2018, reflecting the negative outlook of analysts. For fiscal 2017, the estimate has dipped 13% to $2.56 in the past 60 days. For fiscal 2018, the estimate has declined 12% to $2.83 per share.

Negative Surprise History

Bemis had posted negative earnings surprise of 10.77% in the first quarter of 2017. The company has an average negative earnings surprise of 1.93% in the past four quarters.

Underperforming the Industry

The stock has dipped 7% in the last one year, grossly underperforming the Zacks categorized Containers-Paper/Plastics sub-industry’s gain of 20.3%.

Weak Q1

The company posted quarterly adjusted earnings per share of 58 cents, a 3.3% year-over-year drop, missing the Zacks Consensus Estimate of 64 cents. Results were impacted by lower-than-expected unit volumes and operational issues in the U.S. Packaging segment. The company faced two key issues in the U.S. – volume call downs from several core customers as a result of softness in their businesses and disappointing operational execution.

During March, Bemis’ customers started to tune down their volume outlooks for the balance of the year owing to the decline in business volumes. The company had ramped up workforce and resources for customers and consequently had to bear the impact of the dip in customer volumes. It has planned an aggressive manufacturing cost takeout program focused on waste reductions, productivity and material usage as well as substitutions. The company struggled to deliver on these plans. Waste was high in certain areas and Bemis also faced some unplanned downtime. Further, it didn't gain traction on the material usage and substitutions as per plans.

Lower Guidance

The company lowered 2017 adjusted earnings per share guidance range to $2.50–$2.60 from the previous $2.85–$3.00. This reflects lower volume expectations for U.S Packaging and the challenges in the operational execution in the U.S. Compared with the earnings per share of $2.69 in fiscal 2016, the mid-point of the guidance reflects a year-over-year decline of 5%.

Near-Term Headwinds Remain

The operating environment remains challenged currently, highlighted by anemic end-market volumes particularly processed foods and higher plastic resin costs. Bemis 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 the company continues to struggle within a complex supply chain. The top line has been on a downward spiral in the past few years as is evident from the chart below.



Stocks to Consider

Some better-ranked stocks in the sector include AptarGroup, Inc. (NYSE:ATR) , UFP Technologies, Inc. (NASDAQ:UFPT) and Berry Global Group, Inc. (NYSE:BERY) .

AptarGroup’s estimates for fiscal 2017 have gone up 5% and for fiscal 2018 have gone up 4% in the past 60 days. The stock flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

UFP Technologies’ estimates for fiscal 2017 have gone up 19% in the past 60 days and for fiscal 2018 have moved up 2%. The stock sports a Zacks Rank #1.

Berry Plastic’s estimates for fiscal 2017 have gone up 5% and for fiscal 2018 have gone up 3% for fiscal 2018 in the past 60 days. The stock carries a Zacks Rank #2 (Buy).

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