Why Is Bemis (BMS) Down 2.4% Since The Last Earnings Report?

A month has gone by since the last earnings report for Bemis Company, Inc. (NYSE:BMS) . Shares have lost about 2.4% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Bemis’s Earnings Lags, Sales Beat in Q1

Bemis reported first-quarter 2017 adjusted earnings per share of $0.58, down 3% year over year. Earnings also missed the Zacks Consensus Estimate of $0.65. Results in the quarter were affected by lower-than-expected unit volumes and operational issues in the U.S. Packaging segment. Including one-time costs, earnings came in at $0.55 per share compared with $0.59 reported in the prior-year quarter.

Operational Update

Net sales increased 3% to $995 million from $967.9 million in the year-ago quarter. Revenues marginally beat the Zacks Consensus Estimate of $994 million.

Cost of products sold went up 5% year over year to $798 million in the quarter. Gross profit dipped 5% to $197.9 million from $208.8 million in the prior-year quarter. Gross margin contracted 170 basis points (bps) to 19.9% in the quarter. Selling, general and administrative expenses decreased 5% to $94.6 million from $99.4 million in the year-ago quarter. Adjusted operating income dipped 6% year over year to $93.8 million. Adjusted operating margin contracted 100 bps to 9.4% in the quarter.

Segment Performance

Net sales at the U.S. Packaging segment dipped 1.8% year over year to $649 million. The decline in net sales was due to a 1% dip in unit volumes by contractual selling price reductions previously negotiated with customers to retain and secure some high-technology packaging business for the long-term, partially offset by higher input costs that are passed through to customers .Segment operating profit was down 18% to $83.5 million from $101.7 million in the prior-year quarter.

Net sales at the Global Packaging segment climbed 12.7% year over year to $346.5 million. Currency translation had a positive impact of 4%, while acquisitions contributed 6%. The organic sales growth of 2.4% reflects increased unit volumes of approximately 3%, partially offset by the mix of products sold. Segment operating profit surged 67% to $27.2 million from $16.3 million in the year-ago quarter.

Financial Update

At the end of the quarter, Bemis generated cash and cash equivalents of $50.8 million, which decreased from $74.2 million at the end of 2016. Cash flow from operations came in at $94.5 million in the quarter compared with $52.6 million in the prior-year quarter.

At the end of the quarter, Bemis’ total debt increased to $1.54 billion, compared with $1.53 billion at the end of 2016. During the reported quarter, the company repurchased 1 million shares for $48.9 million. As of the quarter end, the remaining Board authorization for the repurchase of stock was 19.4 million shares.

Guidance

Bemis lowered 2017 adjusted earnings per share guidance range to $2.50 to $2.60 from the prior range of $2.85–$3.00. Management continues to expect cash from operations to be in the range of $415–$455 million and capital expenditures to be approximately $200 million for full-year 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

VGM Scores

At this time, Bemis' stock has a nice Growth Score of 'B', though it is lagging a bit on the momentum front with a 'C'. The stock was also allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is more suitable growth investors than momentum and value investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are looking for a below average return from the stock in the next few months.