Bemis Company (NYSE: BMS) manufactures flexible packaging products and recorded 2007 total revenues of $3 billion. The company sells the majority of its goods in the United States which accounted for nearly 65% of Bemis' revenues in 2007.
In 2007, the price of plastic resin on the London Metal Exchange increased from $1155 per ton to $1400 per ton. As a result of rising raw materials costs, Bemis' gross margin decreased from 19.1% in 2006 to 18.5% in 2007. This trend continued into Q2 and Q3 2008 when gross margin fell to 17.6% and 16.9% respectively. Likewise, slowed consumer spending growth resulted in a 4.5% decrease in pressure sensitive materials revenue excluding the effect of foreign exchange rates. On the other hand, the dollar depreciated against foreign currencies in both Europe and South America during 2007. Continued currency fluctuations resulted in a 4.4% boost to Bemis' total revenues during the first 9 months of 2008. Bemis competes in the flexible packaging market with companies like Sealed Air (SEE), Sonoco Products Company (SON) and Pactiv (PTV) as well as in the pressure sensitive films market with companies like Intertape Polymer Group (ITP).
The company's products include paper and plastic films and bags as well as related products used to package food, health care and other products. Bemis also manufactures pressure sensitive films used for label printing, graphics printing and technical products assembly. In 2006, the company closed five of its Flexible Packaging plants and one of its Pressure Sensitive Materials plants in an effort cut costs. The 2006 plant closures resulted in $31.2 million worth of restructuring costs for Bemis.
|Revenue and Income ($ MM)||2007||2006||2005|
|Pressure Sensitive Materials||653||643||619|
In 2007, total revenues increased by 0.3% due to 3.4% revenue growth from favorable exchange rates which was offset by a 3.1% revenue decline due to decreased sales volume. In 2006, total revenues increased by 4.8%. 1.8% of this was due to favorable exchange rates. The other 3% was due to a shift in customer purchases from less expensive to more expensive products.
Increases in the price of plastic resins make cost management have created cost management problems for Bemis. Both polypropylene and polyethylene are used to make packaging products like those produced by Bemis. Between December 31, 2006 and December 31, 2007 the price of polypropylene plastic resin on the London Metal Exchange rose from $1155 per ton to $1400 per ton. Likewise, the price of polyethelene resin increased 33% from about $0.60 to $0.80 per pound. As the price of raw materials continued to increase in 2008, Bemis' gross margins continued to shrink. In Q2 2008, the company's gross margins were 17.6% compared to 19.2% in Q2 2007. The trend continued in Q3 2008 when the company's gross margins fell to 16.9% down from 17.8% in Q3 2007.
Because Bemis reports their revenues in U.S. dollars but does almost 36% of their business outside of North America, they are exposed to fluctuations in exchange rates. When foreign currencies appreciate, the dollar value of Bemis' international revenues increases. During the first three quarters of 2008, fluctuations in the value of the dollar increased Bemis' revenues by 4.4%. This accounted for the majority of the company's 6.4% increase in total revenues during the same period.
When consumer spending decreases, customers buy less of the goods packaged with Bemis' products. This decreases the demand for the company's packaging products and decreases Bemis' sales volume. A USA TODAY survey reported that in Q1 and Q2 2008, consumer spending fell to 0.5% and 0.2%, respectively. As a result of the slowing economy, Bemis' sales of flexible packaging products for the snack and confectionary markets decreased 4% year over year in Q2 2008. At the same time, the company's sales of pressure sensitive materials decreased 4.5% excluding the impact of foreign exchange rates. This trend continued into Q3 2008 when both sales of flexible packaging products for the snack and confectionary and pressure sensitive materials fell compared to Q3 2007.
|Bemis and Key Competitors ($ MM)||Total Revenues||Net Income||Net Profit Margin|
|Sealed Air (SEE)||4,651||353||7.6%|
|Sonoco Products Company (SON)||4,040||214||5.3%|
|Intertape Polymer Group (ITP)||767||(8)||-1.1%|