Bemis Company (BMS)

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In 2007, the price of plastic resin on the London Metal Exchange increased from $1155 per ton to $1400 per ton.^[2] As a result of rising raw materials costs, Bemis' gross margin decreased from from 19.1% in 2006 to 18.5% in 2007.^[3][4] Likewise, slowed consumer spending growth^[5] resulted in Bemis' revenue growth slowing from over 5% in 2006 to nearly 0% in 2007.^[6] On the other hand, the dollar depreciated against foreign currencies in both Europe and South America during 2007.^[7] This resulted in a $123.2 million boost to Bemis' total revenues in 2007.^[8] 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).

[edit] Business Segments

BMS 2007 Revenues by Segment before eliminations^[9]

• Flexible Packaging (82% of 2007 Revenues, 90% of Segment Operating Profit) manufactures flexible paper and plastic packaging products such as films, bags and wraps used to package food, medical and personal care products as well as flexible plastics used to vacuum pack non-food products. Flexible Packaging also makes custom formed plastic packaging, single and multiply paper bags, paper roll stock, carton sealing tape and other packaging materials.^[1] Flexible Packaging sells its products to customers who need to package products such as meat, cheese, cereals, other food products, pet products, personal care products and pharmaceutical goods.^[1] The segment's revenues did not grow at all in 2007 due to decreased volume sales of some of the segment's product lines such as packaging for meat and cheese, which were offset by the positive effect of foreign exchange rates.^[10] However, segment operating profit for Flexible Packaging increased from 11.2% of sales in 2006 to 11.5% of sales in 2007 due to restructuring activities in which Bemis closed five of its Flexible Packaging plants.^[10] The Flexible Packaging segment competes with similar products from companies like Sealed Air (SEE), Sonoco Products Company (SON) and Pactiv (PTV).

• Pressure Sensitive Materials (18% of 2007 Revenues, 10% of Segment Operating Profit) manufactures pressure sensitive films and papers used for label printing, graphics printing and technical products assembly.^[1] The segment's label printing products consist of rolls of paper film and metalized film used for high speed printing of barcode and other labels as well as signs designed with computers.^[1] Pressure Sensitive Materials also manufactures clear films used to protect digital photographs from UV light.^[1] The segment's technical products include micro-thin tapes and adhesives used to assemble delicate electronic parts.^[1] The segment's revenues grew 1.3% in 2007 due mainly to the positive impact of foreign currency translations, which were partially offset by decreased sales volume.^[3] Likewise, segment operating profit for Pressure Sensitive Materials decreased from 7.8% of sales to 6.2% of sales due to decreased sales volume of the segments most profitable products.^[3] Bemis' Pressure Sensitive Materials compete with similar products manufactured by companies like Intertape Polymer Group (ITP).

Note: Operating profit is defined as profit before general corporate expense, interest expense, income taxes, and minority interest and is not the same as Operating Income.^[11]

[edit] Business Financials

BMS 2007 Revenues by Geography^[9]

Bemis' Total Revenues, Operating Income and Net Income^[9][4] ($ in millions)

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.^[6]

[edit] Key Trends and Forces

[edit] Increases in the price of plastic resin compress Bemis' gross margins

Increases in the price of plastic resins make cost management have created cost management problems for Bemis.^[6] Both polypropylene and polyethylene are used to make packaging products like those produced by Bemis.^[12] 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.^[2] Likewise, the price of polyethelene resin increased 33% from about $0.60 to $0.80 per pound.^[13] As a result of the increase in plastics prices, Bemis' gross margin decreased from 19.1% in 2006 to 18.5% in 2007.^[3]

^[14]

[edit] Exchange rates resulting in a weak U.S. dollar boost Bemis' international revenues

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. If foreign currencies appreciate, the dollar value of Bemis' international revenues increases. During 2007, the U.S. dollar depreciated in relation to the Brazilian real and the euro.^[7] This depreciation resulted in a $123.2 million boost to Bemis' total revenues in 2007.^[8]

[edit] Decreased consumer spending decreased Bemis' sales volume in 2007

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.^[6] A USA TODAY survey reported that in Q1 and Q2 2008, consumer spending fell to 0.5% and 0.2%, respectively.^[5] This slowdown resulted in a 10% decrease in Bemis' shipments of packaging for bakery goods and a 9% decrease in Bemis' shipments of packaging for pet and industrial products.^[10] As a result of the decreased volumes, Bemis' 2007 total revenues grew only 0.06% compared to over 5% in 2006.^[6]

[edit] Key Competitors

• Sealed Air (SEE) manufactures packaging materials for food, medical and other industrial and consumer applications. Sealed Air's food packaging products compete with those produced by Bemis' Flexible Packaging segment.^[15]
• Sonoco Products Company (SON) manufactures paper and plastic rigid packaging, flexible packaging and cable reels as well as tubes and cores used for film, plastic and paper rolls. The company also provides packaging related services such as packaging design. Sonoco's flexible packaging products compete with those manufactured by Bemis' Flexible Packaging segment.^[16]
• Pactiv (PTV) manufactures consumer products such as plastic garbage bags as well as packaging products for the food and foodservice industries. Pactiv's food packaging products compete with those produced by Bemis' Flexible Packaging segment.^[17]
• Intertape Polymer Group (ITP) manufactures pressure sensitive tapes and films and well as specialty coated fabrics and industrial containers. The company's pressure sensitive tapes and films compete with those manufactured by Bemis' Pressure Sensitive Materials segment.^[18]

Bemis and Key Competitors ($ in millions)

 Bemis Company

	Select All  |  Select None Metrics Non-US Revenue Revenue by Geography - Europe Revenue by Geography - Asia Revenue by Geography - Africa Revenue by Geography - South America Revenue Revenue by Geography - United States Net Income Operating Income Gross Profit Cancel

	Select All  |  Select None Companies BWAY HOLDING COMPANY (BWY) Ball (BLL) Bemis Company (BMS) Constar International (CNST) Crown Cork & Seal Company (CCK) Graphic Packaging International (GPK) Greif Bros. (GEF) Intertape Polymer Group (ITP) MOD-PAC CORP. (MPAC) Northern Technologies International (NTI) Owens-Illinois (OI) Packaging Corporation of America (PKG) Pactiv (PTV) Peak International (PEAK) Rexam (REXMY) Sealed Air (SEE) Silgan Holdings (SLGN) Sonoco Products Company (SON) Tupperware (TUP) UFP Technologies (UFPT) Vitro S.A. de C.V. (VTO) Cancel

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Company	Data From	Gross Profit	Net Income	Revenue	Operating Income	Revenue by Geography - United States
Bemis Company (BMS)	2007	$336M[19]	$182M[19]	$3.65B[19]	$387M[20]	$2.35B[21]
Crown Cork & Seal Company (CCK)	2007	$1.03B[22]	$528M[22]	$7.73B[22]	$528M[22]	$2.1B[23]
Intertape Polymer Group (ITP)	2007	$114M[24]	($8.39M)[24]	$767M[24]	Add	$612M[25]
Pactiv (PTV)	2007	$931M[26]	$245M[27]	$3.25B[27]	$472M[27]	$2.95B[28]
Sealed Air (SEE)	2007	$1.3B[29]	$353M[29]	$4.65B[29]	$549M[29]	$2.12B[30]

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[edit] References

1. ↑ ^{1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8}
2. ↑ ^{2.0 2.1} Plastics News: Polypropylene Global Contracts Historical Pricing US$/tonne
3. ↑ ^{3.0 3.1 3.2 3.3} BMS 2007 10-K: Management’s Discussion and Analysis of Financial Condition and Results of Operations, pg 12
4. ↑ ^{4.0 4.1} BMS 2007 10-K: Selected Financial Data, pg 9
5. ↑ ^{5.0 5.1} USA TODAY survey: We're in recession, economists say
6. ↑ ^{6.0 6.1 6.2 6.3 6.4} BMS 2007 10-K: Management’s Discussion and Analysis of Financial Condition and Results of Operations, pg 10
7. ↑ ^{7.0 7.1} Search: BRL to USD, EUR to USD
8. ↑ ^{8.0 8.1} BMS 2007 10-K: Market Risks and Foreign Currency Exposures, pg 15
9. ↑ ^{9.0 9.1 9.2} BMS 2007 10-K: Segments of Business, pg 38
10. ↑ ^{10.0 10.1 10.2} BMS 2007 10-K: Management’s Discussion and Analysis of Financial Condition and Results of Operations, pg 11
11. ↑ BMS 2007 10-K: Segments of Business, pg 39
12. ↑ Packaging Today: Plastic Packaging Products
13. ↑ PTV 2007 10-K: Year 2007 compared with 2006, pg 12
14. ↑ EUR to USD Exchange Rates
15. ↑ Google Finance: SEE
16. ↑ Google Finance: SON
17. ↑ Google Finance: PTV
18. ↑ Google Finance: ITP
19. ↑ ^{19.0 19.1 19.2} BMS,10-K,2007,Item-6,Page-9
20. ↑ BMS,10-K,2007,Item-8,Page-38
21. ↑ BMS,10-K,2007,Item-8,Page-39
22. ↑ ^{22.0 22.1 22.2 22.3} CCK,10-K,2007,Item-8,Page-40
23. ↑ CCK,10-K,2007,Item-8,Page-74
24. ↑ ^{24.0 24.1 24.2} ITP,AR,2007, Item-na,Page-11
25. ↑ ITP,AR,2007, Item-na,Page-58
26. ↑ PTV,10-K,2007, Item-8,Page-28
27. ↑ ^{27.0 27.1 27.2} PTV,10-K,2007, Item-6,Page-10
28. ↑ PTV,10-K,2007, Item-8,Page-55
29. ↑ ^{29.0 29.1 29.2 29.3} SEE,10-K,2007, Item-6,Page-19
30. ↑ SEE,10-K,2007, Item-8,Page-70