Bemis Company: World-Leading Packaging Company With Potential Of Transforming Into A Global Giant

Jun. 02, 2019 8:22 PM ETAmcor plc (AMCR)2 Comments
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Summary

  • Financial performance experienced steady growth.
  • Stable cash flow from operations and dividend payout.
  • Approval of merger with Amcor will create enlarged global entity with higher competitive advantage and synergies.

Bemis Company, Inc. (BMS), a flexible packaging manufacturer based in the US, has been in the news for its all-stock merger with another Australia-based packaging manufacturer, Amcor, last announced in August 2018. Its share price had since been on an uptrend and hovering at a 5-year high.

Bemis can be viewed as a stable dividend stock, generating sufficient cash from operations for capital expenditure and able to pay out generous dividends over the last 5-year period. Bemis had engaged in share buybacks as well, returning excess cash to investors via repurchasing its own stock. A restructuring plan initiated in 2017 has translated into a positive growth in net income from 2017 to 2018 and EPS had since recovered from $1.02 per share to 2.47 per share, more than two-fold recovery. Should the merger be approved, shareholders of Bemis stand to receive shares in the newly merged entity of Bemis and Amcor, in which Amcor as a standalone packaging company has a good historical profitability track record and solid dividend payout. A merger would likely see continuity in its capital management policies.

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Bemis Company, Inc. is a global manufacturer of flexible packaging products and pressure-sensitive materials. Bemis is headquartered in Wisconsin in the United States. Its operating divisions are located in 12 countries and its films for packaging products and adhesive materials are distributed globally. Bemis had been around since its establishment in 1858 and had a long track record in the manufacturing sector.

Bemis’ customers include food manufacturers, consumer product manufacturers as well as medical and pharmaceutical companies. About 80% of packaging materials are used to serve customers in the food manufacturing industry. The US remains the biggest geographical market for Bemis measured by sales value, with its packaging materials being used for packaging meat, dairy products, snacks, frozen food, beverages, and bakery goods. Brazil would be the 2nd largest market by sales, followed by Europe and the Asia-Pacific.

Key Catalysts – Merger with Amcor

Amcor had announced in August 2018 that it intends to acquire Bemis by offering 5.1 shares in Amcor for every share in Bemis. Post completion of the merger, Amcor shareholders will control 71% of voting stock in the newly merged holding company while Bemis shareholders will control the balance 29% voting stock. Since the announcement of the merger, various regulatory hurdles were cleared, namely approval from European Commission and Brazil Antitrust Clearance. Amcor and Bemis's shareholders had voted in favor of the merger as well. Only US antitrust approval had yet to be received. Should the transaction successfully close which is highly probable, Bemis shareholders will continue to hold stock in which primary listing will be in the US NYSE. The merged entity will have a more diversified customer base outside of the US, and annual dividends are expected to be maintained in line with profitability.

Bemis had been profitable in all operating fiscal years. A major restructuring effort was executed in 2017 that managed to increase productivity and efficiency. Net income, as a result, was bumped up from $94 million in 2017 to $225.7 million in 2018. US markets and other markets with the exception of Latin America had experienced growth in sales from 2017 to 2018. Latin America - Brazil, in particular - had seen slow economic recovery but long-term prospects remain intact due to the huge untapped market size.

Source: 10K Filing

As can be seen above, the cash generation from operating activities remains strong. Dividend per share had been on a steady uptrend since 2014 from $1.08 per share to $1.24 per share in 2018. Share buybacks were executed as well by utilizing excess cash and returning them to shareholders. Long-term debt had been trending down as well due to regular repayments from operating cash inflows, with total debt falling from $1.5 billion to $1.3 billion.

The flexible packaging sector remains favorable in the long run due to growth in global exports and e-commerce activities. Customers demand high-quality packaging, in particular, food products that are being shipped worldwide. By being an enlarged entity, Bemis could better compete in terms of cost and supplier negotiation. Its product range would be expanded to better serve its customers via product customization. A larger entity provides significant branding power and reliability profile.

The Bottom Line

Bemis as a standalone operating entity is highly profitable, rewarding shareholders with stable dividends year in and year out. A successful closing of the merger would see Bemis shareholders owning a significant piece of a larger and stronger company that can better compete globally with other flexible packaging manufacturing peers. A stronger balance sheet provides the firepower to the company to undertake acquisitions of smaller rivals and conduct research and development. Investors can accumulate this stock for future capital gains while collecting stable dividend payouts on the way.

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TTCR Long/short equity, value, growth

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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