Q3 2011 Earnings Call
October 26, 2011 10:00 am ET
Melanie E. R. Miller - Vice President of Investor Relations and Treasurer
Scott B. Ullem - Chief Financial Officer and Vice President
Henry J. Theisen - Chief Executive Officer, President and Independent Director
Timothy Thein - Citigroup Inc, Research Division
George L. Staphos - BofA Merrill Lynch, Research Division
James Armstrong - Vertical Research Partners Inc.
Thomas Mullarkey - Morningstar Inc., Research Division
Michael A. Hamilton - RBC Wealth Management, Inc., Research Division
Philip Ng - Jefferies & Company, Inc., Research Division
Unknown Analyst -
Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division
Previous Statements by BMS
» Bemis' CEO Discusses Q2 2011 Results - Earnings Call Transcript
» Bemis' CEO Discusses Q1 2011 Results - Earnings Call Transcript
» Bemis' CEO Discusses Q4 2010 Results - Earnings Call Transcript
Good day, everyone, and welcome to the Bemis Company Third Quarter 2011 Earnings Release Conference Call. This call is being recorded. For opening remarks and introductions, I will now turn the call over to the Vice President and Treasurer for Bemis Company, Ms. Melanie Miller. Ms. Miller, please go ahead.
Melanie E. R. Miller
Thank you, operator. Welcome to our third quarter 2011 conference call. Today is October 26, 2011. After today's call, a replay will be available on our website, www.bemis.com under the Investor Relations section. Joining me for this call today are Bemis Company's President and Chief Executive Officer, Henry Theisen; and our Chief Financial Officer, Scott Ullem. Today, Henry will begin with comments on the performance of the business, followed by Scott with comments on the detailed financial results.
After our comments, we will answer any questions you have. However, in order to allow everyone anopportunity to participate, we ask that you limit yourself to one question at a time with a related follow-up and then fall back into the queue for any additional questions.
Before we begin, I'd like to remind everyone that statements regarding future performance of the company made in this teleconference are forward-looking and are subject to certain risks and uncertainties. Actual results may differ materially from historical, expected or projected results due to a variety of factors, including currency fluctuations, changes in raw material costs and availability, industry competition, unexpected consumer buying trends, changes in customer order patterns, our ability to pass along increased costs in our selling prices, unexpected costs related to plant closings, changes in government regulatory requirements, interest rate fluctuations and regional economic conditions. A more complete list of risk factors is included in our regular SEC filing, including the most recently filed Form 10-K for the year ended December 31, 2010.
Now I'll turn the call over to Henry Theisen.
Henry J. Theisen
Good morning. The third quarter results were within our range of EPS guidance. Although volumes weakened as the quarter progressed, limiting our performance to the low end of the range, the results vary from region to region, so I will go through the details by geography.
In North American Flexible Packaging, we experienced lower volumes in most of our market categories. These meters the softening demand experienced by our customers in the product categories that we serve. In Latin America, we experienced substantial volume declines as our customers responded to the slowing economy. In addition, with the Brazilian currency weakening by nearly 10% during the quarter, raw material imports to that region became more expensive. In response, domestic suppliers took the opportunity to increase their prices to match this currency move. This created an unexpected increase in raw material costs in our Latin American operations and will put downward pressure on our operating margins during the fourth quarter as products are shipped. This is the only region of the world where we are still seeing meaningful increases in raw material costs. We raised prices in our European food Flexible Packaging business in response to increased raw material costs and reduced volume in more competitive products due to a combination of pricing and challenging economic conditions. I am pleased to see that the result of these actions, sales mix and operating margins in this region have improved.
In our pressure sensitive materials business, our raw label commodity product line continues to have volume challenges in this difficult economy. New products are helping to offset this impact. Since early June, raw material cost in North America and Europe have been generally stable. This gave us a chance to adjust our selling prices during the third quarter to reflect this increased cost. We have experienced some minor raw material cost decreases recently but expect cost to remain stable for the rest of the year.
With volumes down and not expected to improve before 2012, our management teams are working aggressively to reduce costs and adjust our workforce levels where necessary to meet lower production needs for the fourth quarter. The fourth quarter is historically a slower time for us, with most of the holiday-related food packaging shipments occurring by the end of October. November, December volume level with fewer shipping days reflect the slower seasonal demand of the winter months and result in lower fixed cost absorption during the period. This year, we do not expect the month of October to reflect the normal seasonal volume strength. Our lower guidance for the fourth quarter and the total year has incorporated these lower volume trends.
Customer feedback leads us to believe this to be a short-term trend and not a permanent change in volume levels. We experienced a similar decline during 2007 and during the fourth quarter of 2008, when consumers were forced to tighten their belts and adjust their grocery spending.
In each case, we found that our North American customers responded to these market conditions by introducing new products to regain consumer attention. These new products each represented an opportunity for Bemis to gain new business, reset price points and improve sales mix with value-added products.