Bemis (BMS) Q2 2011 Earnings Call July 27, 2011 10:00 am ET Executives Melanie Miller - Vice President of Investor Relations and Treasurer Scott Ullem - Chief Financial Officer and Vice President Henry Theisen - Chief Executive Officer, President and Independent Director Analysts Ghansham Panjabi - Robert W. Baird & Co. Incorporated Benjamin Wong Stewart Scharf - S&P Equity Research Philip Ng - Jefferies & Company, Inc. James Armstrong - Henry Armstrong Associates Timothy Thein - Citigroup Inc Presentation Operator
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» Bemis Company, Inc. Q2 2010 Earnings Call Transcript
Now I'll turn the call over to Henry Theisen.Henry Theisen Good morning, everyone, and thank you for joining us today. Before I get into the details of our business initiatives and expectations for the rest of the year, I'd first like to update you on the challenges that our industry is facing in 2011. Since October of 2010, we have experienced steady increases of raw material cost, especially resin and film used for our packaging business, including steep increases in Specialty Materials in the months of February and, again, in May. At this point, it appears that the momentum of U.S. broad raw material cost increases have subsided as costs have been fairly stable in June and July. Our business model is designed to meet this type of challenge by responding in a scheduled way, with selling price adjustments that offset the dollar impact of the raw material cost increases. As we have explained in the past, there is a time lag for selling prices to be adjusted to incorporate the cost increases, and we expect all of our adjustments to be in place on or before the start of the fourth quarter. The second challenge that our industry is facing is a threat of lower consumer demand for products that use our packaging. This is not related to the increase in our raw material cost but more directly is related to inflation in the cost of food ingredients. Food ingredients compromise a much larger proportion of the retail cost of our product than our packaging does. And with meaningful price increases facing retail consumers, our customers have publicly expressed concern about potential impact on demand for their products. At Bemis, our North American volumes were healthy in the first quarter and above average overall for the second quarter with some softening late in the second quarter. In light of the commentary from our customers, we are expecting volumes for the second half of 2011 to be a few percent lower than the comparable volume for 2010.
In Brazil, our rigid packaging operations have been dealing with substantial volatility in the cost of polypropylene, their main raw material, which is affecting our profit margins. In Mexico, we trimmed our volumes in 2010 to restore the region to profitability. As a result, while volumes are considerably lower this year compared to last year, the business is now profitable compared to last year when it was operating at a loss. We continue to be pleased with the progress and performance of our operations in Mexico and look forward to its continued growth in both sales and profit margins.Our European operations continue to meet the challenges of their very competitive environment, with renewed focus on World Class Manufacturing initiatives and sales strategies that prioritize niche projects. In total, we expect raw material prices to stabilize while selling prices continue to rise as pricing agreements adjust in the third quarter. In this challenging environment, which we expect to continue through the rest of the year, we are aggressively managing costs and accelerating opportunities to improve. We continue to transition production to optimum facilities and take cost out of our processes to maintain momentum and continuous improvement efforts. We have accelerated our World Class Manufacturing efforts, and we are aggressively passing through raw material cost escalation to our customers. Outside our current operations, we continue to look for opportunities to expand our reach around the globe and apply our technological expertise to products in other markets. We continue to see our largest growth opportunities in growing economies like Brazil and Asia in the growing markets like medical and pharmaceutical. This year's environment is a challenging one, but our diligent focus on process efficiency, customer service and cost control has prepared our business well for the future. Read the rest of this transcript for free on seekingalpha.com