Bemis (BMS) Q1 2012 Earnings Call April 26, 2012 10:00 am ET Executives Melanie E. R. Miller - Vice President of Investor Relations and Treasurer Henry J. Theisen - Chief Executive Officer, President, Director and Member of Executive & Finance Committee Scott B. Ullem - Chief Financial Officer and Vice President Analysts Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division Unknown Analyst Sangita Jain - Barclays Capital, Research Division Usha Chundru Guntupalli - Goldman Sachs Group Inc., Research Division Michael A. Hamilton - RBC Wealth Management, Inc., Research Division Chip A. Dillon - Vertical Research Partners Inc. Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division Benjamin Wong Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division Ernie Ortiz Presentation Operator
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 our facility consolidation program, 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 filings, including the most recently filed Form 10-K for the year ended December 31, 2011.Now I'll turn the call over to Henry Theisen. Henry J. Theisen Good morning. My comments today will address the current market environment, what we expect for the rest of this year and our progress on initiatives to improve profitability and return on invested capital. With respect to the current market environment, the generally weak levels of demand that we experienced during the second half of 2011 has continued into 2012 as expected. There are pockets of growth in certain product areas, but overall demand is reflecting careful buying at grocery stores and some trading down by customers to less expensive options that may not use flexible packaging. That said, the growth initiatives of our customers include promotions, as well as new product extensions to be launched in a flexible format. We're also starting to see new business ramp up, which should help to boost volumes during the second half of the year. During the first quarter, our suppliers announced a number of raw material cost increases. None of these increases is of the magnitude that we saw during the first half of 2011. But they will put modest pressure on operating margins in the second and third quarters until all selling prices can be adjusted.
So as we look forward to the rest of the year, we expect raw material cost increases to subside and level out for a while and we expect customer demand to increase as we move into the second half of 2012.We have made progress in modifying the price agreements with some customers and we'll continue this initiative as contracts come up for renewal. These changes will shorten the time that takes to adjust selling prices when raw materials cost change, reducing the impact of raw material cost changes on our operating performance and cash flows. We continued to implement specific pricing actions to address poor profitability on some products and we are willing to walk away from business if necessary. We have made progress with our facility consolidation program and expect to complete the closure of 2 of our North American facilities during the second quarter. Our teams are doing a great job of transferring production to new facilities while keeping an eye on costs. At the same time, we are expanding our footprint in China to meet the growing demand from that region. This capital investment will be ramping up commercial production during the second half of this year. In Latin America, we are expanding our capabilities in Brazil to deliver our high barrier technology to our Latin American customers. This market continues to be challenged with slowing economic growth and a relatively strong currency. We have a lot of opportunities for expansion in that region of the world and our business teams are focused on leveraging our global scale to create a competitive advantage and drive growth. We have been closely managing cost in our European operations as we continued to experience sluggish unit sales volumes in the face of a weak European economy. We expect this economic environment to continue through the rest of the year.
We are currently working out a number of innovative new products that we are gaining attention from our customers. In addition to our current sales in the dairy segment, we are finding new applications for our rigid sheet film and other liquid products, including pudding, yogurt and baby food. Customers are excited about our recyclable solution that removes environmentally unfriendly polyvinylidene chloride materials from packaging. In another example, our Peel Reseal technology is providing customers with a cost beneficial solution that uses a combination of our easy peel and our pressure sensitive adhesive technologies, which provide easy open and reclosable features.Read the rest of this transcript for free on seekingalpha.com