“We continue to execute our strategy to meet our long-term financial goals,” said William F. Austen, Bemis Co. president/CEO. “In our US business, our asset recapitalization program continues to enhance margins and volumes. This quarter, US margins again increased, with the slope of improvement slightly muted due to mix of business. As we move into the third quarter, we expect innovation and our asset recapitalization program to continue to deliver margin improvement.”
Austen continued, “In our global business, we made progress this quarter. In Latin America, we improved profits sequentially related to the operational inefficiencies we experienced in the first quarter. In our healthcare business, we continue to work through the ramp-up of our newly hired workforce at our expanded Oshkosh facility; we anticipate the profit benefits from this investment to begin during the fourth quarter. I remain confident in our people, our strategy, and our drive to deliver long-term value to shareholders.”
BUSINESS SEGMENT RESULTS
US Packaging net sales of $671.0 million for the second quarter of 2016 represented a decrease of 3.4 percent compared to the same period of 2015. Compared to prior year, unit volumes were up approximately one percent during the second quarter. The decrease in net sales was driven by the contractual pass through of lower raw material costs as well as the mix of products sold.
US Packaging operating profit increased to $103.5 million in the second quarter of 2016, or 15.4 percent of net sales, compared to $102.9 million, or 14.8 percent of net sales, in 2015. This margin increase reflects operational improvements attributable to manufacturing efficiencies from the Company’s asset recapitalization program, partially offset by the impact of lower sales mix of products sold during the quarter.
Global Packaging net sales for the second quarter of 2016 of $350.3 million represent an increase of 4.4 percent compared to the same period of 2015. Currency translation reduced net sales by 12.6 percent, primarily due to currencies in Latin America. Acquisitions increased net sales by 7.7 percent. Excluding the impact of currency translation and the acquisition, net sales increased by 9.3 percent, reflecting increased unit volumes of approximately one percent, along with increased sales price and mix.
Global Packaging operating profit for the second quarter was $8.5 million, compared to $27.0 million for the same period in 2015. Excluding restructuring and acquisition-related costs, segment adjusted operating profit would have been $28.1 million, or 8.0 percent of net sales, which compares to 8.1 percent of net sales in 2015. The net impact of currency translation reduced operating profit during the second quarter of 2016 by $2.6 million as compared to the same period in 2015, primarily due to currencies in Latin America. Operating profit during the quarter also reflects the impact of positive sales mix and volume, partially offset by continued operational inefficiencies at one of the Company's healthcare packaging facilities.
During the second quarter of 2016, Bemis initiated a restructuring program in its Global Packaging segment to improve efficiencies and reduce fixed costs. The Company will close four facilities in Latin America by the middle of 2017. A portion of these closures reflect the Company’s synergy plan related to the recent Emplal acquisition to optimize its footprint. Total restructuring costs for this program are estimated to be in the range of $28 to $30 million (at current exchange rates), $13.3 million of which was booked during the second quarter of 2016. Cost reductions from the program are expected to reach the full run rate of approximately $16 million (at current exchange rates) annually during 2018.
Austen said, “Our decision to consolidate facilities in Latin America reflects our desire to be good stewards of our expanded resources. The modern and efficient facilities we acquired with the Emplal acquisition provide the capacity that allows us to move some production from our legacy locations. As the economic environment in Latin America continues to challenge consumers, as well as our customers in the region, the benefits of this consolidation will help offset those headwinds and will keep us on track in achieving our long-term margin targets in the Global Packaging segment.”