Bemis Co.'s drastic cut to its quarterly guidance suggests makers of packaging materials are facing a tougher North American and European market then first realized, a J.P. Morgan analyst said Thursday.
Bemis (BMS) late Wednesday lowered its third-quarter earnings outlook to between 37 cents and 40 cents a share from prior guidance of 48 cents to 51 cents a share. Analysts polled by Thomson Financial are looking for, on average, earnings of 48 cents a share for the September quarter.
Chief Executive Jeffrey Curler said flexible packaging sales in North America will be about 5% below previous expectations, while European sales of pressure- sensitive materials, such as posting labels, were softer in August and September.
In addition, Bemis said it expects to further reduce its 2007 total-year guidance by as much as 10% below its previous outlook of $1.90 to $1.97 a share. Analysts are expecting full-year earnings of $1.89 a share, on average.
"These lower sales severely impacted manufacturing cost absorption and operating profit," Curler said in a news release. "At this point, we expect these weak business conditions to continue into the fourth quarter."
In a note to investors, J.P. Morgan analyst Claudia Shank said Bemis' warning, along with earlier lowered earnings expectations from Sonoco Products Co. (SON) and Avery Dennison Corp. (AVY) , suggest "broad-based weakness across flexible packaging and pressure-sensitive markets."
Rivals such as Sealed Air Corp. (SEE) , Pactiv Corp. (PTV) and UPM-Kymmene Corp. (UPM) could also be impacted, though geographic mix could help insulate the companies somewhat in the near term, Shank said.
"We had been expecting a slight pickup in flexible volumes in 2H07, but in light of the new guidance we have assumed negative year-over-year trends persist," Shank wrote.
Bemis shares closed Wednesday at $29.69, up a fraction; Avery Dennison shares closed down a fraction to $57.82; Sonoco Products added 2.4% to $31.50; Sealed Air added a fraction to $26.88; Pactiv was up a fraction to $29.79; and UPM lost 1.1% to $23.58.
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