Bemis (BMS, Financial) is one of the most unknown Dividend Aristocrats. It does not have the instant name recognition that fellow Aristocrats McDonald’s (MCD, Financial), Coca-Cola(KO, Financial), or Wal-Mart(WMT, Financial) have. Bemis is a global packaging manufacturing with a market cap of just under $4 billion; very small for a Dividend Aristocrat.
The company has paid increasing dividends for 31 consecutive years and was founded in 1858, making it one of the oldest businesses on the market. Bemis employs 17,000 people in 61 facilities located in 11 countries around the world. The company is the focus of Part 47 of the Dividend Aristocrats In Focus series. Bemis’ operations are analyzed below to give a better idea of how the company functions.
Business Overview
When I last wrote about Bemis, I discussed how their business was broken down into three segments: US Packaging, Global Packaging, and Pressure Sensitive Materials. The US and Global Packaging segments are obviously related and help the company reach greater efficiencies through scale. The Pressure Sensitive Materials segment contributed just 6% of total operating income for the company through its full fiscal 2013. Bemis recently announced the sale of its Pressure Sensitive Materials business to the private equity group Platinum Equity for $170 million. The Pressure Sensitive Materials segment was sold for an Price to EBIT ratio of about 5.67. Bemis’ CEO William Austin best sums up the reasoning for the divestiture:
“Bemis is now positioned to dedicate all of our resources to accelerating strategic growth in our core flexible packaging business.”
The percent of total revenue and operating income each of Bemis’ remaining two segments has contributed to the company though the first 9 months of its fiscal 2014 are shown below to give an idea of the size and relative importance of each segment to Bemis.
| Segment Name | % of Revenue | % of Operating Income | Operating Margin |
| US Packaging | 66% | 34% | 13.2% |
| Global Packaging | 78% | 22% | 7.5% |
Competitive Advantage
The packaging industry sounds like a low-tech industry in which to operate. This is not the case. Bemis has managed to grow its dividend payments for 31 consecutive years by being at the cutting edge of the packaging industry. The company spent nearly 1% of revenue on research and development costs in full fiscal 2013. Bemis is constantly looking for new innovations in packaging. The company is focusing on high-barrier packaging and liquid packaging to drive future growth. The image below shows some of the innovations resulting from Bemis’ research and development spending.
Source: Bemis Investor Briefing
In addition to its strong research and development department and intellectual property portfolio, Bemis also has a scale and supply chain advantage from the facilities and distribution network it has built over the last 156 years. The company generates the bulk of its revenue (~90%) in North and South America. These regions are where Bemis has a competitive advantage from its supply chain and distribution network built in these regions. The image below breaks down the company’s revenue geographically to have a clearer picture of where Bemis’ revenue is generated.
Source: Bemis Investor Briefing
Growth Prospects, Dividend Analysis, & Shareholder Return
Bemis has managed EPS growth of about 4.7% per year over the last decade. The company is expecting 9.3% EPS growth for full fiscal 2014 excluding the impact of its pressure sensitive materials division. The company is realizing solid growth as its management focuses on the company’s core segments.
Bemis is a shareholder friendly company. Bemis has reduced its net share count by about 2% per year since 2010. The company also has a solid dividend yield of about 2.7% at current prices. In total, Bemis is generating a return of between 4% and 5% a year for shareholders through share repurchases and dividends alone.
Bemis has several long-term growth drivers. The company is expecting rapid growth in China of about 14% a year. Emerging market growth will bolster sales for Bemis as a growing middle-class consumes more products and pushes up packaging demand. Bemis' second growth driver is new product innovation. The company is growing sales in higher margin businesses like high-barrier packaging and health care packaging. Innovation will drive future sales.
Going forward, I believe Bemis will grow its EPS at around 9% a year over the next few years as the company shifts its product mix to higher margin offerings. After 2 to 3 years of margin enhancement, Bemis will likely return to an EPS growth rate of between 4% and 7%, slightly above its average over the last 10 years due to the company’s more focused approach. The company has a payout ratio of under 50% of expected 2014 earnings. The company will likely grow its dividend payments in line with overall company growth going forward.
Valuation
Bemis currently trades at a P/E multiple of about 17.4 times expected full fiscal 2014 earnings. For comparison, the S&P 500 trades at a P/E multiple of about 19.25 expected full fiscal 2014 earnings. Bemis has historically traded in line with the S&P 500’s P/E ratio. As a result, I believe the company is slightly undervalued at this time.
Recession Performance
Bemis saw EPS tumble 25% during the Great Recession of 2007 to 2009. Consumers tend to purchase less during times of economic hardship, which pushes down demand for packaging. As a result, Bemis sees its EPS decline during recessions. The company’s EPS through the Great Recession and subsequent recovery are shown below to give an idea of how recessions affect Bemis:
- 2006 EPS of $1.83 (high at the time)
- 2007 EPS of $1.74 (1st year of decline)
- 2008 EPS of $1.66 (2nd year of decline)
- 2009 EPS of $1.38 (3rd year of decline, recession low)
- 2010 EPS of $1.83 (recovered to previous high)
- 2011 EPS of $1.99 (new high)
Final Thoughts
Bemis is ranked in the Top 40 of the 138 businesses with 25 or more years of dividend increases using The 8 Rules of Dividend Investing. The company’s solid dividend yield, conservative payout ratio, and acceptable growth help the company rank highly. In addition, the company appears to be somewhat undervalued at this time.
