Flexible and rigid plastics packaging maker Bemis Co. Inc. is cutting jobs and signaling more changes are on the way to improve U.S. operations.
Bemis, which already eliminated about 200 manufacturing jobs in late March and early April, is looking at the entire business with an eye toward cutting costs. Changes could impact the company's manufacturing footprint.
News of the comes as Bemis releases what the company calls disappointing first quarter results.
Bemis, CEO William Austen said, has found itself in trouble after consumer packaged goods (CPG) customers reversed course and began scaling back orders for the rest of this year.
“Heading into 2017, we added manufacturing costs and resources predicated on forecasts provided to us from our core, big CPG customer base. During March, our customers started calling down their volume outlooks for the balance of the year as their business volumes continued to decline,” he explained during a conference call to discuss first quarter results.
“We had ramped up our workforce and our resources for these customers and it is us who bears the impact of a call down in customer volume,” he said.
The Neenah, Wis.-based company posted a lower profit in the quarter, but said its international operations met expectations.
“There are two key issues we are facing in the U.S., volume call downs from several core customers as a result of softness in their business and disappointing operational execution,” Austen said.
Bemis previously planned what the CEO called an aggressive manufacturing cost reduction program heading into this year “These incremental take-outs focused on elements such as waste reduction, productivity and material usage and substitutions,” he said.
“We have struggled to deliver on these plans. Waste is high in certain areas. We've had pockets of unplanned downtime. And we didn't gain traction on material usage and substitutions to the degree we had planned,” Austin said.
The company had a profit of $51.1 million, or 55 cents per diluted share, on sales of $995.4 million for the first quarter. That's down from a profit of $56.2 million, or 59 cents per diluted share, on sales of $967.9 million for the first quarter of 2016.
The company also is lowering its 2017 adjusted earnings guidance to $2.50 to $2.60 per diluted share from an earlier guidance of $2.85 to $3 per share.
“Any activity across any function that is deemed non-value add will be discontinued. The scope of our review is broad. No stone will be left unturned. We have already taken action,” Austen said. Along with cutting hourly positions previously added based on forecasts of increased business, the company also has stopped discretionary spending and implemented a hiring freeze.
“We recognize our current performance is not acceptable. Our sense of urgency and intensity is at the highest level I have experienced in my time at Bemis. We are using this disappointment as a catalyst,” Chief Financial Officer Michael Clauer said.
The company expects to announce plans in the second quarter with changes to come this year. Benefits would follow in 2018.
Bemis said part of the review is taking steps to reduce selling, general and administrative expenses in the United States. SG&A covers costs outside of manufacturing.
The company indicated James W. Ransom Jr., president of Bemis North America, is resigning as an executive officer effective May 4 but will remain an employee until he retires at the end of the year. Separately, the company said Fred Stephan was appointed president of the U.S. packaging business in February.
Austen told stock analysts on the conference call that the company's international business previously underwent a reorganization that has left it in better shape that the domestic business.
Bemis leadership, on the call, was questioned why it planned for volume growth in 2017 when the company and its customers have not been experiencing that type of growth in recent years.
“We're going to face the reality right now that our customers aren't going to grow, that they continue to struggle. We had been given forecasts from them about growth. We had been given product specifications that they were going to grow with and it never materialized. I'm telling the U.S. organization to stop. We're not going to face into that any longer. We're going to size the business for flat to down. And that's how we're going to do this going forward. And that's what we're telling them to do, regardless of what our customers are saying that they are going to bring in,” Austen said.
“Our customers have been focused on cost out, plant consolidations, plant shut downs, and we're now going to get real with all that and bring our volume and our capacities and our utilizations down,” he said.