Raw material price hikes hit Q2 profits in flexible packaging, says Bemis

By Michelle Knott

- Last updated on GMT

Related tags Net sales Material Marketing

Raw material price hikes hit Q2 profits in flexible packaging, says Bemis
Raw material costs are stabilising, but inflation looks set to squeeze the flexible packaging business, according to packaging giant Bemis Company.

Bemis reported net sales of $1.4bn in the second quarter of 2011, up 8 per cent on the same period last year. That sales growth included a 3.4 per cent increase from currency translation. However, dramatic hikes in the cost of raw materials suppressed profits in the company’s biggest business segment - flexible packaging.

Polymer resin

Melanie Miller, vice president and treasurer of Bemis Company, told FoodProductionDaily: Our primary raw material is polymer resin, for which supply and demand is a big driver of cost changes.

Over the past nine months, these costs have increased due to shortages as well as the increase in oil prices, since some of the resins are derivatives of the petroleum and natural gas production processes.

“Broadly speaking, costs increased about 10 per cent in the fourth quarter of 2010, 15 to 30 per cent in the first quarter of 2011, and then about 15 per cent in the second quarter.

Since May, the upward pressure in those costs seems to have subsided and raw material costs have stabilized. Our guidance for the rest of the year assumes that costs remain steady at their current rates and there is no further volatility. At this point in time, we have no reason to assume otherwise.”

Flexible packaging

The flexible packaging operating profit for the second quarter of 2011 was $116.3m, or 9.5 per cent of net sales, compared to adjusted operating profit of $130.1m, or 11.5 per cent of net sales, in 2010. At the same time, sector sales rose 8.1 per cent to $1.2 bn, thanks to a combination of currency effects and higher selling prices.

Second quarter net sales from the pressure sensitive materials business segment were $151.5m - a 5.8 per cent increase compared to 2010. Currency effects boosted net sales by 5.7 per cent.

Operating profits were more stable in this sector, totalling $11.8m, or 7.8 per cent of net sales for the quarter, compared to $11.7m, or 8.2 per cent of net sales in the second quarter of 2010.

Inflation could bite

Looking ahead, Miller is cautious about the prospects for volume growth as consumers in many markets face up to inflation and other pressures on spending: There is more pressure in markets where food inflation is anticipated to which our customers expect consumers to respond negatively with reduced purchases.

We are dedicated to flexible packaging, so alternatives that move consumers to products packaged in cans or cartons will have a greater impact on our volumes than if consumers just move to a smaller size.”

Related topics Processing & Packaging

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