Sonoco Products Co. (SON, Financial) is a $5 billion global provider of consumer packaging, industrial products, protective solutions and display and packaging services. Headquartered in Hartsville, South Carolina, and with more than 330 operations in 34 countries, it produces packaging for a variety of industries and many of the world’s most recognized brands, serving customers in 85 nations.
Sonoco’s operations consist of global consumer packaging businesses – Rigid Paper and Closures, Flexibles and Plastics, display and packaging division, which provides high-impact retail displays and packaging supply chain management; industrial businesses, which manufacture tubes and cores, reels and spools, uncoated recycled paperboard and Sonoco Recycling, one of the world’s largest recyclers, and Protective Solutions division, which produces custom-designed protective, temperature-assurance and retail security packaging solutions and highly engineered components.
The company recently reported a strong first quarter. The company is gaining from productivity improvements and acquisitions. Paper and Industrial Converted Products segment did well since operating profit grew 20% due to solid productivity gains. Protective Solutions segment also recorded 24% of increased operating profit. The company delivered record first quarter base earnings results with each business segment reporting solid year-over-year improvement.
First-quarter results
Net sales for the first quarter were $1.23 billion (an increase of $20 million or 1.7% from the prior-year quarter).
Gross profits were a record $245.3 million in the first quarter (an increase of 11% from $220.4 million in the prior-year quarter).
Gross profit as a percent of sales improved to 20.0% (18.3% in the prior-year quarter).
First-quarter base selling, general and administrative (SG&A) expenses increased by 4.5% and were $133.8 million.
Cash generated from operations in the first quarter was $66.4 million ($60.3 million in the prior-year quarter).
Free cash flow for the first quarter was a negative $22.1 million (a positive $17.8 million in the prior-year quarter).
Net capex was $53 million ($39 million in the prior-year quarter).
Cash dividends were $35 million ($32 million in the prior-year quarter).
During the first quarter, the company spent $15.3 million to repurchase 354,000 shares at an average cost of $43.31 per share. These purchases were made under the company’s previously announced plan to utilize up to $100 million to repurchase shares in 2016.
On April 3, total debt was approximately $1.13 billion, unchanged from Dec. 31, 2015, and the debt-to-total capital ratio was 42% (43% on Dec. 31, 2015).
Cash and cash equivalents were $152.3 million at the end of the first quarter ($182.4 million at year-end 2015).
Net interest expense for the first quarter of 2016 increased to $13.8 million ($13.2 million during the same period in 2015).
The 2016 first-quarter effective tax rates on GAAP and base earnings were 33.2% and 33.0%, (23.7% and 32.0% rate for GAAP and base earnings in the prior-year quarter).
Expectations for second quarter
| Ă‚ | Range |
| Base earnings | Between 65 cents and 70 cents per diluted share |
Expectations for 2016
| Ă‚ | Range |
| Base earnings | $2.64 to $2.74 per diluted share |
| Effective tax rate | 32% |
| Free cashflow | To be approximately $140 million |
Positive attributes of the company
- Gains from acquisitions.
- Manufacturing productivity improvements.
- Positive price/cost relationship.
Focus
- Optimizing business and brands.
- It is committed to the grow-and-optimize strategy.
- It is focused on achieving higher-than-market average growth.
- Improving operating margins.
- Optimizing structure through simplification and improved efficiency.
- Maximizing free cash flow.
- Targeting capital deployment to grow businesses and return cash to shareholders.
- Optimizing the portfolio.
- Accelerating organic sales growth.
- It is working to harness the power of innovation.
Achievements
- In 2015, Sonoco’s Monterrey Display & Packaging location was recognized by the government with an Inclusive Company Award and a Family Oriented Company Award.
- Sonoco's Brantford paper mill was recognized with a PAPTAC National Business Award for "Safety Leadership," which recognizes mill leadership excellence and a demonstrated commitment to safety.
- Sonoco Alloyd was recognized with a WorldStar 2015 Packaging Award from the Institute of Packaging Professionals (IOPP) for its Whirlpool Water EveryDrop water filter package.
- It was included in the Dow Jones Sustainability World Index for 2014-2015, Sonoco's sixth consecutive listing.
- Sonoco ranked in the Top Five of the Packaging and Container sector of Fortune magazine’s 2014 World’s Most Admired Companies.
(Source: Company’s website)
An update on projects
The company is planning to do the following:
- An investment of $13 million to $15 million to further grow composite cans production capacity in Poland.
- A $20 million investment in a new composite can facility in Kuala Lumpur, Malaysia, which opened in September 2015 and will ramp up production through the first half of 2016.
- Investment in a new composite can line at its new plant in Shanghai and possible development of a second new plant in South China in 2016 or 2017.
- Development of a new rigid paper product technology engineered by its European rigid packaging operations for commercial development at its West Chicago, Illinois, can plant.
- A $22 million investment to purchase a new rotogravure press and triplex laminator in its flexible packaging facilities in Waco, Texas, and Franklin, Ohio.
- New extrusion and increased thermoformed portion control capacity at its Franklin Park, Illinois, plant.
- New polypropylene tray production capacity for microwaveable food trays.
- New blow molding capacity at its New Albany, Ohio, plant in 2016.
- In 2015, it opened IPS Studio, a leading-edge research, development and innovation center that connects consumer and market insights to the invention of new packaging solutions. Sonoco invested $12 million to build the new Innovative Packaging Solutions center at the Hartsville headquarters as a part of its effort to grow business through new products, new markets, new services and new ways of thinking.
Priorities
- Optimize its portfolio.
- Maximize sustainable cash flow from operations.
- Grow its Consumer Packaging and Protective Solutions segments and Industrial businesses in emerging markets.
- Achieve average annual double-digit total return to shareholders.
- Maintain investment-grade credit rating.
On a concluding note
Sonoco is one of the world's largest manufacturers of industrial, consumer and protective packaging and provider of packaging services. In addition, the company is one of the leading producers of recycled paperboard, utilizing more than 1 million tons of recovered paper annually in its papermaking operations.
Sonoco is dedicated to achieving customer satisfaction in all the markets it serves around the world. The company put up solid results in 2015 despite diverging global economic conditions and headwinds stemming from the continued strength of the U.S. dollar.
Sonoco products are used by many of the world's leading industries, including food processing, powdered beverages, snacks, textiles, papermaking, material converting, material handling, agriculture, personal care and many others.
With a unique range of packaging materials, technical disciplines, material science and manufacturing capabilities and packaging and display services, Sonoco takes a holistic approach to providing customized solutions that meet customers’ needs.
The company’s systematic approach to driving market-focused growth and innovation techniques with customers is going to help the company in the long run.
Disclosure: I do not hold any position in the company.
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