Sonoco Reports First Quarter 2017 Results
Sonoco (NYSE:SON), one of the largest diversified global packaging companies, today reported financial results for its first quarter, ending April 2, 2017.
First Quarter Highlights
•First quarter 2017 GAAP earnings per diluted share were $0.53, compared with $0.59 in 2016.
•First quarter 2017 GAAP results included $0.06 per diluted share, after tax, in restructuring costs and acquisition-related expenses. In the first quarter of 2016, GAAP results included $0.06 per diluted share, after tax, in asset impairment and restructuring expenses.
•Base net income attributable to Sonoco (base earnings) for first quarter 2017 was $0.59 per diluted share, compared with $0.65 in 2016. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) Sonoco previously provided first-quarter 2017 base earnings guidance of $0.55 to $0.63 per diluted share.
•First-quarter 2017 net sales were $1.17 billion, down from $1.23 billion in 2016.
•Cash flow from operations was $67.4 million in the first quarter of 2017, compared with $66.4 million in 2016. Free cash flow for the first quarter was a negative $18.4 million, compared with a negative $22.1 million in 2016. (See free cash flow definition and reconciliation to cash flow from operations later in this release.)
•On March 14, 2017, Sonoco completed the acquisition of Peninsula Packaging Company, a leading manufacturer of thermoformed packaging for fresh fruit and vegetables based in Exeter, Calif. Sonoco acquired Peninsula Packaging for approximately $230 million, financing the transaction from a combination of available cash and a $150 million three-year term loan.
Second Quarter and Full Year Guidance Update
•Base earnings for the second quarter of 2017 are estimated to be in the range of $0.67 to $0.73 per diluted share. This guidance takes into consideration the negative impact of the 2016 divestiture of the Company’s blowmolding and other smaller operations, which more than offset the current period acquisition of Peninsula Packaging and several smaller acquisitions made in 2016. Base earnings in the second quarter of 2016 were $0.73 per diluted share.
•Full-year 2017 base earnings guidance has been updated to a range of $2.73 to $2.83, which includes a targeted $0.07 per diluted share expected to come from acquisitions, including Peninsula Packaging. This updated guidance is essentially unchanged from the Company’s previous guidance range of $2.66 to $2.76 per diluted share, which excluded a targeted $0.06 to $0.08 per diluted share from acquisitions and/or share repurchases.
•As previously guided, 2017 operating cash flow and free cash flow are expected to be approximately $470 million and $125 million, respectively.
Commenting on the Company’s first quarter results, Sonoco President and Chief Executive Officer Jack Sanders said, “Despite an unprecedented and unexpected sharp increase in recovered paper prices, which is the primary raw material used in our Paper and Industrial Converted Products segment, Sonoco was still able to achieve the midpoint of our first- quarter guidance. Overall, compared to the prior-year quarter, the Company’s earnings were negatively impacted by lower volume/mix; divestitures, net of acquisitions; a negative price/cost relationship; and higher labor, maintenance, pension and other operating expenses. Partially offsetting the quarter’s headwinds were procurement savings, fixed-cost productivity, lower management incentive expense, and a lower effective tax rate.
“Operating profit in our Consumer Packaging segment declined 8 percent from the prior-year quarter; however, operating margin remained at a solid 12 percent. The decline in segment operating profit was due primarily to the November 2016 sale of the Company’s blowmolding operations and lower composite can volume in Europe and North America. Segment sales declined by 9 percent, due to the divestiture of the Company’s blowmolding operations, net of acquisitions, lower volume and the negative impact of foreign exchange, partially offset by higher selling prices implemented to recover rising raw material costs and other inflation.
“Our Display and Packaging segment’s operating profit was essentially flat with last year’s quarter. Segment sales declined 21 percent primarily due to discontinuance of the Company’s contract packaging center in Mexico, which had little effect on operating profits. Results also reflect lower volume in domestic displays and retail packaging, and the negative impact of foreign exchange.
“Operating profit in our Paper and Industrial Converted Products segment declined approximately 26 percent as the average price for recovered paper in the Company’s U.S. and Canada operations increased nearly 90 percent from the prior year’s quarter, resulting in a significant negative price-cost relationship as the Company was unable to immediately pass on the higher costs to our paper, tube and core customers. Higher labor, maintenance, pension and other expenses also negatively impacted operating profit. Current-quarter segment sales grew by 5 percent due primarily to higher recovered paper prices, partially offset by the divestiture of a paperboard mill in France, lower volume and the negative impact of foreign exchange.
“Operating profit in our Protective Solutions segment declined 10 percent from the prior-year quarter, as negative volume/mix, a negative price/cost relationship, and higher labor, maintenance and other operating costs were only partially offset by fixed-cost productivity improvements. Sales improved slightly in the quarter due primarily to acquisitions.”
GAAP net income attributable to Sonoco in the first quarter was $53.7 million, or $0.53 per diluted share, compared with $59.9 million, or $0.59 per diluted share, in 2016. Base earnings in the first quarter were $59.9 million, or $0.59 per diluted share, compared with $66.5 million, or $0.65 per diluted share, in 2016. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring-related items, asset impairment charges, acquisition expenses and other items, if any, the exclusion of which the Company believes improves comparability and analysis of the ongoing operating performance of the business. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.)
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