Sonoco (NYSE: SON), one of the largest diversified global packaging companies, today provided an update on its strategy and financial guidance at a meeting with the investment community in New York.
Featured presenters at the meeting included: Rob Tiede, president and CEO; Howard Coker, senior vice president, Global Paper/Industrial Converted Products; Rodger Fuller, senior vice president, Global Consumer Packaging, Display and Packaging and Protective Solutions; and Julie Albrecht, vice president and Chief Financial Officer. Other participants in the conference included: Marcy Thompson, vice president, Marketing, Innovation and Sustainability, and Jeffrey Schuetz, staff vice president, Consumer Technology. The presentation from today’s meeting is available on the Investor Relations section of Sonoco’s website at https://investor.sonoco.com/investor-relations-0.
Sonoco Provides 2019 GAAP EPS and Reaffirms 2019 Base EPS, Cash Flow Guidance
Sonoco expects fourth-quarter and full-year 2019 GAAP earnings of $0.54 to $0.64 and $2.98 to $3.08 per diluted share, respectively. The full-year range includes amounts previously disclosed by the Company of approximately $0.34 per diluted share, after-tax, largely consisting of restructuring and non-operating pension costs partially offset by a gain relating to the release of an environmental reserve. These GAAP guidance ranges also reflect the anticipated fourth-quarter impact of estimated after-tax restructuring charges and non-operating pension costs.
Fourth-quarter and full-year 2019 base earnings are expected to be $0.72 to $0.76 and $3.50 to $3.54 per diluted share, respectively, which reaffirms the Company’s previously communicated guidance. In 2018, the Company reported fourth-quarter and full-year GAAP earnings of $0.77 and $3.10 per diluted share, and base earnings of $0.84 and $3.37 per diluted share, respectively.
Note: Reconciliations of non-GAAP financial measures to GAAP financial measures are available on our website at https://sonoco.gcs-web.com/static-files/a8ea8da3-2ada-454d-a99a-f82c076ae88c. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring charges, asset impairment charges, non-operating pension costs or income, environmental reserve charges/releases, gains/losses on disposition of assets, acquisition and divestiture expenses, excess property insurance recoveries, and certain other items, if any, including other income tax-related adjustments and/or events, the exclusion of which the Company believes improve comparability and analysis of the underlying financial performance of the business.
Sonoco also reaffirmed guidance for 2019 operating cash flow and free cash flow of between $435 million to $455 million, and $60 million to $80 million, respectively, including the estimated after-tax impact from the Company’s $200 million voluntary contribution to its U.S. defined benefit pension plan. Free cash flow guidance also includes total expected 2019 cash dividend payments to shareholders of approximately $170 million. (Free cash flow is a non-GAAP financial measure which may not represent the amount of cash flow available for general discretionary use. Free cash flow is defined as cash flow from operations minus net capital expenditures and cash dividends. Net capital expenditures are defined as capital expenditures minus proceeds from, and/or costs incurred in, the disposition of capital assets.)
Company Targets Record 2020 Base EPS; Free Cash Flow Growth
Sonoco estimates 2020 base earnings per diluted share to be in the range of $3.65 to $3.75, with a projected mid-point target of $3.70 per diluted share.
Note: 2020 GAAP guidance is not provided in this release due to the likely occurrence of one or more of the following, the timing and magnitude of which we are unable to reliably forecast: possible gains or losses on the sale of businesses or other assets, restructuring costs and restructuring-related impairment charges, non-operating pension costs or income; acquisition-related costs, and the income tax effects of these items and/or other income tax-related events. These items could have a significant impact on the Company’s future GAAP financial results.
According to Julie Albrecht, vice president and chief financial officer, the Company’s 2020 midpoint base earnings target assumes $0.10 per share positive impact from acquisitions, a $0.15 per share addition from volume/mix, and a $0.43 per share addition from total productivity initiatives. Offsetting these favorable factors is an expected $0.33 per share negative price/cost relationship primarily from higher operating inflation. Higher depreciation and amortization and other costs are expected to have a negative $0.09 per share impact, while higher income taxes and the impact of a strengthening dollar are expected to have a negative $0.08 per share impact. Overall, Albrecht noted that the Company’s 2020 base earnings per share are expected to net a 5.1 percent improvement over 2019 estimates, including operational improvements of 7.4 percent.
At the midpoint, 2020 operating cash flow is projected to be approximately $635 million and, after spending $195 million in capital investments, and paying $180 million in dividends to shareholders, subject to Board approval, free cash flow is projected to be approximately $260 million. Depreciation and amortization expense is projected to be $260 million in 2020. Excluding the estimated after-tax impact of a $200 million voluntary contribution to the Company’s U.S. defined benefit pension plan in 2019, the increase in 2020 operating cash flow and free cash flow would represent year-over-year growth of 4.1 percent and 10.6 percent, respectively. Albrecht noted the Company’s 2020 cash flow outlook excludes a potential pre-tax contribution of between $125 million and $175 million related to terminating and annuitizing the Company’s U.S. pension plan, which should occur in late 2020 or early 2021. The Company further estimates that a non-cash settlement charge of between $550 million to $600 million would occur at certain points in the pension termination process.
Commenting on the Company’s 2019 and 2020 expectations, Sonoco President and CEO Rob Tiede said, “We are extremely pleased with how our team is managing our business during challenging market conditions in 2019, while putting us on pace to achieve another year of record base earnings. 2020 is shaping up to be a year full of opportunities and challenges. While I’m hopeful that market conditions improve, we know that hope is not a strategy, and we must remain intensely focused on what we can control, while being flexible when needed. Sonoco has evolved and strengthened over the past 120 years, and I’m excited about what we are capable of becoming as we enter the next decade.”