Sonoco Reports Second Quarter 2021 Results

Sonoco (NYSE: SON), one of the largest diversified global packaging companies, today reported financial results for its second quarter ended July 4, 2021.

Second Quarter Highlights:
*Second quarter 2021 GAAP net loss per diluted share was $(3.34), compared with earnings per diluted share of $0.55 in 2020.
*Second quarter 2021 GAAP net loss included net after-tax charges of $418.7 million, due mostly to a non-cash pension settlement charge of $406.5 million related to the Company’s settlement of the outstanding pension liabilities of the Sonoco Pension Plan for Inactive Participants (the “Inactive Plan”), and a $15.0 million expense related to the early extinguishment of debt. In the second quarter of 2020, GAAP earnings included net after-tax charges of $24.9 million related mostly to restructuring actions and non-operating pension costs.
*Base net income attributable to Sonoco (base earnings) for second quarter 2021 was $0.84 per diluted share, compared with $0.79 in 2020. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) Sonoco previously provided second quarter 2021 base earnings guidance of $0.82 to $0.88 per diluted share.
*Second quarter 2021 net sales were $1.38 billion, compared with $1.25 billion in 2020.
*Cash flow from operations was $102.0 million in the first half of 2021, compared to $282.0 million in the first half of 2020. Free cash flow was $9.4 million in the first half of 2021, compared with $210.4 million in the first half of 2020. Free cash flow for the first half of 2021 included pension contributions totaling $133 million made in the second quarter as part of the final settlement of the Inactive Plan’s liabilities. (See free cash flow definition and reconciliation to cash flow from operations later in this release.)
*On July 8, 2021, the Company committed to reduce absolute scope 1 and 2 greenhouse gas emissions by 25 percent and scope 3 greenhouse gas emissions by 13.5 percent by 2030 in line with the Paris Climate Agreement — to limit global temperatures to warming to well below 2-degree C. These emission reduction goals were validated by the Science Based Targets initiative (SBTi).

CEO Comments
Commenting on the Company’s second quarter performance, Howard Coker, President and Chief Executive Officer, said, “As anticipated, we reported a GAAP loss in the second quarter due to pension settlement charges associated with the purchase of group annuity contracts and the distribution of lump-sum payments, which resulted in our pension obligations being reduced by approximately $1.4 billion. Also during the quarter, we further improved our strong balance sheet by reducing total debt by approximately $100 million, enhanced our financial flexibility by upsizing our committed credit facility with a new $750 million revolver, and returned value to shareholders by executing a $150 million accelerated share repurchase agreement.

“Sonoco’s balanced mix of consumer and industrial packaging businesses achieved second quarter base earnings results which were well within our guidance range despite unprecedented raw material and non-material inflation and some continued impact of COVID-19 on certain of our served markets. Net sales grew 11 percent in the quarter as volume/mix improved approximately 8 percent due to solid demand recovery in most of our industrial-related businesses. Base earnings benefited from volume/mix growth and productivity improvements, which more than offset a negative price/cost relationship and the impact from the divestiture of our former display and packaging businesses.

“While we expected demand in our Consumer Packaging segment to normalize from the pantry-stocking records set during the second quarter of last year, segment operating profit declined by 29 percent due primarily to a negative price/cost relationship stemming from escalating resin, film, metals, packaging and freight costs. On the other hand, our Industrial Paper Packaging segment benefited from strong global demand, which helped boost segment operating profit by 74 percent compared to last year’s second quarter. Our All Other group of businesses, which consists of protective, healthcare, retail and industrial plastics units, also benefited from the economic recovery as operating profit improved 23 percent.”

Second Quarter Review
Net sales for the second quarter of 2021 were $1.38 billion, up 11.0 percent from last year’s second quarter sales of $1.25 billion. This growth was driven by an improvement in volume/mix, higher selling prices mostly implemented to offset inflation and a favorable impact from foreign exchange.

GAAP net loss attributable to Sonoco in the second quarter of 2021 was $(334.1) million, or $(3.34) per diluted share, a decrease of $389.3 million, compared with income of $55.2 million, or $0.55 per diluted share, in 2020.

Gross profit was $262.7 million in the second quarter of 2021 compared to $248.0 million in the same period in 2020. Quarterly gross profit as a percentage of sales declined 92 basis points year over year to 19.0 percent.
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