Sonoco (NYSE: SON), one of the largest diversified global packaging companies, today reported financial results for its third quarter ended September 27, 2020.
Third Quarter Highlights
*Third-quarter 2020 GAAP earnings per diluted share were $0.82, compared with $0.91 in 2019.
*Third-quarter 2020 GAAP earnings included net after-tax charges of $3.6 million related primarily to restructuring activity and non-operating pension costs mostly offset by a tax benefit related to anticipated divestiture activity. In the third quarter of 2019, GAAP earnings included net after-tax charges of $6.1 million related mostly to restructuring actions and non-operating pension costs that were partially offset by an environmental reserve release.
*Base net income attributable to Sonoco (base earnings) for third-quarter 2020 was $0.86 per diluted share, compared with $0.97 in 2019. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) Sonoco previously provided third-quarter 2020 base earnings guidance of $0.73 to $0.83 per diluted share.
*Third-quarter 2020 net sales were $1.31 billion, compared with $1.35 billion in 2019.
*Cash flow from operations was $489.5 million in the first nine months of 2020, compared to $238.8 million in 2019. Free cash flow was $251.6 million, compared with a use of $32.5 million in the first nine months of 2019. (See free cash flow definition and reconciliation to cash flow from operations later in this release.)
*On August 3, 2020, Sonoco acquired Can Packaging, a privately-owned designer and manufacturer of sustainable paper packaging and related manufacturing equipment, based in Habsheim, France, for approximately $49 million in cash.
*On October 9, 2020, the Company signed an agreement to sell its Europe contract packaging business, part of the Display and Packaging Segment, to Prairie Industries Holdings backed by The Halifax Group, a Washington, D.C.-based global investment firm, for $120 million in cash. As a result of the pending transaction, the assets and liabilities for this business are reported as “held for sale” on the condensed consolidated balance sheet as of September 27, 2020.
CEO Comments
Commenting on the Company’s third-quarter performance, Howard Coker, President and Chief Executive Officer, said, “We are very pleased with our third quarter performance as our Sonoco team drove bottom-line results that exceeded the high-end of our expectations. The results of our diverse portfolio of global Consumer- and Industrial-related businesses reflect improved global macroeconomic conditions coming off the pandemic-induced recession in the second quarter. Our Consumer Packaging segment produced solid year-over-year improvement as at-home food demand stabilized from the preceding quarter’s pantry stocking, while our Paper and Industrial Converted Products segment experienced improvement sequentially from the prior quarter’s lows, reflecting a partial recovery of our global industrial served markets. In addition, our Protective Solutions segment achieved record quarterly results as customer demand rebounded, and our Display and Packaging segment achieved one of its best quarters in more than a decade driven by cost reduction activities. Overall, the Company’s bottom line results benefited from continued strong productivity, general cost savings and earnings from recent acquisitions. However, these positive factors were more than offset by a negative price/cost relationship stemming from higher year-over year recovered paper costs, which primarily impacted our Paper and Industrial Converted Products segment, lower volume/mix, increased interest expense and a higher effective tax rate.
“Cash flow generation was also very strong during the first nine months of 2020, reflecting our focus on generating high quality earnings and on disciplined working capital management. Sonoco’s liquidity position remains strong which provides us the flexibility to further reduce debt as we continue to support our investment-grade credit rating.”
Third Quarter Review
Net sales for the third quarter of 2020 were $1.31 billion, down 3.1 percent from last year’s third quarter sales of $1.35 billion. The sales decline was driven by lower volume/mix, a stronger U.S. dollar and lower selling prices. These negative impacts were partially offset by sales added from acquisitions.
GAAP net income attributable to Sonoco in the third quarter was $83.4 million, or $0.82 per diluted share, a decrease of $8.6 million, compared with $92.1 million, or $0.91 per diluted share, in 2019. Third-quarter GAAP earnings included after-tax non-base net charges totaling $3.6 million consisting primarily of restructuring-related charges and non-operating pension costs, partially offset by a deferred tax liability write down. After-tax restructuring-related charges of $18.5 million were primarily related to announced plant closures in the Company’s perimeter-of-the-store business and capacity reductions in its North America paper mill and tube and core networks. Partially offsetting these charges was the $20.4 million write-down of a deferred tax liability related to classifying the Company’s Europe contract packaging business as “held for sale.” In the third quarter of 2019, GAAP earnings included $6.1 million of after-tax non-base net charges, $4.8 million of which were related to restructuring activities and $5.2 million related to non-operating pension costs. These charges were partially offset by an after-tax gain related to the write-off of an environmental reserve of $7.4 million. Adjusted to exclude these items, base earnings in the third quarter of 2020 were $87.0 million, or $0.86 per diluted share, compared with $98.1 million, or $0.97 per diluted share in 2019, a decrease of $11.1 million. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring-related items, asset impairment charges, acquisition expenses, non-operating pension costs, and certain income tax-related events 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.)
Gross profit was $257.0 million in the third quarter compared to $265.5 million in the same period in 2019. Quarterly gross profit as a percentage of sales was essentially flat year over year at 19.6 percent. Third-quarter selling, general and administrative expenses increased $5.8 million from the prior year to $126.1 million. This increase was largely driven by costs added from acquired businesses as well as a $10.0 million gain in 2019 related to the release of an environmental reserve that did not repeat. Absent these two items, selling, general and administrative expenses declined due to a significant focus on reducing controllable costs as well as the impact of the pandemic on travel, employee medical and certain other expenses.
details at: https://investor.sonoco.com/news-releases/news-release-details/sonoco-reports-third-quarter-2020-results