July 19, 2006 (Press Release) - Sonoco, the global packaging company, today reported earnings per diluted share for the second quarter of 2006 of $.49, compared with $.40 for the same period in 2005, it was announced by Harris E. DeLoach, Jr., chairman, president and chief executive officer. Base earnings per diluted share for the second quarter of 2006, a non-GAAP measure that excludes restructuring charges and certain unusual items, were $.51 per diluted share, compared with $.45 per diluted share, for the same period of 2005.

Base earnings for the second quarter excluded after-tax restructuring charges of $1.6 million ($.02 per diluted share) and $5.6 million ($.05 per diluted share) in 2006 and 2005, respectively, related to previously announced restructuring actions.

Net sales for the second quarter of 2006 were $917 million, up 4.4 percent, compared with $878 million for the same period in 2005. According to DeLoach, "The increase in sales during the second quarter of 2006 was due primarily to stronger volumes and higher prices in the Tubes and Cores/Paper segment and in businesses included in All Other Sonoco, higher prices in the Consumer Packaging segment and the favorable impact of foreign currency translation. Partially offsetting these improvements was reduced volume in the Packaging Services segment, where point-of-purchase display and fulfillment sales declined from an unusually strong first half of 2005 including extensive new product display launches and fulfillment rework activity. The Packaging Services segment's sales are near our 2006 forecast, and we expect significantly improved results in the second half of 2006."

Net income for the second quarter of 2006 was $49.3 million, compared with $40.2 million for the second quarter of 2005. Base earnings totaled $50.9 million for the second quarter of 2006, compared with $45.8 million for the same period in 2005, an 11.2 percent increase. (A reconciliation of base earnings to reported net income is provided immediately following the Forward-Looking Statements of this news release.)

"Strong base earnings in the second quarter of 2006 reflect a continued favorable selling price/material cost relationship, despite higher raw material costs, and the impact of productivity improvements which offset rising energy, freight and labor costs. The higher volume noted in the discussion of sales had little impact on earnings, due to unfavorable shifts in the mix within the individual businesses in each of the segments," said DeLoach.

Cash generated from operations for the second quarter of 2006 was approximately $89 million, compared with approximately $46 million for the same period in 2005. The increase was primarily due to the Company's working capital initiative and improved earnings. Capital expenditures and cash dividends totaled $31 million and $24 million, respectively, in the second quarter of 2006.

For the first six months of 2006, net sales increased 2.6 percent, to $1.7 billion, compared with the first half of 2005. Net income for the first six months of 2006 was $94.5 million ($.93 per diluted share), up 22.4 percent, compared with $77.2 million ($.77 per diluted share) in the same period in 2005. Included in 2006 first half results were approximately $1.8 million after tax ($.02 per diluted share) related to the expensing of stock options in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), 'Share-based Payment'. In addition, a favorable adjustment to certain state taxes increased earnings per diluted share by $.04. Earnings for the first six months of 2006 and 2005 were negatively impacted by after-tax restructuring costs of $2.9 million ($.03 per diluted share) and $8.7 million ($.08 per diluted share), respectively.

Excluding the impact of the restructuring charges, base earnings were $97.4 million ($.96 per diluted share) in the first half of 2006, up 13.4 percent, compared with $85.9 million ($.85 per diluted share) for the same period in 2005. (A reconciliation of base earnings per share to reported earnings per share is provided immediately following the Forward-Looking Statements of this news release.) The increase in base earnings in the first half of 2006 was due primarily to productivity improvements and a positive price/cost relationship, partially offset by increased costs for energy, freight and labor along with a negative shift in the mix of business.

For the first six months of 2006, cash flows from operations totaled approximately $161 million, compared with approximately $68 million for the same period in 2005. Capital expenditures and cash dividends totaled $59 million and $47 million, respectively for the first six months of 2006. Additionally, the Company repurchased 2.5 million shares of Sonoco common stock for approximately $83 million during the first six months of 2006.

Revised 2006 Outlook

"In light of better than expected results for the first half of 2006 and improving results and/or prospects across our business segments, we expect third quarter 2006 base earnings to be in the range of $.54 to $.57 per diluted share, assuming no significant change in Companywide volumes or pricing and excluding any restructuring charges and additions to environmental reserves, which cannot be estimated at this time. Furthermore, we are raising guidance for full year 2006 earnings to the upper range of between $2.07 to $2.10 per diluted share, including approximately $.03 per diluted share related to expensing of stock options, excluding any restructuring charges and additions to environmental reserves, and assuming no significant reduction in pricing due to changing general economic conditions," DeLoach concluded. On April 19, 2006, Sonoco had increased 2006 base earnings guidance to the upper range of between $1.96 and $1.99 per diluted share from previous guidance of the upper range of between $1.90 to $1.94 per diluted share.

SEGMENT REVIEW

Consumer Packaging

The Consumer Packaging segment includes the following products: round and shaped rigid packaging, both composite and plastic; printed flexible packaging; and metal and plastic ends and closures.

Second quarter 2006 sales for the Consumer Packaging segment were $328 million, up approximately 5 percent, compared with $312 million for the same period in 2005. Operating profit for this segment was $26.3 million in the second quarter of 2006, up approximately 7 percent, compared with $24.5 million in the second quarter of 2005.

The Consumer Packaging segment's 2006 second quarter sales increased as a result of higher selling prices plus the favorable impact of foreign exchange translation. Higher volumes in composite cans were basically offset by decreased volume in flexible packaging. Earnings improved during the second quarter of 2006 as a result of higher selling prices along with productivity improvements.

Tubes and Cores/Paper

Effective December 31, 2005, the Company changed the name of the Engineered Carriers and Paper segment to Tubes and Cores/Paper because the term "tubes and cores" is more generally understood than "engineered carriers" in the businesses included in this segment. Its products include: high- performance paper and composite tubes and cores, fiber-based construction tubes and forms, recycled paperboard and linerboard.

Second quarter 2006 sales for the Tubes and Cores/Paper segment were $387 million, up approximately 5 percent, compared with $368 million for the same period in 2005. Operating profit for the Tubes and Cores/Paper segment for the second quarter of 2006 was $37.2 million, compared with $26.5 million in the second quarter of 2005.

Sales in the Tubes and Cores/Paper segment were up year-over-year in the second quarter 2006 due to higher volumes, mainly in global paper operations; higher selling prices, primarily in tubes and cores; and the favorable impact of foreign currency translation. Base operating profit increased primarily due to productivity improvements and a favorable price/cost relationship. These improvements were partially offset by higher energy, freight and labor costs.

Packaging Services

The Packaging Services segment includes the following services: designing, manufacturing, assembling, packing and distributing temporary, semipermanent and permanent point-of-purchase displays; brand artwork management; and supply chain management services including contract packing, fulfillment and scalable Service Centers.

Second quarter 2006 sales for the Packaging Services segment were $107 million, a decline of 4 percent, compared with $112 million in the same quarter of 2005. Operating profit for this segment was $8.6 million in the second quarter of 2006, compared with $10.7 million in the same period in 2005.

Second quarter 2006 sales in the Packaging Services segment declined primarily due to year-over-year reduction in point-of-purchase display and rework activity, lower volume from certain European Service Centers as well as the loss of sales from a single-plant folding carton operation that was sold at the end of 2005. Operating profits declined in the segment during the second quarter of 2006 due primarily to lower volumes, partially offset by productivity improvements and cost containment.

All Other Sonoco

All Other Sonoco includes businesses which are not aggregated in a reportable segment and include the following products: wooden, metal and composite reels for wire and cable packaging; molded and extruded plastics; custom designed protective packaging; and paper amenities such as coasters and glass covers.

Second quarter 2006 sales for All Other Sonoco were $96 million, up 11 percent, compared with $86 million in the second quarter of 2005. Operating profit for the second quarter of 2006 for All Other Sonoco was $13.2 million, up approximately 31 percent, compared with $10.1 million in the same period in 2005.

Second quarter 2006 sales in All Other Sonoco increased over the same period in 2005, primarily due to increased selling prices and volume gains for wire and cable reels along with volume gains in protective packaging. Base operating profit for All Other Sonoco in the second quarter of 2006 increased primarily due to the impact of the higher selling prices along with productivity improvements.

Corporate

Depreciation and amortization expense for the second quarter of 2006 was $39 million, compared with $42 million in second quarter of 2005. Net interest expense for the first quarter of 2006 increased to $12.5 million, compared with $10.8 million during the same period in 2005 due to an increase in interest rates. The effect of the increase in rates was partially offset by a decrease in average debt balances.

The effective tax rate for the Company for second quarter 2006 was 34.2 percent, compared with 31.4 percent in same period in 2005. The effective tax rate for the second quarter of 2005 was lower than the second quarter of 2006 primarily due to the recognition, in 2005, of a $2 million deferred tax asset in Mexico.

As previously disclosed, Sonoco-U.S. Mills, Inc. (U.S. Mills), a wholly owned subsidiary of the Company acquired in 2001, has agreed to participate in the cleanup of PCB-contaminated sediments at a site on the lower Fox River near its DePere, Wis., paper mill. U.S. Mills fully accrued for its estimated share of this liability during the fourth quarter of 2005. More recently, U.S. Mills has become aware of the potential for further liability along a larger stretch of the lower Fox River. Although it has not accepted any liability nor entered into any cost sharing agreements with interested parties, U.S. Mills is in the early stages of reviewing this new information and cannot reasonably estimate the amount of liability, if any, at this time. Accordingly, no additional reserve for potential remediation costs has been recognized by U.S. Mills at June 25, 2006. Although U.S. Mills' liability could exceed its net worth, Sonoco believes its maximum exposure (largely non-cash) is limited to the equity position of U.S. Mills, which is approximately $80 million as of June 25, 2006, excluding any tax benefits that may further reduce the net charge. Although there can be no assurance that such efforts will be successful, U.S. Mills expects to aggressively defend its interest and to reduce its losses, if any, through claims against third parties and insurance coverage.

SOURCE: Sonoco