Sonoco Reports Improved Third Quarter Earnings
Oct. 18, 2006 - Sonoco reported earnings per diluted share for the third quarter of 2006 of $.60, an increase of 30 percent, compared with $.46 for the same period in 2005. Base earnings per diluted share for the third quarter of 2006, a non-GAAP measure that excludes restructuring charges and certain non-recurring items, as applicable, were $.61, compared with $.48 per diluted share for the same period of 2005, an increase of 27 percent. (Additional information about base earnings and base earnings per share along with reconciliation to reported earnings and reported earnings per share is provided later in this news release.) Base earnings for the third quarter excluded after-tax restructuring charges of $0.6 million ($.01 per diluted share) and $2.5 million ($.02 per diluted share) in 2006 and 2005, respectively, related to previously announced restructuring actions.
Net sales for the third quarter of 2006 were $932 million, compared with $881 million for the same period in 2005. According to DeLoach, "Sales increased nearly six percent during the third quarter of 2006, with gains in each of the Company's three business segments and in other businesses reported in All Other Sonoco. Overall, growth in sales during the quarter was due primarily to higher selling prices, higher overall volume and the favorable effect of foreign currency translation."
Net income for the third quarter of 2006 was $61.1 million, a 33 percent increase, compared with $45.9 million for the third quarter of 2005. Base earnings, a non-GAAP measure that excludes restructuring charges and certain non-recurring items, as applicable, totaled $61.7 million for the third quarter of 2006, compared with $48.4 million for the same period in 2005, a 28 percent increase.
"The increase in year-over-year base earnings in the third quarter of 2006 reflected a continued favorable selling price/material cost relationship and the impact of productivity improvements, which were partially offset by higher energy, freight and labor costs throughout the Company. The impact of higher volume had little impact on overall earnings due to the unfavorable shifts in the mix within certain businesses," said Harris E. DeLoach, Jr., chairman, president and chief executive officer. "Our results were also favorably impacted by the recognition of certain tax benefits, resulting in an effective tax rate of 28.6 percent, which was lower than we had expected. Therefore, earnings are above the upper end of the guidance levels we had established."
Cash generated from operations for the third quarter of 2006 was approximately $150 million, compared with approximately $92 million for the same period in 2005. The increase was due primarily to improved earnings and to the Company's working capital improvement initiatives. Capital expenditures and cash dividends totaled $28.4 million and $23.8 million, respectively, in the third quarter of 2006.
For the first nine months of 2006, net sales increased 3.6 percent to $2.7 billion, compared with $2.6 billion for the first nine months of 2005. Net income for the first nine months of 2006 was $155.6 million ($1.54 per diluted share), up 26 percent, compared with $123.1 million ($1.23 per diluted share) for the same period in 2005. Included in results for the first nine months of 2006 were after-tax charges of approximately $2.3 million ($.02 per diluted share) related to the expensing of stock options in accordance with Statement of Financial Accounting Standards No. 123®, "Share-based Payments." Earnings for the first nine months of 2006 and 2005 were negatively impacted by after-tax restructuring costs of $3.5 million ($.03 per diluted share) and $11.1 million ($.11 per diluted share), respectively.
Base earnings were $159.1 million ($1.57 per diluted share) in the first nine months of 2006, up 19 percent, compared with $134.2 million ($1.34 per diluted share) during the same period in 2005. The increase in base earnings in the first nine months of 2006 was due primarily to productivity improvements and a positive selling price/material cost relationship, partially offset by increased costs for energy, freight and labor, along with an unfavorable shift in the mix of business. In addition, a favorable adjustment to certain state taxes increased reported and base earnings per diluted share by $.04 earlier in the year and the recognition of tax benefits, primarily from the expiration of assessment statutes, added $.06 during the current quarter.
For the first nine months of 2006, cash flows from operations totaled approximately $331 million, compared with approximately $161 million for the same period in 2005. Capital expenditures and cash dividends totaled $87.5 million and $70.7 million, respectively, for the first nine months of 2006. Additionally, the Company repurchased 2.5 million shares of Sonoco common stock for approximately $83 million earlier in 2006.
Fourth Quarter Outlook
The Company recently announced a further cost reduction action, principally internationally focused and mainly centered in Europe, where, earlier this week, Sonoco completed the previously announced acquisition of the remaining 35.5 percent interest of the Sonoco-Alcore, S.a.r.l., joint venture from Ahlstrom Corporation. Significant savings resulting from the restructuring program are not expected until 2007 and the Company cannot estimate the amount of restructuring charges expected to occur during the fourth quarter. Excluding any such charges and assuming no significant change in Companywide volumes and/or price due to a change in general economic condition, Sonoco expects fourth quarter 2006 base earnings to be in the range of $.53 to $.55 per diluted share.
Furthermore, the Company increased its full-year 2006 base earnings guidance to be in the range of $2.11 to $2.13 per diluted share, including approximately $.03 per diluted share related to expensing of stock options, excluding any restructuring charges or additions to environmental reserves and assuming no significant changes to general economic conditions. The Company's earnings guidance reflects an expected effective tax rate of approximately 35 percent during the upcoming quarter.