Sonoco reports improved first quarter earnings
April 20, 2007 - Sonoco today reported first quarter 2007 earnings of $.52 per diluted share, an 18 percent increase over first quarter 2006 earnings of $.44 per diluted share. As a result of the Company's accounting calendar, the first quarter of 2007 included 91 days, six more days than the same period in 2006. Results for the first quarter included after-tax restructuring charges of $4.8 million ($.05 per diluted share) related to previously announced cost-reduction measures. Prior year results included $1.4 million ($.02 per diluted share) of after-tax restructuring charges.
Base earnings for the first quarter of 2007 increased 24 percent to $.57 per diluted share, compared with $.46 per diluted share in the same period in 2006. Base earnings is a non-GAAP financial measure that excludes restructuring charges and certain non-recurring or infrequent and unusual expenses, as applicable. Additional information about base earnings and base earnings per share along with reconciliations to the most closely applicable GAAP financial measure is provided later in this news release.
Net sales for the first quarter of 2007 were $956 million, a 17 percent increase over the $819 million posted in the same period of 2006. "Approximately half of the increase in sales during the first quarter of 2007 was a result of the longer quarter, while acquisitions, primarily in our Tubes and Cores/Paper and Consumer Packaging segments, added $32 million in revenue," said Harris E. DeLoach, Jr., chairman, president and chief executive officer. "In addition, we were pleased to be able to recover much of the materials and other cost increases experienced during the quarter through higher selling prices."
Net income, which included the above-mentioned restructuring charges, for the first quarter of 2007 was $53.1 million, up 18 percent, compared with $45.1 million for the same period in 2006. Base earnings were $57.9 million, up 25 percent, compared with $46.5 million in the prior year period. In addition to the longer quarter, first quarter 2007 base earnings were aided by $5.5 million ($.04 per diluted share) for the recovery of certain benefit costs from a third party that had not been included in the Company's prior guidance. The first quarter of 2006 included a favorable adjustment to certain state taxes that increased prior year quarterly earnings per diluted share by $.03.
"Through manufacturing productivity improvements and attention to cost management, we were able to successfully navigate our way through what was a volatile first-quarter environment. The price for our largest cost component, old corrugated containers (OCC), increased significantly during the quarter," DeLoach said.
"While OCC prices have declined modestly in April, we expect them to remain elevated and unpredictable. We believe that managing price swings in OCC will likely be one of our greatest challenges over the next few quarters."
Cash generated from operations for the first quarter of 2007 was $58 million, compared with $69 million for the same period in 2006. The decrease was primarily due to increased working capital partially offset by improved earnings. Capital expenditures and cash dividends totaled $36.9 million and $24 million, respectively, in the first quarter of 2007. In addition, on February 8, 2007, the Company completed the repurchase of 1.5 million shares of its common stock at a cost of $56.7 million. The Company has five million shares remaining under its current board authorization.
SECOND QUARTER OUTLOOK
"Despite spiking OCC costs, we were pleased with our first quarter financial results as base earnings were well above our previously announced guidance of between $.47 to $.50 per diluted share," DeLoach said. "Sonoco expects second quarter 2007 base earnings to be in the range of $.55 to $.58 per diluted share, assuming no significant change in Companywide volumes and/or prices or a change in general economic conditions. As a result, the Company expects full-year 2007 base earnings per diluted share to be in the range of $2.36 to $2.40 per share." Sonoco previously had provided full-year 2007 base earnings guidance in the range of $2.28 to $2.31 per diluted share.