Sonoco Reports Strong 3rd Quarter Earnings on Higher Volumes
Oct. 21, 2010 - Sonoco today reported strong third quarter 2010 results with sales and earnings significantly exceeding prior year results.
Commenting on the Company’s third quarter results, Chairman, President and Chief Executive Officer Harris E. DeLoach Jr. said, “Our focus on growth and improving operating performance continued to pay off as base earnings for the quarter reached a record on strong volume, lower pension costs and improved productivity along with a neutral price/cost. In addition, base earnings per diluted share for the quarter met the high end of our previous guidance and equaled First Call’s consensus of $.65 per diluted share.
“Much of the quarter’s year-over-year improvement came from our industrial-focused businesses which continued to rebound strongly from last year’s recession-impacted results. Operating profits in our Tube and Core/Paper segment experienced a 76 percent improvement, and our industrial-related businesses within All Other Sonoco reported over a 100 percent year-over-year improvement. The majority of our industrial businesses experienced strong volume and benefited from solid productivity improvements.
“On the consumer side, our Consumer Packaging segment recorded year-over-year gains in operating profits for the eleventh consecutive quarter, due primarily to productivity improvements and acquisition gains. However, results declined in our Packaging Services segment due to weak volume stemming from previously reported business losses in point-of-purchase displays and fulfillment, which were only partially offset by productivity improvements.”
Third Quarter Results
Third quarter net income attributable to Sonoco was $59.0 million, or $.57 per diluted share, compared with $47.7 million, or $.47 per diluted share, in 2009. Base earnings were $67.0 million, or $.65 per diluted share, in the quarter, compared with $50.9 million, or $.50 per diluted share, in 2009. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring charges, asset impairment charges, acquisition costs and other items, if any; the exclusion of which the Company believes improves comparability and analysis of the underlying financial performance of the business.
Excluded from base earnings in the third quarter of 2010 were the previously mentioned after-tax impairment and restructuring charges of $6.9 million, or $.07 per diluted share, primarily related to noncash asset impairment charges in the Company’s Flexible Packaging unit. The impairment charges were taken after the Company was advised by one of its customers that its current contract to provide certain packaging will not be renewed in its entirety. According to the customer, the business reduction will be phased out over the next two years. The expected loss of business will not impact current year sales. Acquisition-related costs of $1.1 million, after tax, ($.01 per diluted share) were also excluded from 2010 third quarter base earnings. After-tax restructuring charges of $3.2 million, or $.03 per diluted share, were excluded from base earnings in the 2009 quarter. Additional information about base earnings and base earnings per share along with reconciliations to the most closely applicable GAAP financial measures is provided later in this release.
The Company’s overall gross profit margin in the third quarter improved to 19.0 percent of sales, from 18.6 percent in the same period in 2009, due to productivity gains, higher volumes, lower pension expenses and cost-control initiatives.
Net sales for the third quarter were $1.05 billion, compared with $931 million in the same period in 2009. This 13 percent increase during the quarter was due to improved Companywide volumes, higher selling prices, open-market sales of corrugating medium previously produced under a cost-plus-fixed-management-fee arrangement and acquisitions. These factors were partially offset by a $6 million negative impact from foreign currency translation, primarily as a result of the weaker euro. The impact of higher selling prices was realized almost exclusively in the Tubes and Cores/Paper segment, where the gains were principally driven by higher recovered paper prices.
Cash generated from operations in the third quarter was $145 million, compared with $176 million in the same period in 2009. Higher earnings were offset by an increased use of cash to fund working capital resulting from significantly higher levels of business activity, compared with the prior year quarter. Capital expenditures and cash dividends paid to shareholders were $42 million and $28 million, respectively, during the third quarter of 2010, compared with $25 million and $27 million, respectively, in the same period in 2009. On June 29, 2010, Sonoco paid approximately $120 million in cash to acquire Associated Packaging Technologies, Inc. (APT), a leading provider of rigid plastic food packaging serving the frozen food industry in North America, Europe and Australia/New Zealand.
Fourth Quarter 2010 Outlook
Sonoco expects fourth quarter 2010 base earnings to be in the range of $.57 to $.61 per diluted share. Base earnings in the fourth quarter of 2009 were $.58 per diluted share. For the full-year 2010, base earnings are currently projected to be in the range of $2.32 to $2.36 per diluted share, compared with the guidance given on July 21, 2010, of $2.27 to $2.34 per diluted share. The change is due primarily to achieving the upper end of the range of guidance in the third quarter. The Company’s 2010 earnings guidance reflects an expected effective tax rate of approximately 30 percent.
The Company’s base earnings guidance assumes sales demand will remain near the levels experienced during the past several quarters, adjusted for seasonality, and that it will experience a slightly negative price/cost relationship, due to increased cost of old corrugated containers (OCC). Although the Company believes the assumptions reflected in the range of guidance are reasonable, it cautions the reader that the outlook, given the volatility of OCC and plastic resin prices, as well as uncertain global economic conditions, remains equally uncertain, and there is a risk that actual results could vary substantially.
Commenting on the Company’s outlook, DeLoach said, “While we have shown significant year-over-year improvement in sales and earnings during the past four consecutive quarters as the general global economy has improved, the 2010 fourth quarter will be the first tough comparison since the recession ended in 2009. In addition, OCC prices have strengthened entering the fourth quarter which could cause some short-term headwinds as we work to recover those higher prices. Our guidance also reflects a continuation of good performance in our Consumer Packaging segment and weak results in Packaging Services.”
Founded in 1899, Sonoco is a $3.6 billion global manufacturer of industrial and consumer products and provider of packaging services, with more than 300 operations in 35 countries, serving customers in some 85 nations.