Sonoco Reports Second Quarter 2014 Results
July 17, 2014 - Sonoco, one of the largest diversified global packaging companies, today reported financial results for its second quarter ending June 29, 2014.
Second Quarter Highlights
- Second quarter 2014 GAAP earnings per diluted share were $.59, compared with $.53 in 2013.
- Second quarter 2014 GAAP results include $.04 per diluted share in after-tax charges related to previously announced global restructuring activities and acquisition costs. Second quarter 2013 GAAP results included after-tax charges of $.06 per diluted share related to plant closures and related restructuring costs.
- Base net income attributable to Sonoco (base earnings) for second quarter 2014 was $.63 per diluted share, compared with $.59 in 2013. (See base earnings definition and reconciliation later in this release.) Sonoco previously provided second quarter base earnings guidance of $.63 to $.67 per diluted share.
- Second quarter 2014 net sales were $1.25 billion up approximately 2 percent from $1.23 billion in 2013.
- Cash flow from operations was $60 million, compared with $108 million in 2013. Free cash flow for the second quarter was negative $19 million, compared with $35 million in 2013.
Earnings Guidance Update
- Base earnings for the third quarter of 2014 are estimated to be in the range of $.66 to $.70 per diluted share. Base earnings in the third quarter of 2013 were $.63.
- Full-year 2014 base earnings guidance remains unchanged at $2.43 to $2.53 per diluted share and the Company continues to target $2.51 per diluted share.
- 2014 free cash flow is projected to be approximately $110 million, compared with previous guidance of $130 million. The change is due primarily to the funding of a proposed settlement of environmental claims and litigation by a wholly-owned subsidiary.
Second Quarter Review
Commenting on the Company's second quarter results, President and Chief Executive Officer Jack Sanders said, "Our balanced portfolio of businesses achieved record quarterly consolidated sales and gross profits and grew base earnings 7 percent over the prior year quarter, hitting an all time best for a second quarter. However, we were somewhat disappointed that base earnings only reached the low end of our guidance as strong performances in our Paper and Industrial Converted Products and Display and Packaging segments were partially offset by lower than expected results in our Consumer Packaging and Protective Solutions segments. Overall in the quarter, the Company benefitted from improvements to manufacturing productivity, a favorable price/cost relationship, lower pension expense and acquisitions. Partially offsetting these gains were higher labor, maintenance and other operating costs while volume was virtually flat."
"Earnings in our Paper and Industrial Converted Products segment challenged all-time highs with operating profits gaining 29 percent over the prior-year quarter on a positive price/cost relationship, productivity improvements and lower pension expense, which were partially offset by higher labor and other operating costs. Segment volume was essentially flat in the quarter despite a significant reduction in demand for steel reels for the oil and gas industry. In our Protective Solutions segment, operating profits declined 15 percent due to a negative price/cost relationship and higher labor, maintenance and other operating costs, somewhat offset by favorable changes in the mix of products sold."
"Operating profits in our Consumer Packaging segment declined 10 percent in the quarter due to lower volume and a negative mix of business along with higher labor, maintenance and other operating costs. Partially offsetting these negative factors were modest productivity improvements and lower pension expense. Operating profits in our Display and Packaging segment improved 24 percent from the prior-year quarter due primarily to volume growth in domestic display and fulfillment activity along with a favorable price/cost relationship and modest productivity improvements."
GAAP net income attributable to Sonoco in the second quarter was $61.5 million, or $.59 per diluted share, compared with $55.0 million, or $.53 per diluted share, in 2013. Base earnings in the second quarter were $65.4 million, or $.63 per diluted share, compared with $60.8 million, or $.59 per diluted share, in 2013. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring charges, asset impairment charges, acquisition expenses and other items, if any, the exclusion of which the Company believes improves comparability and analysis of the underlying financial performance of the business.
Second quarter base earnings exclude $2.7 million in after-tax charges, or $.03 per diluted share, related to previously announced global restructurings and $1.2 million in after-tax charges, or $0.01 per diluted share, related to acquisition costs and non-base tax charges. Base earnings in the second quarter of 2013 excluded after-tax charges of $5.7 million, or $.06 per diluted share, stemming from asset impairment and restructuring costs associated with the closure of the Company's former thermoforming plant in Ireland and other restructuring activities. Additional information about base earnings and base earnings per diluted share, along with reconciliation to the most closely applicable GAAP financial measures, is provided later in this release.
Net sales for the second quarter were $1.25 billion, up approximately 2 percent, compared with $1.23 billion in last year's quarter. The increase was driven by $12.6 million in sales from businesses acquired during the past twelve months along with higher selling prices, partially offset by the negative impact of foreign exchange.
Gross profits were $232 million in the second quarter, up 4 percent, compared with $223 million in the same period in 2013. Gross profit as a percent of sales improved to 18.6 percent, compared with 18.1 percent in the same period in 2013. This 50 basis point improvement was due primarily to productivity improvements, a positive price/cost relationship and lower pension expense, partially offset by general inflation. The Company's second quarter selling, general and administrative expenses increased 4 percent to $126 million, due primarily to higher labor costs.
Cash generated from operations in the second quarter was $60 million, compared with $108 million in the same period in 2013. Operating cash flow was lower this quarter primarily due to a $15 million payment made to fund a proposed settlement of environmental claims and litigation associated with Fox River, higher cash taxes paid and changes in working capital. Net capital expenditures and cash dividends were $47 million and $33 million, respectively, during the quarter, compared with $42 million and $31 million, respectively, during the same period in 2013. (Net capital expenditures is defined as capital expenditures minus proceeds from the disposal of capital assets.)
Sonoco's full second quarter 2014 report can be found on the company's website: www.sonoco.com.