Sonoco Reports Second Quarter 2017 Results, Net Sales Up
Friday, July 21st, 2017
Sonoco reported financial results for its second quarter, ending July 2, 2017.
Second Quarter Highlights
- Second quarter 2017 GAAP earnings per diluted share were $0.43, compared with $0.55 in 2016.
- Second quarter 2017 GAAP results included $0.28 per diluted share, after tax, in charges for pension settlement distributions, restructuring-related activities and acquisitions expenses. In the second quarter of 2016, GAAP results included $0.18 per diluted share, after tax, in asset impairment and restructuring expenses primarily related to the divestiture of a paper mill in France and a retail packaging business in Puerto Rico.
- Base net income attributable to Sonoco (base earnings) for second quarter 2017 was $0.71per diluted share, compared with $0.73 in 2016. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) Sonoco previously provided second-quarter 2017 base earnings guidance of $0.67 to $0.73 per diluted share.
- Second-quarter 2017 net sales were $1.24 billion, up 2.9 percent, from $1.21 billion in 2016.
- Cash flow from operations was $104.3 million in the first half of 2017, compared with $186.0 million in 2016. Free cash flow for the first six months of 2017 was negative $68.2 million, compared with positive $9.8 million in 2016. (See free cash flow definition and reconciliation to cash flow from operations later in this release.)
- On July 11, 2017, the U.S. Trade Commission granted Sonoco early termination of the waiting period for its acquisition of Clear Lam Packaging, Inc., a leading developer, manufacturer and converter of innovative flexible and forming film packaging materials used with fresh and processed foods, personal health care products, electronics, household products and industrial products, based in Elk Grove Village, Ill. The approximately $170 million transaction is expected to close by the end of July 2017.
Third Quarter and Full Year Guidance Update
- Base earnings for the third quarter of 2017 are estimated to be in the range of $0.71 to $0.77per diluted share. This guidance takes into consideration the impact of acquisitions, net of divestitures, and elevated recovered paper prices during the third quarter. Base earnings in the third quarter of 2016 were $0.72 per diluted share.
- Full-year 2017 base earnings guidance has been narrowed to a range of $2.73 to $2.80, which includes a targeted $0.07 per diluted share expected to come from acquisitions.
- 2017 operating cash flow and free cash flow have been updated to approximately $445 million and $100 million, respectively, due to higher than expected increases in working capital primarily due to higher selling prices and higher material costs.
Second Quarter Review
Commenting on the Company’s second quarter GAAP and base results, Sonoco President and Chief Executive Officer Jack Sanders said, “Sonoco's balanced portfolio of consumer-related, industrial and protective packaging businesses continues to produce consistent results despite generally weak market demand and fluctuating raw material costs. Compared to the prior-year quarter, the Company benefited from a positive price/cost relationship, manufacturing productivity improvements, and lower management incentives. However, these positive factors were offset by lower volume/mix, operating cost inflation and higher taxes on our base operating results.
“Operating profit in our Consumer Packaging segment was essentially flat with last year's quarter as total productivity and a slightly positive price/cost relationship essentially offset lower volume. Segment sales rose 2.0 percent due to acquisitions, net of divestitures, and higher selling prices implemented to recover rising raw material costs which was partially offset by the negative impact of foreign exchange.
"Our Display and Packaging segment's operating profit declined from last year's quarter on lower volume/mix and manufacturing productivity declines. Segment sales declined 11.7 percent due to loss of the Company's contract packaging business in Mexico and Brazil, as well as lower volumes in our domestic display and retail packaging businesses.
“Operating profit in our Paper and Industrial Converted Products segment improved 16.1 percent to the highest level in nearly three years as operating margin increased 70 basis points to 9.3 percent. The segment benefited from strong manufacturing productivity improvements and a positive price/cost relationship which were only partially offset by higher labor, maintenance and other expenses. Current-quarter segment sales grew by 8.3 percent due primarily to higher selling prices implemented to recover escalating recovered paper costs, partially offset by the prior-year divestiture of a paperboard mill in France, lower volume and the negative impact of foreign exchange.
“Our Protective Solutions segment's operating profit declined 23.0 percent from the prior-year quarter, as a negative price/cost relationship and declining manufacturing productivity resulting from lower volume were only partially offset by fixed-cost productivity improvements. Sales improved 3.2 percent in the quarter due primarily to acquisitions and higher selling prices, which offset lower volume.”