Sonoco Products Co.
) reported fourth-quarter results delivering an adjusted EPS of 46
cents compared with 59 cents in the year-earlier quarter, which
came in the mid way of its guidance range of 45 cents to 47 cents.
The reported EPS was in line with the Zacks Consensus Estimate.
Unexpected deterioration in demand in the global Paper and
Industrial Converted Products segment late in the quarter, a higher
than expected effective tax rate and the impact of 6% fewer days
affected the quarter's earnings. The negative factors were
partially offset by positive price/cost relationship, which was
primarily the result of an approximate 20% decline in the cost of
recovered paper, and lower pension and management incentive
The quarter excluded a tax charge of 17 cents per share stemming
from restructuring activities, acquisition expenses and acquisition
inventory step-up costs. The year-ago quarter excluded the after
tax charge of 31 cents per share, 5 cents per share pertaining to
restructuring charges and acquisition related costs and a one time
benefit of 10 cents per share. Including these one-time items, EPS
amounted to 29 cents versus 33 cents in the year-ago quarter.
Net sales was behind the Zacks Consensus Estimate of $1.14
billion. Benefits from increased selling price in the Paper and
Industrial Converted Products as well as Consumer Packaging were
offset by volume and business mix in both the segments and
unfavorable currency translation.
Fiscal 2011 Performance
In 2011, adjusted EPS was reported at $2.29 versus $1.96 in
2010. Adjusted EPS was in line with the Zacks Consensus Estimate.
The adjusted EPS also came in the mid way of the guidance $2.28 to
The year excluded 16 cents per share in after-tax restructuring
charges, acquisition expenses and acquisition inventory step-up
costs, partially offset by adjustments to valuation allowances on
deferred tax assets. In 2010, EPS excluded after-tax impairment and
restructuring charges, debt tender and acquisition expenses along
with certain tax adjustments totaling 38 cents per share. Including
these items, EPS was $2.13 in 2011 compared with $1.96 in 2011.
Net sales increased 9% to a record $4.49 billion in 2011 from
$4.12 billion in 2010. Net sales in fiscal 2011, however, fell
short of the Zacks Consensus Estimate of $4.84 billion.
Costs and Margins
Sonoco reported cost of sales of $944.8 million in the reported
quarter compared with $927.5 million in the year-ago quarter. Gross
profit at Sonoco declined 8.1% to $184.7 million compared with the
year-earlier quarter, thereby contracting gross margin by 130 basis
points year over year to 16.4%.
Selling, general and administrative expenses decreased
marginally to $105.9 million from $107.0 in the year-ago quarter.
Sonoco reported adjusted operating income of $65.8 million
decreasing from $87.2 in the year-ago-quarter. Operating margins
contracted 190 basis points year over year to 5.8% in the
Net sales at the
segment declined 2% year over year to $485.0 million. The decline
was attributable to six lesser days offsetting the positive price
effect.Operating profit of the segment dropped 6% to $47.8 million.
The decline was driven by less number of days in addition to
increase in labor cost. The segment's operating margin increased by
530 basis points to 9.8% in the quarter.
Revenues at the
Paper and Industrial Converted Products
segment decreased to $451.8 million from $474.3 million in the
prior-year quarter. The decrease was negatively influenced by low
volume, business mix. Less number of days as well as currency
translation also impacted negatively. Operating profit at the
segment also decreased 17% to $29.4 million. Operating margins,
however, increased 330 basis points year over year to 6.5%.
reported revenues of $109.1 million, down from $133.2 million in
the year-ago quarter. Operating profit declined to $1.7 million
from $2.3 million in the prior-year quarter, driven by lower
volumes, negative business mix, negative productivity and fewer
days. Accordingly, operating margins decreased 6 basis points year
over year to 0.15% in the quarter.
segment of Sonoco reported net sales of $84 million, up from $26
million in the year-earlier quarter. The improvement was driven
entirely due to 53 days of sales from the recently completed
Tegrant acquisition. This offset the impact of fewer days and
volume reduction from the company's legacy protective packaging
Operating profit at the segment rose 22% to $5.2 million from
$4.3 million in the year-earlier quarter as a result of the Tegrant
acquisition, which more than offset lower volume, fewer days and a
negative price/cost relationship experienced by the company's
legacy protective packaging business. Consequently, operating
margins expanded 580 basis points year over year to 6.2% in the
As of December 31, 2011, cash and cash equivalents were $175.5
million, up from $158 million as of December 31, 2011. Cash from
operating activities decreased to $113.4 million during the quarter
from $114.6 million a year ago.
The company's debt-to-total-capital ratio increased to 46% on
December 31, 2011, from 32% as of October 2, 2011 and 30.9% as of
July 3, 2011. Sonoco closed the acquisition of Tegrant
Corporation on November 8, 2011. The deal was closed at $550
Sonoco guides its first quarter EPS in the range of 45 cents to
50 cents while full year EPS is guided in the range of $2.32 to
$2.42 based on the assumption that sales demand will remain near
current levels, adjusted for seasonality. It also expects effective
tax rate of 33.5%
Sonoco continues with its strategy of growing through
acquisitions. In November 2011, it completed the acquisition of
American Recycling apart from Tegrant. The company was greatly
benefited by these acquisitions.The acquisition of Tegrant is not
only the largest in the company's history but will position it as
the leader in multimaterial protective packaging in North
However, raw material inflation, high customer concentration and
a still fragile construction industry remain a concern for the
company. We currently have a Zacks #4 Rank (short-term "Sell"
recommendation) on the stock.
Hartsville, South Carolina-based Sonoco is a global manufacturer
of consumer and industrial packaging products. The company has more
than 300 operations in 35 countries throughout North and South
America, Europe, Australia and Asia.
The company operates through four reportable segments: Tubes and
Cores/Paper, Consumer Packaging, Packaging Services and All Other
Sonoco segment. Sonoco competes with
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