Sonoco Products Co
) reported first-quarter 2014 adjusted earnings of 52 cents per
share, which rose 4% from 50 cents earned in the year-ago quarter
and beat the Zacks Consensus Estimate by a penny. Earnings were
within the company's guided range of 50-54 cents. A positive
price/cost relationship, modest productivity improvements and
lower pension and interest expenses helped offset lost production
and sales due to severe winter weather across the U.S. and
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The quarterly results excluded 2 cents per share of an after-tax
charge related to restructuring activities. Including this,
first-quarter 2014 earnings were 50 cents per share, up from 47
cents in the year-ago quarter, which excluded an after-tax charge
of 3 cents per share related to restructuring activities and the
impact of devaluation on reported results in Venezuela.
Net sales edged up 1% year over year to $1.18 billion in the
quarter, falling short of the Zacks Consensus Estimate of $1.19
billion. Higher selling prices and sales from two small
acquisitions in recycling and graphics management partially
offset flat volumes and the negative impact of foreign exchange.
Cost of sales remained flat at $973 million. Gross profit went up
3% year over year to $212 million. Gross margin grew 50 basis
points (bps) to 17.9%, driven by a positive price/cost
relationship, manufacturing productivity improvements and lower
pension expense. These were partially offset by a rise in
maintenance, labor and other costs.
Selling, general and administrative expenses increased 3% year
over year to $128 million due to wage inflation and higher
management incentives. Sonoco's adjusted operating income rose 3%
year over year to $88.5 million from $85.7 million in the
year-ago quarter. Operating margin expanded 20 bps year over year
The Consumer Packaging segment reported net sales of $465
million, up 0.3% from $463 million in the prior-year quarter.
Benefits from higher selling prices and incremental sales from
the acquisition of a small graphics management business in the
U.K. were partially offset by the negative impact of foreign
exchange and slightly lower volume.
Operating profit grew 14% year over year to $48.2 million. The
improvement came on the back of a positive price/cost
relationship, productivity improvements and lower pension
expense, somewhat offset by increased labor and operating costs.
Net sales at the Paper and Industrial Converted Products segment
went up 0.3% year over year to $456 million. Higher selling
prices and sales from a small recycling acquisition offset the
lower volume and a negative impact from foreign exchange.
Operating profit however, declined 4% year over year to $29.7
million as negative impacts of severe weather on volume and
energy costs, higher maintenance, freight and raw material costs
offset the positive price/cost relationship, modest productivity
improvements and lower pension costs.
Display and Packaging segment's net sales increased 6% year over
year to $153 million from $144 million in the year-earlier
quarter. Volume growth in the U.S. display and packaging, higher
selling prices and sales from a small recycling acquisition
offset the lower volume and a negative impact from foreign
Operating profit went up 53% year over year to $5.36 million
driven by manufacturing productivity in retail packaging as well
as volume gains.
Protective Solution segment's net sales dipped 4% year over year
to $112 million. Lower volume in the industrial protective and
temperature-assured businesses and the divestiture of a small box
plant led to the overall decline. Operating profit at the segment
declined to $5.3 million from $9.7 million in the year-ago
quarter, primarily due to lower volume and higher costs as a
result of severe weather.
Sonoco ended the quarter with cash and cash equivalents of $191
million, down from $217 million as of 2013-end. Cash flow from
operations was $45 million in the reported quarter, down
substantially compared with $136 million in the prior-year
quarter as higher GAAP net income was offset by changes in
working capital and higher pension contributions.
The long-term debt of the company remained flat at $946 million
as of the quarter-end compared with 2013-end. Debt-to-capital
ratio was 36% as of Mar 31, 2014, flat compared with Dec 31,
2013. During the quarter, Sonoco repurchased 208,000 shares of
its common stock for $8.6 million under a previously announced
share buyback plan.
Sonoco's board of directors increased the quarterly dividend to
32 cents per share from the previous dividend of 31 cents per
share. The increased dividend will be paid on Jun 10, 2014, to
shareholders of record as of May 16, 2014. The company has
increased its dividend for 32 consecutive years. On an annual
basis, Sonoco's new dividend payout is $1.28 per share, an
increase of 3.2% and a yield of approximately 3%. It is worth
mentioning that Sonoco's dividend yield is one of the highest
payouts provided by any U.S. packaging company and is about 50%
higher than the yield of the S&P 500.
For full-year 2014, Sonoco reiterated its earnings per share
guidance range of $2.43 to $2.53. Free cash flow is anticipated
to be around $130 million for 2014.
Sonoco expects second-quarter 2014 earnings per share in the
range of 63-67 cents. Compared with 59 cents earned in the
prior-year quarter, this reflects annual growth of 7% to 14%.
Organic sales growth, geographic expansion and strategic
acquisitions remain growth drivers for Sonoco. However, global
economic factors and possible increase in raw material prices
continue to be headwinds for the company.
South Carolina-based Sonoco is a global provider of a variety of
consumer packaging, industrial products, protective packaging and
packaging supply chain services. The company is also the largest
producer of paper-based tubes and cores in North America.
At present, Sonoco carries a Zacks Rank #3 (Hold). Some
better-ranked stocks in the same industry include
Crown Holdings, Inc.
Berry Plastics Group, Inc.
KapStone Paper and Packaging Corporation
). All of these hold a Zacks Rank #2 (Buy).