) has implemented a surcharge of 8.6% to brave the challenges from
soaring costs of nailed woods reels. The move will be effective
July 1, 2012.
Sonoco preferred to use a surcharge over base price changes as
it expects lumber costs to subside during the second half of the
year. However, the company noted that it will adjust the surcharge
if lumber cost soars any further.
Earlier, the company implemented price increases in response to
the soaring raw material costs to produce Sonoco Reels. These reels
are used by wire and cable industry for serving industries
encompassing the power transmission and distribution,
telecommunications, commercial and industrial building among
It was in March last year that Sonoco decided to increase the
base price of its nailed wood reels by 23%. The customers had to
bear only 4% of the increase versus the 2010 price level. The
remaining 19% increase was rolled into the base price derived from
the surcharge implemented in 2010.
Back in 2010, Sonoco hiked nail wood price by 19%. The price
hike was implemented during the first quarter of 2010 to offset the
ever-soaring lumber costs. Lumber prices shot up nearly 38% since
It's not only nail wood prices; Sonoco has hiked the prices of
other raw materials, including plywood reels and uncoated recycled
paperboards, among others. Recently, the company has raised the
prices of plywood reels products by 9% and decided to roll the
surcharge into the base prices.
Moreover, a price escalation of ThermoSafe Brands by 4%-7% was
executed by the company in January this year. The decision was
taken essentially to adjust the increasing cost of raw materials,
labor, energy and transportation. The company had failed to offset
cost escalations through lean initiatives and, therefore, was
forced to increase prices of its
These moves are in line with Sonoco's strategy of implementing
price increases to offset the higher costs for improving its
operating margin. But, its competitors including
Bemis Company, Inc.
) may choose to reduce their prices with a view to expanding their
Currently, Sonoco retains a short-term Zacks #3 Rank (Hold). We
have a long-term Neutral recommendation on the stock.
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