Sonoco Products Co.
) second-quarter 2012 adjusted earnings were 58 cents per share
compared with 60 cents in the year-ago quarter, lying between the
previous guidance range of 55 cents to 60 cents. Earnings were in
line with the Zacks Consensus Estimate.
The quarter excluded a tax charge of 8 cents per share stemming
from restructuring activities and impairment costs. The year-ago
quarter excluded some special items including restructuring and
impairment charges amounting to 7 cents per share and 1 cent per
share pertaining to other adjustments. Inclusive of these one-time
items, earnings amounted to 50 cents per share in the reported
quarter versus 52 cents in the year-ago quarter.
Net sales increased 6.6% to $1.20 billion, missing the Zacks
Consensus Estimate of $1.22 billion. The improvement in sales was
attributable to the acquisition of Tegrant Corp., partially offset
by lower volume and currency translation effect.
Costs and Margins
Cost of sales increased 5.2% to $985.8 million in the reported
quarter. Gross profit at Sonoco increased 13.3% to $216.5 million,
expanding gross margin by 110 basis points (bps) to 18%.
Selling, general and administrative expenses increased 19.4% to
$118.6 million in the quarter. Sonoco's adjusted operating income
increased 5.7% to $98.1 million in the quarter from $92.8 million
in the year ago quarter. Operating margins remained flat year over
year at 8.2%.
Net sales at the
segment declined 2.8% to $477.0 million. The decline was brought
about by unfavorable currency translation and lower volume of
composite can business, offsetting the positive impact of higher
Operating profit of the segment, however, increased 6.3% to
$42.8 million. The increase was driven by a positive price-cost
relationship that more than offset the higher pension cost, labor
cost, other expenses and negative volume. Consequently, operating
margin expanded 80 bps to 9% in the quarter.
Net Sales at the
Paper and Industrial Converted Products
segment decreased 2% to $475 million due to lower recovered paper
price and currency translation.
Operating profit at the segment decreased 2% to $39.7 million.
Operating profit declined because of higher pension expenses, labor
expenses and other costs partially offset by productivity gains and
positive price/cost mix. Operating margins remained flat year over
year at 8.3%.
segment's net sales declined 16.6% to $107.8 million from $125.9
million in the year-earlier quarter. The decline was driven by
negative currency translation, loss of contract packaging customers
offsetting the improvement in global fulfillment activities.
Operating profit dropped 116.5% to $4.0 million in the quarter,
driven by lower volumes, higher pension expenses and lost contract
packaging customer. Accordingly, operating margins decreased 320
bps year over year to 3.7%.
reported that net sales increased to $142.1 million. The increase
was driven by Tegrant acquisition.
Operating profit at the segment jumped up 238.2% to $11.7
million as a result of the acquisition of Tegrant. However,
operating margins contracted 490 bps year over year to 8.2% in the
As of July 1, 2012, cash and cash equivalents were $196.0
million, up from $176.1 million as of April 1, 2012. Cash flow from
operating activities were $42.9 million during the first quarter of
2012 compared with $45.9 million in the prior year quarter.
The company's debt-to-total-capital ratio increased to 47.4% as
of July 1, 2012, compared with 45.8% as of April 1, 2012.
Sonoco guides its third quarter earnings in the range of 62
cents to 66 cents. The company revised the full year earnings
guidance in the range of $2.34 to $2.39 from the previous guidance
of $2.34 to $2.44.
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The company's second quarter performance was affected negatively by
the soft global economic conditions, higher pension related
expenses and foreign currency translation. Net sales in all the
segments except Protective Packaging declined year over year,
driven by higher expenses and negative currency translation.
Going forward, the company would be benefited by the Tegrant
acquisition and positive price-cost mix. However, weak
macroeconomic condition will be a headwind for the company moving
Sonoco competes with the companies like
Bemis Company, Inc.
). Sonoco retains a short-term Zacks #4 Rank (Sell). We have a
long-term Neutral recommendation on the stock.