On Nov 29, we reiterated our Neutral recommendation on
Sonoco Products Co.
), a global manufacturer of consumer and industrial packaging
products. We reiterated our recommendation owing to uncertainty
among its customers given the slow recovery in the U.S. and
ongoing European weakness. However, productivity gains, addition
of new products and geographical expansion, Energizer contract as
well as prospects of further such wins, and price increases are
Adjusted earnings per share for Sonoco Products increased 14% to
63 cents in the third quarter. Net sales increased 3% year over
year to $1.23 billion in the third quarter driven by gains in
volume and mix from the Display and Packaging, Paper and
Industrial Converted Products and Protective Solutions segments
along with higher selling prices, partially offset by a decline
in volume in the Consumer Packaging segment and the divestiture
of box plant.
Sonoco narrowed its 2013 EPS guidance to $2.27-$2.31 from $2.26
to $2.32. The guidance assumes no notable change in the level of
economic activity, but does factor in seasonality, including the
normal drop off in activity in December. It also assumes that OCC
(Old Corrugated Containers) prices remain in the $125 range
through the balance of the year, and effective tax rate is
expected to be around 33% in the fourth quarter.
After having a difficult run following the recession, the Display
and Packaging segment results have improved in 2013 driven by
volume increases in both international contract packaging and
U.S. display and packaging services. Furthermore, the new
Energizer Holdings Inc.
) that was awarded in April has also supported results.
The Energizer contract is a major win for Sonoco, as it will
leverage Sonoco's other segments in supplying e-packaging
material and will also provide packaging services. Sonoco
foresees additional opportunity for other similar contract wins
going forward. Furthermore, the pick-up in promotional activity
at the customer level signals increased volume.
The Consumer Packaging business generated operating margins above
10% for the second straight quarter in the third quarter after
generating margins in the 9% range for four consecutive quarters.
This was driven by continued price/cost benefits resulting from
two previously announced price increases on composite cans as
well as continued productivity gains.
The company expects further productivity gains from the
closure of a thermoforming facility and improvement in its
blow-molding operations. Overall, price/cost benefits,
productivity gains, addition of new products, and geographical
expansion are expected to boost Consumer Packaging results going
ENERGIZER HLDGS (ENR): Free Stock Analysis
PACKAGING CORP (PKG): Free Stock Analysis
SEALED AIR CORP (SEE): Free Stock Analysis
SONOCO PRODUCTS (SON): Free Stock Analysis
To read this article on Zacks.com click here.
In November, Sonoco announced a price hike in fabricated
packaging and corrugate packaging, effective Jan 1, 2014, to
combat increase in costs of resin and corrugated linerboard as
well as rising energy costs.
On the flipside, slow recovery in the U.S. and ongoing European
weakness remain headwinds for the company in fiscal 2013. Over
the next three to four years, Sonoco aspires to improve sales to
between $5.5 and $6.0 billion, increase base earnings per share
annually by approximately 10% and increase return on net assets
employed to between 11% and 12%. Achieving these goals will be
challenging in the current low growth environment.
Other Stocks to Consider
Sonoco currently retains a Zacks Rank #3 (Hold). Some
better-ranked stocks in the same sector include
Sealed Air Corporation
Packaging Corporation of America
). All these stocks hold a Zacks Rank #2 (Buy).