Sonoco Products Co.
) has lowered its earnings guidance for the third quarter of fiscal
2012 to a band of 51-53 cents from the prior guidance of 62-66
Operating hindrances at several of the company's North American
uncoated recycled paperboard mills, resulting in unscheduled
downtime and excess costs and lower-than-expected volumes in many
of its consumer and industrial packaging units have been cited as
the reasons for the outlook reduction.
Compared with the prior-year third quarter earnings of 66 cents,
Sonoco's new guidance reflects annual decline of 20% to 23%, down
from the previous expectation of a decline 6% to 0%. The Zacks
Consensus Estimate for the third quarter is currently pegged at 64,
above the company's guided range. We expect significant downward
estimate revision following the revised guidance.
The company has withdrawn its earlier fiscal 2012 guidance of
$2.34 to $2.39. Sonoco will provide more light on its fourth
quarter and fiscal 2012 expectations when it releases its third
quarter results on October 18, 2012. The Zacks Consensus Estimate
for the fourth quarter currently stands at 61 cents while the same
for fiscal 2012 is $2.35, reflecting an annual climb of 33% and 3%,
Sonoco's second-quarter 2012 adjusted earnings were 58 cents per
share compared with 60 cents in the year-ago quarter, in line with
the Zacks Consensus Estimate. Net sales increased 6.6% to $1.20
billion, missing the Zacks Consensus Estimate of $1.22 billion. The
year-over-year improvement in sales was attributable to the
acquisition of Tegrant Corp., partially offset by lower volume and
currency translation effect.
The company's second quarter performance was affected by the
soft global economic conditions, higher pension related expenses
and foreign currency translation. Net sales in all the segments
except Protective Packaging declined on a year-over-year, driven by
higher expenses and negative currency translation.
We believe that the company would be benefited by the Tegrant
acquisition going forward. Sonoco's acquisition of Tegrant will
position it as the leader in North America's multimaterial
The company expects to expand sales to $5.5 billion-$6 billion
over the next three to four years, improve margins to 10%-10.5% and
increase return on net assets employed to 12.5%, driven by organic
sales growth, geographic expansion and strategic acquisitions.
However, volatile raw material prices and uncertainty among its
customers remain concerns.
Sonoco competes with the companies like
Bemis Company, Inc.
). Sonoco retains a short-term Zacks #3 Rank (Hold rating). We have
a long-term Neutral recommendation on the stock.
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