Sonoco Upped to Strong Buy on Organic Growth - Analyst Blog

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On Jul 10, 2014, Zacks Investment Research upgraded the consumer packaging company Sonoco Products Co. ( SON ) to a Zacks Rank #1 (Strong Buy) owing to decent first-quarter 2014 results and expected organic growth.

Why the Upgrade?

On Apr 17, Sonoco reported first quarter 2014 adjusted earnings of 52 cents per share, increasing 4% year over year and beating the Zacks Consensus Estimate by a penny. 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 Canada.

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%.

Sonoco received a new contract from Energizer Holdings Inc. ( ENR ) in April. The annual $20 million Energizer contract will leverage Sonoco's segments in supplying e-packaging materials and will also provide packaging services. Furthermore, the pickup in promotional activity at the customer level signals an increased volume outlook for packaging goods.

In addition, Sonoco is investing $20 million to build a new composite can plant in Malaysia, and $5 million in a new product development center in South Carolina. These projects will help drive organic growth over the medium-to-long term.

On Jun 13, Sonoco's subsidiary, Sonoco-Alcore S.a.r.l., announced that the German Federal Court of Justice has rejected an appeal against the German portion of Sonoco's European Patent EP 1 071 556. The patent relates to the use of wide-ply board technology in the production of cores for the paper industry as used in Sonoco's M-Core Series.

Per the decision, which is final and cannot be appealed, the patent is confirmed to have constantly been in force since it was granted in 2002. The combination of the wide-ply in-house manufactured coreboard and Sonoco Alcore's proprietary manufacturing technique give the M-Series Cores superior performance characteristics to meet the rising demands of the paper industry.

These bullish factors led to an upward estimate revision in recent times. Over the last 90 days, the Zacks Consensus Estimate for 2014 increased 0.4% to $2.50 per share and for 2015, the same increased 0.7% to $2.71 per share.

Other Stocks to Consider

Some other stocks in the same sector that warrant a look include Graphic Packaging Holding Co. ( GPK ) and MeadWestvaco Corp. ( MWV ). Both of these stocks carry a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: SON , MWV , ENR , GPK

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