Sonoco Products Company (SON)
Q3 2008 Earnings Call Transcript
October 16, 2008 11:00 am ET
Roger Schrum – VP, IR & Corporate Affairs
Charlie Hupfer – SVP, CFO & Corporate Secretary
Harris DeLoach – Chairman, President & CEO
George Staphos – Banc of America
Claudia [ph] – JP Morgan
Mark Wilde – Deutsche Bank
Ghansham Panjabi – Wachovia
Chris Manuel – KeyBanc Capital Markets
Tim Burns – Cranial Capital
Previous Statements by SON
» Sonoco Products Q3 2009 Earnings Transcript
» Sonoco Products Company Q2 2009 Earnings Call Transcript
» Sonoco Products Q4 2008 Earnings Call Transcript
It is now my pleasure to introduce your host Mr. Roger Schrum, Vice President of Investor Relations. Thank you, Mr. Schrum, you may begin.
Thank you, LaTonya. Good morning, everyone and welcome to Sonoco 2008 Third Quarter Earnings cum Investor Call. Joining me today are Harris DeLoach, Chairman, President and Chief Executive Officer and Charlie Hupfer, Senior Vice President and Chief Financial Officer.
Our financial results for the third quarter were released before the market opened today and are available via our Web site at sonoco.com.
Let me begin by stating that today's investor call may contain a number of forward-looking statements that are based on current expectations, estimates, and projection. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Additional information about factors that could cause different results and about the use by the company of non-GAAP financial measures is available on Forms 10-K, 10-Q and 8-K, filed with the SEC.
With that brief introduction, I'll now turn it over to Charlie Hupfer.
Thank you, Roger. Today, Sonoco reported third quarter financial results. We reported that EPS on a GAAP basis is $0.57 a share and the base EPS was $0.60 a share. The base EPS is $0.60 a share, was below our guidance of $0.63 to $0.65. We were not displeased with this quarter but frankly, September was a little weaker than we had expected especially the last half of September.
Let me start by reconciling the reported earnings to base earnings. In the third quarter, we took a $5.5 million pretax restructuring charge, related to the closure of one paper mill and one converting plant. Tax benefit on this charge was $2 million and there was a 2/10 million or $200,000 restructuring adjustment in the equity and affiliate section. The net effect of all of that is that $3.3 million or $0.03 is added back to GAAP net income to arrive a base net income of $60.6 million and base EPS of $0.50 a share.
Reconciling the third quarter of 2007 GAAP to base is more complicated. Last year, GAAP earnings of $464.5 million or $0.63 a share including restructuring, asset impairment and an adjustment to the environmental reserve of – all that total $18.5 million. Related tax benefit on the $18.5 million was $6.4 million which means the net was $12.1 million around in the $0.13 a share.
In addition to that, going in the other direction was a tax credit of $11.8 million or $0.12 a share. That's the tax credit that we brought into income when the statute expired on our 2003 tax year. The net of the pluses and the pluses were $0.13 a share and the minus is $0.12 a share was an add back of $0.01 per share to arrive at base net income of $64.8 million and base EPS of $0.64 a share last year.
If you had trouble following that let me read out the comparative base income statement for you. Starting with sales, sales were $1.0633 billion that's up $33.5 million or 3.3% from last year's $1.0298 billion.
EBIT – earnings before interest and tax was $91.7 million, that's up $200,000 or 0.2% from last year's $91.5 million. Interest expense in this quarter was $10.6 million versus $14.1 million in last year's third quarter. That leaves us then with profit before tax of $81.1 million which is up $3.6 million or 4.7% from 2007 $77.4 million.
Taxes were $23.8 million versus last year taxes of $16.2 million. Affiliate income was pretty much the same year-over-year $3.4 million this year compared with $3.5 million last year. So that leaves us with base net income which were $60.6 million, down $4.2 million or down 6% from last year's $64.8 million. Base EPS was $0.60 per share compared with $0.64 per share last year.
Now let me comment on taxes and the effective tax rate. In the third quarter we generally have adjustments to reserve as well as true-ups to the tax accrual to reflect the file federal and state tax return. In the third quarter 2008 we had $3.8 million of what I will call discrete adjustments in the quarter. These adjustments brought the effective tax rate down to 29.4%.
Last year we had $10 million in discrete adjustment and the effective tax rate was brought down to 20.9%. That's the difference in dollar terms of about $6 million of discrete adjustments or $0.06 per share. And that's why you see profit before tax is up year-over-year by 4.7%, the profit after tax and base EPS is down around 6% year-over-year.