Sonoco Products Company (SON)

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Sonoco Products Co. (SON)

Q4 2012 Results Earnings Call

February 13, 2013 1:00 PM ET

Executives

Roger Schrum - Vice President, IR and Corporate Affairs

Harris DeLoach - Chairman and CEO

Jack Sanders - President and COO

Barry Saunders - Vice President and CFO

Analysts

George Staphos - Bank of America Merrill Lynch

Scott Gaffner - Barclays

Ghansham Panjabi - Robert W. Baird

Adam Josephson - KeyBanc

Phil Gresh - J.P. Morgan

Philip Ng - Jefferies

Chip Dillon - Vertical Research

Chris Manuel - Wells Fargo Securities

Mark Wilde - Deutsche Bank

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Sonoco 2012 Fourth Quarter Year End Earnings Conference Call. My name is Dorsal, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to your host for today, Mr. Roger Schrum. Please proceed sir.

Roger Schrum

Thank you, Dorsal. Good afternoon, everyone. And welcome to Sonoco’s fourth quarter and full year 2012 earnings investor call. Today’s call is being conducted on February 13, 2012 -- ‘13, sorry. Joining me today are Harris DeLoach, Chairman and Chief Executive Officer; Jack Sanders, President and Chief Operating Officer; and Barry Saunders, Vice President and Chief Financial Officer.

A news release reviewing the company’s financial results was issued before the market opened today and is available on our Investor Relations site sonoco.com. In addition, we will refer to a presentation that is also posted on the Investors site during this call.

I’ll briefly remind you that today’s call may contain a number of forward-looking statements that are based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially.

Additionally, information about factors that could cause different results and information about the use by the company of non-GAAP financial measures is available in today’s news release and on our company’s website.

With that brief introduction I’ll now turn it over to Barry Saunders.

Barry Saunders

Thank you, Roger. I'll begin on slide three, where you see that this morning we reported fourth quarter 2012 earnings per diluted share on a GAAP basis of $0.42 and base EPS of $0.56, which compares to base earnings of $0.46 for the same quarter in 2011. These results were at the high end of our previously issued guidance of $0.52 to $0.56 per share.

Before reviewing the base P&L for the quarter, I will mention that a reconciliation of GAAP to base earnings is in today's press release. But just to summarize, restructuring charges of $8.7 million pre-tax impacted earnings by $0.05 per share after-tax and these charges were related to previously announce restructuring initiatives and some other smaller reductions enforced across a few businesses.

Other items excluded from base negatively impacted earnings by $0.09 and are driven by a small gain on a building sale being more than offset by $11.7 million in tax expense related to the repatriation of $260 million of foreign cash. I will provide more details of the impact of the repatriation little later.

Turning to slide four, you find our base P&L, where you see that sales were $1.176 billion, which represented a 4% increase over the prior year. As you will see in the sales bridge, this was driven by the Tegrant acquisition where we had five extra weeks of activity in 2012 as the acquisition was completed in early November of 2011. But it was also due to slightly higher volume for the company as a whole. These increases were then partially offset by lower selling prices associated with lower fiber cost.

Gross profit was $204 million, which was $19 million higher than last year also driven most notably by the Tegrant acquisition.

Selling and administrative expenses and other charges were $113.6 million, which were up $13 million again primarily due to the Tegrant acquisition as the impact of wage and other inflation was offset by lower spending and other favorable net cost changes.

Debt-to-EBIT was $90.4 million, which was up $6.3 million or 7.5% from 2011 and you'll see the drivers of the change in the EBIT bridge in just a moment.

Interest expense was $14.5 million, which was higher than 2011 due to the five extra weeks of financing cost related to the Tegrant acquisition.

Income taxes of $23.3 million were $4.5 million below last year even though profit before tax was higher as the effective tax rate on base earnings was 30.7%, as compared to 39% for the fourth quarter in 2011. The base rate was lower than we expected and notably lower than 2011 due to more earnings and lower tax jurisdictions and a manufacturer's deduction.

Equity and affiliates and minority interest combined of $4.5 million was higher year-over-year by about $900,000. Thus base net income was $57.1 million or $0.56 per share, as compared to $0.46 in 2011.

This represents a 22% increase, part of which was due to the lower effective tax rate but even excluding the impact of the tax rate earnings were up 8% which we consider to be pretty good in this environment.

Before moving on to the bridges and the segment reviews, I will mention that we have changed the names of two segments to better reflect their activities, but there have been no changes to the businesses included in those segments. Packaging Services has been renamed Display and Packaging and Protective Packaging has been renamed Protective Solutions.

Read the rest of this transcript for free on seekingalpha.com