Sonoco Products Company (SON)

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Sonoco Products Company (SON)

Q4 2008 Earnings Call

February 05, 2009 11:00 AM ET

Executives

Roger Schrum - Vice President, Investor Relations and Corporate Affairs

Charles Hupfer - Senior Vice President, Chief Financial Officer and Corporate Secretary

Harris DeLoach - Chairman, President and Chief Executive Officer

Analysts

Claudia Hueston - J.P. Morgan

George Staphos - Banc of America Securities

Mark Wilde - Deutsche Bank

Christopher Manuel - KeyBanc Capital Markets

Joseph Naya - UBS

Presentation

Operator

Greetings, ladies and gentlemen, and welcome to the Fourth Quarter 2008 Earning Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this call is being recorded.

It is now my pleasure to introduce your host Mr. Roger Schrum, Vice President of Investor Relations for Sonoco Products Company. Thank you and Mr. Schrum, you may now begin.

Roger Schrum

Thank you, Shreya (ph), and good morning, everyone and welcome to Sonoco's 2008 fourth quarter and annual financial results investor call. This call is being conducted on February 5, 2009. 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 fourth quarter and the full year were released before the market opened today and are available via our website 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 projections. 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 information about the use by the company of non-GAAP financial measures is available in our annual report and on the company's website.

With that I will now turn it over to Charlie Hupfer.

Charles Hupfer

Okay thank you, Roger. Today, Sonoco reported fourth quarter EPS of $0.36 a share and base EPS of $0.49 per share. Base EPS of $0.49 per share excludes restructuring and asset impairment charges and is inside our revised guidance of $0.48 to $0.52.

The quarter was a little weaker than we expected when we revised guidance on December 5th. Industrial volume was especially weak in November and December and frankly that seems to have carried over into 2009. And it is reflected in our 2009 guidance that I'll talk about a little bit later.

Let me begin by reconciling GAAP net income and EPS to base net income and EPS. In the fourth quarter 2008 we took a restructuring/impairment charge of $22 million pretax. After tax that's 13.1 million or $0.13 a share. The majority of the restructuring charge and impairment charge represents restructuring that we announced on December 5th.

The big items were the closure of two paper mills and an asset impairment charge in Brazil. If we add the $0.13 to the as reported EPS of $0.36, we arrive at base EPS of $0.49 a share.

Last year in the fourth quarter we had 8.7 million in restructuring and we added 4.1 million to environmental reserves related to the Fox River for a grand total of 12.8 million. After tax that's 8.5% -- or $8.5 million or $0.08 a share. If we add the $0.08 to the as reported $0.54, we arrive at $0.62 EPS for the fourth quarter of 2007. So with those adjustments in mind, I'll read out to you a comparative base income statement starting with net sales which were 934.6 million, down 11.8% from last year's 1.601 billion.

Base EBIT is 75.9 million down 17.5% from last year's 92 million. Net interest expense was 11.2 million this year versus 14 million last year. Taxes were 18.6 million this year versus 19.8 million last year. And equity and affiliates which includes minority interest were 3 million versus 4.5 million last year. That leaves us with base net income of 49.1 million in the fourth quarter of 2008 versus 62.7 million in the fourth quarter of 2007, that's a decrease of 21.7%.

Base EPS was $0.49 a share versus $0.62 a share last year. Again that's a decrease of 21.7%. First let me comment on interest expense which was favorable to last year about $2.8 million. The majority of the year-over-year difference is due to debt reduction. Our balance sheet shows a year-over-year reduction of $160 million in total debt. Our commercial paper interest rate averaged 2.96 in the fourth quarter 2008 and that compares with 4.98 in the fourth quarter of 2007. Our CP balance at year end was only $95 million and our CP borrowing rate now is in the 1% range.

Now with the tax expense, our effective tax rate for the fourth quarter of 2008 was 28.7%. The effective tax rate benefited from a $2.5 million adjustment to reserve at our Greek subsidiary, otherwise the rate would have been a more normal 32 to 33%.

Last year's effective tax rate was 25.4%. Last year we adjusted tax reserves in the fourth quarter for fourth quarter's statutory rate reduction in Canada and in Italy.

Now let me turn to the segment reporting. Our segment reporting basically tells the same story that it did in the first, second and third quarters and that is a solid performance in the consumer segment offset by weakness in the other segments. So let me just walk down through the segments briefly. The consumer segment saw sales down two-tenths of a percent but profits were up 13.8%. Volume held up very well in our U.S. composite can business across most product lines. For example snacks, dough, concentrate, miscellaneous food, those volumes were all up in the 6 to 13% range. We did see a 22% decline in caulk and adhesives and we also saw lower net sales in the quarter.

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