Sonoco Products Company (SON)

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Sonoco Products Company (SON)

Q4 2009 Earnings Call

February 10, 2010 2:00 pm ET


Roger Schrum - VP, Investor Relations

Charles J. Hupfer - Chief Financial Officer, Senior Vice President

Harris E. DeLoach Jr. - Chairman of the Board, President, Chief Executive Officer


George Staphos - Banc of America/Merrill Lynch

Ghansham Panjabi - Robert W. Baird & Co., Inc.

Chip Dillon - Credit Suisse

Ariel - JPMorgan Chase & Company

Christopher D. Manuel - KeyBanc Capital Markets

Al Kabili - Macquarie Capital Advisors

Christopher Shunk - Deutsche Bank

Dan Khoshaba - KSA Capital Advisors



Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 Sonoco Products earnings conference call. My name is Chanel and I'll be your operator for today. (Operator's Instructions) I would now like to turn the conference over to your host for today's call, Mr. Roger Schrum, Vice President of Investor Relations.

Roger Schrum

Thank you, Chanel. Good afternoon, everyone, and welcome to Sonoco's 2009 fourth quarter and full year earnings investor call. This call is being conducted on February 10th, 2010. 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 were released before the market opened today and are available via our website at

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 introduction I'll now turn it over to Charlie Hupfer.

Charles J. Hupfer

Thank you, Roger. Today, Sonoco reported fourth quarter sales of $1.019 billion and EPS of $0.46 a share. The EPS of $0.46 a share is in conformity with US GAAP which means it includes restructuring expenses and one-time unusual gains and losses. Base EPS was $0.58 per share compared with last year's $0.49. That's a $0.09 difference a year-over-year improvement of 19%. Now, base EPS excludes those restructuring changes and any one-time gains and losses.

Our guidance for the quarter, and that's the guidance that we updated on December 4th at our analyst meeting, was for a range of $0.49-$0.52, so we came in $0.06 per share better than the high side of the guidance. So obviously we're very pleased with this quarter. Compared with our guidance, taxes were a little bit more favorable than I expected them to be when I gave the guidance or the revised guidance in early December, and that added about $0.03 more per share than I was thinking at the time.

The other pleasant surprise was that volume in the US was stronger in December than we expected, and that also meant that productivity was good. So in other words, we didn't see as much of the usual December slowdown as we usually see.

I'll start off now by reconciling as reported results to base results. In fourth quarter 2009 we reported restructuring charges of $9.1 million. After tax that's $6.5 million or a rounded $0.07 a share. The restructurings comprise largely of holdover items from previous quarters. Also in the fourth quarter we took a $5.3 million tax charge related to a tax law enacted in November in Mexico that effectively eliminated consolidated tax returns retrospective all the way back to 1999. This equates to about $0.05 per share. So if you start with the EPS of $0.46, add back $0.07 for restructuring and add back $0.05 for Mexican taxes, you get to the $0.58 a share base EPS.

Now doing the same thing to last year, last year's fourth quarter included pretax restructuring charges of $22.2 million. After tax that was $0.131 or $0.13 a share. So if you start with fourth quarter EPS of $0.36 and then add the $0.13, you arrive at $0.49 base EPS for 2008. So the comparison that we'll be making is $0.58 this year compared with $0.49 last year.

Now, with the adjustments that I've just mentioned to arrive at base earnings, let me read out to you an income statement that was presented on a base earnings basis, and I've got two columns; one's for 2009 and the other is for the fourth quarter of 2008. Starting at the top, sales; $1.019 billion. That's up 7.2% from last year's $934.6 million. Cost of goods sold is $808.1 million and that compares with last year's $776.4 million. Selling, administrative, and other costs in 2009 were $108.8 million. That compares with 2008's $82.4 million. So therefore, earnings before interest and tax, EBIT, is $85.1 million in 2009 and that's up 12.1% from last year's $75.8 million.

Coming on down the income statement, net interest expense is -$9.5 million and that compares with interest expense last year of $11.2 million. Taxes are -$21.7 million this year compared with $18.5 million last year. Equity and earnings of affiliates is a positive $5 million this year compared with $2 million in 2008 and non-controlling interest, what we used to call minority interest is zero this year compared with $1.1 million last year. So that brings us down to a total net income of $58.9 million in 2009. That's up 19.9% from last year's $49.1 million. And then from that, EPS is $0.58 a share up 19.1% from last year's $0.49 a share.

As I said a minute ago, EBIT was up 12.1% year over year. If you adjust for the incremental pension expense that we incurred all year that's a result of 2008 pension performance, EBIT would've actually been up 28.1% and that's of course on the sales increase of 7.2%. Doing the same thing to net income, net income was up 19.9%, but again if we adjust for the incremental pension expense, net income would be up around 35%, again on a sales increase of 7.2%.

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