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Headwinds to Impede Sonoco Products' (SON) Q1 Performance - Analyst Blog

We have issued an updated research report on Sonoco Products Co.SON on Apr 6, 2015. Even though this global manufacturer of consumer and industrial packaging products will benefit from the recently closed Weidenhammer acquisition, continued momentum in volumes, low resin and old corrugated container prices as well as cost reduction efforts, unfavorable foreign exchange, higher pension expense and weak display volumes will be headwinds for Sonoco's first-quarter results.

Sonoco reported adjusted fourth-quarter earnings of 66 cents per share, a 14% improvement year over year. Earnings in the quarter benefited from solid volume growth, strong productivity, a positive price/cost relationship and lower pension expense. Results were also aided by the reimbursement of excess costs incurred in the prior quarters related to a materials issue in the flexible packaging business.

For 2015, Sonoco guided earnings per share in the range of $2.60 to $2.70 with a target of $2.65 per diluted share, a decrease of 3 cents from the previous guidance. The decline is due to an increase in the expected negative effect of foreign exchange. The company expects volumes to improve by 2% in 2015, reflecting its assumption that economic recovery will continue at a modest pace. However, so far in the first quarter, Sonoco has not seen the anticipated increase in volumes.

Headwinds for the year include unfavorable foreign exchange, higher pension expense due to largely lower discount rates and newly issued mortality tables and a slightly higher effective tax rate.

In October, Sonoco acquired Weidenhammer Packaging Group to strengthen its packaging business in Europe and further expand its expertise in stable, highly decorated convenience packaging. The transaction is expected to be accretive to Sonoco's 2015 base earnings by $0.10 per share. However, the acquisition will increase the company's exposure to Europe. Macroeconomic weakness in the region, unfavorable foreign currency translation and increase in debt levels from financing the acquisition will affect results.

In 2015, Sonoco will begin implementing a series of actions focused on improving its cost competitiveness by optimizing supply chain, and enhancing productivity, corporate and business unit structures. The company will continue to benefit from low resin prices. Moreover, subdued old corrugated container (OCC) prices will be a tailwind for the company in the first quarter.

The Zacks Consensus Estimate for Sonoco moved south 1% to $2.68 for fiscal 2015 and is currently pegged at $2.68.

Other Stocks to Consider

At present, Sonoco carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Berry Plastics Group, Inc. BERY , Bemis Company, Inc. BMS and Sealed Air Corporation SEE . All 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 Nasdaq, Inc.


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

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