Packaging

Sonoco Reports Improved 2011 First Quarter Results

Friday 22. April 2011 - Sonoco (NYSE: SON), one of the largest diversified global consumer and industrial packaging companies, today reported its strongest ever first quarter sales and net income for the quarter that ended April 3, 2011. As a result of the Company's accounting calendar, the first quarter of 2011 included 93 days, six more than the same period in 2010.

First Quarter Highlights
First quarter 2011 GAAP earnings per diluted share were $.56, up 17 percent, compared with $.48 in 2010.
Base net income attributable to Sonoco (base earnings) for first quarter 2011 was $.57 per diluted share, compared with $.50 in 2010. (See base earnings definition and reconciliation later in this release.)
First quarter 2011 net sales of $1.12 billion were 19 percent higher than the $935 million in the first quarter of 2010.
Guidance for second quarter 2011 is estimated at $.61 to $.65 per diluted share and full-year 2011 guidance is estimated at $2.52 to $2.60 per diluted share.
First Quarter Review
Commenting on the Company’s first quarter results, Chairman and Chief Executive Officer Harris E. DeLoach, Jr. said, “For the sixth consecutive quarter, Sonoco posted a year-over-year improvement in sales and base earnings. In addition, we were pleased that each of our business segments achieved year-over-year improvements in sales and operating profits. Earnings improved during the quarter due to volume growth, largely due to six additional days in the current quarter, improvements in manufacturing productivity, earnings from acquisitions, lower pension costs and achieving a positive price/cost relationship. These positive factors were partially offset by higher labor, freight and energy expenses.”
“Performance continued to improve in our industrial-focused businesses, resulting in a 33 percent year-over-year increase in operating profits for our Tubes and Cores/Paper segment and a 42 percent increase for All Other Sonoco, which consists primarily of industrial-related businesses,” said DeLoach. “This positive performance was a result of achieving a positive price/cost relationship, primarily in our vertically integrated global paper operations, volume growth, which was primarily related to the additional days in the current quarter, and lower pension expenses, partially offset by weather-related and mechanical outages in our paper operations.”
“On the consumer side, operating profits from our Consumer Packaging segment were modestly higher as productivity improvements, profits from acquisitions and the longer quarter were partially offset by increased operating costs,” DeLoach said. “Results improved in our Packaging Services segment due to volume growth and cost controls, which more than offset a negative change in the mix of business stemming from previously announced business losses in point-of-purchase displays and fulfillment.”
First quarter GAAP net income attributable to Sonoco was $57.4 million, or $.56 per diluted share in 2011, compared with $48.6 million, or $.48 per diluted share, in 2010. Base earnings were $58.6 million, or $.57 per diluted share, in the first quarter, compared with $51.0 million, or $.50 per diluted share, in 2010. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring charges, asset impairment charges and other items, if any, the exclusion of which the Company believes improves comparability and analysis of the underlying financial performance of the business.
Excluded from base earnings in the 2011 quarter were after-tax restructuring and other charges totaling $1.2 million, or $.01 per diluted share. After-tax restructuring charges of $2.4 million, or $.02 per diluted share were excluded from base earnings in the 2010 quarter. Additional information about base earnings and base earnings per share, along with reconciliations to the most closely applicable GAAP financial measures, is provided later in this release.
The Company’s gross profit margin in the first quarter of 2011 was 17.4 percent of sales, compared with 18.8 percent in the same period in 2010. The decline was primarily due to a shift in the mix of business and higher labor, freight and other costs. The Company’s selling and administrative costs declined to 9.2 percent of sales during the first quarter, compared with 10.3 percent in the same period last year.
Net sales for the first quarter were $1.12 billion, compared with $935 million in the same period in 2010. This 19 percent increase was due to the longer quarter, higher selling prices, other volume gains, acquisitions and the positive impact from foreign currency translation. The impact of higher selling prices was realized primarily in the Tubes and Cores/Paper segment, principally driven by higher recovered paper prices.
Operating cash flow in the first quarter of 2011 was a negative $13.8 million, compared with a positive $73.8 million generated in the same period in 2010. The negative cash from operations in the first quarter reflects January’s $85 million contribution to the Company’s U.S. pension plan. Capital expenditures and cash dividends were $38.3 million and $28.1 million, respectively, during the first quarter, compared with $28.5 and $27.1 million, respectively, during the first quarter of 2010. During the first quarter of 2011, Sonoco also repurchased an additional 1,305,000 shares of common stock for approximately $46.3 million, completing a previously announced program to repurchase up to 2 million shares.
At the end of the first quarter of 2011, total debt was $766 million, an increase from $621 million at the end of 2010. The increase is due to borrowings in addition to the cash used to fund the previously mentioned pension contribution and the share repurchase program. The Company’s debt-to-total-capital ratio was 33.1 percent, compared with 29.2 percent at the end of 2010. Cash and cash equivalents at the end of the first quarter totaled $185 million, compared with $158 million at year-end 2010.
Second Quarter and Full-Year 2011 Outlook
Sonoco expects second quarter 2011 base earnings to be in the range of $.61 to $.65 per diluted share. Base earnings in the second quarter of 2010 were $.59 per diluted share. For the full-year 2011, base earnings are projected to be in the range of $2.52 to $2.60 per diluted share. The Company’s 2011 earnings guidance reflects an expected effective tax rate of approximately 31 percent.
The Company’s base earnings guidance assumes sales demand will remain near the levels experienced during the past several quarters, adjusted for seasonality. Although the Company believes the assumptions reflected in the range of guidance are reasonable, given the volatility of recovered paper and other material prices, as well as uncertainty regarding the pace of any continued improvement in the economy, actual results could vary substantially.
Commenting on the Company’s outlook, DeLoach said, “We expect better second quarter results due to stronger productivity, particularly in our Tubes and Cores/Paper segment, as a result of less operating downtime in our mill system, an improving price/cost relationship and cost controls. Overall, we remain focused on achieving record results for 2011 while growing base earnings year over year by approximately 10 percent. We are focused on expanding margins by better operating our businesses, particularly improving productivity and reducing costs. In addition, we are continuing to invest in growing our businesses, launching new products and making accretive acquisitions.”
Segment Review
Segment operating results do not include restructuring and asset impairment charges, acquisition expenses, and certain other items, if any, the exclusion of which the Company believes improves comparability and analysis, interest income and expense, or income taxes.
Consumer Packaging
Sonoco’s Consumer Packaging segment includes the following products and services: round and shaped rigid containers and trays (both composite and plastic); printed flexible packaging; metal and peelable membrane ends and closures; and global brand artwork management.
First quarter 2011 sales for the segment were $459 million, compared with $382 million in the same period in 2010. Segment operating profit was $45.9 million in the first quarter, compared with $45.7 million last year.
Sales increased by 20 percent during the first quarter due to last year’s acquisition of Associated Packaging Technologies, Inc. (APT), a leading thermoform tray manufacturer for the frozen food industry, higher selling prices, favorable currency translation and the longer quarter. Operating profits modestly improved from the previous year’s results as productivity, profits from the APT acquisition, decreased pension costs and the impact of the longer quarter were essentially offset by higher labor and freight costs.
Tubes and Cores/Paper
The Tubes and Cores/Paper segment includes the following products: high-performance paper and composite paperboard tubes and cores; fiber-based construction tubes and forms; recycled paperboard, linerboard, corrugating medium, recovered paper and other recycled materials.
First quarter 2011 sales for the segment were $444 million, compared with $370 million in the same period in 2010. Segment operating profit was $28.6 million, compared with $21.5 million in 2010.
The 20 percent increase in segment sales was due to higher selling prices, improved volume of industrial converted products and recycled materials, favorable currency translation and the longer quarter. The year-over-year increase in selling prices was primarily a result of higher old corrugated container pricing, which had a favorable impact on prices received for recovered paper, paperboard and tubes and cores. Operating profit for the segment improved 33 percent during the quarter due to a positive price/cost relationship, the longer quarter, decreased pension costs and productivity improvements. These positive factors were partially offset by higher energy and freight costs, along with the negative impacts of mechanical and weather-related downtime in certain global paper operations.
Packaging Services
The Packaging Services segment includes the following products and services: designing, manufacturing, assembling, packing and distributing temporary, semipermanent and permanent point-of-purchase displays; and supply chain management services, including contract packing, fulfillment and scalable service centers.
First quarter 2011 sales for this segment were $121 million, compared with $112 million in the same period in 2010. Segment operating profit was $6.1 million, compared with $5.1 million in 2010.
Sales improved 8 percent during the quarter due to improved volume in contract packaging and point of purchase displays, favorable foreign exchange and the longer quarter. Operating profit improved 20 percent due primarily to improved volume and cost controls. A negative mix of business, stemming from previously announced business losses in point-of-purchase displays and fulfillment, partially offset volume gains during the quarter.
All Other Sonoco
All Other Sonoco includes businesses that are not aggregated in a reportable segment and includes the following products: wooden, metal and composite wire and cable reels and spools; molded and extruded plastics; custom-designed protective packaging; and paper amenities, such as coasters and glass covers.
First quarter 2011 sales in All Other Sonoco were $93 million, compared with $72 million reported in the same period in 2010. Operating profit for the quarter was $10.5 million, compared with $7.4 million in 2010.
Sales in All Other Sonoco increased 29 percent due to volume gains in molded plastics and reels and spools, along with higher selling prices, sales from a small acquisition and the longer quarter. Operating profit in All Other Sonoco increased 42 percent as a result of improved volume and productivity gains, partially offset by a negative price/cost relationship and higher labor, energy and freight.
Corporate
Net interest expense for the first quarter of 2011 increased to $8.7 million, compared with $8.4 million during the same period in 2010. The increase was primarily due to the additional days in the current quarter. The effective tax rate for the first quarter of 2011 was 31.1 percent, compared with 29.6 percent for the same period in 2010. The effective tax rate on base earnings was 31.2 percent and 30.4 percent in the first quarters of 2011 and 2010, respectively. The effective tax rate on base earnings for the current quarter is higher than the same period last year, primarily as a result of a larger proportion of earnings taxed at higher U.S. rates.