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Sonoco Products Co. (SON)

SON

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Sonoco Products Co's (SON) second-quarter 2012 adjusted earnings per share decreased 3% to $0.58, but net sales increased 6.6% to $1.2 billion. While EPS was in line with the Zacks Consensus Estimate, revenue failed to top expectations. Sonoco has trimmed its 3Q12 EPS guidance citing operational problems in its North American papermaking operations.

Furthermore, Sonoco has experienced lower-than-expected volume in many of its consumer and industrial businesses. Volatile raw material prices and uncertainty among its customers, given the slow recovery in the U.S and ongoing European weakness, higher pension costs remain headwinds for the company in fiscal 2012.

Accordingly, we have downgraded our recommendation on Sonoco from Neutral to Underperform. Our target price is $28 or 12.8x our 2012 EPS estimate.

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