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Sonoco (SON) Q1 Earnings Beat Estimates, Revenues In Line
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Sonoco Products Company (SON - Free Report) reported first-quarter 2017 adjusted earnings of 59 cents per share, down 9% year over year. Earnings beat the Zacks Consensus Estimate of 57 cents and came within management’s guidance range of 55–63 cents. Earnings were negatively impacted by lower volume/mix, divestitures, net of acquisitions, a negative price/cost relationship, and higher labor, maintenance, pension and other operating expenses. Procurement savings, fixed-cost productivity, lower management incentive expense, and a lower effective tax rate were minor headwinds.
On a reported basis, including one-time items, earnings per share was at 53 cents compared with 59 cents in the prior-year quarter.
Operational Update
Net sales of $1.17 billion were down 4.4% year on year, but came in line with the Zacks Consensus Estimate of $1.17 billion. The decline in sales can be attributed to the impact of previous divestitures, net of acquisitions, the discontinuation of the company's contract packaging business in Mexico and the negative impact of foreign exchange. These were partially offset by higher selling prices, primarily owing to rising recovered paper costs.
Cost of sales was $952 million, down 2.9% year on year. Gross profit during the quarter totaled $220 million, down 10% due to unfavorable price/cost relationship, particularly in the Industrial Segment. Gross margin contracted 120 basis points (bps) year over year to 18.8%.
Selling, general and administrative expenses were $126 million, down 6% year over year, chiefly due to divestitures, net of acquisitions, lower management incentives and fewer fiscal days, partially offset by wage and other inflation. Sonoco’s adjusted operating income was $94 million in the quarter, down 15% from $111 million in the prior-year quarter. Operating margin contracted 110 bps year over year to 8% in the quarter.
Sonoco Products Company Price, Consensus and EPS Surprise
The Consumer Packaging segment reported net sales of $482 million, down 8.6% from $527 million in the prior-year quarter. Operating profit was $58 million, an 8% decline from the year-ago quarter.
Net sales at the Paper and Industrial Converted Products segment were $442 million, up 5% year over year. Operating profit was $24.7 million, a 26% year-over-year decline.
The Display and Packaging segment’s net sales came in at $115 million, down 21% from $144 million in the year-earlier quarter. Operating profit was $3.2 million, down 3% from the prior-year quarter.
The Protective Solution segment’s net sales came in at $133 million, up 1% year over year. Operating profit at the segment was $10.9 million, down 10% from the year-ago quarter.
Financial Performance
Sonoco reported cash and cash equivalents of $213 million at the end of the first quarter, down from $257 million as of Dec 31, 2016. In the quarter, Sonoco’s cash flow from operations was $67.4 million, up from $66.4 million in the year-ago quarter. At the first-quarter end, long-term debt was approximately $1.18 billion, up from $1.02 billion at the end of 2016.
Guidance
For 2017, Sonoco revised its earnings per share guidance in the range of $2.73–$2.83. This includes a targeted gain of 7 cents per share from acquisitions, including Peninsula Packaging.
For second-quarter 2017, the company expects earnings per share in the range of 67–73 cents. This guidance takes into consideration the negative impact of divestitures in 2016, partially offset by the acquisition of Peninsula Packaging and other acquisitions completed in 2016. The company had reported earnings per share of 73 cents in second-quarter 2016.
Share Price Performance
In the last one year, Sonoco has underperformed the Zacks classified Containers-Paper/Plastic sub-industry. The stock gained around 8%, while the industry rose 8.5%.
Parker-Hannifin generated a positive average earnings surprise of 12.44% in the trailing four quarters. DXP Enterprises has delivered an average positive earnings surprise of 50.37% in the last four quarters. Graco has delivered an average positive earnings surprise of 2.21% in the past four quarters.
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Sonoco (SON) Q1 Earnings Beat Estimates, Revenues In Line
Sonoco Products Company (SON - Free Report) reported first-quarter 2017 adjusted earnings of 59 cents per share, down 9% year over year. Earnings beat the Zacks Consensus Estimate of 57 cents and came within management’s guidance range of 55–63 cents. Earnings were negatively impacted by lower volume/mix, divestitures, net of acquisitions, a negative price/cost relationship, and higher labor, maintenance, pension and other operating expenses. Procurement savings, fixed-cost productivity, lower management incentive expense, and a lower effective tax rate were minor headwinds.
On a reported basis, including one-time items, earnings per share was at 53 cents compared with 59 cents in the prior-year quarter.
Operational Update
Net sales of $1.17 billion were down 4.4% year on year, but came in line with the Zacks Consensus Estimate of $1.17 billion. The decline in sales can be attributed to the impact of previous divestitures, net of acquisitions, the discontinuation of the company's contract packaging business in Mexico and the negative impact of foreign exchange. These were partially offset by higher selling prices, primarily owing to rising recovered paper costs.
Cost of sales was $952 million, down 2.9% year on year. Gross profit during the quarter totaled $220 million, down 10% due to unfavorable price/cost relationship, particularly in the Industrial Segment. Gross margin contracted 120 basis points (bps) year over year to 18.8%.
Selling, general and administrative expenses were $126 million, down 6% year over year, chiefly due to divestitures, net of acquisitions, lower management incentives and fewer fiscal days, partially offset by wage and other inflation. Sonoco’s adjusted operating income was $94 million in the quarter, down 15% from $111 million in the prior-year quarter. Operating margin contracted 110 bps year over year to 8% in the quarter.
Sonoco Products Company Price, Consensus and EPS Surprise
Sonoco Products Company Price, Consensus and EPS Surprise | Sonoco Products Company Quote
Segment Performance
The Consumer Packaging segment reported net sales of $482 million, down 8.6% from $527 million in the prior-year quarter. Operating profit was $58 million, an 8% decline from the year-ago quarter.
Net sales at the Paper and Industrial Converted Products segment were $442 million, up 5% year over year. Operating profit was $24.7 million, a 26% year-over-year decline.
The Display and Packaging segment’s net sales came in at $115 million, down 21% from $144 million in the year-earlier quarter. Operating profit was $3.2 million, down 3% from the prior-year quarter.
The Protective Solution segment’s net sales came in at $133 million, up 1% year over year. Operating profit at the segment was $10.9 million, down 10% from the year-ago quarter.
Financial Performance
Sonoco reported cash and cash equivalents of $213 million at the end of the first quarter, down from $257 million as of Dec 31, 2016. In the quarter, Sonoco’s cash flow from operations was $67.4 million, up from $66.4 million in the year-ago quarter. At the first-quarter end, long-term debt was approximately $1.18 billion, up from $1.02 billion at the end of 2016.
Guidance
For 2017, Sonoco revised its earnings per share guidance in the range of $2.73–$2.83. This includes a targeted gain of 7 cents per share from acquisitions, including Peninsula Packaging.
For second-quarter 2017, the company expects earnings per share in the range of 67–73 cents. This guidance takes into consideration the negative impact of divestitures in 2016, partially offset by the acquisition of Peninsula Packaging and other acquisitions completed in 2016. The company had reported earnings per share of 73 cents in second-quarter 2016.
Share Price Performance
In the last one year, Sonoco has underperformed the Zacks classified Containers-Paper/Plastic sub-industry. The stock gained around 8%, while the industry rose 8.5%.
Zacks Rank & Key Picks
Sonoco currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the same space include Parker-Hannifin Corporation (PH - Free Report) , DXP Enterprises, Inc. and Graco Inc. (GGG - Free Report) . All three of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Parker-Hannifin generated a positive average earnings surprise of 12.44% in the trailing four quarters. DXP Enterprises has delivered an average positive earnings surprise of 50.37% in the last four quarters. Graco has delivered an average positive earnings surprise of 2.21% in the past four quarters.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>