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Sonoco Products (SON) Up 1.3% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Sonoco Products Company (SON - Free Report) . Shares have added about 1.3% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is SON due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Sonoco recently reported first-quarter 2018 results, wherein adjusted earnings increased 25% year over year to 74 cents per share and came close to the higher end of management’s guided range of 69-75 cents. Earnings also beat the Zacks Consensus Estimate of 72 cents. On a reported basis, including one-time items, earnings per share came in at 73 cents compared with 53 cents recorded in the prior-year quarter.
Sonoco’s net sales grew 11% year on year to $1.30 billion. The revenue figure came in line with the Zacks Consensus Estimate. The uptick in sales was driven by higher selling prices to counter elevated freight, wages and operating inflation, as well as solid sales from acquisitions, modest volume growth and the positive impact of foreign exchange.
Operational Update
Cost of sales came in at $1.05 billion, up 11% year on year. Gross profit during the reported quarter totaled $250.6 million, a 12.4% improvement year over year. Gross margin expanded 20 basis points (bps) year over year to 19.2%.
Selling, general and administrative expenses totaled $137 million, up 9.8% year over year, chiefly due to acquisition-related costs and wage inflation. Sonoco’s adjusted operating income totaled $113.2 million in the quarter, up 15.7% from $97.8 million reported in the prior-year quarter. Operating margin improved 40 bps year over year to 8.7% in the first quarter.
Segment Performance
The Consumer Packaging segment reported net sales of $570 million, up 18% from $482 million recorded in the prior-year quarter, driven by acquisitions, positive translation impact of changes in foreign-exchange rates, and higher selling prices. Operating profit came in at $61.1 million, up 2.7% from the year-ago quarter.
Net sales at the Paper and Industrial Converted Products segment were $461 million, up 4% year over year, led by the positive impact of foreign exchange, and higher selling prices implemented to recover higher freight and other operating costs. Operating profit came in at $39.8 million, surging 48% year over year.
The Display and Packaging segment’s net sales came in at $143 million, up 24% from $115 million in the year-earlier quarter, primarily backed by volume growth related to a new pack center near Atlanta, and the positive foreign exchange impact. The segment reported a profit of $1.7 million in the reported quarter compared with $3.2 million in the year-earlier quarter.
The Protective Solution segment’s net sales came in at $131 million, down marginally from $133 million reported in the year-earlier quarter as the positive impact of foreign exchange and higher selling prices were offset by lower volume and mix. Operating profit at the segment totaled $10.7 million, flat year over year.
Financial Performance
Sonoco reported cash and cash equivalents of $305 million at the end of first-quarter 2018, up from $255 million recorded at year-end 2017. The company generated $119.8 million in cash from operating activities during the quarter compared with $67.4 million recorded in the prior-year period. Long-term debt was $1.29 billion as of Apr 1, 2018, which remained flat compared to the year-end 2017 tally. At the end of the reported quarter, the company had a total debt-to-capital ratio of 44.9% compared with 45.6% at Dec 31, 2017.
On Apr 12, Sonoco completed the acquisition of Highland Packaging Solutions — a leading manufacturer of thermoformed packaging for fresh fruits, vegetables and eggs — for approximately $150 million. This is expected to strengthen the company’s thermoforming business.
On Apr 18, Sonoco raised its quarterly dividend by 5.1% to 41cents per share from the previous dividend of 39 cents per share. The dividend will be paid on Jun 8, to shareholders of record as of May 11, 2018.
Guidance
For full-year 2018, Sonoco raised its adjusted earnings per share guidance to $3.22-$3.32 from the prior $3.16-$3.26. The outlook reflects a downward revision in the expected effective tax rate to approximately 26% and projected earnings accretion from the Highland Packaging acquisition. Compared with the earnings of $2.79 per share in 2017, the mid-point of the guidance reflects year-over-year growth of 17%. For second-quarter 2018, the company projects adjusted earnings per share of 83-89 cents. Compared with the prior-year quarter’s earnings per share of 43 cents, the mid-point of the guidance reflects 100% year-over-year growth.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter.
At this time, SON has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth and momentum investors than value investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, SON has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Sonoco Products (SON) Up 1.3% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Sonoco Products Company (SON - Free Report) . Shares have added about 1.3% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is SON due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Sonoco Tops Q1 Earnings & Sales Estimates, Lifts View
Sonoco recently reported first-quarter 2018 results, wherein adjusted earnings increased 25% year over year to 74 cents per share and came close to the higher end of management’s guided range of 69-75 cents. Earnings also beat the Zacks Consensus Estimate of 72 cents. On a reported basis, including one-time items, earnings per share came in at 73 cents compared with 53 cents recorded in the prior-year quarter.
Sonoco’s net sales grew 11% year on year to $1.30 billion. The revenue figure came in line with the Zacks Consensus Estimate. The uptick in sales was driven by higher selling prices to counter elevated freight, wages and operating inflation, as well as solid sales from acquisitions, modest volume growth and the positive impact of foreign exchange.
Operational Update
Cost of sales came in at $1.05 billion, up 11% year on year. Gross profit during the reported quarter totaled $250.6 million, a 12.4% improvement year over year. Gross margin expanded 20 basis points (bps) year over year to 19.2%.
Selling, general and administrative expenses totaled $137 million, up 9.8% year over year, chiefly due to acquisition-related costs and wage inflation. Sonoco’s adjusted operating income totaled $113.2 million in the quarter, up 15.7% from $97.8 million reported in the prior-year quarter. Operating margin improved 40 bps year over year to 8.7% in the first quarter.
Segment Performance
The Consumer Packaging segment reported net sales of $570 million, up 18% from $482 million recorded in the prior-year quarter, driven by acquisitions, positive translation impact of changes in foreign-exchange rates, and higher selling prices. Operating profit came in at $61.1 million, up 2.7% from the year-ago quarter.
Net sales at the Paper and Industrial Converted Products segment were $461 million, up 4% year over year, led by the positive impact of foreign exchange, and higher selling prices implemented to recover higher freight and other operating costs. Operating profit came in at $39.8 million, surging 48% year over year.
The Display and Packaging segment’s net sales came in at $143 million, up 24% from $115 million in the year-earlier quarter, primarily backed by volume growth related to a new pack center near Atlanta, and the positive foreign exchange impact. The segment reported a profit of $1.7 million in the reported quarter compared with $3.2 million in the year-earlier quarter.
The Protective Solution segment’s net sales came in at $131 million, down marginally from $133 million reported in the year-earlier quarter as the positive impact of foreign exchange and higher selling prices were offset by lower volume and mix. Operating profit at the segment totaled $10.7 million, flat year over year.
Financial Performance
Sonoco reported cash and cash equivalents of $305 million at the end of first-quarter 2018, up from $255 million recorded at year-end 2017. The company generated $119.8 million in cash from operating activities during the quarter compared with $67.4 million recorded in the prior-year period. Long-term debt was $1.29 billion as of Apr 1, 2018, which remained flat compared to the year-end 2017 tally. At the end of the reported quarter, the company had a total debt-to-capital ratio of 44.9% compared with 45.6% at Dec 31, 2017.
On Apr 12, Sonoco completed the acquisition of Highland Packaging Solutions — a leading manufacturer of thermoformed packaging for fresh fruits, vegetables and eggs — for approximately $150 million. This is expected to strengthen the company’s thermoforming business.
On Apr 18, Sonoco raised its quarterly dividend by 5.1% to 41cents per share from the previous dividend of 39 cents per share. The dividend will be paid on Jun 8, to shareholders of record as of May 11, 2018.
Guidance
For full-year 2018, Sonoco raised its adjusted earnings per share guidance to $3.22-$3.32 from the prior $3.16-$3.26. The outlook reflects a downward revision in the expected effective tax rate to approximately 26% and projected earnings accretion from the Highland Packaging acquisition. Compared with the earnings of $2.79 per share in 2017, the mid-point of the guidance reflects year-over-year growth of 17%. For second-quarter 2018, the company projects adjusted earnings per share of 83-89 cents. Compared with the prior-year quarter’s earnings per share of 43 cents, the mid-point of the guidance reflects 100% year-over-year growth.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter.
Sonoco Products Company Price and Consensus
Sonoco Products Company Price and Consensus | Sonoco Products Company Quote
VGM Scores
At this time, SON has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth and momentum investors than value investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, SON has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.