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Sonoco's (SON) Earnings Beat, Sales Miss Estimates in Q2
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Sonoco Products Company (SON - Free Report) reported adjusted earnings of 79 cents in second-quarter 2020, which outpaced the Zacks Consensus Estimate of 78 cents. The figure, however, declined 16.8% from the prior-year quarter. The bottom line came within management’s guidance of 73-83 cents on strong productivity, cost-reduction actions and contributions from recent acquisitions. However, these gains were partly offset by negative volume/mix, negative price and cost, unfavorable impact of foreign-exchange translation as well as higher tax and interest rates.
On a reported basis, including one-time items, earnings per share came in at 55 cents compared with the year-ago quarter’s 80 cents.
Sonoco’s net sales came in at $1.25 billion, missing the Zacks Consensus Estimate of $1.31 billion. The top line also declined 8.4% year over year on lower volume/mix, reduced selling prices and a stronger U.S. dollar. However, higher sales from acquisitions somewhat offset these negatives.
Operational Update
Cost of sales came in at around $998 million compared with the $1,084 million witnessed in the year-earlier quarter. Gross profit during the reported quarter totaled $248 million, down from the year-ago quarter’s $275 million. Gross margin came in at 19.9% compared with the 20.2% reported in the prior-year period.
Selling, general and administrative expenses totaled $121.4 million, down 8% year over year. This can primarily be attributed to the company’s focus on reducing controllable costs across its business. Adjusted operating income declined 11.8% year over year to $127 million during the June-end quarter. Operating margin came in at 10.2% compared with the year-ago quarter’s 10.6%.
Sonoco Products Company Price, Consensus and EPS Surprise
The Consumer Packaging segment reported net sales of $615 million, up 2% from the prior-year quarter’s $603 million. Operating profit climbed to $86 million from the $63 million recorded in the comparable period last year.
Net sales in the Paper and Industrial Converted Products segment came in at $434 million, marking a year-over-year decline of 11.6%. Operating profit totaled $29.9 million compared with the $61.2 million witnessed in the year-ago period.
The Display and Packaging segment’s net sales declined 20.7% year over year to $107 million. The segment reported an operating profit of $5.9 million, flat compared with the year-earlier quarter.
The Protective Solution segment’s net sales came in at $89 million, down 32% year over year. Operating profit of the segment slumped 71.4% year over year to $4.5 million.
Financial Performance
Sonoco reported cash and cash equivalents of $857.3 million at the end of second-quarter 2020 compared with the $96.2 million witnessed at the end of prior-year quarter. The company recorded cash flow from operating activities of $281 million in the first half of 2020 compared with $40 million in 2019. In the second quarter, free cash flow was $123 million compared with cash outflow $145 million in the same period last year.
As of the second quarter’s end, total debt was $2.27 billion compared with the $1.68 billion recorded at the end of 2019. At the end of the second quarter, the company’s total debt to total capital ratio was 55.6% compared with the 48.1% at the end of 2019.
Q3 Guidance
Sonoco expects third-quarter adjusted earnings per share between 73 cents and 83 cents compared with earnings of 97 cents per share reported in third-quarter 2019. The company anticipates global macroeconomic conditions to gradually improve from the second-quarter levels. However, recovery in demand might be offset by resurgence of coronavirus cases, slowing the reopening of business activities.
Sonoco anticipates Consumer Packaging business to continue performing well in the September-end quarter as sales from food packaging will continue to benefit from stay-at-home customers. Approximately 80% of the Consumer Packaging segment’s sales come from food packaging where the company is witnessing increased orders.
Nevertheless, industrial-related markets will witness bleak demand compared with the previous year. The Paper and Industrial Converted Products segment will be affected by a negative price/cost relationship during the third quarter due to year-over-year higher recycled fiber costs and lower market pricing, while stable OCC price will likely improve price/cost for the remaining period of the current year. The Display and Packaging business will continue to face weak retail promotional display activity, which might be partly offset by cost-control actions.
Meanwhile, the Protective Solutions segment is likely to witness improved demand in the third quarter, as automotive and appliance markets have started to recover gradually. The ThermoSafe temperature-assured packaging business will gain from a strong flu vaccine season, and higher demand from its base pharmaceutical and food customers during the quarter.
Price Performance
The company’s shares have lost 12.5% in the past year compared with the industry’s decline of 5.3%.
Zacks Rank and a Stock to Consider
Currently, Sonoco carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the Industrial Products sector are Lakeland Industries, Inc. (LAKE - Free Report) , Energous Corporation (WATT - Free Report) and Chart Industries, Inc. (GTLS - Free Report) . While Lakeland Industries sports a Zacks Rank #1, Energous Corporation and Chart Industries carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Lakeland Industries has a projected earnings growth rate of 418% for the current fiscal year. The company’s shares have appreciated 50.9% in the past three months.
Energous has an expected earnings growth rate of 44% for 2020. The stock has soared 252.6% over the past three months.
Chart Industries has an estimated earnings growth rate of 2.4% for the ongoing year. The company’s shares have rallied 69.1% in the past three months.
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Sonoco's (SON) Earnings Beat, Sales Miss Estimates in Q2
Sonoco Products Company (SON - Free Report) reported adjusted earnings of 79 cents in second-quarter 2020, which outpaced the Zacks Consensus Estimate of 78 cents. The figure, however, declined 16.8% from the prior-year quarter. The bottom line came within management’s guidance of 73-83 cents on strong productivity, cost-reduction actions and contributions from recent acquisitions. However, these gains were partly offset by negative volume/mix, negative price and cost, unfavorable impact of foreign-exchange translation as well as higher tax and interest rates.
On a reported basis, including one-time items, earnings per share came in at 55 cents compared with the year-ago quarter’s 80 cents.
Sonoco’s net sales came in at $1.25 billion, missing the Zacks Consensus Estimate of $1.31 billion. The top line also declined 8.4% year over year on lower volume/mix, reduced selling prices and a stronger U.S. dollar. However, higher sales from acquisitions somewhat offset these negatives.
Operational Update
Cost of sales came in at around $998 million compared with the $1,084 million witnessed in the year-earlier quarter. Gross profit during the reported quarter totaled $248 million, down from the year-ago quarter’s $275 million. Gross margin came in at 19.9% compared with the 20.2% reported in the prior-year period.
Selling, general and administrative expenses totaled $121.4 million, down 8% year over year. This can primarily be attributed to the company’s focus on reducing controllable costs across its business. Adjusted operating income declined 11.8% year over year to $127 million during the June-end quarter. Operating margin came in at 10.2% compared with the year-ago quarter’s 10.6%.
Sonoco Products Company Price, Consensus and EPS Surprise
Sonoco Products Company price-consensus-eps-surprise-chart | Sonoco Products Company Quote
Segment Performance
The Consumer Packaging segment reported net sales of $615 million, up 2% from the prior-year quarter’s $603 million. Operating profit climbed to $86 million from the $63 million recorded in the comparable period last year.
Net sales in the Paper and Industrial Converted Products segment came in at $434 million, marking a year-over-year decline of 11.6%. Operating profit totaled $29.9 million compared with the $61.2 million witnessed in the year-ago period.
The Display and Packaging segment’s net sales declined 20.7% year over year to $107 million. The segment reported an operating profit of $5.9 million, flat compared with the year-earlier quarter.
The Protective Solution segment’s net sales came in at $89 million, down 32% year over year. Operating profit of the segment slumped 71.4% year over year to $4.5 million.
Financial Performance
Sonoco reported cash and cash equivalents of $857.3 million at the end of second-quarter 2020 compared with the $96.2 million witnessed at the end of prior-year quarter. The company recorded cash flow from operating activities of $281 million in the first half of 2020 compared with $40 million in 2019. In the second quarter, free cash flow was $123 million compared with cash outflow $145 million in the same period last year.
As of the second quarter’s end, total debt was $2.27 billion compared with the $1.68 billion recorded at the end of 2019. At the end of the second quarter, the company’s total debt to total capital ratio was 55.6% compared with the 48.1% at the end of 2019.
Q3 Guidance
Sonoco expects third-quarter adjusted earnings per share between 73 cents and 83 cents compared with earnings of 97 cents per share reported in third-quarter 2019. The company anticipates global macroeconomic conditions to gradually improve from the second-quarter levels. However, recovery in demand might be offset by resurgence of coronavirus cases, slowing the reopening of business activities.
Sonoco anticipates Consumer Packaging business to continue performing well in the September-end quarter as sales from food packaging will continue to benefit from stay-at-home customers. Approximately 80% of the Consumer Packaging segment’s sales come from food packaging where the company is witnessing increased orders.
Nevertheless, industrial-related markets will witness bleak demand compared with the previous year. The Paper and Industrial Converted Products segment will be affected by a negative price/cost relationship during the third quarter due to year-over-year higher recycled fiber costs and lower market pricing, while stable OCC price will likely improve price/cost for the remaining period of the current year. The Display and Packaging business will continue to face weak retail promotional display activity, which might be partly offset by cost-control actions.
Meanwhile, the Protective Solutions segment is likely to witness improved demand in the third quarter, as automotive and appliance markets have started to recover gradually. The ThermoSafe temperature-assured packaging business will gain from a strong flu vaccine season, and higher demand from its base pharmaceutical and food customers during the quarter.
Price Performance
The company’s shares have lost 12.5% in the past year compared with the industry’s decline of 5.3%.
Zacks Rank and a Stock to Consider
Currently, Sonoco carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the Industrial Products sector are Lakeland Industries, Inc. (LAKE - Free Report) , Energous Corporation (WATT - Free Report) and Chart Industries, Inc. (GTLS - Free Report) . While Lakeland Industries sports a Zacks Rank #1, Energous Corporation and Chart Industries carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Lakeland Industries has a projected earnings growth rate of 418% for the current fiscal year. The company’s shares have appreciated 50.9% in the past three months.
Energous has an expected earnings growth rate of 44% for 2020. The stock has soared 252.6% over the past three months.
Chart Industries has an estimated earnings growth rate of 2.4% for the ongoing year. The company’s shares have rallied 69.1% in the past three months.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>