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Sonoco (SON) Wraps Up Sale of Europe Contract Packaging Business

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Sonoco Products Company (SON - Free Report) recently completed the sale of its Europe contract packaging business to Prairie Industries Holdings for cash proceeds of $120 million. The divesture supports Sonoco’s efforts to simplify its operating structure in order to focus on expanding its core Consumer and Industrial packaging businesses. Net proceeds from the sale are likely to be utilized in the reduction of short-term debt and improve its liquidity position.

Based in Wisconsin, Prairie Industries is a contract packaging and contract manufacturing business focused on consumer goods and food products.

In October, Sonoco entered into an agreement to divest its Europe contract packaging business. This business provides custom packaging and supply-chain management solution services to global consumer product companies through its six contract packaging facilities and a warehouse in Poland. The business, part of the company’s Display and Packaging segment, generated net sales of $300 million in 2019.

Sonoco expects the Consumer Packaging segment to perform well in the current quarter since order levels for food packaging remain strong as customers are forced to stay indoors amid the pandemic. Notably, 80% of the segment’s sales come in from food packaging.

Moreover, Sonoco’s focus on optimizing businesses through productivity improvement, standardization and cost control will aid its performance in the near term. The company is focused on driving growth, margin expansion and generating solid free cash flow. It is also poised to gain from acquisitions in the targeted growth areas of flexible packaging and thermal formed rigid plastic containers, along with the development of new products.

However, the company expects demand to shrink, indicating the normal year-end slowdown trend. Therefore, Sonoco projects adjusted earnings per share between 70 cents and 80 cents for the current quarter compared with the prior-year quarter’s 75 cents per share.

Apart from this, Sonoco’s industrial-related markets will continue witnessing bleak demand compared with the previous year due to the pandemic-related shutdowns. The Paper and Industrial Converted Products segment will be affected by a negative price/cost relationship during the ongoing quarter due to higher year-over-year recycled fiber costs and lower market pricing. The Display and Packaging business will face weak retail promotional display activity even in the days ahead.

Price Performance

Shares of Sonoco have gained 8.1% over the past six months compared with the industry's growth of 15.7%.


Zacks Rank & Stocks to Consider

Sonoco currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector include iRobot Corporation (IRBT - Free Report) , Crown Holdings, Inc. (CCK - Free Report) and SiteOne Landscape Supply, Inc. (SITE - Free Report) . While iRobot flaunts a Zacks Rank #1 (Strong Buy), Crown Holdings and SiteOne Landscape carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

iRobot has an estimated earnings growth rate of 18.8% for the ongoing year. Shares of the company have appreciated 75.7% in the past year.

Crown Holdings has a projected earnings growth rate of 11.7% for fiscal 2020. Over the past year, the company’s shares have gained 29.6%.

SiteOne Landscape has an expected earnings growth rate of 28.6% for 2020. The stock has climbed 56.1% in a year’s time.

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