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Sonoco (SON) Rides on Higher Packaging Demand Amid High Costs
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Sonoco Products Company (SON - Free Report) is gaining from robust demand for its consumer and industrial packaging business. The company’s focus on productivity improvement and cost-reduction actions will bolster growth. However, higher recycled fiber, freight and other operating costs might dent its margins.
Segments Poised to Grow on Improved Demand
Consumer Packaging segment will continue to gain from strong demand for food packaging in the current year driven by consumers’ at-home consumption in response to the pandemic. Notably, food packaging accounts for 80% of the segment’s sales. Moreover, demand in the Industrial Paper Packaging segment’s served markets continues to show sequential improvement on reopening of the global industrial market from pandemic-induced slump in 2020. Paperboard operations in North America are gaining from elevated demand for the tissue and towel markets. Global demand for uncoated recycled paperboard remains strong and backlogs in North America are at the highest levels. Apart from this, Sonoco’s tube, core and cone products are witnessing escalating demand.
The Protective Solutions segment is likely to witness higher demand in the pharmaceutical and appliance-served markets during the second quarter. The ThermoSafe temperature-assured packaging business is likely to gain from a strong flu vaccine season, and solid demand from its base pharmaceutical and food customers during the upcoming quarter.
Given healthy demand trends in most of its consumer and industrial businesses, Sonoco projects second-quarter 2021 adjusted earnings per share between 82 cents and 88 cents compared with earnings of 79 cents in the prior-year quarter. For the current year, management raised its adjusted earnings per share guidance to $3.50-$3.60 from the prior guidance of $3.40 to $3.60. In 2020, the company reported adjusted earnings per share of $3.41. The upbeat guidance assumes that global business activity will continue to improve on the government stimulus measures and reopening of businesses.
Cost-Control Actions to Aid Growth
The company is focused on driving growth and margin expansion, and generating solid free cash flow. Sonoco’s balance-sheet strength and availability of substantial liquidity in the form of cash and revolving credit facilities will also stoke growth. Apart from this, its focus on optimizing businesses through productivity improvement, standardization and cost control will aid performance in the upcoming period.
However, Sonoco expects the divestiture of display and packaging unit in United States to unfavorably impact its bottom line during the April-June quarter. The company expects higher Old Corrugated Containers (OCC) costs, surging recycled fiber, resins, chemicals adhesives, freight, and other operational costs to erode its margin in the second quarter.
Price Performance
Shares of Sonoco have gained 29.2% over the past year compared with the industry's rally of 40.8%.
Tennant has an expected earnings growth rate of 49.5% for the current fiscal year. The company’s shares have gained around 18% year to date.
Encore Wire has an estimated earnings growth rate of 49.5% for the current fiscal year. Year to date, the company’s shares have rallied nearly 36%.
Arconic has a projected earnings growth rate of 447% for the current fiscal year. The stock has appreciated around 21% so far this year.
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Sonoco (SON) Rides on Higher Packaging Demand Amid High Costs
Sonoco Products Company (SON - Free Report) is gaining from robust demand for its consumer and industrial packaging business. The company’s focus on productivity improvement and cost-reduction actions will bolster growth. However, higher recycled fiber, freight and other operating costs might dent its margins.
Segments Poised to Grow on Improved Demand
Consumer Packaging segment will continue to gain from strong demand for food packaging in the current year driven by consumers’ at-home consumption in response to the pandemic. Notably, food packaging accounts for 80% of the segment’s sales. Moreover, demand in the Industrial Paper Packaging segment’s served markets continues to show sequential improvement on reopening of the global industrial market from pandemic-induced slump in 2020. Paperboard operations in North America are gaining from elevated demand for the tissue and towel markets. Global demand for uncoated recycled paperboard remains strong and backlogs in North America are at the highest levels. Apart from this, Sonoco’s tube, core and cone products are witnessing escalating demand.
The Protective Solutions segment is likely to witness higher demand in the pharmaceutical and appliance-served markets during the second quarter. The ThermoSafe temperature-assured packaging business is likely to gain from a strong flu vaccine season, and solid demand from its base pharmaceutical and food customers during the upcoming quarter.
Given healthy demand trends in most of its consumer and industrial businesses, Sonoco projects second-quarter 2021 adjusted earnings per share between 82 cents and 88 cents compared with earnings of 79 cents in the prior-year quarter. For the current year, management raised its adjusted earnings per share guidance to $3.50-$3.60 from the prior guidance of $3.40 to $3.60. In 2020, the company reported adjusted earnings per share of $3.41. The upbeat guidance assumes that global business activity will continue to improve on the government stimulus measures and reopening of businesses.
Cost-Control Actions to Aid Growth
The company is focused on driving growth and margin expansion, and generating solid free cash flow. Sonoco’s balance-sheet strength and availability of substantial liquidity in the form of cash and revolving credit facilities will also stoke growth. Apart from this, its focus on optimizing businesses through productivity improvement, standardization and cost control will aid performance in the upcoming period.
However, Sonoco expects the divestiture of display and packaging unit in United States to unfavorably impact its bottom line during the April-June quarter. The company expects higher Old Corrugated Containers (OCC) costs, surging recycled fiber, resins, chemicals adhesives, freight, and other operational costs to erode its margin in the second quarter.
Price Performance
Shares of Sonoco have gained 29.2% over the past year compared with the industry's rally of 40.8%.
Zacks Rank & Stocks to Consider
Sonoco currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industrial products sector are Tennant Company (TNC - Free Report) Encore Wire Corporation (WIRE - Free Report) and Arconic Corporation . All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tennant has an expected earnings growth rate of 49.5% for the current fiscal year. The company’s shares have gained around 18% year to date.
Encore Wire has an estimated earnings growth rate of 49.5% for the current fiscal year. Year to date, the company’s shares have rallied nearly 36%.
Arconic has a projected earnings growth rate of 447% for the current fiscal year. The stock has appreciated around 21% so far this year.
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.
Download FREE: How to Profit from Trillions on Spending for Infrastructure >>