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Sonoco (SON) Initiates Five-Year Growth Plan, Provides '22 View

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Sonoco Products Company (SON - Free Report) recently issued financial guidance for 2022 and revealed its five-year strategic goals.

Sonoco intends to grow organic annual earnings before interest, taxes, depreciation and amortization (EBITDA) to $1 billion by 2026. To meet this target, the company will make an additional capital investment in the core Consumer and Industrial businesses to expand growth and generate higher returns. It will also execute a range of “self-help” actions that are expected to generate incremental annual EBITDA of nearly $180 million over the next five years. Also, streamlining the business and focusing on acquisitions will help Sonoco achieve its target.

Sonoco now expects fourth-quarter and current-year adjusted earnings per share (EPS) to be at the top end of its guidance provided in the third quarter. The company provided adjusted EPS guidance for the fourth quarter between 84 cents and 90 cents. Current-year adjusted EPS is projected in the range of $3.49-$3.55. The management stated that its operating results were strong in October and November due to strong demand across most of its businesses. However, it cautioned about December due to seasonality, which might affect performance. Sonoco continues to expect free cash flow between $270 million and $300 million and operating cash flow in the range of $520-$550 million for the current year.

Sonoco’s consumer packaging businesses will continue to gain traction from elevated at-home eating trends. It believes that the confectionery, food service and construction products’ markets, which had been impacted by the pandemic, will continue to recover. The demand for Industrial Paper Packaging products returned to pre-pandemic levels in most of the global markets. The company’s industrial-end markets will gain from the historically-high backlogs for uncoated recycled paperboard in the United States and Canada coupled with robust demand for global tubes, cores and cones returning to the pre-pandemic levels.

For 2022, Sonoco anticipates adjusted EPS in the band of $3.85-$3.95, with a mid-point target of $ 3.90 per share. Positive price/cost, productivity initiatives, improvement in volume/mix, benefit from lower interest expenses and fewer outstanding shares are likely to favorably impact earnings in 2022. These are likely to be partly offset by unfavorable impacts from foreign currency translation and divestures, non-recurring COVID-related incentives and increased SG&A expenses.

Operating cash flow is projected at nearly $585 million in 2022, while free cash flow is expected at $285 million in 2022. Capital expenditures is expected at $300 million. Sonoco continues to generate strong cash flow owing to the termination of its large U.S. pension contribution plan. These factors will help the company to meet its strategic growth goals.

Given strong growth prospects, Sonoco expects to deliver solid earnings and sales growth in 2022 despite headwinds from material cost inflation. The company is committed to creating sustainable packaging solutions for customers. To that end, it intends to achieve sustainability goals with significant reduction of carbon emission and provide customers with sustainable products.

Earlier this year, Sonoco established Scope 1, 2 and 3 emission reduction goals authorized by the Science-Based Targets initiative (SBTi). By 2030, the company intends to lower Scope 1 and 2 greenhouse gas emissions by 25% and Scope 3 carbon emission by 13.5%.

Sonoco’s peers in the Containers – Paper and Packaging industry like Amcor Plc (AMCR - Free Report) , Packaging Corporation of America (PKG - Free Report) and Sealed Air (SEE - Free Report) are also offering sustainable packaging to consumers.

Amcor unveiled an advanced technology for small bottles to recycle. The company is committed to making all of its packaging recyclable by 2025.

Sealed Air plans to design 100% recyclable packaging solutions by 2025. So far, 50% of its solutions are already being designed for recyclability.

Packaging Corporation’s 89% of all corrugated products were recovered and directed into the recycling stream in 2020. The company’s Sustainable Forestry Initiative certified mills are focused on introducing new harvested fiber to maintain sustainable fiber supply. Consumers’ growing awareness and consequent increase in demand for sustainable packaged products is a major growth scope for these companies.

Sonoco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

Sonoco’s shares have moved up 2.3% in the past year compared with the industry’s rise of 14.7%.

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