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Sonoco (SON) to Acquire Ball Metalpack, Boosts Metal Packaging

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Sonoco Products Company (SON - Free Report) entered into an agreement to acquire Ball Metalpack for a cash payment $1.35 billion.

Broomfield, CO-based, Ball Metalpack is a foremost producer of sustainable metal packaging for food and household products and the largest manufacturer of aerosol products in North America. It is jointly owned by Platinum Equity and Ball Corporation with shareholding interest of 51% and 49%, respectively. Previously part of Ball Corporation, Ball Metalpack operates from eight facilities and produces steel tinplate food and aerosol cans as well as closures and packaging components. Ball Metalpack is estimated to generate revenues of around $850 million and adjusted EBITDA of $111 million in the current year.

The deal supports Sonoco’s focus on investing in the core business that strengthens its global Paper Cans and Closures business while bolstering its sustainable packaging portfolio with metal packaging. In fact, metal packaging is preferable by U.S customers due to its inherent attributes of recyclability and sustainability.

Ball Metalpack’s wide range of innovative product portfolio, as well as investments in new technology and capacity makes it a perfect fit for Sonoco. The buyout will reinforce the company’s cash flow generation and drive earnings growth.

Sonoco expects to realize tax benefits of $180 million from the deal. It expects to generate annual synergies of at least $20 million from procurement and SG&A savings within three years of the transaction. The buyout is likely to be immediately accretive to 2022 earnings, while new business development, synergies and productivity improvements are expected to provide additional earnings accretion in 2023. The company also gained a senior unsecured bridge loan facility of $1 billion related to the deal. The transaction is likely to be closed in first-quarter 2022. Ball Metalpack will become part of Sonoco’s Consumer Packaging segment upon closing the deal.

Sonoco recently acquired the assets of D&W Paper Tubes, Inc., which is a manufacturer of sustainable industrial paper tubes and cores. The D&W acquisition is complementary to the company’s Industrial Paper Packaging segment and reinforces its position in the carpet and textile market in Northeast Georgia. The company expects to drive meaningful business synergies from its integrated industrial products operations in the Southeast. Sonoco’s focus on acquisitions and capital investment in the core Consumer and Industrial businesses will help it to grow annual EBITDA to $1 billion by 2026.

Sonoco’s consumer packaging businesses is gaining 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. Sonoco expects adjusted earnings per share for the current year to be at the top end of its guidance of $3.49-$3.55.

Price Performance

Sonoco’s shares have declined 5.3% in the past year compared with the industry’s rise of 11.3%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are SiteOne Landscape Supply (SITE - Free Report) and A. O. Smith Corporation (AOS - Free Report) . While SITE flaunts a Zacks Rank #1 (Strong Buy), AOS carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SiteOne Landscape has an estimated earnings growth rate of around 77.2% for the current year. In the past 30 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 14%.

In a year, the company’s shares have increased 68%. SiteOne Landscape has a trailing four-quarter earnings surprise of 130.9%, on average.

A. O. Smith has an expected earnings growth rate of around 35% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised upward by 1% in the past 30 days.

A. O. Smith’s shares have surged 44% in a year’s time. The company has a trailing four-quarter earnings surprise of 16.8%, on average.

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