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Sonoco (SON) Buys Remaining Stake in Brazil Joint Venture

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Sonoco Products Company (SON - Free Report) announced that it has acquired the remaining 33% interest in Sonoco do Brasil Participacoes, Ltda — a Brazil-based flexible packaging joint venture. It is a top-tier flexible packaging supplier to several global multinational consumer packaging goods companies serving confectionery, dairy, pharmaceutical and industrial markets in Brazil.

Sonoco had acquired the 67% controlling interest in Graffo Paranaense de Embalagens S/A (“Graffo”) on Apr 1, 2015. The company had paid approximately $18.3 million for the acquisition, which included cash of $15.7 million and assumed debt of $2.6 million.

The joint venture generated sales of approximately $34 million in 2021. It operates high-quality rotogravure printing and sophisticated lamination operations and is one of the largest converters of foil-based flexible packaging in Brazil.

Recently, Sonoco raised its first-quarter 2022 earnings guidance on the back of the company’s year-to-date results. It now expects adjusted earnings per share (EPS) between $1.70 and $1.80 for the quarter, up from its previous guidance of $1.25-$1.35. The updated guidance indicates year-over-year growth of 75% at the mid-point. In first-quarter 2021, the company reported an adjusted EPS of $1.00.

A strong recovery in price and cost across most of its businesses is likely to lead to improved operating results in the quarter. The Ball Metalpack acquisition and stellar demand in the Consumer Packaging segment and All Other groups of businesses (protective, healthcare, retail and industrial plastics) are expected to drive operating performance.

SON’s balance sheet strength and availability of substantial liquidity in the form of cash and revolving credit facilities will continue to drive growth. Operating cash flow for the year is expected to be $690-$740 million, while free cash flow is expected to be between $365 million and $415 million. Both are significantly above the 2021 results.

Sonoco is gaining from strong demand in most of its consumer and industrial businesses. The company’s consumer packaging businesses experienced pandemic-driven demand for certain consumer products like food and household products last year. The company is now witnessing a normalization of demand from the heightened at-home eating trends. It anticipates the COVID-impacted markets, such as confectionery, food service and construction products, to continue on the path to recovery.  The company’s industrial-served markets will gain from continued strong demand for global tubes, cores and cones. The ThermoSafe cold chain packaging business will continue to benefit from strong demand for temperature-assured shippers for transporting COVID vaccines. The company's plastics business, which serves the healthcare industry, will gain from improved demand for elective surgeries.

SON’s focus on optimizing businesses through productivity improvement, standardization and cost control will boost results. However, Sonoco will continue to bear the brunt of raw material, energy and freight cost pressures and the impact of the COVID-19 pandemic on global supply chains.

Price Performance

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Sonoco’s shares have gained 8.1% so far this year, against the industry’s decline of 0.9%.

Zacks Rank and Other Stocks to Consider

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

Some other top-ranked stocks in the Industrial Products sector are Titan International (TWI - Free Report) , AGCO Corporation (AGCO - Free Report) and Deere & Company (DE - Free Report) . While TWI flaunts a Zacks Rank #1, AGCO and DE carry a Zacks Rank #2 (Buy) at present.

Titan International has an expected earnings growth rate of 36.5% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 51% in the past 60 days.

TWI pulled off a trailing four-quarter earnings surprise of 47.6%, on average. TWI’s shares have gained 34% year to date.

AGCO Corp has an estimated earnings growth rate of 12.1% for 2022. In the past 60 days, the Zacks Consensus Estimate for the year’s earnings has been revised upward by 11%.

AGCO has a trailing four-quarter earnings surprise of 56.6%, on average. So far this year, the company’s shares have increased 26%.

Deere has a projected earnings growth rate of 19.7% for the current fiscal. The Zacks Consensus Estimate for fiscal 2022 earnings has moved north by 2.3% in the past 60 days.

Deere has a trailing four-quarter earnings surprise of 20.6%, on average. DE’s shares have climbed 21% in the past year.