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Sonoco (SON) Gearing Up for Growth Despite Headwinds

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On Sept 27, 2016, we issued an updated research report on Sonoco Products Co. (SON - Free Report) , a global manufacturer of consumer and industrial packaging products.

Given a strong performance in the first half of 2016, Sonoco raised its earnings per share guidance in the range of $2.68–$2.74 from the previous range of $2.64–$2.74. The midpoint depicts an 8% year-over-year improvement in base earnings. Sonoco remains focused on further improving its cost competitiveness by optimizing its supply chain, enhancing productivity along with streamlining corporate and business unit structures.

For the third quarter, the company expects earnings per share in the range of 65 to 70 cents. Compared to the year-ago quarter’s earnings of 65 per share, this reflects flat to year-over-year growth of 8%.

Sonoco meanwhile remains committed to its ‘Grow and Optimize’ strategy, which is focused on targeted growth of its Consumer Packaging and Protective Solutions businesses as well as optimization of its Industrial-focused businesses. In line with this, Sonoco Products’ unit Sonoco ThermoSafe has acquired London-based Laminar Medica from Clinimed (Holdings) Limited.

Laminar Medica specializes in the design and manufacture of temperature controlled packaging for the global healthcare industry. Along with expanding Sonoco ThermoSafe’s global presence overall, the acquisition will particularly expand its footprint in the European Temperature-Controlled packaging market.

Earlier this month, Sonoco ThermoSafe acquired the PharmaPort 360 assets, licenses, trademarks and manufacturing rights from AAR. This buyout will help Sonoco to enter the active temperature-controlled cargo containers market. Both these acquisitions are in sync with its strategy to provide the best temperature-controlled shipping solutions to meet customers’ critical needs to ship high-value pharmaceuticals and biologics worldwide.

Recently, Sonoco Products declared that it will hike the price for all paperboard tubes and cores by 6–10% owing to the continuous rise in raw material costs. The price increase will be effective on shipments in the U.S. and Canada, beginning Oct 24, 2016. The price rise is in response to the recent increase in costs for uncoated recycled paperboard, combined with price escalations in energy, labor and other input costs. This move will help it to continue providing high-quality, value-adding products to customers.

The company will also launch several innovative products in 2016. Sonoco has capital growth projects in the pipeline through 2017 that will help expand its global production capability in composite cans, flexible packaging and rigid plastic containers.

On the flipside, Sonoco will continue to struggle with tough market conditions hurting its corrugating medium operation. Further, a strong dollar will continue to affect exports. Some of its consumer-product customers seem to be struggling to grow packaged food volumes in certain served markets.

Additionally, the Weidenhammer acquisition has increased Sonoco’s exposure to Europe. The macroeconomic weakness in the region and impact of unfavorable foreign currency translation will have a negative effect on Sonoco’s results in the near term.

At present, Sonoco carries a Zacks Rank #3 (Hold).

Stocks to Consider
Some other stocks worth considering in the same industry include Berry Plastics Group, Inc. (BERY - Free Report) , Packaging Corporation of America (PKG - Free Report) and UFP Technologies, Inc. (UFPT - Free Report) . All of these stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past 60 days, Zacks Consensus Estimate for Berry Plastics has gone up 13%. Its share price has increased 26.26% year to date.

Packaging Corporation of America witnessed an upward earnings estimate revision of approximately 1% over the past 60 days. Its share price has gained 28.09% year to date.

Over the past 30 days, the Zacks Consensus Estimate for UFP Technologies has seen upward earnings estimate revision of approximately 24%. Its share price has increased 12.47% year to date.

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