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Why Is Sonoco (SON) Down 4.7% Since the Last Earnings Report?
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A month has gone by since the last earnings report for Sonoco ProductsCompany (SON - Free Report) . Shares have lost about 4.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Sonoco Q1 Earnings Beat Estimates, Revenues In Line
Sonoco Products reported first-quarter 2017 adjusted earnings of $0.59 per share, down 9% year over year. Earnings beat the Zacks Consensus Estimate of $0.57 and came within management’s guidance range of $0.55–$0.63. Earnings were negatively impacted by lower volume/mix, divestitures, net of acquisitions, a negative price/cost relationship, and higher labor, maintenance, pension and other operating expenses. Procurement savings, fixed-cost productivity, lower management incentive expense, and a lower effective tax rate were minor headwinds.
On a reported basis, including one-time items, earnings per share was at $0.53 compared with $0.59 in the prior-year quarter.
Operational Update
Net sales of $1.17 billion were down 4.4% year on year, but came in line with the Zacks Consensus Estimate of $1.17 billion. The decline in sales can be attributed to the impact of previous divestitures, net of acquisitions, the discontinuation of the company's contract packaging business in Mexico and the negative impact of foreign exchange. These were partially offset by higher selling prices, primarily owing to rising recovered paper costs.
Cost of sales was $952 million, down 2.9% year on year. Gross profit during the quarter totaled $220 million, down 10% due to unfavorable price/cost relationship, particularly in the Industrial Segment. Gross margin contracted 120 basis points (bps) year over year to 18.8%.
Selling, general and administrative expenses were $126 million, down 6% year over year, chiefly due to divestitures, net of acquisitions, lower management incentives and fewer fiscal days, partially offset by wage and other inflation. Sonoco’s adjusted operating income was $94 million in the quarter, down 15% from $111 million in the prior-year quarter. Operating margin contracted 110 bps year over year to 8% in the quarter.
Segment Performance
The Consumer Packaging segment reported net sales of $482 million, down 8.6% from $527 million in the prior-year quarter. Operating profit was $58 million, an 8% decline from the year-ago quarter.
Net sales at the Paper and Industrial Converted Products segment were $442 million, up 5% year over year. Operating profit was $24.7 million, a 26% year-over-year decline.
The Display and Packaging segment’s net sales came in at $115 million, down 21% from $144 million in the year-earlier quarter. Operating profit was $3.2 million, down 3% from the prior-year quarter.
The Protective Solution segment’s net sales came in at $133 million, up 1% year over year. Operating profit at the segment was $10.9 million, down 10% from the year-ago quarter.
Financial Performance
Sonoco reported cash and cash equivalents of $213 million at the end of the first quarter, down from $257 million as of Dec 31, 2016. In the quarter, Sonoco’s cash flow from operations was $67.4 million, up from $66.4 million in the year-ago quarter. At the first-quarter end, long-term debt was approximately $1.18 billion, up from $1.02 billion at the end of 2016.
Guidance
For 2017, Sonoco revised its earnings per share guidance in the range of $2.73–$2.83. This includes a targeted gain of $0.07 per share from acquisitions, including Peninsula Packaging.
For second-quarter 2017, the company expects earnings per share in the range of $0.67–$0.73. This guidance takes into consideration the negative impact of divestitures in 2016, partially offset by the acquisition of Peninsula Packaging and other acquisitions completed in 2016. The company had reported earnings per share of $0.73 in second-quarter 2016.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to three lower. While looking back an additional 30 days, we can see even more upward momentum.
At this time, Sonoco's stock has an average score of 'C' on both growth and momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Why Is Sonoco (SON) Down 4.7% Since the Last Earnings Report?
A month has gone by since the last earnings report for Sonoco Products Company (SON - Free Report) . Shares have lost about 4.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Sonoco Q1 Earnings Beat Estimates, Revenues In Line
Sonoco Products reported first-quarter 2017 adjusted earnings of $0.59 per share, down 9% year over year. Earnings beat the Zacks Consensus Estimate of $0.57 and came within management’s guidance range of $0.55–$0.63. Earnings were negatively impacted by lower volume/mix, divestitures, net of acquisitions, a negative price/cost relationship, and higher labor, maintenance, pension and other operating expenses. Procurement savings, fixed-cost productivity, lower management incentive expense, and a lower effective tax rate were minor headwinds.
On a reported basis, including one-time items, earnings per share was at $0.53 compared with $0.59 in the prior-year quarter.
Operational Update
Net sales of $1.17 billion were down 4.4% year on year, but came in line with the Zacks Consensus Estimate of $1.17 billion. The decline in sales can be attributed to the impact of previous divestitures, net of acquisitions, the discontinuation of the company's contract packaging business in Mexico and the negative impact of foreign exchange. These were partially offset by higher selling prices, primarily owing to rising recovered paper costs.
Cost of sales was $952 million, down 2.9% year on year. Gross profit during the quarter totaled $220 million, down 10% due to unfavorable price/cost relationship, particularly in the Industrial Segment. Gross margin contracted 120 basis points (bps) year over year to 18.8%.
Selling, general and administrative expenses were $126 million, down 6% year over year, chiefly due to divestitures, net of acquisitions, lower management incentives and fewer fiscal days, partially offset by wage and other inflation. Sonoco’s adjusted operating income was $94 million in the quarter, down 15% from $111 million in the prior-year quarter. Operating margin contracted 110 bps year over year to 8% in the quarter.
Segment Performance
The Consumer Packaging segment reported net sales of $482 million, down 8.6% from $527 million in the prior-year quarter. Operating profit was $58 million, an 8% decline from the year-ago quarter.
Net sales at the Paper and Industrial Converted Products segment were $442 million, up 5% year over year. Operating profit was $24.7 million, a 26% year-over-year decline.
The Display and Packaging segment’s net sales came in at $115 million, down 21% from $144 million in the year-earlier quarter. Operating profit was $3.2 million, down 3% from the prior-year quarter.
The Protective Solution segment’s net sales came in at $133 million, up 1% year over year. Operating profit at the segment was $10.9 million, down 10% from the year-ago quarter.
Financial Performance
Sonoco reported cash and cash equivalents of $213 million at the end of the first quarter, down from $257 million as of Dec 31, 2016. In the quarter, Sonoco’s cash flow from operations was $67.4 million, up from $66.4 million in the year-ago quarter. At the first-quarter end, long-term debt was approximately $1.18 billion, up from $1.02 billion at the end of 2016.
Guidance
For 2017, Sonoco revised its earnings per share guidance in the range of $2.73–$2.83. This includes a targeted gain of $0.07 per share from acquisitions, including Peninsula Packaging.
For second-quarter 2017, the company expects earnings per share in the range of $0.67–$0.73. This guidance takes into consideration the negative impact of divestitures in 2016, partially offset by the acquisition of Peninsula Packaging and other acquisitions completed in 2016. The company had reported earnings per share of $0.73 in second-quarter 2016.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to three lower. While looking back an additional 30 days, we can see even more upward momentum.
Sonoco Products Company Price and Consensus
Sonoco Products Company Price and Consensus | Sonoco Products Company Quote
VGM Scores
At this time, Sonoco's stock has an average score of 'C' on both growth and momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.