Sonoco (NYSE:SON), one of the largest diversified global packaging
companies, today reported financial results for its third quarter,
ending October 1, 2017.
Third Quarter Highlights
- Third-quarter 2017 GAAP earnings per diluted share were $0.72,
compared with $0.64 in 2016.
- Third-quarter 2017 GAAP results included $0.04 per diluted
share, after tax, in acquisition and acquisition-related charges
and non-base tax related charges. In the third quarter of 2016,
GAAP results included $0.08 per diluted share, after tax, in
restructuring charges and a goodwill impairment of its industrial
converting operations in Brazil.
- Base net income attributable to Sonoco (base earnings) for
third quarter 2017 was a record $0.76 per diluted share, compared
with $0.72 in 2016. (See base earnings definition, explanation and
reconciliation to GAAP earnings later in this release.) Sonoco
previously provided third-quarter 2017 base earnings guidance of
$0.71 to $0.77 per diluted share.
- Third-quarter 2017 net sales were a record $1.32 billion, up
9.6 percent, from $1.21 billion in 2016.
- Cash flow from operations was $282.1 million through nine
months of 2017, compared with $348.7 million in 2016. Free cash
flow for nine months of 2017 was $26.7 million, compared with $94.9
million in 2016. (See free cash flow definition and reconciliation
to cash flow from operations later in this release.)
Fourth Quarter and Full-Year Guidance
Update
- Base earnings for the fourth quarter of 2017 are estimated to
be in the range of $0.68 to $0.74 per diluted share. This guidance
takes into consideration the impact of acquisitions, net of
divestitures, and expected changes in raw material costs. Base
earnings in the fourth quarter of 2016 were $0.62 per diluted
share.
- Full-year 2017 base earnings guidance has been raised to $2.75
to $2.81 per diluted share.
- Full-year 2017 operating cash flow and free cash flow have been
updated to approximately $415 million and $70 million,
respectively. Free cash flow guidance has been updated to now
include the after-tax impact of an expected voluntary $50 million
pre-tax contribution into the Company’s domestic defined benefit
pension plan in the fourth quarter of 2017.
Note: Fourth-quarter and full-year 2017 GAAP guidance are not
provided in this release due to the likely occurrence of one or
more of the following, the timing and magnitude of which we are
unable to reliably forecast: possible gains or losses on the sale
of businesses or other assets, restructuring costs and
restructuring-related impairment charges, acquisition-related
costs, and the income tax effects of these items and/or other
income tax-related events. These items could have a
significant impact on the Company's future GAAP financial
results.
CEO CommentsCommenting on the Company’s
third-quarter GAAP and base results, Sonoco President and Chief
Executive Officer Jack Sanders said, “Sonoco's ‘Grow and Optimize’
strategy continues to gain momentum as we grew top line results by
nearly 10 percent to an all-time quarterly record, while bottom
line results (base earnings per diluted share) were near the high
end of our guidance. Our businesses were well managed during the
quarter, as the Company benefited from strong improvements to total
productivity and a positive price-cost relationship.
“In looking at the performance of our business segments, we were
extremely pleased with the record sales and operating profit
generated by our Consumer Packaging segment, particularly in a
challenging consumer packaged food market. In addition, our Paper
and Industrial Converted Products business registered a 27 percent
improvement in operating profit, while producing its best
third-quarter results in three years. Results in our Protective
Solutions and Display and Packaging segments lagged last year’s
quarter, but each registered sequential quarterly improvement as we
continue to adjust these businesses to changing market
conditions.”
Third Quarter ReviewNet sales for the third
quarter were a record $1.32 billion, an increase of $115.9 million,
or 9.6 percent, from last year’s quarter. The improvement in sales
was a result of higher selling prices, largely driven by rising raw
material prices; sales added from acquisitions, net of
divestitures; and the positive impact of foreign exchange.
GAAP net income attributable to Sonoco in the third quarter was
$72.8 million, or $0.72 per diluted share, an increase of $7.4
million, compared with $65.4 million, or $0.64 per diluted share,
in 2016. Base earnings in the third quarter were $76.6 million, or
$0.76 per diluted share, an increase of $3.1 million compared with
$73.5 million, or $0.72 per diluted share, in 2016. Base earnings
and base earnings per diluted share are non-GAAP financial measures
adjusted to remove restructuring-related items, asset impairment
charges, acquisition expenses and other items, if any, the
exclusion of which the Company believes improves comparability and
analysis of the ongoing operating performance of the business. (See
base earnings definition, explanation and reconciliation to GAAP
earnings later in this release.)
Third-quarter GAAP earnings include charges totaling $3.8
million, or $0.04 per diluted share. These charges consist mostly
of acquisition and acquisition-related charges as well as non-base
tax charges related to tax rate changes and reserve adjustments. In
the third quarter of 2016, GAAP results included $8.1 million, or
$0.08 per diluted share, after tax, consisting of restructuring
charges and a goodwill impairment charge for the Company's
industrial converting operations in Brazil.
Gross profits were a record $250.9 million in the third quarter,
an increase of $15.5 million or 6.6 percent, compared with $235.4
million in the same period in 2016. Gross profit as a percentage of
sales declined to 18.9 percent, compared with 19.5 percent in the
same period in 2016. The gross profit percentage reduction was
primarily due to higher raw material and other operating costs
offset by manufacturing and procurement productivity. Third-quarter
selling, general and administrative expenses increased $8.7 million
from the prior year to $130.3 million. This increase was driven by
wage inflation and acquisition-related expenses.
Segment ReviewSonoco reports its financial
results in four operating segments: Consumer Packaging, Display and
Packaging, Paper and Industrial Converted Products, and Protective
Solutions. Segment operating results do not include restructuring
and asset impairment charges, acquisition expenses, interest income
and expense, income taxes or certain other items, if any, the
exclusion of which the Company believes improves comparability and
analysis.
Consumer PackagingSonoco’s Consumer Packaging
segment includes the following products and services: round and
shaped rigid containers and trays (both composite and thermoformed
plastic); extruded and injection-molded plastic products; printed
flexible packaging; global brand artwork management; and metal and
peelable membrane ends and closures.
Third-quarter 2017 sales for the segment were a record $566
million, compared with $520 million in 2016. Segment operating
profit was a record $67.9 million in the third quarter, compared
with $63.8 million in the same quarter of 2016.
Segment sales increased 8.9 percent compared to the prior-year
quarter due to acquisitions, net of divestitures, higher selling
prices and the positive impact of foreign exchange which more than
offset modestly lower volume/mix. Segment operating profit grew 6.4
percent compared to the prior-year quarter due to strong
improvement in manufacturing productivity and a positive price/cost
relationship. These positive factors were partially offset by
lower volume in metal ends and composite cans in North America and
flexible packaging. Segment operating margin declined slightly by
30 basis points to 12.0 percent.
Display and PackagingThe Display and Packaging
segment includes the following products and services: designing,
manufacturing, assembling, packing and distributing temporary,
semi-permanent and permanent point-of-purchase displays; supply
chain management services, including contract packing, fulfillment
and scalable service centers; retail packaging, including printed
backer cards, thermoformed blisters and heat sealing equipment; and
paper amenities, such as coasters and glass covers.
Third-quarter 2017 sales for this segment were $136 million,
compared with $132 million in 2016. Segment operating profit was
$2.0 million in the quarter, compared with $5.2 million in the
prior-year quarter.
Sales increased 2.7 percent compared to last year’s quarter due
to the positive impact of foreign exchange. Operating profit in the
segment declined by $3.2 million due to higher operating costs
associated with the ramp up of production at a new domestic pack
center.
Paper and Industrial Converted ProductsThe
Paper and Industrial Converted Products segment includes the
following products: paperboard tubes and cores; fiber-based
construction tubes; wooden, metal and composite wire and cable
reels and spools; and recycled paperboard, linerboard, corrugating
medium, recovered paper and material recycling services.
Third-quarter 2017 sales for the segment were $483 million, up
from $425 million in 2016. Segment operating profit was $42.2
million in the second quarter, compared with $33.2 million in
2016.
Segment sales grew approximately 13.8 percent during the quarter
due to higher selling prices implemented to recover higher raw
material costs, the positive impact of foreign exchange, and an
improved volume/mix of business. Segment operating profit improved
26.8 percent compared to the prior year quarter due to a positive
price/cost relationship, including an improvement in the Company's
corrugating medium operations, improved volume in international
tubes and cores and global paper operations, and gains from
manufacturing productivity. Operating margin in the segment
improved 90 basis points to 8.7 percent.
Protective SolutionsThe Protective Solutions
segment includes the following products: custom-engineered,
paperboard-based and expanded foam protective packaging and
components; and temperature-assured packaging.
Third-quarter 2017 sales were $140 million, compared with $132
million in 2016. Operating profit was $11.3 million, compared with
$12.6 million in the third quarter of 2016.
This segment’s 5.7 percent increase in third-quarter sales came
from acquisitions, higher selling prices, and the positive impact
of foreign exchange offset by negative volume. Operating profit
declined 10.4 percent in the quarter due primarily to lower volume
in automotive components and the related unfavorable impact on
manufacturing productivity. Segment operating margin was 8.1
percent for the quarter, down from 9.5 percent in the prior
year.
CorporateNet interest expense for the third
quarter of 2017 increased to $13.6 million, compared with $12.4
million during the same period in 2016, primarily due to higher
average borrowings in the current-year quarter stemming from
acquisitions. The 2017 third-quarter effective tax rates on GAAP
and base earnings were 33.4 percent and 31.8 percent, respectively,
compared with 32.1 percent and 30.7 percent, respectively, in the
prior year’s quarter. The 2016 GAAP and base tax rates were both
positively affected by favorable discrete tax adjustments,
including a benefit from the release of reserves for uncertain tax
positions while the current-year rates reflect the negative impacts
of less benefit from the manufacturer’s deduction and a higher
overall state tax rate.
Year-to-date ResultsFor the first nine months
of 2017, net sales were $3.74 billion, up $97.0 million compared
with $3.64 billion in 2016. Sales grew modestly during the period
due to higher selling prices implemented to recover rising material
costs and acquisitions, net of divestitures. These positive factors
were partially offset by lower volume/mix, the loss of contract
packaging business in Mexico and Brazil and the negative impact of
foreign exchange.
GAAP net income attributable to Sonoco for the first nine months
of 2017 was $169.7 million or $1.68 per diluted share, compared
with $181.6 million or $1.78 per diluted share in 2016. Earnings in
the first nine months of 2017 included $38.6 million, or $0.39 per
diluted share, related to after-tax charges for pension settlement
distributions to certain pension plan participants, restructuring
charges and acquisition costs. These charges were partially offset
by non-base insurance settlement gains. Earnings in the first nine
months of 2016 included $33.1 million, or $0.33 per diluted share,
in after-tax asset impairment and restructuring charges related to
the sales of the Company's paper mill in France and retail
packaging business in Puerto Rico, along with other previously
announced restructuring actions and a goodwill impairment of the
Company’s industrial converted products business in Brazil.
Base earnings in the first nine months of 2017 were $208.3
million, or $2.07 per diluted share, compared with $214.7 million,
or $2.11 per diluted share in the same period in 2016, a 3 percent
decline. In addition, current year-to-date gross profit was $707.0
million, compared with $722.6 million in the first nine months of
2016. These declines stemmed from lower volume/mix and
divestitures, net of acquisitions, partially offset by productivity
gains. (See base earnings definition, explanation and
reconciliation to GAAP earnings later in this release.) Gross
profit as a percentage of sales in the first nine months of 2017
was 18.9 percent, compared with 19.8 percent in 2016.
For the first nine months of 2017, cash generated from
operations was $282.1 million compared with $348.7 million in 2016,
a decline of $66.6 million. Working capital consumed $16.2 million
less cash for the first nine months of 2017 than in the same period
in 2016 due to higher payments in 2016 of items outstanding at
December 31, 2015. This year-over-year benefit was more than offset
by increased cash paid for taxes and benefit plan contributions.
Additionally, miscellaneous changes in prepaid, accrued expenses,
and other assets and liabilities consumed more cash in 2017
compared to 2016. Net capital expenditures and cash dividends were
$141.0 million and $114.4 million, respectively, during the first
nine months of 2017, compared with $143.9 million and $109.8
million, respectively, in 2016.
Free cash flow for the first nine months of 2017 was $26.7
million, compared with $94.9 million in the same period last year.
Free cash flow is a non-GAAP financial measure which may not
represent the amount of cash flow available for general
discretionary use because it excludes non-discretionary
expenditures, such as mandatory debt repayments and required
settlements of recorded and/or contingent liabilities not reflected
in cash flow from operations. (See free cash flow reconciliation
later in this release. Free cash flow is defined as cash flow from
operations minus net capital expenditures and cash dividends. Net
capital expenditures is defined as capital expenditures minus
proceeds from, and/or plus costs incurred in, the disposition of
capital assets.)
At October 1, 2017, total debt was approximately $1.43 billion,
compared with $1.05 billion as of December 31, 2016. At the end of
the third quarter, the Company had a total-debt-to-total-capital
ratio of 44.8 percent, compared with 40.4 percent at December 31,
2016. Cash and cash equivalents were $247.9 million as of October
1, 2017, compared with $257.2 million at December 31, 2016. The
increase in the debt and debt ratio are primarily due to the $230
million acquisition of Peninsula Packaging, Inc., a thermoforming
business, in March 2017 and the $170 million acquisition of Clear
Lam Packaging, Inc., a flexible packaging business, in July
2017.
Fourth Quarter and Full-Year 2017 OutlookSonoco
expects fourth-quarter 2017 base earnings to be in the range of
$0.68 to $0.74 per diluted share. This guidance includes the impact
of acquisitions, net of divestitures, and expected changes in raw
material costs during the fourth quarter. Base earnings in the
fourth quarter of 2016 were $0.62 per diluted share.
Full-year 2017 base earnings is expected to be in a range of
$2.75 to $2.81, which is an increase from the previous estimate of
$2.73 to $2.80. The Company’s 2017 base earnings guidance
anticipates a 31.7 percent effective tax rate for the year.
Operating cash flow in 2017 is expected to be approximately $415
million, and free cash flow is expected to be approximately $70
million, following a $50 million pre-tax contribution to the
Company’s defined benefit pension plan in the fourth quarter of
2017. Previously, the Company had estimated free cash flow would be
approximately $100 million, which did not include the expected
fourth-quarter benefit plan contribution.
Although the Company believes the assumptions reflected in the
range of guidance are reasonable, given uncertainty regarding the
future performance of the overall economy and potential changes in
raw material prices and other costs, as well as other risks and
uncertainties, including those described below, actual results
could vary substantially.
Commenting on the Company’s outlook, Sanders said, “We expect
higher resin prices during the quarter, which should provide a
headwind to our polymer-based packaging businesses. As a result, we
are implementing price increases and expect our contractual cost
recovery mechanisms to ultimately offset current cost increases. On
the other hand, recovered paper prices have fallen entering the
fourth quarter, which should help our paper-based businesses
recover previous raw material inflation. We were fortunate to
weather the hurricanes and other natural disasters with minimal
impact to our operations. The storms’ impact could provide both
headwinds and opportunity in the fourth quarter. The storms could
impact consumers buying habits and we are cautiously optimistic
regarding demand for our diverse mix of packaging products through
the rest of the year.
“We remain aligned on implementing our Grow and Optimize
strategy. We’re pursuing growth through targeted acquisitions and
by developing new products, particularly those focused on serving
consumer demand for more fresh and healthy foods in the
faster-growing perimeter of the store. We also see opportunities to
consolidate industrial-related markets and further optimize our
portfolio. Finally, to further drive margin expansion we are
working to improve our operating structure by ensuring our
businesses are serving the right customers with the right cost
structure.”
Conference Call WebcastManagement will host a
conference call and webcast to further discuss these results
beginning at 11 a.m. ET today. The live conference call and a
corresponding presentation can be accessed via the Internet at
www.sonoco.com, under the Investor Relations section, or at
http://investor.sonoco.com. A telephonic replay of the call will be
available starting at 2 p.m. ET, to U.S. callers at 855-859-2056
and international callers at +404-537-3406. The replay passcode for
both U.S. and international calls is 85956356. The archived call
will be available through October 29, 2017. The webcast call also
will be archived in the Investor Relations section of Sonoco’s
website.
About SonocoFounded in 1899, Sonoco is a global
provider of a variety of consumer packaging, industrial products,
protective packaging, and displays and packaging supply chain
services. With annualized net sales of approximately $4.8 billion,
the Company has 20,000 employees working in more than 300
operations in 33 countries, serving some of the world’s best known
brands in some 85 nations. For more information on the Company,
visit our website at www.sonoco.com.
Forward-looking StatementsStatements included
herein that are not historical in nature, are intended to be, and
are hereby identified as “forward-looking statements” for purposes
of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. In addition, the Company and its
representatives may from time to time make other oral or written
statements that are also “forward-looking statements.” Words such
as “estimate,” “project,” “intend,” “expect,” “believe,”
“consider,” “plan,” “strategy,” “opportunity,” “commitment,”
“target,” “anticipate,” “objective,” “goal,” “guidance,” “outlook,”
“forecast,” “future,” “re-envision, ” “assume,” “will,”
“would,” “can,” “could,” “may,” “might,” “aspires,” “potential,” or
the negative thereof, and similar expressions identify
forward-looking statements.
Forward-looking statements include, but are not limited to,
statements regarding: availability and supply of raw materials, and
offsetting high raw material costs; improved productivity and cost
containment; improving margins and leveraging strong cash flow and
financial position; effects of acquisitions and dispositions;
realization of synergies resulting from acquisitions; costs, timing
and effects of restructuring activities; adequacy and anticipated
amounts and uses of cash flows; expected amounts of capital
spending; refinancing and repayment of debt; financial strategies
and the results expected of them; financial results for future
periods; producing improvements in earnings; profitable sales
growth and rates of growth; market leadership; research and
development spending; extent of, and adequacy of provisions for,
environmental liabilities; adequacy of income tax provisions,
realization of deferred tax assets, outcomes of uncertain tax
issues and tax rates; goodwill impairment charges and fair values
of reporting units; future asset impairment charges and fair values
of assets; anticipated contributions to pension and postretirement
benefit plans, fair values of plan assets, long-term rates of
return on plan assets, and projected benefit obligations and
payments; creation of long-term value and returns for shareholders;
continued payment of dividends; and planned stock repurchases.
Such forward-looking statements are based on current
expectations, estimates and projections about our industry,
management's beliefs and certain assumptions made by management.
Such information includes, without limitation, discussions as to
guidance and other estimates, perceived opportunities,
expectations, beliefs, plans, strategies, goals and objectives
concerning our future financial and operating performance. These
statements are not guarantees of future performance and are subject
to certain risks, uncertainties and assumptions that are difficult
to predict.
Therefore, actual results may differ materially from those
expressed or forecasted in such forward-looking statements. The
risks, uncertainties and assumptions include, without
limitation:
- availability and pricing of raw materials, energy and
transportation, and the Company's ability to pass raw material,
energy and transportation price increases and surcharges through to
customers or otherwise manage these commodity pricing risks;
- costs of labor;
- work stoppages due to labor disputes;
- success of new product development, introduction and
sales;
- consumer demand for products and changing consumer
preferences;
- ability to be the low-cost global leader in customer-preferred
packaging solutions within targeted segments;
- competitive pressures, including new product development,
industry overcapacity, and changes in competitors’ pricing for
products;
- ability to maintain or increase productivity levels, contain or
reduce costs, and maintain positive price/cost relationships;
- ability to negotiate or retain contracts with customers,
including in segments with concentration of sales volume;
- ability to improve margins and leverage cash flows and
financial position;
- continued strength of our paperboard-based tubes and cores and
composite can operations;
- ability to manage the mix of business to take advantage of
growing markets while reducing cyclical effects of some of the
Company’s existing businesses on operating results;
- ability to maintain innovative technological market leadership
and a reputation for quality;
- ability to profitably maintain and grow existing domestic and
international business and market share;
- ability to expand geographically and win profitable new
business;
- ability to identify and successfully close suitable
acquisitions at the levels needed to meet growth targets, and
successfully integrate newly acquired businesses into the Company’s
operations;
- the costs, timing and results of restructuring activities;
- availability of credit to us, our customers and suppliers in
needed amounts and on reasonable terms;
- effects of our indebtedness on our cash flow and business
activities;
- fluctuations in obligations and earnings of pension and
postretirement benefit plans;
- accuracy of assumptions underlying projections of benefit plan
obligations and payments, valuation of plan assets, and projections
of long-term rates of return;
- cost of employee and retiree medical, health and life insurance
benefits;
- resolution of income tax contingencies;
- foreign currency exchange rate fluctuations, interest rate and
commodity price risk and the effectiveness of related hedges;
- changes in U.S. and foreign tax rates, and tax laws,
regulations and interpretations thereof;
- accuracy in valuation of deferred tax assets;
- accuracy of assumptions underlying projections related to
goodwill impairment testing, and accuracy of management’s
assessment of goodwill impairment;
- accuracy of assumptions underlying fair value measurements,
accuracy of management’s assessments of fair value and fluctuations
in fair value;
- liability for and anticipated costs of environmental
remediation actions;
- effects of environmental laws and regulations;
- operational disruptions at our major facilities;
- failure or disruptions in our information technologies;
- loss of consumer or investor confidence;
- ability to protect our intellectual property rights;
- actions of domestic or foreign government agencies and changes
in laws and regulations affecting the Company;
- international, national and local economic and market
conditions and levels of unemployment; and
- economic disruptions resulting from terrorist activities and
natural disasters.
The Company undertakes no obligation to publicly update or
revise forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed
herein might not occur.
Additional information concerning some of the factors that could
cause materially different results is included in the Company’s
reports on forms 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission. Such reports are available from the Securities
and Exchange Commission’s public reference facilities and its
website, sec.gov, and from the Company’s investor relations
department and the Company’s website, www.sonoco.com.
References to our Website AddressReferences to
our website address and domain names throughout this release are
for informational purposes only, or to fulfill specific disclosure
requirements of the Securities and Exchange Commission’s rules or
the New York Stock Exchange Listing Standards. These references are
not intended to, and do not, incorporate the contents of our
website by reference into this release.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) |
(Dollars and shares in thousands except per
share) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
October 1, 2017 |
|
October 2, 2016 |
|
October 1, 2017 |
|
October 2, 2016 |
|
|
|
|
|
|
|
|
|
|
Net
sales |
$ |
1,324,634 |
|
|
$ |
1,208,724 |
|
|
$ |
3,737,632 |
|
|
$ |
3,640,680 |
|
Cost of
sales |
1,073,761 |
|
|
973,351 |
|
|
3,030,662 |
|
|
2,918,041 |
|
Gross
profit |
250,873 |
|
|
235,373 |
|
|
706,970 |
|
|
722,639 |
|
Selling,
general and administrative expenses |
130,280 |
|
|
121,583 |
|
|
413,626 |
|
|
382,387 |
|
Restructuring/Asset impairment charges |
511 |
|
|
8,947 |
|
|
12,519 |
|
|
41,453 |
|
Income
before interest and income taxes |
120,082 |
|
|
104,843 |
|
|
280,825 |
|
|
298,799 |
|
Net
interest expense |
13,647 |
|
|
12,437 |
|
|
38,497 |
|
|
39,768 |
|
Income
before income taxes |
106,435 |
|
|
92,406 |
|
|
242,328 |
|
|
259,031 |
|
Provision
for income taxes |
35,545 |
|
|
29,618 |
|
|
78,251 |
|
|
83,602 |
|
Income
before equity in earnings of affiliates |
70,890 |
|
|
62,788 |
|
|
164,077 |
|
|
175,429 |
|
Equity in
earnings of affiliates, net of tax |
2,521 |
|
|
3,190 |
|
|
7,320 |
|
|
7,457 |
|
Net
income |
73,411 |
|
|
65,978 |
|
|
171,397 |
|
|
182,886 |
|
Net income
attributable to noncontrolling interests |
(599 |
) |
|
(583 |
) |
|
(1,727 |
) |
|
(1,325 |
) |
Net income
attributable to Sonoco |
$ |
72,812 |
|
|
$ |
65,395 |
|
|
$ |
169,670 |
|
|
$ |
181,561 |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – diluted |
100,684 |
|
|
101,579 |
|
|
100,793 |
|
|
101,960 |
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share |
$ |
0.72 |
|
|
$ |
0.64 |
|
|
$ |
1.68 |
|
|
$ |
1.78 |
|
Dividends
per common share |
$ |
0.39 |
|
|
$ |
0.37 |
|
|
$ |
1.15 |
|
|
$ |
1.09 |
|
FINANCIAL SEGMENT INFORMATION
(Unaudited) |
(Dollars in thousands) |
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
October 1, 2017 |
|
October 2, 2016 |
|
October 1, 2017 |
|
October 2, 2016 |
Net
sales |
|
|
|
|
|
|
|
|
Consumer
Packaging |
$ |
565,788 |
|
|
$ |
519,729 |
|
|
$ |
1,569,231 |
|
|
$ |
1,558,074 |
|
|
Display and
Packaging |
135,560 |
|
|
132,016 |
|
|
365,807 |
|
|
407,157 |
|
|
Paper and
Industrial Converted Products |
483,376 |
|
|
424,615 |
|
|
1,395,075 |
|
|
1,281,031 |
|
|
Protective
Solutions |
139,910 |
|
|
132,364 |
|
|
407,519 |
|
|
394,418 |
|
|
Consolidated |
$ |
1,324,634 |
|
|
$ |
1,208,724 |
|
|
$ |
3,737,632 |
|
|
$ |
3,640,680 |
|
|
|
|
|
|
|
|
|
|
|
Income
before interest and income taxes: |
|
|
|
|
|
|
|
Segment operating profit: |
|
|
|
|
|
|
|
|
Consumer Packaging |
$ |
67,869 |
|
|
$ |
63,761 |
|
|
$ |
184,942 |
|
|
$ |
186,135 |
|
|
Display and Packaging |
1,965 |
|
|
5,153 |
|
|
6,592 |
|
|
13,464 |
|
|
Paper and Industrial Converted Products |
42,154 |
|
|
33,239 |
|
|
110,390 |
|
|
104,018 |
|
|
Protective Solutions |
11,272 |
|
|
12,580 |
|
|
33,085 |
|
|
38,826 |
|
|
Restructuring/Asset impairment charges |
(511 |
) |
|
(8,947 |
) |
|
(12,519 |
) |
|
(41,453 |
) |
|
Other, net |
(2,667 |
) |
|
(943 |
) |
|
(41,665 |
) |
|
(2,191 |
) |
|
Consolidated |
$ |
120,082 |
|
|
$ |
104,843 |
|
|
$ |
280,825 |
|
|
$ |
298,799 |
|
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) |
(Dollars in thousands) |
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
October 1, 2017 |
|
October 2, 2016 |
Net
income |
$ |
171,397 |
|
|
$ |
182,886 |
|
Asset
impairment charges/losses on disposition of assets |
2,319 |
|
|
21,966 |
|
Depreciation, depletion and amortization |
159,130 |
|
|
156,542 |
|
Net pension
and postretirement plan expenses/(contributions) |
13,696 |
|
|
(5,781 |
) |
Changes in
working capital |
(56,552 |
) |
|
(72,800 |
) |
Changes in
tax accounts |
(4,012 |
) |
|
25,908 |
|
Other
operating activity |
(3,869 |
) |
|
39,956 |
|
Net cash provided by operating
activities |
282,109 |
|
|
348,677 |
|
|
|
|
|
|
|
Purchase of
property, plant and equipment, net |
(140,995 |
) |
|
(143,944 |
) |
Cost of
acquisitions, net of cash acquired |
(383,358 |
) |
|
(21,338 |
) |
Net debt
proceeds/(repayments) |
338,137 |
|
|
(38,624 |
) |
Cash
dividends |
(114,368 |
) |
|
(109,821 |
) |
Shares
acquired under announced buyback |
— |
|
|
(58,943 |
) |
Other,
including effects of exchange rates on cash |
9,157 |
|
|
880 |
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents |
(9,318 |
) |
|
(23,113 |
) |
Cash and
cash equivalents at beginning of period |
$ |
257,226 |
|
|
$ |
182,434 |
|
Cash and
cash equivalents at end of period |
$ |
247,908 |
|
|
$ |
159,321 |
|
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) |
(Dollars in thousands) |
|
|
|
|
October 1, 2017 |
|
December 31, 2016 |
Assets |
|
|
|
Current
Assets: |
|
|
|
|
Cash and
cash equivalents |
$ |
247,908 |
|
|
$ |
257,226 |
|
|
Trade
accounts receivable, net of allowances |
751,445 |
|
|
625,411 |
|
|
Other
receivables |
51,229 |
|
|
43,553 |
|
|
Inventories |
472,956 |
|
|
372,814 |
|
|
Prepaid
expenses and deferred income taxes |
51,787 |
|
|
49,764 |
|
|
|
|
1,575,325 |
|
|
1,348,768 |
|
Property,
plant and equipment, net |
1,182,384 |
|
|
1,060,017 |
|
Goodwill |
1,240,439 |
|
|
1,092,215 |
|
Other
intangible assets, net |
342,316 |
|
|
224,958 |
|
Other
assets |
229,164 |
|
|
197,245 |
|
|
|
|
$ |
4,569,628 |
|
|
$ |
3,923,203 |
|
Liabilities and Shareholders’ Equity |
|
|
|
Current
Liabilities: |
|
|
|
|
Payable to
suppliers and other payables |
$ |
854,321 |
|
|
$ |
751,827 |
|
|
Notes
payable and current portion of long-term debt |
125,916 |
|
|
32,045 |
|
|
Income
taxes payable |
10,931 |
|
|
18,744 |
|
|
|
|
991,168 |
|
|
802,616 |
|
Long-term
debt, net of current portion |
1,300,191 |
|
|
1,020,698 |
|
Pension and
other postretirement benefits |
388,492 |
|
|
447,339 |
|
Deferred
income taxes and other |
131,151 |
|
|
97,845 |
|
Total
equity |
1,758,626 |
|
|
1,554,705 |
|
|
|
|
$ |
4,569,628 |
|
|
$ |
3,923,203 |
|
Definition and Reconciliation of Non-GAAP Financial
Measures
The Company’s results determined in accordance with U.S.
generally accepted accounting principles (GAAP) are referred to as
“as reported” or "GAAP" results. Some of the information presented
in this press release reflects the Company’s “as reported” or
"GAAP" results adjusted to exclude amounts; including the
associated tax effects, relating to restructuring initiatives,
asset impairment charges, environmental charges,
acquisition-related costs, gains or losses from the disposition of
businesses, excess property insurance recoveries, pension
settlement charges, and certain other items, if any, including
other income tax-related adjustments and/or events, the exclusion
of which management believes improves comparability and analysis of
the ongoing operating performance of the business. These
adjustments, which are referred to as "non-base", result in the
non-GAAP financial measures referred to in this press release as
“Base Earnings” and “Base Earnings per Diluted Share.”
These non-GAAP measures are not in accordance with, or an
alternative for, generally accepted accounting principles and may
be different from non-GAAP measures used by other companies. In
addition, these non-GAAP measures are not based on any
comprehensive set of accounting rules or principles. Sonoco
continues to provide all information required by GAAP, but it
believes that evaluating its ongoing operating results may not be
as useful if an investor or other user is limited to reviewing only
GAAP financial measures. Sonoco uses these non-GAAP financial
measures for internal planning and forecasting purposes, to
evaluate its ongoing operations, and to evaluate the ultimate
performance of each business unit against plan/forecast all the way
up through the evaluation of the Chief Executive Officer’s
performance by the Board of Directors. In addition, these same
non-GAAP measures are used in determining incentive compensation
for the entire management team and in providing earnings guidance
to the investing community.
Sonoco management does not, nor does it suggest that investors
should, consider these non-GAAP financial measures in isolation
from, or as a substitute for, financial information prepared in
accordance with GAAP. Sonoco presents these non-GAAP financial
measures to provide users information to evaluate Sonoco’s
operating results in a manner similar to how management evaluates
business performance. Material limitations associated with the use
of such measures are that they do not reflect all period costs
included in operating expenses and may not reflect financial
results that are comparable to financial results of other companies
that present similar costs differently. Furthermore, the
calculations of these non-GAAP measures are based on subjective
determinations of management regarding the nature and
classification of events and circumstances that the investor may
find material and view differently.
To compensate for these limitations, management believes that it
is useful in understanding and analyzing the results of the
business to review both GAAP information which includes all of the
items impacting financial results and the non-GAAP measures that
exclude certain elements, as described above. Whenever Sonoco uses
a non-GAAP financial measure, except with respect to guidance, it
provides a reconciliation of the non-GAAP financial measure to the
most closely applicable GAAP financial measure. Whenever reviewing
a non-GAAP financial measure, investors are encouraged to fully
review and consider the related reconciliation as detailed below.
Fourth-quarter and full-year 2017 GAAP guidance are not provided in
this release due to the likely occurrence of one or more of the
following, the timing and magnitude of which we are unable to
reliably forecast: possible gains or losses on the sale of
businesses or other assets, restructuring costs and
restructuring-related impairment charges, acquisition related
costs, and the tax effect of these items and/or other income
tax-related events. These items could have a significant impact on
the Company's future GAAP financial results.
|
|
|
|
|
Non-GAAP Adjustments |
|
Three Months Ended October 1, 2017 |
GAAP |
|
Restructuring / Asset Impairment Charges(1) |
|
Other Adjustments(2) |
|
Base |
|
|
|
|
|
|
|
|
|
|
Income
before interest and income taxes |
$ |
120,082 |
|
|
$ |
511 |
|
|
$ |
2,667 |
|
|
$ |
123,260 |
|
Interest
expense, net |
13,647 |
|
|
— |
|
|
— |
|
|
13,647 |
|
Income
before income taxes |
106,435 |
|
|
511 |
|
|
2,667 |
|
|
109,613 |
|
Provision
for income taxes |
35,545 |
|
|
445 |
|
|
(1,080 |
) |
|
34,910 |
|
Income
before equity in earnings of affiliates |
70,890 |
|
|
66 |
|
|
3,747 |
|
|
74,703 |
|
Equity in
earnings of affiliates, net of taxes |
2,521 |
|
|
— |
|
|
— |
|
|
2,521 |
|
Net
income |
73,411 |
|
|
66 |
|
|
3,747 |
|
|
77,224 |
|
Net
(income) attributable to noncontrolling interests |
(599 |
) |
|
(21 |
) |
|
— |
|
|
(620 |
) |
Net income
attributable to Sonoco |
$ |
72,812 |
|
|
$ |
45 |
|
|
$ |
3,747 |
|
|
$ |
76,604 |
|
|
|
|
|
|
|
|
|
|
|
Per Diluted
Share* |
$ |
0.72 |
|
|
$ |
— |
|
|
$ |
0.04 |
|
|
$ |
0.76 |
|
*Due to
rounding individual items may not sum across |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjustments |
|
|
Three Months Ended October 2, 2016 |
GAAP |
|
Restructuring / Asset Impairment Charges(3) |
|
Other Adjustments(4) |
|
Base |
|
|
|
|
|
|
|
|
|
|
Income
before interest and income taxes |
$ |
104,843 |
|
|
$ |
8,947 |
|
|
$ |
943 |
|
|
$ |
114,733 |
|
Interest
expense, net |
12,437 |
|
|
— |
|
|
— |
|
|
12,437 |
|
Income
before income taxes |
92,406 |
|
|
8,947 |
|
|
943 |
|
|
102,296 |
|
Provision
for income taxes |
29,618 |
|
|
2,097 |
|
|
(357 |
) |
|
31,358 |
|
Income
before equity in earnings of affiliates |
62,788 |
|
|
6,850 |
|
|
1,300 |
|
|
70,938 |
|
Equity in
earnings of affiliates, net of taxes |
3,190 |
|
|
— |
|
|
— |
|
|
3,190 |
|
Net
income |
65,978 |
|
|
6,850 |
|
|
1,300 |
|
|
74,128 |
|
Net
(income) attributable to noncontrolling interests |
(583 |
) |
|
(34 |
) |
|
— |
|
|
(617 |
) |
Net income
attributable to Sonoco |
$ |
65,395 |
|
|
$ |
6,816 |
|
|
$ |
1,300 |
|
|
$ |
73,511 |
|
|
|
|
|
|
|
|
|
|
|
Per Diluted
Share* |
$ |
0.64 |
|
|
$ |
0.07 |
|
|
$ |
0.01 |
|
|
$ |
0.72 |
|
*Due to
rounding individual items may not sum across |
|
|
|
|
|
|
|
(1)
Restructuring/Asset impairment charges are a recurring item as
Sonoco’s restructuring programs usually require several years to
fully implement and the Company is continually seeking to take
actions that could enhance its efficiency. Although recurring,
these charges are subject to significant fluctuations from period
to period due to the varying levels of restructuring activity and
the inherent imprecision in the estimates used to recognize the
impairment of assets and the wide variety of costs and taxes
associated with severance and termination benefits in the countries
in which the restructuring actions occur. |
|
|
|
|
|
|
|
|
|
|
(2)Consists primarily of costs related to acquisitions and
potential acquisitions. Additionally, these amounts include the
effect of state tax rate changes on deferred taxes as well as
reserves for uncertain tax positions totaling a net loss of
$2,362. |
|
|
|
|
|
|
|
|
|
|
(3)Restructuring/Asset impairment charges are a recurring item as
Sonoco’s restructuring programs usually require several years to
fully implement and the Company is continually seeking to take
actions that could enhance its efficiency. Although recurring,
these charges are subject to significant fluctuations from period
to period due to the varying levels of restructuring activity and
the inherent imprecision in the estimates used to recognize the
impairment of assets and the wide variety of costs and taxes
associated with severance and termination benefits in the countries
in which the restructuring actions occur. Included in these amounts
are a goodwill impairment charge related to the Company's
industrial converting products business in Brazil. |
|
|
|
|
|
|
|
|
|
|
(4)
Consists primarily of costs related to acquisitions, potential
acquisitions, and a small income tax reserve adjustment. |
|
|
|
|
|
Non-GAAP Adjustments |
|
Nine Months Ended October 1, 2017 |
GAAP |
|
Restructuring / Asset Impairment Charges(1) |
|
Other Adjustments(2) |
|
Base |
|
|
|
|
|
|
|
|
|
|
Income
before interest and income taxes |
$ |
280,825 |
|
|
$ |
12,519 |
|
|
$ |
41,665 |
|
|
$ |
335,009 |
|
Interest
expense, net |
38,497 |
|
|
— |
|
|
— |
|
|
38,497 |
|
Income
before income taxes |
242,328 |
|
|
12,519 |
|
|
41,665 |
|
|
296,512 |
|
Provision
for income taxes |
78,251 |
|
|
4,081 |
|
|
11,422 |
|
|
93,754 |
|
Income
before equity in earnings of affiliates |
164,077 |
|
|
8,438 |
|
|
30,243 |
|
|
202,758 |
|
Equity in
earnings of affiliates, net of taxes |
7,320 |
|
|
— |
|
|
— |
|
|
7,320 |
|
Net
income |
171,397 |
|
|
8,438 |
|
|
30,243 |
|
|
210,078 |
|
Net
(income) attributable to noncontrolling interests |
(1,727 |
) |
|
(35 |
) |
|
— |
|
|
(1,762 |
) |
Net income
attributable to Sonoco |
$ |
169,670 |
|
|
$ |
8,403 |
|
|
$ |
30,243 |
|
|
$ |
208,316 |
|
|
|
|
|
|
|
|
|
|
|
Per Diluted
Share* |
$ |
1.68 |
|
|
$ |
0.08 |
|
|
$ |
0.30 |
|
|
$ |
2.07 |
|
*Due to
rounding individual items may not sum across |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjustments |
|
|
Nine Months Ended October 2, 2016 |
GAAP |
|
Restructuring / Asset Impairment Charges(3) |
|
Other Adjustments(4) |
|
Base |
|
|
|
|
|
|
|
|
|
|
Income
before interest and income taxes |
$ |
298,799 |
|
|
$ |
41,453 |
|
|
$ |
2,191 |
|
|
$ |
342,443 |
|
Interest
expense, net |
39,768 |
|
|
— |
|
|
— |
|
|
39,768 |
|
Income
before income taxes |
259,031 |
|
|
41,453 |
|
|
2,191 |
|
|
302,675 |
|
Provision
for income taxes |
83,602 |
|
|
10,442 |
|
|
(17 |
) |
|
94,027 |
|
Income
before equity in earnings of affiliates |
175,429 |
|
|
31,011 |
|
|
2,208 |
|
|
208,648 |
|
Equity in
earnings of affiliates, net of taxes |
7,457 |
|
|
— |
|
|
— |
|
|
7,457 |
|
Net
income |
182,886 |
|
|
31,011 |
|
|
2,208 |
|
|
216,105 |
|
Net
(income) attributable to noncontrolling interests |
(1,325 |
) |
|
(78 |
) |
|
— |
|
|
(1,403 |
) |
Net income
attributable to Sonoco |
$ |
181,561 |
|
|
$ |
30,933 |
|
|
$ |
2,208 |
|
|
$ |
214,702 |
|
|
|
|
|
|
|
|
|
|
|
Per Diluted
Share* |
$ |
1.78 |
|
|
$ |
0.30 |
|
|
$ |
0.02 |
|
|
$ |
2.11 |
|
*Due to
rounding individual items may not sum across |
|
|
|
|
|
|
|
|
(1)
Restructuring/Asset impairment charges are a recurring item as
Sonoco’s restructuring programs usually require several years to
fully implement and the Company is continually seeking to take
actions that could enhance its efficiency. Although recurring,
these charges are subject to significant fluctuations from period
to period due to the varying levels of restructuring activity and
the inherent imprecision in the estimates used to recognize the
impairment of assets and the wide variety of costs and taxes
associated with severance and termination benefits in the countries
in which the restructuring actions occur. |
|
|
|
|
|
|
|
|
|
|
(2)
Includes pension settlement charges of $31,550, costs related to
acquisitions and potential acquisitions, and certain other costs,
partially offset by insurance settlement gains. Also includes net
tax charges totaling $2,229 primarily related to the settlement of
a tax audit in Canada and the effect of state tax rate changes on
deferred taxes as well as reserves for uncertain tax positions
totaling a net loss of $2,263. These amounts were partially offset
by a tax benefit on the final settlement of prior-year business
disposition of $1,682. |
|
|
|
|
|
|
|
|
|
|
(3)
Restructuring/Asset impairment charges are a recurring item as
Sonoco’s restructuring programs usually require several years to
fully implement and the Company is continually seeking to take
actions that could enhance its efficiency. Although recurring,
these charges are subject to significant fluctuations from period
to period due to the varying levels of restructuring activity and
the inherent imprecision in the estimates used to recognize the
impairment of assets and the wide variety of costs and taxes
associated with severance and termination benefits in the countries
in which the restructuring actions occur. Included in these amounts
are a goodwill impairment charge related to the Company's
industrial converting products business in Brazil. |
|
|
|
|
|
|
|
|
|
|
(4)
Consists primarily of costs related to acquisitions and potential
acquisitions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
FREE CASH FLOW* |
October 1, 2017 |
|
October 2, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
282,109 |
|
|
$ |
348,677 |
|
|
|
|
|
Purchase of
property, plant and equipment, net |
(140,995 |
) |
|
(143,944 |
) |
|
|
|
|
Cash
dividends |
(114,368 |
) |
|
(109,821 |
) |
|
|
|
|
Free Cash
Flow |
$ |
26,746 |
|
|
$ |
94,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
Estimated |
|
Actual |
|
|
|
|
FREE CASH FLOW* |
December 31, 2017 |
|
December 31, 2016 |
|
|
|
|
Net cash
provided by operating activities |
$ |
415,000 |
|
|
$ |
398,679 |
|
|
|
|
|
Purchase of
property, plant and equipment, net |
(191,000 |
) |
|
(186,741 |
) |
|
|
|
|
Cash
dividends |
(154,000 |
) |
|
(146,364 |
) |
|
|
|
|
Free Cash
Flow |
$ |
70,000 |
|
|
$ |
65,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Free
Cash Flow is a non-GAAP measure that does not imply the amount of
residual cash flow available for discretionary expenditures, as it
excludes mandatory debt service requirements and other
non-discretionary expenditures. |
Contact:
Roger Schrum
+843-339-6018
roger.schrum@sonoco.com
Sonoco Products (NYSE:SON)
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Sonoco Products (NYSE:SON)
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