Sonoco, one of the largest diversified global packaging companies, reported financial results for its second quarter ending June 29, 2014.
Among the second quarter highlights, second quarter 2014 GAAP earnings per diluted share were $.59, compared with $.53 in 2013. Second quarter 2014 GAAP results include $.04 per diluted share in after-tax charges related to previously announced global restructuring activities and acquisition costs. Second quarter 2013 GAAP results included after-tax charges of $.06 per diluted share related to plant closures and related restructuring costs.
Base net income attributable to Sonoco (base earnings) for second quarter 2014 was $.63 per diluted share, compared with $.59 in 2013. Sonoco previously provided second quarter base earnings guidance of $.63 to $.67 per diluted share.
Second quarter 2014 net sales were $1.25 billion, up approximately 2% from $1.23 billion in 2013. Cash flow from operations was $60 million, compared with $108 million in 2013. Free cash flow for the second quarter was negative $19 million, compared with $35 million in 2013.
“Our balanced portfolio of businesses achieved record quarterly consolidated sales and gross profits and grew base earnings 7% over the prior year quarter, hitting an all time best for a second quarter,” said Jack Sanders, president and CEO. “However, we were somewhat disappointed that base earnings only reached the low end of our guidance as strong performances in our Paper and Industrial Converted Products and Display and Packaging segments were partially offset by lower than expected results in our Consumer Packaging and Protective Solutions segments.
“Overall in the quarter, the company benefitted from improvements to manufacturing productivity, a favorable price/cost relationship, lower pension expense and acquisitions,” Sanders said. “Partially offsetting these gains were higher labor, maintenance and other operating costs while volume was virtually flat.
“Earnings in our Paper and Industrial Converted Products segment challenged all-time highs with operating profits gaining 29% over the prior-year quarter on a positive price/cost relationship, productivity improvements and lower pension expense, which were partially offset by higher labor and other operating costs,” Sanders added. “Segment volume was essentially flat in the quarter despite a significant reduction in demand for steel reels for the oil and gas industry. In our Protective Solutions segment, operating profits declined 15% due to a negative price/cost relationship and higher labor, maintenance and other operating costs, somewhat offset by favorable changes in the mix of products sold.
“Operating profits in our Consumer Packaging segment declined 10% in the quarter due to lower volume and a negative mix of business along with higher labor, maintenance and other operating costs,” he reported. “Partially offsetting these negative factors were modest productivity improvements and lower pension expense. Operating profits in our Display and Packaging segment improved 24% from the prior-year quarter due primarily to volume growth in domestic display and fulfillment activity along with a favorable price/cost relationship and modest productivity improvements.”
Net sales for the second quarter were $1.25 billion, up approximately 2%, compared with $1.23 billion in last year’s quarter. The increase was driven by $12.6 million in sales from businesses acquired during the past twelve months along with higher selling prices, partially offset by the negative impact of foreign exchange.
Gross profits were $232 million in the second quarter, up 4 percent, compared with $223 million in the same period in 2013. Gross profit as a percent of sales improved to 18.6%, compared with 18.1% in the same period in 2013. This 50 basis point improvement was due primarily to productivity improvements, a positive price/cost relationship and lower pension expense, partially offset by general inflation.
For the first six months of 2014, net sales were $2.43 billion, up 1%, compared with $2.41 billion in the first half of 2013. The increase was due to higher selling prices and acquisitions, partially offset by the negative impact of foreign exchange.
Net income attributable to Sonoco for the first six months of 2014 was $113.8 million, or $1.10 per diluted share, up 10%, from $103.1 million, or $1.00 per diluted share, in the same period in 2013. Earnings in the first half of 2014 were negatively impacted by after-tax restructuring charges of $4.3 million, or $.04 per diluted share, and acquisition costs and non-base income tax charges totaling $1.2 million after-tax, or $0.01 per diluted share. During the same period in 2013 earnings were negatively impacted by $9.3 million, or $.09 per diluted share, of restructuring and other charges.
“We bucked headwinds from severe weather in the first quarter and experienced tepid consumer spending for packaged food in the second quarter, but we remain optimistic for the balance of the year and expect to see year-over-year improvement in our industrial, consumer and protective solutions segments,” Sanders said. “We are very encouraged by the strong second quarter performance of our industrial-focused businesses and expect continued year over year operating improvement. In our consumer businesses, our customers remain optimistic that consumer demand will follow the normal seasonal pick up during the second half and we remain focused on driving productivity improvements more in line with historical levels. Price/cost headwinds in our protective solutions business are expected to ease in the second half and we expect seasonal volume improvement.
“Finally, our efforts to drive organic sales growth through the development of innovative solutions continue to gain momentum,” Sanders concluded. “We are currently working with our customers on more than a dozen projects utilizing our unique i6 Innovation Process. By combining our broad technical expertise in material science, design, graphics management and supply chain capabilities with expanded market and consumer insights, we can accelerate the development of customized solutions that help our customers build new business.”