Sonoco Reports 2Q 2019 Results

Sonoco reported financial results for its second quarter ending June 30, 2019.
 
Net sales for the second quarter were $1.36 billion, down slightly from last year’s second quarter sales of $1.37 billion. The sales decline was driven by lower volumes and a stronger US dollar. These negative impacts were largely offset by increased sales from acquisitions. 
 
Gross profit was $275.3 million in the second quarter, which was down slightly from $276.5 million reported in the same period in 2018. Gross profit as a%age of sales was 20.2%, unchanged from 20.2% in the same period in 2018. 
 
Cash flow from operations shows $40.1 million in the first six months of 2019, compared with $251.2 million in 2018. Free cash flow was a use of cash of $144.9 million, compared with $88.8 million of free cash flow generated in the first six months of 2018. Year-to-date cash flows reflect a $190 million voluntary contribution to the company’s US defined benefit pension plans.
 
Second-quarter 2019 GAAP earnings per diluted share were $0.80, compared with $0.88 in 2018. Second-quarter 2019 GAAP earnings included after-tax charges of $15.3 million related to restructuring actions, non-operating pension costs and acquisition costs. 
 
Base net income attributable to Sonoco (base earnings) for second quarter 2019 was $0.95 per diluted share, compared with $0.93 in 2018. Sonoco previously provided second-quarter 2019 base earnings guidance of $0.93 to $0.99 per diluted share.
 
Base earnings for the third quarter of 2019 are estimated to be in the range of $0.88 to $0.94 per diluted share, compared to $0.86 per diluted share in the third quarter of 2018. Full-year 2019 base earnings guidance remains at $3.52 to $3.62 per diluted share.
 
“Sonoco’s diverse mix of businesses produced solid operating results during the quarter, despite challenging global macroeconomic conditions, where we saw further slowing in demand in many of our served markets,” said Rob Tiede, president and CEO. “In addition, we experienced unforeseen fires, floods and other events which damaged four of our operations resulting in insurance deductible and other business losses of approximately 2 cents per share. Overall in the second quarter, net sales were essentially flat and GAAP net income attributable to Sonoco declined primarily due to our targeted restructuring efforts, which are focused on reducing costs and improving operating margin. 
 
“Base net income gained 3% to a record $96.5 million as improvements in productivity and earnings from acquisitions more than offset lower volume/mix. GAAP gross profit margin was a strong 20.2%, unchanged from last year’s quarter and approximately 25 basis points higher than first quarter, while GAAP operating profit declined from last year due to higher restructuring and other costs. Base operating profit increased 4.4% to a record $144.3 million, while base operating margin increased approximately 50 basis points from last year,” Tiede added.
 
Second-quarter 2019 sales for the Consumer Packaging segment were $602.8 million, compared with $616.1 million in 2018. Segment operating profit was $62.9 million in the second quarter, compared with $63.7 million in the same quarter of 2018. 
 
Second-quarter 2019 sales for the Display and Packaging segment were $134.8 million, compared with $143.3 million in 2018. The segment reported an operating profit of $5.9 million in the current quarter, compared with an operating loss of $(0.6) million in the prior year’s quarter.
 
Second-quarter 2019 sales for the Paper and Industrial Converted Products segment were $491.3 million, up from $474.1 million in 2018. Segment operating profit was $61.2 million in the quarter, compared with $61.5 million in 2018. During the quarter, the Company’s Trent Valley, Ontario, Canada, paper mill was flooded by the Trent River, resulting in a six-day production outage, temporarily higher operating costs, and an expense incurred for the insurance deductible.
 
Second-quarter 2019 sales for the Protective Solutions segment were $130.8 million, down from $132.9 million in 2018. Operating profit was $14.3 million, a 4.8% increase from the second quarter of 2018. 
 
For the first six months of 2019 net sales were $2.7 billion, up $40.9 million, compared with $2.7 billion in the first six months of 2018. Sales grew 1.5% in the first half of the year due to acquisitions and higher selling prices implemented to recover higher input and operating costs, which were partially offset by lower volume/mix and a $65 million negative impact of foreign exchange.
 
Current year-to-date gross profit was a record $545.5 million, compared with $527.1 million in 2018. Year-to-date gross profit as a percentage of sales in 2019 was 20.1%, compared with 19.7% in 2018.
 
For the first half of 2019, cash generated from operations was $40.1 million compared with $251.2 million in 2018, a decrease of $211.2 million. Pension plan contributions, net of non-cash expense, increased by $193.2 million from last year’s six-month period due to the company’s voluntary $190 million contribution.
 
Free cash flow for the first six months of 2019 was a use of cash that totaled $144.9 million, compared with a provision of cash of $88.8 million in the same period last year, a decrease of $233.6 million mostly attributable to the $211.2 million decrease in cash flow from operations.
 
As of June 30, 2019, total debt was approximately $1.55 billion, compared with $1.39 billion as of Dec. 31, 2018, and the company had a total-debt-to-total-capital ratio of 45.5% at the end of the second quarter compared to 43.9% at the end of 2018. 
 
“We’re very pleased with how we managed our business in the first half of 2019 in the face of headwinds, that while coming in different forms, all had one thing in common, they were mostly unexpected and beyond our control,” Tiede concluded. “Our ability to adapt and adjust when faced with unexpected events, whether driven by nature or other factors, continues to be a strength of our organization.”