Sonoco Reports 2Q 2021 Results

Sonoco reported financial results for its second quarter ended July 4, 2021.

Second quarter 2021 net sales were $1.38 billion, compared with $1.25 billion in 2020.
Gross profit was $262.7 million in the second quarter of 2021 compared to $248 million in the same period in 2020. Cash flow from operations was $102 million in the first half of 2021, compared to $282 million in the first half of 2020. Free cash flow was $9.4 million in the first half of 2021, compared with $210.4 million in the first half of 2020.

Second quarter 2021 GAAP net loss per diluted share was $(3.34), compared with earnings per diluted share of $0.55 in 2020. Second quarter 2021 GAAP net loss included net after-tax charges of $418.7 million, due mostly to a non-cash pension settlement charge of $406.5 million related to the company’s settlement of the outstanding pension liabilities of the Sonoco Pension Plan for Inactive Participants.

“As anticipated, we reported a GAAP loss in the second quarter due to pension settlement charges associated with the purchase of group annuity contracts and the distribution of lump-sum payments, which resulted in our pension obligations being reduced by approximately $1.4 billion,” Howard Coker, Sonoco president and CEO, said. “Also, during the quarter, we further improved our strong balance sheet by reducing total debt by approximately $100 million, enhanced our financial flexibility by upsizing our committed credit facility with a new $750 million revolver, and returned value to shareholders by executing a $150 million accelerated share repurchase agreement.

“Sonoco’s balanced mix of consumer and industrial packaging businesses achieved second quarter base earnings results which were well within our guidance range despite unprecedented raw material and non-material inflation and some continued impact of COVID-19 on certain of our served markets,” Coker added. “Net sales grew 11 percent in the quarter as volume/mix improved approximately 8 percent due to solid demand recovery in most of our industrial-related businesses.

“While we expected demand in our Consumer Packaging segment to normalize from the pantry-stocking records set during the second quarter of last year, segment operating profit declined by 29 percent due primarily to a negative price/cost relationship stemming from escalating resin, film, metals, packaging and freight costs. On the other hand, our Industrial Paper Packaging segment benefited from strong global demand, which helped boost segment operating profit by 74 percent compared to last year’s second quarter. Our All Other group of businesses, which consists of protective, healthcare, retail and industrial plastics units, also benefited from the economic recovery as operating profit improved 23 percent.”

Year-to-Date Results

For the first six months of 2021, net sales were $2.74 billion, up $187.3 million, compared with $2.55 billion in the first six months of 2020. Sales improved 7.3 percent in the first half of the year as an almost 6 percent improvement in volume/mix, excluding the impact of the display and packaging divestiture, reflected demand recovery following prior-year COVID-19-driven reductions, along with higher selling prices implemented to offset inflation, and a positive impact from foreign exchange translation more than offset sales reduced by divestitures, net of acquisitions.

GAAP net loss attributable to Sonoco for the first half of 2021 was $(261.8) million or $(2.60) per diluted share, compared to income of $135.7 million, or $1.34 per diluted share in 2020. The net loss in the first half of 2021 included $438.1 million in after-tax charges, including $418.0 million after-tax related to non-operating pension costs driven by the previously mentioned pension settlement charge and $15.0 million after-tax related to the early extinguishment of debt.

Current year-to-date gross profit was $540.6 million, compared with $514.6 million in 2020. Year-to-date gross profit as a percentage of sales in 2021 was 19.8 percent, compared with 20.2 percent in 2020.

Cash generated from operations for the first six months of 2021 was $102 million, compared with $282 million in 2020, a decrease of $180 million. While net income declined by $397.2 million, this was primarily due to the after-tax, non-cash pension settlement charge of $406.5 million driven by the company’s Inactive Plan liability settlement.
As of July 4, 2021, total debt was approximately $1.6 billion, compared with $1.7 billion as of Dec. 31, 2020. The company’s total-debt-to-total-capital ratio was 46.7 percent as of July 4, 2021, compared to 47.1 percent at the end of 2020.

Commenting on the company’s outlook, Coker said, “As we enter the second half of 2021, we remain confident that our business will continue to benefit from the post-pandemic economic recovery. In our consumer-related businesses, we expect volumes to remain above pre-pandemic levels despite more normalized demand for food packaging as consumers moderate at-home eating patterns, while certain COVID-impacted markets, such as confectionery, food service and construction products should continue to benefit.

“Our biggest challenge for the rest of 2021 is our continuing battle to manage escalating raw material and non-material inflation,” added Coker. “While we currently are behind the price/cost curve in several of our businesses, we are aggressively taking actions to drive productivity, control costs and implement necessary price increases to fully recover all commodity and other cost increases.”