Sonoco Reports 2Q 2017 Results

Sonoco reported financial results for its second quarter, ending July 2, 2017. Second quarter 2017 GAAP earnings per diluted share were $0.43, compared with $0.55 in 2016.
 
Net sales for the second quarter were $1.24 billion, an increase of $35.0 million, or 2.9%, from last year’s quarter. The improvement in sales was a result of higher selling prices, particularly from rising raw material prices, and sales added from acquisitions, net of divestitures. These positive factors were partially offset by lower volume and the negative impact of foreign exchange.
 
Gross profits were $235.9 million in the second quarter, down $6.1 million, compared with $242.0 million in the same period in 2016. Gross profit as a percentage of sales declined to 19.0%, compared with 20.1% in the same period in 2016. The gross profit percentage reduction in the quarter was due primarily to lower volume/mix and the impact of rising raw material prices, partially offset by manufacturing productivity gains.
 
Cash flow from operations was $104.3 million in the first half of 2017, compared with $186.0 million in 2016. Free cash flow for the first six months of 2017 was negative $68.2 million, compared with positive $9.8 million in 2016.
 
2017 operating cash flow and free cash flow have been updated to approximately $445 million and $100 million, respectively, due to higher than expected increases in working capital primarily due to higher selling prices and higher material costs.
 
“Sonoco’s balanced portfolio of consumer-related, industrial and protective packaging businesses continues to produce consistent results despite generally weak market demand and fluctuating raw material costs,” said Jack Sanders, Sonoco president and CEO.  “Compared to the prior-year quarter, the company benefited from a positive price/cost relationship, manufacturing productivity improvements, and lower management incentives. However, these positive factors were offset by lower volume/mix, operating cost inflation and higher taxes on our base operating results.”
 
For the first six months of 2017, net sales were $2.41 billion, down $19.0 million, compared with $2.43 billion in 2016. Sales declined during the period due to lower volume, the loss of contract packaging business in Mexico and Brazil, the negative impact of foreign exchange and divestitures, net of acquisitions. These negative factors were partially offset by higher selling prices implemented to recover rising raw material costs.
 
GAAP net income attributable to Sonoco for the first half of 2017 was $96.9 million or $0.96 per diluted share, compared with $116.2 million or $1.14 per diluted share in 2016. Current year-to-date gross profit was $456.1 million, compared with $487.3 million in the first half of 2016. Gross profit as a percentage of sales in the first half of 2017 was 18.9%, compared with 20.0% in 2016.
 
For the first half of 2017, cash generated from operations was $104.3 million compared with $186.0 million in 2016, a decline of $81.8 million. The year-to-date decrease in net income attributable to Sonoco of $19.3 million was offset by a decrease in year-to-date net pension and post-retirement plan expenses and contributions of $20.1 million.
 
Free cash flow for the first half of 2017 was a negative $68.2 million, compared with positive $9.8 million in the same period last year.
 
At July 2, 2017, total debt was approximately $1.31 billion, compared with $1.05 billion as of Dec. 31, 2016. At the end of the second quarter, the company had a total-debt-to-total-capital ratio of 43.7%, compared with 40.4% at Dec. 31, 2016. Cash and cash equivalents were $207.6 million as of July 2, 2017, compared with $257.2 million at December 31, 2016. The increase in the debt, debt ratio as well as the reduction in cash are primarily due to the $230 million acquisition of Peninsula Packaging, Inc., a thermoforming business, in March 2017.