Sonoco Reports 3Q 2016 Results

Sonoco reported financial results for its third quarter, ending October 2, 2016.
 
In 3Q 2016, GAAP earnings per diluted share were $0.64, compared with $0.43 in 2015. Third quarter 2016 net sales were $1.21 billion, down from $1.24 billion in 2015.
 
Cash flow from operations was $162.6 million in the third quarter of 2016, compared with $145.1 million in 2015. Free cash flow for the third quarter was $85.2 million, compared with $55.9 million in 2015.
 
During the third quarter, Sonoco reached a definitive agreement to sell its rigid plastics blow molding operations to Amcor for $280 million. The transaction is expected to close by or near the end of October 2016.
 
Free cash flow in 2016 is projected to be approximately $140 million, reflecting expected operating cash flow of $490 million.
 
“Sonoco achieved better than anticipated financial results driven by record results from our Consumer Packaging segment along with continued improvement in our Paper and Industrial Converted Products segment,” Jack Sanders, Sonoco president and CEO said. “Overall, compared to the prior year quarter, the company’s earnings benefited from gains from fixed-cost productivity, a positive price/cost relationship, manufacturing productivity and lower pension and post-retirement benefit costs. Offsetting these positive factors were higher labor, maintenance and other operating costs while overall volume was essentially flat for the quarter.
 
“Operating profit in our Consumer Packaging segment was up 15.3%, from the prior-year quarter, reaching record levels for the eighth consecutive quarter, while segment operating margins improved 170 basis points over the same quarter last year,” Sanders added. “The segment also gained from modest volume growth as solid rigid plastics and flexible packaging growth was partially offset by lower global composite can volume. Results in our Paper and Industrial Converted Products segment improved slightly in the third quarter with operating profit gaining 2.9% over the same quarter last year and operating margins improving 30 basis points. Operating profit in our Protective Solutions segment was essentially flat year over year as a positive price/cost relationship and volume growth were more than offset by higher labor, maintenance and other operating costs.”
 
Net sales for the third quarter were $1.21 billion, down $33.9 million, or 2.7%, from last year’s quarter. The decline in sales was a result of the previously reported discontinuation of the company’s contract packaging business in Irapuato, Mexico; lower selling prices, primarily linked to lower raw material costs; and divested businesses.
 
Gross profits were $235.4 million in the third quarter, up $6.0 million, compared with $229.4 million in the same period in 2015. Gross profit as a% of sales improved to 19.5%, compared with 18.5% in the same period in 2015. The 101 basis points improvement in the quarter was due primarily to a positive overall price/cost relationship, lower fixed costs and lower pension expense, which were partially offset by higher labor expenses and increased operating costs.
 
Cash generated from operations in the third quarter was $162.6 million, compared with $145.1 million in the same period in 2015. This $17.6 million improvement was largely driven by higher GAAP earnings as well as changes in working capital.
 
Free cash flow for the third quarter was $85.2 million, compared with $55.9 million in the same quarter last year.
 
For the first nine months of 2016, net sales were $3.64 billion, down $56.6 million, compared to $3.70 billion in 2015. Sales declined during the period due to an estimated $70 million impact from foreign currency translation, lower selling prices related to lower raw material costs and the loss of contract packaging business in Mexico.
 
GAAP net income attributable to Sonoco for the first three quarters of 2016 was $181.6 million or $1.78 per diluted share, compared with $194.1 million or $1.90 per diluted share in the same period in 2015.
 
Current year-to-date gross profit was $722.6 million, up 4.7%, compared with $690.1 million in the first three quarters of 2015, largely due to a positive/price cost relationship and gains in volume/mix. Gross profit as a percentage of sales was 19.8%, up 119 basis points, from 18.7% in 2015.
 
For the first nine months of 2016, cash generated from operations was $348.7 million, compared with $318.1 million in the same period in 2015. Free cash flow for the first nine months of 2016 was $94.9 million, compared with $105.9 million in same period last year.
 
At Oct. 2, 2016, total debt was approximately $1.09 billion, compared with $1.13 billion as of Dec. 31, 2015.
 
Commenting on the company’s outlook, Sanders said, “Our ability to grow base earnings by 12% through the first nine months of 2016 is a testament to our focused strategy of growing our businesses by providing our customers with innovative packaging solutions and optimizing our portfolio to produce consistent earnings and improved returns. As a result of our solid performance to date and our expectations for the rest of 2016, we are raising our full-year guidance despite continued headwinds from slow global economic conditions. Our focus for the rest of 2016 is to gain market share by introducing new commercial products and achieving new customer awards. To further grow, we are actively pursuing rational, strategic acquisitions focused on growing our flexible packaging, thermoforming rigid plastics and protective packaging platforms. At the same time we are looking to further optimize our portfolio and pursue alternatives to address the weak performance in corrugating medium operations while continuing to improve our cost structure.”