Net sales for the second quarter were $1.37 billion, an increase of $125.7 million, or 10.1%, from last year’s quarter. The improvement reflects an increase in sales added by acquisitions, volume growth, the positive impact of foreign exchange and higher selling prices implemented to recover rising freight and other operating inflation.
Second-quarter 2018 GAAP earnings per diluted share were $0.88, compared with $0.43 in 2017. Second-quarter 2018 GAAP earnings included after-tax charges of $4.4 million related to restructuring and acquisition-related expenses. In the second quarter of 2017, GAAP results included $28.7 million, after tax, in charges for lump-sum pension settlement distributions, restructuring-related activities and acquisition expenses.
Base net income attributable to Sonoco (base earnings) for second quarter 2018 was $0.93 per diluted share, compared with $0.71 in 2017. Sonoco previously provided second-quarter 2018 base earnings guidance of $0.83 to $0.89 per diluted share.
Cash flow from operations was $251.2 million in the first half of 2018, compared with $103.2 million in 2017. Year-to-date free cash flow was $88.8 million, compared with $(69.3) million in 2017.
Base earnings for the third quarter of 2018 are estimated to be in the range of $0.82 to $0.88 per diluted share, compared to $0.76 per diluted share in the third quarter of 2017.
Full-year 2018 base earnings guidance has been raised to $3.27 to $3.37 per diluted share, from the previous guidance of $3.22 to $3.32 per diluted share, to reflect the company’s strong second quarter results and expected solid second half results despite additional expenses anticipated from recently enacted tariffs on steel, aluminum and other products along with higher than previously expected freight and other non-material inflation.
Full-year 2018 operating cash flow and free cash flow guidance has been raised to a range of $570 million to $590 million and $190 million and $210 million, respectively.
“Sonoco produced an outstanding quarter as our growing diversified mix of global packaging businesses improved both the top-line and bottom-line by double-digits over prior-year consolidated results,” Rob Tiede, president and CEO, said. “Sonoco net sales grew by 10.1%, while operating profit improved 25.4% and net income attributable to Sonoco gained 107.3% compared to last year. Base operating profit and base net income attributable to Sonoco improved 16.9% and 30.6%, respectively. In addition, cash flow from operations and free cash flow were extremely strong during the first six months of 2018, with cash flow from operations improving approximately $148.1 million over the prior year.”
For the first six months of 2018 net sales were $2.67 billion, up $257.6 million compared with $2.41 billion in the first six months of 2017. Sales grew 10.7% in the first half of the year due to acquisitions, the positive impact of foreign exchange, volume growth and higher selling prices implemented to recover higher freight and operating inflation and certain rising material costs.
GAAP net income attributable to Sonoco for the first half of 2018 was $163.5 million or $1.62 per diluted share, compared with $96.9 million or $0.96 per diluted share in the first half 2017. Earnings in the first half of 2018 included after-tax charges totaling $5.0 million largely related to restructuring charges, acquisition costs and the effect of income tax rate changes on deferred tax items. Earnings in the first half of 2017 included net after-tax charges of $34.9 million primarily related to lump-sum pension settlements, restructuring charges and acquisition-related expenses.
Free cash flow for first six months of 2018 was $88.8 million, compared with a negative $69.3 million in the same period last year. As of July 1, 2018, total debt was approximately $1.45 billion, compared with $1.45 billion as of Dec. 31, 2017. At the end of the first half of 2018, the company had a total-debt-to-total-capital ratio of 44.8%, compared with 45.6% at Dec. 31, 2017.
“Our team achieved a great deal in the first half of 2018, including driving record top-line and bottom-line consolidated results and producing strong cash flow from operations and free cash flow,” Tiede said. “The acquisition of Highland Packaging Solutions further enhances our capabilities and opportunities for continued expansion in the fast-growing, fresh-food perimeter of the supermarket. Looking forward, we’re projecting year-over-year improvement in the second half which, together with stronger than expected second quarter results, led us to raise our 2018 guidance. Our growth and margin improvement targets for 2018 remain on track, with sales up 10.7% and base operating margin up a solid 35 basis points from the first half of last year. We are excited about the Conitex Sonoco acquisition, which creates opportunities for us to further grow our Paper/Industrial Converted Products segment, especially in the fast-growing Asian markets.
“Like many companies, we are facing inflationary cost pressure from higher freight, wages, energy and material costs, particularly resins, along with uncertain headwinds from newly imposed or threatened tariffs,” he continued. “This is requiring us to drive cost-recovery through proactive price increases in many of our businesses. Although recovered paper prices appear to have stabilized for the time being, experts believe they could rise in the second half of the year, in which case we would not enjoy the same price/cost benefit we saw in the first half of the year. Overall, we remain optimistic about general economic activity and believe the breadth of our diversified consumer, industrial and protective operations across a number of markets enhances our ability to produce consistent earnings, improved returns and greater rewards for our shareholders.”