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Sonoco to Acquire TEQ, Expand Healthcare Packaging Business

Zacks Equity Research

In a bid to expand its healthcare packaging business, Sonoco Products Company SON has entered into an agreement to acquire Thermoform Engineered Quality, LLC, and Plastique Holdings, LTD, (together TEQ) from ESCO Technologies, Inc. ESE for cash payment of $187 million. Headquartered in Huntley, IL, TEQ is a global manufacturer of thermoformed packaging, offering services for the healthcare, medical device and consumer markets.

TEQ’s Operations in Details

TEQ generated sales worth $88 million in fiscal 2018 (ended Sep 30, 2018). The company operates three thermoforming and extrusion facilities in the United States, has one thermoforming operation unit in the U.K., and a thermoforming and molded-fiber manufacturing facility in Poland. Each facility enables production of sterile and barrier packaging systems for pharmaceuticals and medical devices with state-of-the-art cleanroom capabilities. Additionally, the company produces recyclable, molded-pulp-fiber packaging and thermoformed plastic packaging for various consumer products, mainly based in Europe.

Robust Healthcare Packaging Market

Per recent studies, the global healthcare packaging market is currently valued at $33 billion. This market is anticipated to flourish in the days ahead, propelled by increased life expectancy, product introductions from medical-device manufacturers and pharmaceutical companies, together with improved safety requirements.

The United States and Europe continue to be the largest consumers of healthcare packaging, owing to the rising need for introduction of more sophisticated therapies with specialized packaging. With the older population gradually increasing, operations are seeing a rise which will sustain demand for medical devices for the foreseeable future.

Acquisition Benefits

Notably, the above-mentioned acquisition will facilitate further expansion of Sonoco’s growing healthcare packaging business, including its best-in-class ThermoSafe temperature-assured pharmaceutical packaging, multi-cell cuvettes and appliances, injection-molded vials, thermoformed trays for OTC medical products and medical devices, plus Alloyd heat-sealing equipment for commercial medical applications.

The transaction is likely to close by the end of this year. The deal is expected to be conducive to Sonoco’s 2020 earnings. TEQ’s financial results will be reported within Sonoco’s Consumer Packaging segment.

Sonoco Poised to Grow on Acquisitions

Last October, the company acquired the remaining 70% interest in the Conitex-Sonoco joint venture and Texpack's composite can operation in Spain. The Conitex Sonoco acquisition will help the company expand its manufacturing presence in the Americas, Europe, as well as the rapidly-growing markets in Asia. The company also completed the buyout of Highland Packaging Solutions last April and Clear Lam in July. Recently, Sonoco completed the acquisition of Corenso Holdings America, Inc. for a cash consideration of $110 million. The deal has created a long-term opportunity for Sonoco by expanding its paperboard and core converting operations.

Upbeat Projections

The company recently reported third-quarter 2019 results, wherein, both earnings and revenues missed the respective Zacks Consensus Estimate. However, Sonoco’s adjusted earnings improved from the year-ago quarter despite a revenue decline.

For the current quarter, the company projects adjusted earnings per share of 72-76 cents. Compared with the year-ago quarter’s adjusted earnings per share of 72 cents, the mid-point of the new guidance suggests 2% growth.

Sonoco anticipates adjusted earnings per share in the range of $3.50 to $3.54 for the ongoing year. The mid-point of the guidance indicates an improvement of 4% from the $3.37 reported in 2018. Earnings growth this year is likely to be aided by a combination of positive price and cost, lower tax rate, and benefits from the Conitex and Corenso acquisitions. The company’s focus on optimizing its businesses through process improvement, standardization and cost control will also support results.
Share Price performance

Shares of Sonoco have gained around 3.7%, over the past year, as against the industry 's decline of 27.3%.

Zacks Rank & Stocks to Consider

Sonoco currently carries a Zacks Rank #3 (Hold)

A few better-ranked stocks in the Industrial Products sector are Northwest Pipe Company NWPX and Tennant Company TNC, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 39% in a year’s time.

Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 26.5% over the past year.

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