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Sonoco Hikes Plywood Reel Prices

Zacks Equity Research

In response to the soaring costs of plywood, Sonoco Products Company (SON) has recently hiked the prices of plywood reels products by 9%. Sonoco decided to roll the surcharge into the base prices and the increase will be effective immediately.

The price rise is necessitated by increased demand and a plant closure by one of the plywood producers in 2011. Management said that the price escalation has been at levels not witnessed since the last economic rebound in 2004 and 2005.

Earlier in October 2011, the company increased the surcharge of plywood reels by 11%-15% due to soaring raw material costs. At that time it had also announced the decision of revising the plywood surcharge each month, stating that there could be further increase in surcharge, if required.

Before that, in February 2010, Sonoco decided to increase the prices of plywood reels by 11% due to the rise in raw material costs effective from March 2010.

The company has been adjusting the prices of other products too; following increase in the costs of raw materials. It revised the prices for ThermoSafe Brand Products in January and European Paperboard in February.

In the fourth quarter of 2011, Sonoco posted adjusted earnings of 46 cents per share. The adjusted earnings per share dropped 28% year over year and was in line with the Zacks Consensus Estimate.

Total revenue of $1.13 billion lagged behind the Zacks Consensus Estimate of $1.14 billion. We think that the price increases are expected to generate more profit in the next quarters only if higher prices more than recover the related cost increases.

The company expects earnings in the range of 45-50 cents per share for the first quarter of 2012. The Zacks Consensus Estimate is at 48 cents per share. For the year 2012, the company looks forward to earnings in the band of $2.32-$2.42 per share, while the Zacks Consensus Estimate is at $2.35 per share.

Currently, the shares of Sonoco retain a Zacks #3 Rank, implying a short-term Hold recommendation. It competes with the companies like Bemis Company, Inc. (BMS) and Rock-Tenn Co. (RKT).

Based in Hartsville, South Carolina, Sonoco is a global manufacturer of consumer and industrial packaging products as well as recycled paperboard. It has more than 300 operations in 35 countries throughout North and South America, Europe, Australia and Asia.

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