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Sonoco Remains at Neutral

Zacks Equity Research

On Sep 13, we reiterated our Neutral recommendation on Sonoco Products Co. (SON), a global manufacturer of consumer and industrial packaging products.

Why Reiterated?

Sonoco’s Consumer Packaging segment witnessed a turnaround in volume of its composite can business for the first time since second quarter 2011. Composite cans contribute almost half of the segment’s revenues and generate high margins. Addition of new products, geographical expansion and increased promotional activity could drive volume growth in the second half of 2013. Moreover, Sonoco increased the prices of the composite cans in the quarter, which should benefit the segment for the rest of the year.

Sonoco has been awarded a contract by Energizer Holdings Inc. (ENR) for primary packaging, retail display assembly and fulfillment of a segment of battery products for Energizer brands. The scope of work of this 3.5-year deal includes the supply of primary packaging for 150 SKUs annually. This will boost the Display and Packaging segment, which should also continue to benefit from new customer wins.

Sonoco implemented a $40/ton increase in uncoated recycled paperboard and a 5% increase in tubes and cores in the United States and Canada, effective Jul 2013. This will help the company to compensate for the rising recovered paper and other raw material costs.

On the flipside, pension expense is expected to be higher in 2013 than that of 2012. Sonoco plans to close the Carrickmacross facility on Nov 1, 2013. The facility manufactures thermoformed packages for Ireland and other parts of Europe. Sonoco’s decision is based on volume loss and weak profits, experienced by the plant over the past several years, which may continue in 2013 as well. Moreover, slow recovery in the U.S. and ongoing European weakness remain headwinds for the company in fiscal 2013.

Other Stocks to Consider

Other players that are worth a mention in the industry are Sealed Air Corporation (SEE), carrying a Zacks Rank #1 (Strong Buy) and MeadWestvaco Corporation (MWV) which retains a Zacks Rank #2 (Strong Buy).

Read the Full Research Report on MWVRead the Full Research Report on SONRead the Full Research Report on SEERead the Full Research Report on ENRZacks Investment Research