Sonoco (SON) Beats on Q2 Earnings & Sales, Raises Guidance
Sonoco Products Company SON reported stellar second-quarter 2018 results, wherein adjusted earnings increased 31% year over year to 93 cents per share and came above the higher end of management’s guided range of 83-89 cents. Earnings in the quarter benefited from growing diversified mix of global packaging businesses. The reported figure also beat the Zacks Consensus Estimate of 86 cents.
On a reported basis, including one-time items, earnings per share came in at 88 cents compared with 43 cents recorded in the prior-year quarter.
Sonoco’s net sales grew 10% year on year to $1.37 billion in the quarter. In addition, the figure surpassed the Zacks Consensus Estimate of $1.34 billion. This upswing was driven by acquisitions, volume growth, the positive foreign-exchange impact and higher selling prices.
Sonoco Products Company Price, Consensus and EPS Surprise
Sonoco Products Company Price, Consensus and EPS Surprise | Sonoco Products Company Quote
Cost of sales came in at $1.09 billion, up 8.7% year on year. Gross profit during the second quarter totaled $276.5 million, marking a 16% improvement year over year. Gross margin expanded 100 basis points (bps) year over year to 20.2%.
Selling, general and administrative expenses totaled $141 million, up 12.5% year over year, chiefly resulting from acquisition-related costs, wage inflation and higher management incentive accruals. Sonoco’s adjusted operating income summed $135.4 million in the quarter, up 19.7% from $113.1 million reported in the prior-year quarter. Operating margin advanced 90 bps year over year to 10% in the second quarter.
The Consumer Packaging segment reported net sales of $616 million, up 18% from $521 million recorded in the prior-year quarter, driven by acquisitions, positive translation impact of changes in foreign-exchange rates, and higher selling prices. Operating profit came in at $63.7 million, up 5.5% from the year-ago quarter.
Net sales in the Paper and Industrial Converted Products segment came in at $474 million, inching up 1.1% year over year, led by volume/mix growth and the positive impact of foreign exchange. Operating profit came in at $61.5 million, surging 35% year over year.
The Display and Packaging segment’s net sales came in at $143.3 million, up 24% from $115.6 million reported in the year-earlier quarter, primarily backed by volume growth related to a new pack center near Atlanta, and a positive foreign-exchange impact. The segment reported an operating loss of $0.6 million in the second quarter compared with a gain of $1.5 million in the year-earlier quarter.
The Protective Solution segment’s net sales came in at $132.9 million, down marginally from $134.6 million reported in the year-earlier quarter as the negative impact of declining foreign exchange rates offset higher selling prices. Operating profit at the segment totaled $13.6 million, up 23.7% year over year.
Sonoco reported cash and cash equivalents of $197.7 million at the end of second-quarter 2018, down from $254.5 million recorded at year-end 2017. The company reported cash flow from operating activities of $251 million for the six-month period ended May 31, 2017, compared with $103 million witnessed in the prior-year period.
Long-term debt was $1.27 billion as of Jul 1, 2018, which declined from $1.29 billion recorded in the prior-year period. At the end of first-half 2018, the company had a total debt-to-capital ratio of 44.8% compared with 45.6% at Dec 31, 2017.
On May 29, 2018, Sonoco signed a definitive agreement with Texpack, Inc. in a bid to acquire its 70% interest in the Conitex-Sonoco joint venture and Texpack's composite can operation in Spain, for approximately $143 million in cash. This transaction is expected to close early in fourth-quarter 2018. Conitex Sonoco will be included in Sonoco’s Paper and Industrial Converted Products Segment and the Spanish composite can operation will be included in its Consumer Segment.
For full-year 2018, Sonoco raised its adjusted earnings per share guidance to $3.27-$3.37 from the earlier projection of $3.22-$3.32. Compared with the earnings of $2.79 per share in 2017, the mid-point of the guidance reflects year-over-year growth of 19%.
For third-quarter 2018, the company projects adjusted earnings per share of 82-88 cents. Compared with the prior-year quarter’s earnings per share of 43 cents, the mid-point of the guidance reflects 100% year-over-year growth.
Share Price Performance
Over the past year, Sonoco has underperformed the industry it belongs to. The stock has gained around 7%, while the industry has recorded loss of 1%.
Zacks Rank & Key Picks
Sonoco currently carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the same sector include Chart Industries, Inc. GTLS, Roper Technologies, Inc. ROP and Welbilt, Inc. WBT. While Chart Industries and Roper sport a Zacks Rank #1 (Strong Buy), Welbilt carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Chart Industries has a long-term earnings growth rate of 26.9%. The stock has appreciated 119% in a year’s time.
Roper Technologies has a long-term earnings growth rate of 12.3%. Its shares have rallied 21% in the past year.
Welbilt has a long-term earnings growth rate of 10%. The company’s shares have been up 17% over the past year.
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