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Sonoco (SON) Beats on Q2 Earnings & Revenues, Ups '22 View

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·5 min read
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Sonoco Products Company SON reported adjusted earnings per share (EPS) of $1.76 in second-quarter 2022, beating the Zacks Consensus Estimate of $1.67. The figure came within the company’s guidance of $1.60-$1.70. The bottom line improved 89% from the prior-year quarter’s levels, driven by strong strategic pricing performance across most of its businesses, the contribution from the Metal Packaging acquisition and productivity gains.

Including one-time items, the company reported EPS of $1.33, which compared favorably with the year-ago quarter’s loss per share of $3.34.

Sonoco’s net sales were a record $1.91 billion, which beat the Zacks Consensus Estimate of $1.87 billion. The top line surged 38% year over year, courtesy of strong pricing performance and sustained robust results from the Metal Packaging acquisition. However, the negative impact of foreign currency translation somewhat negated the gains.

Sonoco Products Company Price, Consensus and EPS Surprise

Sonoco Products Company Price, Consensus and EPS Surprise
Sonoco Products Company Price, Consensus and EPS Surprise

Sonoco Products Company price-consensus-eps-surprise-chart | Sonoco Products Company Quote

Operational Update

Cost of sales was $1.5 billion, 36% higher than the year-earlier quarter. Gross profit in the reported quarter totaled $387 million compared with the prior-year quarter’s $263 million. Gross margin came in at 20.2% compared with the year-ago quarter’s 19%.

Selling, general and administrative expenses amounted to $179 million, up 39% year over year.

Adjusted operating income was $250 million during the reported quarter compared with the prior-year quarter’s $141 million. Operating margin came in at 13.1%, up from the year-ago quarter’s 10.2%.

Segment Performance

The Consumer Packaging segment’s net sales were up 66% year over year to a record $990 million due to the addition of the Metal Packaging acquisition. Operating profit amounted to $139 million, up 113% from the prior-year quarter’s levels, primarily owing to earnings added by Metal Packaging, solid price/cost performance and favorable productivity.

Net sales in the Industrial Paper Packaging segment were a record $727 million, reflecting year-over-year growth of 19% due to strong pricing performance, modestly offset by the negative impacts of foreign exchange and lower volume/mix. Operating profit totaled $94 million, another record for the segment, reflecting a 57% year-over-year improvement on a strong price/cost performance that was modestly offset by lower volume/mix. .

Sales for the All Other segment, which comprises protective, healthcare, retail and industrial plastics units, rose 11% year over year to $196 million. Operating profit for the segment totaled $17 million compared with the year-ago quarter’s $16 million.

Financial Performance

Sonoco reported cash and cash equivalents of $175 million at the end of the second quarter of 2022 compared with $171 million at the 2021-end. The company generated cash flow from operating activities of around $184 million in the first half of 2022 compared with $102 million reported in the prior-year comparable period.

As of Jul 3, 2022, total debt was $3.13 billion, compared with $1.61 billion as of Dec 31, 2021. At the end of the reported quarter, Sonoco’s total debt to total capital was 61.8%.  Compared to 46.5% at the end of 2021, SON’s total debt to total capital has gone up, mainly due to the issuance of unsecured notes and proceeds from a new term loan used to fund the Metal Packaging acquisition.

Guidance

Sonoco projects third-quarter 2022 adjusted EPS between $1.35 and $1.45. The company had reported adjusted earnings per share of $1.00 in the third quarter of 2021.

For 2022, the company now expects adjusted EPS between $6.20 and $6.30. Operating cash flow for the year is expected in the range of $690 million to $740 million, while free cash flow is expected between $365 million and $415 million.

Price Performance

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Sonoco’s shares have lost 0.4% in the past year against the industry’s growth of 4.6%.

Zacks Rank and Other Stocks to Consider

Sonoco currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other top-ranked stocks in the Industrial Products sector are Greif Inc. GEF, Titan International TWI and RBC Bearings ROLL. While GEF and TWI each flaunt a Zacks Rank #1, ROLL carries a Zacks Rank #2 (Buy) at present.

Greif has an estimated earnings growth rate of 37% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 17%.

Greif pulled off a trailing four-quarter earnings surprise of 22.9%, on average. The company’s shares have gained 14.7% in the past year.

Titan International has an estimated earnings growth rate of 165% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 43%.

Titan International pulled off a trailing four-quarter earnings surprise of 56.4%, on average. The company’s shares have appreciated 114.7% in a year’s time.

RBC Bearings has an expected earnings growth rate of 48% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 6% in the past 60 days.

RBC Bearings has a trailing four-quarter earnings surprise of 3.4%, on average. ROLL’s shares have moved up 7.4% in the past year.


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