U.S. Markets close in 1 hr 9 mins

Sonoco (SON) Earnings Beat & Sales Miss Estimates in Q4

Zacks Equity Research

Sonoco Products Company’s SON fourth-quarter 2018 adjusted earnings increased 16.7% year over year to 84 cents per share and were close to the high end of management’s guided range of 79-85 cents. The reported figure beat the Zacks Consensus Estimate of 81 cents.

On a reported basis, including one-time items, earnings per share came in at 77 cents compared with 6 cents in the year-ago quarter.

Sonoco’s net sales grew 4.6% year over year to $1.36 billion in the quarter. This improvement was driven by acquisitions and higher selling prices, partly offset by the negative impact of foreign exchange and lower volume in the Industrial Converted Products and Consumer Packaging and Paper segments. However, the sales figure missed the Zacks Consensus Estimate of $1.37 billion.

Operational Update

Cost of sales came in at $1.1 billion, up 4.7% year over year. Gross profit during the fourth quarter totaled $254 million, marking a 4% improvement year over year. Gross margin came in at 18.7% compared with 18.8% in the prior-year quarter.

Selling, general and administrative expenses totaled $148.8 million, up 16% year over year, primarily resulting from acquisition-related costs and wage inflation. Adjusted operating income was $116 million in the fourth quarter, down 1.4% year over year. Operating margin came in at 8.6% compared with 9% in the year-ago quarter.

Sonoco Products Company Price, Consensus and EPS Surprise

 

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

Segment Performance

The Consumer Packaging segment reported net sales of $574 million, up 3.6% from $554 million recorded in the prior-year quarter. Operating profit came in at $43.7 million, down 34.7% from the year-ago quarter.

Net sales at the Paper and Industrial Converted Products segment came in at $512.4 million, reflecting an increase of 8.8% year over year on the Conitex acquisition and higher selling prices, partly offset by foreign exchange and lower volume. Operating profit totaled $55.9 million, up 22.6% year over year.

The Display and Packaging segment’s net sales came in at $141.2 million, relatively flat with the year-ago quarter’s $142.4 million owing to volume growth and higher selling prices, partly offset by reduced sales from exiting the Atlanta packaging center contract. The segment reported operating profit of $8.4 million in the fourth quarter against a loss of $4.1 million in the year-earlier quarter.

The Protective Solution segment’s net sales came in at $128 million, down 2.4% year over year primarily due to negative foreign exchange impact. Operating profit at the segment totaled $8.2 million, down 10.2% year over year.

Financial Performance

Sonoco reported cash and cash equivalents of $120 million at the end of fourth-quarter 2018, down from $255 million recorded at end-2017. The company reported cash flow from operating activities of $589.9 million in 2018, compared with $348.3 million last year.

Long-term debt was $1.19 billion as of Dec 31, 2018, down from $1.29 billion as of Dec 31, 2017. As of Dec 31 2018, the company’s total debt-to-capital ratio was 43.9% compared with 45.6% as of Dec 31, 2017.

On Oct 1, 2018, Sonoco acquired the remaining 70% interest in the Conitex Sonoco joint venture and a composite can operation in Spain from Texpack, Inc., for approximately $145 million. Also, Sonoco acquired an additional 19% interest in its Sonoco Asia, LLC, joint venture from PFE Hong Kong Limited for $35 million. Conitex Sonoco's results will be included in Sonoco’s Paper and Industrial Converted Products segment and the Spanish composite can operation in the Consumer Packaging segment.

2018 Results

Sonoco reported adjusted earnings per share of $3.37 in 2018, up 21% from $2.79 in the prior year. Earnings beat the Zacks Consensus Estimate of $3.34. On a reported basis, including one-time items, earnings per share came in at $3.10 compared with $1.74 in the year-ago quarter.

Sales increased 7% year over year to $5.39 billion. The top line missed the Zacks Consensus Estimate of $5.41 billion.

Guidance

For 2019, Sonoco maintained its adjusted earnings per share guidance to $3.47-$3.57. The mid-point of the guidance is at $3.52 a share. Operating cash flow is expected in the range of $600-$620 million and free cash flow is anticipated between $225 million and $245 million.

For first-quarter 2019, the company expects adjusted earnings per share of 77-83 cents compared with the year-ago quarter’s 74 cents.

Share Price Performance

Over the past year, Sonoco has outperformed the industry it belongs to. The stock has gained around 20.5%, while the industry saw a decline of 5.7%.



Zacks Rank & Stocks to Consider

Sonoco currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Industrial Products sector are Alarm.com Holdings, Inc. ALRM, Ennis, Inc. EBF and Axon Enterprise, Inc AAXN. While Alarm.com and Ennis currently flaunt a Zacks Rank #1 (Strong Buy), Axon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alarm.com has an expected earnings growth rate of 7.8% for 2019.  The stock has climbed 69.3% in a year’s time.

Ennis has an expected earnings growth rate of 13.9% for 2019. Its shares have gained 4.3% in the past year.

Axon has an expected earnings growth rate of 14.5% for 2019. The company’s shares have rallied 89.9% in the past year.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
 
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
 
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
 
See Stocks Today >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Sonoco Products Company (SON) : Free Stock Analysis Report
 
Alarm.com Holdings, Inc. (ALRM) : Free Stock Analysis Report
 
Axon Enterprise, Inc (AAXN) : Free Stock Analysis Report
 
Ennis, Inc. (EBF) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research