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Sonoco (SON) Earnings Trump, Sales Miss Estimates in Q1

Zacks Equity Research

Sonoco Products Company’s SON first-quarter 2019 adjusted earnings increased 14.8% year over year to 85 cents per share. Earnings also outpaced the higher end of management’s guided range of 77-83 cents. Also, the reported figure beat the Zacks Consensus Estimate of 80 cents.

On a reported basis, including one-time items, earnings per share came in at 73 cents, flat year over year.

Sonoco’s net sales grew 3.8% year over year to $1.35 billion in the quarter. This upside was driven by acquisitions and higher selling prices, partly offset by negative foreign currency-exchange impact. The sales figure, however, missed the Zacks Consensus Estimate of $1.37 billion.

Operational Update

Cost of sales came in at $1.08 billion, up 2.8% year over year. Gross profit during the first quarter totaled $270 million, marking an 8% improvement year over year. Gross margin came in at 20% compared with the prior-year quarter’s 19%.

Selling, general and administrative expenses totaled $142.5 million, up 3.7% year over year, primarily resulting from acquisition-related costs. Adjusted operating income increased 13% year over year to $128 million during the Jan-March quarter. Operating margin came in at 9.5% compared with 8.7% recorded 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 $590 million, up 3.5% from $570 million recorded in the prior-year quarter. Operating profit went up to $62 million from $61 million witnessed in the comparable period last year.
Net sales in the Paper and Industrial Converted Products segment came in at $496 million, representing an increase of 7.8% year over year on the Conitex acquisition and higher selling prices, partly offset by foreign exchange and lower volume. Operating profit totaled $48.4 million, up 21.6% year over year.

The Display and Packaging segment’s net sales slipped 3.5% year over year to $137.6 million. The segment’s operating profit significantly increased to $6.5 million compared to the $1.7 million reported in the year-earlier quarter.

The Protective Solution segment’s net sales came in at $128.4 million, down 2% year over year on lower volume. Operating profit of the segment improved 3% year over year to $11 million.

Financial Performance

Sonoco reported cash and cash equivalents of $124.3 million at the end of the first quarter compared with $305.2 million at the end of the prior-year quarter. The company recorded cash flow from operating activities of $92.3 million in the reported quarter compared with $119.8 million witnessed in the year-earlier period.

As of the first quarter’s end, long-term debt was $1.19 billion, relatively flat with the 2018 end figure. As of Mar 31 2019, the company’s total debt-to-capital ratio was 43.9%, flat with year-end 2018.

For 2019, Sonoco raised its adjusted earnings per share guidance to $3.52-$3.62 from the prior view of $3.47-$3.57. Operating cash flow and free cash flow guidance remained unchanged. 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 second-quarter 2019, the company projects adjusted earnings per share of 93-99 cents compared with the year-ago quarter’s 93 cents.

Share Price Performance

Over the past year, Sonoco has outperformed the industry it belongs to. The stock has appreciated around 17.6% compared with the industry’s 0.8% growth.

Zacks Rank and Other Key Picks

Sonoco currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the Industrial Products sector are DMC Global Inc. BOOM, Lawson Products, Inc. LAWS and DXP Enterprises, Inc. DXPE, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

DMC Global has an estimated earnings growth rate of 77.3% for the ongoing year. The company’s shares have soared 117%, in the past year.

Lawson Products has an expected earnings growth rate of a whopping 102.5% for the current year. The stock has appreciated 35% in a year’s time.

DXP Enterprises has a projected earnings growth rate of 21.6% for 2019. The company’s shares have gained 24%, over the past year.

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