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Sonoco (SON) Hikes Prices for Uncoated Recycled Paperboard

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Sonoco Products Company SON is implementing price increase by $70 per ton for all grades of uncoated recycled paperboard (URB) sold in the United States and Canada. The price hike will be effective relating to the shipments starting Sep 7.

Sonoco is executing price-rise actions in response to the solid demand across its United States and Canada URB mill network, which is driving significantly larger order backlogs, as well as higher input costs.

Recently, the company reported second-quarter 2021 results. Sonoco came out with adjusted earnings of 84 cents, missing the Zacks Consensus Estimate of 87 cents. The figure was in line with the company’s guidance of 82-88 cents. The bottom line, however, improved 6% from the prior-year quarter aided by benefits from volume/mix growth and productivity improvements.

The company’s revenues were $1.38 billion, which beat the Zacks Consensus Estimate of $1.32 billion. The top line grew 11% year over year, driven by an 8% improvement in volume/mix, solid demand recovery in most of the industrial-related businesses, higher selling prices to combat inflation and contribution from the Can Packaging acquisition.

Sonoco expects adjusted earnings per share to lie between $3.50 and $3.60. In 2020, it reported adjusted earnings per share of $3.41. For third-quarter 2021, Sonoco projects adjusted earnings per share between 87 cents and 93 cents compared with the earnings of 86 cents reported in third-quarter 2020. However, the company cautioned that raw material and non-material cost inflation, and the impact of the COVID-19 pandemic on global supply chains remain headwinds.

In the consumer-related businesses, Sonoco expects volumes to be above the pre-pandemic levels despite more normalized demand for food packaging as consumers’ moderate at-home eating patterns. It believes confectionery, food service and construction products markets will continue to recover which were mostly impacted by the pandemic. Sonoco’s industrial-served markets will gain from the historically high backlogs for uncoated recycled paperboard in the United States and Canada, coupled with robust demand for global tubes, cores and cones returning to pre-pandemic levels. Meanwhile, Sonoco’s Consumer Packaging and Industrial Paper Packaging segments are likely to witness a negative price/cost in the third quarter owing to rising recycled fiber and resin prices as well as higher freight costs.

The company is focused on driving growth and margin expansion, and generating solid free cash flow. Apart from this, its focus on optimizing businesses through productivity improvement, standardization and cost control will aid performance in the upcoming period.

Price Performance

Sonoco’s shares have gained 19.2% over the past year compared with the industry's rally of 24.8%.

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Zacks Investment Research

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Zacks Rank & Stocks to Consider

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

Better-ranked stocks in the Industrial Products sector include Greif, Inc. GEF, Lindsay Corp. LNN and Pentair PNR, each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Greif has an anticipated earnings growth rate of 47.2% for fiscal 2021. The company’s shares have gained 29.9%, in the past year.

Lindsay has an estimated earnings growth rate of 1% for the ongoing fiscal year. In a year's time, the company’s shares have rallied 22.3%.

Pentair has a projected earnings growth rate of 26% for 2021. The stock has appreciated 36.7%, over the past year.

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