Sonoco (SON) Hurt by Volume Decline and Higher Expenses
Sonoco Products Company SON has been witnessing lower volumes due to customer inventory destocking, which is likely to continue in the second half of 2023 and dent the company’s margin. Escalating raw material costs and supply-chain headwinds have added to its woes.
Benefits from recent acquisitions and strong recovery in price across most of its businesses are being offset by elevated raw material, energy and freight costs.
Low Volume to Ail
In the second quarter of 2023, the company faced lower volumes as customers have been lowering their inventories. This is likely to continue in the second half of the year and keep denting margins.
Backed by the lower-than-expected second-quarter performance, the company cut its adjusted EPS guidance for 2023 to $5.10-$5.40 from the previously disclosed $5.70-$6.00. SON anticipates low-volume trends in the Consumer Packaging and Industrial Paper Packaging businesses to continue for the rest of the year.
High Costs & Supply Issues Hurt Margins
Sonoco will continue to bear the brunt of raw material, energy and freight cost pressures, and the impacts of supply-chain disruptions.
The company’s bottom line is impacted by unfavorable foreign currency translation and divestitures. Increased SG&A expenses are worrisome. These are likely to persist and dent its results in the upcoming quarters.
A less favorable price/cost environment in Industrial during the second half of the year will also impact earnings.
High Debt Levels Act as Woe
Sonoco’s total debt was $3.15 billion as of Jul 2, 2023, with a total-debt-to-total-capital ratio of 54.2%. The high total debt primarily resulted from the debt incurred to fund the Metal Packaging acquisition in January 2022. Elevated interest expenses will impact its margins.
In the second quarter of 2023, Sonoco reported adjusted earnings per share (EPS) of $1.38 in second-quarter 2023. The bottom line fell 22% from the prior-year quarter’s levels. Sonoco’s net sales were $1,705 million, down 11% year over year due to lower volumes.
SON has a trailing four-quarter surprise of 2.5%, on average.
Sonoco belongs to the Containers - Paper and Packaging industry, along with AptarGroup, Inc. ATR, Packaging Corporation of America PKG and Sealed Air Corporation SEE.
Let's take a look at its peers' quarterly performances.
AptarGroup reported second-quarter 2023 adjusted earnings per share of $1.23, which increased 26% year over year.
Total revenues rose 6% year over year to $896 million in the quarter. ATR has a trailing four-quarter surprise of 8.6%, on average.
Packaging Corp reported adjusted earnings per share of $2.31 in the second quarter of 2023, decreasing 28% year over year.
Sales in the second quarter fell 12.7% year over year to $1,952 million. PKG has a trailing four-quarter surprise of 5.1%, on average.
Sealed Air reported second-quarter 2023 adjusted earnings per share of 80 cents, which fell 21% year over year due to lower volumes.
Total revenues were down 2.6% year over year to $1,381 million in the reported quarter. SEE has a trailing four-quarter surprise of 5.6%, on average.
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