Sonoco (SON) Q1 Earnings Surpass Estimates, Raises View
Sonoco Products Company SON reported record adjusted earnings per share (EPS) of $1.85 in first-quarter 2022, beating the Zacks Consensus Estimate of $1.74. The figure surpassed the company’s guidance of $1.70-$1.80. The bottom line improved 85% from the prior-year quarter’s levels, driven by strong price/cost recovery across most of the businesses, the addition of Metal Packaging, and solid customer demand in the Consumer and All Other businesses
Including one-time items, the company reported EPS of $1.17 compared with the year-ago quarter’s earnings per share of 71 cents.
Sonoco’s net sales were a record $1.77 billion, which came in line with the Zacks Consensus Estimate. The top line surged 31% year over year, driven by higher selling prices to counter inflation, contribution from the Metal Packaging acquisition and 2% growth in volume/mix. The disposition of the company's U.S. display and packaging contract businesses in April 2021 had a negative impact.
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 $1.4 billion, 30% higher than the year-earlier quarter. Gross profit in the reported quarter totaled $371.6 million compared with the prior-year quarter’s $278 million. Gross margin came in at 21% compared with the year-ago quarter’s 20.5%.
Selling, general and administrative expenses amounted to $190 million, up 31% year over year. Adjusted operating income was $261 million during the reported quarter compared with the prior-year quarter’s $152 million. Operating margin came in at 14.7%, up from the year-ago quarter’s 11.3%.
Segment Performance
The Consumer Packaging segment’s net sales were up 49% year over year to a record $868 million, due to the addition of Ball Metalpack (Metal Packaging). The operating profit amounted to $174 million, up 113% from the prior-year quarter’s levels primarily owing to earnings added by Metal Packaging, a positive price/cost relationship, productivity improvements, and solid gains in volume/mix.
Net sales in the Industrial Paper Packaging segment were a record $699 million, reflecting year-over-year growth of 24%. Operating profit totaled $73 million, reflecting a 39% year-over-year improvement on a positive price/cost recovery.
Sales for the All Other segment, which comprises protective, healthcare, retail and industrial plastics units, dipped 1% year over year to $204 million. The downside was primarily due to the disposition of the display and packaging businesses last year. Operating profit for the segment totaled $15 million compared with the year-ago quarter’s $19 million.
Financial Performance
Sonoco reported cash and cash equivalents of $151 million at the end of the first quarter of 2022 compared with $171 million at the 2021-end. The company generated cash flow from operating activities of around $139 million in the first quarter of 2021.
As of Apr 3, 2022, total debt was $3.17 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 62.3%. 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 second-quarter 2022 adjusted EPS between $1.20 and $1.30. The company had reported adjusted earnings per share of 93 cents in the second quarter of 2021.
For 2022, the company now expects adjusted EPS to be between $5.25 and $5.45. SON had earlier provided adjusted EPS guidance of $4.60 to $4.80 for the year. Operating cash flow for the year is expected in the range of $690-$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 3.6% in the past year against the industry’s growth of 3.5%.
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 Alcoa AA, Packaging Corporation of America PKG and Greif Inc. GEF. While AA and PKG flaunt a Zacks Rank #1, GEF carries a Zacks Rank #2 (Buy), at present.
Alcoa has a projected earnings growth rate of 107% for the current year. The Zacks Consensus Estimate for 2022 earnings has moved north by 76% in the past 60 days.
Alcoa delivered a trailing four-quarter earnings surprise of 17.4% on average. Alcoa’s shares have surged 81% in the past year.
Packaging Corp has an expected earnings growth rate of 12.6% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 9.5% in the past 60 days.
PKG has a trailing four-quarter earnings surprise of 22.8%, on average. PKG’s shares have gained 13% in the past year.
Greif has an estimated earnings growth rate of 16% for fiscal 2022. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 4.2%.
GEF pulled off a trailing four-quarter earnings surprise of 14.7%, on average. The company’s shares have appreciated 5% in a year’s time.
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