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Sonoco (SON) Q4 Earnings & Revenue Beat Estimates, Up Y/Y

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Sonoco Products Company SON reported adjusted earnings of 82 cents in fourth-quarter 2020, surpassing the Zacks Consensus Estimate of 77 cents and management’s guidance of 70-80 cents. Moreover, the bottom line improved 9% year over year on strong productivity improvements, higher volumes and contribution from acquisitions. However, these gains were somewhat offset by a negative price/cost relationship on account higher year-over-year recovered paper costs, which primarily impacted the Paper and Industrial Converted Products segment and increased interest expense.

On a reported basis, including one-time items, the company reported a loss per share of 12 cents per share against an earnings per share of 44 cents in the year-ago quarter.

Sonoco’s net sales were $1.38 billion, which beat the Zacks Consensus Estimate of $1.31 billion. The top line also recorded year-over-year growth of 3% on strong volume gains, higher selling prices and benefits from acquisitions.

Sonoco Products Company Price, Consensus and EPS Surprise

Sonoco Products Company Price, Consensus and EPS Surprise
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 were $1,102 million compared with the $1,062 million in the year-earlier quarter. Gross profit during the reported quarter totaled $275 million, up 11% year over year. Gross margin came in at 20%, a 110 basis point expansion year over year reflecting higher volumes and strong productivity results.

Selling, general and administrative expenses amounted to $157 million, up 16% year over year. Adjusted operating income increased 11% year over year to $126 million during the quarter under review. Operating margin came in at 9.2% compared with the year-ago quarter’s 8.7%.

Segment Performance

The Consumer Packaging segment’s net sales were up 10% year over year to $616 million. Operating profit amounted to $68.6 million, reflecting an increase of 47% from the $47 million in the comparable period last year.

Net sales in the Paper and Industrial Converted Products segment totaled $509 million, reflecting year-over-year growth of 4%. Operating profit totaled $36 million compared with $50 million reported in the year-ago period.

The Display and Packaging segment’s net sales slumped 20% year over year to $109 million. The segment reported an operating profit of $5.8 million, which came in 11% lower than the year-earlier quarter.

The Protective Solution segment’s net sales amounted to $142 million, up 17% from the prior-year quarter. Operating profit of the segment improved 43% year over year to $16 million.

Sonoco also announced that it will change its operating and reporting structure in 2021 and will henceforth report its results in two segments — Consumer Packaging and Industrial Paper Packaging. The remaining businesses, which will primarily comprise healthcare and protective packaging businesses will be reported as “All Other” in its forthcoming results.

Financial Performance

Sonoco reported cash and cash equivalents of $565 million at the end of 2020 compared with $145 million at the end of fiscal 2019. The company generated cash flow from operating activities of a record $706 million in 2020, an improvement from $426 million in 2019. In 2020, free cash flow was $349 million compared with $74 million in 2019.

As of the 2020-end, total debt was $1.70 billion compared with $1.68 billion at the end of 2019. At the end of 2020, Sonoco’s total debt to total capital was 47.1% compared with 48.1% at the end of 2019.

2020 Results

Sonoco’s adjusted earnings per share in 2020 was $3.41, down 3% from the prior-year’s figure of $3.53. The bottom line beat the Zacks Consensus Estimate of $3.36 and the company’s guidance of adjusted earnings per share between $3.29 and $3.39. Including one-time items, the company delivered an earnings per share of $2.05 in 2020 compared with $2.88 in 2019.

Sales decreased 2% year over year to $5.27 billion from the prior-year figure of $5.37 billion. The top line beat the Zacks Consensus Estimate of $5.17 billion.

Other Updates

On Nov 30, 2020, Sonoco completed the sale of its Europe contract packaging business to Prairie Industries Holdings for $120 million in cash. The business was part of the Display and Packaging Segment. The divestiture is in sync with the company’s efforts to simplify its operating structure and focus on growing its core Consumer and Industrial packaging businesses. Net proceeds from the transaction are expected to be utilized to reduce short-term debt and improve its liquidity position.

Guidance

Sonoco expects first-quarter 2021 adjusted earnings per share between 80 cents and 90 cents compared with earnings of 94 cents reported in first-quarter 2020. For 2021, the company projects adjusted earnings per share between $3.40 and $3.60. The mid-point of the range indicates year-over-year growth of 3%. The guidance is based on the assumption that global business activity will begin to return to pre-pandemic levels after mid-2021.

The company anticipates cash flow from operations to range between $570 million and $600 million in 2021 and free cash flow is expected in the range of $270 million to $300 million.

The company expects the Consumer Packaging segment to continue benefiting from consumers' at-home eating habits. Demand in the Industrial Paper Packaging served markets continues to show sequential improvement. However, the company expects a negative price/cost relationship due to mounting year-over-year recovered paper, freight and other operating costs. In All Other segments, demand is anticipated to remain strong in pharmaceutical and industrial markets.

Price Performance

The company’s shares have gained 4.8% in the past year compared with the industry’s growth of 21.9%.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector include Mueller Industries, Inc. MLI, AGCO Corporation AGCO and Myers Industries, Inc. MYE, each carrying a Zacks Rank #1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mueller Industries has a projected earnings growth rate of 1% for the current year. Shares of the company have gained 16% over the past year.

AGCO has an estimated earnings growth rate of 30% for 2021. The company’s shares have rallied 76% in the past year.

Myers Industries has an expected earnings growth rate of 16% for the ongoing year. In the past year, the stock has surged 33%.

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