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Sonoco (SON) Raises 2018 Guidance on Insurance Recovery

Sonoco Products Company SON revised fourth-quarter and fiscal 2018 guidance due to the receipt of business interruption insurance proceeds in the fourth quarter associated with the impact of flooding on operations owing to Hurricane Florence in September. The company anticipates delivering a record performance on all counts — sales, operating profit, earnings, operating cash flow and free cash flow, in 2018. Despite hurricanes, inflation, impact of tariffs and weak consumer-served market demand, Sonoco’s strong, diversified business mix, solid balance sheet is likely to drive results. The company also expects to deliver improved results in fiscal 2019.

 

2018 Guidance Hiked

 

Sonoco raised fourth-quarter 2018 outlook to 79-85 cents per share compared with its previous guidance of 75–81 cents. Compared with earnings of 82 cents in fourth-quarter 2017, the mid-point of the new guidance range reflects year-over-year growth of 14%.

 

Sonoco Products Company Price

 

Sonoco Products Company Price

Sonoco Products Company price | Sonoco Products Company Quote

The 2018 earnings guidance was revised upward to $3.32 to $3.38, reflecting a projected increase of 20% from $3.35 per share earned in the prior year. The receipt of business interruption insurance proceeds associated with the impact of flooding on operations owing to Hurricane Florence in September led to the raised guidance for both the time periods.

Sonoco's paper mill operations in Hartsville, SC, were temporarily shut down owing to flooding caused by Hurricane Florence. The company had also temporarily closed operations at several of its recycling operations, tube and core plants, and other operations in Virginia, North Carolina and South Carolina due to the impact of the storm. All operations have now resumed production. Lost production and sales at impacted facilities due to the hurricane affected third-quarter earnings by approximately 4 cents per share.

 

The operating cash flow guidance for the year has been raised to $590-$610 million, from the earlier range of $580 million to $600 million.  The company expects free cash flow for the year to range between $250 million and $270 million, up from the previous expectation of between $230 million and $250 million,  on account of lower-than-anticipated capital spending.

 

Initiates 2019 EPS Guidance

 

For fiscal 2019, Sonoco estimates earnings per share at $3.47-$3.57. The mid-point of the guidance range is at $3.52 per share. This excludes the non-service components of net pension expense which are expected to amount approximately $11 million. It also does not reflect the pending adoption of the new lease accounting standard which will come into effect from Jan 1, 2019.

 

The target factors in a positive impact from acquisitions of 6 cents per share, an 8 cents per share from volume/mix growth and another 27 cents from positive price/cost relationship driven by procurement productivity and commercial excellence initiatives. However, these benefits will be offset somewhat by an expected 10 cents per share from non-material inflation in excess of productivity and an impact of 10 cents per share from other fixed-cost charges. Additionally, higher income taxes and a strengthening of the dollar against other currencies will impact earnings by 4 cents per share.

 

At the midpoint, 2019 cash flow from operations is projected to be approximately $610 million. Free cash flow is projected to be approximately $235 million after an estimated capital spending at $205 million and payment of dividend of $170 million. Depreciation and Amortization is projected to be $252 million in 2019. The increase in 2019 operating cash flow and free cash flow projects year-over-year growth of 6.5% and 11.9%, respectively.

 

Focused on Growth

 

Sonoco is on track to implement its Grow and Optimize strategy in 2018. The company remains focused on targeted acquisitions, and development of new products and income prospects in the United States. It will continue to emphasize on optimizing businesses through process improvement, standardization, cost control and commercial excellence. Its focus on thermoformed plastics, flexible packaging and consolidating industrial opportunities, particularly in the emerging markets, will also aid growth.

 

Price Performance

 

 

Shares of Sonoco have gained around 4% over the past year against the industry’s decline of 15%.

 

Zacks Rank

 

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

 

Some better-ranked stocks in the same sector are Enersys ENS, CECO Environmental Corp. CECE and Northwest Pipe Company NWPX, all three carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Enersys has a long-term earnings growth rate of 10%. Its shares have rallied 17% in a year’s time.

 

CECO has a long-term earnings growth rate of 15%. The stock has surged 66% over the past year.

 

Northwest Pipe has a long-term earnings growth rate of 10%. The stock has gained 22% over the past year.

 

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