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Sonoco (SON) Sells U.S Display & Packaging Business for $80M

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Sonoco Products Company SON recently divested its Display and Packaging business in the United States to Hood Container Corporation for cash proceeds of $80 million. The divesture supports Sonoco’s focus on expanding its core Consumer and Industrial packaging businesses across the globe. Net proceeds from the sale are likely to be utilized in further investments and returning capital to shareholders.

Based in Atlanta, GA, Hood Container is a leading manufacturer of integrated paperboard and specialty paper. The company operates in containerboard, kraft paper, corrugated boxes, high-graphic displays and contract packaging, corrugated, folded box and displays.

Sonoco’s U.S Display and Packaging business provides point-of-purchase display design, supply-chain management services, manufacturing and fulfillment as well as contract packaging services for consumer product customers. This business operates eight manufacturing and fulfillment facilities with four sales and design centers in Winston-Salem, NC. In 2020, the Display and Packaging business generated net sales of around $135 million.

Sonoco’s Display and Packaging business had been bearing the brunt of weak retail promotional display activity. In December 2020, the company sold its Display and Packaging segment’s contract packaging business in Europe to Prairie Industries Holdings for cash proceeds of $120 million. This divesture is expected to have unfavorably impacted the company’s bottom-line results during the March-end quarter.

Meanwhile, Sonoco’s Consumer Packaging segment is gaining from robust demand for food packaging due to rising at-home eating habits amid the pandemic. Demand in the Industrial Paper Packaging segment’s served markets is improving, while paperboard operations in North America are gaining from elevated demand for the tissue and towel markets. The company’s Protective Solutions segment is likely to have witnessed higher demand in the pharmaceutical and appliance-served markets during the January-March period.

Considering these factors, Sonoco projects adjusted earnings per share between $3.40 and $3.60 for 2021, indicating year-over-year growth of 3% at the mid-point. Management also projects sales volume improvement across all segments.

The company is focused on driving growth and margin expansion, and generating solid free cash flow. Moreover, Sonoco’s focus on optimizing businesses through productivity improvement, standardization and cost control will aid its performance in the near term. However, higher recovered paper, freight and other operating costs as well as mounting Old Corrugated Containers (OCC) price might erode the company’s margins.

Price Performance

Shares of Sonoco have gained 37.4% over the past year, compared with the industry's growth of 55.8%.

Zacks Rank & Stocks to Consider

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

A few better-ranked stocks in the Industrial Products sector are Deere & Co. DE, AGCO Corporation AGCO and Crown Holdings, Inc. CCK, 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.

Deere has a projected earnings growth rate of 82.5% for fiscal 2021. Over the past year, the company’s shares have soared 133.2%.

AGCO has an estimated earnings growth rate of 29.9% for the ongoing year. The company’s shares have surged 134.1% in the past year.

Crown Holdings has an expected earnings growth rate of 16.2% for 2021. The stock has appreciated 80.1% in a year’s time.

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