Sonoco Products Company’s SON unit Sonoco-Alcore S.a.r.l. announced that it would implement a price rise by €70 per ton or 60 pound sterling per ton for the U.K. on all tube and core grades sold in the company’s EMEA regions. The price hike will be effective for all shipments starting on or after Sep 1, 2022.
Sonoco is executing price-increase actions in response to inflationary pressure in its business. The company continues to witness additional cost surges across all operations and supply chain sectors. This is primarily stemming from high levels of volatility in gas and electricity prices. SON’s productivity and cost-control initiatives are not enough to mitigate these costs and it is forced to pass on these costs to customers.
Sonoco-Alcore, a wholly-owned subsidiary of Sonoco, operates 24 tube and core plants and five paperboard mills in Europe. Recently, the company announced its plan to hike the price by €70 per ton on all recycled paperboard grades sold in the company’s EMEA regions. The company took this move owing to persistently rising costs for European energy.
Raw material and energy costs have been flaring up since the beginning of 2021. Management expects the trend to persist in the current year as well. Sonoco’s focus on optimizing businesses through productivity improvement, standardization and cost control will aid its performance in the upcoming period.
Apart from Sonoco, some other prominent players in the Containers – Paper and Packaging industry like Sealed Air Corporation SEE, Greif, Inc. (GEF) and Packaging Corporation of America PKG are also witnessing an unprecedented surge in material costs. These companies are implementing price hikes to offset these impacts.
Limited availability of certain raw materials and global transportation disruptions have been impacting Sealed Air’s supply chain. The company encountered higher freight costs associated with the sourcing and movement of raw materials due to tight market conditions. Even though Sealed Air is implementing price increases, the associated timing lag on these increases and formula-based pricing is likely to dent margins.
Packaging Corporation will bear the brunt of increasing energy costs due to higher gas prices, low inventory and high demand. PKG continues to face unprecedented inflation in most of its operating and converting costs, including higher freight and logistics expenses due to rail service challenges and rail fuel surcharges.
Labor shortages and supply chain disruption remain headwinds for Greif. Increasing energy, chemical and transportation costs are expected to dent the company’s margins in the near term. Costs for raw materials used in the paper-making process and old corrugated container costs are expected to increase.
Sonoco’s consumer packaging business is primarily benefiting from the Metal Packaging acquisition. The segment’s flexible packaging business is gaining from strong demand for confectionery, food service and other food products. Plastic food packaging reflects higher demand in the fresh and prepared food markets. Demand for Industrial Paper Packaging products has returned to pre-pandemic levels in most global markets. The company’s industrial-served markets will gain from strong demand for global tubes, cores and cones. The company’s ThermoSafe cold chain packaging business will continue to benefit from strong demand for temperature-assured packaging, retail security packaging, industrial plastics, and molded foam components. Its plastics business, which serves the healthcare industry, will gain from higher demand for elective surgeries.
Backed by better-than-expected results in the first two quarters of this year and a solid outlook for the remaining part of 2022, the company expects adjusted earnings per share between $6.20 and $6.30 in 2022, higher than its previous expected range of $5.25 to $5.45. The mid-point of the guidance range indicates a year-on-year surge of 59% from $3.93 reported in 2021. Continued strong recovery in price and cost across most of its businesses, benefits from Ball Metalpack (now Sonoco Metal Packaging) acquisition and solid demand are likely to contribute to 2022 results.
Sonoco is implementing several synergy opportunities, including optimizing raw material purchases, leveraging indirect expenses, and coordinating supply chain logistics. These factors will help meet Sonoco’s cost savings target of $20 million by 2024.
Sonoco’s shares have declined 1.7% in the past year compared with the industry’s fall of 6.1%.
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Sonoco currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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