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Sonoco (SON) Wraps Up Corenso Holdings America Acquisition

Zacks Equity Research

Sonoco Products Company SON recently completed the acquisition of Corenso Holdings America, Inc. (CHA) for a cash consideration of $110 million.
This May, Sonoco had signed an agreement to acquire Corenso Holdings America, Inc. Corenso is a manufacturer of uncoated recycled paperboard (URB) and high-performance cores used in the packaging films, tape, paper and specialty industries. The company produced net sales of around $75 million in 2018. Corenso operates a 108,000-ton per year URB mill in Wisconsin Rapids, WI, and two core converting facilities in Wisconsin Rapids and Richmond, VA.

Notably, the deal creates a long-term opportunity for Sonoco by expanding its paperboard and core converting operations. Corenso’s best-in-class URB mill produces a wide range of coreboard grades. Additionally, it provides core converting assets and long-term partnerships with customers.

The buyout will be modestly accretive to Sonoco’s earnings in the current year. The deal was funded by cash and short-term borrowings. Further, Corenso’s financial results will be reported within Sonoco’s Paper and Industrial Converted Products segment.

Sonoco recently reported second-quarter 2019 results. Adjusted earnings were up 2.2% year over year to 95 cents per share in the quarter. The company’s net sales came in at $1.36 billion, marginally down from the prior-year quarter’s $1.37 billion. The downside primarily resulted from lower volume and stronger U.S. dollar, partly offset by increased sales from acquisitions.

Sonoco maintained its adjusted earnings per share guidance of $3.52-$3.62 for the current year. For the ongoing quarter, the company projects adjusted earnings per share of 88-94 cents compared with the year-ago quarter’s 86 cents.

Further, net sales in the Paper and Industrial Converted Products segment came in at $491.3 million in the June-end quarter, representing an increase of 3.6% year over year on the Conitex acquisition.

The company is focused on targeted acquisitions and development of products.  Last October, Sonoco acquired the remaining 70% interest in the Conitex-Sonoco joint venture and Texpack's composite can operation in Spain. The acquisition of Conitex Sonoco will assist the company in expanding its manufacturing presence in the Americas, Europe, and the rapidly-growing emerging markets in Asia. It will also help build strong customer relationships by offering innovative packaging solutions in paperboard, textile carriers and other value-added products. The company also completed the buyout of Highland Packaging Solutions last April and bought Clear Lam in July 2017. These transactions are likely to be accretive to the company’s earnings growth in the ongoing year.

Sonoco has outperformed the industry it belongs to over the past year. The stock has appreciated around 5.3% as against the industry’s loss of 31.5%.

Zacks Rank & Key Picks

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

A few better-ranked stocks in the Industrial Products sector are Unifirst Corporation UNF, Albany International Corporation AIN and Cintas Corporation CTAS. While Unifirst flaunts a Zacks Rank #1 (Strong Buy), Albany International and Cintas carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Unifirst has a projected earnings growth rate of 15.17% for the current year. The stock has gained 7% in a year’s time.

Albany International has an estimated earnings growth rate of 32.3% for 2019. The company’s shares have gained 10% in the past year.

Cintas Corporation has an expected earnings growth rate of 11.15% for the ongoing year. The stock has appreciated 26% over the past year.

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