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Sonoco's (SON) Earnings & Revenues Miss Estimates in Q2

Zacks Equity Research

Sonoco Products Company’s SON second-quarter 2019 adjusted earnings increased 2.2% year over year to 95 cents per share. Earnings came within the management’s guidance of 93-99 cents. However, the reported figure missed the Zacks Consensus Estimate of 97 cents.

On a reported basis, including one-time items, earnings per share came in at 80 cents, compared with the year-ago quarter’s 88 cents.

Sonoco’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. The sales figure also missed the Zacks Consensus Estimate of $1.42 billion.

Operational Update

Cost of sales came in at $1.08 billion compared with the $1.09 billion recorded in the year-earlier quarter. Gross profit during the second quarter totaled $275 million, slightly down from the year-ago quarter’s $276 million. Gross margin came in at 20.2%, flat year on year.

Selling, general and administrative expenses totaled $132.2 million, down 6.2% year over year, primarily resulting from acquisition-related costs. Adjusted operating income increased 4.4% year over year to $144.3 million during the April-June quarter. Operating margin came in at 10.6% compared with the 10.1% recorded in the year-ago quarter.

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

Segment Performance

The Consumer Packaging segment reported net sales of $603 million, down 2.2% from $616 million recorded in the prior-year quarter. Operating profit edged down to $62.9 million from $63.7 million witnessed in the comparable period last year.

Net sales in the Paper and Industrial Converted Products segment came in at $491.3 million, representing an increase of 3.6% year over year on the Conitex acquisition, partly offset by foreign exchange and lower volume. Operating profit totaled $61.2 million compared to the $61.5 million recorded in the comparable period last year.

The Display and Packaging segment’s net sales slipped 5.9% year over year to $134.8 million. The segment reported an operating profit of $5.9 million compared with an operating loss of $0.57 million reported in the year-earlier quarter.

The Protective Solution segment’s net sales came in at $130.8 million, down 1.6% year over year on lower volume. Operating profit of the segment improved 4.8% year over year to $14.3 million.

Financial Performance

Sonoco reported cash and cash equivalents of $96.3 million at the end of the second quarter compared with $197.7 million witnessed at the end of the prior-year quarter. The company recorded cash flow from operating activities of $40 million in the reported quarter compared with $251.2 million in the year-earlier period.

As of the second quarter’s end, long-term debt was $1.18 billion compared with the $1.19 billion recorded at the end of 2018. As of Jun 30, 2019, the company’s total debt-to-capital ratio was 45.5% compared with 43.9% reported at the end of 2018.

Acquisition

This May, Sonoco signed an agreement to acquire Corenso Holdings America, Inc. from Madison Dearborn Partners, LLC, for a cash consideration of $110 million. The deal is expected to close in this year’s third quarter.

Guidance

For 2019, Sonoco maintained its adjusted earnings per share guidance of $3.52-$3.62. Nevertheless, the company lowered its operating cash flow and free cash flow guidance. Operating cash flow is expected between $435 million and $455 million compared with the prior estimate of $600 million to $620 million. Free cash flow is projected at $60-$80 million compared with the previous expectation of $225 million and $245 million.

For the ongoing quarter, the company projects adjusted earnings per share of 88-94 cents compared with the year-ago quarter’s 86 cents.

Share Price Performance

Over the past year, Sonoco has outperformed the industry it belongs to. The stock has appreciated around 11.9% compared with the industry’s loss of 27.1%.



Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are Roper Technologies, Inc. ROP, John Bean Technologies Corp. JBT and CECO Environmental Corp. CECO, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here

Roper Technologies has an estimated earnings growth rate of 9.8% for the ongoing year. The company’s shares have gained 33.4% in the past year.

John Bean Technologies has an expected earnings growth rate of 5.9% for the current year. The stock has appreciated 30.1% in a year’s time.

CECO Environmental has a projected earnings growth rate of 84.8% for 2019. The company’s shares have rallied 7.6% over the past year.

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