Sonoco posts record quarterly results

Sonoco, a global packaging company headquartered in Hartsville, South Carolina, has reported financial results for its first quarter of 2022 ended April 3.

The company’s net sales were a record $1.77 billion compared with $1.35 billion in the Q1 2021, while its earnings per diluted share were $1.17, an increase from 71 cents in Q1 2021. Its base net income was a record $1.85 per diluted share compared with $1 per diluted share in the same period of 2021.

Sonoco says it expects second-quarter base earnings to range from $1.20 to $1.30 per diluted share, an increase from 93 cents per diluted share in the comparable quarter of 2021. It also has updated its outlook for full-year base earnings to a range of $5.25 to $5.45 per diluted share, up from $3.93 last year.

"Our Sonoco team delivered exceptional top-line and bottom-line results during the first quarter, which exceeded the high end of our recently increased guidance and were driven by record performances in our Consumer Packaging and Industrial Paper Packaging segments,” Sonoco President and CEO Howard Coker says.

Sonoco acquired Ball Metalpack Jan. 26, and Coker says the company is “very pleased with their better-than-expected first-quarter results.”

“Overall, the company's first-quarter earnings benefited from strong price/cost recovery across most of our businesses, the addition of Metal Packaging and solid customer demand in our Consumer and All Other businesses,” he continues. “These positive factors were only partially offset by last year's divestiture of the U.S. display and packaging business and the impact of foreign currency translation.

"Our Consumer Packaging segment achieved record sales, and operating profit grew over 113 percent versus the prior-year period due primarily to the earnings added by Metal Packaging, a positive price/cost relationship, productivity improvements and solid gains in volume/mix. Our Industrial Paper Packaging segment also produced record sales and operating profit, which improved almost 39 percent over the prior-year period due primarily to positive price/cost recovery. Finally, despite strong volumes and solid price/cost results, the All Other group of businesses experienced a 23 percent decline in operating profit due mostly to the 2021 divestiture of the U.S. display and packaging business," Coker concludes.

Q1 review

Sonoco reports record net sales of $1.77 billion for the first quarter, up 30.9 percent from last year's first-quarter sales of $1.35 billion. The company attributes the growth to higher selling prices, mostly implemented to offset inflation, sales added from the Metal Packaging acquisition and 2 percent growth in volume/mix.

Net income attributable to Sonoco for the quarter was $115.3 million, or $1.17 per diluted share, an increase of $43 million, compared with $72.3 million, or 71 cents per diluted share, in the first quarter of 2021. First-quarter 2022 net income included net after-tax, nonbase charges totaling $67.4 million, or 68 cents per diluted share, the largest component of which was $36.6 million, or 37 cents per diluted share, in net acquisition-related costs related to the Metal Packaging acquisition, including $18.7 million, or 19 cents per diluted share, of charges related to purchase accounting inventory "step-up" on the acquired inventory and $17.9 million, or 18 cents per diluted share, of net expenses mostly related to professional fees, according to the company.

Among the other nonbase charges Sonoco incurred was $10.6 million, or 11 cents per diluted share, of impairment and restructuring-related charges, including a $5.7 million after-tax impairment charge related to Sonoco’s decision to exit its operations in Russia given the ongoing Russia-Ukraine conflict.

Adjusted to exclude the above and other items, Sonoco says its base earnings in the first quarter of 2022 were a record $182.7 million, or $1.85 per diluted share, compared with $101.3 million, or $1 per diluted share, in the same period of 2021, an increase of $81.4 million.

The company’s gross profit for the quarter totaled $371.6 million compared with $277.9 million in the same period last year.

Segment review

Sonoco reports its financial results in two segments: Consumer Packaging and Industrial Paper Packaging, with all remaining businesses reported as All Other.

Consumer Packaging. Sonoco’s Consumer Packaging segment primarily serves prepared and fresh food markets along with other packaging for direct-to-consumer products and includes round and shaped rigid paper containers; two- and three-piece steel tinplate cans and aerosol containers; metal and peelable membrane ends and closures; thermoformed plastic trays and containers; printed flexible packaging; and global brand artwork management.

Sonoco says its first-quarter 2022 sales for the segment were a record $868.1 million compared with $582.8 million in the first quarter of 2021. Segment operating profit was a record $173.6 million in the first quarter compared with $81.4 million in the same quarter of 2021.

Segment sales increased 49 percent year over year largely because of the Metal Packaging acquisition and higher selling prices. Sonoco says the segment volume/mix improved approximately 4 percent on solid gains in flexible packaging and plastic food packaging.

The company reports that segment operating profit increased 113.4 percent year over year also because of the Metal Packaging acquisition, favorable price/cost recovery, strong volume/mix and favorable productivity. As a result, segment operating margin improved to 20 percent in the first quarter of 2022 from 14 percent in the same 2021 period.

Industrial Paper Packaging. The Industrial Paper Packaging segment includes fiber-based tubes, cones, and cores; fiber-based construction tubes; fiber-based protective packaging and components; wooden, metal and composite wire and cable reels and spools; and recycled paperboard, corrugating medium, recovered paper and material recycling services.

First-quarter 2022 sales for the segment increased for the seventh consecutive quarter to a record $699.1 million, Sonoco says, up from $565.4 million in the first quarter of 2021. Segment operating profit was a record $72.7 million in the first quarter of 2022, compared with $52.3 million in the same quarter last year.

Segment sales increased 23.7 percent from the prior year's quarter largely because of higher selling prices implemented to offset raw material and non-material inflation, while volume/mix declined approximately 2 percent reflecting, among other things, severe winter weather, supply chain disruptions and operational closures in China stemming from COVID-19 restrictions, Sonoco says. Volume declines were concentrated in Asia and Europe tube and core operations, North America recycling and fiber protective packaging.

Segment operating profit improved 38.9 percent from the prior year's quarter, primarily driven by a positive price/cost relationship partially offset by lower volume/mix and productivity, Sonoco says. Segment operating margin grew approximately 120 basis points to 10.4 percent.

All Other. Businesses grouped as All Other include health care packaging, protective and retail security packaging and industrial plastic products.

First-quarter 2022 sales were $203.8 million compared with $205.2 million in the first quarter of 2021, Sonoco reports. The combined businesses reported an operating profit of $14.5 million in the current quarter compared to $18.8 million in the same quarter of last year.

Sales declined 0.7 percent from the prior-year quarter largely because of the divestiture of the U.S. display and packaging business, Sonoco says. The divestiture also caused operating profit to decline by 22.6 percent year over year. Operating margin declined to 7.1 percent in the quarter from 9.1 percent in the first quarter of 2021.

Looking ahead

Coker says supply chain issues have led Sonoco to delay the conversion of its Hartsville paper machine from corrugated medium to uncoated recycled paperboard to the third quarter. “This delay is expected to result in less downtime and should provide more favorable results in our Industrial Paper Packaging segment in the second quarter.”

He adds, "To meet our long-term goals, we are continuing to invest in the long-term potential of our core Consumer and Industrial businesses to drive even further growth and productivity. In addition, we are pursuing a series of self-help actions over the next few years to simplify our structure to create a more effective and efficient organization and managing our portfolio for fewer, but larger businesses.”