Sonoco Q4 sales up from 2019 levels

Sonoco, a global packaging firm based in Hartsville, South Carolina, reports that its fourth-quarter net sales were $1.38 billion, up from $1.31 billion in 2019. The company says this is an increase of 5.2 percent from last year’s fourth quarter. Sales grew during the quarter in light of strong volume gains, higher selling prices and acquisition sales net of divestitures.

Full-year 2020 net sales were down slightly at $5.24 billion compared with $5.37 billion in 2019.

According to the company’s Q4 earnings report, Sonoco’s full-year cash flow from operations was $705.6 million in 2020 compared with $425.9 million in 2019. Free cash flow in 2020 was $349.3 million compared with $74.3 million in 2019. Also within the quarter on Nov. 30, 2020, Sonoco sold its Europe contract packaging business, part of the Display and Packaging segment, for $120 million in cash, net of working capital and other adjustments.

Sonoco reports that base earnings for the first quarter of 2021 are estimated to be in the range of 80 cents to 90 cents per diluted share compared with 94 cents per diluted share in the first quarter of 2020. Full-year 2021 base earnings are expected to be in the range of $3.40 to $3.60 per diluted share. Full-year 2021 cash flow from operations and free cash flow are expected to be between $570 million to $600 million as well as $270 million to $300 million, respectively.

“2020 was both a test of our resolve as a company and a testament to the strength of our people,” says Howard Coker, Sonoco president and chief executive officer. “Despite the impact of the pandemic-induced global recession, we quickly refocused operations on accelerating production of food packaging to meet consumers’ growing preference for at-home eating, while making adjustments in our industrial-related and protective packaging businesses in response to demand swings. We developed vitally needed temperature-assured packaging to begin shipping life-saving vaccines and therapeutic drugs to combat the spread of the coronavirus, and we further improved our portfolio by acquiring Can Packaging, a French designer and manufacturer of sustainable paper packaging and related equipment, while divesting our lower-margin Europe contract packaging business.”

Coker says the company “performed well” in the fourth quarter of 2020, exceeding the high end of its base earnings guidance. He says volume and mix drove a 4 percent improvement in Sonoco’s sales growth. He notes that the Consumer Packaging segment achieved 47 percent improvement in operating profit for the quarter, reflecting “continued strong food packaging demand.” The company’s Paper and Industrial Converted Products segment reported sequential improvement in operating profit, although year-over-year results were off by 28 percent. Sonoco’s Protective Solutions segment achieved 42 percent improvement in operating profit driven by strong customer demand. Coker adds that the company’s Display and Packaging segment results were “modestly lower” due to the divestiture of its European contract packaging business.

He adds, “Overall, the company’s bottom-line results benefited from strong productivity and positive sales volume and mix. These positive factors were partially offset by a negative price and cost relationship, stemming from higher year-over-year recovered paper costs, which primarily impacted our Paper and Industrial Converted Products segment and increased interest expense.

“Finally, we achieved record cash flow from operations and free cash flow in 2020 reflecting our solid earnings performance and disciplined focus on managing working capital. Sonoco maintains a strong liquidity position and repaid $442 million of debt during the fourth quarter to further support our investment-grade credit rating. Our strong cash flow and balance sheet provide us the flexibility to invest in growing our business both organically and through acquisitions while continuing to return cash to our shareholders through dividends, including our recently announced 4.7 percent increase.”

Segment results

Sonoco’s Paper and Industrial Converted Products segment includes the following products: paperboard tubes, cores and cones; fiber-based construction tubes; wooden, metal and composite wire and cable reels and spools; and recycled paperboard, corrugating medium, recovered paper and material recycling services. Fourth-quarter 2020 sales for the segment were $509.1 million, up from $491.5 million in 2019. Segment operating profit was $36 million in the fourth quarter compared with $50 million in 2019.

Segment sales increased 3.6 percent from the prior-year’s quarter driven by an almost 2 percent improvement in volume and mix as well as higher selling prices. Sonoco reports that global paperboard and corrugated medium demand improved slightly during the quarter offset by reduced recycled pulp international sales. Globally tube, core and cone volume and mix improved slightly in the quarter as demand growth in Europe, Asia and Brazil was only partially offset by a decline in demand in the U.S. and Canada.

Sonoco reports that segment operating profit declined 28 percent from the prior year’s fourth quarter as strong productivity improvements and positive volume and mix were more than offset by a negative price and cost relationship stemming from increased recovered paper prices and higher operating costs. Segment operating margin declined 310 basis points to 7.1 percent.

2021 outlook

Sonoco reports that the ultimate impact of COVID-19 on Sonoco’s full-year 2021 results remains “uncertain.” The company is assuming that global business activity will begin to return to prepandemic levels after mid-2021. As a result, the company says it is projecting full-year 2021 base earnings to be in the range of $3.40 to $3.60 per diluted share, with a projected midpoint target of $3.50 per diluted share.

Full-year 2021 operating cash flow and free cash flow are expected to be in a range of $570 million to $600 million and $270 million and $300 million, respectively.

Commenting on the company’s 2021 outlook, Coker says, “Entering 2021, we feel good about how our balanced mix of consumer- and industrial-related businesses are progressing despite the uncertain COVID-impacted economic outlook. The positive momentum we experienced at the end of 2020 seems to be continuing into the first quarter. Our Consumer Packaging segment, which is primarily focused on food packaging, should continue to benefit from consumers’ at-home eating habits. Demand in our Industrial Paper Packaging served markets continues to show sequential improvement, although we continue to face a negative price/cost relationship due to escalating year-over-year recovered paper, freight and other operating costs. In all other, we expect solid demand in our pharmaceutical and industrial markets. We are still in the early days of providing qualified cold-chain shipping solutions for FDA-approved COVID vaccines and therapeutics to the broader public, but we expect demand to expand as last-mile distribution systems become more organized.

“We’re proud of how our people have grown comfortable operating in uncomfortable times. We remain confident that Sonoco is well-positioned for when the grip of the pandemic weakens and we'll continue to invest to reinforce the long-term potential of our core businesses while remaining committed to returning value to our shareholders.”