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Sonoco’s net sales rise in Q2

The company’s industrial packaging business sales increased 33.7 percent from the prior year's quarter.

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Sonoco, a diversified global packaging company based in Hartsville, South Carolina, reports increased sales for the second quarter of the year, which ended July 4, compared with the same quarter in 2020. The company says its quarterly net sales were $1.38 billion compared with $1.25 billion in the second quarter of 2020.

However, Sonoco had a generally accepted accounting principles (GAAP) net loss per diluted share of $3.34 for its second quarter compared with a net gain of 55 cents per diluted share in the second quarter of 2020.

According to Sonoco’s latest earnings report, the company’s second-quarter GAAP net loss included net after-tax charges of $418.7 million largely arising from a noncash pension settlement charge of $406.5 million related to the company’s settlement of the outstanding pension liabilities of the Sonoco Pension Plan for Inactive Participants and a $15 million expense related to the early extinguishment of debt. In the second quarter of 2020, Sonoco’s GAAP earnings included net after-tax charges of $24.9 million related mostly to restructuring actions and nonoperating pension costs.

Sonoco says cash flow from operations was $102 million in the first half of the year compared with $282 million in the first half of 2020. Free cash flow was $9.4 million in the first half of the year compared with $210.4 million in the first half of 2020.

For the first six months of the year, Sonoco reports that net sales were $2.74 billion, up $187.3 million compared with $2.55 billion in the first six months of 2020. Sales improved 7.3 percent in the first half of the year as an almost 6 percent improvement in volume and mix, excluding the impact of the display and packaging divestiture, reflected demand recovery following prior-year COVID-19-driven reductions, along with higher selling prices implemented to offset inflation and a positive impact from foreign exchange translation.

Sonoco expects “further recovery in our industrial-served markets as illustrated by the historically high backlogs for uncoated recycled paperboard in the U.S. and Canada and demand for global tubes, cores and cones strengthening to prepandemic levels," says Howard Coker, president and CEO, Sonoco.

“As anticipated, we reported a GAAP loss in the second quarter due to pension settlement charges associated with the purchase of group annuity contracts and the distribution of lump-sum payments, which resulted in our pension obligations being reduced by approximately $1.4 billion,” says Howard Coker, president and CEO of Sonoco, regarding the company’s second-quarter performance. “Also during the quarter, we further improved our strong balance sheet by reducing total debt by approximately $100 million, enhanced our financial flexibility by upsizing our committed credit facility with a new $750 million revolver and returned value to shareholders by executing a $150 million accelerated share repurchase agreement.”

Coker adds that earnings for Sonoco’s consumer and industrial packaging business segments also were within the company’s previous guidance range, despite higher raw material costs and inflation. He says, “Net sales grew 11 percent in the quarter as volume/mix improved approximately 8 percent due to solid demand recovery in most of our industrial-related businesses. Base earnings benefited from volume/mix growth and productivity improvements, which more than offset a negative price/cost relationship and the impact from the divestiture of our former display and packaging businesses."

He continues, “While we expected demand in our Consumer Packaging segment to normalize from the pantry-stocking records set during the second quarter of last year, segment operating profit declined by 29 percent due primarily to a negative price/cost relationship stemming from escalating resin, film, metals, packaging and freight costs. On the other hand, our Industrial Paper Packaging segment benefited from strong global demand, which helped boost segment operating profit by 74 percent compared to last year’s second quarter. Our All Other group of businesses, which consists of protective, healthcare, retail and industrial plastics units, also benefited from the economic recovery as operating profit improved 23 percent.”

Industrial paper packaging performance

During the second quarter, sales for Sonoco’s Industrial Paper Packaging segment were $608.5 million, up from $455 million in the same quarter of 2020. Segment operating profit for the segment was $57.9 million this quarter compared with $33.2 million in the same time frame in 2020.

Sonoco reports that this business segment’s sales increased 33.7 percent from the prior year's quarter largely because of higher selling prices Sonoco implemented to offset higher raw material costs and nonmaterial inflation. The company says about half of the segment sales increase—14 percent—was attributable to improved volume and mix.

Global tube and core volume and mix increased sales by about 13 percent, driven by a global rebound in demand for those products. Global paperboard demand also improved by about 4 percent in light of demand from internal converting and trade markets.

Sonoco says the segment’s operating profit improved 74.2 percent from the prior-year’s quarter, driven by strong volume and mix and strong productivity improvements. The segment’s operating margin improved to 9.5 percent from the prior-year quarter’s 7.3 percent.

Future outlook

Looking ahead to the third quarter of the year, Sonoco says it expects base earnings per diluted share to be in a range of 87 cents to 93 cents and expects full-year base earnings per diluted share to be in a range of $3.50 to $3.60. Excluding the $133 million of cash contributions to the Sonoco Pension Plan for Inactive Participants, full-year 2021 cash provided from operations and free cash flow guidance remains unchanged in a range of $570 million to $600 million and $270 million to $300 million, respectively.

“As we enter the second half of 2021, we remain confident that our business will continue to benefit from the postpandemic economic recovery,” Coker says, adding that the company expects “further recovery in our industrial-served markets as illustrated by the historically high backlogs for uncoated recycled paperboard in the U.S. and Canada and demand for global tubes, cores and cones strengthening to prepandemic levels.”

He adds that the company’s biggest challenge for 2021 is managing increasing raw material costs, including that of recovered fiber, and nonmaterial inflation.

“While we currently are behind the price/cost curve in several of our businesses, we are aggressively taking actions to drive productivity, control costs and implement necessary price increases to fully recover all commodity and other cost increases,” Coker says.