Sonoco net sales decline slightly in Q3 of 2020
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Sonoco net sales decline slightly in Q3 of 2020

The company reports that its Paper and Industrial Converted Products segment sales were down and affected by higher recycled fiber costs in the quarter.

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October 22, 2020

Sonoco, a diversified global packaging company based in Hartsville, South Carolina, reports that net sales declined slightly in the third quarter of 2020, which ended Sept. 27. Sonoco states in its latest earnings report that its net sales were $1.31 billion compared with $1.35 billion in the same quarter of 2019. The company notes that net sales for the third quarter are down 3.1 percent from last year’s third-quarter sales. Sonoco says the sales decline was driven by a lower volume and mix as well as a stronger U.S. dollar and lower selling prices. However, Sonoco says these negative impacts were partially offset by sales added from acquisitions.

Cash flow from operations was $489.5 million in the first nine months of 2020 compared with $238.8 million in the same time frame in 2019, and free cash flow was $251.6 million in the first nine months of 2020 compared with a use of $32.5 million in the first nine months of 2019.

Sonoco reports that gross profit was $257 million in the third quarter of 2020 compared with $265.5 million in the same period in 2019. Quarterly gross profit as a percentage of sales was essentially flat year over year at 19.6 percent, Sonoco says. Also, third-quarter selling, general and administrative expenses increased $5.8 million from the prior-year period to $126.1 million, and this increase was driven by costs added from acquired businesses as well as a $10 million gain in 2019 related to the release of an environmental reserve that did not repeat.

Also, in the third quarter, Sonoco had acquired Can Packaging, a privately owned designer and manufacturer of sustainable paper packaging and related manufacturing equipment that is based in Habsheim, France, for about $49 million in cash. Not long after the third quarter, Sonoco signed an agreement Oct. 9 to sell its Europe contract packaging business, part of the Display and Packaging Segment, to Prairie Industries Holdings backed by The Halifax Group, a Washington-based global investment firm, for $120 million in cash. As a result of that pending transaction, the assets and liabilities for this business are reported as “held for sale” on the condensed consolidated balance sheet as of Sept. 27.

Within the company’s Consumer Packaging segment, sales in the third quarter of 2020 were $583.7 million compared with $581.4 million in 2019. Segment operating profit was $67.9 million in the third quarter compared with $56.7 million in the same quarter of 2019. Segment sales increased about 0.4 percent compared with the prior-year quarter in light of sales added from the December 2019 acquisition of Thermoformed Engineered Quality, a medical packaging business, and the August acquisition of Can Packaging.

Within the company’s Display and Packaging segment, third-quarter 2020 sales were $137.6 million compared with $145 million in the same time period in 2019. The segment reported an operating profit of $10.8 million in the third quarter compared with $8.9 million in the third quarter of 2019. Sales declined 5.1 percent compared with last year’s third quarter due to lower volume and mix in domestic displays, retail security packaging and paper amenities.

In the company’s Paper and Industrial Converted Products segment, third-quarter 2020 sales were $459.3 million compared with $495.8 million in the same time period in 2019. Segment operating profit was $34.4 million in the quarter compared with $59.4 million in 2019. Segment sales declined 7.4 percent from the prior-year third quarter because of a lower volume and mix and the negative impact of foreign exchange translation exceeded sales added by the acquisition of Corenso Holdings in August 2019. Globally, uncoated recycled paperboard and corrugated medium volume and mix were down a combined 8.2 percent in the third quarter, Sonoco reports.

“We are very pleased with our third-quarter performance as our Sonoco team drove bottom-line results that exceeded the high end of our expectations,” says Howard Coker, president and chief executive officer at Sonoco. “The results of our diverse portfolio of global Consumer- and Industrial-related businesses reflect improved global macroeconomic conditions coming off the pandemic-induced recession in the second quarter. Our Consumer Packaging segment produced solid year-over-year improvement as at-home food demand stabilized from the preceding quarter's pantry stocking, while our Paper and Industrial Converted Products segment experienced improvement sequentially from the prior quarter's lows, reflecting a partial recovery of our global industrial served markets. In addition, our Protective Solutions segment achieved record quarterly results as customer demand rebounded, and our Display and Packaging segment achieved one of its best quarters in more than a decade driven by cost reduction activities.”

Looking ahead to the fourth quarter of 2020, Coker says the company has “not fully recovered” from the pandemic-induced recession. However, he says, the company is continuing to “see gradual improvement.”

Coker says, “I’m more confident than ever that Sonoco is poised to emerge as a stronger, more resilient company positioned to generate solid returns for our shareholders. Looking ahead to the fourth quarter, we expect our Consumer Packaging segment to continue to benefit from consumers’ at-home eating patterns. Our industrial-related served markets are expected to continue experiencing weak year-over-year demand, but we do expect these markets to show gradual sequential improvement. Our Paper and Industrial Converted Products segment should continue facing a negative price/cost headwind during the fourth quarter due to higher year-over-year recycled fiber costs and lower market pricing, although we expect OCC (old corrugated containers) prices to remain relatively stable.

He concludes, “In addition, the expected sale of our Europe contract packaging business in the fourth quarter may have a small impact on this segment’s year-over-year results.”