Sonoco Reports Third Quarter, Nine Months Results

Sonoco reported sales for the third quarter were $717.4 million, versus $649.3 million for the same period in 2001. Including one-time items, net income for the third quarter of 2002 was $29.2 million, versus $42.8 million in the third quarter of 2001.

For the first nine months, sales were $2.08 billion, versus $1.93 billion in the same period last year. Including one-time items, net income for the first nine months of 2002 was $100.5 million, versus $64.4 million in the same period of last year. Excluding one-time items, net income for the first nine months of 2002 was $106.6 million, versus $117.6 million in the same period last year.

"Although general economic conditions remained weak, sales for the third quarter were up 10 percent, compared with the same period last year, resulting primarily from acquisitions and increased volumes in the industrial and consumer segments. Company-wide volumes, including the impact of acquisitions, were up 11 percent, compared with the same period last year.

"The third quarter results were primarily impacted by higher costs for old corrugated containers, the company's primary raw material, and a delay in recovering those costs," said DeLoach. "The fourth quarter will also be adversely impacted by the delay, although we expect to achieve at least a full recovery during the fourth quarter," he added.

OCC prices began increasing in April 2002 when they rose from $35 to $45 per ton. In May, they increased to $60, in June to $90 and in July to $130, but then dropped to $100 in August and to $75 in September.

In April, Sonoco announced a paperboard price increase in Europe. In May, the company announced paperboard price increases in the United States and Canada and price increases for its converted products in Europe, the United States and Canada.

In June, a second paperboard price increase was announced for Europe and in July, a second price increase was announced for tubes and cores in Europe and for paperboard in the United States and Canada.

Sonoco historically has fully recovered increased OCC costs through price increases for its paperboard-based converted products. Historically, the company has experienced a six to eight week delay in recovery of each OCC price increase, with the company experiencing margin expansion when OCC prices begin to fall.

"During this OCC cycle, however, we have experienced a longer than normal delay in recovering increased costs, primarily because of weak demand for our converted products which, coupled with reductions in OCC prices in August and September, is causing a delay in recovering a portion of the costs until the fourth quarter. Normally, significant increases in OCC prices are driven by strengthening demand based on underlying general economic strength. In this cycle, with a weak economy and demand, the rise in OCC prices was driven by a combination of short-term, non-sustainable factors, including historically low customer inventories of OCC; a seasonally slow period of the year for OCC collections; a temporary, inventory-driven increase in exports; and a temporary increase in demand for OCC by the linerboard industry (the largest user of OCC) that was also due to low inventories rather than sustainable market demand," explained DeLoach.