Sonoco second-quarter earnings impacted by ‘low-volume environment’

The global packaging producer saw net sales decrease 11 percent from a year ago while net sales in its Industrial Paper Packaging segment are down 20 percent.

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Sonoco's net sales decreased 11 percent from a year ago, while net sales in its Industrial Paper Packaging segment are down 20 percent.
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Global packaging producer Sonoco Products Co., headquartered in Hartsville, South Carolina, reported second-quarter 2023 earnings July 31 for its quarter ended July 2, and the company cites low volumes and a “generally disruptive demand environment” for a decrease in year-over-year sales.

Sonoco’s second-quarter net sales are down 11 percent to $1.7 billion compared with $1.9 billion in last year’s second quarter. Its adjusted operating profit also is down 16 percent to $211 million while its adjusted earnings before interest, taxes, depreciation and amortization is down 12 percent to $275 million.

“The second quarter financial results [show] Sonoco’s ability to deliver strong results despite a low-volume environment,” Sonoco Chief Financial Officer Rob Dillard said during an earnings call Aug. 1.

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“This sales decrease was primarily driven by lower volumes due to inflationary pricing and destocking at our customers in retail as well as index-based price decreases in metal packaging and industrial.”

Sonoco reports financial results in three segments: Consumer Packaging, Industrial Paper Packaging and All Other.

Net sales were down in both its Consumer Packaging and Industrial Paper Packaging segments, while sales in the All Other category remained flat.

Consumer Packaging results included what Sonoco says is strong performance in the flexible packaging and rigid paper container businesses offset by weakness in metal packaging and rigid plastic businesses. Net sales in the segment were down 7 percent to $924 million as volumes were generally impacted by destocking trends among Sonoco customers and inflationary pricing pressures within retail, the company reports.

“Market conditions were pretty turbulent in the quarter with a marked down-shift in demand as the quarter progressed, translating into lower volumes across virtually every area of our business on a global basis,” Sonoco President and CEO Howard Coker said during the earnings call.

The Industrial Paper Packaging segment saw the biggest decline in net sales, which were down 20 percent to $585 million compared with $727 million a year ago, and Sonoco says industrial volumes remained low across all regions “with limited signs of near-term improvement.”

“We expect volumes to decline sequentially from the second quarter and remain soft relatively through the second half of the year in both paper and converted products,” Chief Operating Officer Rodger Fuller said.

Fuller said that on a positive note, however, select European customers are launching Sonoco’s all-paper products in European markets this summer. The company says it is expanding capacity for rigid paper containers in Brazil, Malaysia and Poland to take advantage of globalization [of] products that use its technology.

“We also expect continued strong performance in our flexible packaging business,” he added.

Because of what Coker says are softer-than-expected second-quarter results as well as its customers’ “cautious” forecasts throughout the remainder of the year, Sonoco is reducing its full-year guidance.

“Our customers are faced now with real macro-driven changes to consumer buying habits, their own working capital management priorities and promotional timing, which makes visibility harder in the near-term,” he said. “The downstream impact is reflected in our industrials business, though we provide products serving the broader manufacturing sector, and packaging use in household staples, discretionary goods and construction.

“We intend to continue to manage variable and fixed expenses and execute our continuous improvement programs to improve results in the near and long term. While this near-term volume outlook is disappointing, we are optimistic regarding the number of long-term, value-creating opportunities available within our diverse portfolio from ongoing operational improvements, accretive acquisitions and noncore business divestitures which will be timed to maximize value.”