Sonoco (SON) To Buy 70% Balance Stake In Conitex Sonoco JV

In order to boost its paper-based tube and core business, Sonoco Products Company (NYSE:SON) has signed a definitive agreement to acquire the remaining 70% interest in the Conitex Sonoco joint venture (JV), for approximately $133 million. The transaction is subject to regulatory reviews and expected to close in third-quarter 2018.

About Conitex Sonoco JV

The Conitex Sonoco JV was formed in 1998 between Texpack, Inc., a Spanish global provider of paperboard and paper-based packaging products, and Sonoco’s former North America textile cone business. With around 13 manufacturing locations in 10 countries, this JV produces paper-based cones and tubes used in the textile industry. It also makes adhesives, flexible intermediate bulk containers and corrugated pallets.

Moreover, the JV reported total sales of around $245 million and produced more than 300,000 tons of uncoated recycled paperboard in 2017.

Benefits for Sonoco

The acquisition of Conitex Sonoco will assist Sonoco in expanding its manufacturing presence in the Americas, Europe, and especially in faster-growing emerging markets in Asia. It will also help build strong customer relationships by offering innovative packaging solutions in paperboard, textile carriers and other value-added products.

The buyout will be modestly accretive to Sonoco’s earnings in 2018. Conitex Sonoco’s financial results will be reported within Sonoco’s Paper/Industrial Converted Products segment after the deal’s closure.

Acquisitions – Key Growth Catalyst

On Apr 12, Sonoco completed the acquisition of Highland Packaging Solutions — a leading manufacturer of thermoformed packaging for fresh fruits, vegetables and eggs — for approximately $150 million. This purchase will further strengthen the company’s thermoforming business. Its Consumer Packaging segment will perform strongly in second-quarter 2018, backed by benefits from the acquisition.

In addition to the above, the company acquired Clear Lam Packaging in July 2017 and completed the acquisition of Peninsula in March 2017. The Clear Lam buyout will significantly expand Sonoco’s Flexible Packaging and Thermoforming Plastics operations. The acquisitions will also boost Sonoco’s thermoforming capabilities and expand presence into the fast-growing perimeter of the grocery store.

Share Price Performance

Sonoco’s shares have outperformed the industry with respect to price, over the past three months. The company’s shares have gained around 8%, while the industry recorded growth of 4%.

Zacks Rank & Key Picks

Sonoco currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include Axon Enterprise, Inc (NASDAQ:AAXN) , Caterpillar Inc. (NYSE:CAT) and W.W. Grainger, Inc. (NYSE:GWW) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise has a long-term earnings growth rate of 25%. The stock has rallied 166% in a year’s time.

Caterpillar has a long-term earnings growth rate of 13.3%. The company’s shares have gained 46% during the past year.

Grainger has a long-term earnings growth rate of 12.1%. Its shares have appreciated 76% over the past year.

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