Sonoco's (SON) Earnings In Line, Sales Miss Estimates In Q4

Sonoco Products Company’s (NYSE:SON) fourth-quarter 2019 adjusted earnings declined 10.7% year on year to 75 cents per share. The reported figure came in line with the Zacks Consensus Estimate. The year-over-year drop in earnings resulted from lower effective tax rate and hurricane-related business interruption insurance proceeds last quarter. Further, gains from productivity improvements and acquisitions were offset by lower volume/mix, negative price/cost relationship and unfavorable foreign-currency translation impact.

On a reported basis, including one-time items, earnings per share came in at 44 cents compared with the year-ago quarter’s 77 cents.

Sonoco’s net sales came in at $1.31 billion, marginally down from the prior-year quarter’s $1.36 billion. The sales figure also missed the Zacks Consensus Estimate of $1.33 billion. The top-line figure declined year-over-year due to softer volumes across all segments, along with lower selling prices in the Paper and Industrial Converted Products segment, foreign-currency translation impact. These negatives were partly offset by higher sales from the Corenso acquisition.

Operational Update

Cost of sales came in at $1.06 billion compared with the $1.10 billion recorded in the year-earlier quarter. Gross profit during the fourth quarter totaled $246.8 million, down from the year-ago quarter’s $254.3 million. Gross margin came in at 18.8% compared with the 18.7% reported in the year-earlier period.

Selling, general and administrative expenses totaled $135.8 million, down 8.7% year over year. This decline primarily resulted from lower acquisition-related costs in 2019 as well as the company’s prudent cost-control measures. Adjusted operating income edged down 1.9% year over year to $114 million during the October-December period. Operating margin came in at 8.7% compared with the 8.5% recorded in the year-ago quarter.

Sonoco Products Company Price, Consensus and EPS Surprise

Segment Performance

The Consumer Packaging segment reported net sales of $559.6 million, down 2.5% from $573.9 million recorded in the prior-year quarter. Operating profit climbed to $46.6 million from the $43.7 million witnessed in the comparable period last year.

Net sales in the Paper and Industrial Converted Products segment came in at $491.5 million, indicating a 4% decline, year over year, on lower selling prices primarily in global paperboard, corrugating and recycling operations, lower volume/mix, and negative foreign-currency translation impact. These positives were partially offset by the Corenso acquisition.
Operating profit totaled $50 million compared with the $56 million recorded in the year-ago period.

The Display and Packaging segment’s net sales slipped 3.2% year over year to $136.7 million. The segment reported an operating profit of $6.5 million compared with the $8.4 million reported in the year-earlier quarter.

The Protective Solution segment’s net sales came in at $121 million, down 5.5% year over year on lower volume and mix. Operating profit of the segment jumped 37.5% year over year to $11 million.

Financial Performance

Sonoco reported cash and cash equivalents of $145.2 million at the end of the fourth quarter compared with $120.3 million at the end of 2018. The company recorded cash flow from operating activities of around $426 million in 2019 compared with the prior year’s $590 million. As the end of 2019, the company’s total debt-to-capital ratio was 48.1% compared with the 43.9% reported at the end of 2018.

2019 Results

Sonoco reported adjusted earnings per share of $3.53 in 2019, up 4.7% from the prior year’s $3.37. Earnings missed the Zacks Consensus Estimate of $3.54. On a reported basis, including one-time items, earnings per share came in at $2.88 compared with $3.10 recorded in 2018.

Sales came in at $5.37 billion in 2019 compared with the previous year’s $5.39 billion. The top-line figure also missed the Zacks Consensus Estimate of $5.40 billion.

Guidance

For 2020, Sonoco expects adjusted earnings per share guidance of $3.60-$3.70 compared with the prior estimate of $3.65-$3.75. Operating cash flow is expected between $625 million and $645 million, and free cash flow is projected at $250-$270 million.

For the ongoing quarter, the company projects adjusted earnings per share of 83-89 cents compared with the year-ago quarter’s 85 cents.

Zacks Rank and Stocks to Consider

Sonoco currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company (NASDAQ:NWPX) , Sharps Compliance Corp (NASDAQ:SMED) and Graco Inc. (NYSE:GGG) . All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

Northwest Pipe has an expected earnings growth rate of 19.5% for the current year. The stock has appreciated 49% over the past year.

Sharps Compliance has an estimated earnings growth rate of 767% for the ongoing year. In a year’s time, the company’s shares have gained 36%.

Graco has a projected earnings growth rate of 4.3% for 2020. The company’s shares have rallied 21% over the past year.

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