Sonoco Reports 2009 First Quarter Financial Results
Base earnings for the first quarter of 2009 were
“First quarter results, which have historically been our weakest, were significantly lower than the prior year as the deepening global recession exacerbated volume declines companywide, but particularly so in our businesses which serve industrial markets,” said Harris E. DeLoach, Jr., chairman, president and chief executive officer. “Yet our strategy to change the mix of our businesses to take advantage of faster growing and less volatile consumer-related markets while reducing the cyclicality of our more mature industrial businesses continues to show positive results. Our Consumer Packaging segment had a record quarterly operating profit, up nearly nine percent from last year’s first quarter, while also registering the fifth consecutive year-over-year improvement in quarterly results.”
Net sales for the first quarter of 2009 were
Net income attributable to Sonoco for the first quarter of 2009 was
“The impact of lower volumes was partially offset by the benefit of selling price increases realized before the flow-through of higher material costs in the Consumer Packaging segment,” said DeLoach. “While the price/cost benefit seen this quarter is not expected to be sustained, future quarters should continue to benefit from our ongoing cost-reduction actions, including aligning our manufacturing footprint to reflect declining market demand.”
Cash generated from operations in the first quarter of 2009 was
As of the end of the first quarter, total debt was
Second Quarter and Full-Year 2009 Outlook
Sonoco expects second quarter 2009 base earnings to be in the range of
In commenting on the updated guidance, DeLoach noted that the low end for the full year is based on continued weak volumes in businesses serving industrial markets. It is also based on realizing the expected improvements from previously announced cost-reduction plans as well as the impact of normal seasonality and returning to a more historical price/cost relationship in the consumer businesses. The range in the full-year guidance reflects the degree of continued uncertainty in today’s business environment.
“Sonoco has faced many challenges through its 110-year history and we have always responded decisively in ways that have helped us emerge a stronger, more competitive and successful company,” said DeLoach. “Our cost reduction efforts which began in 2008 have helped. Regrettably, we’re not seeing meaningful improvement to the global economy so we must continue to take further cost-reduction steps to remain competitive in a dramatically changing marketplace.”
Segment Review
The Company uses a non-GAAP financial measure, Base Operating Profit, when discussing the operational results of its segments. Base Operating Profit is defined as the segments’ portion of consolidated Income Before Income Taxes, excluding restructuring charges, impairment charges, environmental charges, net interest expense and certain non-recurring or infrequent and unusual items. A reconciliation of Base Operating Profit to GAAP Income Before Income Taxes for the Company’s three reportable segments and All Other Sonoco is provided later in this release.
Consumer Packaging
Sonoco’s Consumer Packaging segment includes the following products: round and shaped rigid packaging (both composite and plastic); printed flexible packaging; and metal and peelable membrane ends and closures.
First quarter 2009 sales for the segment were
Sales in this segment declined nine percent during the first quarter as
lower volumes and the negative effect of foreign currency translation of
approximately
Tubes and Cores/Paper
The Tubes and Cores/Paper segment includes the following products: high-performance paper and composite paperboard tubes and cores; fiber-based construction tubes and forms; recycled paperboard, linerboard, recovered paper and other recycled materials.
First quarter 2009 sales for the segment were
The sales decline in the Tube and Core/Paper segment was due primarily
to significant volume declines in nearly every geographic segment around
the world. In addition, the negative effect of foreign currency
translation of approximately
Packaging Services
The Packaging Services segment includes the following products and services: designing, manufacturing, assembling, packing and distributing temporary, semipermanent and permanent point-of-purchase displays; brand artwork management; and supply chain management services including contract packing, fulfillment and scalable service centers.
First quarter 2009 sales for this segment were
Sales in this segment were affected by significantly lower volumes in
the Company’s contract packaging, fulfillment and point-of-purchase
display operations along with the negative effect of foreign currency
translation of approximately
All Other Sonoco
All Other Sonoco includes businesses that are not aggregated in a reportable segment and includes the following products: wooden, metal and composite wire and cable reels, molded and extruded plastics, custom-designed protective packaging and paper amenities such as coasters and glass covers.
First quarter 2009 sales in All Other Sonoco were
Sales in All Other Sonoco declined during the quarter due to lower
volumes, primarily in molded plastics, protective packaging and wire and
cable reels along with the negative effect of foreign currency
translation of approximately
Corporate
Net interest expense for the first quarter of 2009 decreased to
Conference Call Webcast
Sonoco will host its regular quarterly conference call today,
About Sonoco
Founded in 1899, Sonoco is a
Forward-looking Statements
Statements included herein that are not historical in nature, are intended to be, and are hereby identified as “forward-looking statements” for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended. The words “estimate,” “project,” “intend,” “expect,” “believe,” “consider,” “plan,” “anticipate,” “objective,” “goal,” “guidance,” “outlook,” “forecasts,” “future,” “will,” “would” and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding offsetting high raw material costs, improved productivity and cost containment, adequacy of income tax provisions, refinancing of debt, adequacy of cash flows, anticipated amounts and uses of cash flows, effects of acquisitions and dispositions, adequacy of provisions for environmental liabilities, financial strategies and the results expected from them, continued payments of dividends, stock repurchases, producing improvements in earnings, financial results for future periods, and creation of long-term value for shareholders.
Such forward-looking statements are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management. Such information includes, without limitation, discussions as to guidance and other estimates, expectations, beliefs, plans, strategies and objectives concerning our future financial and operating performance. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements. The risks and uncertainties include, without limitation:
- availability and pricing of raw materials;
- success of new product development and introduction;
- ability to maintain or increase productivity levels and contain or reduce costs;
- international, national and local economic and market conditions;
- availability of credit to us, our customers and/or our suppliers in needed amounts and/or on reasonable terms;
- fluctuations of obligations and earnings of pension and postretirement benefit plans;
- ability to maintain market share;
- pricing pressures and demand for products;
- continued strength of our paperboard-based tubes and cores and composite can operations;
- anticipated results of restructuring activities;
- resolution of income tax contingencies;
- ability to successfully integrate newly acquired businesses into the Company's operations;
- rate of growth in foreign markets
- foreign currency, interest rate and commodity price risk and the effectiveness of related hedges;
- liability for and anticipated costs of environmental remediation actions;
- actions of government agencies and changes in laws and regulations affecting the Company;
- ability to weather the current economic downturn;
- loss of consumer or investor confidence; and
- economic disruptions resulting from terrorist activities.
The Company undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed herein might not occur.
Additional information concerning some of the factors that could cause
materially different results is included in the Company's reports on
forms 10-K, 10-Q and 8-K filed with the
Such reports are available from the
References to our Web Site Address
References to our Web site address and domain names throughout this release are for informational purposes only, or to fulfill specific disclosure requirements of the Securities and Exchange Commission’s rules or the New York Stock Exchange Listing Standards. These references are not intended to, and do not, incorporate the contents of our Web site by reference into this release.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | ||||||||||
(Dollars and shares in thousands except per share) | ||||||||||
THREE MONTHS ENDED |
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March 29, 2009 | March 30, 2008 | |||||||||
Sales | $ | 800,629 | $ | 1,037,996 | ||||||
Cost of sales | 659,766 | 851,594 | ||||||||
Selling, general and administrative expenses | 88,949 | 98,149 | ||||||||
Restructuring/asset impairment charges | 7,210 | 61,538 | ||||||||
Income before interest and taxes | $ | 44,704 | $ | 26,715 | ||||||
Interest expense | 10,356 | 14,554 | ||||||||
Interest income | (725 | ) | (1,326 | ) | ||||||
Income before income taxes | 35,073 | 13,487 | ||||||||
Provision for income taxes | 11,392 | 6,449 | ||||||||
Income before equity in earnings of affiliates | 23,681 | 7,038 | ||||||||
Equity in earnings of affiliates, net of tax | 54 | 1,878 | ||||||||
Net income | 23,735 | 8,916 | ||||||||
Net (income)/loss attributable to noncontrolling interests | (613 | ) | 4,343 | |||||||
Net income attributable to Sonoco | $ | 23,122 | $ | 13,259 | ||||||
Weighted average shares outstanding – diluted | 100,712 | 100,702 | ||||||||
Diluted earnings per share | $ | 0.23 | $ | 0.13 | ||||||
Dividends per common share | $ | 0.27 | $ | 0.26 | ||||||
FINANCIAL SEGMENT INFORMATION (Unaudited) | ||||||||||
(Dollars in thousands) | ||||||||||
THREE MONTHS ENDED |
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March 29, 2009 | March 30, 2008 | |||||||||
Net Sales: | ||||||||||
Consumer Packaging | $ | 351,934 | $ | 387,370 | ||||||
Tubes and Cores/Paper | 288,340 | 436,187 | ||||||||
Packaging Services | 95,835 | 124,431 | ||||||||
All Other Sonoco | 64,520 | 90,008 | ||||||||
Consolidated | $ | 800,629 | $ | 1,037,996 | ||||||
Income Before Income Taxes: | ||||||||||
Consumer Packaging – Operating Profit | $ | 39,397 | $ | 36,277 | ||||||
Tubes and Cores/Paper – Operating Profit | 6,746 | 34,564 | ||||||||
Packaging Services – Operating Profit | 635 | 5,979 | ||||||||
All Other Sonoco – Operating Profit | 5,136 | 11,433 | ||||||||
Restructuring/asset impairment charges | (7,210 | ) | (61,538 | ) | ||||||
Interest, net | (9,631 | ) | (13,228 | ) | ||||||
Consolidated | $ | 35,073 | $ | 13,487 | ||||||
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) | ||||||||||
(Dollars in thousands) | ||||||||||
THREE MONTHS ENDED |
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March 29, 2009 | March 30, 2008 | |||||||||
Net income attributable to Sonoco | $ | 23,122 | $ | 13,259 | ||||||
Asset impairment charges | 4,970 | 53,995 | ||||||||
Depreciation, depletion and amortization | 40,857 | 45,853 | ||||||||
Fox River environmental reserves/insurance receivable | (3,821 | ) | 14,779 | |||||||
Changes in components of working capital | (21,236 | ) | (32,975 | ) | ||||||
Other operating activity | 31,621 | (30,893 | ) | |||||||
Net cash provided by operating activities | 75,513 | 64,018 | ||||||||
Purchase of property, plant and equipment | (34,643 | ) | (34,126 | ) | ||||||
Cost of acquisitions, exclusive of cash | - | (5,535 | ) | |||||||
Debt (repayments) proceeds, net | (22,025 | ) | (10,805 | ) | ||||||
Cash dividends | (26,945 | ) | (25,866 | ) | ||||||
Other, including effects of exchange rates on cash | (14,981 | ) | 15,585 | |||||||
Net (decrease)/increase in cash and cash equivalents | ||||||||||
(23,081 | ) | 3,271 | ||||||||
Cash and cash equivalents at beginning of period | 101,655 | 70,758 | ||||||||
Cash and cash equivalents at end of period | $ | 78,574 | $ | 74,029 | ||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | ||||||||||
(Dollars in thousands) | ||||||||||
March 29, 2009 | Dec. 31, 2008 | |||||||||
Assets | ||||||||||
Current Assets: | ||||||||||
Cash and cash equivalents | $ | 78,574 | $ | 101,655 | ||||||
Trade accounts receivable, net of allowances | 392,564 | 392,171 | ||||||||
Other receivables | 32,502 | 46,827 | ||||||||
Inventories | 316,219 | 314,169 | ||||||||
Prepaid expenses and deferred income taxes | 59,785 | 75,168 | ||||||||
879,644 | 929,990 | |||||||||
Property, plant and equipment, net | 956,943 | 973,442 | ||||||||
Goodwill | 779,082 | 782,983 | ||||||||
Other intangible assets, net | 116,726 | 120,540 | ||||||||
Other assets | 246,617 | 279,511 | ||||||||
$ | 2,979,012 | $ | 3,086,466 | |||||||
Liabilities and Shareholders’ Equity | ||||||||||
Current Liabilities: | ||||||||||
Payable to suppliers and others | $ | 617,747 | $ | 653,274 | ||||||
Notes payable and current portion of long-term debt | 31,861 | 32,978 | ||||||||
Accrued taxes | 6,420 | 11,944 | ||||||||
$ | 656,028 | $ | 698,196 | |||||||
Long-term debt, net of current portion | 635,426 | 656,847 | ||||||||
Pension and other postretirement benefits | 430,801 | 455,197 | ||||||||
Deferred income taxes and other | 82,999 | 101,707 | ||||||||
Total equity | 1,173,758 | 1,174,519 | ||||||||
$ | 2,979,012 | $ | 3,086,466 | |||||||
Definition and Reconciliation of Non-GAAP Financial Measures | ||||||||||
The Company’s results determined in accordance with U.S. generally accepted accounting principles (GAAP) are referred to as “as reported” results. Some of the information presented in this press release reflects the Company’s “as reported” results adjusted to exclude amounts related to restructuring initiatives, asset impairment charges, environmental charges and certain non-recurring or infrequent and unusual items. These adjustments result in the non-GAAP financial measures referred to in this press release as “Base Earnings,” “Base Earnings per Diluted Share” and “Base Operating Profit.” | ||||||||||
These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Sonoco continues to provide all information required by GAAP, but it believes that evaluating its ongoing operating results may not be as useful if an investor or other user is limited to reviewing only GAAP financial measures. Sonoco uses these non-GAAP financial measures for internal planning and forecasting purposes, to evaluate its ongoing operations, and to evaluate the ultimate performance of each business unit against budget all the way up through the evaluation of the Chief Executive Officer’s performance by the Board of Directors. In addition, these same non-GAAP measures are used in determining incentive compensation for the entire management team and in providing earnings guidance to the investing community. | ||||||||||
Sonoco management does not, nor does it suggest that investors should, consider these non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Sonoco presents these non-GAAP financial measures to provide users information to evaluate Sonoco’s operating results in a manner similar to how management evaluates business performance. Material limitations associated with the use of such measures are that they do not reflect all period costs included in operating expenses and may not reflect financial results that are comparable to financial results of other companies that present similar costs differently. Furthermore, the calculations of these non-GAAP measures are based on subjective determinations of management regarding the nature and classification of events and circumstances that the investor may find material and view differently. To compensate for these limitations, management believes that it is useful in understanding and analyzing the results of the business to review both GAAP information that includes the impact of restructuring and asset impairment charges, environmental charges, other non-recurring or infrequent and unusual items, and the non-GAAP measures that exclude them. Whenever Sonoco uses a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures as detailed below. | ||||||||||
Reconciliation of GAAP1 to Non-GAAP Financial Measures (Unaudited) | ||||||||||
(Dollars in millions, except per share data) | ||||||||||
Base Earnings Per Diluted Share 2 |
THREE MONTHS ENDED |
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(Unaudited) | March 29, 2009 | March 30, 2008 | ||||||||
Diluted Earnings Per Share, as reported (GAAP) | $ | 0.23 | $ | 0.13 | ||||||
Adjusted for: | ||||||||||
Restructuring/asset impairment charges, net of tax 3 | 0.06 | 0.10 | ||||||||
Financial asset impairment charge, net of tax | - | 0.31 | ||||||||
Base Earnings Per Share (Non-GAAP) | $ | 0.29 | $ | 0.54 | ||||||
Base Earnings 4 |
THREE MONTHS ENDED |
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(Unaudited) | March 29, 2009 | March 30, 2008 | ||||||||
Net income attributable to Sonoco, as reported (GAAP) | $ | 23.1 | $ | 13.3 | ||||||
Adjusted for: | ||||||||||
Restructuring/asset impairment charges, net of tax 3 | 6.1 | 9.7 | ||||||||
Financial asset impairment charge, net of tax | - | 31.0 | ||||||||
Base Earnings (Non-GAAP) | $ | 29.2 | $ | 54.0 | ||||||
Base Operating Profit 5 |
THREE MONTHS ENDED |
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(Unaudited) | March 29, 2009 | March 30, 2008 | ||||||||
Consumer Packaging – Base Operating Profit | $ | 39.4 | $ | 36.3 | ||||||
Tubes and Cores/Paper – Base Operating Profit | 6.8 | 34.6 | ||||||||
Packaging Services – Base Operating Profit | 0.6 | 6.0 | ||||||||
All Other Sonoco – Base Operating Profit | 5.1 | 11.4 | ||||||||
Base Operating Profit | 51.9 | 88.3 | ||||||||
Restructuring/asset impairment charges 3 | (7.2 | ) | (18.9 | ) | ||||||
Financial asset impairment charges | - | (42.7 | ) | |||||||
Interest, net | (9.6 | ) | (13.2 | ) | ||||||
Income before income taxes (GAAP) | $ | 35.1 | $ | 13.5 | ||||||
1Generally Accepted Accounting Principles | ||||||||||
2Base earnings per diluted share is a non-GAAP financial measure of diluted earnings per share which excludes the impact of restructuring, asset impairment and environmental charges, and certain non-recurring or infrequent and unusual items. Management believes that these exclusions result in a measure of operating income that reflects the core profitability of our business and can be used by management to assess operating performance. |
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3Restructuring/asset impairment charges are a recurring item as Sonoco’s restructuring programs usually require several years to fully implement and the Company is continually seeking to take actions that could enhance its efficiency. Accordingly, these charges are subject to significant fluctuations from period to period due to the varying levels of restructuring activity and the inherent imprecision in the estimates used to recognize the impairment of assets and the wide variety of costs and taxes associated with severance and termination benefits in the countries in which the restructuring actions occur. |
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4Base earnings is a non-GAAP financial measure of net income attributable to Sonoco, which excludes the impact of restructuring, asset impairment and environmental charges, and certain non-recurring or infrequent and unusual items. Management believes that these exclusions result in a measure of operating income that reflects the core profitability of our business and can be used by management to assess operating performance. |
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5Base operating profit is a non-GAAP financial measure of income before taxes, which excludes net interest expense, the impact of restructuring, asset impairment and environmental charges, and certain non-recurring or infrequent and unusual items. Management believes that these exclusions result in a measure of operating income that reflects the core profitability of our business and can be used by management to assess operating performance. |
Source: Sonoco
Sonoco
Roger Schrum, 843-339-6018
roger.schrum@sonoco.com