Sonoco (NYSE: SON) Reports Second Quarter and First Half Earnings Per Share

HARTSVILLE, S.C., July 19 /PRNewswire -- Sonoco (NYSE: SON) today reported earnings per diluted share of $.47 for the second quarter of 2000, versus $.46 in 1999, it was announced by Peter C. Browning, president and chief executive officer.

Sales for the second quarter of 2000 were $688.7 million, versus $611.8 million in the same period last year, reflecting $81.6 million in benefits from price increases during the second quarter and acquisitions made during 1999. Net income for the second quarter of 2000 was $46.4 million, compared with $47.4 million in the second quarter of 1999, resulting primarily from the impact of increased raw material costs, weaker volumes and change in product mix. Earnings per diluted share for the 2000 second quarter were positively impacted by the repurchase of a total of 3.1 million shares of Sonoco's common stock in December 1999 and in the first quarter of 2000 under the Company's previously announced plans to buyback at least enough shares to prevent dilution related to stock options. Earnings also benefited from higher pension income and a lower effective tax rate, partially offset by costs associated with an engineered carrier plant closing, consolidation costs resulting from the composite can operations acquired last year from Crown, Cork & Seal, and the partial closing of a high density film plant.

For the first six months of 2000, sales were $1.36 billion, versus $1.17 billion in the same period last year. Strong volume in the first quarter of 2000, coupled with selling price increases implemented throughout the first six months of 2000, increased year-over-year sales by $126 million. In addition, acquisitions (net of dispositions) increased sales by $67 million. This year's first half sales included six more calendar days (4 to 6 more billing days, depending on the specific business) in the first quarter than in the previous year. Net income for the first half of 2000 was $91.4 million, versus $87.8 million for the same period in 1999, excluding a $3.5 million non-recurring gain in the first quarter of 1999. Earnings per diluted share for the first six months of 2000 were $.91, versus $.85 in the same period of 1999, excluding this non-recurring gain.

"As previously indicated, our second quarter was expected to be the most difficult comparison during 2000 because of normal delays in price/cost recovery. The price of our principal raw material, old corrugated containers (OCC), averaged $126 per ton during this year's second quarter. This represented an increase of approximately 100% over the same period last year. Meanwhile, average resin prices, which primarily impact our high density film and flexible businesses, were 38% higher than for the second quarter of 1999," explained Browning.

"To offset rising energy and transportation costs and other materials and general operating cost increases, Sonoco implemented price increases for its engineered carriers products in North America of 6 - 9%, effective May 1, 2000 and in Europe of 8 - 12%, effective May 15, 2000. As a result of these price increases, the relationship of selling prices relative to material costs improved during the second quarter in both the North American and European businesses. The Company's high density film business implemented two 7.5% price increases effective April 10 and May 10 and although it remains profitable, continues to experience a negative price/cost ratio. The Company's printed flexible packaging and composite can businesses have also implemented price increases. By the end of the second quarter, the Company's overall price/cost relationship turned positive by approximately $3 million, having been negative through most of the first six months. An unfavorable product mix more than offset this favorable price/cost relationship for the first half.

"In December, the Company said it expected earnings per share (EPS) growth of 8 - 10% for the year 2000, depending on volume and raw material costs. At the end of the first quarter, we said that because of better than expected volume in the first quarter, and pricing implemented but not yet fully realized, we anticipated EPS growth for the year to be closer to 10%," said Browning. "In the last half of the year, we expect to receive the full benefit of price increases in the third quarter, the benefit of recent decreases in OCC prices, improvements in resin costs and increased composite can volume based on current customer forecasts. We previously indicated that the Graphic flexible packaging acquisition made early last September would be earnings neutral for the first twelve months. That acquisition is now slightly accretive.

"However, based on softening volumes in several industries experienced in June, we are revising our guidance for EPS growth in 2000 to the lower end of the 8 - 10% range," explained Browning. "Certainly one month does not establish a trend. We feel, however, that this adjustment in earnings guidance is prudent pending another couple of months of operating results," he added.

"We expect solid earnings improvement in 2000 and beyond based on our strategy of top line growth, including acquisitions, in five business segments: global engineered carriers, composite cans, designed interior packaging, printed flexible packaging and packaging services. We shall also take our already successful productivity improvement efforts to an even higher level, reflecting a more aggressive Six Sigma training program. In addition, we have stepped up capital effectiveness efforts emphasizing a reduced cash- to-cash cycle and expect free cash flow in the range of $150 million in 2000, exceeding our previously announced target of $130 million. We also continue our industry leading commitment to the e-marketplace, including value adding B2B/supply chain management and current e-commerce initiatives, utilizing significantly enhanced information technology capabilities," added Browning.

"These efforts are directed toward reaching Standard & Poor's top quartiles for return on equity and invested capital, plus providing at least a 10% increase in earnings per share over each economic cycle and sustainable average annual total return to shareholders in excess of 10%," stated Browning.

"We will accomplish these goals by maximizing the return on our strong free cash flow, significant ongoing productivity improvement and vigorous commitment to growth through acquisitions and new product and service development," concluded Browning. Segment Review

Consumer Packaging

The consumer packaging segment includes composite cans; flexible packaging (printed flexibles, high density bag and film products, and container seals); and packaging services and specialty products (e-marketplace, graphics management, folding cartons, and paper glass covers and coasters).

Second quarter sales for the consumer segment were $311.4 million, versus $271.6 million from ongoing operations in the same period last year, a 14.6% increase. Operating profit for this segment was $29.1 million, versus $36.5 million in the second quarter of 1999. Second quarter 1999 results included a gain of $2 million from the sale of land and buildings.

First half sales from ongoing operations in the consumer segment were $624.3 million, versus $517.3 million in the same period of 1999. Operating profit in this segment for the six months was $60.3 million, versus $68.2 million in the same period last year.

The increase in second quarter sales in the consumer segment resulted primarily from acquisitions and higher selling prices, compared with the same period in 1999. Sales reflect the third quarter 1999 acquisitions of the flexible packaging businesses of Graphic Packaging Corporation and Crown, Cork and Seal's composite can business. The decrease in operating profit primarily reflects the negative impact of unrecovered resin price increases in the high density bag and film business, which experienced a 38% increase in average resin costs during the second quarter of 2000, compared with the same period last year, and was approximately $4 million short of covering these increases. Also impacting operating profits were declines in composite can volumes and changes in product mix, including decreased volume in snack foods, refrigerated dough and powdered beverages, reflecting in part a continued reduction by certain customers of excess inventories and seasonal demand changes. Composite can volumes increased in the second quarter for nuts and frozen concentrate. Overall composite can volumes are expected to be on track for the second half of the year based on current customer forecasts.

Industrial Packaging

The industrial packaging segment includes engineered carriers (paper and plastic tubes and cores, paper manufacturing and recovered paper operations) and protective packaging (designed interior packaging and protective reels).

Second quarter 2000 sales in the industrial packaging segment were $377.3 million, versus $338.4 million, an 11.5% increase over the same period in 1999. Operating profit in this segment was $56.4 million, a 17.7% increase over $48.0 million in the 1999 second quarter. Last year's second quarter results included a $2.4 million charge related to redundancies in Europe and the closing of a paper machine at the Company's Stainland mill in England.

Sales for the first half of 2000 in this segment were $740.7 million, versus $646.3 million in the same period of 1999, a 14.6% increase. Operating profits for the industrial segment in the first half of 2000 were $109.4 million, versus $91.4 million, a 19.7% increase.

The increase in second quarter sales and profit in the industrial segment resulted from improved productivity and the impact of price increases for engineered carriers in response to higher general operating and raw material costs. The second quarter also benefited from increased recovered paper operations profit which more than offset the negative price/OCC relationship. With OCC prices now declining, profits will decrease in recovered paper operations; however, overall paper costs will be lowered.

Corporate

Net interest expense increased $4.3 million quarter over quarter due to higher average interest rates, coupled with higher debt balances from funding acquisitions and stock repurchases.

Sonoco, founded in 1899, is a $2.5 billion manufacturer of industrial and consumer packaging products and provider of packaging services, with 285 operations in 33 countries serving customers in some 85 nations. For more information on Sonoco, visit our website at www.sonoco.com .

Cautionary 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. Such forward-looking statements are based on current expectations, estimates and projections about the company's industry, management's beliefs and certain assumptions made by management. Such information includes, without limitation, discussions as to estimates, expectations, beliefs, plans, strategies and objectives concerning the company's 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. Such 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; international, national and local economic and market conditions; ability to maintain market share; pricing pressures and demand for products; continued strength of the company's paperboard-based tube, core and composite can operations; and currency stability and the rate of growth in foreign markets. 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 Securities and Exchange Commission. Such reports are available from the Securities and Exchange Commission's public reference facilities and its Internet website or from the Company's investor relations department.

    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
    (Dollars and shares in thousands except per share)

                               THREE MONTHS ENDED        SIX MONTHS ENDED
                              July 02,    June 27,     July 02,     June 27,
                                2000        1999         2000          1999
    Sales                     $688,686    $611,754    $1,364,985   $1,172,233
    Cost of sales              533,804     466,632     1,058,442      892,534
    Selling, general and
     administrative expenses    69,369      60,745       136,795      120,015
    Gain on assets held for sale     -           -             -        3,500
    Income before interest
     and taxes                  85,513      84,377       169,748      163,184
    Interest expense           (15,164)    (11,846)      (30,683)     (24,316)
    Interest income                735       1,692         1,498        2,730
    Income before income taxes  71,084      74,223       140,563      141,598
    Provision for income taxes  26,992      28,575        53,414       53,166
    Income before equity in
     earnings of affiliates/
      Minority interest in
      subsidiaries              44,092      45,648        87,149       88,432
    Equity in earnings of
     affiliates/Minority
      interest in subsidiaries   2,308       1,716         4,268        2,879


    Net income               $  46,400   $  47,364     $  91,417    $  91,311

    Average shares outstanding -
     diluted                    99,716     102,842       100,408      102,829

    Diluted earnings per share  $  .47      $  .46        $  .91       $  .89
    Dividends per common share  $  .20      $  .19        $  .39       $  .37


    CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
    (Dollars in thousands)

                                                      July 02,     Dec. 31,
                                                         2000        1999
    Assets
    Current Assets:
    Cash and cash equivalents                         $42,803        $36,515
    Trade accounts receivable                         362,471        346,845
    Other receivables                                  22,468         28,847
    Inventories                                       275,518        248,364
    Prepaid expenses and deferred taxes                39,816         62,510
                                                      743,076        723,081
    Property, plant and equipment, net                999,614      1,032,503
    Cost in excess of fair value of assets
     purchased, net                                   244,994        254,580
    Other assets                                      297,053        286,856
                                                  $ 2,284,737  $   2,297,020
    Liabilities and Shareholders' Equity
    Current Liabilities:
    Payable to suppliers and others                  $359,262       $332,034
    Notes payable and current portion of
     long-term debt                                    59,739         84,597
    Taxes on income                                     2,156              -
                                                      421,157        416,631
    Long-term debt                                    813,544        819,540
    Postretirement benefits other than pensions        32,263         36,278
    Deferred income taxes and other                   134,751        123,351
    Shareholders' equity                              883,022        901,220
                                                 $  2,284,737  $   2,297,020


    FINANCIAL SEGMENT INFORMATION (Unaudited)
    (Dollars in thousands)

                                    THREE MONTHS ENDED       SIX MONTHS ENDED
                                    July 02,   June 27,     July 02,  June 27,
                                      2000       1999         2000      1999
    Net Sales
      Industrial Packaging        $ 377,289  $ 338,381    $ 740,651  $ 646,271
      Consumer Packaging            311,397    271,613      624,334    517,289
      Other*                              -      1,760            -      8,673

      Consolidated               $  688,686  $ 611,754   $1,364,985 $1,172,233
    Operating Profit
      Industrial Packaging         $ 56,437  $  47,969    $ 109,436   $ 91,404
      Consumer Packaging             29,076     36,460       60,312     68,204
      Other*                              -        (52)           -         76
      Net gain on sales of divested
       assets                             -          -            -      3,500
      Interest, net                 (14,429)   (10,154)     (29,185)  (21,586)

      Consolidated               $   71,084  $  74,223  $   140,563 $  141,598

    *  Includes net sales and operating profits of divested businesses.

SOURCE Sonoco
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Web site: http: //www.sonoco.com
CONTACT: Allan V. Cecil, Vice President of Sonoco, 843-383-7524, or allan.cecil@sonoco.com
CAPTION: SNCLOGO SONOCO LOGO Sonoco Logo. (PRNewsFoto)[KC] HARTSVILLE, SC USA 10/06/1999