Sonoco Reports 2009 Second Quarter Financial Results
Recession-Impacted Industrial-Focused Businesses Show First Signs of Improvement Since October 2008
Base earnings for the second quarter of 2009 were
“We are pleased to report better than expected results in the second
quarter as base earnings per diluted share exceeded the upper end of our
previously announced guidance of
Net sales for the second quarter of 2009 declined 21 percent (15 percent
excluding the impact of foreign currency translation) to
Net income attributable to Sonoco for the second quarter of 2009 was
“Lower Companywide volumes and higher pension expenses were partially offset by a positive selling price/ material cost relationship and productivity improvements,” said DeLoach. “We also benefited from previously announced cost-reduction actions focused on aligning our manufacturing footprint to reflect projected business activity, and implementing other contingency initiatives including freezing salaries, temporarily suspending 401(k) matches and further curtailing discretionary spending. These actions are reflected in the second quarter’s gross profit, which as a percent of sales, was 18.3 percent, compared with 17.9 percent in the same period in 2008.”
Cash generated from operations in the second quarter of 2009 was
For the first six months of 2009, net sales declined 22 percent (16
percent excluding the impact of foreign currency translation) to
Base earnings for the first half of 2009 were
For the first six months of 2009, cash generated from operations was
As of the end of the second quarter, cash and cash equivalents totaled
Third Quarter and Full-Year 2009 Outlook
Sonoco expects third quarter 2009 base earnings to be in the range of
The Company’s updated guidance assumes ongoing sales demand will remain near the levels noted late in the second quarter, as well as the realization of previously announced cost-reduction plans and the impact of normal seasonality. Although the Company believes the assumptions reflected in the range of guidance for the full year are reasonable, the outlook, given today’s economic environment, is very uncertain.
“While we were encouraged by the sequential improvement in our second quarter results, we are extremely cautious about the global economy and the impact the lingering recession is having on consumers and our customers,” said DeLoach. “We remain focused on improving areas we can control and are implementing further initiatives that are aimed at simplifying our business structure to scale the Company for profitable growth, improving innovation and creating sustainable operating efficiencies.”
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 nonrecurring 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.
Second quarter 2009 sales for the segment were
Sales in this segment declined six percent during the second 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.
Second quarter 2009 sales for the segment were
The 29 percent decline in sales in the Tube and Core/Paper segment was
due to global volume declines, 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.
Second quarter 2009 sales for this segment were
Sales in this segment were affected by significantly lower volumes in
the Company’s contract packing, 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.
Second quarter 2009 sales in All Other Sonoco were
Sales in All Other Sonoco declined during the quarter due to lower
volumes in molded plastics, wire and cable reels and protective
packaging along with the negative effect of foreign currency translation
of approximately
Corporate
Net interest expense for the second 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 Securities and Exchange Commission’s public reference facilities and its Web site, http://www.sec.gov/, and from the Company's investor relations department and the Company’s Web site, http://www.sonoco.com.
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) |
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THREE MONTHS ENDED | SIX MONTHS ENDED | ||||||||||||||||||
June 28, 2009 |
June 29, 2008 |
June 28, 2009 |
June 29, 2008 |
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Sales | $ | 864,231 | $ | 1,086,567 | $ | 1,664,860 | $ | 2,124,563 | |||||||||||
Cost of sales | 705,947 | 891,886 | 1,365,713 | 1,743,480 | |||||||||||||||
Selling, general and administrative expenses | 90,589 | 100,901 | 179,538 | 199,050 | |||||||||||||||
Restructuring/asset impairment charges | 10,386 | 10,770 | 17,596 | 72,308 | |||||||||||||||
Income before interest and taxes | $ | 57,309 | $ | 83,010 | $ | 102,013 | $ | 109,725 | |||||||||||
Interest expense | 10,609 | 13,527 | 20,965 | 28,081 | |||||||||||||||
Interest income | (538 | ) | (1,430 | ) | (1,263 | ) | (2,756 | ) | |||||||||||
Income before income taxes | 47,238 | 70,913 | 82,311 | 84,400 | |||||||||||||||
Provision for income taxes | 15,084 | 18,415 | 26,476 | 24,864 | |||||||||||||||
Income before equity in earnings of affiliates | 32,154 | 52,498 | 55,835 | 59,536 | |||||||||||||||
Equity in earnings of affiliates, net of tax | 836 | 2,841 | 890 | 4,720 | |||||||||||||||
Net income | 32,990 | 55,339 | 56,725 | 64,256 | |||||||||||||||
Net loss attributable to noncontrolling interests | 620 | 2,647 | 7 | 6,989 | |||||||||||||||
Net income attributable to Sonoco | $ | 33,610 | $ | 57,986 | $ | 56,732 | $ | 71,245 | |||||||||||
Weighted average shares outstanding – diluted | 100,810 | 101,080 | 100,761 | 100,944 | |||||||||||||||
Diluted earnings per share | $ | 0.33 | $ | 0.57 | $ | 0.56 | $ | 0.71 | |||||||||||
Dividends per common share | $ | 0.27 | $ | 0.27 | $ | 0.54 | $ | 0.53 | |||||||||||
FINANCIAL SEGMENT INFORMATION (Unaudited) (Dollars in thousands) |
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THREE MONTHS ENDED | SIX MONTHS ENDED | ||||||||||||||||||
June 28, 2009 |
June 29, 2008 |
June 28, 2009 |
June 29, 2008 |
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Net Sales | |||||||||||||||||||
Consumer Packaging | $ | 372,770 | $ | 398,160 | $ | 724,704 | $ | 785,530 | |||||||||||
Tubes and Cores/Paper | 323,391 | 455,417 | 611,731 | 891,604 | |||||||||||||||
Packaging Services | 98,531 | 138,095 | 194,366 | 262,526 | |||||||||||||||
All Other Sonoco | 69,539 | 94,895 | 134,059 | 184,903 | |||||||||||||||
Consolidated | $ | 864,231 | $ | 1,086,567 | $ | 1,664,860 | $ | 2,124,563 | |||||||||||
Income Before Income Taxes: | |||||||||||||||||||
Consumer Packaging – Operating Profit | $ | 38,906 | $ | 32,490 | $ | 78,303 | $ | 68,767 | |||||||||||
Tubes and Cores/Paper – Operating Profit | 20,239 | 40,045 | 26,985 | 74,609 | |||||||||||||||
Packaging Services – Operating Profit | 1,144 | 8,892 | 1,779 | 14,871 | |||||||||||||||
All Other Sonoco – Operating Profit | 7,406 | 12,353 | 12,542 | 23,786 | |||||||||||||||
Restructuring/asset impairment charges | (10,386 | ) | (10,770 | ) | (17,596 | ) | (72,308 | ) | |||||||||||
Interest, net | (10,071 | ) | (12,097 | ) | (19,702 | ) | (25,325 | ) | |||||||||||
Consolidated | $ | 47,238 | $ | 70,913 | $ | 82,311 | $ | 84,400 | |||||||||||
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in thousands) |
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THREE MONTHS ENDED | SIX MONTHS ENDED | ||||||||||||||||||
June 28, 2009 |
June 29, 2008 |
June 28, 2009 |
June 29, 2008 |
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Net income | $ | 32,990 | $ | 55,339 | $ | 56,725 | $ | 64,256 | |||||||||||
Asset impairment charges | 2,481 | 4,775 | 7,451 | 58,770 | |||||||||||||||
Depreciation, depletion and amortization | 43,080 | 47,395 | 83,937 | 93,248 | |||||||||||||||
Fox River environmental reserves/insurance receivable | (970 | ) | (716 | ) | (4,791 | ) | 14,063 | ||||||||||||
Changes in components of working capital | 6,944 | (22,250 | ) | (14,292 | ) | (55,225 | ) | ||||||||||||
Other operating activity | 21,829 | (4,704 | ) | 52,837 | (31,255 | ) | |||||||||||||
Net cash provided by operating activities | 106,354 | 79,839 | 181,867 | 143,857 | |||||||||||||||
Purchase of property, plant and equipment | (22,728 | ) | (28,813 | ) | (57,371 | ) | (62,939 | ) | |||||||||||
Cost of acquisitions, exclusive of cash | (500 | ) | (500 | ) | (5,535 | ) | |||||||||||||
Debt (repayments) proceeds, net | (25,837 | ) | (15,660 | ) | (47,862 | ) | (26,465 | ) | |||||||||||
Cash dividends | (26,952 | ) | (26,870 | ) | (53,897 | ) | (52,736 | ) | |||||||||||
Other, including effects of exchange rates on cash | 2,565 | (1,717 | ) | (12,416 | ) | 13,868 | |||||||||||||
Net (decrease)/increase in cash and cash equivalents | |||||||||||||||||||
32,902 | 6,779 | 9,821 | 10,050 | ||||||||||||||||
Cash and cash equivalents at beginning of period | 78,574 | 74,029 | 101,655 | 70,758 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 111,476 | $ | 80,808 | $ | 111,476 | $ | 80,808 | |||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) |
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June 28, 2009 |
Dec. 31, 2008 |
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Assets | |||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 111,476 | $ | 101,655 | |||||||||||||||
Trade accounts receivable, net of allowances | 411,028 | 392,171 | |||||||||||||||||
Other receivables | 36,423 | 46,827 | |||||||||||||||||
Inventories | 297,346 | 314,169 | |||||||||||||||||
Prepaid expenses and deferred income taxes | 61,127 | 75,168 | |||||||||||||||||
917,400 | 929,990 | ||||||||||||||||||
Property, plant and equipment, net | 956,241 | 973,442 | |||||||||||||||||
Goodwill | 794,533 | 782,983 | |||||||||||||||||
Other intangible assets, net | 115,580 | 120,540 | |||||||||||||||||
Other assets | 253,617 | 279,511 | |||||||||||||||||
$ | 3,037,371 | $ | 3,086,466 | ||||||||||||||||
Liabilities and Shareholders’ Equity | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Payable to suppliers and others | $ | 609,969 | $ | 653,274 | |||||||||||||||
Notes payable and current portion of long-term debt | 27,807 | 32,978 | |||||||||||||||||
Accrued taxes | 4,938 | 11,944 | |||||||||||||||||
$ | 642,714 | $ | 698,196 | ||||||||||||||||
Long-term debt, net of current portion | 618,088 | 656,847 | |||||||||||||||||
Pension and other postretirement benefits | 439,953 | 455,197 | |||||||||||||||||
Deferred income taxes and other | 93,783 | 101,707 | |||||||||||||||||
Total equity | 1,242,833 | 1,174,519 | |||||||||||||||||
$ | 3,037,371 | $ | 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) |
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Base Earnings Per Diluted Share 2 |
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(Unaudited) | |||||||||||||||||||
Diluted Earnings Per Share, as reported (GAAP) | $ | 0.33 | $ | 0.57 | $ | 0.56 | $ | 0.71 | |||||||||||
Adjusted for: | |||||||||||||||||||
Restructuring/asset impairment charges, net of tax 3 | 0.07 | 0.05 | 0.13 | 0.14 | |||||||||||||||
Financial asset impairment charge, net of tax | - | - | - | 0.31 | |||||||||||||||
Base Earnings Per Share (Non-GAAP) | $ | 0.41 | $ | 0.62 | $ | 0.70 | $ | 1.16 | |||||||||||
Base Earnings 4 |
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(Unaudited) | |||||||||||||||||||
Net income attributable to Sonoco, as reported (GAAP) | $ | 33.6 | $ | 58.0 | $ | 56.7 | $ | 71.2 | |||||||||||
Adjusted for: | |||||||||||||||||||
Restructuring/asset impairment charges, net of tax 3 | 7.3 | 4.6 | 13.3 | 14.5 | |||||||||||||||
Financial asset impairment charge, net of tax | - | - | - | 31.0 | |||||||||||||||
Base Earnings (Non-GAAP) | $ | 40.9 | $ | 62.6 | $ | 70.1 | $ | 116.7 | |||||||||||
Base Operating Profit 5 |
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(Unaudited) | |||||||||||||||||||
Consumer Packaging – Base Operating Profit | $ | 38.9 | $ | 32.5 | $ | 78.3 | $ | 68.8 | |||||||||||
Tubes and Cores/Paper – Base Operating Profit | 20.2 | 40.0 | 27.0 | 74.6 | |||||||||||||||
Packaging Services – Base Operating Profit | 1.2 | 8.9 | 1.8 | 14.9 | |||||||||||||||
All Other Sonoco – Base Operating Profit | 7.4 | 12.4 | 12.5 | 23.8 | |||||||||||||||
Base Operating Profit | 67.7 | 93.8 | 119.6 | 182.0 | |||||||||||||||
Restructuring/asset impairment charges 3 | (10.4 | ) | (10.8 | ) | (17.6 | ) | (29.6 | ) | |||||||||||
Financial asset impairment charges | - | - | - | (42.7 | ) | ||||||||||||||
Interest, net | (10.1 | ) | (12.1 | ) | (19.7 | ) | (25.3 | ) | |||||||||||
Income before income taxes (GAAP) | $ | 47.2 | $ | 70.9 | $ | 82.3 | $ | 84.4 | |||||||||||
1Generally Accepted Accounting Principles | |||||||||||||||||||
2 Base 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. | |||||||||||||||||||
3 Restructuring/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. | |||||||||||||||||||
4 Base earnings is a non-GAAP financial measure of net income attributable to Parent Company, 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. | |||||||||||||||||||
5 Base 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
www.sonoco.com