Sonoco Reports First Quarter 2015 Results
First Quarter Highlights
First quarter 2015 GAAP earnings per diluted share were
$.86, compared with $.50in 2014.
Favorable disposition of a significant portion of Fox River-related environmental claims/litigation together with a gain on the sale of two metal ends and closures plants, partially offset by costs related to acquisition and restructuring activities, added
$.30to first quarter diluted earnings per share. First quarter 2014 GAAP results included after-tax charges of $.02per diluted share related to restructuring.
Base net income attributable to Sonoco (base earnings) for first quarter 2015 was
$.56per diluted share, compared with $.52in 2014. (See base earnings definition and reconciliation later in this release.) Sonoco previously provided first quarter base earnings guidance of $.56 to $.61per diluted share.
First quarter 2015 net sales grew 1.5 percent to
$1.20 billionup from $1.19 billionin 2014.
Cash flow from operations was
$57 millionin the first quarter of 2015, compared with $45 millionin 2014. Free cash flow for the first quarter was $15 million, compared with a negative $22 millionin 2014. (See free cash flow definition later in this release.)
Second Quarter and 2015 Guidance
Base earnings for the second quarter of 2015 are estimated to be in the range of
$.64 to $.69per diluted share. Base earnings in the second quarter of 2014 were $.63per diluted share.
Full-year 2015 base earnings are expected to remain in the previously announced range of
$2.60 to $2.70per diluted share.
Free cash flow in 2015 is projected to be approximately
$140 million, which reflects the Company's recent announcement to increase cash dividends to shareholders by 9.4 percent in 2015.
First Quarter Review
Commenting on the Company's first quarter results, Sonoco President and Chief Executive Officer
"We are also pleased with the overall first-quarter performance of our diversified portfolio of businesses. Solid results in our Consumer Packaging and Protective Solutions segments helped drive a 7.6 percent year-over-year improvement in base earnings per share as they more than offset lower results in our Paper and Industrial Converted and Display and Packaging segments. Overall, the Company profited from the accretive benefit of acquisitions, solid productivity improvement, a positive overall price/cost relationship and benefits from Company-owned life insurance. Partially offsetting these positive factors were higher labor, maintenance and other operating costs, along with increased pension expense and the negative impacts of foreign currency exchange rates.
"Operating profits from our Consumer Packaging segment increased 12 percent over the prior-year quarter due to improved results in global composite cans, global plastics and flexible packaging. Overall, the segment benefited from a positive price/cost relationship, acquisitions and productivity improvements. These factors were partially negated by higher labor, maintenance and other operating costs, increased pension expense, foreign currency exchange rates and an unfavorable change in the LIFO inventory reserve. The benefit from volume improvements in global plastics and flexible packaging was more than offset by lower volume and negative mix in composite cans in
"Segment operating profits in Paper and Industrial Converted Products declined nearly 7 percent as solid productivity improvements were negated by general inflation, increased pension expense and the negative impact of foreign exchange. While the segment overall experienced a slightly positive price/cost relationship, significantly lower than expected market prices for recovered fiber, plastics and metals had a meaningfully negative impact to the Company's recycling operations. Our Protective Solutions segment produced a greater than 80 percent improvement in operating profits in the quarter as strong volume, a positive price/cost relationship and productivity improvements more than offset higher labor, maintenance and other operating costs.
"In addition, subsequent to quarter end, we were able to successfully complete the purchase of a majority interest in Graffo Paranaense de Embalagens S/A (Graffo), a closely held flexible packaging business located in
GAAP net income attributable to Sonoco in the first quarter was
First quarter base earnings exclude an after-tax benefit of
Net sales for the first quarter were
Gross profits were
Cash generated from operations in the first quarter was
At the end of the first quarter of 2015, total debt was approximately
Net interest expense for the first quarter of 2015 increased to
Second Quarter and Full-Year 2015 Outlook
Sonoco expects second quarter 2015 base earnings to be in the range of
Although the Company believes the assumptions reflected in the range of guidance are reasonable, given uncertainty regarding the future performance of the overall economy and potential changes in raw material prices and other costs, as well as other risks and uncertainties, including those described below, actual results could vary substantially.
Commenting on the Company's outlook, Sanders said, "Despite slow seasonal starts over the past several years, Sonoco's balanced portfolio of businesses has demonstrated the ability to rebound over the course of the year to produce targeted results. While we expect to face some headwinds over the remainder of the year from higher pension costs and a stronger U.S. dollar, we believe economic conditions will continue to improve along with consumer confidence and that our businesses will be able to respond accordingly. As announced last quarter, we have begun implementing a series of actions focused on improving our cost competitiveness by optimizing our supply chain, enhancing productivity, and streamlining our corporate and business unit structures. Entering the second quarter, we anticipate seeing continued improvement in operations due to these ongoing efforts while customer orders appear to be running in line with the volume expectations reflected in our guidance.
"Finally, we remain firmly committed to our Grow and Optimize strategy. In 2015 and beyond this means we are focused on achieving higher than market average growth; improving operating margins; continued successful integration of Weidenhammer and Graffo; maximizing free cash flow; optimizing our portfolio through simplification and improved efficiency, and targeting capital deployment to grow our business and return cash to shareholders."
Sonoco reports its financial results in four operating segments: Consumer Packaging, Display and Packaging, Paper and Industrial Converted Products, and Protective Solutions. Segment operating results do not include restructuring and asset impairment charges, acquisition expenses, interest income and expense, income taxes or certain other items, if any, the exclusion of which the Company believes improves comparability and analysis.
Sonoco's Consumer Packaging segment includes the following products and services: round and shaped rigid containers and trays (both composite and thermoformed plastic); blow-molded plastic bottles and jars; extruded and injection-molded plastic products; printed flexible packaging; global brand artwork management; and metal and peelable membrane ends and closures.
First quarter 2015 sales for the segment were
Segment sales grew 12 percent during the quarter due primarily to
Display and Packaging
The Display and Packaging segment includes the following products and services: designing, manufacturing, assembling, packing and distributing temporary, semi-permanent and permanent point-of-purchase displays; supply chain management services, including contract packing, fulfillment and scalable service centers; retail packaging, including printed backer cards, thermoformed blisters and heat sealing equipment; and paper amenities, such as coasters and glass covers.
First quarter 2015 sales for this segment were
Sales declined 7 percent for the quarter due to the negative impact of foreign exchange. Absent the impact of foreign exchange sales grew 3 percent as lost volume stemming from the closure of a domestic contract packaging operation was more than offset by volume increases in domestic point-of-purchase display businesses. The 27 percent decline in operating profit was driven primarily by the negative impact of foreign exchange and a customer electing to exit the domestic contract packaging market, slightly offset by point-of-purchase display volume increases.
Paper and Industrial Converted Products
The Paper and Industrial Converted Products segment includes the following products: paperboard tubes and cores; fiber-based construction tubes; wooden, metal and composite wire and cable reels and spools; and recycled paperboard, linerboard, corrugating medium, recovered paper and material recycling services.
First quarter 2015 sales for the segment were
Segment sales declined 7 percent during the quarter due to the negative impact from foreign exchange, lower global volume and declining selling prices stemming from reduced recovered fiber prices. Operating profit declined 7 percent as solid productivity improvements were negated by general inflationary costs, increased pension expense and the negative impact of foreign exchange. While the segment overall experienced a slightly positive price/cost relationship, significantly lower than expected market prices for recovered fiber, plastics and metals had a meaningfully negative impact to the Company's recycling operations. Additionally, in our paper business, percentage operating margins improved from prior quarter levels resulting in a
The Protective Solutions segment includes the following products: custom-engineered, paperboard-based and expanded foam protective packaging and components; and temperature-assured packaging.
First quarter 2015 sales were
This segment's 5 percent increase in sales was due to improved volume in temperature-assured packaging, molded foam automotive components and paper-based packaging. Operating profits gained 83 percent due to volume gains, a positive price/cost relationship, and manufacturing productivity improvements.
Conference Call Webcast
Management will host a conference call and webcast to further discuss these results beginning at
Founded in 1899, Sonoco is a global provider of a variety of consumer packaging, industrial products, protective packaging, and displays and packaging supply chain services. With annualized net sales of approximately
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," "strategy," "opportunity," "target," "anticipate," "objective," "goal," "guidance," "outlook," "forecast," "future," "re-envision," "assume," "will," "would," "aspires," "potential", or the negative thereof, and similar expressions identify forward-looking statements.
Forward-looking statements include, but are not limited to, statements regarding availability and supply of raw materials and offsetting high raw material costs, improved productivity and cost containment, adequacy of income tax provisions, anticipated income tax rates, refinancing and repayment of debt, realization of synergies resulting from acquisitions, 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, sales growth, market leadership, growth opportunities, continued payments of dividends, stock repurchases, producing improvements in earnings, improving margins, financial results for future periods, goodwill impairment charges, expected amounts of capital spending, anticipated contributions to benefit plans, 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
- ability to manage the mix of business to take advantage of growing markets while reducing cyclical effects of some of the Company's existing business on operating results
- international, national and local economic and market conditions
- availability of credit to us, our customers and/or suppliers in needed amounts and/or on reasonable terms
- fluctuations in obligations and earnings of pension and postretirement benefit plans
- pricing pressures, demand for products and ability to maintain market share
- 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
- ability to win new business and/or identify and successfully close suitable acquisitions at the levels needed to meet growth targets
- 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
- accuracy of assumptions underlying projections related to goodwill impairment testing, and accuracy of management's assessment of goodwill impairment
- accuracy of assumptions underlying fair value measurements, accuracy of management's assessments of fair value and fluctuations in fair value
- accuracy in valuation of deferred tax assets
- actions of government agencies and changes in laws and regulations affecting the Company
- loss of consumer or investor confidence
- 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
References to our Website Address
References to our website address and domain names throughout this release are for informational purposes only, or to fulfill specific disclosure requirements of the
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)|
|(Dollars and shares in thousands except per share)|
|THREE MONTHS ENDED|
|March 29, 2015||March 30, 2014|
|Net sales||$ 1,203,264||$ 1,185,626|
|Cost of sales||979,817||973,323|
|Selling, general and administrative expenses||96,665||123,750|
|Restructuring, asset impairment charges and gain on dispositions||(359)||1,992|
|Income before interest and income taxes||$ 127,141||$ 86,561|
|Net interest expense||13,221||12,643|
|Income before income taxes and equity in earnings of affiliates||113,920||73,918|
|Provision for income taxes||27,138||23,169|
|Income before equity in earnings of affiliates||86,782||50,749|
|Equity in earnings of affiliates, net of tax||1,046||1,476|
|Net loss attributable to noncontrolling interests||92||77|
|Net income attributable to Sonoco||$ 87,920||$ 52,302|
|Weighted average common shares outstanding – diluted||102,167||103,767|
|Diluted earnings per common share||$ 0.86||$ 0.50|
|Dividends per common share||$ 0.32||$ 0.31|
|FINANCIAL SEGMENT INFORMATION (Unaudited)|
|(Dollars in thousands)|
|THREE MONTHS ENDED|
|March 29, 2015||March 30, 2014|
|Consumer Packaging||$ 519,877||$ 464,925|
|Display and Packaging||142,998||153,022|
|Paper and Industrial Converted Products||422,311||455,610|
|Consolidated||$ 1,203,264||$ 1,185,626|
|Income before interest and income taxes:|
|Segment operating profit:|
|Consumer Packaging||$ 54,028||$ 48,183|
|Display and Packaging||3,895||5,357|
|Paper and Industrial Converted Products||27,797||29,750|
|Restructuring, asset impairment charges and gain on dispositions||359||(1,992)|
|Other non-base income/(charges)||31,377||(24)|
|Consolidated||$ 127,141||$ 86,561|
|CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)|
|(Dollars in thousands)|
|THREE MONTHS ENDED|
|March 29, 2015||March 30, 2014|
|Net income||$ 87,828||$ 52,225|
|Asset impairment charges||275||492|
|Depreciation, depletion and amortization||51,877||47,179|
|Fox River environmental reserves||(32,775)||4|
|Net pension and postretirement plan contributions||(4,005)||(34,402)|
|Changes in working capital||(39,013)||(58,605)|
|Other operating activity||(6,698)||38,571|
|Net cash provided by operating activities||57,489||45,464|
|Purchase of property, plant and equipment, net||(39,354)||(35,418)|
|Proceeds from dispositions||29,108||--|
|Net debt proceeds||1,325||3,695|
|Shares acquired under announced buyback||--||(8,635)|
|Other, including effects of exchange rates on cash||23,331||459|
|Net increase/(decrease) in cash and cash equivalents||39,636||(26,160)|
|Cash and cash equivalents at beginning of period||161,168||217,567|
|Cash and cash equivalents at end of period||$ 200,804||$ 191,407|
|CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)|
|(Dollars in thousands)|
|March 29, 2015||December 31, 2014|
|Cash and cash equivalents||$ 200,804||$ 161,168|
|Trade accounts receivable, net of allowances||688,997||668,710|
|Prepaid expenses and deferred income taxes||74,088||95,718|
|Property, plant and equipment, net||1,102,481||1,148,607|
|Other intangible assets, net||261,378||280,935|
|$ 4,155,157||$ 4,209,996|
|Liabilities and Shareholders' Equity|
|Payable to suppliers and other payables||$ 797,181||$ 844,229|
|Notes payable and current portion of long-term debt||51,936||52,280|
|Income taxes payable||15,432||8,936|
|$ 864,549||$ 905,445|
|Long-term debt, net of current portion||1,200,509||1,200,885|
|Pension and other postretirement benefits||436,900||444,231|
|Deferred income taxes and other||132,643||136,660|
|$ 4,155,157||$ 4,209,996|
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" or "GAAP" results. Some of the information presented in this press release reflects the Company's "as reported" or "GAAP" results adjusted to exclude amounts related to restructuring initiatives, asset impairment charges, environmental charges, acquisition costs, excess insurance recoveries, losses from the early extinguishment of debt, and certain other items, if any, the exclusion of which management believes improves comparability and analysis of the underlying financial performance of the business. These adjustments result in the non-GAAP financial measures referred to in this press release as "Base Earnings" and "Base Earnings per Diluted Share."
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 which includes all of the items impacting financial results and the non-GAAP measures that exclude certain elements, as described above. 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. Whenever reviewing a non-GAAP financial measure, investors are encouraged to fully review and consider the related reconciliation as detailed below.
|Three Months Ended March 29, 2015||
Restructuring / Asset
|Net sales||$ 1,203,264||$ --||$ --||$ 1,203,264|
|Cost of sales||979,817||--||--||979,817|
|Selling, general and administrative expenses||96,665||--||31,377||128,042|
|Restructuring, asset impairment charges and gain on dispositions||(359)||359||--||--|
|Income before interest and income taxes||127,141||(359)||(31,377)||95,405|
|Interest expense, net||13,221||--||--||13,221|
|Income before income taxes||113,920||(359)||(31,377)||82,184|
|Provision for income taxes||27,138||11,591||(12,512)||26,217|
|Income before equity in earnings of affiliates||86,782||(11,950)||(18,865)||55,967|
|Equity in earnings of affiliates, net of taxes||1,046||--||--||1,046|
|Net (income) attributable to noncontrolling interests||92||(15)||--||77|
|Net income attributable to Sonoco||$ 87,920||$ (11,965)||$ (18,865)||$ 57,090|
|Per Diluted Share||$ 0.86||$ (0.12)||$ (0.18)||$ 0.56|
|Three Months Ended March 30, 2014||
Restructuring / Asset
|Net sales||$ 1,185,626||$ --||$ --||$ 1,185,626|
|Cost of sales||973,323||--||--||973,323|
|Selling, general and administrative expenses||123,750||--||(24)||123,726|
|Restructuring, asset impairment charges and gain on dispositions||1,992||(1,992)||--||--|
|Income before interest and income taxes||86,561||1,992||24||88,577|
|Interest expense, net||12,643||--||--||12,643|
|Income before income taxes||73,918||1,992||24||75,934|
|Provision for income taxes||23,169||411||9||23,589|
|Income before equity in earnings of affiliates||50,749||1,581||15||52,345|
|Equity in earnings of affiliates, net of taxes||1,476||--||--||1,476|
|Net (income) attributable to noncontrolling interests||77||(4)||--||73|
|Net income attributable to Sonoco||$ 52,302||$ 1,577||$ 15||$ 53,894|
|Per Diluted Share||$ 0.50||$ 0.02||$ 0.00||$ 0.52|
|(1) 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. Although recurring, 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.|
|(2) Included in 2015 Restructuring/Asset impairment charges are disposal and income tax gains related to the sale of two of the Company's metal end and closures plants.|
|(3) Other adjustments consist primarily of acquisition-related costs; and the release of reserves related to the partial settlement of the Fox River environmental claims.|
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