Sonoco Reports Preliminary Second Quarter 2015 Results
Review of Mexico Packaging Center Historical Financial Results
Sonoco, working with outside accounting and legal consultants, is currently conducting a thorough review of financial results for a single contract packaging center in
The independent Audit Committee of Sonoco’s Board of Directors has retained the international legal firm of
Note that, without excluding the possibility of other changes, the results reported in this release referred to as “estimated” reflect those items management believes are subject to change due to the ongoing
Preliminary Second Quarter Highlights
- Second quarter 2015 GAAP earnings per diluted share are estimated to be
$.61 . Second quarter 2015 GAAP results include$.07 per diluted share in after-tax charges related to plant consolidations, global restructuring activities and other costs. This was partially offset by approximately$.02 per diluted share in after-tax gains associated with a reversal of reserves and tax adjustments, partially offset by acquisition costs. - Base net income attributable to Sonoco (base earnings) for second quarter 2015 is estimated to be
$.66 per diluted share. (See base earnings definition and reconciliation later in this release.) Sonoco previously provided second quarter base earnings guidance of$.64 to $.69 per diluted share. - Second quarter 2015 net sales are estimated to be
$1.25 billion . - Cash flow from operations was
$115 million . Free cash flow for the second quarter was$35 million . (See free cash flow definition later in this release.)
2015 Guidance Updated
- Base earnings are expected to be in the range of
$.65 to $.70 per diluted share for the third quarter. The Company has updated full-year 2015 guidance to$2.48 to $2.58 per diluted share, which is lower than previous guidance due to the above mentioned issue inMexico along with higher than expected pension expense, a delay in achieving certain acquisition synergies and changing market conditions. The Company’s previous guidance for the year was$2.60 to $2.70 per diluted share. - Free cash flow in 2015 remains unchanged at approximately
$140 million .
Preliminary Second Quarter Results
GAAP net income attributable to Sonoco in the second quarter is estimated to be
Second quarter base earnings exclude
Net sales for the second quarter are estimated to be
Gross profit is estimated to be
Cash generated from operations in the second quarter was estimated to be
Net interest expense for the second quarter of 2015 increased to
Preliminary Year-to-date Results
For the first six months of 2015, net sales are estimated to be
Net income attributable to Sonoco for the first six months of 2015 is estimated to be
Gross profit is estimated to be
For the first six months of 2015, cash generated from operations was estimated to be
At
Third Quarter and Full-Year 2015 Earnings Guidance Update
Sonoco expects third 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,
Segment Results
Sonoco reports its financial results in four operating segments: Consumer Packaging, Paper and Industrial Converted Products, Protective Solutions and Display and Packaging. 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.
Consumer Packaging
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.
Second quarter 2015 sales for the segment were
According to Sanders, “Segment sales grew 12 percent during the quarter due to the Weidenhammer and Graffo acquisitions and volume growth in global composite cans, flexible packaging and rigid plastic containers. Foreign exchange rate changes and the divestiture of two metal ends and closures plants had the effect of reducing sales in the quarter by
“Consumer Packaging operating profit grew
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.
Second quarter 2015 sales for the segment were
Sanders commented, “Paper and Industrial Converted Products segment sales declined 8 percent during the quarter due to the negative impact of foreign exchange translation and lower volume in most of our global industrial-related businesses. Segment earnings declined
Protective Solutions
The Protective Solutions segment includes the following products: custom-engineered, paperboard-based and expanded foam protective packaging and components, and temperature-assured packaging.
Second quarter 2015 sales were
“We were very pleased with the record results in our Protective Solutions segment as operating profit rose
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.
Estimated second quarter 2015 sales for this segment are
Conference Call Webcast
Management will host a conference call and webcast to further discuss these results beginning at
About Sonoco
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
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,” “strategy,” “opportunity,” “commitment,” “target,” “anticipate,” “objective,” “goal,” “guidance,” “outlook,” “forecast,” “future,” “re-envision,” “assume,” “will,” “would,” “can,” “could,” “may,” “might,” “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, streamlining corporate and business unit structures, 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, costs, timing and effects of restructuring activities, 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, energy and transportation
- effects on the consolidated financial statements of adjustments based on the review of financial results for the contract packaging center in
Mexico - 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
- disputes with suppliers and customers
- 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 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 website by reference into this release.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | ||||||
(Dollars and shares in thousands except per share) | ||||||
PRELIMINARY (*) | ||||||
THREE MONTHS ENDED | SIX MONTHS ENDED | |||||
June 28, 2015 | June 28, 2015 | |||||
Net sales | $ | 1,249,477 | $ | 2,455,722 | ||
Cost of sales | 1,008,797 | 1,994,651 | ||||
Gross profit | 240,680 | 461,071 | ||||
Selling, general and administrative expenses | 132,862 | 229,527 | ||||
Restructuring/Asset impairment charges | 10,445 | 10,086 | ||||
Income before interest and income taxes | $ | 97,373 | $ | 221,458 | ||
Net interest expense | 13,601 | 26,822 | ||||
Income before income taxes and equity in earnings of affiliates | 83,772 | 194,636 | ||||
Provision for income taxes | 23,978 | 51,069 | ||||
Income before equity in earnings of affiliates | 59,794 | 143,567 | ||||
Equity in earnings of affiliates, net of tax | 3,269 | 4,315 | ||||
Net income | 63,063 | 147,882 | ||||
Net loss attributable to noncontrolling interests | (250) | (158) | ||||
Net income attributable to Sonoco | $ | 62,813 | $ | 147,724 | ||
Weighted average common shares outstanding – diluted | 102,444 | 102,365 | ||||
Diluted earnings per common share | $ | 0.61 | $ | 1.44 | ||
Dividends per common share | $ | 0.35 | $ | 0.67 | ||
FINANCIAL SEGMENT INFORMATION (Unaudited) | ||||||||||||
(Dollars in thousands) | ||||||||||||
PRELIMINARY (*) | ||||||||||||
THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||
June 28, 2015 | June 29, 2014 | June 28, 2015 | June 29, 2014 | |||||||||
Net sales | ||||||||||||
Consumer Packaging | $ | 531,114 | $ | 473,666 | $ | 1,050,991 | $ | 938,591 | ||||
Paper and Industrial Converted Products | 448,876 | 490,016 | 871,187 | 945,626 | ||||||||
Protective Solutions | 126,996 | 121,183 | 245,075 | 233,252 | ||||||||
Display and Packaging | 142,491 | * | 288,469 | * | ||||||||
Consolidated | $ | 1,249,477 | * | $ | 2,455,722 | * | ||||||
Income before interest and income taxes: | ||||||||||||
Segment operating profit: | ||||||||||||
Consumer Packaging | $ | 56,795 | $ | 42,831 | $ | 110,825 | $ | 91,014 | ||||
Paper and Industrial Converted Products | 38,140 | 46,543 | 65,936 | 76,293 | ||||||||
Protective Solutions | 13,399 | 9,640 | 23,084 | 14,927 | ||||||||
Display and Packaging | 1,187 | * | 2,025 | * | ||||||||
Restructuring/Asset impairment charges | (10,445) | (3,671) | (10,086) | (5,663) | ||||||||
Other non-base income/(charges) | (1,703) | (1,246) | 29,674) | (1,270) | ||||||||
Consolidated | $ | 97,373 | * | $ | 221,458 | * | ||||||
(*) Certain prior year results have been omitted from presentation due to the investigation of financial results for a contract packaging center in Mexico which will likely result in a correction to the Company’s consolidated financial statements dating back to 2012. | ||||||||||||
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.
PRELIMINARY (*) | ||||||||||||
Non-GAAP Adjustments | ||||||||||||
Three Months Ended June 28, 2015 | GAAP | Restructuring / Asset Impairment Charges(1) |
Other Adjustments(2) | Base | ||||||||
Net sales | $ | 1,249,477 | $ | - | $ | - | $ | 1,249,477 | ||||
Cost of sales | 1,008,797 | - | - | 1,008,797 | ||||||||
Gross profit | 240,680 | - | - | 240,680 | ||||||||
Selling, general and administrative expenses | 132,862 | - | (1,703) | 131,159 | ||||||||
Restructuring/Asset impairment charges | 10,445 | (10,445) | - | - | ||||||||
Income before interest and income taxes | $ | 97,373 | $ | 10,445 | $ | 1,703 | $ | 109,521 | ||||
Interest expense, net | 13,601 | - | - | 13,601 | ||||||||
Income before income taxes | 83,772 | 10,445 | 1,703 | 95,920 | ||||||||
Provision for income taxes | 23,978 | 3,683 | 3,282 | 30,943 | ||||||||
Income before equity in earnings of affiliates | 59,794 | 6,762 | (1,579) | 64,977 | ||||||||
Equity in earnings of affiliates, net of taxes | 3,269 | - | - | 3,269 | ||||||||
Net income | 63,063 | 6,762 | (1,579) | 68,246 | ||||||||
Net (income) attributable to noncontrolling interests | (250) | (55) | - | (305) | ||||||||
Net income attributable to Sonoco | $ | 62,813 | $ | 6,707 | $ | (1,579) | $ | 67,941 | ||||
Per Diluted Share | $ | 0.61 | $ | 0.07 | $ | (0.02) | $ | 0.66 | ||||
(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) Other adjustments consist primarily of acquisition-related costs; and the release of reserves related to the partial settlement of the Fox River environmental claims. Also included are income tax gains related to releases of a valuation allowance on deferred income tax NOL in the Company's Tubes and Cores business. | ||||||||||||
(*) Certain prior year results have been omitted from presentation due to the investigation of financial results for a contract packaging center in Mexico which will likely result in a correction to the Company’s consolidated financial statements dating back to 2012. | ||||||||||||
PRELIMINARY (*) | ||||||||||||
Non-GAAP Adjustments | ||||||||||||
Six Months Ended June 28, 2015 | GAAP | Restructuring / Asset Impairment Charges(1,2) |
Other Adjustments(3) | Base | ||||||||
Net sales | $ | 2,455,722 | $ | - | $ | - | $ | 2,455,722 | ||||
Cost of sales | 1,994,651 | - | - | 1,994,651 | ||||||||
Gross profit | 461,071 | - | - | 461,071 | ||||||||
Selling, general and administrative expenses | 229,527 | - | 29,674 | 259,201 | ||||||||
Restructuring/Asset impairment charges | 10,086 | (10,086) | - | - | ||||||||
Income before interest and income taxes | $ | 221,458 | $ | 10,086 | $ | (29,674) | $ | 201,870 | ||||
Interest expense, net | 26,822 | - | - | 26,822 | ||||||||
Income before income taxes | 194,636 | 10,086 | (29,674) | 175,048 | ||||||||
Provision for income taxes | 51,069 | 15,276 | (9,232) | 57,113 | ||||||||
Income before equity in earnings of affiliates | 143,567 | (5,190) | (20,442) | 117,935 | ||||||||
Equity in earnings of affiliates, net of taxes | 4,315 | - | - | 4,315 | ||||||||
Net income | 147,882 | (5,190) | (20,442) | 122,250 | ||||||||
Net (income) attributable to noncontrolling interests | (158) | (70) | - | (228) | ||||||||
Net income attributable to Sonoco | $ | 147,724 | $ | (5,260) | $ | (20,442) | $ | 122,022 | ||||
Per Diluted Share | $ | 1.44 | $ | (0.05) | $ | (0.20) | $ | 1.19 | ||||
(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. Also included are income tax gains related to releases of a valuation allowance on deferred income tax NOL in the Company's Tubes and Cores business. | ||||||||||||
(*) Certain prior year results have been omitted from presentation due to the investigation of financial results for a contract packaging center in Mexico which will likely result in a correction to the Company’s consolidated financial statements dating back to 2012. |
Roger Schrum +843-339-6018 roger.schrum@sonoco.com