Sonoco Reports Third Quarter and Nine Months Earnings
HARTSVILLE, S.C., Oct. 18 /PRNewswire/ -- Sonoco (NYSE: SON) today reported earnings per diluted share of $.42 for the third quarter of 2000, excluding one-time expenses of approximately $.03 per diluted share related to previously disclosed senior management changes, it was announced by Harris E. DeLoach, Jr., president and chief executive officer. Results for the quarter also reflect a write down of approximately $.02 per diluted share related to recovered paper inventory. Earnings per diluted share for last year's third quarter were $.44.
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Sales for the third quarter of 2000 were $677.5 million, versus $620 million in the same period last year, reflecting $64 million in selling price increases to pass through higher raw material cost in the first three quarters of 2000 and acquisitions made during the third quarter of 1999. Sales were lowered by approximately $8 million quarter-over-quarter from the translation of European sales into U.S. dollars. Net income for the third quarter of 2000, excluding the one-time impact of executive severance, was $41.9 million, compared with $45.3 million in the third quarter of 1999, resulting primarily from the impact of slower volumes and unfavorable product mix.
For the first nine months of 2000, sales were $2.04 billion versus $1.79 billion in the same period last year. Strong volume in the first quarter of 2000, coupled with selling price increases implemented throughout the first nine months of this year, increased year-over-year sales by $159 million. In addition, acquisitions (net of dispositions) increased sales by $96 million. Also, this year's first nine months included more calendar days (4 to 6 more billing days, depending on the specific business) that occurred in the first quarter. Sales were lowered by approximately $20 million year- over-year from the translation of European sales into U.S. dollars. Net income for the first nine months of 2000 was $133.4 million, compared with $133.1 million for the same period in 1999. Earnings per share were $1.33 versus $1.29 in the same period of 1999 due to decreased shares from stock repurchases totaling $59 million in the fourth quarter of 1999 and the first quarter of 2000. Both of these exclude the one-time expenses of executive severance in 2000 and the non-recurring gain in 1999.
"As previously announced, earnings per diluted share for the third quarter 2000 were expected to be adversely impacted by slower volume, compared with the same period last year, in most of the Company's businesses, including our two largest businesses -- industrial-based engineered carriers/paper operations and the consumer-based composite cans. Since our pre-announcement in mid-September, volumes have continued to weaken although our market shares have not changed significantly. This would indicate weakness in many of the markets we serve, including the United States textile market and the paper mill industry, both of which have been hurt by the strong dollar. We also experienced reduced demand in our consumer products sector, principally in certain segments of the snack food business," said DeLoach.
He noted that while the Company's acquisition of Graphic Packaging's flexible packaging business in September 1999 is performing well, a number of price increases related to raw material costs were not fully implemented across the Company's flexible packaging business during the third quarter. DeLoach said that resin costs, which have declined by about 6% since mid-year, but still some 13% higher compared with last year's third quarter, most significantly impacted the high density film business. Molded plastics and printed flexible packaging businesses have also experienced resin increases.
"Our total furnish costs (primarily old corrugated containers (OCC)) were $88 per ton in the third quarter, compared with $92 in last year's third quarter and down from $122 per ton in the second quarter of 2000. The lowered OCC cost reflects the slower economic growth in many of the markets we serve. In addition, energy costs increased more than 100% over last year's cost.
"The Company anticipates fourth quarter earnings per diluted share of $.42 to $.46, compared with last year's fourth quarter results of $.50 which benefited from exceptionally strong volumes and more billing days," said DeLoach. "This range of expectation reflects our observation of a slowing in the general economy. We would expect to be able to provide more specific guidance at our annual meeting with the financial community to be held in New York on December 8," added DeLoach.
"We expect continued strong free cash flow of approximately $150 million for 2000, with capital expenditures between $100 million to $120 million. Capital expenditures will remain at or below depreciation, helping ensure that free cash flow will remain strong," stated DeLoach.
"The obvious question is how to best deploy this cash. We believe that we have both a long-term obligation to ensure profitable growth for the Company while also providing a fair total return on investment for our shareholders. We believe this can be achieved through a combination of moderate sized acquisitions within those businesses that we have identified as growth vehicles (they include our engineered carriers, composite cans, printed flexible packaging, custom designed protective packaging and packaging services) and by continuing to repurchase outstanding common stock," said DeLoach. "Our criteria for acquisitions is that they must be strategic and cannot be dilutive in the first year," he said.
"We will also continue to examine our portfolio to ensure that our existing businesses are indeed strategic and that they consistently exceed our cost of capital. When that is not the case, we will re-deploy those assets more effectively," DeLoach added.
"In light of what appears to be a slowing of the general economy, we are even more strongly committed to vigilantly ensuring our status as a low-cost producer in the markets that we serve," concluded DeLoach.
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).
Third quarter sales for the consumer segment were $315 million, versus $279.6 million from ongoing operations in the same period last year. Operating profit for this segment was $25.8 million, versus $34.7 million in the third quarter of 1999.
First nine months sales from ongoing operations in the consumer segment were $939.4 million, versus $796.9 million in the same period of 1999. Operating profit in this segment for the nine months was $86.1 million, versus $102.9 million in the same period last year.
The increase in third quarter sales in the consumer segment resulted from acquisitions and higher selling prices, compared with the same period in 1999. Sales reflect the third quarter 1999 acquisitions of Crown, Cork and Seal's composite can business and Graphic Packaging's flexible operations. The decrease in operating profit reflects the $4.5 million negative impact of lower volume and less favorable mix and the $2.0 million negative impact of higher relative material cost to selling prices principally in the high density film operations. This resulted from 13% higher resin costs in the third quarter of 2000, compared with the same period last year.
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).
Third quarter 2000 sales in the industrial packaging segment were $362.5 million, versus $340.5 million for the same period in 1999. Operating profit in this segment was $52.7 million, versus $46 million in the 1999 third quarter.
Sales for the first nine months of 2000 in this segment were $1.1 billion, versus $986.7 million in the same period of 1999. Operating profits for the industrial segment in the first nine months of 2000 were $162.1 million, versus $137.5 million in the same period last year.
The increase in third quarter sales and profit in the industrial segment resulted primarily from price increases for engineered carriers in the second and third quarters in response to higher general operating and raw material costs. The benefits of these increases, along with productivity gains in engineered carriers of $3.6 million, were partially offset by a slight decrease in unit volume growth in the third quarter, compared with the same period last year.
Corporate
Net interest expense increased $2.5 million quarter over quarter due to higher average debt levels resulting from funding acquisitions late in the third quarter of 1999. Also, commercial paper rates have increased accounting for $1.0 million in higher interest costs.
The cash flow from operations for the first nine months was $269 million. Free cash flow (after capital expenditures of $80 million and dividends of $59 million) was $130 million. This amount was used to repurchase stock during the first quarter of 2000 totaling $46 million, pay down debt of $67 million and increase cash balances by $17 million.
Depreciation and amortization expense for the first nine months was $115 million. For the third quarter it was $39 million.
Conference Call
Sonoco will host its regular quarterly conference call concerning third quarter earnings results on Wednesday, October 18, at 2:00 p.m. EDT. The conference call can be accessed in a "listen only" mode via the Internet at http://www.videonewswire.com/SONOCO/101800/. A replay will be available through Sonoco's web site (www.sonoco.com) Investor Information section for 90 days after the conference.
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.
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 NINE MONTHS ENDED
Oct. 01, Sept. 26, Oct. 01, Sept. 26,
2000 1999 2000 1999
Sales $677,469 $620,027 $2,042,454 $1,792,260
Cost of sales 529,972 476,069 1,588,414 1,368,603
Selling, general and
administrative
expenses 69,001 63,427 205,796 183,442
One-time non-operational
items* 5,499 -- 5,499 (3,500)
Income before interest
and taxes 72,997 80,531 242,745 243,715
Interest expense (15,026) (12,914) (45,709) (37,230)
Interest income 929 1,310 2,427 4,040
Income before income
taxes 58,900 68,927 199,463 210,525
Provision for income
taxes 22,382 25,542 75,796 78,708
Income before equity in
earnings of affiliates/
Minority interest in
subsidiaries 36,518 43,385 123,667 131,817
Equity in earnings of
affiliates/Minority
interest in
subsidiaries 2,014 1,882 6,282 4,761
Net income $38,532 $45,267 $ 129,949 $ 136,578
Average shares outstanding -
diluted 99,630 102,899 100,150 102,853
Diluted earnings
per share $.39 $.44 $1.30 $1.33
Dividends per
common share $.20 $.19 $.59 $.56
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
Oct. 01, Dec. 31,
2000 1999
Assets
Current Assets:
Cash and cash equivalents $53,960 $36,515
Trade Accounts receivables 360,263 346,845
Other receivables 27,986 28,847
Inventories 271,557 248,364
Prepaid expenses and deferred taxes 37,923 62,510
751,689 723,081
Property, plant and equipment, net 987,015 1,032,503
Cost in excess of fair value of
assets purchased, net 238,874 254,580
Other assets 301,150 286,856
$ 2,278,728 $ 2,297,020
Liabilities and Shareholders' Equity
Current Liabilities:
Payable to suppliers and others $ 375,499 $ 332,034
Notes payable and current portion
of long-term debt 61,489 84,597
Taxes on income 8,270 --
445,258 416,631
Long-term debt 775,176 819,540
Postretirement benefits other than pensions 28,883 36,278
Deferred income taxes and other 139,127 123,351
Shareholders' equity 890,284 901,220
$2,278,728 $2,297,020
* Includes executive severance agreements in 2000 and gain on sales of divested assets in 1999.
FINANCIAL SEGMENT INFORMATION (Unaudited)
(Dollars in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
Oct. 01, Sept. 26, Oct. 01, Sept. 26,
2000 1999 2000 1999
Net Sales
Industrial Packaging $ 362,452 $ 340,456 $ 1,103,103 $986,727
Consumer Packaging 315,017 279,571 939,351 796,860
Other* -- -- -- 8,673
Consolidated $677,469 $620,027 $2,042,454 $1,792,260
Operating Profit
Industrial Packaging $ 52,677 $ 46,047 $ 162,113 $ 137,451
Consumer Packaging 25,819 34,677 86,131 102,881
Other* -- (193) -- (117)
One-Time Non-Operational
Items** (5,499) -- (5,499) 3,500
Interest, net (14,097) (11,604) (43,282) (33,190)
Consolidated $58,900 $68,927 $199,463 $210,525
* Includes net sales and operating profits of divested businesses.
**Includes executive severance agreements in 2000 and gain on sales of divested assets in 1999.
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: CHF012 HARRIS E. DELOACH OF SONOCO Harris E. DeLoach, Jr., 55, President and Chief Executive Officer, Sonoco. (PRNewsFoto)[JL] HARTSVILLE, SC USA 07/28/2000
CAPTION: SNCLOGO SONOCO LOGO Sonoco Logo. (PRNewsFoto)[KC] HARTSVILLE, SC USA 10/06/1999