|Sonoco Reports 2011 Third Quarter Results|
HARTSVILLE, S.C., Oct 18, 2011 (BUSINESS WIRE) -- Sonoco (NYSE: SON), one of the largest diversified global consumer and industrial packaging companies, today reported results for its third quarter ending October 2, 2011.
Third Quarter Highlights
Third Quarter Review
Commenting on the Company's third quarter results, Chairman and Chief Executive Officer Harris E. DeLoach, Jr. said, "Despite slowing global economic conditions, our third quarter base earnings were essentially flat with last year and up 10 percent from the second quarter of 2011. Compared to the prior year third quarter, volume declined slightly, particularly in our more economic-sensitive industrial businesses, and we continued to see a negative mix in many of our businesses. Even though we faced raw material, energy and freight cost headwinds, the price/cost relationship for the quarter was only slightly negative. We were helped by productivity improvements, although not up to our historic levels, and lower selling and administrative costs.
"Our Consumer Packaging segment's operating profits were 35 percent higher, when compared to the second quarter and slightly better than last year's third quarter. Improved productivity, volume gains and cost reduction efforts offset a negative price/cost relationship. In our Packaging Services segment, results were up year over year; however, results were down sequentially from the second quarter as improved point-of-purchase display volume and fulfillment activities could not offset previously announced lost contract packaging business.
"Our industrial-focused businesses had mixed results, as our Tubes and Cores/Paper segment's third quarter operating profits were down 10 percent year over year and 9 percent sequentially. Results for the quarter were impacted by lower global volume for tubes and cores along with an unfavorable mix of business. These negative factors were partially offset by productivity improvements. All Other Sonoco, which primarily includes industrial-related businesses, showed a 6 percent improvement in operating profits year over year and a 7 percent improvement sequentially, due primarily to productivity."
Third quarter GAAP net income attributable to Sonoco was $77.2 million, or $.76 per diluted share, in 2011, compared with $59.0 million, or $.57 per diluted share, in 2010. Base earnings were $67.1 million, or $.66 per diluted share, in the third quarter of 2011, compared with $67.1 million, or $.65 per diluted share, in 2010. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring charges, asset impairment charges and other items, if any, the exclusion of which the Company believes improves comparability and analysis of the underlying financial performance of the business.
Items excluded from base earnings in the 2011 third quarter include: a net $18.8 million, or $.18 per share, reduction in tax expense resulting from valuation allowance adjustments on deferred tax assets; restructuring expenses of $7.2 million, after tax, or $.07 per share, primarily due to the closures of a tubes and cores plant and a plastics facility; and acquisition-related costs of $1.5 million, after tax, or $.01 per share. Excluded from base earnings in the third quarter of 2010 were impairment and restructuring charges of $6.9 million, after tax, or $.07 per share, primarily related to impairment charges in the Company's Flexible Packaging unit, and $1.1 million, after tax, or $.01 per share, in acquisition-related costs.
Net sales for the third quarter were $1.12 billion, compared with $1.05 billion in the same period in 2010. This 7 percent increase was due to higher selling prices and favorable foreign currency translation, partially offset by a negative mix of business. The impact of higher selling prices was realized primarily in the Tubes and Cores/Paper and Consumer Packaging segments, principally driven by higher recovered paper and resin prices.
The Company's gross profit margin in the third quarter of 2011 was 16.6 percent of sales, compared with 19.0 percent in the same period in 2010. The decline was primarily due to lower volume, a negative shift in the mix of business and higher labor and other costs. The Company's selling and administrative costs declined 12 percent year over year, primarily due to lower management incentive and pension costs, a gain from life insurance proceeds, cost controls and the net impact of foreign exchange.
Cash generated from operations in the third quarter was $100 million, compared with $145 million generated in the same period in 2010. Capital expenditures and cash dividends were $44 million and $29 million, respectively, during the third quarter, compared with $42 million and $28 million, respectively, during the third quarter of 2010.
For the nine-month period ending October 2, 2011, net sales increased 12 percent to $3.37 billion, compared with $3.0 billion in the same period of 2010. Net income attributable to Sonoco for the first nine months of 2011 was $188 million ($1.84 per diluted share), compared with $166.5 million ($1.63 per diluted share) in the same period in 2010. Earnings for the nine-month period of 2011 include a net positive impact of $1.5 million, after tax, or $.02 per diluted share, due to the previously mentioned net favorable deferred tax asset adjustments more than offsetting restructuring and acquisition costs. This is compared with a negative impact of $12.1 million, after tax, or $.12 per diluted share, for restructuring and other charges in the same period in 2010.
Year-to-date base earnings were $186.5 million ($1.82 per diluted share), compared with $178.6 million ($1.75 per diluted share) in the same period in 2010. This 4 percent year-over-year improvement in base earnings was a result of productivity gains, higher Companywide volumes, primarily a result of six additional accounting days in the Company's first quarter, and lower pension costs. These positive factors were partially offset by a negative mix of business and higher raw material, energy, freight and other costs. Gross profit as a percent of sales was 17.0 percent for the nine-month period, compared with 18.9 percent in 2010.
For the first nine months of 2011, cash generated from operations was $132 million, compared with $261 million in the same period in 2010. Higher pension and postretirement plan contributions account for approximately $105 million of the year-over-year decrease, including an $85 million contribution to the Company's U.S. pension plan made in the first quarter of 2011. Capital expenditures and cash dividends were $124 million and $86 million, respectively, for the nine months of 2011, compared with $101 million and $83 million, respectively, in the same period in 2010.
The Company also used $46.3 million in the first quarter of 2011 to repurchase common stock on the open market, while there were no open-market share repurchases in the first nine months of 2010. The Company spent a total of $10.9 million on acquisitions in the first nine months of 2011, compared with $134.3 million spent in 2010.
At the end of the third quarter of 2011, total debt was $735 million, an increase from $621 million at the end of 2010. The aforementioned pension contributions and share repurchases were primarily responsible for the increase. The Company's debt-to-total-capital ratio was 32.2 percent, compared with 29.2 percent at the end of 2010. Cash and cash equivalents at the end of the third quarter totaled $146 million, compared with $158 million at year-end 2010.
Fourth Quarter and Full-Year 2011 Outlook
Sonoco expects fourth quarter 2011 base earnings to be in the range of $.59 to $.63 per diluted share. Base earnings in the fourth quarter of 2010 were $.59 per diluted share. For the full-year 2011, base earnings are projected to be in the range of $2.41 to $2.45 per diluted share. The Company had previously provided full-year guidance of $2.46 to $2.54 per diluted share. The Company's earnings guidance for the fourth quarter reflects six fewer days than last year's final quarter and an expected effective tax rate of approximately 32.3 percent.
The Company's base earnings guidance assumes sales demand will remain near current levels, adjusted for seasonality. Although the Company believes the assumptions reflected in the range of guidance are reasonable, given the volatility of recovered paper and other material prices, as well as uncertainty regarding the global economy, actual results could vary substantially.
Commenting on the Company's outlook, DeLoach said, "We have become more cautious about global economic conditions and the direction of consumer spending. For that reason, we are moving guidance to reflect the gradual slowing that we are seeing in our served markets, particularly in our industrial markets. In response, the Company is continuing to place restrictions on spending and taking proactive measures to further reduce costs.
"A key focus in the fourth quarter will be closing the recently announced $550 million acquisition of Tegrant Corporation. Closing on the transaction is expected to occur in mid-November and the impact on 2011 base earnings is not expected to be significant. We expect to incur non-base transaction costs of approximately $6 million, excluding financing costs, which will be expensed after closing. A joint integration team has been identified and will begin working after the closing to quickly bring our businesses together and realize identified synergies."
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 plastic); printed flexible packaging; metal and peelable membrane ends and closures; and global brand artwork management.
Third quarter 2011 sales for the segment were $466 million, compared with $437 million in the same period in 2010 and $451 million in the second quarter of 2011. Segment operating profit was $47.2 million in the third quarter, compared with $46.3 million last year and $35 million in the second quarter.
Sales increased by 7 percent during the third quarter over the prior year period, due to higher selling prices, and to a lesser extent, volume growth in flexible packaging and rigid plastic containers and favorable currency translation. Operating profits improved 2 percent from the previous year's results, due to volume growth, productivity improvements and lower pension, and selling and administrative expenses. These positive factors were offset by a negative price/cost relationship and a change in the mix of business.
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, corrugating medium, recovered paper and other recycled materials.
Third quarter 2011 sales for the segment were $453 million, compared with $412 million in the same period in 2010 and $456 million in the second quarter of 2011. Segment operating profit was $33.9 million, compared with $37.8 million in 2010 and $37.3 million in the second quarter.
The 10 percent year-over-year increase in third quarter segment sales was due to higher selling prices and favorable currency translation. The increase in selling prices was primarily a result of higher old corrugated containers pricing, which had a favorable impact on prices received for recovered paper, paperboard, and tubes and cores.
Operating profit for the segment declined 10 percent, compared with the prior-year period and was down 9 percent from the second quarter. A decline in global volume, a negative mix of business, wage inflation and a slightly negative price/cost relationship more than offset productivity improvements and lower pension, and selling and administrative expenses.
The Packaging Services segment includes the following products and services: designing, manufacturing, assembling, packing and distributing temporary, semipermanent and permanent point-of-purchase displays; and supply chain management services, including contract packing, fulfillment and scalable service centers.
Third quarter 2011 sales for this segment were $111 million, compared with $112 million in the same period in 2010 and $124 million in the second quarter of 2011. Segment operating profit was $4.2 million, compared with $1.9 million in 2010 and $8.2 million in the second quarter.
Improvement in point-of-purchase display volume and fulfillment activities and favorable currency translation in the third quarter were offset by the previously disclosed loss of a contract packaging customer. Operating profit for the segment more than doubled due to operating cost improvements and lower selling and administrative expenses.
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 and spools; molded and extruded plastics; custom-designed protective packaging; and paper amenities, such as coasters and glass covers.
Third quarter 2011 sales in All Other Sonoco were $94 million, compared with $91 million in the same period in 2010 and $97 million in the second quarter of 2011. Operating profit for the current quarter was $13.2 million, compared with $12.5 million in 2010 and $12.3 million in the second quarter.
Sales in All Other Sonoco increased 4 percent in the third quarter, year over year, due to higher selling prices, volume gains in molded plastics and reels and spools, and favorable currency translation, partially offset by lower volume in protective packaging. Operating profits in All Other Sonoco increased 6 percent, primarily as a result of productivity gains, positive price/cost, and lower selling and administrative costs, which more than offset a negative impact from volume and mix.
Net interest expense for the third quarter of 2011 decreased slightly to $8.3 million, compared with $8.4 million during the same period in 2010. The effective tax rate for the third quarter of 2011 was 3.1 percent, compared with 27.6 percent for the same period in 2010, reflecting the net benefit of the deferred tax asset adjustments referred to above. The effective tax rate on base earnings was 29.1 percent and 29.6 percent in the third quarters of 2011 and 2010, respectively.
Conference Call Webcast
Sonoco will host its regular quarterly conference call Wednesday, October 19, 2011, at 11 a.m. Eastern time, to review its 2011 third quarter financial results. The live conference call can be accessed in a "listen only" mode via the Internet at http://www.sonoco.com, under the Investor Relations section. A telephonic replay of the call will be available starting at 2 p.m. Eastern time to U.S. callers at 888-286-8010 and international callers at +617-801-6888. The replay passcode for both U.S. and international calls is 50037713. The archived call will be available through January 19, 2012. The webcast call also will be archived in the Investor Relations section of Sonoco's website.
Founded in 1899, Sonoco is a $4.1 billion global manufacturer of industrial and consumer products and provider of packaging services, with more than 300 operations in 34 countries, serving customers in some 85 nations. The Company is a proud 2011/2012 member of the Dow Jones Sustainability World Index. For more information on the Company, visit our website at http://www.sonoco.com.
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," "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.
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Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements. The risks and uncertainties include, without limitation:
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 Securities and Exchange Commission. Such reports are available from the Securities and Exchange Commission's public reference facilities and its website, http://www.sec.gov, and from the Company's investor relations department and the Company's website, http://www.sonoco.com.
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