Sonoco (SON) Tops Q2 EPS by 7c, Revenues Beats; Boosts FY18 EPS Guidance
Sonoco (NYSE: SON) reported Q2 EPS of $0.93, $0.07 better than the analyst estimate of $0.86. Revenue for the quarter came in at $1.37 billion versus the consensus estimate of $1.34 billion.
Second Quarter Highlights
- Second-quarter 2018 GAAP earnings per diluted share were $0.88, compared with $0.43 in 2017.
- Second-quarter 2018 GAAP earnings included after-tax charges of $4.4 million related to restructuring and acquisition-related expenses. In the second quarter of 2017, GAAP results included $28.7 million, after tax, in charges for lump-sum pension settlement distributions, restructuring-related activities and acquisition expenses.
- Base net income attributable to Sonoco (base earnings) for second quarter 2018 was $0.93 per diluted share, compared with $0.71 in 2017. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) Sonoco previously provided second-quarter 2018 base earnings guidance of $0.83 to $0.89 per diluted share.
- Second-quarter 2018 net sales were $1.37 billion, up 10.1 percent from $1.24 billion in 2017.
- Cash flow from operations was $251.2 million in the first half of 2018, compared with $103.2 million in 2017. Year-to-date free cash flow was $88.8 million, compared with $(69.3) million in 2017. (See free cash flow definition and reconciliation to cash flow from operations later in this release.)
- On May 29, 2018, Sonoco signed a definitive agreement with Texpack, Inc. to acquire its 70 percent interest in the Conitex Sonoco joint venture and Texpack's composite can operation in Spain for approximately $143 million in cash. Conitex Sonoco is a vertically integrated global leader in the manufacturing of paper-based cones and tubes used in the textile industry. The transaction is subject to normal international regulatory reviews and is expected to close early in the fourth quarter of 2018. Conitex Sonoco will be included in our Paper and Industrial Converted Products Segment and the Spanish composite can operation in our Consumer Segment.
CEO Comments
Commenting on the Company’s second-quarter GAAP and base results, President and Chief Executive Officer Rob Tiede said, "Sonoco produced an outstanding quarter as our growing diversified mix of global packaging businesses improved both the top-line and bottom-line by double-digits over prior-year consolidated results. Net sales grew by 10.1 percent, while operating profit improved 25.4 percent and net income attributable to Sonoco gained 107.3 percent compared to last year. Base operating profit and base net income attributable to Sonoco improved 16.9 percent and 30.6 percent, respectively. Second-quarter GAAP and base operating profit benefitted from a positive price/cost relationship and improvements to productivity, which were partially offset by operating cost inflation and higher management incentives. Overall volume/mix was modestly higher compared to the prior-year quarter, with each business segment showing improvement. The year-over-year improvement also reflects a lower effective tax rate due to the 2017 Tax Cuts and Jobs Act. GAAP operating profit was further aided by lower restructuring and impairment charges compared to 2017. In addition, cash flow from operations and free cash flow were extremely strong during the first six months of 2018, with cash flow from operations improving approximately $148.1 million over the prior year.
“Net sales in our Consumer Packaging segment grew 18.2 percent over the prior year, while operating profit improved by approximately 5.5 percent. A positive price/cost relationship, solid productivity gains, the benefit of acquisitions and a slight improvement in volume/mix drove the second quarter operating profit increase and more than offset higher operating inflation.
“Our Paper and Industrial Converted Products segment achieved a record second-quarter operating profit, improving 35.4 percent from last year, while net sales grew 1.1 percent. The gain in segment operating profit was primarily driven by a positive price/cost relationship and better volume/mix, which more than offset higher operating costs.
“Our Protective Solutions segment produced a solid turnaround, with operating profit improving 23.7 percent from last year as a positive price/cost relationship and productivity improvements helped offset higher operating inflation. Finally, our Display and Packaging segment operating profit declined as volume growth, a positive price/cost relationship and productivity improvements were more than offset by a negative mix of business and higher operating costs driven by the continued ramp up of operations at our new pack center in Atlanta.”
Third Quarter and Full-Year Guidance Update
- Base earnings for the third quarter of 2018 are estimated to be in the range of $0.82 to $0.88 per diluted share, compared to $0.76 per diluted share in the third quarter of 2017.
- Full-year 2018 base earnings guidance has been raised to $3.27 to $3.37 per diluted share, from the previous guidance of $3.22 to $3.32 per diluted share, to reflect the Company's strong second quarter results and expected solid second half results despite additional expenses anticipated from recently enacted tariffs on steel, aluminum and other products along with higher than previously expected freight and other non-material inflation. This new guidance does not include possible benefit from the expected completion of the Conitex Sonoco acquisition.
- Full-year 2018 operating cash flow and free cash flow guidance has been raised to a range of $570 million to $590 million and $190 million and $210 million, respectively.
GUIDANCE:
Sonoco sees FY2018 EPS of $3.27-$3.37, versus the consensus of $3.28.
For earnings history and earnings-related data on Sonoco (SON) click here.