UPDATE: Sonoco (SON) Reports In-Line Q4 EPS; Lowers FY20 EPS Guidance
Sonoco (NYSE: SON) reported Q4 EPS of $0.75, in-line with the analyst estimate of $0.75. Revenue for the quarter came in at $1.31 billion versus the consensus estimate of $1.33 billion.
Fourth-Quarter and Full-Year Highlights
- Fourth-quarter 2019 GAAP earnings per diluted share were $0.44, compared with $0.77 in 2018.
- 2019 fourth-quarter results include net after-tax charges of $0.31 per diluted share, primarily related to asset impairments, restructuring actions, non-operating pension costs and acquisition-related expenses. Prior-year results included net after-tax charges of $0.07 per diluted share mostly due to restructuring expenses, acquisition costs and other one-time items which were partially offset by a gain related to the impact of the 2017 U.S. Tax Cuts and Jobs Act.
- Full-year 2019 GAAP earnings per diluted share were $2.88, compared to $3.10 in 2018. Sonoco previously provided fourth-quarter and full-year 2019 GAAP earnings guidance of $0.43 to $0.45 and $2.87 to $2.89 per diluted share, respectively.
- Base net income attributable to Sonoco (base earnings) for the quarter was $0.75 per diluted share, compared with $0.84 in 2018. Full-year 2019 base earnings per diluted share were $3.53, compared to $3.37 in 2018. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) Sonoco previously provided fourth-quarter and full-year 2019 base earnings guidance of $0.74 to $0.76 and $3.52 to $3.54 per diluted share, respectively.
- Fourth-quarter 2019 net sales were $1.31 billion, down from $1.36 billion in 2018. Full-year 2019 net sales were $5.37 billion, compared to $5.39 billion in 2018.
- Full-year cash flow from operations was $425.9 million for 2019, compared with $589.9 million in 2018. Free cash flow was $74.3 million, compared with $260.2 million in 2018. 2019 cash flow results included a voluntary contribution into the Company's U.S. defined benefit pension plan of approximately$165 million, after taxes. (See free cash flow definition and reconciliation to cash flow from operations later in this release.)
- On December 31, 2019, Sonoco purchased Thermoformed Engineered Quality LLC, and Plastique Holdings, LTD, (together TEQ), a global manufacturer of thermoformed packaging serving healthcare, medical device and consumer markets, from ESCO Technologies, Inc. (ESE) for $187 million in cash.
CEO CommentsCommenting on the Company’s full-year and fourth-quarter results, Sonoco President and Chief Executive Officer Howard Coker said, "We were extremely pleased how the Sonoco team managed our diverse industrial- and consumer-related businesses through challenging market conditions to achieve solid results in 2019. In addition, we continued to improve our portfolio with the acquisition of Corenso Holdings North America, which strengthened our domestic paperboard operations, and we expanded our offerings into the growing healthcare market with the year-end addition of TEQ. Finally, we launched our EnviroSenseTM portfolio of sustainable packaging solutions that will help our customers further reduce the environmental impact of packaging.
"While we achieved slightly better than the mid-point of our base earnings guidance in the fourth quarter, our bottom-line results faced a difficult comparison to last year due primarily to a lower effective tax rate and hurricane-related business interruption insurance proceeds. Overall, earnings in the fourth quarter of 2019 benefited from solid productivity improvements and acquisitions, which were more than offset by lower volume/mix, a negative price/cost relationship, the negative impact of foreign exchange and reduced income from equity in affiliates.
"Our Consumer Packaging segment's operating profit improved 6.6 percent as strong earnings in paperboard containers and improved results in flexible packaging were partially offset by weak results in rigid plastics. The segment benefited from a positive price/cost relationship and productivity improvements, which were partially offset by lower volume/mix and higher operating costs. Our Paper and Industrial Converted Products segment experienced a 10.5 percent decline in operating profit over the prior year's quarter as strong improvements in productivity and earnings from the Corenso acquisition were more than offset by a negative price/cost relationship, lower volume/mix and the impact of the prior year's business interruption insurance proceeds."
"Operating profit in our Protective Solutions segment improved as strong temperature-assured packaging volume along with segment-wide productivity improvements were partially offset by weak molded foam and fiber packaging results. Finally, our Display and Packaging segment saw a decline in operating profit in the quarter as continued solid results in international contract packaging and domestic display and packaging activity were more than offset by a decline in retail security volume/mix."
GUIDANCE:
Sonoco sees Q1 2020 EPS of $0.83-$0.89, versus the consensus of $0.85.
Sonoco sees FY2020 EPS of $3.60-$3.70, versus the consensus of $3.64.
First-Quarter and Full-Year 2020 Guidance
- Base earnings for the first quarter of 2020 are estimated to be in the range of $0.83 to $0.89 per diluted share, compared to $0.85 per diluted share in the first quarter of 2019.
- Full-year 2020 base earnings are expected to be $3.60 to $3.70 per diluted share, an adjustment from the Company's previously communicated 2020 guidance of $3.65 to $3.75.
- Full-year 2020 cash flow from operations and free cash flow guidance remain unchanged and are expected to be between $625 million to $645 million and $250 million to $270 million, respectively.
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, potential changes to the Company's effective tax rate, as well as other risks and uncertainties, including those described below, actual results could vary substantially.
Commenting on the Company’s 2019 results and 2020 outlook, Coker said, "2019 was an unpredictable year as a slowdown in manufacturing activity impacted our industrial business and our consumer business faced some choppiness as our customers fluctuating order patterns reacted to market uncertainties. In the face of these challenges, we produced solid improvements in operating margin and base earnings by focusing on being excellent at those things we can control. 2020 starts a new decade and a new year with new opportunities. Certainly, there will be some market challenges, but there are also opportunities that should allow us to drive steady growth in margins, earnings and free cash flow, while continuing to return value to our shareholders. Sonoco is focused on building our business to meet the market changes that consumers are driving, which in turn drive the business of our customers. Growth in healthcare, convenience and demand for more sustainable packaging form the basis of our business and product strategy. By defining our strategy based on market dynamics and continuing to focus on driving improvement in our key industrial and consumer businesses, we are differentiating ourselves from our competitors and defining our next decade."
Note: First-quarter and full-year 2020 GAAP guidance are not provided in this release due to the likely occurrence of one or more of the following, the timing and magnitude of which we are unable to reliably forecast: possible gains or losses on the sale of businesses or other assets, restructuring costs, asset impairment charges, acquisition-related costs, certain income tax related events and other items. These items could have a significant impact on the Company's future GAAP financial results.
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