Sonoco, one of the largest diversified global packaging companies, today reported financial results for its third quarter that ended September 29, 2013.
Third Quarter Highlights
-Third quarter 2013 GAAP earnings per diluted share were $.59, compared with $.57 in 2012.
-Third quarter 2013 GAAP results include $.04 per diluted share in after-tax charges related to restructuring activities, primarily previously announced plant closures. Third quarter 2012 GAAP results included a $.02 per diluted share benefit from gains on the sale of previously closed facilities and property insurance recoveries, partially offset by restructuring activities.
-Base net income attributable to Sonoco (base earnings) for third quarter 2013 was $.63 per diluted share, compared with $.55 in 2012. (See base earnings definition and reconciliation later in this release.) Sonoco previously provided third quarter base earnings guidance of $.59 to $.63 per diluted share.
-Third quarter 2013 net sales were a record $1.23 billion, up 3 percent, compared with $1.20 billion in 2012.
-Cash flow from operations was $177 million, compared with $152 million in 2012. Free cash flow for the third quarter was $101 million, compared with $82 million in 2012. (Free cash flow is defined as cash flow from operations minus net capital expenditures and cash dividends. Net capital expenditures is defined as capital expenditures minus proceeds from the disposal of capital assets.)
Earnings Guidance Update
-Fourth quarter 2013 base earnings are expected to be $.55 to $.59 per diluted share.
-Guidance for full-year 2013 base earnings was updated to $2.27 to $2.31 per diluted share.
-Free cash flow for full-year 2013 increased to $190 million from previous guidance of $150 million.
Third Quarter Review
Commenting on the Company’s third quarter results, Sonoco President and Chief Executive Officer Jack Sanders said, "Our diverse packaging solutions portfolio delivered the strongest quarter in two years with sales and gross profits again reaching records, while base earnings met the high end of our guidance. Despite tepid global economic conditions, we grew base earnings for the quarter nearly 16 percent year over year on strong productivity improvements, volume gains and a slightly positive price/cost relationship. These positive factors were partially offset by higher labor and other operating costs."
"Operating profits from our Consumer Packaging segment increased 12 percent over the prior year’s third quarter due to a positive price/cost relationship and productivity improvements, partially offset by lower volume. In addition, operating profits from our Display and Packaging segment improved 74 percent in the quarter as strong volume growth more than offset higher operating costs."
"Third quarter operating profits improved 14 percent in our Paper and Industrial Converted Products segment as strong productivity improvements and modest volume growth more than offset higher labor and other costs."
"Our Protective Solutions segment reported a 7 percent decline in operating profits during the third quarter as the benefit of higher sales volumes were offset by changes in the overall sales mix and productivity gains were offset by higher labor and other operating expenses, including expenses associated with the start up of new operations."
GAAP net income attributable to Sonoco in the third quarter was $61.2 million, or $.59 per diluted share, compared with $58.8 million, or $.57 per diluted share, in 2012. Base earnings were $65.1 million, or $.63 per diluted share in the third quarter, compared with $56.3 million, or $.55 per diluted share, in 2012. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring charges, asset impairment charges, acquisition expenses and other items, if any, the exclusion of which the Company believes improves comparability and analysis of the underlying financial performance of the business.
Third quarter base earnings excluded $.04 per diluted share in after-tax charges related to restructuring activities, including previously announced plant closures in Ireland and Canada. Base earnings in the third quarter of 2012 excluded income of $2.6 million, after tax, or $.02 per diluted share, representing gains from property insurance recoveries totaling $2.0 million, after tax, and net restructuring related gains from previously announced restructuring activities of $0.6 million, after tax. Additional information about base earnings and base earnings per diluted share, along with reconciliation to the most closely applicable GAAP financial measures, is provided later in this release.
Net sales for the third quarter were $1.23 billion, compared with $1.20 billion in the same period in 2012. This 3 percent improvement was driven by gains in volume and mix from the Company’s Display and Packaging, Paper and Industrial Converted Products and Protective Solutions segments along with higher selling prices. These improvements were offset by a decline in Consumer Packaging segment volume and the divestiture of a small box plant.
Gross profits were a record $224 million in the third quarter, compared with $206 million in the same period in 2012. Gross profit as a percent of sales improved to 18.25 percent, compared with 17.25 percent in the same period in 2012. This 100 basis point improvement was due to strong productivity gains, volume growth and a positive price/cost relationship, partially offset by higher maintenance, labor and other costs. The Company’s third quarter selling, general and administrative expenses increased 7 percent to $118 million due primarily to wage inflation and slightly higher management incentives, compared with the previous year.
For the first nine months of 2013, net sales were up about 1 percent to $3.63 billion, compared with $3.61 billion in the same period of 2012. Net income attributable to Sonoco for the first nine months of 2013 was $164.4 million, or $1.59 per diluted share, compared with $153.2 million, or $1.49 per diluted share, in the same period of 2012.
Earnings in the first nine months of 2013 were negatively impacted by after-tax restructuring and other charges of $13.2 million, or $.13 per diluted share, compared with $16.5 million, or $0.16 per diluted share, in the same period in 2012, also resulting from restructuring and other charges, net of gains from property sales and property insurance recoveries.
Base earnings for the first nine months of 2013 were $177.6 million, or $1.72 per diluted share, compared with $169.7 million, or $1.65 per diluted share, in the same period of 2012. The nearly 5 percent improvement in base earnings stemmed from productivity improvements, a positive price/cost relationship and modest volume growth, partially offset by higher labor, maintenance, pension and other expenses.
Gross profit was a record $652 million in the first nine months of 2013, compared with $640 million in the same period in 2012. Gross profit as a percent of sales was 18.0 percent, compared with 17.7 percent for the same period in 2012.
For the first nine months of 2013, cash generated from operations was a record $421 million, compared with $293 million in the same period in 2012. The improvement in cash flow from operations was due to higher earnings, working capital changes and lower pension and postretirement benefit plan contributions, which were $31 million in the first nine months of 2013, compared with $64 million in the same period in 2012. Net capital expenditures and cash dividends were $141 million and $93 million, respectively, during the first nine months of 2013, compared with $138 million and $90 million, respectively, in 2012. Free cash flow was $187 million for the first nine months, compared with $65 million in the same period last year.