Sonoco boasts best Q1 results

Hartsville, SC-based Sonoco, one of the largest diversified global consumer and industrial packaging companies–including its main Canadian headquarters in Mississauga, Ont., has reported its strongest ever first quarter sales and net income for the quarter that ended April 3, 2011.

First Quarter Highlights

• Q1 2011 GAAP earnings per diluted share were $0.56, up 17 per cent, compared with $0.48 in 2010;
• Base net income attributable to Sonoco (base earnings) for Q1 2011 was $0.57 per diluted share, compared with $0.50 in 2010.;
• Q1 2011 net sales of $1.12 billion were 19 percent higher than the $935 million in the first quarter of 2010;
• Guidance for Q2 2011 is estimated at $0.61 to $0.65 per diluted share and full-year 2011 guidance is estimated at $2.52 to $2.60 per diluted share.

First Quarter Review

Commenting on the company’s first quarter results, chairman and chief executive officer Harris E. DeLoach, Jr. says, “For the sixth consecutive quarter, Sonoco posted a year-over-year improvement in sales and base earnings. In addition, we were pleased that each of our business segments achieved year-over-year improvements in sales and operating profits. Earnings improved during the quarter due to volume growth, largely due to six additional days in the current quarter, improvements in manufacturing productivity, earnings from acquisitions, lower pension costs and achieving a positive price/cost relationship. These positive factors were partially offset by higher labor, freight and energy expenses.”

DeLoach continues: “Performance continued to improve in our industrial-focused businesses, resulting in a 33 percent year-over-year increase in operating profits for our Tubes and Cores/Paper segment and a 42 percent increase for All Other Sonoco, which consists primarily of industrial-related businesses.

“This positive performance was a result of achieving a positive price/cost relationship, primarily in our vertically integrated global paper operations, volume growth, which was primarily related to the additional days in the current quarter, and lower pension expenses, partially offset by weather-related and mechanical outages in our paper operations.

“On the consumer side, operating profits from our Consumer Packaging segment were modestly higher as productivity improvements, profits from acquisitions and the longer quarter were partially offset by increased operating costs,” DeLoach explains. “Results improved in our Packaging Services segment due to volume growth and cost controls, which more than offset a negative change in the mix of business stemming from previously announced business losses in point-of-purchase displays and fulfillment.”

Commenting on the Company’s outlook, DeLoach explains, “We expect better second quarter results due to stronger productivity, particularly in our Tubes and Cores/Paper segment, as a result of less operating downtime in our mill system, an improving price/cost relationship and cost controls. Overall, we remain focused on achieving record results for 2011 while growing base earnings year over year by approximately 10 percent. We are focused on expanding margins by better operating our businesses, particularly improving productivity and reducing costs. In addition, we are continuing to invest in growing our businesses, launching new products and making accretive acquisitions.”

Segment Review:

Consumer Packaging, includes: 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.

Q1 2011 sales for the segment were $459 million, compared with $382 million in the same period in 2010. Segment operating profit was $45.9 million in the first quarter, compared with $45.7 million last year.

Sales increased by 20 per cent during the first quarter due to last year’s acquisition of Associated Packaging Technologies, Inc. (APT), a leading thermoform tray manufacturer for the frozen food industry, higher selling prices, favorable currency translation and the longer quarter. Operating profits modestly improved from the previous year’s results as productivity, profits from the APT acquisition, decreased pension costs and the impact of the longer quarter were essentially offset by higher labor and freight costs.

Tubes and Cores/Paper, includes: 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.

Q1 2011 sales for the segment were $444 million, compared with $370 million in the same period in 2010. Segment operating profit was $28.6 million, compared with $21.5 million in 2010.

The 20 per cent increase in segment sales was due to higher selling prices, improved volume of industrial converted products and recycled materials, favorable currency translation and the longer quarter. The year-over-year increase in selling prices was primarily a result of higher old corrugated container pricing, which had a favorable impact on prices received for recovered paper, paperboard and tubes and cores. Operating profit for the segment improved 33 per cent during the quarter due to a positive price/cost relationship, the longer quarter, decreased pension costs and productivity improvements. These positive factors were partially offset by higher energy and freight costs, along with the negative impacts of mechanical and weather-related downtime in certain global paper operations.

Packaging Services, includes: designing, manufacturing, assembling, packing and distributing temporary, semi-permanent and permanent point-of-purchase displays; and supply chain management services, including contract packing, fulfillment and scalable service centers.

Q1 2011 sales for this segment were $121 million, compared with $112 million in the same period in 2010. Segment operating profit was $6.1 million, compared with $5.1 million in 2010.

Sales improved eight per cent during the quarter due to improved volume in contract packaging and point of purchase displays, favorable foreign exchange and the longer quarter. Operating profit improved 20 per cent due primarily to improved volume and cost controls. A negative mix of business, stemming from previously announced business losses in point-of-purchase displays and fulfillment, partially offset volume gains during the quarter.

All Other Sonoco, includes businesses not aggregated in a reportable segment: 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.

Q1 2011 sales in All Other Sonoco were $93 million, compared with $72 million reported in the same period in 2010. Operating profit for the quarter was $10.5 million, compared with $7.4 million in 2010.

Sales in All Other Sonoco increased 29 per cent due to volume gains in molded plastics and reels and spools, along with higher selling prices, sales from a small acquisition and the longer quarter. Operating profit in All Other Sonoco increased 42 per cent as a result of improved volume and productivity gains, partially offset by a negative price/cost relationship and higher labor, energy and freight.

Corporate

Net interest expense for Q1 2011 increased to $8.7 million, compared with $8.4 million during the same period in 2010. The increase was primarily due to the additional days in the current quarter. The effective tax rate for Q1 2011 was 31.1 per cent, compared with 29.6 per cent for the same period in 2010. The effective tax rate on base earnings was 31.2 per cent and 30.4 per cent in the first quarters of 2011 and 2010, respectively. The effective tax rate on base earnings for the current quarter is higher than the same period last year, primarily as a result of a larger proportion of earnings taxed at higher U.S. rates.

About Sonoco

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 35 countries, serving customers in some 85 nations. Sonoco is a 2010/2011 member of the Dow Jones Sustainability World Index. For more information, visit www.sonoco.com.