Sonoco Reports First Quarter 2014 Results
First Quarter Highlights
- First quarter 2014 GAAP earnings per diluted share were
$.50 , compared with$.47 in 2013. - First quarter 2014 GAAP results include
$.02 per diluted share in after-tax charges related to previously announced restructuring activities. First quarter 2013 GAAP results included after-tax charges of$.03 per diluted share related to restructuring activities and the impact of devaluation on reported results inVenezuela . - Base net income attributable to Sonoco (base earnings) for first quarter 2014 was
$.52 per diluted share, compared with$.50 in 2013. (See base earnings definition and reconciliation later in this release.) Sonoco previously provided first quarter base earnings guidance of$.50 to $.54 per diluted share. - Abnormally severe winter weather across much of the U.S. and
Canada unfavorably impacted first quarter 2014 base earnings. Absent the weather impact, the Company estimates that results would have been at or slightly above the high end of its previously issued guidance. - First quarter 2014 net sales were
$1.19 billion up slightly from$1.18 billion in 2013. - Cash flow from operations was
$45 million , in line with expectations, compared with$136 million in 2013. Free cash flow for the first quarter was a negative$22 million , compared with$51 million in 2013. The year-over-year changes in operating and free cash flows reflect a more-normal working capital impact as well as higher pension plan contributions. (See free cash flow definition later in this release.)
Second Quarter and 2014 Base Earnings Guidance Updated
- Base earnings for the second quarter of 2014 are estimated to be in the range of
$.63 to $.67 per diluted share. Base earnings in the second quarter of 2013 were$.59 . - Full-year 2014 base earnings are expected to be in the range of
$2.43 to $2.53 per diluted share and the Company continues to target$2.51 per diluted share. - Free cash flow in 2014 is projected to be approximately
$130 million .
First Quarter Review
Commenting on the Company's first quarter results, Sonoco President and Chief Executive Officer
"For the fifth consecutive quarter, operating profits from our Consumer Packaging segment increased year-over-year with first quarter results up 14 percent. This improvement came from a positive price/cost relationship, productivity improvements and lower pension expense, partially offset by higher labor and operating costs. In addition, operating profits from our Display and Packaging segment improved more than 50 percent in the quarter due to productivity improvements and modest volume gains.
"Operating profits in our Paper and Industrial Converted Products segment declined 4 percent in the first quarter due to the negative impacts of severe weather on volume and energy costs, as well as higher maintenance, freight and raw material costs. These negative factors were only partially offset by a positive price/cost relationship, modest productivity improvements and lower pension costs. Lower volume and higher costs, partially due to the severe weather, negatively impacted our Protective Solutions segment."
GAAP net income attributable to Sonoco in the first quarter was
First-quarter base earnings exclude
Net sales for the first quarter were
Gross profits were
Cash generated from operations in the first quarter was
At the end of the first quarter of 2014, total debt was approximately
Corporate
Net interest expense for the first quarter of 2014 decreased to
Second Quarter and Full-Year 2014 Outlook Updates
Sonoco expects second quarter 2014 base earnings to be in the range of
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, as well as other risks and uncertainties, including those described below, actual results could vary substantially.
Commenting on the Company's outlook, Sanders said, "Much of the negative impact from severe winter weather occurred in January and February. As weather improved in March, we saw a strong rebound in customer orders across most of our businesses and a sharp improvement in operating performance. Entering April, customer orders appear to be running at more normal levels, in line with volume expectations and our second-quarter earnings guidance, which anticipates continued improvement in operations."
Segment Review
Sonoco reports its financial results in four operating segments: Consumer Packaging, Display and Packaging, Paper and Industrial Converted Products, and Protective Solutions. Effective
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.
Consumer Packaging
Sonoco's Consumer Packaging segment includes the following products and services: round and shaped rigid containers and trays (both composite and thermoformed plastic); blow-molded plastic bottles and jars; extruded and injection-molded plastic products; printed flexible packaging; global brand artwork management; and metal and peelable membrane ends and closures.
First quarter 2014 sales for the segment were
Segment sales during the quarter were essentially flat as higher selling prices and sales added from the acquisition of a small graphics management business in the
Display and Packaging
The Display and Packaging segment includes the following products and services: designing, manufacturing, assembling, packing and distributing temporary, semi-permanent and permanent point-of-purchase displays; supply chain management services, including contract packing, fulfillment and scalable service centers; retail packaging, including printed backer cards, thermoformed blisters and heat sealing equipment; and paper amenities, such as coasters and glass covers.
First quarter 2014 sales for this segment were
Sales for the quarter were up 6 percent year over year on volume growth in U.S. display and packaging, global pack centers and retail packaging. Quarterly operating profit for the segment grew 53 percent due to manufacturing productivity in retail packaging and volume gains.
Paper and Industrial Converted Products
The Paper and Industrial Converted Products segment includes the following products: paperboard tubes and cores; fiber-based construction tubes; wooden, metal and composite wire and cable reels and spools; and recycled paperboard, linerboard, corrugating medium, recovered paper and material recycling services.
First quarter 2014 sales for the segment were
Despite the negative effects of severe winter weather on volume, segment sales were flat during the quarter as higher selling prices and sales from a small recycling acquisition offset the lower volume and a negative impact from foreign exchange. Operating profits declined 4 percent year over year as a positive price/cost relationship, lower pension expense and modest productivity improvements were more than offset by lower volume and higher maintenance, labor and other costs. Severe weather resulted in lost production at several mills that were forced to cancel multiple shifts due to the conditions and/or partially curtail production. In addition, persistently lower-than-normal temperatures across much of
Protective Solutions
The Protective Solutions segment includes the following products: custom-engineered, paperboard-based and expanded foam protective packaging and components; and temperature-assured packaging.
First quarter 2014 sales were
This segment's 4 percent decline in sales was due to lower volume in the industrial protective and temperature-assured businesses and the divestiture of a small box plant. Operating profits declined 46 percent due to lower volume and higher costs, partially due to the severe weather, a negative price/cost relationship and start up costs related to a new facility in
Conference Call Webcast
Management will host a conference call and webcast to further discuss these results beginning at
About Sonoco
Founded in 1899, Sonoco is a global provider of a variety of consumer packaging, industrial products, protective packaging and packaging supply chain services. With annual net sales of approximately
Forward-looking Statements
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," "re-envision", "will," "would," "aspires," or the negative thereof, 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, realization of synergies resulting from acquisitions, 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, sales growth, market leadership, growth opportunities, continued payments of dividends, stock repurchases, producing improvements in earnings, financial results for future periods, goodwill impairment charges, expected amounts of capital spending, anticipated contributions to benefit plans, and creation of long-term value for shareholders.
Such forward-looking statements are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management. Such information includes, without limitation, discussions as to guidance and other estimates, expectations, beliefs, plans, strategies and objectives concerning our future financial and operating performance. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements. The risks and uncertainties include, without limitation:
- availability and pricing of raw materials;
- success of new product development and introduction;
- ability to maintain or increase productivity levels and contain or reduce costs;
- ability to manage the mix of business to take advantage of growing markets while reducing cyclical effects of some of the Company's existing business on operating results;
- international, national and local economic and market conditions;
- availability of credit to us, our customers and/or suppliers in needed amounts and/or on reasonable terms;
- fluctuations in obligations and earnings of pension and postretirement benefit plans;
- pricing pressures, demand for products and ability to maintain market share;
- continued strength of our paperboard-based tubes and cores, and composite can operations;
- anticipated results of restructuring activities;
- resolution of income tax contingencies;
- ability to successfully integrate newly acquired businesses into the Company's operations;
- ability to win new business and/or identify and successfully close suitable acquisitions at the levels needed to meet growth targets;
- rate of growth in foreign markets;
- foreign currency, interest rate and commodity price risk and the effectiveness of related hedges;
- liability for and anticipated costs of environmental remediation actions;
- accuracy of assumptions underlying projections related to goodwill impairment testing, and accuracy of management's assessment of goodwill impairment;
- accuracy of assumptions underlying fair value measurements, accuracy of management's assessments of fair value and fluctuations in fair value;
- accuracy in valuation of deferred tax assets;
- actions of government agencies and changes in laws and regulations affecting the Company;
- loss of consumer or investor confidence; and
- economic disruptions resulting from terrorist activities
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
References to our Website Address
References to our website address and domain names throughout this release are for informational purposes only, or to fulfill specific disclosure requirements of the
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | ||
(Dollars and shares in thousands except per share) | ||
THREE MONTHS ENDED | ||
March 30, 2014 | March 31, 2013 | |
Net sales | $ 1,185,626 | $ 1,179,213 |
Cost of sales | 973,323 | 973,497 |
Gross profit | 212,303 | 205,716 |
Selling, general and administrative expenses | 123,750 | 120,011 |
Restructuring/Asset impairment charges | 1,992 | 4,289 |
Income before interest and income taxes | $ 86,561 | $ 81,416 |
Net interest expense | 12,643 | 14,268 |
Income before income taxes and equity earnings of affiliates | 73,918 | 67,148 |
Provision for income taxes | 23,169 | 21,252 |
Income before equity in earnings of affiliates | 50,749 | 45,896 |
Equity in earnings of affiliates, net of tax | 1,476 | 1,897 |
Net income | 52,225 | 47,793 |
Net loss attributable to noncontrolling interests | 77 | 346 |
Net income attributable to Sonoco | $ 52,302 | $ 48,139 |
Weighted average common shares outstanding – diluted | 103,767 | 102,814 |
Diluted earnings per common share | $0.50 | $0.47 |
Dividends per common share | $0.31 | $0.30 |
FINANCIAL SEGMENT INFORMATION (Unaudited) | ||
(Dollars in thousands) | ||
THREE MONTHS ENDED | ||
March 30, 2014 | March 31, 2013 | |
Net sales | ||
Consumer Packaging | $ 464,925 | $ 463,300 |
Display and Packaging | 153,022 | 144,575 |
Paper and Industrial Converted Products | 455,610 | 454,207 |
Protective Solutions | 112,069 | 117,131 |
Consolidated | $ 1,185,626 | $ 1,179,213 |
Income before interest and income taxes: | ||
Segment operating profit: | ||
Consumer Packaging | $ 48,183 | $ 42,340 |
Display and Packaging | 5,357 | 3,503 |
Paper and Industrial Converted Products | 29,750 | 31,004 |
Protective Solutions | 5,287 | 9,724 |
Restructuring/Asset impairment charges | (1,992) | (4,289) |
Other non-base charges | (24) | (866) |
Consolidated | $ 86,561 | $ 81,416 |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) | ||
(Dollars in thousands) | ||
THREE MONTHS ENDED | ||
March 30, 2014 | March 31, 2013 | |
Net income | $ 52,225 | $ 47,793 |
Asset impairment charges | 492 | 1,043 |
Depreciation, depletion and amortization | 47,179 | 47,231 |
Fox River environmental reserves | 4 | (1,017) |
Pension and postretirement plan expense/contributions | (34,402) | (1,771) |
Changes in working capital | (58,605) | (2,087) |
Other operating activity | 38,571 | 45,132 |
Net cash provided by operating activities | 45,464 | 136,324 |
Purchase of property, plant and equipment, net | (35,418) | (55,293) |
Net debt proceeds/(repayments) | 3,695 | (258,328) |
Cash dividends | (31,725) | (30,303) |
Shares acquired under announced buyback | (8,635) | -- |
Other, including effects of exchange rates on cash | 459 | (2,034) |
Net decrease in cash and cash equivalents | (26,160) | (209,634) |
Cash and cash equivalents at beginning of period | 217,567 | 373,084 |
Cash and cash equivalents at end of period | $ 191,407 | $ 163,450 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | ||
(Dollars in thousands) | ||
March 30, 2014 | December 31, 2013 | |
Assets | ||
Current Assets: | ||
Cash and cash equivalents | $ 191,407 | $ 217,567 |
Trade accounts receivable, net of allowances | 683,859 | 614,053 |
Other receivables | 33,857 | 38,995 |
Inventories | 413,765 | 410,787 |
Prepaid expenses and deferred income taxes | 82,059 | 97,072 |
1,404,947 | 1,378,474 | |
Property, plant and equipment, net | 1,016,751 | 1,021,920 |
Goodwill | 1,095,214 | 1,099,207 |
Other intangible assets, net | 236,544 | 243,920 |
Other assets | 226,863 | 235,770 |
$ 3,980,319 | $ 3,979,291 | |
Liabilities and Shareholders' Equity | ||
Current Liabilities: | ||
Payable to suppliers and other payables | $ 834,064 | $ 823,375 |
Notes payable and current portion of long-term debt | 38,906 | 35,201 |
Income taxes payable | 17,211 | 8,649 |
$ 890,181 | $ 867,225 | |
Long-term debt, net of current portion | 946,512 | 946,257 |
Pension and other postretirement benefits | 233,330 | 263,718 |
Deferred income taxes and other | 169,125 | 176,766 |
Total equity | 1,741,171 | 1,725,325 |
$ 3,980,319 | $ 3,979,291 |
Definition and Reconciliation of Non-GAAP Financial Measures | ||||
The Company's results determined in accordance with U.S. generally accepted accounting principles (GAAP) are referred to as "as reported" or "GAAP" results. Some of the information presented in this press release reflects the Company's "as reported" or "GAAP" results adjusted to exclude amounts related to restructuring initiatives, asset impairment charges, environmental charges, acquisition costs, excess insurance recoveries, losses from the early extinguishment of debt, and certain other items, if any, the exclusion of which management believes improves comparability and analysis of the underlying financial performance of the business. These adjustments result in the non-GAAP financial measures referred to in this press release as "Base Earnings" and "Base Earnings per Diluted Share." | ||||
These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Sonoco continues to provide all information required by GAAP, but it believes that evaluating its ongoing operating results may not be as useful if an investor or other user is limited to reviewing only GAAP financial measures. Sonoco uses these non-GAAP financial measures for internal planning and forecasting purposes, to evaluate its ongoing operations, and to evaluate the ultimate performance of each business unit against budget all the way up through the evaluation of the Chief Executive Officer's performance by the Board of Directors. In addition, these same non-GAAP measures are used in determining incentive compensation for the entire management team and in providing earnings guidance to the investing community. | ||||
Sonoco management does not, nor does it suggest that investors should, consider these non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Sonoco presents these non-GAAP financial measures to provide users information to evaluate Sonoco's operating results in a manner similar to how management evaluates business performance. Material limitations associated with the use of such measures are that they do not reflect all period costs included in operating expenses and may not reflect financial results that are comparable to financial results of other companies that present similar costs differently. Furthermore, the calculations of these non-GAAP measures are based on subjective determinations of management regarding the nature and classification of events and circumstances that the investor may find material and view differently. | ||||
To compensate for these limitations, management believes that it is useful in understanding and analyzing the results of the business to review both GAAP information which includes all of the items impacting financial results and the non-GAAP measures that exclude certain elements, as described above. Whenever Sonoco uses a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Whenever reviewing a non-GAAP financial measure, investors are encouraged to fully review and consider the related reconciliation as detailed below. | ||||
Non-GAAP Adjustments | ||||
Three Months Ended March 30, 2014 | GAAP |
Restructuring / Asset Impairment Charges(1) |
Other Adjustments |
Base |
Income before interest and income taxes | $ 86,561 | $ 1,992 | $ 24 | $ 88,577 |
Interest expense, net | $ 12,643 | $ -- | $ -- | $ 12,643 |
Income before income taxes | $ 73,918 | $ 1,992 | $ 24 | $ 75,934 |
Provision for income taxes | $ 23,169 | $ 411 | $ 9 | $ 23,589 |
Income before equity in earnings of affiliates | $ 50,749 | $ 1,581 | $ 15 | $ 52,345 |
Equity in earnings of affiliates, net of taxes | $ 1,476 | $ -- | $ -- | $ 1,476 |
Net income | $ 52,225 | $ 1,581 | $ 15 | $ 53,821 |
Net loss attributable to noncontrolling interests | $ 77 | $ (4) | $ -- | $ 73 |
Net income attributable to Sonoco | $ 52,302 | $ 1,577 | $ 15 | $ 53,894 |
Per Diluted Share | $ 0.50 | $ 0.02 | $ 0.00 | $ 0.52 |
Non-GAAP Adjustments | ||||
Three Months Ended March 31, 2013 | GAAP |
Restructuring / Asset Impairment Charges(1) |
Other Adjustments |
Base |
Income before interest and income taxes | $ 81,416 | $ 4,289 | $ 866 | $ 86,571 |
Interest expense, net | $ 14,268 | $ -- | $ -- | $ 14,268 |
Income before income taxes | $ 67,148 | $ 4,289 | $ 866 | $ 72,303 |
Provision for income taxes | $ 21,252 | $ 1,283 | $ 295 | $ 22,830 |
Income before equity in earnings of affiliates | $ 45,896 | $ 3,006 | $ 571 | $ 49,473 |
Equity in earnings of affiliates, net of taxes | $ 1,897 | $ -- | $ -- | $ 1,897 |
Net income | $ 47,793 | $ 3,006 | $ 571 | $ 51,370 |
Net loss attributable to noncontrolling interests | $ 346 | $ 27 | $ -- | $ 373 |
Net income attributable to Sonoco | $ 48,139 | $ 3,033 | $ 571 | $ 51,743 |
Per Diluted Share | $ 0.47 | $ 0.02 | $ 0.01 | $ 0.50 |
(1) Restructuring/Asset impairment charges are a recurring item as Sonoco's restructuring programs usually require several years to fully implement and the Company is continually seeking to take actions that could enhance its efficiency. Although recurring, these charges are subject to significant fluctuations from period to period due to the varying levels of restructuring activity and the inherent imprecision in the estimates used to recognize the impairment of assets and the wide variety of costs and taxes associated with severance and termination benefits in the countries in which the restructuring actions occur. |
CONTACT:Roger Schrum +843-339-6018 roger.schrum@sonoco.com