Sonoco Reports Third Quarter 2016 Results
Third Quarter Highlights
- Third quarter 2016 GAAP earnings per diluted share were
$0.64 , compared with$0.43 in 2015. - Third quarter 2016 GAAP results included
$0.08 per diluted share, after tax, in restructuring expenses related to plant closures and a goodwill impairment charge involving its industrial converting operations inBrazil . In the third quarter of 2015, GAAP results included$0.23 per diluted share, after tax, in foreign exchange-related asset impairment charges related to operations inVenezuela ; asset impairment and restructuring charges related to plant closures; and legal and other professional expenses related to prior misstatements of financial results at a former packaging center inMexico . - Base net income attributable to Sonoco (base earnings) for third quarter 2016 was
$0.72 per diluted share, compared with$0.65 in 2015. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) Sonoco previously provided third quarter base earnings guidance of$.65 to $.70 per diluted share. - Third quarter 2016 net sales were
$1.21 billion , down from$1.24 billion in 2015. - Cash flow from operations was
$162.6 million in the third quarter of 2016, compared with$145.1 million in 2015. Free cash flow for the third quarter was$85.2 million , compared with$55.9 million in 2015. (See free cash flow definition and reconciliation to cash flow from operations later in this release.) - During the third quarter, Sonoco reached a definitive agreement to sell its rigid plastics blow molding operations to
Amcor for$280 million . The transaction is expected to close by or near the end of October 2016.
Fourth Quarter and 2016 Guidance Update
- Base earnings for the fourth quarter of 2016 are estimated to be in the range of
$.60 to $.65 per diluted share. This guidance takes into consideration the expected closing on the sale of the Company's rigid plastic blow molding operations at the end of October. Furthermore, as a result of the Company's accounting calendar, the fourth quarter of 2016 contains five fewer calendar days and four fewer business days than in 2015. Base earnings in the fourth quarter of 2015 were$.64 per diluted share. - Full-year 2016 base earnings guidance has been raised to a range of
$2.70 to $2.75 per diluted share, compared to previous guidance of$2.68 to $2.74 . Base earnings were$2.51 in 2015. - Free cash flow in 2016 is projected to be approximately
$140 million , reflecting expected operating cash flow of$490 million . Expected free cash flow for the year remains unchanged from previous guidance and excludes any proceeds from the sale of the rigid plastics blow molding operations.
Note: Fourth-quarter and full-year 2016 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 and restructuring-related impairment charges, acquisition related costs, and the income tax effects of these items and/or other income tax-related events. These items could have a significant impact on the Company's future GAAP financial results.
Third Quarter Review
Commenting on the Company’s third quarter results, Sonoco President and Chief Executive Officer
“Operating profit in our Consumer Packaging segment was up 15.3 percent, from the prior-year quarter, reaching record levels for the eighth consecutive quarter, while segment operating margins improved 170 basis points over the same quarter last year. Overall, the segment benefited from a positive price/cost relationship, manufacturing productivity improvement and lower pension expense which more than offset higher labor, maintenance and other operating costs. The segment also gained from modest volume growth as solid rigid plastics and flexible packaging growth was partially offset by lower global composite can volume. Segment sales declined slightly due to lower selling prices, primarily related to raw material deflation. Display and Packaging segment operating profit declined slightly from the prior year as fixed-cost and manufacturing productivity improvements and a modest positive price/cost relationship were more than offset by lower volume/mix and higher labor, maintenance and other operating costs.
“Results in our Paper and Industrial Converted Products segment improved slightly in the third quarter with operating profit gaining 2.9 percent over the same quarter last year and operating margins improving 30 basis points. The improved results were driven by strong fixed-cost and manufacturing productivity and lower pension expense more than offset the continued negative impact of difficult markets for our one corrugating medium paper machine. Absent corrugating medium losses, segment earnings would have been well above last year's results. Segment volume/mix was slightly negative in the quarter due to depressed reel sales which overshadowed continued growth in global paperboard and tubes and cores. Quarterly segment sales declined slightly year over year as lower corrugating medium prices and the divestiture of a paperboard mill in
“Operating profit in our Protective Solutions segment was essentially flat year over year as a positive price/cost relationship and volume growth were more than offset by higher labor, maintenance and other operating costs. Also in the quarter, Sonoco's ThermoSafe unit acquired the assets and operations of Laminar Medica in the
GAAP net income attributable to Sonoco in the third quarter was
Third quarter GAAP earnings include after-tax charges of
Net sales for the third quarter were
Gross profits were
Cash generated from operations in the third quarter was
Free cash flow for the third quarter was
Year-to-date Results
For the first nine months of 2016, net sales were
GAAP net income attributable to Sonoco for the first three quarters of 2016 was
Base earnings in the first three quarters of 2016 were
Current year-to-date gross profit was
For the first nine months of 2016, cash generated from operations was
Free cash flow for the first nine months of 2016 was
At
Corporate
Net interest expense for the third quarter of 2016 declined slightly to
Fourth Quarter and Full-Year 2016 Outlook
Sonoco expects fourth quarter 2016 base earnings to be in the range of
Full-year 2016 base earnings guidance has been raised to
Note: Fourth-quarter and full-year 2016 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 and restructuring-related impairment charges, acquisition related costs, and the income tax effects of these items and/or other income tax-related events. These items could have a significant impact on the Company's future GAAP financial results.
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, “Our ability to grow base earnings by 12 percent through the first nine months of 2016 is a testament to our focused strategy of growing our businesses by providing our customers with innovative packaging solutions and optimizing our portfolio to produce consistent earnings and improved returns. As a result of our solid performance to date and our expectations for the rest of 2016, we are raising our full-year guidance despite continued headwinds from slow global economic conditions. Our focus for the rest of 2016 is to gain market share by introducing new commercial products and achieving new customer awards. To further grow, we are actively pursuing rational, strategic acquisitions focused on growing our flexible packaging, thermoforming rigid plastics and protective packaging platforms. At the same time we are looking to further optimize our portfolio and pursue alternatives to address the weak performance in corrugating medium operations while continuing to improve our cost structure.”
Segment Review
Sonoco reports its financial results in four operating segments: Consumer Packaging, Display and Packaging, Paper and Industrial Converted Products, and Protective Solutions. 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); extruded and injection-molded plastic products; printed flexible packaging; global brand artwork management; and metal and peelable membrane ends and closures.
Third-quarter 2016 sales for the segment were
Segment sales declined 0.3 percent compared to the prior-year quarter due to lower selling prices, stemming primarily from lower raw material costs, partially offset by positive volume/mix. Segment operating profit increased 15.3 percent over the prior year quarter and operating margins improved to 12.3 percent of sales. Overall, the segment benefited from a positive price/cost relationship, manufacturing productivity improvements and lower pension expense, which more than offset higher labor, maintenance and other operating costs. The segment also gained from a modest volume/mix as solid rigid plastics and flexible packaging growth was partially offset by lower global composite can volume.
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.
Third quarter 2016 sales for this segment were
Sales declined 19.0 percent compared to last year’s quarter due primarily to the previously mentioned loss of contract packaging business in
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.
Third quarter 2016 sales for the segment were
Segment sales declined approximately 0.7 percent during the quarter as lower corrugating medium prices and the divestiture of a paperboard mill in
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.
Third quarter 2016 sales were
This segment’s 1.5 percent increase in third quarter sales came from gains in volume/mix, partially offset by lower selling prices. Operating profit was down 2.6 percent in the quarter as volume growth and a positive price/cost relationship were more than offset by higher labor, maintenance and other operating costs and a negative mix of business.
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 displays and packaging supply chain services. With annualized net sales of nearly
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. In addition, the Company and its representatives may from time to time make other oral or written statements that are also “forward-looking statements.” Words such as “estimate,” “project,” “intend,” “expect,” “believe,” “consider,” “plan,” “strategy,” “opportunity,” “commitment,” “target,” “anticipate,” “objective,” “goal,” “guidance,” “outlook,” “forecast,” “future,” “re-envision, ” “assume,” “will,” “would,” “can,” “could,” “may,” “might,” “aspires,” “potential,” or the negative thereof, and similar expressions identify forward-looking statements.
Forward-looking statements include, but are not limited to, statements regarding: availability and supply of raw materials, and offsetting high raw material costs; improved productivity and cost containment; improving margins and leveraging strong cash flow and financial position; effects of acquisitions and dispositions; realization of synergies resulting from acquisitions; costs, timing and effects of restructuring activities; adequacy and anticipated amounts and uses of cash flows; expected amounts of capital spending; refinancing and repayment of debt; financial strategies and the results expected of them; financial results for future periods; producing improvements in earnings; profitable sales growth and rates of growth; market leadership; research and development spending; extent of, and adequacy of provisions for, environmental liabilities; adequacy of income tax provisions, realization of deferred tax assets, outcomes of uncertain tax issues and tax rates; goodwill impairment charges and fair values of reporting units; future asset impairment charges and fair values of assets; anticipated contributions to pension and postretirement benefit plans, fair values of plan assets, long-term rates of return on plan assets, and projected benefit obligations and payments; creation of long-term value and returns for shareholders; continued payment of dividends; and planned stock repurchases.
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, perceived opportunities, expectations, beliefs, plans, strategies, goals 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, uncertainties and assumptions include, without limitation:
- availability and pricing of raw materials, energy and transportation, and the Company's ability to pass raw material, energy and transportation price increases and surcharges through to customers or otherwise manage these commodity pricing risks;
- costs of labor;
- work stoppages due to labor disputes;
- success of new product development, introduction and sales;
- consumer demand for products and changing consumer preferences;
- ability to be the low-cost global leader in customer-preferred packaging solutions within targeted segments;
- competitive pressures, including new product development, industry overcapacity, and changes in competitors’ pricing for products;
- ability to maintain or increase productivity levels, contain or reduce costs, and maintain positive price/cost relationships;
- ability to negotiate or retain contracts with customers, including in segments with concentration of sales volume;
- ability to improve margins and leverage cash flows and financial position;
- continued strength of our paperboard-based tubes and cores and composite can operations;
- ability to manage the mix of business to take advantage of growing markets while reducing cyclical effects of some of the Company’s existing businesses on operating results;
- ability to maintain innovative technological market leadership and a reputation for quality;
- ability to profitably maintain and grow existing domestic and international business and market share;
- ability to expand geographically and win profitable new business;
- ability to identify and successfully close suitable acquisitions at the levels needed to meet growth targets, and successfully integrate newly acquired businesses into the Company’s operations;
- the costs, timing and results of restructuring activities;
- availability of credit to us, our customers and suppliers in needed amounts and on reasonable terms;
- effects of our indebtedness on our cash flow and business activities;
- fluctuations in obligations and earnings of pension and postretirement benefit plans;
- accuracy of assumptions underlying projections of benefit plan obligations and payments, valuation of plan assets, and projections of long-term rates of return;
- cost of employee and retiree medical, health and life insurance benefits;
- resolution of income tax contingencies;
- foreign currency exchange rate fluctuations, interest rate and commodity price risk and the effectiveness of related hedges;
- changes in U.S. and foreign tax rates, and tax laws, regulations and interpretations thereof;
- accuracy in valuation of deferred tax assets;
- 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;
- liability for and anticipated costs of environmental remediation actions;
- effects of environmental laws and regulations;
- operational disruptions at our major facilities;
- failure or disruptions in our information technologies;
- loss of consumer or investor confidence;
- ability to protect our intellectual property rights;
- actions of domestic or foreign government agencies and changes in laws and regulations affecting the Company;
- international, national and local economic and market conditions and levels of unemployment; and
- economic disruptions resulting from terrorist activities and natural disasters.
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 Securities and Exchange Commission’s rules or the New York Stock Exchange Listing Standards. These references are not intended to, and do not, incorporate the contents of our website by reference into this release.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | |||||||||||||||||
(Dollars and shares in thousands except per share) | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
October 2, 2016 | September 27, 2015 | October 2, 2016 | September 27, 2015 | ||||||||||||||
Net sales | $ | 1,208,724 | $ | 1,242,592 | $ | 3,640,680 | $ | 3,697,234 | |||||||||
Cost of sales | 973,351 | 1,013,219 | 2,918,041 | 3,007,155 | |||||||||||||
Gross profit | 235,373 | 229,373 | 722,639 | 690,079 | |||||||||||||
Selling, general and administrative expenses | 121,583 | 130,341 | 382,387 | 357,893 | |||||||||||||
Restructuring/Asset impairment charges | 8,947 | 19,551 | 41,453 | 29,637 | |||||||||||||
Income before interest and income taxes | $ | 104,843 | $ | 79,481 | $ | 298,799 | $ | 302,549 | |||||||||
Net interest expense | 12,437 | 13,687 | 39,768 | 40,509 | |||||||||||||
Income before income taxes | 92,406 | 65,794 | 259,031 | 262,040 | |||||||||||||
Provision for income taxes | 29,618 | 24,775 | 83,602 | 75,019 | |||||||||||||
Income before equity in earnings of affiliates | 62,788 | 41,019 | 175,429 | 187,021 | |||||||||||||
Equity in earnings of affiliates, net of tax | 3,190 | 2,976 | 7,457 | 7,291 | |||||||||||||
Net income | 65,978 | 43,995 | 182,886 | 194,312 | |||||||||||||
Net income attributable to noncontrolling interests | (583 | ) | (81 | ) | (1,325 | ) | (239 | ) | |||||||||
Net income attributable to Sonoco | $ | 65,395 | $ | 43,914 | $ | 181,561 | $ | 194,073 | |||||||||
Weighted average common shares outstanding – diluted | 101,579 | 102,405 | 101,960 | 102,387 | |||||||||||||
Diluted earnings per common share | $ | 0.64 | $ | 0.43 | $ | 1.78 | $ | 1.90 | |||||||||
Dividends per common share | $ | 0.37 | $ | 0.35 | $ | 1.09 | $ | 1.02 |
FINANCIAL SEGMENT INFORMATION (Unaudited) | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
October 2, 2016 | September 27, 2015 | October 2, 2016 | September 27, 2015 | ||||||||||||||
Net sales | |||||||||||||||||
Consumer Packaging | $ | 519,729 | $ | 521,499 | $ | 1,558,074 | $ | 1,572,490 | |||||||||
Display and Packaging | 132,016 | 162,945 | 407,157 | 450,334 | |||||||||||||
Paper and Industrial Converted Products | 424,615 | 427,753 | 1,281,031 | 1,298,940 | |||||||||||||
Protective Solutions | 132,364 | 130,395 | 394,418 | 375,470 | |||||||||||||
Consolidated | $ | 1,208,724 | $ | 1,242,592 | $ | 3,640,680 | $ | 3,697,234 | |||||||||
Income before interest and income taxes: | |||||||||||||||||
Segment operating profit: | |||||||||||||||||
Consumer Packaging | $ | 63,761 | $ | 55,282 | $ | 186,135 | $ | 166,840 | |||||||||
Display and Packaging | 5,153 | 5,405 | 13,464 | 7,278 | |||||||||||||
Paper and Industrial Converted Products | 33,239 | 32,292 | 104,018 | 99,052 | |||||||||||||
Protective Solutions | 12,580 | 12,911 | 38,826 | 36,200 | |||||||||||||
Restructuring/Asset impairment charges | (8,947 | ) | (19,551 | ) | (41,453 | ) | (29,637 | ) | |||||||||
Other, net | (943 | ) | (6,858 | ) | (2,191 | ) | 22,816 | ||||||||||
Consolidated | $ | 104,843 | $ | 79,481 | $ | 298,799 | $ | 302,549 |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
October 2, 2016 | September 27, 2015 | October 2, 2016 | September 27, 2015 | ||||||||||||||
Net income | $ | 65,978 | $ | 43,995 | $ | 182,886 | $ | 194,312 | |||||||||
Asset impairment charges | 2,958 | 12,311 | 7,157 | 14,773 | |||||||||||||
Depreciation, depletion and amortization | 51,012 | 53,192 | 156,542 | 157,216 | |||||||||||||
Fox River environmental reserves | — | (76 | ) | — | (32,543 | ) | |||||||||||
Net pension and postretirement plan expenses/(contributions) | 7,622 | 10,581 | (5,781 | ) | 13,428 | ||||||||||||
Changes in working capital | (8,776 | ) | (20,004 | ) | (72,799 | ) | (56,195 | ) | |||||||||
Other operating activity | 43,834 | 45,059 | 80,672 | 27,149 | |||||||||||||
Net cash provided by operating activities | 162,628 | 145,058 | 348,677 | 318,140 | |||||||||||||
Purchase of property, plant and equipment, net | (40,328 | ) | (53,851 | ) | (143,944 | ) | (109,559 | ) | |||||||||
Cost of acquisitions, net of cash acquired | (20,475 | ) | (1,750 | ) | (21,338 | ) | (17,447 | ) | |||||||||
Net debt proceeds/(repayments) | 9,267 | 15,340 | (38,624 | ) | (48,077 | ) | |||||||||||
Cash dividends | (37,142 | ) | (35,323 | ) | (109,821 | ) | (102,702 | ) | |||||||||
Shares acquired under announced buyback | (21,012 | ) | — | (58,943 | ) | — | |||||||||||
Other, including effects of exchange rates on cash | (1,365 | ) | (93,826 | ) | 880 | (8,100 | ) | ||||||||||
Net increase/(decrease) in cash and cash equivalents | 51,573 | (24,352 | ) | (23,113 | ) | 32,255 | |||||||||||
Cash and cash equivalents at beginning of period | $ | 107,748 | $ | 217,775 | $ | 182,434 | $ | 161,168 | |||||||||
Cash and cash equivalents at end of period | $ | 159,321 | $ | 193,423 | $ | 159,321 | $ | 193,423 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | ||||||||||
(Dollars in thousands) | ||||||||||
October 2, 2016 | December 31, 2015 | |||||||||
Assets | ||||||||||
Current Assets: | ||||||||||
Cash and cash equivalents | $ | 159,321 | $ | 182,434 | ||||||
Trade accounts receivable, net of allowances | 669,200 | 627,962 | ||||||||
Other receivables | 48,995 | 46,801 | ||||||||
Inventories | 376,317 | 385,483 | ||||||||
Prepaid expenses and deferred income taxes | 43,090 | 64,698 | ||||||||
Assets held for sale | 183,284 | — | ||||||||
1,480,207 | 1,307,378 | |||||||||
Property, plant and equipment, net | 1,068,432 | 1,112,036 | ||||||||
Goodwill | 1,076,493 | 1,140,461 | ||||||||
Other intangible assets, net | 217,771 | 245,095 | ||||||||
Other assets | 201,646 | 208,715 | ||||||||
$ | 4,044,549 | $ | 4,013,685 | |||||||
Liabilities and Shareholders’ Equity | ||||||||||
Current Liabilities: | ||||||||||
Payable to suppliers and other payables | $ | 792,734 | $ | 802,284 | ||||||
Notes payable and current portion of long-term debt | 60,787 | 113,097 | ||||||||
Income taxes payable | 12,050 | 7,135 | ||||||||
Liabilities held for sale | 20,126 | — | ||||||||
$ | 885,697 | $ | 922,516 | |||||||
Long-term debt, net of current portion | 1,030,338 | 1,015,270 | ||||||||
Pension and other postretirement benefits | 409,464 | 432,964 | ||||||||
Deferred income taxes and other | 129,413 | 110,062 | ||||||||
Total equity | 1,589,637 | 1,532,873 | ||||||||
$ | 4,044,549 | $ | 4,013,685 | |||||||
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 ongoing operating 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, except with respect to guidance, 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. Third-quarter and full-year 2016 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 and restructuring-related impairment charges, acquisition related costs, and the income tax effects of these items and/or other income tax-related events. These items could have a significant impact on the Company's future GAAP financial results.
Non-GAAP Adjustments | |||||||||||||||||
Three Months Ended October 2, 2016 | GAAP | Restructuring / Asset Impairment Charges(1,2) |
Other Adjustments(3) |
Base | |||||||||||||
Income before interest and income taxes | 104,843 | 8,947 | 943 | 114,733 | |||||||||||||
Interest expense, net | 12,437 | — | — | 12,437 | |||||||||||||
Income before income taxes | 92,406 | 8,947 | 943 | 102,296 | |||||||||||||
Provision for income taxes | 29,618 | 2,097 | (357 | ) | 31,358 | ||||||||||||
Income before equity in earnings of affiliates | 62,788 | 6,850 | 1,300 | 70,938 | |||||||||||||
Equity in earnings of affiliates, net of taxes | 3,190 | — | — | 3,190 | |||||||||||||
Net income | 65,978 | 6,850 | 1,300 | 74,128 | |||||||||||||
Net (income) attributable to noncontrolling interests | (583 | ) | (34 | ) | — | (617 | ) | ||||||||||
Net income attributable to Sonoco | $ | 65,395 | $ | 6,816 | $ | 1,300 | $ | 73,511 | |||||||||
Per Diluted Share | $ | 0.64 | $ | 0.07 | $ | 0.01 | $ | 0.72 | |||||||||
Non-GAAP Adjustments | |||||||||||||||||
Three Months Ended September 27, 2015 | GAAP | Restructuring / Asset Impairment Charges(1,4) |
Other Adjustments(5) |
Base | |||||||||||||
Income before interest and income taxes | 79,481 | 19,551 | 6,858 | 105,890 | |||||||||||||
Interest expense, net | 13,687 | — | — | 13,687 | |||||||||||||
Income before income taxes | 65,794 | 19,551 | 6,858 | 92,203 | |||||||||||||
Provision for income taxes | 24,775 | 1,574 | 2,018 | 28,367 | |||||||||||||
Income before equity in earnings of affiliates | 41,019 | 17,977 | 4,840 | 63,836 | |||||||||||||
Equity in earnings of affiliates, net of taxes | 2,976 | — | — | 2,976 | |||||||||||||
Net income | 43,995 | 17,977 | 4,840 | 66,812 | |||||||||||||
Net (income) attributable to noncontrolling interests | (81 | ) | (5 | ) | — | (86 | ) | ||||||||||
Net income attributable to Sonoco | $ | 43,914 | $ | 17,972 | $ | 4,840 | $ | 66,726 | |||||||||
Per Diluted Share | $ | 0.43 | $ | 0.18 | $ | 0.05 | $ | 0.65 |
(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. | |||||||||
(2) Includes goodwill impairment charge related to industrial converting products business in Brazil. | |||||||||
(3) Consists primarily of costs related to acquisitions, potential acquisitions, and a small income tax reserve adjustment. | |||||||||
(4) Includes $12,065 of asset impairment charges related to the devaluation of the Venezuelan Bolivar. | |||||||||
(5) Consists primarily of legal and professional expenses associated with the Company's investigation of financial misstatements in Mexico and acquisition-related costs. |
Non-GAAP Adjustments | |||||||||||||||||
Nine Months Ended October 2, 2016 | GAAP | Restructuring / Asset Impairment Charges(1,2) |
Other Adjustments(3) |
Base | |||||||||||||
Income before interest and income taxes | 298,799 | 41,453 | 2,191 | 342,443 | |||||||||||||
Interest expense, net | 39,768 | — | — | 39,768 | |||||||||||||
Income before income taxes | 259,031 | 41,453 | 2,191 | 302,675 | |||||||||||||
Provision for income taxes | 83,602 | 10,442 | (17 | ) | 94,027 | ||||||||||||
Income before equity in earnings of affiliates | 175,429 | 31,011 | 2,208 | 208,648 | |||||||||||||
Equity in earnings of affiliates, net of taxes | 7,457 | — | — | 7,457 | |||||||||||||
Net income | 182,886 | 31,011 | 2,208 | 216,105 | |||||||||||||
Net (income) attributable to noncontrolling interests | (1,325 | ) | (78 | ) | — | (1,403 | ) | ||||||||||
Net income attributable to Sonoco | $ | 181,561 | $ | 30,933 | $ | 2,208 | $ | 214,702 | |||||||||
Per Diluted Share | $ | 1.78 | $ | 0.30 | $ | 0.02 | $ | 2.11 | |||||||||
Non-GAAP Adjustments | |||||||||||||||||
Nine Months Ended September 27, 2015 | GAAP | Restructuring / Asset Impairment Charges(1,4) |
Other Adjustments(5) |
Base | |||||||||||||
Income before interest and income taxes | 302,549 | 29,637 | (22,816 | ) | 309,370 | ||||||||||||
Interest expense, net | 40,509 | — | — | 40,509 | |||||||||||||
Income before income taxes | 262,040 | 29,637 | (22,816 | ) | 268,861 | ||||||||||||
Provision for income taxes | 75,019 | 16,850 | (7,214 | ) | 84,655 | ||||||||||||
Income before equity in earnings of affiliates | 187,021 | 12,787 | (15,602 | ) | 184,206 | ||||||||||||
Equity in earnings of affiliates, net of taxes | 7,291 | — | — | 7,291 | |||||||||||||
Net income | 194,312 | 12,787 | (15,602 | ) | 191,497 | ||||||||||||
Net (income) attributable to noncontrolling interests | (239 | ) | (75 | ) | — | (314 | ) | ||||||||||
Net income attributable to Sonoco | $ | 194,073 | $ | 12,712 | $ | (15,602 | ) | $ | 191,183 | ||||||||
Per Diluted Share | $ | 1.90 | $ | 0.12 | $ | (0.15 | ) | $ | 1.87 | ||||||||
(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. | |||||||||||||||||
(2) Includes goodwill impairment charge related to industrial converting products business in Brazil. | |||||||||||||||||
(3) Consists primarily of costs related to acquisitions and potential acquisitions. | |||||||||||||||||
(4) Includes disposal and income tax gains related to the sale of two of the Company's metal end and closures plants. | |||||||||||||||||
(5) Consists primarily of a gain from the release of reserves related to the partial settlement of the Fox River environmental claims, an income tax gain from the release of a valuation allowance against tax loss carryforwards in Spain, legal and professional expenses associated with the Company's investigation of financial misstatements in Mexico and acquisition-related costs. |
Three Months Ended | Nine Months Ended | ||||||||||||||||
FREE CASH FLOW* | October 2, 2016 | September 27, 2015 | October 2, 2016 | September 27, 2015 | |||||||||||||
Net cash provided by operating activities | $ | 162,628 | $ | 145,058 | $ | 348,677 | $ | 318,140 | |||||||||
Purchase of property, plant and equipment | (43,299 | ) | (54,155 | ) | (142,073 | ) | (140,869 | ) | |||||||||
Proceeds from the sale of assets | 2,971 | 304 | 6,565 | 31,310 | |||||||||||||
Cost of disposition of assets | — | — | (8,436 | ) | — | ||||||||||||
Purchase of property, plant and equipment, net | (40,328 | ) | (53,851 | ) | (143,944 | ) | (109,559 | ) | |||||||||
Cash dividends | (37,142 | ) | (35,323 | ) | (109,821 | ) | (102,702 | ) | |||||||||
Free Cash Flow | $ | 85,158 | $ | 55,884 | $ | 94,912 | $ | 105,879 | |||||||||
Twelve Months Ended | |||||||||||||||||
Estimated | Actual | ||||||||||||||||
FREE CASH FLOW* | December 31, 2016 | December 31, 2015 | |||||||||||||||
Net cash provided by operating activities | $ | 490,000 | $ | 452,930 | |||||||||||||
Purchase of property, plant and equipment | $ | (201,000 | ) | $ | (192,295 | ) | |||||||||||
Proceeds from the sale of assets | 6,565 | 32,530 | |||||||||||||||
Cost of disposition of assets | (8,436 | ) | — | ||||||||||||||
Purchase of property, plant and equipment, net | (202,871 | ) | (159,765 | ) | |||||||||||||
Cash dividends | (147,000 | ) | (138,032 | ) | |||||||||||||
Free Cash Flow | $ | 140,129 | $ | 155,133 | |||||||||||||
* Free Cash Flow is a non-GAAP measure that does not imply the amount of residual cash flow available for discretionary expenditures, as it excludes mandatory debt service requirements and other non-discretionary expenditures. |
Contact:Roger Schrum +843-339-6018 roger.schrum@sonoco.com