Sonoco Q1 Results Fall Short of Estimates, Lowers Full Year Guidance
Friday, April 19, 2013
Press release from the issuing company
HARTSVILLE, S.C. - Sonoco, one of the largest diversified global packaging companies, today reported financial results for its first quarter that ended March 31, 2013.
First Quarter Highlights
Earnings Guidance Update
First Quarter Review
"Operating profits from our Paper and Industrial Converted Products segment declined 4 percent in the first quarter. Negative factors contributing to the decline included higher than anticipated maintenance, labor and other expenses associated with paper mill repair outages and lower volume. These factors were partially offset by a positive price/cost relationship and modest productivity gains."
"Our Protective Solutions segment reported a 22 percent improvement in operating profits during the first quarter due primarily to synergies and productivity improvements. Improved volume in the segment's molded foam and temperature-assurance businesses was more than offset by lower retail security business."
"Operating profits in our Consumer Packaging segment declined 15 percent during the quarter as we continued to experience weakness in many packaged food categories, which was partially responsible for driving volumes lower in nearly all of our packaging businesses. In addition, we recognized a negative LIFO inventory adjustment and experienced a negative price/cost relationship stemming from higher resin and other raw material costs. These negative factors were only partially offset by modest productivity improvements. Operating profits from our Display and Packaging segment were essentially flat for the quarter as slightly positive volume and a positive price/cost relationship were offset by higher costs."
GAAP net income attributable to Sonoco in the first quarter was $48.1 million, or $.47 per diluted share, compared with $43.1 million, or $.42 per diluted share, in 2012. Base earnings were $51.7 million, or $.50 per diluted share, in the first quarter, compared with $53.8 million, or $.52 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.
First quarter base earnings excluded after-tax charges of $3.6 million, or $.03 per diluted share, stemming from previously announced restructuring activities and the impact of a currency devaluation in Venezuela. Items excluded from base earnings in the 2012 first quarter totaled $10.8 million, after tax, or $.10 per diluted share, for restructuring expenses and impairment charges, including the closure of a paper mill in Germany and plastics operations in Canada and the United States. 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 first quarter were $1.18 billion, compared with $1.21 billion in the same period in 2012. This 3 percent decline was driven by lower volume and selling prices in both Consumer Packaging and, to a somewhat lesser extent, Paper and Industrial Converted Products. These declines were partially offset by volume improvement and sales price gains in the Company's Display and Packaging and Protective Solutions segments.
Gross profits were $206 million in the first quarter of 2013, compared with $217 million in the same period in 2012. Gross profit as a percent of sales was 17.4 percent, compared with 17.9 percent in the same period in 2012. The decline in total gross profits was due to lower volume, a negative LIFO inventory adjustment, and higher maintenance, labor and other costs, partially offset by productivity improvements. The Company's first quarter selling, general and administrative expenses declined 2 percent to$120 million, but remained flat as a percentage of sales due to lower revenues.
Cash generated from operations in the first quarter was $136.3 million, up 40 percent, compared with $97.5 million in the same period in 2012. Operating cash flow increased during the quarter due largely to lower pension and other benefit plan contributions and changes in working capital. Capital expenditures, net of proceeds, and cash dividends were $55 million and$30 million, respectively, compared with $43 million and $29 million, respectively, during the same period in 2012. Cash and cash equivalents as of the end of the first quarter were $163.5 million, compared with $373.1 million at year-end 2012.
At the end of the first quarter of 2013, total debt was approximately $1.11 billion, a $258 million reduction from the Company's year-end total of $1.37 billion. During the first quarter, the Company received $254 million of repatriated accumulated offshore cash, $135 million of which was used to pay off a term loan issued in November 2011. The remainder was used to pay down commercial paper and/or fund the normal cash needs of the Company. Commercial paper outstanding was $23 million at the end of the quarter compared with $152 million at December 31, 2012. The Company's debt-to-total capital ratio was 42.3 percent at end of the first quarter, compared with 47.7 percent at the end of 2012.
Second Quarter and Full-Year 2013 Outlook
Commenting on the Company's outlook, Sanders said, "We expect a steadily improving operating environment in the second quarter and remainder of 2013. One-time operational issues have been addressed and we are focused on quickly commercializing recently won business. In addition, we expect to begin benefiting from announced price increases in our Industrial, Consumer Packaging and Protective Solutions businesses to offset higher operating and raw material costs. Finally, we will continue to aggressively implement contingency plans focused on reducing costs in all of our businesses to further improve margins and free cash flow."
Sonoco reports its financial results in four operating segments: Paper and Industrial Converted Products, Protective Solutions,Consumer Packaging, and Display and Packaging. 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.
Paper and Industrial Converted Products
First quarter 2013 sales for the segment were $454 million, compared with $464 million in 2012. Segment operating profit was$31.0 million in the first quarter, compared with $32.3 million in 2012.
Sales declined 2 percent in the first quarter due primarily to lower volume stemming from the wind down of recycling operations in Europe. Operating profits declined 4 percent year over year as a positive price/cost relationship and modest productivity gains were more than offset by lower volume and higher maintenance, labor, pension and other costs.
First quarter 2013 sales were $142 million, compared with $138 million in the first quarter of 2012. Operating profit for the first quarter was $8.5 million, compared with $7.0 million in the first quarter of 2012.
The year-over-year improvement in this segment's quarterly sales was due to increased volume in the Company's expanded foam and temperature-assurance packaging businesses, partially offset by lower retail security packaging sales. Operating profits for the segment increased 22 percent due primarily to synergies and strong productivity gains.
First quarter 2013 sales for the segment were $463 million, compared with $496 million in 2012. Segment operating profit was$42.3 million in the first quarter, compared with $50.1 million in the same quarter of 2012.
The decline in sales was due primarily to lower volume and selling prices. Segment operating profit declined 15 percent as modest productivity improvements were unable to offset negative volume, a negative price cost/relationship, the negative impact of LIFO inventory adjustments and higher maintenance, labor, pension and other expenses.
Display and Packaging
The Display and Packaging segment includes the following products and services: designing, manufacturing, assembling, packing and distributing temporary, semipermanent and permanent point-of-purchase displays; supply chain management services, including contract packing, fulfillment and scalable service centers; and paper amenities, such as coasters and glass covers.
First quarter 2013 sales for this segment were $120 million, compared with $115 million in 2012. Segment operating profit was$4.7 million in the quarter, compared with $4.8 million in the same quarter of 2012.
Sales increased 4 percent from last year's first quarter, much of it coming on lower margin volume growth primarily in international contract packaging activities. Quarterly operating profit for the segment was essentially flat year over year as productivity improvements were offset by higher labor and other costs.
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