Sonoco Details 2016 Financial Targets, Strategic Priorities
Monday, December 07, 2015
Press release from the issuing company
HARTSVILLE, S.C. - In a release issued under the same headline today by Sonoco, please note that in the first paragraph under "Strong Cash Flow, Free Cash Flow Forecasted," the ratio of 1.6 times should be EBITDA ratio, not total capitalization ratio as previously stated. The corrected release follows:
Sonoco President and Chief Executive Officer Jack Sanders and members of the Company’s senior leadership team today provided the investment community in New York with an overview of the Company’s financial outlook and strategic priorities.
Company Reaffirms 2015 Base EPS Guidance; Projecting Record 2016 Base EPS
Commenting on 2015’s performance, Sanders said, “Our targeted growth segments – Consumer Packaging and Protective Solutions – are demonstrating they can innovate and grow, despite difficult economic conditions. Through the first nine months of 2015, sales in our Consumer Packaging segment are up about 11 percent, aided by last year’s acquisition of Weidenhammer Packaging Group, while operating profits are up 18.5 percent. Likewise, Protective Solutions sales for the first nine months of 2015 are up about 5 percent and operating profits are up 44 percent.
“It is my belief we are seeing a divergence in the U.S. economy where improvements in sales of big-ticket items, such as housing, automobiles, appliances and even smartphones, are being offset by a continued decline in manufacturing activity, much of it related to lower commodity prices and the strong dollar. This divergence is clearly impacting some of our served industrial markets, as sales through the first nine months of 2015 in our Paper/Industrial Converted Products segment are down nearly 9 percent and operating profit is down just under 21 percent.”
Sonoco estimates 2016 base earnings per diluted share to be in the range of $2.61 to $2.71, with a projected record midpoint target of $2.66 per diluted share. According to Barry Saunders, senior vice president and chief financial officer, the Company’s midpoint guidance assumes a $.15 per share improvement in earnings from the Company’s base operations stemming primarily from volume growth, net of higher depreciation associated with growth initiatives, while productivity is projected to offset wage inflation and other cost changes. The Company is also projecting pension expense should be lower by approximately $.07 per share, partially offset by an expected $.03 per share impact that a stronger dollar is expected to have on translation of earnings in foreign currencies.
Although many of the variables that determine next year’s pension expense will not be finalized until December 31, the Company expects the year-over-year expense to be lower due to a change in accounting estimate affecting the interest rates used to determine the interest and service cost components of pension expense.
Strong Cash Flow, Free Cash Flow Forecasted
For 2016, Sonoco is projecting cash from operations of nearly $485 million and free cash flow of approximately $140 million. The Company expects free cash flow to be essentially flat year over year due to higher capital expenditures, higher pension contributions and expected increased cash dividends.
In discussing capital deployment strategies, Sonoco CEO Sanders pointed out that the Company has a 90-year history of returning substantial amounts of free cash flow to shareholders, including nearly $1.5 billion in the past decade. “Barring acquisition, we favor returning a substantial amount of free cash flow in 2016 to shareholders through increased dividends and share repurchases. If a share repurchase is activated utilizing essentially all free cash flow in 2016, it could add up to $.04 per share in increased earnings to our previously mentioned 2016 guidance $2.61 to $2.71 per share,” he said.
Strategy Focusing Resources on Growing and Optimizing Targeted Businesses
“We remain firmly committed to our Grow and Optimize strategy, with our priorities focused on achieving higher than market average growth; improving operating margins; optimizing our structure through simplification and improved efficiency; maximizing free cash flow and targeting capital deployment to grow our businesses and return cash to shareholders; and finally, optimizing our portfolio.”
To accelerate organic sales growth, Sanders provided an update on Sonoco’s i6 Innovation Process™, the Company’s systematic approach to drive market-focused growth. To help drive innovation with its customers, Sonoco recently opened a new $12 million iPS Studio on the Company’s Hartsville, S.C., campus, where Sonoco can work directly with its customers on new innovative packaging. In addition, Sanders announced the launch of a new revolutionary alternative to traditional metal cans, called the TruVue™ can, which is being developed at the iPS Studio. TruVue uses Sonoco’s patented Freshlock technology™ and is made of a highly engineered, multilayer plastics substrate, allowing consumers to see the product inside. More detailed information on Sonoco’s iPS Studio and the new TruVue product are available at www.sonoco.com.
Finally, the Company provided an update on capital growth projects through 2017 to expand the Company’s global production capability in composite cans, flexible packaging and rigid plastic containers. These projects include:
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