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Category: Stock Market and Sonoco
Date: 13 October 2019 Stock Price: $58.38 We take a look at the 2nd quarter earnings report of their 2019 fiscal year of Sonoco a company providing packaging solutions to the consumer and industrial markets.
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About Sonoco Products
In business for nearly 120 years, Sonoco’s diversified portfolio of consumer and industrial packaging, provides built-in diversification for investors all within one company. Serving a range of markets across a number of industries and global geographies, Sonoco is keenly focused on returning value to shareholders and has done so through stock performance and dividends for more than 360 consecutive quarters.
Overview of Sonoco's latest earnings report
Data below refers to quarterly data unless specified otherwise:
- Revenues: $1.359 billion (down from $1.366 billion for the same period of the previous year)
- Revenues decreased by -0.51% over the last 12 months
- Cost of sales: $1.084 billion (down from $1.089 billion for the same period of the previous year)
- Cost of sales decreased by -0.45% over the last 12 months
- Net earnings: $81.286 million (down from $89.645 million for the same period of the previous year)
- Diluted earnings per share: $0.80 (down from $0.88 for the same period of the previous year)
- PE ratio: 17.1
- Dividend declared: $0.43
- Dividend yield: 2.9%
- Diluted weighted-average shares outstanding: 101.178 million (up from 101.040 million for the same period of the previous year)
- Cash and cash equivalents: $96.295 million
- Cash and cash equivalents per share: $0.95
- Cash and cash equivalents makes up 2.92% of Sonoco's market capital
- Cash and cash equivalents makes up 1.94% of Sonoco's total assets
- Accounts receivable: $784.907 million
- Accounts receivable makes up 15.87% of Sonoco's total assets
- Inventories: $512.249 million
- Inventories makes up 10.3% of Sonoco's total assets
- Stockholders equity in Sonoco': $1.853 billion
- Stockholders equity per share: $18.31
- So Sonoco is trading a 3.18 times its stockholders equity which is within the expected range of between 2 and 4 which most firms ten to trade at.
- Cash generated from operations (for the 6 months): $40.081 million
- Cash generated from operations per share (for the 6 months): $0.39
Sonoco's management commentary on the results
HARTSVILLE, S.C., July 18, 2019 (GLOBE NEWSWIRE) -- Sonoco (NYSE: SON), one of the largest diversified global packaging companies, today reported financial results for its second quarter ending June 30, 2019.
Commenting on the Company’s second-quarter GAAP and base earnings performance, Rob Tiede, President and Chief Executive Officer, said, "Sonoco's diverse mix of businesses produced solid operating results during the quarter, despite challenging global macroeconomic conditions, where we saw further slowing in demand in many of our served markets. In addition, we experienced unforeseen fires, floods and other events which damaged four of our operations resulting in insurance deductible and other business losses of approximately 2 cents per share. Overall in the second quarter, net sales were essentially flat and GAAP net income attributable to Sonoco declined primarily due to our targeted restructuring efforts, which are focused on reducing costs and improving operating margin. Base net income gained 3.0 percent to a record $96.5 million as improvements in productivity and earnings from acquisitions more than offset lower volume/mix. GAAP gross profit margin was a strong 20.2 percent, unchanged from last year's quarter and approximately 25 basis points higher than first quarter, while GAAP operating profit declined from last year due to higher restructuring and other costs. Base operating profit increased 4.4 percent to a record $144.3 million, while base operating margin increased approximately 50 basis points from last year.
“Our Consumer Packaging segment reported lower sales and operating profit compared to last year's quarter, however, operating margin improved slightly to 10.4 percent. Sales in our Paper and Industrial Converted Products segment were up 3.6 percent, while operating profit was essentially flat with last year's record results and operating margin declined 52 basis points. Also, our Display and Packaging segment continued its turnaround with operating margin expanding 477 basis points over the prior-year period, and in our Protective Solutions segment operating profit improved 4.8 percent and operating margin expanded by 66 basis points.”
Third Quarter and Full-Year 2019 Outlook
Sonoco expects third-quarter 2019 base earnings to be in the range of $0.88 to $0.94 per diluted share. Base earnings in the third quarter of 2018 were $0.86 per diluted share. Full-year 2019 base earnings per diluted share are expected to be in a range of $3.52 to $3.62, which is unchanged from the Company's previous guidance. However, this earnings estimate now includes an approximately $0.03 per diluted share negative impact from higher interest expense associated with a $200 million term loan drawn in the second quarter to fund the Company's U.S. pension plans. This guidance also does not reflect the pending acquisition of Corenso Holdings America. The expected full-year 2019 tax rate is unchanged at approximately 25.5 percent.
Operating cash flow for 2019 is now expected to be in the range of $435 million to $455 million, which is reduced from the previous guidance of $600 million to $620 million due to the after-tax cash flow impact from the Company's $200 million voluntary contributions to its U.S. defined benefit pension plans. Additionally, free cash flow is now expected to be $60 million to $80 million, compared to previous guidance of $225 million to $245 million. Free cash flow guidance includes total expected 2019 cash dividend payments to shareholders of approximately $170 million.
Although the Company believes the assumptions reflected in the range of guidance are reasonable, given uncertainty regarding the impact of new and potential tariffs, the future performance of the overall economy, potential changes in raw material prices and other costs, as well as other risks and uncertainties, including those described further below, actual results could vary substantially.
Commenting on the Company’s outlook, Tiede said, “We're very pleased with how we managed our business in the first half of 2019 in the face of headwinds, that while coming in different forms, all had one thing in common, they were mostly unexpected and beyond our control. Our ability to adapt and adjust when faced with unexpected events, whether driven by nature or other factors, continues to be a strength of our organization. The rigor and discipline we apply to focusing on what we can control, while being flexible when needed, has and will serve us well as we move through the remainder of the year. While we remain confident in our outlook going forward, we are closely watching the macroeconomic trends that are facing not just our industry, but many industries around the world. No matter the environment, we are intensely focused on doing what we need to do to drive profitable growth, margin expansion and solid free cash flow. We are also optimistic about the evolution of our portfolio to leverage more-sustainable packaging as a growth driver for the future. Our diverse mix of business continues to be a strength, allowing us to deliver consistent base earnings growth and improved returns to our shareholders."
Commenting on the Company’s second-quarter GAAP and base earnings performance, Rob Tiede, President and Chief Executive Officer, said, "Sonoco's diverse mix of businesses produced solid operating results during the quarter, despite challenging global macroeconomic conditions, where we saw further slowing in demand in many of our served markets. In addition, we experienced unforeseen fires, floods and other events which damaged four of our operations resulting in insurance deductible and other business losses of approximately 2 cents per share. Overall in the second quarter, net sales were essentially flat and GAAP net income attributable to Sonoco declined primarily due to our targeted restructuring efforts, which are focused on reducing costs and improving operating margin. Base net income gained 3.0 percent to a record $96.5 million as improvements in productivity and earnings from acquisitions more than offset lower volume/mix. GAAP gross profit margin was a strong 20.2 percent, unchanged from last year's quarter and approximately 25 basis points higher than first quarter, while GAAP operating profit declined from last year due to higher restructuring and other costs. Base operating profit increased 4.4 percent to a record $144.3 million, while base operating margin increased approximately 50 basis points from last year.
“Our Consumer Packaging segment reported lower sales and operating profit compared to last year's quarter, however, operating margin improved slightly to 10.4 percent. Sales in our Paper and Industrial Converted Products segment were up 3.6 percent, while operating profit was essentially flat with last year's record results and operating margin declined 52 basis points. Also, our Display and Packaging segment continued its turnaround with operating margin expanding 477 basis points over the prior-year period, and in our Protective Solutions segment operating profit improved 4.8 percent and operating margin expanded by 66 basis points.”
Third Quarter and Full-Year 2019 Outlook
Sonoco expects third-quarter 2019 base earnings to be in the range of $0.88 to $0.94 per diluted share. Base earnings in the third quarter of 2018 were $0.86 per diluted share. Full-year 2019 base earnings per diluted share are expected to be in a range of $3.52 to $3.62, which is unchanged from the Company's previous guidance. However, this earnings estimate now includes an approximately $0.03 per diluted share negative impact from higher interest expense associated with a $200 million term loan drawn in the second quarter to fund the Company's U.S. pension plans. This guidance also does not reflect the pending acquisition of Corenso Holdings America. The expected full-year 2019 tax rate is unchanged at approximately 25.5 percent.
Operating cash flow for 2019 is now expected to be in the range of $435 million to $455 million, which is reduced from the previous guidance of $600 million to $620 million due to the after-tax cash flow impact from the Company's $200 million voluntary contributions to its U.S. defined benefit pension plans. Additionally, free cash flow is now expected to be $60 million to $80 million, compared to previous guidance of $225 million to $245 million. Free cash flow guidance includes total expected 2019 cash dividend payments to shareholders of approximately $170 million.
Although the Company believes the assumptions reflected in the range of guidance are reasonable, given uncertainty regarding the impact of new and potential tariffs, the future performance of the overall economy, potential changes in raw material prices and other costs, as well as other risks and uncertainties, including those described further below, actual results could vary substantially.
Commenting on the Company’s outlook, Tiede said, “We're very pleased with how we managed our business in the first half of 2019 in the face of headwinds, that while coming in different forms, all had one thing in common, they were mostly unexpected and beyond our control. Our ability to adapt and adjust when faced with unexpected events, whether driven by nature or other factors, continues to be a strength of our organization. The rigor and discipline we apply to focusing on what we can control, while being flexible when needed, has and will serve us well as we move through the remainder of the year. While we remain confident in our outlook going forward, we are closely watching the macroeconomic trends that are facing not just our industry, but many industries around the world. No matter the environment, we are intensely focused on doing what we need to do to drive profitable growth, margin expansion and solid free cash flow. We are also optimistic about the evolution of our portfolio to leverage more-sustainable packaging as a growth driver for the future. Our diverse mix of business continues to be a strength, allowing us to deliver consistent base earnings growth and improved returns to our shareholders."
Sonoco Products (NYSE: SON) stock price history
The image below, obtained from Google, shows the stock price history of Sonoco Products over the last 5 years. And it's been a pretty good time for Sonoco Products stockholders. 5 years ago the stock was trading at around $39 a stock and its currently trading at $58.38 a stock. That's a decent return of 49.7% provided to Sonoco Products stockholders over the last 5 years. The opportunity cost of holding Sonoco Products which only returned 49.7% over the last 5 compared to a stock like Netflix that returned over 300% for the same time period becomes very significant.
The stock of Sonoco Products is trading at close to the midpoint between its 52 week low and its 52 week high, which to us is an indication that the short term sentiment and momentum of Sonoco Products' stock is neutral.
The stock of Sonoco Products is trading at close to the midpoint between its 52 week low and its 52 week high, which to us is an indication that the short term sentiment and momentum of Sonoco Products' stock is neutral.
Recent coverage of Sonoco Products
The extract below covers the latest news regarding Sonoco as obtained from TheStreet.com
HARTSVILLE, S.C., Sept. 24, 2019 (GLOBE NEWSWIRE) -- Sonoco (NYSE: SON), one of the most sustainable, diversified global packaging companies, held its first Sustainability and Food Waste Summit, Sept. 17-18, in Hartsville, S.C. The event brought together leaders in the packaging and food production industries for two days of presentations, panel discussions and open dialogue around the complex issues of sustainability and food waste. The Summit attracted a diverse mix of attendees representing a variety of professional disciplines including food scientists, packaging engineers, brand owners, sustainability officers, environmental scientists, financial analysts, supply chain experts, academics, consultants and others with an interest or potential role to play in further improving our global sustainability ecosystem. Day One of the Summit consisted of a series of facility tours organized to give participants an up-close look at the different steps and technologies involved in the recycling process. The all-day immersion session included visits to a Sonoco Material Recovery Facility (MRF); a grinding facility specializing in redemption and post-industrial and PET bottles; a toll washer of post-consumer, post-industrial and deposit PET flake and pellet; and Sonoco's Innovative Packaging Solutions (iPS) Studio, where participants were shown how rPET flake is transformed into food trays. Sonoco President & CEO Rob Tiede opened Day Two with an overview of the challenges associated with sustainability and food waste and a thoughtful appeal to attendees to work together toward the development of new technologies, new approaches and new ways of doing things to protect the planet for future generations. Tiede was particularly passionate about the critical issue of food waste, a significant contributor to greenhouse gas emissions. "To whom much is given, much is expected," said Tiede. "We can do better. By delivering innovative packaging solutions, we can have a major impact on the reduction of food waste, while increasing access to fresh, nutritional foods for millions of people. In fact, if we were able to recover all our wasted food, we could provide a 2000-calorie diet to 84% of the population.
HARTSVILLE, S.C., Sept. 24, 2019 (GLOBE NEWSWIRE) -- Sonoco (NYSE: SON), one of the most sustainable, diversified global packaging companies, held its first Sustainability and Food Waste Summit, Sept. 17-18, in Hartsville, S.C. The event brought together leaders in the packaging and food production industries for two days of presentations, panel discussions and open dialogue around the complex issues of sustainability and food waste. The Summit attracted a diverse mix of attendees representing a variety of professional disciplines including food scientists, packaging engineers, brand owners, sustainability officers, environmental scientists, financial analysts, supply chain experts, academics, consultants and others with an interest or potential role to play in further improving our global sustainability ecosystem. Day One of the Summit consisted of a series of facility tours organized to give participants an up-close look at the different steps and technologies involved in the recycling process. The all-day immersion session included visits to a Sonoco Material Recovery Facility (MRF); a grinding facility specializing in redemption and post-industrial and PET bottles; a toll washer of post-consumer, post-industrial and deposit PET flake and pellet; and Sonoco's Innovative Packaging Solutions (iPS) Studio, where participants were shown how rPET flake is transformed into food trays. Sonoco President & CEO Rob Tiede opened Day Two with an overview of the challenges associated with sustainability and food waste and a thoughtful appeal to attendees to work together toward the development of new technologies, new approaches and new ways of doing things to protect the planet for future generations. Tiede was particularly passionate about the critical issue of food waste, a significant contributor to greenhouse gas emissions. "To whom much is given, much is expected," said Tiede. "We can do better. By delivering innovative packaging solutions, we can have a major impact on the reduction of food waste, while increasing access to fresh, nutritional foods for millions of people. In fact, if we were able to recover all our wasted food, we could provide a 2000-calorie diet to 84% of the population.
Sonoco (NYSE: SON) latest stock valuation
So what is Sonoco stock worth based on the release of their latest earnings report and their fiscal guidance provided? Based on Sonoco's latest earnings report and their outlook our valuation models provide a target (full value) price of Sonoco's stock at $56.30 a stock. Therefore we believe the stock of Sonoco is slightly overvalued at its current price of $58.38.
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target (full value) price which in this case is $56.30, so a good entry point into Sonoco's stock would be at $50.70 or below. We expect that the stock of Sonoco will pull back slightly in coming weeks and months to levels closer to our target (full value) price unless their 3rd quarter earnings report scheduled for 17 October 2019 surprises to the upside.
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target (full value) price which in this case is $56.30, so a good entry point into Sonoco's stock would be at $50.70 or below. We expect that the stock of Sonoco will pull back slightly in coming weeks and months to levels closer to our target (full value) price unless their 3rd quarter earnings report scheduled for 17 October 2019 surprises to the upside.