Sonoco Reports Third Quarter 2020 Results
Sonoco (NYSE: SON) reported third-quarter 2020 results showing GAAP earnings per diluted share of $0.82, down from $0.91 in 2019. Net sales decreased to $1.31 billion, a 3.1% decline year-over-year. Base earnings were $0.86 per diluted share, below the previous year's $0.97. Despite restructuring-related charges affecting profits, cash flow from operations surged to $489.5 million. The company announced fourth-quarter guidance of $0.70 to $0.80 per diluted share and expects full-year cash flows between $643 million and $663 million. CEO Howard Coker expressed optimism about gradual improvements in demand.
- Cash flow from operations rose to $489.5 million in 2020 from $238.8 million in 2019.
- Free cash flow improved to $251.6 million, a turnaround from a $32.5 million cash usage in 2019.
- Consumer Packaging segment experienced a slight sales increase, benefiting from strong food product demand.
- Acquisitions contributed positively to sales amidst a challenging market.
- Net sales declined to $1.31 billion, down 3.1% from $1.35 billion in 2019.
- GAAP earnings decreased to $0.82 per diluted share from $0.91 in 2019.
- Restructuring-related charges and increased interest expense negatively impacted profits.
- Paper and Industrial Converted Products segment sales dropped 7.4% due to lower volumes and higher costs.
HARTSVILLE, S.C., Oct. 22, 2020 (GLOBE NEWSWIRE) -- Sonoco (NYSE: SON), one of the largest diversified global packaging companies, today reported financial results for its third quarter ended September 27, 2020.
Third Quarter Highlights
- Third-quarter 2020 GAAP earnings per diluted share were
$0.82 , compared with$0.91 in 2019. - Third-quarter 2020 GAAP earnings included net after-tax charges of
$3.6 million related primarily to restructuring activity and non-operating pension costs mostly offset by a tax benefit related to anticipated divestiture activity. In the third quarter of 2019, GAAP earnings included net after-tax charges of$6.1 million related mostly to restructuring actions and non-operating pension costs that were partially offset by an environmental reserve release. - Base net income attributable to Sonoco (base earnings) for third-quarter 2020 was
$0.86 per diluted share, compared with$0.97 in 2019. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) Sonoco previously provided third-quarter 2020 base earnings guidance of$0.73 t o$0.83 per diluted share. - Third-quarter 2020 net sales were
$1.31 billion , compared with$1.35 billion in 2019. - Cash flow from operations was
$489.5 million in the first nine months of 2020, compared to$238.8 million in 2019. Free cash flow was$251.6 million , compared with a use of$32.5 million in the first nine months of 2019. (See free cash flow definition and reconciliation to cash flow from operations later in this release.) - On August 3, 2020, Sonoco acquired Can Packaging, a privately-owned designer and manufacturer of sustainable paper packaging and related manufacturing equipment, based in Habsheim, France, for approximately
$49 million in cash. - On October 9, 2020, the Company signed an agreement to sell its Europe contract packaging business, part of the Display and Packaging Segment, to Prairie Industries Holdings backed by The Halifax Group, a Washington, D.C.-based global investment firm, for
$120 million in cash. As a result of the pending transaction, the assets and liabilities for this business are reported as "held for sale" on the condensed consolidated balance sheet as of September 27, 2020.
2020 Fourth Quarter Guidance
- Sonoco expects fourth-quarter and full-year base earnings to be in a range of
$0.70 t o$0.80 and$3.29 t o$3.39 per diluted share, respectively. Fourth-quarter and full-year base earnings per diluted share in 2019 were$0.75 and$3.53 , respectively. - Full-year 2020 cash from operations and free cash flow is expected to be in a range of
$643 million to$663 million and$290 million to$310 million , respectively. Full-year 2019 cash from operations and free cash flow was$425.9 million and$74.3 million , respectively.
Note: Fourth-quarter and full-year 2020 GAAP guidance is 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: restructuring costs and restructuring-related impairment charges, acquisition-related costs, possible gains or losses on the sale of businesses or other assets, 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 results.
CEO Comments
Commenting on the Company’s third-quarter performance, Howard Coker, President and Chief Executive Officer, said, "We are very pleased with our third quarter performance as our Sonoco team drove bottom-line results that exceeded the high-end of our expectations. The results of our diverse portfolio of global Consumer- and Industrial-related businesses reflect improved global macroeconomic conditions coming off the pandemic-induced recession in the second quarter. Our Consumer Packaging segment produced solid year-over-year improvement as at-home food demand stabilized from the preceding quarter's pantry stocking, while our Paper and Industrial Converted Products segment experienced improvement sequentially from the prior quarter's lows, reflecting a partial recovery of our global industrial served markets. In addition, our Protective Solutions segment achieved record quarterly results as customer demand rebounded, and our Display and Packaging segment achieved one of its best quarters in more than a decade driven by cost reduction activities. Overall, the Company's bottom line results benefited from continued strong productivity, general cost savings and earnings from recent acquisitions. However, these positive factors were more than offset by a negative price/cost relationship stemming from higher year-over year recovered paper costs, which primarily impacted our Paper and Industrial Converted Products segment, lower volume/mix, increased interest expense and a higher effective tax rate.
“Cash flow generation was also very strong during the first nine months of 2020, reflecting our focus on generating high quality earnings and on disciplined working capital management. Sonoco's liquidity position remains strong which provides us the flexibility to further reduce debt as we continue to support our investment-grade credit rating."
Third Quarter Review
Net sales for the third quarter of 2020 were
GAAP net income attributable to Sonoco in the third quarter was
Gross profit was
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 2020 sales for the segment were
Segment sales increased 0.4 percent compared to the prior year's quarter due primarily to sales added from the December 2019 acquisition of Thermoformed Engineered Quality (TEQ), a medical packaging business, and the August 2020 acquisition of Can Packaging which were mostly offset by a decrease in selling prices. Global Rigid Paper Containers sales benefited from a 2.3 percent gain in volume/mix driven by strong food product demand largely attributable to a pandemic-related increase in home meals and entertainment. On the other hand, third-quarter Flexible Packaging sales declined from the prior year due primarily to the continued negative impact of the pandemic on foot traffic in convenience stores and other venues as well as on seasonal Halloween volume. In Global Plastics, selling price declines somewhat offset the positive impact of sales from the acquisition of TEQ.
Segment operating profit increased 19.7 percent compared to the prior year's quarter as the benefit of strong productivity improvements was partially offset by a non-material inflation. Segment operating margin improved to 11.6 percent in the quarter from 9.8 percent in the 2019 period.
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 2020 sales were
Sales declined 5.1 percent compared to last year’s quarter due to lower volume/mix in domestic displays, retail security packaging and paper amenities. Segment operating profit improved by 20.9 percent over the prior-year quarter due to productivity improvements and cost controls, partially offset by lower volume/mix. Segment operating margin improved to 7.8 percent in the quarter up from 6.1 percent in 2019.
Paper and Industrial Converted Products
The Paper and Industrial Converted Products segment includes the following products: paperboard tubes, cones, and cores; fiber-based construction tubes; wooden, metal and composite wire and cable reels and spools; and recycled paperboard, corrugating medium, recovered paper and material recycling services.
Third-quarter 2020 sales for the segment were
Segment sales declined 7.4 percent from the prior year's quarter as lower volume/mix and the negative impact of foreign exchange translation exceeded sales added by the acquisition of Corenso Holdings in August 2019. The lower volume/mix was driven by significantly lower global tube, core and cone volume largely attributable to the pandemic, including a 10.5 percent decline in tube and core volume in the U.S. and Canada and a 5.5 percent volume decline in Europe. Globally, uncoated recycled paperboard (URB) and corrugated medium volume/mix was down a combined 8.2 percent. Segment operating profit declined 42.2 percent from the prior year's quarter as the benefit of productivity improvements was more than offset by a significant negative price/cost relationship (caused by higher year-over-year recovered paper prices) along with the negative impact of lower volume/mix. Segment operating margin declined to 7.5 percent from the prior year quarter's 12.0 percent.
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 2020 sales were
Segment sales were flat year over year, however, sales rebounded 46.9 percent sequentially from the pandemic-impacted second quarter as demand significantly improved in several of the segment's served markets, including molded foam automotive parts, consumer fiber appliance packaging and temperature-assured pharmaceutical packaging. The segment delivered strong productivity improvements which increased segment operating margins to 13.3 percent from the prior year quarter's 10.6 percent.
Corporate/Tax
Net interest expense for the third quarter of 2020 increased to
Year-to-date Results
For the first nine months of 2020 net sales were
GAAP net income attributable to Sonoco for the first nine months of 2020 was
Base earnings for the first nine months of 2020 were
Current year-to-date gross profit was
Cash Flow and Free Cash Flow
Although net income decreased year over year, cash generated from operations for the first nine months of 2020 was
Free cash flow for the first nine months of 2020 was
As of September 27, 2020, total debt was approximately
Fourth Quarter Outlook
The Company projects fourth-quarter and full-year 2020 base earnings to be in the range of
Full-year 2020 cash flow from operations and free cash flow are expected to be between
Although the Company believes the assumptions reflected in the range of guidance are reasonable, given the unprecedented uncertainty regarding the impact of the COVID-19 pandemic, as well as other risks and uncertainties, including those described further below, actual results could vary substantially.
Commenting on the Company's outlook, Coker said, "While we have not fully recovered from the pandemic-induced recession, we continue to see gradual improvement and I'm more confident than ever that Sonoco is poised to emerge as a stronger, more resilient company positioned to generate solid returns for our shareholders.
“Looking ahead to the fourth quarter, we expect our Consumer Packaging segment to continue to benefit from consumers’ at-home eating patterns. Our industrial-related served markets are expected to continue experiencing weak year-over-year demand, but we do expect these markets to show gradual sequential improvement. Our Paper and Industrial Converted Products segment should continue facing a negative price/cost headwind during the fourth quarter due to higher year-over-year recycled fiber costs and lower market pricing, although we expect OCC prices to remain relatively stable. We were extremely pleased by the strong third-quarter turnaround in our Protective Solutions businesses and believe improved demand should continue in the fourth quarter especially in our pharmaceutical and appliance served markets. While we do not know the role we may play in the potential cold-chain transportation of future FDA-approved COVID vaccines and / or therapeutics, our industry-leading ThermoSafe temperature-assured packaging experts stand ready to assist in the much anticipated launch of new life-saving medicines. Finally, in our Display and Packaging segment, we expect to experience continued slow demand for retail promotional display activity, but the related impact to operating profit should be mitigated by cost controls. In addition, the expected sale of our Europe contract packaging business in the fourth quarter may have a small impact on this segment’s year-over-year results.”
Conference Call Webcast
Management will host a conference call and webcast to further discuss these results beginning at 11 a.m. ET today. The live conference call and a corresponding presentation can be accessed at http://investor.sonoco.com. A telephonic replay of the call will be available starting at 2 p.m. ET, to U.S. callers at 855-859-2056 and international callers at +404-537-3406. The replay passcode for both U.S. and international calls is 3164913. The archived call will be available through November 1, 2020. The webcast call also will be archived in the Investor Relations section of Sonoco’s website.
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 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. 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; consumer and customer actions in connection with the COVID-19 pandemic; 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, including the impact of potential changes in tariffs and escalating trade wars, 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;
- impacts arising as a result of the COVID-19 Coronavirus global pandemic on our results of operations, financial condition, value of assets, liquidity, prospects, growth, and on the industries in which we operate and that we serve, resulting from, without limitation, recent and ongoing financial market volatility, potential governmental actions, changes in consumer behaviors and demand, changes in customer requirements, disruptions of the Company’s suppliers and supply chain, availability of labor and personnel, necessary modifications to operations and business, and uncertainties about the extent and duration of the pandemic;
- costs of labor;
- work stoppages due to labor disputes;
- success of new product development, introduction and sales;
- success of implementation of new manufacturing technologies and installation of manufacturing equipment, including the startup of new facilities and lines;
- 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, customer and supplier consolidation, and changes in competitors' pricing for products;
- financial conditions of customers and suppliers;
- 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;
- inventory management strategies of customers;
- timing of introduction of new products or product innovations by customers;
- collection of receivables from customers;
- ability to improve margins and leverage cash flows and financial position;
- 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 attract and retain talented and qualified employees, managers and executives;
- 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 interest rates and our borrowing costs;
- 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;
- timing of funding pension and postretirement benefit plan obligations;
- 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 tariffs, tax rates, tax laws, regulations and interpretations thereof;
- the adoption of new, or changes in, accounting standards or interpretations;
- challenges and assessments from tax authorities resulting from differences in interpretation of tax laws, including income, sales and use, property, value added, employment, and other taxes;
- 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;
- ability to maintain effective internal controls over financial reporting;
- liability for and anticipated costs of resolution of legal proceedings;
- 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;
- failures of third party transportation providers to deliver our products to our customers or to deliver raw materials to us;
- substantially lower than normal crop yields;
- loss of consumer or investor confidence;
- ability to protect our intellectual property rights;
- changes in laws and regulations relating to packaging for food products and foods packaged therein, other actions and public concerns about products packaged in our containers, or chemicals or substances used in raw materials or in the manufacturing process;
- changing consumer attitudes toward plastic packaging;
- ability to meet sustainability targets and challenges in implementation;
- changing climate, climate change regulations and greenhouse gas effects;
- actions of domestic or foreign government agencies and changes in laws and regulations affecting the Company and increased costs of compliance;
- international, national and local economic and market conditions and levels of unemployment;
- economic disruptions resulting from terrorist activities and natural disasters; and
- accelerating inflation
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 Securities and Exchange Commission. Such reports are available from the Securities and Exchange Commission’s public reference facilities and its website, sec.gov, and from the Company’s investor relations department and the Company’s website, www.sonoco.com.
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 | |||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | |||||||||||||||||
| Net sales | $ | 1,312,314 | $ | 1,353,931 | $ | 3,861,095 | $ | 4,065,357 | ||||||||||||
| Cost of sales | 1,055,304 | 1,088,446 | 3,089,512 | 3,254,415 | ||||||||||||||||
| Gross profit | 257,010 | 265,485 | 771,583 | 810,942 | ||||||||||||||||
| Selling, general and administrative expenses | 126,117 | 120,322 | 371,376 | 395,096 | ||||||||||||||||
| Restructuring/Asset impairment charges | 24,149 | 6,615 | 59,633 | 30,642 | ||||||||||||||||
| Operating profit | $ | 106,744 | $ | 138,548 | $ | 340,574 | $ | 385,204 | ||||||||||||
| Non-operating pension cost | 7,453 | 7,210 | 22,632 | 18,801 | ||||||||||||||||
| Net interest expense | 18,581 | 14,756 | 53,311 | 46,093 | ||||||||||||||||
| Income before income taxes | 80,710 | 116,582 | 264,631 | 320,310 | ||||||||||||||||
| Provision for income taxes | (649 | ) | 26,098 | 49,337 | 77,213 | |||||||||||||||
| Income before equity in earnings of affiliates | 81,359 | 90,484 | 215,294 | 243,097 | ||||||||||||||||
| Equity in earnings of affiliates, net of tax | 1,939 | 1,799 | 3,230 | 4,240 | ||||||||||||||||
| Net income | 83,298 | 92,283 | 218,524 | 247,337 | ||||||||||||||||
| Net (income) loss attributable to noncontrolling interests | 151 | (219 | ) | 581 | (451 | ) | ||||||||||||||
| Net income attributable to Sonoco | $ | 83,449 | $ | 92,064 | $ | 219,105 | $ | 246,886 | ||||||||||||
| Weighted average common shares outstanding – diluted | 101,245 | 101,186 | 101,155 | 101,158 | ||||||||||||||||
| Diluted earnings per common share | $ | 0.82 | $ | 0.91 | $ | 2.17 | $ | 2.44 | ||||||||||||
| Dividends per common share | $ | 0.43 | $ | 0.43 | $ | 1.29 | $ | 1.27 | ||||||||||||
| FINANCIAL SEGMENT INFORMATION (Unaudited) | |||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | ||||||||||||||||||
| Net sales | |||||||||||||||||||||
| Consumer Packaging | $ | 583,736 | $ | 581,368 | $ | 1,786,774 | $ | 1,773,834 | |||||||||||||
| Display and Packaging | 137,610 | 145,016 | 366,269 | 417,403 | |||||||||||||||||
| Paper and Industrial Converted Products | 459,312 | 495,829 | 1,368,734 | 1,483,194 | |||||||||||||||||
| Protective Solutions | 131,656 | 131,718 | 339,318 | 390,926 | |||||||||||||||||
| Consolidated | $ | 1,312,314 | $ | 1,353,931 | $ | 3,861,095 | $ | 4,065,357 | |||||||||||||
| Segment operating profit: | |||||||||||||||||||||
| Consumer Packaging | $ | 67,897 | $ | 56,744 | $ | 221,827 | $ | 181,801 | |||||||||||||
| Display and Packaging | 10,773 | 8,913 | 24,848 | 21,256 | |||||||||||||||||
| Paper and Industrial Converted Products | 34,366 | 59,427 | 118,343 | 169,043 | |||||||||||||||||
| Protective Solutions | 17,505 | 13,983 | 35,991 | 39,262 | |||||||||||||||||
| Restructuring/Asset impairment charges | (24,149 | ) | (6,615 | ) | (59,633 | ) | (30,642 | ) | |||||||||||||
| Other non-base charges, net | 352 | 6,096 | (802 | ) | 4,484 | ||||||||||||||||
| Consolidated | $ | 106,744 | $ | 138,548 | $ | 340,574 | $ | 385,204 | |||||||||||||
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) | |||||||||||
| (Dollars in thousands) | |||||||||||
| Nine Months Ended | |||||||||||
| September 27, 2020 | September 29, 2019 | ||||||||||
| Net income | $ | 218,524 | $ | 247,337 | |||||||
| Asset impairment charges/losses on disposition of assets | 22,066 | 10,173 | |||||||||
| Depreciation, depletion and amortization | 186,602 | 173,085 | |||||||||
| Pension and postretirement plan contributions, net of non-cash expense | 8,351 | (203,698 | ) | ||||||||
| Changes in working capital | (15,773 | ) | (41,400 | ) | |||||||
| Changes in tax accounts | (7,453 | ) | 11,963 | ||||||||
| Other operating activity | 77,184 | 41,358 | |||||||||
| Net cash provided by operating activities | 489,501 | 238,818 | |||||||||
| Purchase of property, plant and equipment, net | (108,427 | ) | (144,125 | ) | |||||||
| Cost of acquisitions, net of cash acquired | (49,262 | ) | (111,009 | ) | |||||||
| Net debt proceeds | 428,161 | 161,142 | |||||||||
| Cash dividends paid | (129,446 | ) | (127,169 | ) | |||||||
| Other, including effects of exchange rates on cash | 6,869 | (22,193 | ) | ||||||||
| Net increase in cash and cash equivalents | 637,396 | (4,536 | ) | ||||||||
| Cash and cash equivalents at beginning of period | $ | 145,283 | $ | 120,389 | |||||||
| Cash and cash equivalents at end of period | $ | 782,679 | $ | 115,853 | |||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | |||||||||
| (Dollars in thousands) | |||||||||
| September 27, 2020 | December 31, 2019 | ||||||||
| Assets | |||||||||
| Current Assets: | |||||||||
| Cash and cash equivalents | $ | 782,679 | $ | 145,283 | |||||
| Trade accounts receivable, net of allowances | 693,612 | 698,149 | |||||||
| Other receivables | 92,731 | 113,754 | |||||||
| Inventories | 445,827 | 503,808 | |||||||
| Prepaid expenses | 66,516 | 60,202 | |||||||
| Assets held for sale | 202,069 | — | |||||||
| 2,283,434 | 1,521,196 | ||||||||
| Property, plant and equipment, net | 1,227,122 | 1,286,842 | |||||||
| Right of use asset-operating leases | 306,077 | 298,393 | |||||||
| Goodwill | 1,369,283 | 1,429,346 | |||||||
| Other intangible assets, net | 374,374 | 388,292 | |||||||
| Other assets | 206,942 | 202,220 | |||||||
| $ | 5,767,232 | $ | 5,126,289 | ||||||
| Liabilities and Shareholders’ Equity | |||||||||
| Current Liabilities: | |||||||||
| Payable to suppliers and other payables | $ | 882,142 | $ | 904,878 | |||||
| Notes payable and current portion of long-term debt | 508,960 | 488,234 | |||||||
| Liabilities held for sale | 93,849 | — | |||||||
| Income taxes payable | 14,092 | 11,380 | |||||||
| 1,499,043 | 1,404,492 | ||||||||
| Long-term debt, net of current portion | 1,627,037 | 1,193,135 | |||||||
| Noncurrent operating lease liabilities | 268,790 | 253,992 | |||||||
| Pension and other postretirement benefits | 303,623 | 304,798 | |||||||
| Deferred income taxes and other | 187,406 | 154,167 | |||||||
| Total equity | 1,881,333 | 1,815,705 | |||||||
| $ | 5,767,232 | $ | 5,126,289 | ||||||
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, including the associated tax effects, relating to restructuring initiatives, asset impairment charges, non-operating pension costs or income, environmental reserve charges/releases, acquisition-related costs, gains or losses from the disposition of businesses, excess property insurance recoveries, and certain other items, if any, including other income tax-related adjustments and/or events, the exclusion of which management believes improves comparability and analysis of the ongoing operating performance of the business. These adjustments, which are referred to as "non-base", 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 plan/forecast 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. Fourth-quarter 2020 GAAP guidance is 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: restructuring costs and restructuring-related impairment charges, acquisition related costs, possible gains or losses on the sale of businesses or other assets, 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 September 27, 2020 | GAAP | Restructuring / Asset Impairment Charges(1) | Other Adjustments(2) | Base | |||||||||||||||||
| Operating profit | $ | 106,744 | $ | 24,149 | $ | (352 | ) | $ | 130,541 | ||||||||||||
| Non-operating pension costs | 7,453 | — | (7,453 | ) | — | ||||||||||||||||
| Interest expense, net | 18,581 | — | — | 18,581 | |||||||||||||||||
| Income before income taxes | 80,710 | 24,149 | 7,101 | 111,960 | |||||||||||||||||
| Provision for income taxes | (649 | ) | 5,668 | 21,990 | 27,009 | ||||||||||||||||
| Income before equity in earnings of affiliates | 81,359 | 18,481 | (14,889 | ) | 84,951 | ||||||||||||||||
| Equity in earnings of affiliates, net of taxes | 1,939 | — | — | 1,939 | |||||||||||||||||
| Net income | 83,298 | 18,481 | (14,889 | ) | 86,890 | ||||||||||||||||
| Net loss/(income) attributable to noncontrolling interests | 151 | (6 | ) | — | 142 | ||||||||||||||||
| Net income attributable to Sonoco | $ | 83,449 | $ | 18,472 | $ | (14,889 | ) | $ | 87,032 | ||||||||||||
| Per Diluted Share | $ | 0.82 | $ | 0.18 | $ | (0.15 | ) | $ | 0.86 | ||||||||||||
| *Due to rounding individual items may not sum across | |||||||||||||||||||||
| Non-GAAP Adjustments | |||||||||||||||||||||
| Three Months Ended September 29, 2019 | GAAP | Restructuring / As set Impairment Charges(1) | Other Adjustments(3) | Base | |||||||||||||||||
| Operating profit | $ | 138,548 | $ | 6,615 | $ | (6,096 | ) | $ | 139,067 | ||||||||||||
| Non-operating pension costs | 7,210 | — | (7,210 | ) | — | ||||||||||||||||
| Interest expense, net | 14,756 | — | — | 14,756 | |||||||||||||||||
| Income before income taxes | 116,582 | 6,615 | 1,114 | 124,311 | |||||||||||||||||
| Provision for income taxes | 26,098 | 1,805 | (169 | ) | 27,734 | ||||||||||||||||
| Income before equity in earnings of affiliates | 90,484 | 4,810 | 1,283 | 96,577 | |||||||||||||||||
| Equity in earnings of affiliates, net of taxes | 1,799 | — | — | 1,799 | |||||||||||||||||
| Net income | 92,283 | 4,810 | 1,283 | 98,376 | |||||||||||||||||
| Net (income) attributable to noncontrolling interests | (219 | ) | (18 | ) | — | (237 | ) | ||||||||||||||
| Net income attributable to Sonoco | $ | 92,064 | $ | 4,792 | $ | 1,283 | $ | 98,139 | |||||||||||||
| Per Diluted Share | $ | 0.91 | $ | 0.05 | $ | 0.01 | $ | 0.97 | |||||||||||||
| *Due to rounding individual items may not sum across | |||||||||||||||||||||
| (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) Consists mainly of non-operating pension costs and costs related to actual and potential acquisitions and divestitures. Also includes a | |||||||||
| (3) Consists of a | |||||||||
| Non-GAAP Adjustments | |||||||||||||||||||||
| Nine Months Ended September 27, 2020 | GAAP | Restructuring / Asset Impairment Charges(1) | Other Adjustments(2) | Base | |||||||||||||||||
| Operating profit | $ | 340,574 | $ | 59,633 | $ | 802 | $ | 401,009 | |||||||||||||
| Non-operating pension costs | 22,632 | — | (22,632 | ) | — | ||||||||||||||||
| Interest expense, net | 53,311 | — | — | 53,311 | |||||||||||||||||
| Income before income taxes | 264,631 | 59,633 | 23,434 | 347,698 | |||||||||||||||||
| Provision for income taxes | 49,337 | 15,021 | 24,673 | 89,031 | |||||||||||||||||
| Income before equity in earnings of affiliates | 215,294 | 44,612 | (1,239 | ) | 258,667 | ||||||||||||||||
| Equity in earnings of affiliates, net of taxes | 3,230 | — | — | 3,230 | |||||||||||||||||
| Net income | 218,524 | 44,612 | (1,239 | ) | 261,897 | ||||||||||||||||
| Net (income) attributable to noncontrolling interests | 581 | (26 | ) | — | 555 | ||||||||||||||||
| Net income attributable to Sonoco | $ | 219,105 | $ | 44,586 | $ | (1,239 | ) | $ | 262,452 | ||||||||||||
| Per Diluted Share* | $ | 2.17 | $ | 0.44 | $ | (0.01 | ) | $ | 2.59 | ||||||||||||
| *Due to rounding individual items may not sum across | |||||||||||||||||||||
| Non-GAAP Adjustments | |||||||||||||||||||||
| Nine Months Ended September 29, 2019 | GAAP | Restructuring / Asset Impairment Charges(1) | Other Adjustments(3) | Base | |||||||||||||||||
| Operating profit | $ | 385,204 | $ | 30,642 | $ | (4,484 | ) | $ | 411,362 | ||||||||||||
| Non-operating pension costs | 18,801 | — | (18,801 | ) | — | ||||||||||||||||
| Interest expense, net | 46,093 | — | — | 46,093 | |||||||||||||||||
| Income before income taxes | 320,310 | 30,642 | 14,317 | 365,269 | |||||||||||||||||
| Provision for income taxes | 77,213 | 7,750 | 3,146 | 88,109 | |||||||||||||||||
| Income before equity in earnings of affiliates | 243,097 | 22,892 | 11,171 | 277,160 | |||||||||||||||||
| Equity in earnings of affiliates, net of taxes | 4,240 | — | — | 4,240 | |||||||||||||||||
| Net income | 247,337 | 22,892 | 11,171 | 281,400 | |||||||||||||||||
| Net (income) attributable to noncontrolling interests | (451 | ) | (156 | ) | — | (607 | ) | ||||||||||||||
| Net income attributable to Sonoco | $ | 246,886 | $ | 22,736 | $ | 11,171 | $ | 280,793 | |||||||||||||
| Per Diluted Share* | $ | 2.44 | $ | 0.22 | $ | 0.11 | $ | 2.78 | |||||||||||||
| *Due to rounding individual items may not sum across | |||||||||||||||||||||
| (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) Consists mainly of non-operating pension costs, a | |||||
| (3) Consists of a | |||||
| Nine Months Ended | ||||||||||||||||||
| FREE CASH FLOW* | September 27, 2020 | September 29, 2019 | ||||||||||||||||
| Net cash provided by operating activities | $ | 489,501 | $ | 238,818 | ||||||||||||||
| Purchase of property, plant and equipment, net | (108,427 | ) | (144,125 | ) | ||||||||||||||
| Cash dividends | (129,446 | ) | (127,169 | ) | ||||||||||||||
| Free Cash Flow | $ | 251,628 | $ | (32,476 | ) | |||||||||||||
| Year Ended | ||||||||||||||||||
| Estimated Low End | Estimated High End | Actual | ||||||||||||||||
| FREE CASH FLOW* | December 31, 2020 | December 31, 2020 | December 31, 2019 | |||||||||||||||
| Net cash provided by operating activities | $ | 643,000 | $ | 663,000 | $ | 425,850 | ||||||||||||
| Purchase of property, plant and equipment, net | (180,000 | ) | (180,000 | ) | (181,320 | ) | ||||||||||||
| Cash dividends | (173,000 | ) | (173,000 | ) | (170,253 | ) | ||||||||||||
| Free Cash Flow | $ | 290,000 | $ | 310,000 | $ | 74,277 | ||||||||||||
| * 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
FAQ
What were Sonoco's third-quarter 2020 earnings per share?
How did Sonoco's net sales change in the third quarter of 2020?
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What factors impacted Sonoco's earnings in the third quarter?
