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 to $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 to $0.80 and $3.29 to $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 $1.31 billion, down 3.1 percent from last year's third quarter sales of $1.35 billion. The sales decline was driven by lower volume/mix, a stronger U.S. dollar and lower selling prices. These negative impacts were partially offset by sales added from acquisitions.

GAAP net income attributable to Sonoco in the third quarter was $83.4 million, or $0.82 per diluted share, a decrease of $8.6 million, compared with $92.1 million, or $0.91 per diluted share, in 2019. Third-quarter GAAP earnings included after-tax non-base net charges totaling $3.6 million consisting primarily of restructuring-related charges and non-operating pension costs, partially offset by a deferred tax liability write down. After-tax restructuring-related charges of $18.5 million were primarily related to announced plant closures in the Company's perimeter-of-the-store business and capacity reductions in its North America paper mill and tube and core networks. Partially offsetting these charges was the $20.4 million write-down of a deferred tax liability related to classifying the Company's Europe contract packaging business as “held for sale.” In the third quarter of 2019, GAAP earnings included $6.1 million of after-tax non-base net charges, $4.8 million of which were related to restructuring activities and $5.2 million related to non-operating pension costs. These charges were partially offset by an after-tax gain related to the write-off of an environmental reserve of $7.4 million. Adjusted to exclude these items, base earnings in the third quarter of 2020 were $87.0 million, or $0.86 per diluted share, compared with $98.1 million, or $0.97 per diluted share in 2019, a decrease of $11.1 million. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring-related items, asset impairment charges, acquisition expenses, non-operating pension costs, and certain income tax-related events and other items, if any, the exclusion of which the Company believes improves comparability and analysis of the ongoing operating performance of the business. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.)

Gross profit was $257.0 million in the third quarter compared to $265.5 million in the same period in 2019. Quarterly gross profit as a percentage of sales was essentially flat year over year at 19.6 percent. Third-quarter selling, general and administrative expenses increased $5.8 million from the prior year to $126.1 million. This increase was largely driven by costs added from acquired businesses as well as a $10.0 million gain in 2019 related to the release of an environmental reserve that did not repeat. Absent these two items, selling, general and administrative expenses declined due to a significant focus on reducing controllable costs as well as the impact of the pandemic on travel, employee medical and certain other expenses.

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 $583.7 million, compared with $581.4 million in 2019. Segment operating profit was $67.9 million in the third quarter, compared with $56.7 million in the same quarter of 2019.

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 $137.6 million, compared with $145.0 million in 2019. The segment reported an operating profit of $10.8 million in the current quarter, compared to $8.9 million in the prior year's quarter.

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 $459.3 million, down from $495.8 million in 2019. Segment operating profit was $34.4 million in the quarter, compared with $59.4 million in 2019.

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 $131.7 million, flat with the prior-year period. Operating profit was $17.5 million, a 25.2 percent increase from the third quarter of 2019.

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 $18.6 million, compared with $14.8 million during the same period in 2019, primarily due to higher debt balances with a partial offset from lower interest rates. The effective tax rates on GAAP and base earnings in the current-year quarter were negative 0.8 percent and 24.1 percent, respectively, compared with 22.4 percent and 22.3 percent, respectively, in the prior year’s quarter. The effective tax rate on GAAP earnings for the third quarter of 2020 was negative due primarily to a $20.4 million write-down of a deferred tax liability related to classifying the Company’s Europe contract packaging business as “held for sale”. Absent this non-base income tax gain, the GAAP effective tax rate would be normalized at 24.4%. The 2020 normalized GAAP rate and the 2020 base rate for the quarter were higher than the prior year’s rates due primarily to the 2019 third quarter release of reserves on uncertain positions due to the expiration of the statute of limitations in the prior year’s quarter.

Year-to-date Results
For the first nine months of 2020 net sales were $3.86 billion, down $204.3 million, compared with $4.07 billion in the first nine months of 2019. Sales declined 5.0 percent in the first nine months of the year as lower volume/mix stemming from the pandemic induced recession, lower selling prices and a negative impact from foreign exchange translation were only partially offset by sales added from acquisitions.

GAAP net income attributable to Sonoco for the first nine months of 2020 was $219.1 million or $2.17 per diluted share, compared with $246.9 million or $2.44 per diluted share in the first nine months of 2019. Earnings in the first nine months of 2020 included $43.3 million in after-tax net charges largely consisting of restructuring and non-operating pension costs that were partially offset by an income tax benefit in the third quarter related to anticipated divestiture activity. Earnings in the first nine months of 2019 included after-tax net charges totaling $33.9 million mostly related to restructuring and non-operating pension costs partially offset by a gain relating to the release of an environmental reserve.

Base earnings for the first nine months of 2020 were $262.5 million, or $2.59 per diluted share, compared with $280.8 million, or $2.78 per diluted share, in the same period in 2019, a 6.5 percent and 6.5 percent decrease, respectively. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.)

Current year-to-date gross profit was $771.6 million, compared with $810.9 million in 2019. Year-to-date gross profit as a percentage of sales in 2020 was 20.0 percent, compared with 19.9 percent in 2019. Selling, general and administrative expenses decreased $23.7 million from the prior year period to $371.4 million, largely driven by a significant focus across the business on reducing controllable costs as well as the impact of the pandemic on travel, employee medical and other expenses.

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 $489.5 million, compared with $238.8 million in 2019, an increase of $250.7 million. The increase is largely attributable to voluntary pension contributions totaling $200 million in the first nine months of 2019. Additionally, net working capital used $25.6 million less cash in the first nine months of 2020, compared to the first nine months of 2019. Both periods saw increased business activity from year-end levels; however, the global recession caused by COVID-19 has muted the increase in the current year. The Company's management of accounts receivable and accounts payable has been solid in this challenging macroeconomic environment. In addition, in the current year the Company has taken advantage of pandemic-related global government assistance programs which aided year-to-date operating cash flow by approximately $25 million. Most of this amount related to United States based programs.

Free cash flow for the first nine months of 2020 was $251.6 million, compared with a cash usage of $32.5 million in the same period last year, an increase of $284.1 million, driven by the year-to-date increase in operating cash flow and a decrease in capital spending. During the first nine months of 2020, net capital expenditures and cash dividends were $108.4 million and $129.4 million, respectively, compared with $144.1 million and $127.2 million, respectively, in 2019. (See free cash flow description and reconciliation later in this release. Free cash flow is defined as cash flow from operations minus net capital expenditures and cash dividends. Net capital expenditures are defined as capital expenditures minus proceeds from, and/or plus costs incurred in, the disposition of capital assets.)

As of September 27, 2020, total debt was approximately $2.14 billion, compared with $1.68 billion as of December 31, 2019. The Company's total-debt-to-total-capital ratio was 53.2 percent as of September 27, 2020, compared to 48.1 percent at the end of 2019. The increase in this ratio is due to excess cash accumulated by the Company in response to uncertainty in the macroeconomic environment and debt markets following the onset of the COVID-19 pandemic. Part of that response included the April 2020 issuance of $600 million in 10-year 3.125% notes. Cash and cash equivalents were $782.7 million as of September 27, 2020, compared with $145.3 million at December 31, 2019.

Fourth Quarter Outlook
The Company projects fourth-quarter and full-year 2020 base earnings to be in the range of $0.70 to $0.80 and $3.29 to $3.39 per diluted share, respectively. Base earnings in the fourth quarter and full-year of 2019 were $0.75 and $3.53 per diluted share, respectively. The Company's fourth-quarter guidance assumes that global macroeconomic conditions remain relatively stable from the third quarter and that customer demand experiences a normal year-end slowdown. In addition, due to the uncertainty regarding the exact timing of the pending sale of the Company's Europe contract packaging business which is expected to close during the fourth quarter, this guidance includes the full-quarter expected results of that business. In addition, this guidance assumes a 24.8 percent base effective tax rate, compared to a 23.2 percent base effective tax rate in the fourth quarter of 2019 as well as higher interest expense compared to the prior year period.

Full-year 2020 cash flow from operations and free cash flow are expected to be between $643 million and $663 million and $290 million and $310 million, respectively. The company is projecting full-year capital expenditures of approximately $180 million. Full-year 2019 cash from operations and free cash flow was $425.9 million and $74.3 million, respectively.

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.”

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 $5.4 billion, the Company has 23,000 employees working in more than 300 operations in 36 countries, serving some of the world’s best-known brands in some 85 nations. Sonoco is committed to creating sustainable products, services and programs for our customers, employees and communities that support our corporate purpose of Better Packaging. Better Life. The Company ranked first in the Packaging sector on Fortune’s World’s Most Admired Companies 2020 as well as being included in Barron’s 100 Most Sustainable Companies. For more information on the Company, visit our website at www.sonoco.com.