HARTSVILLE, S.C., Feb. 11, 2021 (GLOBE NEWSWIRE) -- Sonoco (NYSE: SON), one of the largest diversified global packaging companies, today reported financial results for its fourth quarter and full year, both ending December 31, 2020.

Fourth-Quarter and Full-Year Highlights

• Fourth-quarter 2020 GAAP loss per diluted share was $(0.12), compared with GAAP earnings per diluted share of $0.44 in 2019. Full-year 2020 GAAP earnings per diluted share were $2.05, compared to $2.88 in 2019.
• 2020 fourth-quarter results include net after-tax charges of $0.94 per diluted share. The main components of these charges were $0.56 related to non-cash asset impairments and $0.17 from the loss on the divestiture of the Company's Europe contract packaging business. Additionally, the net charges include restructuring, non-operating pension and acquisition/divestiture costs. Prior-year results included net after-tax charges of $0.31 per diluted share mostly due to asset impairments, restructuring actions, non-operating pension costs and acquisition costs.
• Base net income attributable to Sonoco (base earnings) for the quarter was $0.82 per diluted share, compared with $0.75 in 2019. Full-year 2020 base earnings per diluted share were $3.41, compared to $3.53 in 2019. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) Sonoco previously provided fourth-quarter and full-year 2020 base earnings guidance of $0.70 to $0.80 and $3.29 to $3.39 per diluted share, respectively.
• Fourth-quarter 2020 net sales were $1.38 billion, up from $1.31 billion in 2019. Full-year 2020 net sales were $5.24 billion, compared to $5.37 billion in 2019.
• Full-year cash flow from operations was $705.6 million in 2020, compared with $425.9 million in 2019. Free cash flow in 2020 was $349.3 million, compared with $74.3 million in 2019. (See free cash flow definition and reconciliation to cash flow from operations later in this release.)
• On November 30, 2020, Sonoco sold its Europe contract packaging business, part of the Display and Packaging segment, for $120 million in cash, net of working capital and other adjustments.

First-Quarter and Full-Year 2021 Guidance

• Base earnings for the first quarter of 2021 are estimated to be in the range of $0.80 to $0.90 per diluted share, compared to $0.94 per diluted share in the first quarter of 2020.
• Full-year 2021 base earnings are expected to be in the range of $3.40 to $3.60 per diluted share.
• Full-year 2021 cash flow from operations and free cash flow are expected to be between $570 million to $600 million and $270 million to $300 million, respectively. See details later in this release which include a change to the definition of free cash flow.
• The Company will change its operating and reporting structure in 2021 and will begin to report its results in two segments, Consumer Packaging and Industrial Paper Packaging. The Company's remaining businesses which will primarily consist of our healthcare and protective packaging businesses will be reported as "All Other" in our future earnings releases and financial statements. The Company has determined this reporting structure appropriately represents the management of its business portfolio going forward.

Note: First-quarter and full-year 2021 GAAP guidance are 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: gains or losses on the sale of businesses or other assets, restructuring actions, asset impairment charges, acquisition/divestiture costs, certain income tax related events and other items. These items could have a significant impact on the Company's future GAAP financial results.

CEO Comments
Commenting on the Company’s full-year and fourth-quarter results, Sonoco President and Chief Executive Officer Howard Coker said, "2020 was both a test of our resolve as a Company and a testament to the strength of our people. Despite the impact of the pandemic-induced global recession, we quickly refocused operations on accelerating production of food packaging to meet consumers' growing preference for at-home eating, while making adjustments in our industrial-related and protective packaging businesses in response to demand swings. We developed vitally needed temperature-assured packaging to begin shipping life-saving vaccines and therapeutic drugs to combat the spread of the coronavirus, and we further improved our portfolio by acquiring Can Packaging, a French designer and manufacturer of sustainable paper packaging and related equipment, while divesting our lower-margin Europe contract packaging business.

"In the fourth quarter, our businesses performed well as we exceeded the high end of our base earnings guidance and volume/mix drove a 4 percent improvement in sales growth. Some of this is the impact of two additional days in the current-year quarter, but a strong volume/mix improvement, nonetheless. Our Consumer Packaging segment achieved a 47 percent improvement in operating profit for the quarter, reflecting continued strong food packaging demand, while our Paper and Industrial Converted Products segment reported another sequential improvement in operating profit, although year-over-year results were off by 28 percent. In our Protective Solutions segment, we achieved a 42 percent improvement in operating profit driven by strong customer demand, while our Display and Packaging segment's results were modestly lower due to the divestiture of our Europe contract packaging business. Overall, the Company's bottom line results benefited from strong productivity and positive sales volume/mix. These positive factors were partially 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, and increased interest expense.

"Finally, we achieved record cash flow from operations and free cash flow in 2020 reflecting our solid earnings performance and disciplined focus on managing working capital. Sonoco maintains a strong liquidity position and repaid $442 million of debt during the fourth quarter to further support our investment-grade credit rating. Our strong cash flow and balance sheet provide us the flexibility to invest in growing our business both organically and through acquisitions while continuing to return cash to our shareholders through dividends, including our recently announced 4.7 percent increase."

Fourth-Quarter Review
Net sales for the fourth quarter were $1.4 billion, an increase of $67.5 million, or 5.2 percent, from last year’s quarter. Sales grew during the quarter due to strong volume gains, higher selling prices and acquisition sales net of divestitures. Because of the Company's accounting calendar, the fourth quarter of 2020 included two additional days when compared to the prior year quarter.

The GAAP net loss attributable to Sonoco in the fourth quarter was $(11.6) million, or $(0.12) per diluted share, a decrease of $56.5 million, compared with GAAP net income of $44.9 million, or $0.44 per diluted share, in 2019. Base earnings in the fourth quarter were $83.0 million, or $0.82 per diluted share, an increase of $6.6 million, compared with $76.4 million, or $0.75 per diluted share, in 2019. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring-related items, asset impairment charges, acquisition/divestiture costs, non-operating pension costs, 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.)

Fourth-quarter GAAP results include after-tax charges of $94.7 million, or $0.94 per diluted share, including non-cash asset impairments totaling $56.8 million, or $0.56 per diluted share, of which $55.6 million, or $0.55 per diluted share, was taken against the Company's perimeter-of-the store thermoforming operations. Additionally, the Company recognized a $17.5 million,or $0.17 per diluted share, after-tax loss on the sale of the Europe contract packaging business, which included tax expense of $3.0 million. The remainder of the total after-tax charges relate to restructuring, non-operating pension and acquisition/divestiture costs. In the fourth quarter of 2019, GAAP earnings included charges totaling $31.5 million or $0.31 per diluted share, after tax, related to asset impairments, restructuring expenses, non-operating pension costs and acquisition costs.

Gross profits were $274.8 million in the fourth quarter, an increase of $27.9 million or 11.3 percent, compared with $246.9 million in the same period in 2019. Gross profit as a percentage of sales improved to 20.0 percent, compared to 18.9 percent in 2019. The improvement in gross profit was driven by strong productivity results and increased volume. Fourth-quarter GAAP selling, general and administrative expenses increased $21.3 million from the prior year to $157.1 million. This higher amount was driven by the timing of compensation expense increases and the addition of expenses at acquired businesses which were partially offset by cost savings related to the pandemic.

Segment Review
Sonoco reports its financial results in four 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/divestiture costs, 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 paperboard and thermoformed plastic); extruded and injection-molded plastic products; printed flexible packaging; global brand artwork management; and metal and peelable membrane ends and closures.

Fourth-quarter 2020 sales for the segment were $616.1 million, compared with $559.6 million in 2019. Segment operating profit was $68.7 million in the fourth quarter, compared with $46.6 million in the same quarter of 2019.

Fourth-quarter 2020 segment sales increased 10.1 percent compared to the prior-year's quarter driven by an almost 6 percent improvement in volume/mix, and sales added from the December 2019 acquisition of Thermoformed Engineered Quality (TEQ) and the August 2020 acquisition of Can Packaging. These increases were partially offset by lower selling prices. Sales in Global Rigid Paper Containers increased more than 12 percent, the vast majority of which was driven by higher volume due to consumers' growing preference for at-home meals. Flexible Packaging experienced almost 3 percent improvement in volume/mix also driven by strong demand for at-home meals which was partially offset by lower sales in the confection market due to pandemic-reduced convenience store foot traffic. Global Rigid Plastics sales increased from the acquisition of TEQ, partially offset by lower selling prices, while volume gains in food packaging were offset by lower industrial product volumes and a negative mix of business. Segment operating profit increased 47.3 percent compared to the prior-year quarter as strong productivity gains, improved volume/mix and the impact of acquisitions more than offset a negative price/cost relationship. Overall, segment operating margin increased by 281 basis points to 11.1 percent driven by the previously mentioned productivity gains.

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; retail packaging, including printed backer cards, thermoformed blisters and heat sealing equipment; and paper amenities, such as coasters and glass covers.

Fourth-quarter 2020 sales for this segment were $109.4 million, compared with $136.7 million in 2019. The segment reported an operating profit of $5.8 million in the current quarter, compared with an operating profit of $6.5 million in the prior year.

Sales declined 20.0 percent compared to the prior year’s quarter mostly due to the divestiture of our Europe contract packaging business, along with lower seasonal retail point-of-purchase display activity stemming from the impact of the pandemic on in-store promotions.

Segment operating profit declined $0.7 million due primarily to the Europe contract packaging divestiture. Productivity improvements helped increase segment operating margin to 5.3 percent from 4.7 percent in the prior-year's period.

Paper and Industrial Converted Products
The Paper and Industrial Converted Products segment includes the following products: paperboard tubes, cores and cones; 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.

Fourth-quarter 2020 sales for the segment were $509.1 million, up from $491.5 million in 2019. Segment operating profit was $36.0 million in the fourth quarter, compared with $50.0 million in 2019.

Segment sales increased 3.6 percent from the prior-year's quarter driven by an almost 2 percent improvement in volume/mix and higher selling prices. Global paperboard and corrugated medium demand improved slightly during the quarter offset by reduced recycled pulp international sales. Globally tube, core and cone volume/mix improved slightly in the quarter as demand growth in Europe, Asia, and Brazil, was only partially offset by a decline in demand in the U.S. and Canada.

Segment operating profit declined 28.0 percent from the prior year's quarter as strong productivity improvements and positive volume/mix were more than offset by a negative price/cost relationship stemming from increased recovered paper prices and higher operating costs. Segment operating margin declined 310 basis points to 7.1 percent.

Protective Solutions
The Protective Solutions segment includes the following products: custom-engineered, paperboard-based and molded foam protective packaging and components; and temperature-assured packaging.

Fourth-quarter 2020 sales were $141.7 million, up $20.7 million from 2019. Operating profit was $15.6 million, compared with $10.9 million in the fourth quarter of 2019.

Segment sales increased 17.1 percent from the prior-year's quarter due primarily to a nearly 16 percent improvement in volume/mix stemming from strong demand for temperature-assured, fiber-based and molded foam protective packaging. Segment operating profit improved 42.5 percent due to strong volume/mix and productivity improvements partially offset by a negative price/cost relationship and higher operating costs. Segment operating margin was 11.0 percent for the quarter, up from 9.0 percent in the prior year.

Corporate/Tax
Net interest expense for the fourth quarter of 2020 increased to $18.8 million, compared with $15.5 million during the same period in 2019, primarily due to the impact of higher debt balances but partially offset by lower interest rates. The 2020 fourth-quarter effective tax rates on GAAP and base earnings were (40.9) percent and 23.5 percent, respectively, compared with 26.6 percent and 23.2 percent, respectively, in the prior year’s quarter. The GAAP effective tax rate was negative in the current quarter due to the sale of the Company’s Europe contract packaging business and is not meaningful given the Company's near-breakeven results for the quarter.

2020 Full-Year Results
2020 net sales were $5.24 billion, a decline of $136.8 million, compared with $5.37 billion in 2019. Sales were down 2.5 percent for the year as additions from acquisitions, net of divestitures, were more than offset by a negative volume/mix and lower selling prices.

GAAP net income attributable to Sonoco for 2020 was $207.5 million or $2.05 per diluted share, compared with $291.8 million or $2.88 per diluted share in 2019. GAAP earnings in 2020 included after-tax charges totaling $138.0 million, or $1.36 per diluted share, largely driven by asset impairments, restructuring costs and non-operating pension costs. For the year, the Company recognized an after-tax gain of $2.9 million on the sale of the Europe contract packaging business, which included a tax benefit of $17.4 million, primarily from the third quarter write-down of a deferred tax liability on goodwill, recognized at the time the Company treated the operations as being "held for sale". GAAP earnings in 2019 included $0.65 per diluted share of after-tax charges largely related to restructuring and asset impairment charges, acquisition costs and non-operating pension costs partially offset by a gain related to the release of an environmental reserve.

Base earnings in 2020 were $345.5 million, or $3.41 per diluted share, compared with $357.2 million, or $3.53 per diluted share, in 2019, a 3.3 percent decrease, respectively. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) 2020 gross profit was $1,046.3 million, compared with $1,057.8 million in 2019. Gross profit as a percentage of sales in 2020 was 20.0 percent, compared with 19.7 percent in 2019. GAAP selling, general and administrative expenses decreased $2.4 million driven by a significant focus across the Company on reducing controllable costs as well as the pandemic's impact on lower travel, employee medical and other expenses. These efforts were partially offset by the addition of expenses from acquisitions as well as the one-time gain in the prior year related to an environmental reserve release.

2020 Cash Flow and Free Cash Flow
For 2020, cash generated from operations was $705.6 million, compared with $425.9 million in 2019, an increase of $279.8 million. The primary driver of the increase was the approximately $165 million after-tax voluntary contribution to the Company's U.S. defined benefit pension plan in 2019 that did not recur in 2020. Cash generated from operations also improved due to the deferral of payments of the Company's portion of social security taxes, pursuant to the CARES Act and a cash tax benefit taken in anticipation of the 2021 pension termination contributions (see 2021 Outlook later in the release).

Net capital expenditures and cash dividends were $183.7 million and $172.6 million, respectively, during 2020, compared with $181.3 million and $170.3 million, respectively, in 2019.

Free cash flow for 2020 was $349.3 million, compared with $74.3 million in the prior year, reflecting the increase in cash flow from operations discussed above. Free cash flow is a non-GAAP financial measure which may not represent the amount of cash flow available for general discretionary use because it excludes non-discretionary expenditures, such as mandatory debt repayments and required settlements of recorded and/or contingent liabilities not reflected in cash flow from operations. (See free cash flow reconciliation later in this release. In 2020 free cash flow was 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 December 31, 2020, total debt was $1.70 billion, compared with $1.68 billion as of December 31, 2019. At the end of 2020, the Company had a total-debt-to-total-capital ratio of 47.1 percent, compared with 48.1 percent at December 31, 2019. Cash and cash equivalents were $564.8 million as of December 31, 2020, compared with $145.3 million at December 31, 2019. The higher cash position stems from the issuance of $600 million in 10-year 3.125 percent notes in April, which was sold in response to uncertainty in macroeconomic and debt market conditions due to the pandemic, in addition to strong operating cash flow and proceeds from the divestiture of the Company's Europe contract packaging business. These increases were slightly offset by short-term debt repayments.

Full-Year 2021 and First Quarter Outlook
The ultimate impact of the COVID-19 pandemic on Sonoco's full-year 2021 results remains uncertain. In providing guidance, the Company is assuming that global business activity will begin to return to pre-pandemic levels after mid-2021. As a result, the Company is projecting full-year 2021 base earnings to be in the range of $3.40 to $3.60 per diluted share, with a projected midpoint target of $3.50 per diluted share. The midpoint base earnings target assumes a $0.23 per share positive impact from a 2 percent increase in volume/mix sales growth, a $0.45 per share contribution from total productivity initiatives, and a $0.13 benefit stemming from non-operational items, including lower interest expense, a stronger dollar and other cost control actions. Offsetting these expected favorable earnings drivers are assumptions for a $0.43 per share negative price/cost relationship, primarily from higher material and operating inflation, a $0.14 decline from divested earnings of the Europe contract packaging business, net of the Can Packaging acquisition, and a drop of $0.15 per share from investments in strategic information technology systems, infrastructure and personnel, along with higher expenses for insurance, compensation and other costs. The Company is assuming a 25.4 percent annual effective tax rate and forecasts depreciation and amortization expense to be approximately $250 million.

Sonoco expects first-quarter 2021 base earnings to be in the range of $0.80 to $0.90 per diluted share, compared to $0.94 per diluted share in the first quarter of 2020, which included earnings from the divested Europe contract packaging business. Due to changes in its accounting calendar, Sonoco's first quarter is expected to benefit from five additional operating days partially offset by a higher tax rate of 26.5 percent. Due to the expected timing of certain discrete items, the Company's effective tax rate varies quarter to quarter leading to differences in our expected annual and quarterly effective tax rates.

Full-year 2021 operating cash flow and free cash flow are expected to be in a range of $570 million to $600 million and $270 million and $300 million, respectively. Beginning in 2021, the Company will exclude dividend payments from the calculation of free cash flow. This does not reflect a change in the Company's approach to providing value to shareholders through dividends but does align the Company's definition with its peer group. For comparability, 2020 free cash flow, excluding dividends, was $522.0 million, as compared to the $349.3 million, including dividends previously reported herein.

The Company’s 2021 cash flow guidance includes several key assumptions including no change in working capital balances during the year and $300 million of net capital expenditures. In addition, while the Company had a cash flow benefit of approximately $30 million from the deferral of social security tax payments in 2020, and the expectation is that half of these payments will be made in each of 2021 and 2022. The main driver of the projected higher capital spending is the previously announced Project Horizon, which will convert the Company's Hartsville corrugated medium machine to produce uncoated recycled paperboard.

In addition, the Company is moving forward with the previously announced termination of the Sonoco Pension Plan for Inactive Participants. Following completion of a limited lump sum offering early in the second quarter of 2021, the Company expects to settle all remaining liabilities under this plan through the purchase of annuities in mid-2021. The Company anticipates making additional contributions to this plan of approximately $150 million at the time of the annuity purchase and to recognize non-cash settlement charges of approximately $560 million as the lump sum payouts and annuity purchases are made. Due to inherent uncertainty in the timing and contribution amount related to this pension termination process, the Company's operating and free cash flow estimates are exclusive of this anticipated payment. While the Company cannot effectively estimate 2021 GAAP earnings, it anticipates the expected settlement charges will lead to a net GAAP loss in the second quarter and for the full-year 2021.

Although the Company believes the assumptions reflected in the range of guidance are reasonable, given uncertainty regarding the future performance of the overall economy, continued effects of the pandemic, and potential changes in raw material prices, other costs, and to the Company's effective tax rate, as well as other risks and uncertainties, including those described below, actual results could vary substantially.

As previously mentioned, Sonoco will change its operating and reporting structure in 2021 to reflect how it will manage business operations and resources going forward. This will lead to reported results being presented in two reportable segments: Consumer Packaging and Industrial Paper Packaging. Remaining businesses will be presented in an All Other group. The Protective Solutions and Display and Packaging segments will be eliminated and their businesses moved into the remaining two segments and All Other. Changes to the Consumer Packaging segment will include moving the TEQ healthcare packaging and Industrial Plastics business units to All Other. Industrial Paper Packaging will be relatively unchanged except that the Company's fiber protective packaging business unit will be added from the former Protective Solutions reporting segment. Finally, All Other will include our healthcare and protective packaging businesses, including TEQ, Sonoco ThermoSafe, consumer and automotive molded foam as well as Alloyd retail security and the U.S. Display and Packaging business units.

Commenting on the Company’s 2021 outlook, Coker said, "Entering 2021, we feel good about how our balanced mix of consumer- and industrial-related businesses are progressing despite the uncertain COVID-impacted economic outlook. The positive momentum we experienced at the end of 2020 seems to be continuing into the first quarter. Our Consumer Packaging segment, which is primarily focused on food packaging, should continue to benefit from consumers' at-home eating habits. Demand in our Industrial Paper Packaging served markets continues to show sequential improvement, although we continue to face a negative price/cost relationship due to escalating year-over-year recovered paper, freight and other operating costs. In All Other, we expect solid demand in our pharmaceutical and industrial markets. We are still in the early days of providing qualified cold-chain shipping solutions for FDA-approved COVID vaccines and therapeutics to the broader public, but we expect demand to expand as last-mile distribution systems become more organized.

"We're proud of how our people have grown comfortable operating in uncomfortable times. We remain confident that Sonoco is well-positioned for when the grip of the pandemic weakens and we'll continue to invest to reinforce the long-term potential of our core businesses, while remaining committed to returning value to our shareholders."

About Sonoco
Founded in 1899, Sonoco (NYSE: SON) 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 $5.2 billion, the Company has 20,000 employees working in approximately 300 operations in 34 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 for 2020 as well as being included in Barron's 100 Most Sustainable Companies. For more information, visit www.sonoco.com.