Sonoco Reports Third Quarter 2024 Results
HARTSVILLE, S.C., Oct. 31, 2024 (GLOBE NEWSWIRE) -- Sonoco Products Company ("Sonoco" or the "Company") (NYSE:SON), one of the largest sustainable global packaging companies, today reported financial results for its third quarter ended September 29, 2024.
Summary:
Achieved GAAP net income attributable to Sonoco of $51 million, Adjusted EBITDA of $281 million, diluted earnings per share of $0.51 and Adjusted diluted earnings per share of $1.49
Generated productivity improvements of $39 million during the third quarter of 2024 and $141 million during the first nine months of 2024
Generated $438 million of operating cash flow and $171 million of Free Cash Flow during the first nine months of 2024
Entered into an agreement on June 24, 2024, to acquire Eviosys for approximately €3.6 billion (approximately $3.9 billion); on track to complete the acquisition in the fourth quarter of 2024
Secured financing for the Eviosys acquisition by entering into new term loan agreements and completing a public offering of senior unsecured notes
Announced strategic review of the Thermoformed and Flexible Packaging ("TFP") business to accelerate portfolio simplification; review expected to be completed in the fourth quarter of 2024
Reaffirms full year 2024 guidance for Adjusted EBITDA and operating cash flow (excluding effects of the pending Eviosys acquisition and potential divestitures)
Third Quarter 2024 Consolidated Results
(Dollars in millions except per share data)
Three Months Ended
GAAP Results
September 29, 2024
October 1, 2023
Change
Net sales1
$
1,676
$
1,710
(2
)%
Operating profit
$
128
$
163
(21
)%
Net income attributable to Sonoco
$
51
$
131
(61
)%
EPS (diluted)
$
0.51
$
1.32
(61
)%
1Net sales for the three months ended October 1, 2023 include $21 million from recycling operations. Effective January 1, 2024, recycling operations are conducted as a procurement function, hence, recycling sales margins are only reflected in cost of sales.
Three Months Ended
Non-GAAP Results2
September 29, 2024
October 1, 2023
Change
Adjusted operating profit
$
211
$
213
(1
)%
Adjusted EBITDA
$
281
$
280
—
%
Adjusted net income attributable to Sonoco
$
148
$
145
2
%
Adjusted EPS (diluted)
$
1.49
$
1.46
2
%
2 See the Company's definitions of non-GAAP financial measures, explanations as to why they are used, and reconciliations to the most directly comparable U.S. generally accepted accounting principles ("GAAP") financial measures later in this release.
Net sales of $1.7 billion reflect the Protective Solutions ("Protexic") divestiture, the closure of a thermoformed food packaging plant, the treatment of recycling operations as a procurement function beginning January 1, 2024 and lower selling prices; overall volumes were positive and up low single digits including the impact of acquisitions
GAAP operating profit was $128 million from higher acquisition-related costs and net loss on divestitures; unfavorable price/cost was offset by higher productivity from procurement savings, production efficiencies and fixed cost reduction initiatives
Effective tax rates on GAAP net income attributable to Sonoco and Adjusted net income attributable to Sonoco were 30.4% and 21.3%, respectively, in Q3 2024, compared to 23.6% and 22.7%, respectively, in Q3 2023
GAAP net income attributable to Sonoco was $51 million, resulting in GAAP EPS (diluted) of $0.51
Adjusted operating profit and Adjusted EBITDA were $211 million and $281 million, respectively
Adjusted net income attributable to Sonoco increased to $148 million, resulting in Adjusted diluted EPS of $1.49
"Our third-quarter results were within expectations from seasonally higher Consumer Packaging demand and continued strong productivity," said Sonoco's President and CEO, Howard Coker. "Consumer and Industrial volumes were higher year-over-year and price/cost headwinds were persistent across both segments. Overall, we achieved strong profit margin and operating cash flow in the quarter from the solid execution of our global team."
Third Quarter 2024 Segment Results(Dollars in millions except per share data)
Sonoco reports its financial results in two reportable segments: Consumer Packaging ("Consumer") and Industrial Paper Packaging ("Industrial"), with all remaining businesses reported as All Other.
Three Months Ended
Consumer Packaging
September 29, 2024
October 1, 2023
Change
Net sales
$
984
$
985
—
%
Segment operating profit
$
123
$
117
5
%
Segment operating profit margin
13
%
12
%
Segment Adjusted EBITDA1
$
160
$
151
6
%
Segment Adjusted EBITDA margin1
16
%
15
%
Consumer segment net sales were consistent with prior year results; higher sales from year-over-year volume growth in metal aerosol cans and flexible packaging were offset by the closure of a thermoformed food packaging plant and lower selling prices.
Segment operating profit margin increased to 13% and Adjusted EBITDA margin to 16% as a result of higher productivity from procurement savings, production efficiencies, and fixed cost reduction initiatives, and higher volumes.
Three Months Ended
Industrial Paper Packaging
September 29, 2024
October 1, 2023
Change
Net sales2
$
585
$
580
1
%
Segment operating profit
$
70
$
75
(6
)%
Segment operating profit margin
12
%
13
%
Segment Adjusted EBITDA1
$
102
$
105
(3
)%
Segment Adjusted EBITDA margin1
17
%
18
%
Industrial segment net sales were $585 million from acquisitions and higher selling prices, and reflect lower sales related to the treatment of recycling as a procurement function effective January 1, 2024.
Segment operating profit margin was 12% and Adjusted EBITDA margin was 17% as productivity from procurement savings, production efficiencies and fixed cost reduction initiatives was offset by continued pressure from price/cost impacts.
Three Months Ended
All Other
September 29, 2024
October 1, 2023
Change
Net sales
$
107
$
146
(26)%
Operating profit
$
17
$
21
(16)%
Operating profit margin
16
%
14
%
Adjusted EBITDA1
$
20
$
25
(18)%
Adjusted EBITDA margin1
19
%
17
%
Net sales were $107 million reflecting the sale of the Protexic business.
Operating profit and Adjusted EBITDA margins were 16% and 19%, respectively, reflecting higher productivity from procurement savings, production efficiencies, and fixed cost reduction initiatives, and the sale of the Protexic business.
1Segment and All Other Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. See the Company's reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures later in this release.2Net sales for the three months ended October 1, 2023 include $21 million from recycling operations.
Balance Sheet and Cash Flow Highlights
Cash and cash equivalents were $1,931 million as of September 29, 2024, compared to $152 million as of December 31, 2023, primarily related to the financing for the pending Eviosys acquisition
Total debt was $4.8 billion as of September 29, 2024, an increase of $1.7 billion compared to December 31, 2023, primarily related to the financing for the pending Eviosys acquisition
On September 29, 2024, the Company had available liquidity of $3.1 billion, including available borrowing capacity under its revolving credit facility and cash on hand; $1.8 billion of this liquidity is intended to fund a portion of the pending Eviosys acquisition
Cash flow from operating activities for the first nine months of 2024 was $438 million, compared to $617 million in the same period of 2023
Capital expenditures, net of proceeds from sales of fixed assets, for the first nine months of 2024 were $267 million, compared to $182 million for the same period last year
Free Cash Flow for the first nine months of 2024 was $171 million compared to $435 million for the same period of 2023. Free Cash Flow is a non-GAAP financial measure. See the Company's definition of Free Cash Flow, the explanation as to why it is used, and the reconciliation to net cash provided by operating activities later in this release
Dividends paid during the nine months ended September 29, 2024 increased to $152 million compared to $147 million for the same period of the prior fiscal year
Announced Acquisition
On June 24, 2024, Sonoco announced it had entered into a definitive agreement to acquire Titan Holdings I B.V. ("Eviosys"), a leading European manufacturer of food cans, ends and closures from an affiliate of KPS Capital Partners, LP ("KPS") (the "Transaction") to expand Sonoco's global leadership in metal food can and aerosol packaging. Sonoco believes that both Sonoco's metal packaging business and Eviosys have demonstrated meaningful commercial momentum, and the Transaction is expected to facilitate Sonoco's ability to partner with customers and lead with innovation and sustainability.
The Transaction advances Sonoco's strategy of disciplined and high return capital allocation. Under the terms of the agreement, Sonoco agreed to acquire all of the issued and outstanding equity interests in Eviosys for approximately €3.6 billion (approximately $3.9 billion) on a cash-free and debt-free basis and subject to customary adjustments. The Transaction is expected to be immediately accretive to Adjusted EPS.
Sonoco secured financing for the Transaction through a $700 million delayed draw term loan facility on July 12, 2024, a $1.5 billion 364-day delayed draw term loan facility on September 16, 2024, and a registered public offering of senior unsecured notes of $1.8 billion on September 19, 2024, and has maintained its investment grade credit rating. With increased debt reduction from divestitures and cash from operations, Sonoco expects to further reduce net leverage from previous estimates within 24 months of the closing of the Transaction.
The Transaction is expected to close by the end of 2024, subject to the satisfaction or waiver of customary closing conditions, including expiration, termination, or receipt of the applicable waiting period or clearances, as applicable under certain specified antitrust laws.
Eviosys' current CEO, Tomas Lopez, is expected to remain with Sonoco and lead Sonoco's EMEA metal packaging business and Rodger Fuller, Chief Operating Officer, is expected to lead the integration effort.
Strategic Reviews of TFP and ThermoSafe Businesses as Part of Further Portfolio Simplification Efforts
On September 4, 2024, Sonoco announced a review of strategic alternatives for the TFP business, included in the Consumer segment. Sonoco's TFP business is a market leader in thermoformed and flexible packaging serving a wide range of customers in food, retail and medical markets. The TFP business provides a variety of complex packaging to value-added categories including snacks, condiments, healthcare, prepared meals, fresh products and coffee and pet. On a standalone basis, the TFP business generated revenue of $1.3 billion in 2023. The strategic review process of the TFP business is underway and Sonoco expects to complete the review processes in the fourth quarter of 2024.
As previously announced, Sonoco also intends to divest the,ThermoSafe business, included in the All Other group of businesses. The ThermoSafe business is Sonoco's leading temperature-assured packaging business and generated revenue of $283 million in 2023. The strategic review process of the ThermoSafe business is underway and Sonoco expects to complete the review processes in the third quarter of 2025.
Guidance(1) Fourth Quarter 2024
Adjusted EPS(2): $1.15 to $1.35
Full Year 2024
Adjusted EPS(2): $5.05 to $5.25
Cash flow from operating activities: $650 million to $750 million
Adjusted EBITDA: $1,050 to $1,090
Commenting on the Company's outlook, Sonoco's President and CEO, Howard Coker, said, "Our earnings and cash results year-to-date keep us on track to deliver within our annual guidance range for 2024. We are excited about the anticipated completion of the pending Eviosys acquisition, which we expect will bring incremental growth to our metal packaging business and continue the transformation and simplification of our portfolio."
(1)Guidance provided excludes any impact of the pending Eviosys acquisition or potential divestitures. Although the Company believes the assumptions reflected in the range of guidance are reasonable, given the uncertainty regarding the future performance of the overall economy, the effects of inflation, the challenges in global supply chains, potential changes in raw material prices, other costs, and the Company's effective tax rate, as well as other risks and uncertainties, including those described below, actual results could vary substantially. Further information can be found in the section entitled "Forward-looking Statements" in this release.
(2) Fourth quarter and full year 2024 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 without unreasonable efforts: restructuring costs and restructuring-related impairment charges, acquisition/divestiture-related costs, gains or losses from 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. Accordingly, a quantitative reconciliation of Adjusted EPS guidance has been omitted in reliance on the exception provided by Item 10 of Regulation S-K.
Effective January 1, 2024, the Company integrated its flexible packaging and thermoformed packaging businesses within the Consumer segment in order to streamline operations, enhance customer service, and better position the business for accelerated growth. As a result, the Company changed its operating and reporting structure to reflect the way it now manages its operations, evaluates performance, and allocates resources. Beginning the first quarter of 2024, the Company's consumer thermoformed businesses moved from the All Other group of businesses to the Consumer segment. The Company's Industrial segment was not affected by these changes.
Investor Conference Call WebcastThe Company will host a conference call to discuss the third quarter 2024 results. A live audio webcast of the call along with supporting materials will be available on the Sonoco Investor Relations website at https://investor.sonoco.com/. A webcast replay will be available on the Company's website for at least 30 days following the call.
Time:
Friday, November 1, 2024 at 8:30 a.m. Eastern Time
AudienceDial-In:
To listen via telephone, please register in advance at https://registrations.events/direct/Q4I122823.6267774588438875e+24After registration, all telephone participants will receive the dial-in number along with a unique PIN number that can be used to access the call.
Webcast Link:
https://events.q4inc.com/attendee/808697672
Contact Information: Lisa WeeksVice President of Investor Relations & Global
About SonocoWith net sales of approximately $6.8 billion in 2023, Sonoco has approximately 21,000 employees working in more than 300 operations around the world, serving some of the world's best-known brands. With our corporate purpose of Better Packaging. Better Life., Sonoco is committed to creating sustainable products and a better world for our customers, employees and communities. Sonoco was named one of America's Most Responsible Companies by Newsweek. For more information on the Company, visit our website at www.sonoco.com.
Forward-looking StatementsStatements 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 "anticipate," "assume," "believe," "can," "consider," "committed," "continue," "could," "develop," "estimate," "expect," "forecast," "focused," "future," "goal," "guidance," "intend," "is designed to," "likely," "maintain," "may," "might," "objective," "ongoing," "opportunity," "outlook," "plan," "possible," "potential," "predict," "project," "seek," "strategy," "will," "would," or the negative thereof, and similar expressions identify forward-looking statements.
Forward-looking statements in this communication include statements regarding, but not limited to: the Company's future operating and financial performance, including fourth quarter and full year 2024 outlook and the anticipated drivers thereof; the Company's ability to support its customers and manage costs; opportunities for productivity and other operational improvements; price/cost, customer demand and volume outlook; anticipated benefits of the proposed Transaction, including the satisfaction or waiver of customary closing conditions and the anticipated timing and benefits of the Transaction, including with respect to market leadership, strategic alignment, customer relationships, sustainability, innovation and cost synergies; expected benefits from divestitures, including the sale of Protexic, the potential divestitures of the ThermoSafe and TFP businesses and other potential divestitures, and the timing thereof; the effectiveness of the Company's strategy and strategic initiatives, including with respect to capital expenditures, portfolio simplification, leverage reduction and capital allocation priorities; the effects of the macroeconomic environment and inflation on the Company and its customers; and the Company's ability to generate continued value and return capital to shareholders.
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.
Such risks, uncertainties and assumptions include, without limitation, those related to: the Company's ability to execute on its strategy, including with respect to the proposed Transaction and other acquisitions (and integrations thereof), divestitures, cost management, productivity improvements, restructuring and capital expenditures, and achieve the benefits it expects therefrom; the ability to receive regulatory approvals for the proposed Transaction in a timely manner, on acceptable terms or at all, or to satisfy the other closing conditions to the proposed Transaction; conditions in the credit markets; the ability to retain key employees and successfully integrate Eviosys; the ability to realize estimated cost savings, synergies or other anticipated benefits of the proposed Transaction, or that such benefits may take longer to realize than expected; diversion of management's attention; the potential impact of the consummation of the proposed Transaction on relationships with clients and other third parties; the operation of new manufacturing capabilities; the Company's ability to achieve anticipated cost and energy savings; the availability, transportation and pricing of raw materials, energy and transportation, including the impact of potential changes in tariffs or sanctions and escalating trade wars, and the impact of war, general regional instability and other geopolitical tensions (such as the ongoing conflict between Russia and Ukraine as well as the economic sanctions related thereto, and the ongoing conflict in Israel and Gaza), 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; the costs of labor; the effects of inflation, fluctuations in consumer demand, volume softness, and other macroeconomic factors on the Company and the industries in which it operates and that it serves; the Company's ability to meet its environmental and sustainability goals, including with respect to greenhouse gas emissions; and to meet other social and governance goals, including challenges in implementation thereof; and the other risks, uncertainties and assumptions discussed in the Company's filings with the Securities and Exchange Commission, including its most recent reports on Forms 10-K and 10-Q, particularly under the heading "Risk Factors." 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.
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 data)
Three Months Ended
Nine Months Ended
September 29, 2024
October 1, 2023
September 29, 2024
October 1, 2023
Net sales
$
1,675,866
$
1,710,419
$
4,936,888
$
5,145,492
Cost of sales
1,317,129
1,346,163
3,883,244
4,049,490
Gross profit
358,737
364,256
1,053,644
1,096,002
Selling, general, and administrative expenses
190,645
182,672
586,337
541,421
Restructuring/Asset impairment charges
8,190
18,110
59,058
52,981
(Loss)/Gain on divestiture of business and other assets
(31,770
)
(537
)
(27,292
)
78,844
Operating profit
128,132
162,937
380,957
580,444
Non-operating pension costs
2,947
3,424
10,412
10,424
Net interest expense
55,629
29,674
109,376
94,684
Other income, net
—
36,943
5,867
36,943
Income before income taxes
69,556
166,782
267,036
512,279
Provision for income taxes
21,154
39,351
65,821
127,003
Income before equity in earnings of affiliates
48,402
127,431
201,215
385,276
Equity in earnings of affiliates, net of tax
2,807
3,627
6,218
8,795
Net income
51,209
131,058
207,433
394,071
Net income attributable to noncontrolling interests
(288
)
(309
)
(524
)
(354
)
Net income attributable to Sonoco
$
50,921
$
130,749
$
206,909
$
393,717
Weighted average common shares outstanding, diluted
99,267
98,912
99,221
98,800
Diluted earnings per common share
$
0.51
$
1.32
$
2.09
$
3.98
Dividends per common share
$
0.52
$
0.51
$
1.55
$
1.51
FINANCIAL SEGMENT INFORMATION (Unaudited)
(Dollars in thousands)
Three Months Ended
Nine Months Ended
September 29, 2024
October 1, 2023
September 29, 2024
October 1, 2023
Net sales:
Consumer Packaging
$
983,511
$
984,840
$
2,821,817
$
2,914,168
Industrial Paper Packaging
585,082
580,035
1,778,912
1,781,033
Total reportable segments
1,568,593
1,564,875
4,600,729
4,695,201
All Other
107,273
145,544
336,159
450,291
Net sales
$
1,675,866
$
1,710,419
$
4,936,888
$
5,145,492
Operating profit:
Consumer Packaging
$
123,021
$
116,800
$
328,190
$
314,408
Industrial Paper Packaging
70,206
75,006
203,008
256,413
Segment operating profit
193,227
191,806
531,198
570,821
All Other
17,440
20,740
48,430
66,085
Corporate
Restructuring/Asset impairment charges
(8,190
)
(18,110
)
(59,058
)
(52,981
)
Amortization of acquisition intangibles
(22,645
)
(21,379
)
(68,095
)
(63,082
)
(Loss)/Gain on divestiture of business and other assets
(31,770
)
(537
)
(27,292
)
78,844
Acquisition, integration, and divestiture-related costs
(19,623
)
(12,472
)
(47,553
)
(22,192
)
Other operating (charges)/income, net
(307
)
2,889
3,327
2,949
Operating profit
$
128,132
$
162,937
$
380,957
$
