HARTSVILLE, S.C., July 31, 2023 (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 second quarter ended July 2, 2023.

Summary

• Strong performance and cash flows despite operating in a generally disruptive demand environment
• Most of our businesses were at or above expectations for the quarter due to commercial and operational excellence, with particular strength in the flexible packaging and rigid paper container businesses, offset by weakness in the metal packaging and industrial North American region businesses         
• Inventory management and destocking trends among our customers as well as inflationary pricing pressures led to lower and increasingly uncertain demand which impacted operational efficiency in our metal and industrials businesses
• Remained disciplined in managing working capital to generate $349 million of operating cash flow in the first six months of 2023
• Lowered full-year Adjusted EPS and Adjusted EBITDA guidance based on lower volume trends in Consumer Packaging (“Consumer”) and Industrial Paper Packaging (“Industrial”) businesses and expectations of a less favorable price/cost environment in Industrial during the second half of the year
• Maintaining full-year operating cash flow guidance

⁽¹⁾ See the Company’s definitions of non-GAAP financial measures, explanations as to why they are used, and reconciliations to the most directly comparable GAAP financial measures later in this release.

• Net sales decreased to $1.7 billion driven by lower volumes.  
• GAAP operating profit decreased to $188 million as lower overall volume and mix was partially offset by lower acquisition-related and restructuring costs, gains on asset sales, higher price/cost and productivity.
• Achieved net income margin of 6.7% and Adjusted EBITDA margin of 16.1%.
• Effective tax rates on GAAP and Adjusted Earnings were 26.8% and 25.6%, respectively, compared with 25.8% and 25.0%, respectively, from the second quarter of the prior year.
• GAAP net income decreased to $115 million for diluted GAAP EPS of $1.16.
• Adjusted net income attributable to Sonoco decreased to $136 million for diluted Adjusted EPS of $1.38.
• Adjusted operating profit and Adjusted EBITDA declined to $211 million and $275 million, respectively, due to lower overall volume and mix, partially offset by higher price cost and productivity.
• Achieved Adjusted EBITDA margin of 16.1%.
  

Sonoco President and CEO, Howard Coker stated, “Sonoco continues to operate well with most of our businesses achieving commercial, operational, and productivity objectives.   In the second quarter, volume softness beyond our expectations negatively impacted Consumer metal packaging and Industrials.   In metal, accelerated inventory reduction programs within our top food and aerosol customers resulted in lower than expected demand and negatively impacted operating leverage. In Industrials, volume for paper and converted products remained low across all geographies and end markets including paper, film, textile, and appliances.   Industrial customers cited lower end market demand and customer destocking as factors for the declines. Despite these challenges, our teams generated $349 million of operating cash flow for the first six months of 2023. Throughout the quarter, our teams continued to execute well in a volatile demand environment and I express my sincere appreciation for their continued support of Sonoco and our customers.”

Second Quarter 2023 Segment Results
(Dollars in millions except per share data)

Sonoco reports its financial results in two reportable segments: Consumer and Industrial, with all remaining businesses reported as All Other.

• Consumer net sales were $924 million as volumes were generally impacted by destocking trends among our customers and inflationary pricing pressures within retail.
• Consumer results included continued strong performance in the flexible packaging and rigid paper container businesses offset by weakness in the metal packaging and rigid plastic businesses.
• Metal packaging operating profit was impacted by continued unfavorable metal price overlap as well as meaningful but non-market share related volume declines in several key food and aerosol accounts.
  

• Industrial volumes remained low across all regions with limited signs of near-term improvement.
• Net sales decreased 20% to $585 million due to volume and mix weakness in global demand for paper and converted paper products.
• Strong execution in commercial and operational excellence resulted in Adjusted EBITDA margin of 20%.
  

• Net sales were $197 million as strategic pricing actions were offset by volume and mix declines.       
• Operating profit and Adjusted EBITDA improved by 73% and 53%, respectively, primarily due to positive strategic pricing and strong productivity.

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.

Balance Sheet and Cash Flow Highlights

• Cash and cash equivalents were $319 million as of July 2, 2023, compared to $227 million as of December 31, 2022.
• Total debt was $3,153 million as of July 2, 2023, a decrease of $69 million from December 31, 2022.
• On July 2, 2023, the Company had available liquidity of $1,069 million, including the undrawn availability under its revolving credit facilities.
• Cash flow from operating activities for the first six months of 2023 was $349 million, compared to $184 million in the same period of 2022.
• Capital expenditures, net of proceeds from sales of fixed assets, for the first six months of 2023 were $90 million, compared to $144 million in the same period last year. Capital expenditures were $162 million and net proceeds from the sale of our timberland properties were $72 million for the first six months of 2023.
• Free cash flow for the first six months of 2023 was $259 million. 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 six months ended July 2, 2023 increased to $98 million compared to $92 million for the same period of the prior year.
  

Guidance⁽¹⁾         
Third Quarter 2023

• Adjusted EPS⁽²⁾: $1.25 to $1.35
  

Full Year 2023

• Adjusted EPS⁽²⁾: $5.10 to $5.40
• Cash flow from operating activities: $925 million to $975 million
• Free cash flow⁽³⁾: $620 million to $720 million
• Adjusted EBITDA: $1.02 billion to $1.07 billion

“Based on the softer than expected second quarter results and in recognition of our customers’ cautious forecasts through the remainder of the year, we are reducing our full year guidance. We intend to continue to manage variable and fixed expenses and execute our continuous improvement programs to improve results in the near and long term. While this near-term volume outlook is disappointing, we are optimistic regarding the number of long-term value-creating opportunities available within our diverse portfolio from ongoing operational improvements, accretive acquisitions, and non-core business divestitures which will be timed to maximize value. Our innovative design engagements focused on sustainable packaging and collaboration with customers remain strong, and we remain confident in our strategy, our teams, and our ability to generate strong cash flow and returns for shareholders,” said Coker.

⁽¹⁾ 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 continued 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⁾ Third quarter and full-year 2023 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 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. Accordingly, quantitative reconciliation of Adjusted EPS guidance have been omitted in reliance on the exception provided by Item 10 of Regulation S-K.

⁽³⁾ See reconciliation of projected cash flow from operating activities to projected free cash flow later in this release.

Conference Call Webcast
Management will host a conference call and webcast to further discuss these results beginning at 8:30 am EDT Tuesday, August 1, 2023. The live conference call and a corresponding presentation can be accessed via the Company’s Investor Relations website at https://investor.sonoco.com. To listen via telephone, please register in advance at https://register.vevent.com/register/BI2e80cd98f361446fa3e24c0a35507e69. Upon registration, all telephone participants will receive the dial-in number along with a unique PIN number that can be used to access the call. A replay of the conference call and webcast will be archived on the Company’s Investor Relations website for at least 30 days.

Contact Information:
Lisa Weeks
Vice President of Investor Relations & Communications
lisa.weeks@sonoco.com 
843-383-7524

About Sonoco
Founded in 1899, Sonoco (NYSE: SON) is a global provider of packaging products. With net sales of approximately $7.3 billion in 2022, the Company has approximately 22,000 employees working in more than 310 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. The Company ranked first in the Packaging sector on Fortune’s World’s Most Admired Companies for 2022 and was also included in Barron’s 100 Most Sustainable Companies for the fourth consecutive year. For more information on the Company, visit our website at www.sonoco.com.

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 “anticipate,” “assume,” “believe,” “committed,” “consider,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “goal,” “guidance,” “intend,” “likely,” “may,” “might,” “objective,” “outlook,” “plan,” “potential,” “project,” “seek,” “strategy,” “will,” 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 third quarter and full-year 2023 outlook; the Company’s ability to manage variable and fixed expenses; opportunities for operational improvements; customer demand and volume outlook; the Company’s relationships with its customers; the Company’s ability to create near-term and long-term value and to generate cash flows and returns for shareholders; expected benefits from accretive acquisitions and divestitures; the effectiveness of the Company’s strategy; the effects of the macroeconomic environment and inflation on the Company and its customers; and outcomes of certain tax issues and tax rates.
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, those related to: the Company’s ability to achieve the benefits it expects from acquisitions and divestitures; the Company’s ability to execute on its strategy, including with respect to acquisitions, divestitures, cost management, restructuring and capital expenditures, and achieve the benefits it expects therefrom; the operation of new manufacturing capabilities; the Company’s ability to achieve anticipated cost and energy savings; the 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 pricing risks; the costs of labor; the effects of inflation, fluctuations in consumer demand, volume softness, customer destocking 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 goals relating to sustainability and reduction of greenhouse gas emissions; the Company’s ability to return cash to shareholders and create long-term value; 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.

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. The Company uses certain financial performance measures, both internally and externally, that are not in conformity with GAAP (“non-GAAP financial measures”) to assess and communicate the financial performance of the Company. These non-GAAP financial measures reflect the Company’s GAAP operating results adjusted to remove amounts (including the associated tax effects) relating to:

• restructuring/asset impairment charges¹;
• acquisition/divestiture-related costs;
• gains or losses from the divestiture of businesses or other assets;
• losses from the early extinguishment of debt;
• non-operating pension costs;
• amortization expense on acquisition intangibles;
• changes in last-in, first-out (“LIFO”) inventory reserves;
• certain income tax events and adjustments; and
• other items, if any.
  

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, 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.

The Company’s management believes the exclusion of these items improves the period-to-period comparability and analysis of the underlying financial performance of the business. Non-GAAP figures previously identified by the term “Base” are now identified using the term “Adjusted,” for example “Adjusted Operating Profit,” “Adjusted Net Income,” and “Adjusted EPS.”

In addition to the “Adjusted” results described above, the Company also uses Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA is defined as net income excluding the following: interest expense; interest income; provision for income taxes; depreciation, depletion and amortization expense; non-operating pension costs; net income/(loss) attributable to noncontrolling interests; restructuring/asset impairment charges; changes in LIFO inventory reserves; gains/losses from the divestiture of businesses or other assets; acquisition/divestiture-related costs; derivative (gains)/losses; and other non-GAAP adjustments, if any, that may arise from time to time. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales.

The Company’s non-GAAP financial measures are not calculated in accordance with, nor are they an alternative for, measures conforming to generally accepted accounting principles, and they may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles.

The Company presents these non-GAAP financial measures to provide investors with information to evaluate Sonoco’s operating results in a manner similar to how management evaluates business performance. The Company consistently applies its non-GAAP financial measures presented herein and uses them for internal planning and forecasting purposes, to evaluate its ongoing operations, and to evaluate the ultimate performance of management and each business unit against plans/forecasts. In addition, these same non-GAAP financial measures are used in determining incentive compensation for the entire management team and in providing earnings guidance to the investing community.

Material limitations associated with the use of such measures include that they do not reflect all period costs included in operating expenses and may not be comparable with similarly named financial measures of other companies. Furthermore, the calculations of these non-GAAP financial 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 any limitations in such non-GAAP financial measures, management believes that it is useful in evaluating the Company’s results to review both GAAP information, which includes all of the items impacting financial results, and the related non-GAAP financial measures that exclude certain elements, as described above. Further, Sonoco management does not, nor does it suggest that investors should, consider any non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever reviewing a non-GAAP financial measure, investors are encouraged to review the related reconciliation to understand how it differs from the most directly comparable GAAP measure.

Whenever Sonoco uses a non-GAAP financial measure it provides a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure. Investors are encouraged to review and consider these reconciliations. See “Guidance” above for more information regarding the Company’s guidance.   

Adjusted Operating Profit, Adjusted Income Before Income Taxes, Adjusted Provision for Income Taxes, Adjusted Net Income Attributable to Sonoco and Adjusted Diluted EPS

The following tables reconcile the Company’s non-GAAP financial measures to their most directly comparable GAAP financial measures for each of the periods presented:

Segment results viewed by Company’s management to evaluate segment performance do not include restructuring/asset impairment charges, amortization of acquisition intangibles, acquisition/divestiture-related costs, changes in LIFO inventory reserves, gains/losses from the sale of businesses, or certain other items, if any, the exclusion of which the Company believes improves the comparability and analysis of the ongoing operating performance of the business. Accordingly, the term “segment operating profit” is defined as the segment’s portion of “operating profit” excluding those items. All other general corporate expenses have been allocated as operating costs to each of the Company’s reportable segments and All Other.

The Company does not calculate net income by segment; therefore, Segment Adjusted EBITDA is reconciled to the closest GAAP measure of segment profitability, Segment Operating Profit, which is the measure of segment profit or loss in accordance with Accounting Standards Codification 280 - Segment Reporting, as prescribed by the Financial Accounting Standards Board.

¹ Included in Corporate is the amortization of acquisition intangibles associated with the Consumer segment of $14,205, the Industrial segment of $2,565, and All Other of $3,769.
² Included in Corporate are restructuring/asset impairment charges associated with the Consumer segment of $1,928, the Industrial segment of $1,987, and All Other of $2,952.
³ Included in Corporate are changes in LIFO inventory reserves associated with the Industrial segment of $(1,575).
⁴ Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer segment of $112 and the Industrial segment of $60.
⁵ Included in Corporate is the gain from the sale of the Company’s U.S. BulkSak businesses associated with the Industrial segment.
⁶ Included in Corporate are net gains on derivatives associated with the Consumer segment of $(600), the Industrial segment of $(2,835), and All Other of $(853).

¹ Included in Corporate is amortization of acquisition intangibles associated with the Consumer segment - of $14,423, the Industrial segment of $2,038, and All Other of $4,410.
² Included in Corporate are restructuring/asset impairment charges associated with the Consumer segment of $2,798, the Industrial segment of $4,459, and All Other of $(495).
³ Included in Corporate are changes in LIFO inventory reserves associated with the Consumer segment - of $4,150 and the Industrial segment of $2,190.
⁴ Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer segment of $10,490.
⁵ Included in Corporate are net losses on derivatives associated with the Consumer segment of $406, the Industrial segment of $1,819, and All Other of $577.

The following tables reconcile Segment Operating Profit, the closest GAAP measure of profitability, to Segment Adjusted EBITDA.

¹ Included in Corporate is the amortization of acquisition intangibles associated with the Consumer segment of $28,633, the Industrial segment of $5,499, and All Other of $7,571.
² Included in Corporate are restructuring/asset impairment charges associated with the Consumer segment of $3,504, the Industrial segment of $26,531, and All Other of $4,109.
³ Included in Corporate are changes in LIFO inventory reserves associated with the Consumer segment of $(6,103) and the Industrial segment of $(897).
⁴ Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer segment of $892 and the Industrial segment of $349.
⁵ Included in Corporate are gains from the divestiture of business and other assets associated with the sale of the Company’s timberland properties in the amount of $(60,945), the sale of its S3 business of in the amount of $(11,065), and the sale of its U.S. BulkSak businesses of $(7,371), all of which were associated with the Industrial segment.
⁶ Included in Corporate are losses on derivatives associated with the Consumer segment of $274, the Industrial segment of $1,133, and All Other of $389.

¹ Included in Corporate is the amortization of acquisition intangibles associated with the Consumer segment of $26,612, the Industrial segment of $4,125, and All Other of $8,934.
² Included in Corporate are restructuring/asset impairment charges associated with the Consumer segment of $5,109, the Industrial segment of $11,520, and All Other of $(417).
³ Included in Corporate are changes in LIFO inventory reserves associated with the Consumer segment of $24,242 and the Industrial segment of $1,148.
⁴ Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer segment of $37,184 and the Industrial segment of $1,066.
⁵ Included in Corporate are net gains on derivatives associated with the Consumer segment of $(550), the Industrial segment of $(2,462), and All Other of $(782).

Free Cash Flow
The Company uses the non-GAAP financial measure of “free cash flow,” which it defines as cash flow from operations minus net capital expenditures. Net capital expenditures are defined as capital expenditures minus proceeds from the disposition of capital assets. Free cash flow 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.