On The Move
Sonoco Reports Second Quarter 2012 Results
Jul 19, 2012
HARTSVILLE, SC - July 19, 2012 - Sonoco (NYSE: SON), one of the largest diversified global packaging companies, today reported financial results for its 2012 second quarter, ending July 1, 2012.
Second Quarter Highlights
- Second quarter 2012 GAAP earnings per diluted share were $.50, compared with $.52 in 2011.
- Second quarter 2012 GAAP results include after-tax charges of $.08 per diluted share, driven by previously announced restructuring activities.
- Base net income attributable to Sonoco (base earnings) for second quarter 2012 was $.58 per diluted share, compared with $.60 in 2011. Sonoco previously provided second quarter base earnings guidance of $.55 to $.60 per diluted share.
- Second quarter 2012 net sales were a record $1.20 billion, up 7 percent, compared with $1.13 billion in 2011.
- Third quarter 2012 base earnings are expected to be $.62 to $.66 per diluted share.
- Guidance for full-year 2012 base earnings is revised to $2.34 to $2.39 per diluted share.
Second Quarter Review
Commenting on the Company's second quarter results, Chairman and Chief Executive Officer Harris E. DeLoach Jr. said, "Sonoco's second quarter results met our expectations despite the continuing tough global economic conditions. Base earnings showed sequential improvement for the second consecutive quarter and gross profits increased 13 percent year over year while base earnings before interest and taxes (EBIT) improved by 6 percent. Base earnings were down year over year by a little less than 2 percent. The benefits to base earnings from significantly improved productivity, prior year acquisitions and a positive price/cost relationship were largely offset by lower volumes, a negative mix of business and higher pension, interest and income tax expenses. However, absent the impact of a stronger dollar, year-over-year base earnings would have been essentially unchanged.
"Our Consumer Packaging segment's second quarter operating profit improved 6 percent year over year, but was down 15 percent from the first quarter largely due to normal seasonality. The segment's year-over-year improvement was a result of productivity gains and a positive price/cost relationship, partially offset by lower volumes, negative mix and higher pension, labor and other expenses. Operating profits from our Packaging Services segment declined 54 percent from the second quarter of 2011, and 17 percent from the first quarter.
Year-over-year results were negatively impacted by the previously announced loss of a large contract packaging customer and a stronger dollar.
"In our Paper and Industrial Converted Products segment, second quarter operating profits were down 2 percent from last year's second quarter, but were up 23 percent from the first quarter. The year-over-year decline was driven by higher pension, labor and other expenses and a negative impact from exchange rates. These factors were partially offset by improved productivity, a positive price/cost relationship and slightly better volume, coming primarily from improved paper operations.
"Operating profits in our new Protective Packaging segment, created as a result of last year's acquisition of Tegrant Holding Corporation, improved 66 percent from the first quarter. Tegrant's operations comprise the majority of this segment and we are very pleased with the improvement we're seeing there in operating efficiencies and the progress being made in the integration. Year-over-year results in the legacy protective packaging operation improved slightly as a small decline in volume was more than offset by improved productivity."
GAAP net income attributable to Sonoco in the second quarter was $51.3 million, or $.50 per diluted share, compared with $53.4 million, or $.52 per diluted share, in 2011. Base earnings were $59.7 million, or $.58 per diluted share, in the second quarter, compared with $60.8 million, or $.60 per diluted share, in 2011.
Items excluded from base earnings in the second quarter of 2012 totaled $8.3 million, after tax, or $.08 per diluted share. This included restructuring expenses and asset impairment stemming from previously announced plant closures and manufacturing rationalization efforts in Germany, Canada and the United States. Excluded from base earnings in the second quarter of 2011 were after-tax restructuring and other charges totaling $7.4 million, or $.08 per diluted share, largely attributable to the disposition of the Company's Brazilian plastics operations and closure of a Canadian flexible packaging operation. Additional information about base earnings and base earnings per diluted share, along with a reconciliation to the most closely applicable GAAP financial measures, is provided later in this release.
Net sales for the second quarter were $1.20 billion, compared with $1.13 billion in the same period in 2011. This 7 percent increase was due to sales from acquisitions of $124 million, almost all of which is related to Tegrant, and higher selling prices, partially offset by lower volume/mix and a $41 million negative impact from foreign currency translation.
Gross profits were $217 million in the second quarter of 2012, compared with $191 million in the same period in 2011. Gross profit as a percent of sales was 18.0 percent, compared with 16.9 percent in the same period in 2011. The improvement in gross profits was due to productivity improvements and a positive price/cost relationship, partially offset by lower volumes, a negative shift in the mix of business and higher labor and other costs. The Company's selling, general and administrative (SG&A) expenses increased 19 percent year over year in the quarter, primarily due to added costs from the acquired Tegrant businesses. SG&A expenses were 9.9 percent of net sales in the 2012 period, compared with 8.8 percent in 2011.
Cash generated from operations in the second quarter was $42.9 million, compared with $45.9 million in the same period in 2011. Capital expenditures net of proceeds and cash dividends were $54.9 million and $30.2 million, respectively, during the second quarter of 2012, compared with $34.0 million and $28.9 million, respectively, during the same period in 2011.