Sonoco Products Company (“Sonoco” or the “Company”) (NYSE: SON),
one of the largest sustainable global packaging companies, today
reported financial results for its first quarter ended
April 2, 2023.
Highlights
- First-quarter results met the high
end of the previously provided quarterly guidance
- Raising full year guidance based on
strength of operating model
- Continued progress on strategic
priorities including portfolio optimization
- Increased quarterly cash dividend
to $0.51 per share; 40th straight year of annual dividend
increases
- Released annual Corporate
Responsibility Report, which highlighted commitments to ESG
initiatives
First Quarter 2023Consolidated Financial
Results |
(Dollars in millions except per share data) |
|
|
|
|
|
|
Three Months Ended |
|
|
|
GAAP
Results |
April 2, 2023 |
April 3, 2022 |
|
Change |
|
|
|
|
|
|
|
Net sales |
$ |
1,730 |
$ |
1,771 |
|
(2 |
)% |
|
Operating profit |
$ |
230 |
$ |
169 |
|
36 |
% |
|
Net income attributable to
Sonoco |
$ |
148 |
$ |
115 |
|
29 |
% |
|
EPS (diluted) |
$ |
1.50 |
$ |
1.17 |
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Non-GAAP Results(1) |
April 2, 2023 |
April 3, 2022 |
|
Change |
|
|
|
|
|
|
|
Adjusted operating profit |
$ |
213 |
$ |
261 |
|
(18 |
)% |
|
Adjusted EBITDA |
$ |
276 |
$ |
317 |
|
(13 |
)% |
|
Adjusted net income
attributable to Sonoco (“Adjusted Earnings”) |
$ |
138 |
$ |
183 |
|
(25 |
)% |
|
Adjusted EPS (diluted) |
$ |
1.40 |
$ |
1.85 |
|
(24 |
) % |
(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 2%
year-over-year to $1.7 billion as strong pricing was offset by
lower overall volume.
- GAAP operating profit increased 36%
year-over-year as gains on asset sales and lower acquisition
related costs offset lower price cost and lower volume and
mix.
- Adjusted operating profit and
Adjusted EBITDA declined 18% and 13%, respectively, due to lower
price cost and lower overall volume and
mix.
- The first-quarter 2023 effective
tax rates on GAAP and Adjusted Earnings were 24.3% and 24.8%,
respectively, compared with 23.7% and 25.3%, respectively, in the
prior year’s first quarter. The increase in the GAAP effective tax
rate is primarily attributable to the absence of a tax benefit
received in the first-quarter of 2022 associated with the
acquisition of Sonoco Metal Packaging. The decrease in the tax rate
on Adjusted Earnings was due to a variety of small variances,
mostly related to items discrete to the period in which they
occurred.
- GAAP net income increased 29% and
Adjusted Earnings decreased 25% from the same period last
year.
- Diluted GAAP EPS increased 28%
while diluted Adjusted EPS decreased 24% from the same period last
year.
“Sonoco delivered a strong first quarter,
highlighted by commercial pricing benefits in industrials,
improving productivity, and sales growth across most consumer
businesses,” said Sonoco’s President and CEO, Howard Coker. “Our
portfolio continues to be resilient in the current volatile
economic environment due to the dedicated efforts and execution of
the Sonoco team in support of our strategic initiatives.”
First Quarter 2023 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 |
April 2, 2023 |
|
April 3, 2022 |
Change |
|
|
|
|
|
Net sales |
$ |
909 |
|
|
$ |
868 |
|
5 |
% |
Segment operating profit |
$ |
92 |
|
|
$ |
174 |
|
(47 |
)% |
Segment operating profit
margin |
|
10 |
% |
|
|
20 |
% |
|
Segment Adjusted EBITDA1 |
$ |
122 |
|
|
$ |
199 |
|
(39 |
)% |
Segment Adjusted EBITDA
margin1 |
|
13 |
% |
|
|
23 |
% |
|
- Consumer segment net sales
increased by 5% year-over-year primarily due to continued strong
strategic pricing performance and acquisitions. Volume and mix in
the segment was lower as compared to the prior year due to softer
demand in metal packaging (aerosol) and rigid plastic food
packaging.
- Consumer segment operating profit
and Adjusted EBITDA decreased by 47% and 39%, respectively. The
decline was largely due to the anticipated unfavorable metal price
overlap in metal packaging and volume declines in both metal
aerosols and rigid plastics food packaging.
|
Three Months Ended |
|
Industrial Paper Packaging |
April 2, 2023 |
|
April 3, 2022 |
Change |
|
|
|
|
|
Net sales |
$ |
616 |
|
|
$ |
699 |
|
(12 |
)% |
Segment operating profit |
$ |
94 |
|
|
$ |
73 |
|
30 |
% |
Segment operating profit
margin |
|
15 |
% |
|
|
10 |
% |
|
Segment Adjusted EBITDA1 |
$ |
121 |
|
|
$ |
98 |
|
24 |
% |
Segment Adjusted EBITDA
margin1 |
|
20 |
% |
|
|
14 |
% |
|
- Industrial segment net sales
decreased 12% due to general volume and mix declines with specific
declines due to the exit of the corrugated medium market, the exit
of operations in Russia, the sale of Sonoco Sustainability
Solutions and weakness in converted paper.
- Industrial segment operating profit
and Adjusted EBITDA increased 30% and 24%, respectively, primarily
due to the price cost benefits of strategic pricing actions and
lower material costs. Segment operating profit margin improved to
15% in the first quarter of 2023 from 10% in the same period last
year. Segment Adjusted EBITDA margin improved to 20% in the first
quarter compared to 14% in the same period last year.
|
Three Months Ended |
|
All Other |
April 2, 2023 |
|
April 3, 2022 |
Change |
|
|
|
|
|
Net sales |
$ |
205 |
|
|
$ |
204 |
|
— |
% |
Operating profit |
$ |
27 |
|
|
$ |
15 |
|
88 |
% |
Operating profit margin |
|
13 |
% |
|
|
7 |
% |
|
Adjusted EBITDA1 |
$ |
33 |
|
|
$ |
21 |
|
61 |
% |
Adjusted EBITDA margin1 |
|
16 |
% |
|
|
10 |
% |
|
- Net sales from All Other businesses
were essentially flat at $205 million. Strategic pricing actions
were offset by volume and mix
declines.
- All Other operating profit and
Adjusted EBITDA improved by 88% and 61%, respectively, from the
prior year's first quarter primarily due to positive strategic
pricing performance 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 $210 million as of April 2,
2023, compared to $227 million on December 31, 2022.
- Total debt (long-term, short-term and current portion) was
$3,165 million as of April 2, 2023, a decrease of $57 million from
December 31, 2022.
- On April 2, 2023, the Company had available liquidity of
$948 million, including the undrawn availability under its global
revolving credit facilities.
- Cash flow from operating activities for the first three months
of 2023 was $98 million, compared to $1 million in the same period
of 2022, an increase of $97 million.
- Capital expenditures, net of proceeds from sales of fixed
assets, for the first three months of 2023 were $12 million,
compared to $67 million in the same period last year. Capital
expenditures were $83 million and net proceeds from the sale of our
timberland properties were $71 million for the first three
months of 2023.
- Free cash flow for the first three months of 2023 was $86
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.
- The Company has continued to provide value to shareholders
through cash dividends. Dividends paid during the quarter ended
April 2, 2023 increased to $48 million compared to $44 million
for the same quarter of the prior year.
Guidance(1)
Second Quarter
2023
- Adjusted EPS(2): $1.45 to $1.55
Full Year 2023
- Adjusted EPS(2): $5.70 to $6.00
- Cash flow from operating activities: $925 million to $975
million
- Free cash flow(3): $620 million to $720 million
- Adjusted EBITDA: $1.1 billion to $1.15 billion
(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, continued effects of the pandemic on global supply
chains, and 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
Forward-looking Statements in this release.
(2) Second 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.
(3) See reconciliation of projected cash flow
from operating activities to projected free cash flow later in this
release.
Commenting on the Company’s outlook, Coker said,
“We are raising the high end of our full year guidance after a good
start to the year. We are executing well operationally
and expect to maintain solid performance with limited demand
recovery in Industrials. Increased demand in
Industrials will provide opportunities for better performance
beyond our current outlook. As we progress through the year, we
remain committed to deploying capital to high return investments
for growth and efficiencies, further focusing our portfolio, and
delivering continued value to our shareholders”.
Conference Call
WebcastManagement will host a conference call and webcast
to further discuss these results beginning at 8:30 am EDT Tuesday,
May 2, 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/BI46f64ef65ca74390b992879f154cc62c.
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
WeeksVice President of Investor Relations &
Communicationslisa.weeks@sonoco.com 843-383-7524
About SonocoFounded 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 as well as being 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
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,”
“believe,” “committed,” “consider,” “could,” “estimate,” “expect,”
“forecast,” “future,” “goal,” “guidance,” “intend,” “likely,”
“may,” “might,” “objective,” “outlook,” “plan,” “potential,”
“project,” “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 second
quarter and full-year 2023 outlook; the Company’s ability to
navigate volatility, expand profits, increase free cash flow, and
efficiently deploy capital; the Company’s portfolio strategy and
its ability to drive growth and profitability; the Company’s
ability to create long-term value and returns for shareholders and
to return cash to shareholders; expected accretion and other
benefits from acquisitions and the strategic advantages and
synergies, technology and process opportunities related thereto;
momentum from and the effects of the Company’s strategy and
operating model, including portfolio management, sustainability-led
and productivity management activities and efforts to simplify the
Company’s structure; efforts to improve price/cost through
strategic pricing; the effects of the macroeconomic environment,
inflation and COVID-19 coronavirus on the Company; 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; the Company’s
ability to execute on its strategy, including with respect to
acquisitions, cost management, restructuring and capital
expenditures, and achieve the benefits it expects therefrom; the
operation of new manufacturing capabilities; assumptions regarding
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 effects of the COVID-19 pandemic on the Company’s
results of operations, financial condition, value of assets,
liquidity, prospects and growth, and on the industries in which it
operates and that it serves; the costs of labor; the effects of
inflation, fluctuations in consumer demand, 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
AddressReferences 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) |
|
|
|
Three Months Ended |
|
April 2, 2023 |
|
April 3, 2022 |
|
|
|
|
Net sales |
$ |
1,729,783 |
|
$ |
1,770,982 |
|
Cost of sales |
|
1,355,355 |
|
|
1,399,417 |
|
Gross profit |
|
374,428 |
|
|
371,565 |
|
Selling, general, and
administrative expenses |
|
187,976 |
|
|
190,362 |
|
Restructuring/Asset impairment
charges |
|
28,814 |
|
|
12,142 |
|
Gain on divestiture of business
and other assets |
|
72,010 |
|
|
— |
|
Operating profit |
|
229,648 |
|
|
169,061 |
|
Non-operating pension
costs |
|
3,658 |
|
|
1,324 |
|
Net interest expense |
|
32,670 |
|
|
19,065 |
|
Income before income
taxes |
|
193,320 |
|
|
148,672 |
|
Provision for income
taxes |
|
46,912 |
|
|
35,289 |
|
Income before equity in
earnings of affiliates |
|
146,408 |
|
|
113,383 |
|
Equity in earnings of
affiliates, net of tax |
|
1,856 |
|
|
2,224 |
|
Net income |
|
148,264 |
|
|
115,607 |
|
Net loss/(income) attributable
to noncontrolling interests |
|
55 |
|
|
(274 |
) |
Net income attributable to
Sonoco |
$ |
148,319 |
|
$ |
115,333 |
|
Weighted average common shares
outstanding – diluted |
|
98,615 |
|
|
98,554 |
|
Diluted earnings per common
share |
$ |
1.50 |
|
$ |
1.17 |
|
Dividends per common
share |
$ |
0.49 |
|
$ |
0.45 |
|
FINANCIAL SEGMENT INFORMATION (Unaudited) |
(Dollars in thousands) |
|
|
|
Three Months Ended |
|
April 2, 2023 |
|
April 3, 2022 |
Net sales: |
|
|
|
Consumer Packaging |
$ |
909,278 |
|
|
$ |
868,098 |
|
Industrial Paper Packaging |
|
615,855 |
|
|
|
699,129 |
|
All Other |
|
204,650 |
|
|
|
203,755 |
|
Net sales |
$ |
1,729,783 |
|
|
$ |
1,770,982 |
|
|
|
|
|
|
|
|
|
Operating profit: |
|
|
|
Consumer Packaging |
$ |
91,821 |
|
|
$ |
173,609 |
|
Industrial Paper Packaging |
|
94,367 |
|
|
|
72,660 |
|
All Other |
|
27,233 |
|
|
|
14,524 |
|
Corporate |
|
|
|
Restructuring/Asset impairment charges |
|
(28,814 |
) |
|
|
(12,142 |
) |
Amortization of acquisition intangibles |
|
(21,164 |
) |
|
|
(18,800 |
) |
Other income/(charges), net |
|
66,205 |
|
|
|
(60,790 |
) |
Operating profit |
$ |
229,648 |
|
|
$ |
169,061 |
|
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) |
(Dollars in thousands) |
|
|
|
Three Months Ended |
|
April 2, 2023 |
|
April 3, 2022 |
|
|
|
|
Net income |
$ |
148,264 |
|
|
$ |
115,607 |
|
Net (gains)/losses on asset
impairment, disposition of assets and divestiture of a
business |
|
(53,064 |
) |
|
|
5,701 |
|
Depreciation, depletion and
amortization |
|
82,137 |
|
|
|
73,315 |
|
Pension and postretirement
plan (contributions), net of non-cash expense |
|
(523 |
) |
|
|
(25,863 |
) |
Changes in working
capital |
|
(91,489 |
) |
|
|
(185,483 |
) |
Changes in tax accounts |
|
23,618 |
|
|
|
18,399 |
|
Other operating activity |
|
(10,941 |
) |
|
|
(616 |
) |
Net cash provided by
operating activities |
$ |
98,002 |
|
|
$ |
1,060 |
|
Purchases of property, plant
and equipment, net |
|
(11,996 |
) |
|
|
(67,324 |
) |
Proceeds from divestiture of
business |
|
13,839 |
|
|
|
— |
|
Cost of acquisitions, net of
cash acquired |
|
— |
|
|
|
(1,348,589 |
) |
Net debt (repayments)/
borrowings |
|
(62,541 |
) |
|
|
1,470,028 |
|
Cash dividends paid |
|
(47,731 |
) |
|
|
(43,747 |
) |
Payments for share
repurchases |
|
(10,576 |
) |
|
|
(3,410 |
) |
Other, including effects of
exchange rates on cash |
|
3,216 |
|
|
|
(12,985 |
) |
Purchase of noncontrolling
interest |
|
— |
|
|
|
(14,474 |
) |
Net decrease in cash and cash
equivalents |
$ |
(17,787 |
) |
|
$ |
(19,441 |
) |
Cash and cash equivalents at
beginning of period |
|
227,438 |
|
|
|
170,978 |
|
Cash and cash equivalents at
end of period |
$ |
209,651 |
|
|
$ |
151,537 |
|
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) |
(Dollars in thousands) |
|
|
April 2, 2023 |
|
December 31, 2022 |
Assets |
|
|
|
Current
Assets: |
|
|
|
|
Cash and cash equivalents |
$ |
209,651 |
|
$ |
227,438 |
|
Trade accounts receivable, net of allowances |
|
903,424 |
|
|
862,712 |
|
Other receivables |
|
89,554 |
|
|
99,492 |
|
Inventories |
|
1,083,005 |
|
|
1,095,558 |
|
Prepaid expenses |
|
76,693 |
|
|
76,054 |
|
|
$ |
2,362,327 |
|
$ |
2,361,254 |
Property, plant
and equipment, net |
|
1,717,615 |
|
|
1,710,399 |
Right of use
asset-operating leases |
|
289,017 |
|
|
296,781 |
Goodwill |
|
1,679,547 |
|
|
1,675,311 |
Other intangible
assets, net |
|
717,784 |
|
|
741,598 |
Other assets |
|
295,144 |
|
|
267,597 |
|
|
$ |
7,061,434 |
|
$ |
7,052,940 |
Liabilities and Shareholders’ Equity |
|
|
|
Current
Liabilities: |
|
|
|
|
Payable to suppliers and other payables |
$ |
1,128,678 |
|
$ |
1,224,556 |
|
Notes payable and current portion of long-term debt |
|
447,601 |
|
|
502,440 |
|
Accrued taxes |
|
33,211 |
|
|
16,905 |
|
|
$ |
1,609,490 |
|
$ |
1,743,901 |
Long-term debt,
net of current portion |
|
2,717,891 |
|
|
2,719,783 |
Noncurrent
operating lease liabilities |
|
243,714 |
|
|
250,994 |
Pension and other
postretirement benefits |
|
118,163 |
|
|
120,084 |
Deferred income
taxes and other |
|
166,611 |
|
|
145,381 |
Total equity |
|
2,205,565 |
|
|
2,072,797 |
|
|
$ |
7,061,434 |
|
$ |
7,052,940 |
Definition and Reconciliation of
Non-GAAP Financial MeasuresThe 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.
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.
These non-GAAP measures are not in accordance
with, or an alternative for, generally accepted accounting
principles and may be different from non-GAAP measures used by
other companies. In addition, these non-GAAP measures are not based
on any comprehensive set of accounting rules or principles. Sonoco
management does not, nor does it suggest that investors should,
consider these non-GAAP measures in isolation from, or as a
substitute for, financial information prepared in accordance with
GAAP. Material limitations associated with the use of such measures
include that they do not reflect all costs included in operating
expenses and may not be comparable with similarly named financial
measures of other companies. Furthermore, these non-GAAP financial
measures are based on subjective determinations of management
regarding the nature and classification of events and
circumstances.
Sonoco presents these non-GAAP financial
measures to provide users with information to evaluate Sonoco’s
operating results in a manner similar to how management evaluates
business performance. To compensate for any limitations in such
non-GAAP financial measures, management believes that it is useful
in understanding and analyzing the results of the business to
review both GAAP information and the related non-GAAP financial
measures.
Sonoco uses these non-GAAP financial measures
for internal planning and forecasting purposes, to evaluate its
ongoing operations, and to evaluate the performance of each
business unit and the performance of its executive officers. In
addition, these same non-GAAP measures are used in determining
incentive compensation for the Company's management team and in
providing earnings guidance to the investing community.
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.
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.
Adjusted Operating Profit, Adjusted
Income Before Income Taxes, Adjusted Provision for Income Taxes,
Adjusted Net Income 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:
|
For the three-month period ended April 2,
2023 |
Dollars in thousands,
except per share data |
Operating Profit |
Income Before Income Taxes |
Provision for Income Taxes |
Net Income Attributable to Sonoco |
Diluted EPS |
As Reported |
$ |
229,648 |
|
$ |
193,320 |
|
$ |
46,912 |
|
$ |
148,319 |
|
$ |
1.50 |
|
Acquisition/Divestiture-related costs |
|
5,188 |
|
|
5,188 |
|
|
1,280 |
|
|
3,908 |
|
|
0.04 |
|
LIFO Reserve change |
|
(5,425 |
) |
|
(5,425 |
) |
|
(1,354 |
) |
|
(4,071 |
) |
|
(0.04 |
) |
Amortization of acquisition intangibles |
|
21,164 |
|
|
21,164 |
|
|
5,127 |
|
|
16,037 |
|
|
0.16 |
|
Restructuring/Asset impairment charges |
|
28,814 |
|
|
28,814 |
|
|
6,634 |
|
|
22,014 |
|
|
0.22 |
|
Gain on divestiture of business and sale of other assets |
|
(72,010 |
) |
|
(72,010 |
) |
|
(17,122 |
) |
|
(54,888 |
) |
|
(0.55 |
) |
Non-operating pension costs |
|
— |
|
|
3,658 |
|
|
909 |
|
|
2,749 |
|
|
0.03 |
|
Net loss from other derivatives |
|
6,085 |
|
|
6,085 |
|
|
1,518 |
|
|
4,567 |
|
|
0.05 |
|
Other Adjustments |
|
(43 |
) |
|
(43 |
) |
|
955 |
|
|
(997 |
) |
|
(0.01 |
) |
Total Adjustments |
$ |
(16,227 |
) |
$ |
(12,569 |
) |
$ |
(2,053 |
) |
$ |
(10,681 |
) |
$ |
(0.10 |
) |
Adjusted |
$ |
213,421 |
|
$ |
180,751 |
|
$ |
44,859 |
|
$ |
137,638 |
|
$ |
1.40 |
|
*Due to rounding
individual items may not sum appropriately |
|
|
|
|
|
For the three months ended April 3, 2022 |
Dollars in thousands,
except per share data |
OperatingProfit |
IncomeBeforeIncome Taxes |
Provision forIncome Taxes |
Net IncomeAttributableto Sonoco |
Diluted EPS |
As Reported |
$ |
169,061 |
|
$ |
148,672 |
|
$ |
35,289 |
|
$ |
115,333 |
|
$ |
1.17 |
|
Acquisition/Divestiture-related costs |
|
48,352 |
|
|
48,352 |
|
|
11,756 |
|
|
36,596 |
|
|
0.37 |
|
LIFO Reserve change |
|
19,050 |
|
|
19,050 |
|
|
4,833 |
|
|
14,217 |
|
|
0.14 |
|
Amortization of acquisition intangibles |
|
18,800 |
|
|
18,800 |
|
|
4,630 |
|
|
14,170 |
|
|
0.14 |
|
Restructuring/Asset impairment charges |
|
12,142 |
|
|
12,142 |
|
|
1,635 |
|
|
10,568 |
|
|
0.11 |
|
Non-operating pension costs |
|
— |
|
|
1,324 |
|
|
383 |
|
|
942 |
|
|
0.01 |
|
Net gain from other derivatives |
|
(6,596 |
) |
|
(6,596 |
) |
|
(1,673 |
) |
|
(4,923 |
) |
|
(0.05 |
) |
Other Adjustments |
|
(16 |
) |
|
(16 |
) |
|
4,194 |
|
|
(4,212 |
) |
|
(0.04 |
) |
Total Adjustments |
$ |
91,732 |
|
$ |
93,056 |
|
$ |
25,758 |
|
$ |
67,358 |
|
$ |
0.68 |
|
Adjusted |
$ |
260,793 |
|
$ |
241,728 |
|
$ |
61,047 |
|
$ |
182,691 |
|
$ |
1.85 |
|
*Due to rounding
individual items may not sum appropriately |
|
|
|
|
Adjusted EBITDA and Adjusted EBITDA
Margin
|
Three Months Ended |
Dollars in
thousands |
April 2, 2023 |
April 3, 2022 |
|
|
|
Net income attributable to Sonoco |
$ |
148,319 |
|
$ |
115,333 |
|
Adjustments |
|
|
Interest expense |
|
34,232 |
|
|
20,581 |
|
Interest income |
|
(1,562 |
) |
|
(1,516 |
) |
Provision for income taxes |
|
46,912 |
|
|
35,289 |
|
Depreciation, depletion, and amortization |
|
82,137 |
|
|
73,315 |
|
Non-operating pension costs |
|
3,658 |
|
|
1,324 |
|
Net (loss)/income attributable to noncontrolling interests |
|
(55 |
) |
|
274 |
|
Restructuring/Asset impairment charges |
|
28,814 |
|
|
12,142 |
|
Changes in LIFO inventory reserves |
|
(5,425 |
) |
|
19,050 |
|
Gain from divestiture of business and sale of other assets |
|
(72,010 |
) |
|
— |
|
Acquisition/Divestiture related costs |
|
5,188 |
|
|
48,352 |
|
Net loss/(gain) from other derivatives |
|
6,085 |
|
|
(6,596 |
) |
Other non-GAAP adjustments |
|
(43 |
) |
|
(16 |
) |
Adjusted
EBITDA |
$ |
276,250 |
|
$ |
317,532 |
|
|
|
|
Net Sales |
$ |
1,729,783 |
|
$ |
1,770,982 |
|
Adjusted EBITDA Margin |
|
16.0 |
% |
|
17.9 |
% |
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.
Segment Adjusted
EBITDA and All Other Adjusted EBITDA Reconciliation |
|
|
|
|
|
For the Three Months
Ended April 2, 2023 |
|
|
|
|
|
Dollars in thousands |
ConsumerPackagingsegment |
IndustrialPaperPackagingsegment |
All Other |
Corporate |
Total |
Segment and Total Operating Profit |
$ |
91,821 |
|
$ |
94,367 |
|
$ |
27,233 |
|
$ |
16,227 |
|
$ |
229,648 |
|
Adjustments: |
|
|
|
|
|
Depreciation, depletion and amortization1 |
|
30,038 |
|
|
24,878 |
|
|
6,057 |
|
|
21,164 |
|
|
82,137 |
|
Equity in earnings of affiliates, net of tax |
|
75 |
|
|
1,781 |
|
|
— |
|
|
— |
|
|
1,856 |
|
Restructuring/Asset impairment charges2 |
|
— |
|
|
— |
|
|
— |
|
|
28,814 |
|
|
28,814 |
|
Changes in LIFO inventory reserves3 |
|
— |
|
|
— |
|
|
— |
|
|
(5,425 |
) |
|
(5,425 |
) |
Acquisition/Divestiture-related costs4 |
|
— |
|
|
— |
|
|
— |
|
|
5,188 |
|
|
5,188 |
|
Gain from divestiture of business and other assets5 |
|
— |
|
|
— |
|
|
— |
|
|
(72,010 |
) |
|
(72,010 |
) |
Net loss on other derivatives6 |
|
— |
|
|
— |
|
|
— |
|
|
6,085 |
|
|
6,085 |
|
Other non-GAAP adjustments |
|
— |
|
|
— |
|
|
— |
|
|
(43 |
) |
|
(43 |
) |
Segment Adjusted
EBITDA |
$ |
121,934 |
|
$ |
121,026 |
|
$ |
33,290 |
|
$ |
— |
|
$ |
276,250 |
|
|
|
|
|
|
|
Net Sales |
$ |
909,278 |
|
$ |
615,855 |
|
$ |
204,650 |
|
|
|
Segment Operating Profit
Margin |
|
10.1 |
% |
|
15.3 |
% |
|
13.3 |
% |
|
|
Segment Adjusted EBITDA
Margin |
|
13.4 |
% |
|
19.7 |
% |
|
16.3 |
% |
|
|
1 Included in Corporate is the amortization of acquisition
intangibles associated with the Consumer Packaging segment of
$14,427, the Industrial Paper Packaging segment of $2,934, and All
Other of $3,803.2 Included in Corporate are restructuring/asset
impairment charges associated with the Consumer Packaging segment
of $1,576, the Industrial Paper Packaging segment of $24,544, and
All Other of $1,157.3 Included in Corporate are changes in LIFO
inventory reserves associated with the Consumer Packaging segment
of $6,102 and the Industrial Paper Packaging segment of $(677).4
Included in Corporate are Acquisition/Divestiture-related costs
associated with the Consumer Packaging segment of $779 and the
Industrial Paper Packaging segment of $289.5 Gain from the
divestiture of business and other assets includes the sale of the
Company's timberland properties ($60,946) and the sale of its
Sonoco Sustainability Solutions business ($11,064), both of which
are associated with the Industrial Paper Packaging segment.6
Included in Corporate are net losses on other derivatives
associated with the Consumer Packaging segment of $874, the
Industrial Paper Packaging segment of $3,912, and All Other of
$1,242.
Segment Adjusted
EBITDA and All Other Adjusted EBITDA Reconciliation |
|
|
|
|
|
For the Three Months
Ended April 3, 2022 |
|
|
|
|
|
Dollars in thousands |
ConsumerPackagingsegment |
IndustrialPaperPackagingsegment |
All Other |
Corporate |
Total |
Segment and Total Operating Profit |
$ |
173,609 |
|
$ |
72,660 |
|
$ |
14,524 |
|
$ |
(91,732 |
) |
$ |
169,061 |
|
Adjustments: |
|
|
|
|
|
Depreciation, depletion, and amortization1 |
|
25,736 |
|
|
22,624 |
|
|
6,155 |
|
|
18,800 |
|
|
73,315 |
|
Equity in earnings of affiliates, net of tax |
|
(38 |
) |
|
2,262 |
|
|
— |
|
|
— |
|
|
2,224 |
|
Restructuring/Asset impairment charges2 |
|
— |
|
|
— |
|
|
— |
|
|
12,142 |
|
|
12,142 |
|
Changes in LIFO inventory reserves3 |
|
— |
|
|
— |
|
|
— |
|
|
19,050 |
|
|
19,050 |
|
Acquisition/Divestiture related costs4 |
|
— |
|
|
— |
|
|
— |
|
|
48,352 |
|
|
48,352 |
|
Net gain on other derivatives5 |
|
— |
|
|
— |
|
|
— |
|
|
(6,596 |
) |
|
(6,596 |
) |
Other non-GAAP adjustments |
|
— |
|
|
— |
|
|
— |
|
|
(16 |
) |
|
(16 |
) |
Segment Adjusted
EBITDA |
$ |
199,307 |
|
$ |
97,546 |
|
$ |
20,679 |
|
$ |
— |
|
$ |
317,532 |
|
|
|
|
|
|
|
Net Sales |
$ |
868,098 |
|
$ |
699,129 |
|
$ |
203,755 |
|
|
|
Segment Operating Profit
Margin |
|
20.0 |
% |
|
10.4 |
% |
|
7.1 |
% |
|
|
Segment Adjusted EBITDA
Margin |
|
23.0 |
% |
|
14.0 |
% |
|
10.1 |
% |
|
|
1 Included in Corporate is amortization of acquisition
intangibles associated with the Consumer Packaging segment -
$12,189, the Industrial Paper Packaging segment of $2,087, and All
Other of $4,524.2 Included in Corporate are restructuring/asset
impairment charges associated with the Consumer Packaging segment
of $2,311, the Industrial Paper Packaging segment of $7,061, and
All Other of $78.3 Included in Corporate are changes in LIFO
inventory reserves associated with the Consumer Packaging segment -
$20,092 and the Industrial Paper Packaging segment of $(1,042).4
Included in Corporate are Acquisition/Divestiture-related costs
associated with the Consumer Packaging segment of $26,694 and the
Industrial Paper Packaging segment of $1,057.5 Included in
Corporate are gains on other derivatives associated with the
Consumer Packaging segment of $(956), the Industrial Paper
Packaging segment of $(4,281), and All Other of $(1,359).
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.
|
Three Months Ended |
FREE CASH
FLOW |
April 2, 2023 |
|
April 3, 2022 |
|
|
|
|
Net cash provided by operating activities |
$ |
98,002 |
|
|
$ |
1,060 |
|
Purchase of property, plant
and equipment, net |
|
(11,996 |
) |
|
|
(67,324 |
) |
Free Cash Flow |
$ |
86,006 |
|
|
$ |
(66,264 |
) |
|
|
|
|
|
|
|
|
|
Year Ended |
|
Estimated Low End |
|
Estimated High End |
FREE CASH
FLOW |
December 31, 2023 |
|
December 31, 2023 |
Net cash provided by operating
activities |
$ |
925,000 |
|
|
$ |
975,000 |
|
Purchase of property, plant
and equipment, net |
|
(305,000 |
) |
|
|
(255,000 |
) |
Free Cash Flow |
$ |
620,000 |
|
|
$ |
720,000 |
|
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