Sonoco Reports Preliminary 2Q 2015 Results

Sonoco reported preliminary operating results for the second quarter and year-to-date periods ending June 28, 2015.
 
Sonoco, working with outside accounting and legal consultants, is currently conducting a thorough review of financial results for a single contract packaging center in Mexico due to the discovery of overstatements to prior periods’ earnings. This packaging center is part of the Display and Packaging segment.
 
The company expects this review to result in changes to the company’s historical consolidated financial statements dating back to first quarter 2012. Operating results reported in this release for the 2015 second quarter and year-to-date periods reflect the review’s preliminary findings made to date, including a $3.0 million reduction to previously reported first quarter 2015 net income.
 
Based on the work done to date, the company currently expects adjustments resulting in a cumulative reduction to its pre-tax earnings of approximately $30 million for the three years ending Dec. 31, 2014.
 
The independent Audit Committee of Sonoco’s Board of Directors has retained the international legal firm of Ropes & Gray to advise it during this internal financial review.
 
Second quarter 2015 net sales are estimated to be $1.25 billion. Acquisitions contributed $73 million to sales in the quarter. Volume sales growth, primarily in the Consumer Packaging and Protective Solutions segments, more than offset slightly lower volume in industrial-focused businesses.
 
Gross profit is estimated to be $241 million in the second quarter and gross profit as a percent of sales is estimated to be a better-than-expected 19.3%. Cash generated from operations in the second quarter was estimated to be $115 million.
 
For the first six months of 2015, net sales are estimated to be $2.46 billion. Acquisitions added $145 million, while a negative effect of foreign exchange rate changes and divestitures reduced sales by $133 million.
 
Net income attributable to Sonoco for the first six months of 2015 is estimated to be $147.7 million, or $1.44 per diluted share. Gross profit is estimated to be $461 million for the first half of 2015. Gross profit as a percent of sales is estimated to be 18.8%.
 
For the first six months of 2015, cash generated from operations was estimated to be $173 million. The company spent approximately $16 million in the second quarter to purchase a majority interest in Graffo Paranaense de Embalagens S/A (Graffo), a closely held flexible packaging business in Brazil.
 
At June 28, 2015, total debt was approximately $1.3 billion, compared with $1.3 billion at December 31, 2014. Cash and cash equivalents were $220 million at June 28, 2015.
 
“Entering the second half of 2015, we remain optimistic that global economies will continue to improve,” said Jack Sanders, Sonoco president and CEO. “Unfortunately, we face some short-term obstacles which are requiring us to lower our guidance for the rest of 2015.
 
“First, we will work to resolve issues associated with the contract packaging operation in Mexico,” Sanders noted. “In addition, the revised outlook reflects higher than previously expected pension expense and a delay in realizing expected synergies from our integration of Weidenhammer due to a supplier dispute and a seven-month-long review by the U.K.’s Competition Market Authority, which finally cleared the transaction on July 3, 2015. Lastly, our paper operations are facing challenging markets, and rising raw material prices in North America and Europe could impact our tubes and cores business. To offset some of these headwinds, we are making significant progress in streamlining our corporate and business unit structures to reduce costs, and expect to drive continued manufacturing productivity improvements and organic sales growth.”
 
Second quarter 2015 sales for the Sonoco’s Consumer Packaging segment were $531 million, compared with $474 million in the second quarter of 2014. Segment operating profit was $56.8 million in the second quarter, compared with $42.8 million in the same quarter of 2014.
 
“Segment sales grew 12% during the quarter due to the Weidenhammer and Graffo acquisitions and volume growth in global composite cans, flexible packaging and rigid plastic containers,” said Sanders. “Foreign exchange rate changes and the divestiture of two metal ends and closures plants had the effect of reducing sales in the quarter by $23 million.
 
“Consumer Packaging operating profit grew $14 million or 33 percent and reached another quarterly record due to strong productivity, a positive price/cost relationship, the accretive benefit of acquisitions and improved volume. These favorable results more than offset higher labor, pension, maintenance and other operating costs.”
 
The Paper and Industrial Converted Products segment second quarter 2015 sales were $449 million, down from $490 million in 2014. Segment operating profit was $38.1 million in the second quarter of 2015, compared with $46.5 million in 2014.
 
The Protective Solutions segment’s second quarter 2015 sales were $127 million, compared with $121 million in the same period in 2014. Operating profit was $13.4 million, compared with $9.6 million in the same quarter of 2014.
 
The Display and Packaging segment’s estimated second quarter 2015 sales are $142 million. Estimated segment operating profit is $1.2 million for the quarter.