Sonoco provides update on strategy, issues new financial guidance
HARTSVILLE — Sonoco, one of the largest diversified global packaging companies, has provided an update on its strategy and financial guidance at a meeting with the investment community in New York.
Featured presenters at the meeting included: Rob Tiede, president and CEO; Barry Saunders, senior vice president and CFO; Howard Coker, senior vice president, Global Paper/Industrial Converted Products; Rodger Fuller, senior vice president, Global Consumer Packaging; and Julie Albrecht, vice president, Treasurer and CFO-elect. Other participants in the conference included: Marcy Thompson, vice president, Marketing and Innovation; Mike Pope, division vice president and general manager, Sonoco Recycling; and Greg Munoz, staff vice president, Supply Management and Logistics.
Sonoco Raises 2018 Base EPS, Operating Cash Flow and Free Cash Flow Guidance
Sonoco expects fourth quarter and full-year 2018 GAAP earnings to be $0.75 to $0.85 and $3.09 to $3.19 per diluted share, respectively. The full-year range includes amounts previously disclosed by the Company of approximately $0.19 per diluted share, after-tax, related largely to restructuring and asset impairment charges, acquisition costs and the effect of income tax rate changes on deferred tax items. These GAAP guidance ranges also reflect the anticipated fourth quarter impact of estimated after-tax restructuring charges and property insurance recovery related to Hurricane Florence.
Fourth-quarter and full-year 2018 base earnings guidance is being raised to $0.79 to $0.85 and $3.32 to $3.38 per diluted share, respectively. The Company previously provided guidance of $0.75 to $0.81 and $3.28 to $3.34 per diluted share for these respective periods. The increase in base earnings guidance is due to the receipt of business interruption insurance proceeds in the fourth quarter associated with the impact of flooding on operations from Hurricane Florence in September. In 2017, the company reported fourth quarter and full-year GAAP earnings of $.06 and $1.74 per diluted share, and base earnings of $0.72 and $2.79 per diluted share.
Note: Reconciliations of non-GAAP financial measures to GAAP financial measures are available on our website at https://investor.sonoco.com/static-files/a38e69dc-c807-497a-87f0-d5281b8e0ea6. Base earnings and base earnings per diluted share are non-GAAP financial measure adjusted to remove restructuring charges, asset impairment charges, gains/losses on disposition of assets, acquisitions and divestiture expenses and other items, if any, the exclusion of which the Company believes improve comparability and analysis of the underlying financial performance of the business.
Guidance for 2018 operating cash flow and free cash flow has been raised to $590 million to $610 million and $250 million to $270 million, respectively. The company previously provided operating cash flow and free cash flow guidance of $580 million to $600 million and $230 million to $250 million, respectively. The increase in guidance for 2018 free cash flow is due primarily to lower than anticipated capital spending. (Free cash flow is a non-GAAP financial measure which may not represent the amount of cash flow available for general discretionary use. Free cash flow is defined as cash flow from operations minus net capital expenditures and cash dividends. Net capital expenditures is defined as capital expenditures minus proceeds from, and/or costs incurred in, the disposition of capital assets.)
Company Targets Record 2019 Base EPS; Continued Cash Flow Growth
Sonoco estimates 2019 base earnings per diluted share to be in the range of $3.47 to $3.57, with a projected mid-point target of $3.52 per diluted share. This estimate excludes the non-service components of net pension expense which are expected to total approximately $11 million and does not reflect the pending adoption of the new lease accounting standard which becomes effective January 1, 2019. In 2018, the non-service portion of pension expense is not expected to be significant.
Note: 2019 GAAP EPS guidance is 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: possible gains or losses on the sale of businesses, or other assets, restructuring costs and restructuring-related impairment charges, acquisition-related costs and the income tax effect 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.
The Company’s 2019 midpoint base earnings target assumes $0.06 per share positive impact from 2018 acquisitions and a $0.08 per share addition from volume/mix growth. In addition, a positive price/cost relationship driven by procurement productivity and commercial excellence initiatives should contribute $0.27 per share. Offsetting these favorable factors are an expected $0.10 negative impact from non-material inflation in excess of productivity; a $0.10 per diluted share negative impact from other fixed-cost charges; and approximately $0.04 per share negative impact from higher income taxes and a strengthening of the dollar against other currencies, partially offset by lower interest expense.
At the midpoint, 2019 cash flow from operations is projected to be approximately $610 million and, after spending approximately $205 million in capital investments and paying $170 million in dividends to shareholders, free cash flow is projected to be approximately $235 million. Depreciation and Amortization is projected to be $252 million in 2019. Excluding several atypical items which benefitted operating cash flow in 2018, the increase in 2019 operating cash flow and free cash flow would represent year-over-year growth of 6.5 percent and 11.9 percent, respectively.
Commenting on the company’s 2018 and 2019 expectations, Tiede said, “Despite hurricanes, accelerating inflation, tariffs and sluggish consumer-served market demand, Sonoco’s businesses have produced strong results in 2018. We have a strong, diversified business mix, a solid balance sheet and a track record for achieving consistent earnings improvement. In 2018, we expect to produce record sales, record operating profit, record base earnings, and, record operating cash flow and free cash flow; and our outlook for 2019 has us again achieving record top-line and bottom-line results.”
Conference Call Webcast
A telephonic replay of the investor day conference call will be available to U.S. callers at 855-859-2056 and international callers at +404-537-3406.
The replay passcode for both U.S. and international calls is 7043206.
The webcast call also will be archived in the Investor Relations section of Sonoco’s website.
A presentation of the meeting is also available on the Investor Relations section of our website.
Founded in 1899, Sonoco is a global provider of a variety of consumer packaging, industrial products, protective packaging, and displays and packaging supply chain services.
With annualized net sales of approximately $5 billion, the Company has 21,000 employees working in more than 300 operations in 33 countries, serving some of the world’s best known brands in some 85 nations.
Sonoco is committed to Better Packaging. Better Life., and ranked first in the Packaging sector on Fortune’s World’s Most Admired Companies 2018 list.
For more information on the company, visit our website at sonoco.com.