Sonoco Reports 2008 Second Quarter Financial Results

Tag : Composite Paper Packing

Sonoco ( News ) (NYSE: SON), one of the largest diversified global packagingcompanies, today reported second quarter 2008 earnings of $.57 perdiluted share, up 39 percent, compared with $.41 per diluted shareearned in the second quarter of 2007. Prior year results include acharge of $.12 per diluted share related to an environmental claimat a subsidiary ' s paper operations in Wisconsin.
Base earnings for the second quarter of 2008 were $.62 per dilutedshare, up 11 percent, compared with $.56 per diluted share reportedin the same period in 2007. Base earnings is a non-GAAP financialmeasure that excludes restructuring charges, asset impairmentcharges, environmental charges and certain nonrecurring orinfrequent and unusual items, as applicable. Base earnings in thesecond quarter of 2008 excluded a charge of $.05 per diluted sharestemming from previously announced plant closings, while 2007second quarter base earnings excluded a charge of $.12 per dilutedshare related to the above-mentioned environmental claim and $.03per diluted share for other restructuring charges. Second quarterbase earnings reflect an effective tax rate of 27.9 percent, whichwas lower than the expected rate and lower than the 2007 secondquarter rate of 30.4 percent. Additional information about baseearnings and base earnings per share, along with reconciliations tothe most closely applicable GAAP financial measure are providedlater in this release.
” Our strategy to change the mix of our businesses to take advantageof faster growing consumer-related markets while reducing thecyclicality of our more mature industrial businesses continued topay dividends in the second quarter. This is evidenced by ourConsumer Packaging segment, which reported a 14 percent increase insales and a 44 percent increase in operating profits,  said Harris E. DeLoach, Jr., chairman, president and chiefexecutive officer. ” These favorable results were partially offset by lower volumes inmany of our businesses which serve industrial markets and by risingraw material inflation along with escalating energy, freight andother costs. 
Net sales for the second quarter of 2008 were $1.09 billion, up 9percent, compared with the $994 million reported in the same periodin 2007. ” Sales improved during the quarter as a result of acquisitions, thefavorable impact of foreign currency translation and higher sellingprices,  said DeLoach. ” The acquisitions, which were primarily in our Consumer Packagingsegment, added $26.6 million of revenue, net of dispositions. Thesegains were offset by lower volumes in our Tubes and Cores/Papersegment and businesses included in All Other Sonoco. Much of thevolume decline appears to be attributable to continuing weakeconomic conditions in our served markets, particularly in NorthAmerica. 
Net income for the second quarter of 2008 was $58.0 million, anincrease of 37 percent, compared with $42.4 million for the sameperiod in 2007. Second quarter base earnings, which excludes theabove-mentioned restructuring charges, was $62.6 million, up 10percent, compared with $57.0 million in the prior year period. Baseearnings in 2007 excluded the previously mentioned environmentaland restructuring charges.
” In the second quarter, Sonoco benefited from continued productivityimprovements in most of our businesses as well as the favorableimpact of acquisitions and a modestly lower effective tax rate whencompared to the second quarter of 2007,  said DeLoach. ” Partially offsetting these improvements were declining volumes inmany of our businesses and higher costs for material, freight andenergy. 
Cash generated from operations in the second quarter of 2008 was$79.8 million, compared with $68.8 million for the same period in2007. The increase was primarily due to higher earnings and thereceipt of a $10.5 million insurance settlement related to anenvironmental claim. These increases were partially offset byhigher working capital. Capital expenditures and cash dividendswere $28.8 million and $26.9 million, respectively, in the secondquarter of 2008. Depreciation and amortization expense for thesecond quarter of 2008 was $47.4 million, compared with $42.8million in the same period of 2007.
For the first six months of 2008, net sales increased 9 percent to$2.12 billion, compared with $1.95 billion in the first half of2007. Net income for the first six months of 2008 was $71.2 million($.71 per diluted share), compared with $95.5 million ($.93 perdiluted share) in the same period in 2007. Earnings for the firstsix months of 2008 were negatively impacted by a $31.0 million($.31 per diluted share) after-tax, noncash impairment charge forthe Company ' s remaining financial interest related to the 2003 sale of its highdensity film business and $14.5 million ($.14 per diluted share) inafter-tax restructuring charges, while 2007 earnings included anafter-tax charge of $11.8 million ($.12 per diluted share)resulting from an increase in environmental reserves at asubsidiary ' s paper operations and after-tax restructuring costs of $7.6million ($.07 per diluted share). A lower effective tax ratebenefited 2008 year-to-date results by $.02 per diluted share,compared to the 2007 period.
Base earnings for the first half of 2008 were $116.7 million ($1.16per diluted share), compared with $114.9 million ($1.12 per dilutedshare) for the same period in 2007. A lower effective tax rateadded $.04 per diluted share to 2008 results compared to 2007.Productivity improvements, acquisitions and higher selling priceswere largely offset by lower volumes and higher raw material,energy, freight and other costs.
For the first six months of 2008, cash generated from operationswas $143.9 million, compared with $126.8 million in the same periodin 2007. Capital expenditures and cash dividends were $62.9 millionand $52.7 million, respectively, for the first half of 2008. Cashused to reduce debt during the first half of 2008 totaled $26.5million and the Company ' s calculation of total debt-to-total capital declined to 34.2percent at June 29, 2008, compared to 41.7 percent at July 1, 2007.
Third Quarter 2008 Outlook
Sonoco expects third quarter 2008 base earnings to be in the rangeof $.63 to $.65 per diluted share. The Company expects full-year2008 base earnings per diluted share to be in the range of $2.44 to$2.47, which is unchanged from previously announced guidance. Boththe upcoming quarter and annual forecasts are given assuming nosignificant change in Companywide volumes and/or margins due to asignificant change to general economic conditions.
” While I am pleased that we were slightly ahead of our base earningsguidance for the first half of 2008, we remain cautious about theeconomy and rising raw material, energy, freight and other costs,  said DeLoach. ” As we enter the second half of 2008, we are focused on maintainingour strong balance sheet and taking all steps necessary to offsetsome of the effects of rising input costs, including spendingcontrols and cost-responsive price adjustments. Sonoco has recentlyannounced energy surcharges intended to offset a portion of higherinput costs. Our guidance assumes we will be able to realize priceadjustments necessary to offset rising costs. 
Segment Review
Consumer Packaging
Sonoco ' s Consumer Packaging segment includes the following products: roundand shaped rigid packaging (both composite and plastic); printedflexible packaging; and metal and peelable membrane ends andclosures.
Second quarter 2008 sales for the segment increased 14 percent to$398.2 million, compared with $348.5 million in the second quarterof 2007. Base operating profit for this segment was $32.5 millionin the second quarter of 2008, up 44 percent when compared with$22.5 million in the same period in 2007.
Sales in this segment increased year over year due to acquisitions,the favorable impact of foreign currency translation, higherselling prices and improved volumes in flexible packaging andglobal rigid paper containers. Base operating profit increased inthe second quarter due to an improved mix of business andproductivity improvements. Higher selling prices were offset by rawmaterial inflation and higher energy, freight and labor costs.
Tubes and Cores/Paper
The Tubes and Cores/Paper segment includes the following products:high-performance paper and composite paperboard tubes and cores;fiber-based construction tubes and forms; recycled paperboard,linerboard, recovered paper and other recycled materials.
Second quarter 2008 sales for the segment were $455.4 million, up 6percent, compared with $429.0 million in the same period in 2007.Second quarter base operating profit for this segment decreased to$40.0 million, compared with $43.0 million in the same period in2007.
Sales rose due to higher selling prices, the favorable impact offoreign exchange translation and acquisitions, offset by decliningvolumes in global tube, core and paper markets. Base operatingprofit declined in the second quarter primarily due to the declinein volumes, partially offset by productivity improvements. Higherselling prices were more than offset by higher costs for rawmaterials, energy, freight and labor.
Packaging Services
The Packaging Services segment includes the following products andservices: designing, manufacturing, assembling, packing anddistributing temporary, semipermanent and permanentpoint-of-purchase displays; brand artwork management; and supplychain management services including contract packing, fulfillmentand scalable service centers.
Second quarter 2008 sales for the segment were $138.1 million, up14 percent, from $121.6 million in the same period in 2007. Baseoperating profit for this segment declined to $8.9 million in thesecond quarter, compared with $11.5 million in the same period in2007.
Second quarter sales in this segment benefited from the impact offavorable foreign currency translation and increased contractpackaging volume, partially offset by lower selling prices andvolume for point-of-purchase displays, both of which resulted fromcompetitive bidding activity in 2007. Base operating profit for thesecond quarter declined due to lower sales prices and volumes forpoint-of-purchase displays.
All Other Sonoco
All Other Sonoco includes businesses that are not aggregated in areportable segment and includes the following products: wooden,metal and composite wire and cable reels, molded and extrudedplastics, custom-designed protective packaging and paper amenitiessuch as coasters and glass covers.
Second quarter 2008 sales in All Other Sonoco were $94.9 million, asmall decline from $95.3 million reported in the same period in2007. Base operating profit for the second quarter was $12.4million, a decline from $13.3 million reported for the same periodin 2007.
Sales in All Other Sonoco declined during the second quarter due tolower volumes in wire and cable reels and molded plastics,partially offset by acquisitions, higher selling prices andfavorable foreign currency translation. Base operating profit inAll Other Sonoco declined during the quarter due to lower volumeand an unfavorable shift in the mix of business, partially offsetby productivity improvements. Increased selling prices were morethan offset by higher costs of materials, freight and energy.
Corporate
Net interest expense for the second quarter of 2008 decreased to$12.1 million, compared with $12.8 million during the same periodin 2007. The decrease was due to lower debt levels and interestrates. The effective tax rate for the Company for the second quarter of2008 was 26.0 percent, compared with 27.7 percent in the sameperiod in 2007. The year-over-year decrease in the effective taxrate was due primarily to lower foreign tax rates.
As reported previously, the Company ' s U.S. Paper Mills subsidiary was notified in 2003 by governmentalentities that it, together with a number of other companies, hadbeen identified as a potentially responsible party forenvironmental claims arising out of the presence of polychlorinatedbiphenyls in sediments in the lower Fox River and in the bay ofGreen Bay in Wisconsin. In the second quarter of 2008, U.S. PaperMills increased its reserve for environmental remediation costs by$25.8 million, reflecting an increase in its estimated minimumliability. Offsetting these charges were settlements totaling $25.8million reached with certain of its insurance carriers.
Conference Call Webcast
Sonoco will host its regular quarterly conference call today,Thursday, July 17, 2008, at 11 a.m. Eastern time, to reviewfinancial results for the first quarter of 2008. The liveconference call webcast can be accessed in a ” listen only  mode via the Internet at http://www.sonoco.com/, under the "LatestNews" section. Those planning to participate should connect to thelive webcast at least ten minutes prior to the start. A telephonicreplay of the call will be available starting at 2 p.m. Easterntime to U.S. callers at 877/660-6853 and international callers at+201/612-7415. The replay passcodes for both U.S. and internationalcalls are account number 286 and conference ID number 289398. Thearchived call will be available through July 27, 2008. The callalso will be archived on the ” Investor Information  section of Sonoco's Web site through October 15, 2008.
About Sonoco
Founded in 1899, Sonoco is a $4.0 billion global manufacturer ofindustrial and consumer products and provider of packagingservices, with more than 330 operations in 35 countries, servingcustomers in some 85 nations. For more information on the Company,visit our Web site at http://www.sonoco.com/.
Forward-looking Statements
Statements included herein that are not historical in nature, areintended to be, and are hereby identified as ” forward-looking statements  for purposes of the safe harbor provided by Section 21E of theSecurities and Exchange Act of 1934, as amended. The words ” estimate,  ” project,  ” intend,  ” expect,  ” believe,  ” consider,  ” plan,  ” anticipate,  ” objective,  ” goal,  ” guidance,  ” outlook  and similar expressions identify forward-looking statements.Forward-looking statements include, but are not limited to,statements regarding offsetting high raw material costs, improvedproductivity and cost containment, adequacy of income taxprovisions, refinancing of debt, adequacy of cash flows,anticipated amounts and uses of cash flows, effects of acquisitionsand dispositions, adequacy of provisions for environmentalliabilities, financial strategies and the results expected fromthem, continued payments of dividends, stock repurchases andproducing improvements in earnings.
These forward-looking statements are based on current expectations,estimates and projections about our industry, management ' s beliefs and assumptions made by management. Such informationincludes, without limitation, discussions as to guidance and otherestimates, expectations, beliefs, plans, strategies and objectivesconcerning our future financial and operating performance. Thesestatements are not guarantees of future performance and are subjectto risks, uncertainties and assumptions that are difficult topredict.
Therefore, actual results may differ materially from thoseexpressed or forecasted in such forward-looking statements. Therisks and uncertainties include, without limitation: availability and pricing of raw materials; success of new product development and introduction; ability to maintain or increase productivity levels and contain orreduce costs; international, national and local economic and market conditions; fluctuations of obligations and earnings of pension andpostretirement benefit plans; ability to maintain market share; pricing pressures and demand for products; continued strength of our paperboard-based tubes and cores andcomposite can operations; anticipated results of restructuring activities; resolution of income tax contingencies; ability to successfully integrate newly acquired businesses intothe Company's operations; currency stability and the rate of growth in foreign markets; use of financial instruments to hedge foreign currency, interestrate and commodity price risk; liability for and anticipated costs of environmental remediation; actions of government agencies and changes in laws and regulationsaffecting the Company; loss of consumer confidence; and economic disruptions resulting from terrorist activities.
The Company undertakes no obligation to publicly update or reviseforward-looking statements, whether as a result of new information,future events or otherwise.
Additional information concerning some of the factors that couldcause materially different results is included in the Company'sreports on forms 10-K, 10-Q and 8-K filed with the Securities andExchange Commission.
Such reports are available from the Securities and ExchangeCommission's public reference facilities and its Web site,http://www.sec.gov/, the Company's investor relations departmentand the Company's Web site, http://www.sonoco.com.
References to our Web Site Address
References to our Web site address and domain names throughout thisrelease are for informational purposes only, or to fulfill specificdisclosure requirements of the Securities and Exchange Commission ' s rules or the New York Stock Exchange Listing Standards. Thesereferences are not intended to, and do not, incorporate thecontents of our Web sites by reference into this release.