Sonoco Products Co. (SON), the consumer packaging company, is slated to report third-quarter fiscal 2014 results on Oct 16. In the last quarter, it delivered a negative surprise of 0.77%. Let’s see how things are shaping up for this announcement.
Factors Influencing This Quarter
Sonoco expects second-quarter 2014 earnings per share in the range of 66–70 cents compared with 63 cents earned in the prior-year quarter. This reflects annual growth of 5% to 11%. The company hopes that normal seasonality, average volume levels in the consumer business and improved productivity, particularly in flexibles will drive growth, which might be partly offset by a less favorable price cost relationship in the Paper and Industrial Converted Product segment.
The Display and Packaging segment’s sales and profit improved in 2013 after having a difficult run in the post-recession market. The momentum has continued into 2014 as well driven by volume increases in both international contract packaging and the U.S. display and packaging services.
Furthermore, Sonoco’s annual $20 million contract from Energizer Holdings Inc. (ENR) will leverage its segments in supplying e-packaging materials and providing packaging services. Furthermore, the pickup in promotional activity at the customer level signals an increased volume outlook for packaging goods.
Sonoco’s Protective Solutions segment has announced a 6% increase in prices on its Expanded Polystyrene molded foam products. Raw material manufacturers of Expanded Polystyrene materials continue to experience extremely high demand while supply has been reduced by a number of unplanned industry disruptions, resulting in additional increases in resin bead production. The price increase will help mitigate margin pressure due to high input costs.
Volume will remain affected for the balance of 2014, while energy and raw material costs will continue to pose as headwinds since price of certain resins have increased.
Earnings Whispers?
Our proven model does not conclusively show that Sonoco is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.
Zacks ESP: Sonoco has an Earnings ESP of -1.47%. This is because the Most Accurate Estimate stands at 67 cents, lower than the Zacks Consensus Estimate of 68 cents.
Zacks Rank #3 (Hold): Sonoco has a Zacks Rank #3. The Zacks Rank #3, together with an earnings ESP of -1.47%, makes surprise prediction difficult.
Stocks that Warrant a Look
Here are some other companies in the industrial sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Nordson Corporation (NDSN) has an Earnings ESP of 0.88% and a Zacks Rank #2 (Buy).
Precision Castparts Corp. (PCP) has an Earnings ESP of +1.22% and a Zacks Rank #3.
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