Sonoco Products Company (SON) has decided to hike prices by 4%–7% across the products of ThermoSafe Brands. The increased price would be effective from March 5, 2012.
The price hike would encompass the products of ThermoSafe Brand like expanded polystyrene (EPS) and polyurethane (PUR) as well as custom and catalogued shipper solutions and components traded globally.
The price rise is necessitated chiefly by increasing cost of raw materials, labor, energy and transportation. The company failed to offset cost escalations through Lean initiatives and, therefore, was forced to increase price of its products.
Sonoco decided to contact the customers of ThermoSafe Brands individually in order to enlighten each of them with regard to the specifics of the price increase. ThermoSafe Brands manufactures temperature-assurance packaging and provides thermal testing solutions for customers of life sciences.
Recently, Sonoco Products announced its preliminary earnings results and has reduced its fourth quarter and fiscal 2011 estimates due to the unexpected drop in demand for Tubes and Cores / Papers segment and higher effective tax rate. Therefore, the company’s decision to raise prices may only exacerbate the soft demand.
Sonoco now sees fourth quarter 2011 EPS in the range of 45 cents to 47 cents down from the prior range of 59 cents to 63 cents. The estimate reflects a year-over-year decline in the band of 20% to 24% from the prior-year EPS of 59 cents. For fiscal 2011, EPS is expected between $2.28 and $2.30.
The company continues with its strategy of growing through acquisitions. In November last year, it completed the acquisitions of two companies – American Recycling and Tegrant. The company was greatly benefited by the acquisition of American Recycling, which helped it to gain a prominent position in South Carolina’s recycling industry.
However, increasing raw material costs and soft demand for the company’s products, driven by worsening macroeconomic conditions may have a negative effect on the company. Moreover, the company’s Tubes and Core / Paper businesses are still lackluster. In addition, the company faces tough competition from Bemis Company (BMS) and Ball Corporation (BLL).
Based in Hartsville, South Carolina, Sonoco Products Company was founded in 1899. The company is a global manufacturer of consumer and industrial packaging products as well as recycled paperboard. It has more than 300 operations in 35 countries throughout North and South America, Europe, Australia, and Asia. Currently, the company maintains a Zacks #4 Rank (short-term Sell recommendation).
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