Sonoco Discusses Outlook (BMS) (RKT) (SON)

Sonoco Products Co (SON) recently provided an update on its outlook for fiscal 2012 and 2013 and highlighted its growth initiatives.

The company reiterated its guidance for the fourth quarter and fiscal 2012. For the quarter, earnings are expected to be in the range of 52 to 56 cents. The company will recognize about $12 million in additional tax expense in the fourth quarter, related to the repatriation of cash held outside the United States. However, this one-time charge is excluded from the guidance. On a base of 46 cents per share earned in the fourth quarter of 2011, the guidance depicts an annual growth rate of 13% to 22%.

Fiscal 2012 earnings are expected to be in the band of $2.17 and $2.21 per share. Compared with the prior-year earnings of $2.29 per share, fiscal 2012 guidance represents a decline of 3% to 5%, hurt by a difficult economic and operating environment. The company has also initiated guidance for fiscal 2013 with earnings in the range of $2.24 to $2.32.

The midpoint of fiscal 2013 guidance stands at $2.28, up 4% from the fiscal 2012 guidance’s midpoint of $2.19. Growth drivers include modest volume growth, productivity improvements and a slightly positive price/cost relationship. However, these benefits will be offset by higher pension expenses.

The company expects to generate free cash flow of approximately $90 million, after paying approximately $120 million in dividends in 2012. For 2013, free cash flow (after dividends) is projected to increase to around $130 million. Sonoco expects annual cash flow from operations to approximate $460 million over the next several years.

Sonoco expects its top line to increase to $5.5 billion – $6.0 billion and earnings at compound rate of about 8% by 2015. Organic sales growth, geographic expansion and strategic acquisitions remain growth drivers for the company.

Among its growth initiatives highlighted by the company, in the Rigid Paper and Closures segment, Sonoco is establishing a new composite can production facility in Johor Bahru, Malaysia, to cater to the growing demand for premium stacked chips in Asia. Stacked chip capacity is likely to be added in 2013 in Brazil and a review of growth opportunities in Eastern Europe is currently in progress.

In the Rigid Plastics segment, a new multilayer, trim-in-place thermoforming line at the Waynesville, North Carolina facility has been added to manufacture containers for chilled and thermally processed shelf stable foods. The company has a $7 million investment in the pipeline to add a third multilayer, barrier bottle production line for nutraceutical beverages at its Columbus, Ohio production facility in 2013. In the third quarter, Sonoco started commercial operation of a new $15 million 142,000-square-foot plant in New Albany, Ohio, to produce PET personal care bottles.

In Flexible Packaging segment, a new rotogravure press will be added to the company's Morristown, Tennessee facility in 2013. In Display and Packaging segment, expanded packaging fulfillment capacity in Brazil and a new in-distribution center facility became operational in 2012. It is planning to infuse $15 million in 2013 in the Protective Solutions segment to build two new custom-molded foam fabricating facilities in the United States and Mexico to serve the growing automotive component market.

Sonoco’s recent acquisition of Tegrant, a leading provider of highly engineered, protective, temperature-assured and retail security packaging solutions, for $550 million is the largest in the company’s history will position it as the leader in multimaterial protective packaging in North America. The combined entity is estimated to generate sales of approximately $5 billion in 2012. The integration of Tegrant is being executed smoothly and Sonoco is looking for new growth opportunities.

However, volatile raw material prices and uncertainty among its customers, given the slow recovery in the U.S and ongoing European weakness, higher pension costs remain headwinds for the company in fiscal 2012. Sonoco retains a short-term Zacks #3 Rank (Hold).

Hartsville, South Carolina-based Sonoco is a global manufacturer of consumer and industrial packaging products. The company has around 349 operations in 34 countries throughout North and South America, Europe, Australia, and Asia. The company competes with Bemis Company, Inc. (BMS) and Rock-Tenn Co. (RKT).