Sonoco Products Co. (SON) reiterated its financial targets for the fourth quarter and fiscal 2013 and initiated 2014 guidance at an investor meet. Shares of this global manufacturer of consumer and industrial packaging products rose 2% as it highlighted on aggressive market-focused organic growth strategies that will position it well enough to double sales from the current growth rate for packaged consumer foods.
Financial Targets
Sonoco maintained its fourth quarter and full-year 2013 earnings guidance of 55 cents to 59 cents. Compared to the 56 cents earned in the fourth quarter of 2012, the mid point of the 2013 guidance depicts a 2% rise. The Zacks Consensus Estimate is near the upper end of the guidance at 58 cents, reflecting a 3.41% year-over-year increase.
Sonoco cited that despite the uncertainty involving the government shutdown in October, there have not been any significant changes in business conditions in the fourth quarter and thus no change in the guidance was warranted. The guidance does factor in seasonality, including a normal drop off in activity in December.
For 2013, earnings per share are expected to lie between $2.27 and $2.31. The mid point of the guidance reflects a 4% improvement from the earnings of $2.21 in 2012. The Zacks Consensus Estimate is near the upper end of the guidance at $2.30 cents, reflecting a 4% increase from prior year. Given the record run of sales, gross profits and cash flow from operations through the first nine months of 2013, Sonoco remains well positioned to achieve its 2013 targets.
For 2014, Sonoco projects earnings per share to be in the range of $2.45 to $2.53. The Zacks Consensus Estimate is within the guidance at $2.48, reflecting an 8% yearly improvement. Sonoco expects 2014 to be a record year, beating the previous record of $2.38 in 2007. The projected midpoint of $2.49 per share assumes a 9% increase over 2013 expected earnings. The improvement will be driven by modest volume growth, lower pension and post-retirement expenses and productivity gains. However, higher depreciation expenses, a slight increase in the effective tax rate and higher information technology and other expenses are expected to be the deterrents.
For 2013, Sonoco expects to generate free cash flow of approximately $190 million. Dividend payout is expected to total $125 million for the year. Sonoco expects net debt of approximately $810 million at 2013 end, which translates to a net debt to total capitalization ratio of approximately 34% and a net debt to EBITDA ratio of approximately 1.4 times.
Over the next two years, Sonoco projects annual cash flow from operations to average approximately $450 million. For 2014, free cash flow is projected to decline from 2013 levels to $130 million, mainly due to expected higher pension contributions and cash tax payments.
Given that Sonoco has utilized its cash flow to pay back debt of more than $300 million over the past two years, it now plans to invest the capital for growth as well as return value to its shareholders. It is worth mentioning that Sonoco has paid cash dividends to shareholders for 89 consecutive years and increased dividends for straight 31 years. During 2014, Sonoco plans to repurchase at least 2 million shares beginning in January. Sonoco's board of directors had previously authorized the repurchase of up to 5 million shares.
Growth Strategies
Sonoco plans to focus on businesses that cater to faster growing markets such as its Consumer Packaging and Protective Solutions businesses. It will also focus on selected emerging market opportunities for composite cans and tubes and cores. It will concentrate on growing flexible packaging in Brazil, Southeast Asia and North America; Protective Solutions, particularly in Consumer and Industrial molded foam markets serving growing appliance and automotive sectors in North America. It will also globally expand temperature assurance packaging – serving life science markets and tubes and cores in Eastern Europe, Russia and the Middle East, and composite cans in Poland, Malaysia and China.
The company is working toward creating capabilities inside its existing technologies as well as to build depth and volume through strategic acquisitions. To drive organic growth, Sonoco is using its new customized solutions process in three market-focused pilots in shaving, pet food and a food category, which has been named 'Fresh & Natural.' If these pilots are successful, they will pave the way to achieve Sonoco’s accelerated organic sales growth targets.
Sonoco currently retains a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Sealed Air Corporation (SEE), Packaging Corporation of America (PKG) and UFP Technologies, Inc. (UFPT). All these stocks hold a Zacks Rank #2 (Buy).
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