HARTSVILLE, S.C., April 18, 2019 (GLOBE NEWSWIRE) -- Sonoco (NYSE: SON), one of the largest diversified global packaging companies, today reported financial results for its first quarter ending March 31, 2019.

First Quarter Highlights

• First-quarter 2019 GAAP earnings per diluted share were $0.73, compared with $0.73 in 2018.
• First-quarter 2019 GAAP earnings included after-tax charges of $12.5 million related to restructuring actions as well as non-operating pension costs. In the first quarter of 2018, GAAP results included net after-tax charges of $0.4 million, as after-tax restructuring charges were mostly offset by a tax benefit from the U. S. Tax Cuts and Jobs Acts of 2017.
• Base net income attributable to Sonoco (base earnings) for first quarter 2019 was $0.85 per diluted share, compared with $0.74 in 2018. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.) Sonoco previously provided first-quarter 2019 base earnings guidance of $0.77 to $0.83 per diluted share.
• First-quarter 2019 net sales were $1.35 billion, up 3.6 percent from $1.30 billion in 2018.
• Cash flow from operations was $92.3 million in the first three months of 2019, compared with $119.8 million in 2018. Free cash flow was $9.5 million, compared with $44.9 million in the first quarter of 2018. (See free cash flow definition and reconciliation to cash flow from operations later in this release.)

Second Quarter and Full-Year Guidance Update

• Base earnings for the second quarter of 2019 are estimated to be in the range of $.93 to $.99 per diluted share, compared to $.93 per diluted share in the second quarter of 2018.
• Full-year 2019 base earnings guidance is raised to $3.52 to $3.62 per diluted share, reflecting the better-than-expected first-quarter results. The Company previously issued full-year guidance of $3.47 to $3.57. As previously announced, beginning in 2019, the Company excludes all non-operating components of net pension expense from base earnings. In 2019, these charges are expected to total approximately $20.0 million compared to $0.2 million that were previously classified as base charges in 2018.
• Full-year 2019 operating cash flow and free cash flow guidance is unchanged at a range of $600 million to $620 million and $225 million to $245 million, respectively.

Note: Second-quarter and full-year 2019 GAAP guidance are not provided in this release due to the likely occurrence of one or more of the following, the timing and magnitude of which we are unable to reliably forecast: possible gains or losses on the sale of businesses or other assets, restructuring costs and restructuring-related impairment charges, acquisition-related costs, and the income tax effects of these items and/or other income tax-related events. These items could have a significant impact on the Company's future GAAP financial results.

CEO Comments on First Quarter Results
Commenting on the Company’s first-quarter GAAP and base performance, Rob Tiede, President and Chief Executive Officer, said, "Sonoco produced solid first-quarter results, which exceeded the high end of our earnings guidance, as our diverse mix of businesses successfully navigated through what can best be described as sluggish global economic conditions. Net sales grew by 3.6 percent, while GAAP net income attributable to Sonoco was essentially flat, both compared to last year's first quarter. Base net income gained 15.8 percent over the prior-year period as a result of earnings from acquisitions, a positive price/cost relationship, improvements in productivity, and a lower effective tax rate, which were only partially offset by modestly lower volume/mix, and the negative impact from foreign exchange translation. GAAP gross profit margin improved by 70 basis points and GAAP operating profit increased 6.2 percent over the prior year's quarter, while base operating profit increased 13.0 percent.

“We were extremely pleased that each of our business segments recorded year-over-year improvement in operating earnings during the first quarter. Our Consumer Packaging segment reported slightly improved operating results in the first quarter, while operating margin declined 19 basis points compared to last year’s period. However, these results were significantly better than the disappointing 2018 fourth-quarter results, as sequentially margins improved by 291 basis points. Our Paper and Industrial Converted Products segment continued to drive strong results, with operating margin improving 112 basis points compared to last year’s first quarter. In addition, the turnaround in our Display and Packaging segment continued, with operating margin expanding 348 basis points over the prior year period, and our Protective Solutions business operating results improved slightly and operating margin expanded by 45 basis points.”

First Quarter Review
Net sales for the first quarter were $1.35 billion, an increase of $47.5 million, or 3.6 percent, from last year’s first quarter. The improvement reflects sales added by acquisitions and higher selling prices. Foreign exchange rate declines negatively impacted first quarter sales by approximately $38 million.

GAAP net income attributable to Sonoco in the first quarter was $73.7 million, or $0.73 per diluted share, a decrease of $0.4 million, compared with $74.1 million, or $0.73 per diluted share, in 2018. First-quarter GAAP earnings included after-tax non-base charges totaling $12.5 million, $8.0 million of which were after-tax charges related to restructuring activities. The remaining $4.5 million related almost exclusively to non-operating pension costs. In the first quarter of 2018, GAAP earnings included $0.4 million of after-tax non-base net charges, as after-tax restructuring charges of $2.4 million were mostly offset by a tax benefit from the U. S. Tax Cuts and Jobs Acts of 2017 of $2.0 million. Adjusted for these items, base earnings in the first quarter of 2019 were $86.2 million, or $0.85 per diluted share, an increase of $11.8 million, compared with $74.4 million, or $0.74 per diluted share, in 2018. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring-related items, asset impairment charges, acquisition expenses, non-operating pension costs, and certain income tax-related events and other items, if any, the exclusion of which the Company believes improves comparability and analysis of the ongoing operating performance of the business. (See base earnings definition, explanation and reconciliation to GAAP earnings later in this release.)

Gross profit was $270.1 million in the first quarter, an increase of $19.5 million or 7.8 percent, compared with $250.6 million in the same period in 2018. Gross profit as a percentage of sales was 20.0 percent, compared with 19.2 percent in the same period in 2018. First-quarter selling, general and administrative expenses increased $5.1 million from the prior year to $142.6 million. This increase was driven by higher expenses related to acquired businesses as, absent these costs, selling, general and administrative expenses were slightly down compared to last year's quarter.

Segment Review
Sonoco reports its financial results in four operating segments: Consumer Packaging, Display and Packaging, Paper and Industrial Converted Products, and Protective Solutions. Segment operating results do not include restructuring and asset impairment charges, acquisition expenses, interest income and expense, income taxes or certain other items, if any, the exclusion of which the Company believes improves comparability and analysis.

Consumer Packaging
Sonoco’s Consumer Packaging segment includes the following products and services: round and shaped rigid containers and trays (both composite and thermoformed plastic); extruded and injection-molded plastic products; printed flexible packaging; global brand artwork management; and metal and peelable membrane ends and closures.

First-quarter 2019 sales for the segment were $589.7 million, compared with $569.9 million in 2018. Segment operating profit was $62.1 million in the first quarter, compared with $61.1 million in the same quarter of 2018.

Segment sales increased 3.5 percent compared to the prior year's quarter due to sales added from acquisitions and higher selling prices, partially offset by lower volume/mix and the negative impact of foreign exchange. Higher sales volume in Rigid Paper Containers in Europe and North America were more than offset by declines in Rigid Plastics as adverse weather impacted the fresh fruit harvest in North America. Segment operating profit increased 1.7 percent compared to the prior year's quarter as the benefit of acquisitions, productivity improvements and a positive price/cost relationship were partially offset by weaker volume and the negative impact of foreign exchange. These items resulted in segment operating margin declining slightly to 10.5 percent in the quarter from 10.7 percent in 2018.

Display and Packaging
The Display and Packaging segment includes the following products and services: designing, manufacturing, assembling, packing and distributing temporary, semi-permanent and permanent point-of-purchase displays; supply chain management services, including contract packing, fulfillment and scalable service centers; retail packaging, including printed backer cards, thermoformed blisters and heat sealing equipment; and paper amenities, such as coasters and glass covers.

First-quarter 2019 sales for this segment were $137.6 million, compared with $142.7 million in 2018. The segment reported an operating profit of $6.5 million in the current quarter, compared with an operating profit of $1.7 million in the prior year's quarter.

Sales declined 3.6 percent compared to last year’s quarter as volume growth in domestic displays and international pack centers was more than offset by reduced revenue from exiting the Atlanta pack center contract. Segment operating profit improved $4.8 million due to higher volume/mix, improved productivity and the non-recurrence of operating losses at the Atlanta pack center.

Paper and Industrial Converted Products
The Paper and Industrial Converted Products segment includes the following products: paperboard tubes, cones, and cores; fiber-based construction tubes; wooden, metal and composite wire and cable reels and spools; and recycled paperboard, linerboard, corrugating medium, recovered paper and material recycling services.

First-quarter 2019 sales for the segment were $496.0 million, up from $460.7 million in 2018. Segment operating profit was $48.4 million in the quarter, compared with $39.8 million in 2018.

Segment sales increased 7.7 percent from the prior year's quarter due to sales added from the Conitex acquisition and higher sales prices. These positive factors were partially offset by lower volume/mix and the negative impact of changes in foreign exchange rates. In the quarter, tube and core volume was weak across most of the globe, while paperboard and corrugated medium volume declined in the U.S./Canada. Segment operating profit improved 21.6 percent over the prior year's quarter, driven by a positive price/cost relationship, the incremental earnings from Conitex and productivity improvements, all partially offset by lower volume/mix impact. Segment operating margin improved 112 basis points to 9.8 percent.

Protective Solutions
The Protective Solutions segment includes the following products: custom-engineered, paperboard-based and expanded foam protective packaging and components; and temperature-assured packaging.

First-quarter 2019 sales were $128.4 million, down from $131.0 million in 2018. Operating profit was $11.0 million, a 3.0 percent increase from the first quarter of 2018.
This segment’s sales were modestly lower year over year due primarily to lower volume/mix as strong sales growth for temperature-assured packaging was offset by declines in molded foam and consumer fiber packaging. Segment operating profit improved modestly as productivity improvements were mostly offset by a negative price/cost relationship. Segment operating margin, compared to the prior-year quarter, improved 45 basis points to 8.6 percent.

Corporate/Tax
Net interest expense for the first quarter of 2019 increased to $15.4 million, compared with $13.4 million during the same period in 2018, primarily due to increased expense from higher U. S. interest rates and reduced interest income on lower offshore cash balances. The 2019 first-quarter effective tax rates on GAAP and base earnings were 23.7 percent and 24.1 percent, respectively, compared with 24.1 percent and 25.9 percent, respectively, in the prior year’s quarter. The lower 2019 GAAP and base effective tax rates were attributable to a decreased impact of the Global Intangible Low Taxed Income (GILTI) tax as well as an increased tax benefit from equity based compensation. The effective rate on GAAP earnings decreased to a lesser extent due to the 2018 benefit of one-time adjustments related to the U.S. Tax Cuts and Jobs Act of 2017.

Cash Flow and Free Cash Flow
For the first quarter of 2019, cash generated from operations was $92.3 million, compared with $119.8 million in 2018, a decrease of $27.5 million. This decrease was driven by a $19.0 million increase in cash consumption by working capital. While the seasonal changes in business activity consumed cash in both periods; this increase was more meaningful in 2019 due to greater year-over-year increases in business activity from the prior year's end. Additionally, accrued management incentives paid in the first quarter of 2019 were higher than those paid in the first quarter of 2018.

Free cash flow for the first three months of 2019 was $9.5 million, compared with $44.9 million in the same period last year, reflecting the $27.5 million decrease in cash flow from operations discussed above. The remaining decrease in free cash flow was driven by current-quarter increases in net capital expenditures and cash dividends, which were $41.7 million and $41.1 million, respectively, compared with $36.0 million and $38.8 million, respectively, in 2018. (See free cash flow description and reconciliation later in this release. Free cash flow is defined as cash flow from operations minus net capital expenditures and cash dividends. Net capital expenditures are defined as capital expenditures minus proceeds from, and/or plus costs incurred in, the disposition of capital assets.)

As of March 31, 2019, total debt was approximately $1.41 billion, compared with $1.39 billion as of December 31, 2018, and the Company had a total-debt-to-total-capital ratio of 43.9 percent at end of the first quarter, unchanged from year-end 2018. Cash and cash equivalents were $124.3 million as of March 31, 2019, compared with $120.4 million at December 31, 2018.

Second Quarter and Full-Year 2019 Outlook
Sonoco expects second-quarter 2019 base earnings to be in the range of $.93 to $.99 per diluted share. Base earnings in the second quarter of 2018 were $.93 per diluted share. Full-year 2019 base earnings per diluted share are expected to be in a range of $3.52 to $3.62, which is an increase from the previous estimate of $3.47 to $3.57 per diluted share. Based on the lower than expected first-quarter effective tax rate, the Company now estimates the full-year 2019 tax rate will be 25.5 percent. Operating and free cash flow for 2019 is expected to be in the range of $600 million to $620 million and $225 million to $245 million, respectively, which is unchanged from previous guidance.

Although the Company believes the assumptions reflected in the range of guidance are reasonable, given uncertainty regarding the impact of new and potential tariffs, the future performance of the overall economy, potential changes in raw material prices and other costs, as well as other risks and uncertainties, including those described further below, actual results could vary substantially.

Commenting on the Company’s outlook, Tiede said, “We're off to a solid start to 2019, and we remain optimistic that we have the initiatives in place to achieve our targets for profitable growth, improved operating margins and strong free cash flow. That said, we must also be realistic about the balance of the year as global economic conditions showed some weakness to start the year, and the uncertainty of tariffs, trade disputes and regional policy concerns are still hanging over business and consumer confidence. In the next few weeks, we will celebrate Sonoco's 120th anniversary and, given our strong foundation, we are confident that our people, our products and our portfolio have us well positioned to compete in a changing market environment, while achieving consistent earnings growth and improving returns to shareholders."

About Sonoco

Founded in 1899, Sonoco is a global provider of a variety of consumer packaging, industrial products, protective packaging, and displays and packaging supply chain services. With annualized net sales of approximately $5.4 billion, the Company has 23,000 employees working in more than 300 operations in 36 countries, serving some of the world’s best known brands in some 85 nations. Sonoco is committed to creating sustainable products, services and programs for our customers, employees and communities that support our corporate purpose of Better Packaging. Better Life. The Company ranked first in the Packaging sector on Fortune’s World’s Most Admired Companies 2019 as well as being included in Barron's 100 Most Sustainable Companies for 2019. For more information on the Company, visit our website at www.sonoco.com.