By the numbers: Q2 2024
Net sales: $1.62B
Down 4.8% year over year
Consumer packaging net sales: $928M
Down 4.9% year over year
Industrial packaging net sales: $601M
Down 4.9% year over year
Net income: $91M
Up 2.7% year over year
- Q2 overview: Sonoco executives discussed on Thursday morning’s second-quarter earnings call some factors that contributed to a nearly 5% year-over-year dip in sales. A primary reason is the April sale of its protective solutions business to Black Diamond Capital Management. Overall, the company saw mild volume improvements. In particular, industrial packaging market conditions are improving, and executives pointed to the “U-shaped” trend for that segment. “It's certainly not a robust recovery. But volume levels have increased over the depressed levels that we saw last year,” said Chief Operating Officer Rodger Fuller. CFO Rob Dillard added, “This was the first positive organic volume mix for EBITDA in eight quarters.”
- Restructuring and divestitures: Earlier this year, Sonoco announced a restructuring strategy to focus on fewer, but larger, businesses, and it reshuffled its segments to create four core businesses: metal packaging, industrial packaging, flex-therm and rigid paper containers. It will continue to seek high-return capital opportunities, specifically in the metal and RPC segments, and intends to expand the divestiture plan to accelerate the portfolio simplification and create value. “We believe that we have a potential to yield more proceeds from divestitures in the next 12 to 18 months than the previously expected $1 billion,” Dillard said. Executives declined to describe where the divestitures could occur, but CEO Howard Coker said they’ll share updates “in the very near future.”
- Eviosys acquisition: Also part of the portfolio transformation is Sonoco’s acquisition of Switzerland-based metal packaging company Eviosys, announced on June 24, which is expected to further enhance its metals core business. Some of the proceeds from divestitures will go toward financing the Eviosys acquisition, Dillard said. The company still expects the deal to close by the end of this year, pending regulatory approvals.
- Consumer confidence conundrum: Sonoco’s customers in the consumer packaging segment are among the wide swath of companies that are being impacted by muted consumption trends. Customers have relied heavily on promotional activity in attempts to bring back inflation-struck consumers, which Sonoco executives hope will help to boost volumes in the coming quarters. When asked by an analyst if the consumer business could be targeted for the announced divestitures, Coker said it could, but the company is being intentionally vague about focal points for the time being. “We are in the midst of having to manage a process that involves internal team members, customers, etc., and we'll be rolling out, as soon as practical, exactly what our plans are,” he said.
- Outlook: Sonoco anticipates year-over-year volumes improvement in the third quarter due to the Eviosys acquisition and improvements in metal packaging. “We expect metal packaging volume mix to increase double digits in the third quarter,” Dillard said. Industrial volumes also are expected to improve. “However, we are not yet anticipating robust recovery,” Dillard said. Consumer segment sales are expected to increase sequentially and year over year. The company reaffirmed its full-year adjusted earnings before interest, taxes, depreciation and amortization guidance of $1.05 billion to $1.09 billion.
