Sonoco reports tough quarter but looks ahead to brighter future
Chairman and chief executive officer Harris E. DeLoach, Jr. said he was ‘disappointed’ with third quarter earnings despite the figures being better than revised guidance.
The quarter was affected by the Paper and Industrial Converted Products segment suffering unscheduled downtime, as FoodProductionDaily.com reported last month, which led to a lowering of its earnings guidance for Q3.
Segment overview
The Paper Industrial Converted Products segment Q3 sales were $454m, compared with $484m in Q3 2011 while segment operating profit was $33.2m compared with $38m in 2011.
The 6% year-over-year decline in third quarter sales was primarily due to the negative impact of foreign currency translation and lower recovered paper prices in the Company's recycling operations.
"In our Paper and Industrial Converted Products segment, third quarter operating profits declined 13% due primarily to temporary operating problems experienced at several of our North American paperboard mills which resulted in greater than expected downtime and higher maintenance, freight and related expenses,” said DeLoach, Jr.
“Volume was up for the quarter, as narrow declines in global tubes and cores volume was offset by improved volume in our paper, reels and recycling operations.”
Consumer Packaging Q3 2012 sales were $476m, compared with $503m in Q3 2011 and segment operating profit was $43.8m in Q3, compared with $52.4m in the same quarter of 2011.
Year-over-year sales declined in the quarter due to lower volumes in composite can, flexible packaging and rigid plastics businesses along with the unfavorable impact of foreign currency translation and lower sales prices.
Operating profit in the segment declined 16% year over year as productivity improvements and a positive price/cost relationship were unable to offset negative volume and mix changes along with higher pension, labor and other expenses.
He said: "These negative factors were partially offset by a positive price/cost relationship and productivity improvements.
“Operating profits from our Packaging Services segment improved 6% during the quarter due primarily to improved volume in international packaging fulfillment activity, which was partially offset by the impact of a stronger dollar.”
Paper Industrial Converted Products Q3 sales were $454m, compared with $484m in Q3 2011. Segment operating profit was $33.2m compared with $38m in 2011.
Outlook
DeLoach, Jr. said: "While we are projecting year-over-year improvement in base earnings in the fourth quarter, global economic conditions remain weak and our customers appear to be placing orders that only reflect their known demand. Overall, we do not expect any meaningful volume changes in our Industrial, Consumer and Protective Packaging businesses, beyond expected seasonality.
“However, due to the operational difficulties we experienced in our paper mills in the third quarter, which have since been resolved, we enter the fourth quarter with extremely tight uncoated recycled board inventories and plan to run our mill system full for the remainder of the year, except for scheduled downtime, such as holidays.”
