Sonoco Products Company (SON) announced plans to streamline its business structure in order to improve operating efficiency. The company plans to consolidate its 19 separate businesses into six consumer and industrial business units with a direct reporting line to the senior leadership.
Nine Consumer Packaging and Services businesses will be consolidated into four global business units, while ten North American Industrial Products divisions will be consolidated into two North American business units.
Also, the company said that all industrial technology efforts will be consolidated into the Global Industrial Technology group. Sonoco anticipates annualized cost savings of about $20 million from this exercise.
The company is experiencing weak volumes in all its businesses. In order to minimize the impact of weak volumes on its earnings Sonoco has implemented various restructuring initiatives. Last week, the company announced its plans to close its rigid paper packaging plant in Orrville, Ohio.
In the last one year, Sonoco announced a number of restructuring initiatives in an attempt to align its manufacturing capacity and fixed cost structure to match the current market conditions. The company had announced a restructuring program primarily for its overseas operations, mainly Europe. Also, the company has closed a number of facilities outside its formal restructuring plan.
However, the company will not be able to offset the full impact of declining demand through these actions. During its second quarter conference call, Sonoco lowered the high end of its earnings guidance for the year 2009 as it expects continued demand weakness in the coming quarters.
We maintain a Neutral recommendation on the stock.
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