Sonoco Buys Associated Packaging – Analyst Blog

On Wednesday, Sonoco Products (SON) completed the acquisition of Associated Packaging Technologies Inc. (‘APT’) for $120 million. The all-cash purchase price includes the cost of paying off various obligations of the acquired company.

 

Associated Packaging is the largest North American manufacturer and supplier of Crystallized Polyethylene Terepthalate (CPET) containers for the frozen food industry. Its annual production of CPET containers amounts to almost 3 billion.

 

Sonoco forayed into thermoformed food packaging business for the first time in 2006 by acquiring Clear Pack Company. Following this acquisition, Sonoco strengthened its presence by expanding its existing thermoforming plastic container capabilities into the growing global frozen, chilled and ready-to-eat food markets.

 

Sonoco will now be strongly positioned and deliver solid growth with the help of Associated Packaging’s material formulations and rotary thermoforming technology. Moreover, Sonoco’s development of multilayer barrier polypropylene food containers will gain pace following the acquisition. The company expects Associated Packaging to annually add $150 million to its revenues.

 

During the first-quarter conference call, Sonoco provided earnings per share guidance in the range of 52 cents to 56 cents for second quarter 2010 while it is expected to be in the range of $2.15 to $2.25 for full year 2010. The full year guidance was revised upward from the previously guided range of $2.00 to $2.15, predominantly due to strong business conditions experienced during the first quarter. The company expects the acquisition to be moderately accretive to 2010 results. The Zacks Consensus Estimate for the second quarter of 2010 is 55 cents per share. For the full year, the Zacks Consensus Estimate is $2.25 per share.

 

Robust performance at Sonoco comes from volume improvement in nearly all of its Industrial and Consumer businesses. The company has also implemented various restructuring initiatives to align its manufacturing capacity and fixed cost structure with current market conditions to reap higher profits. With these positives and synergies from the acquisition, we expect Sonoco to perform better in the upcoming quarters.