Sonoco Products Company (SON), a global manufacturer of consumer and industrial packaging products, is scheduled to report its second quarter results next week. We expect the company to report EPS of $0.38, at the high end of the management guidance, but 37% lower on a year-over-year basis.
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.
The company had announced a restructuring program primarily for its overseas operations, mainly Europe. Under this program, SON plans to close approximately 12 plants and cut about 520 jobs globally. The company closed a number of facilities as part of this move as well as others that are not a part of the formal restructuring plan.
Apart from this, Sonoco announced additional cost reduction measures in an attempt to align its manufacturing capacity and fixed cost structure with the current market conditions. This realignment includes closure of approximately 15 plants across the globe and the reduction of approximately 700 positions.
These cost reduction measures are expected to generate approximately $28 million in annualized pre-tax savings when fully phased in through 2009.
Moreover, the company continues to drive sales to retail markets through new product introduction. The company aims to achieve annual sales of $100–$150 million from new products (those commercialized for two years or less) over the next five-year period.
The company has introduced a number of award-winning packaging innovations in the last two years. We believe that these products, along with further introduction of new products will provide strong long-term sales potential for Sonoco Products.
We maintain our Hold recommendation on SON.
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