Sonoco Products Company (SON) saw improvement in the fourth quarter over the year ago period and recently raised 2010 guidance. It has surprised on earnings by an average of 8.3% over the last 4 quarters.
Company Description
Sonoco manufactures industrial and consumer packaging and packaging solutions at 300 locations in 35 countries with customers in 85 nations. It also produces recycled paperboard and recycles old corrugated containers and other recyclable materials.
Price Increases
On Mar 8, the company announced it would raise prices for uncoated recycled paperboard grades in the United States and Canada by $60 per ton as of Apr 5 as costs continue to rise.
It also is increasing prices on all paperboard industrial converted products in the U.S. and Canada by 5.5% also effective on Apr 5.
“Recovered paper costs have continued to rise rapidly throughout the first quarter of 2010. Key grades, such as old corrugated cartons (OCC), are up by approximately $110 per ton, or 150 percent, since November 2009, according to published lists,” said Harris DeLoach, chairman, president and CEO.
“Actual marketplace prices for recovered paper are currently exceeding listed prices by another $20 to $30 per ton, due to scarcity of supply. As a result, we have no alternative but to pass on these higher raw material costs,” he added.
On Feb 18, the company also increased prices by 19% on nailed wood reels and 11% on plywood reels due to the rise in lumber prices which started in the fourth quarter of 2009. Wet weather has contributed to a supply and demand imbalance at the lumber mills.
Sonoco Surprised by 13.7% in the Fourth Quarter
On Feb 10, for the third quarter in a row, Sonoco beat the Zacks Consensus Estimate. Earnings per share were 58 cents compared to the consensus of 51 cents. The company reported 49 cents in the year ago period.
The company beat its own guidance range due to a slightly improved operating environment and a lower than expected effective tax rate. The company’s consumer packaging segment continued to outperform as it saw its eighth consecutive quarter of year-over-year improvement.
Sales rose 7% to $1 billion from $935 million in the year ago quarter. Volumes improved in the Tube and Cores/Paper, Consumer Packaging and Packaging Services segments.
Outlook for 2010
The year over year improvement is expected to continue. Sonoco expects earnings per share in the range of 40 to 45 cents which is up from the 29 cents it earned in the first quarter of 2009.
2010 earnings per share are forecast between $2.00 and $2.15 which is higher than the company’s first guidance range provided on Dec 4, 2009 of $1.95 to $2.05. The company is seeing slightly stronger business conditions and expects additional reduction in pension expenses.
Zacks Consensus Estimates Rise
Given the company’s guidance, it’s not surprising that the analysts moved to get in-line with the higher estimates. For the full year, the Zacks Consensus Estimate rose 7 cents to $2.10 in the last 30 days.
This is earnings per share growth of 18.2% compared to the year ago quarter.
The first quarter estimate has been holding steady at 43 cents over the last 90 days, which is in the middle of the company’s guidance range.
Value Fundamentals
Sonoco is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of 2.2, which is under the traditional cut-off for a value stock of 3.0, and a P/E of 14.3, which is also under the traditional value cut-off of 15x earnings.
The company also has an outstanding 5-year average return on equity of 16.2%.
As an added bonus, Sonoco pays a dividend currently yielding 3.6% which far exceeds the industry average of 1.6%.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.
