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Sonoco Poised to Benefit From Acquisitions & New Products


On May 15, we issued an updated research report on Sonoco Products Company SON. The company is poised to gain from pricing initiatives, cost control, acquisitions, development of new products and strong balance sheet position.

Strong Q1, Upbeat Guidance

Sonoco Products’ first-quarter 2019 adjusted earnings increased 14.8% year over year to 85 cents per share. The bottom line outpaced the higher end of management’s guided range of 77-83 cents and the Zacks Consensus Estimate by 6%.

For 2019, the company raised adjusted earnings per share guidance to $3.52 to $3.62. The mid-point of the guidance range indicates an improvement of 6% from the $3.37 reported in 2018. The company’s second-quarter 2019 earnings outlook is at 93-99 cents per share compared with 93 cents in the year-ago quarter. The mid-point of the new guidance suggests growth of 3% from the year-ago reported figure. Based on lower-than-expected effective tax rate in the first quarter of 2019, Sonoco now estimates full-year 2019 tax rate to be 25.5%.

Earnings growth in 2019 is likely to be aided by combination of positive price and cost, lower tax rate, and benefit from the Conitex and Highland acquisitions. The company’s focus on optimizing businesses through process improvement, standardization and cost control will also benefit results.

Acquisitions to Drive Growth

Sonoco remains focused on driving inorganic growth through acquisitions. Last October, the company acquired the remaining 70% interest in the Conitex-Sonoco joint venture and Texpack's composite can operation in Spain, for approximately $145 million in cash. The buyout will assist the company in expanding manufacturing presence in the Americas, Europe, and rapidly-growing emerging markets in Asia. The acquisition is anticipated to add around $260 million of annual sales to its Paper and Industrial Converted Products segment.

The company completed the buyout of Highland Packaging Solutions in April 2018 and bought Clear Lam July 2017. The Highland acquisition is expected to add around $110 million annual sales in the Consumer Packaging segment. These acquisitions are likely to provide impetus to the company’s earnings growth in the current year.

Strong Financial Position to Aid Growth

Sonoco ended the first quarter of 2019 with cash and cash equivalents of $124.3 million, higher than $120 million as of 2018-end. For 2019, the operating cash flow guidance for the year is at $600-$620 million. The company anticipates free cash flow for the year to range between $225 million and $245 million, 12% higher than the prior year. Further, the company had a total debt-to-capital ratio of 43.9% as of Mar 31, 2019, flat compared with Dec 31, 2018. This reflects the company’s strong balance sheet position.
The company raised cash dividend by 5% to $1.72 per share on an annualized basis. This marks the 37th consecutive year the company has raised dividends. Further, Sonoco plans to spend more than $200 million on capital expenditures this year with 50% earmarked for growth projects. Meanwhile, Sonoco remains focused on acquisitions in targeted growth areas of flexible packaging and thermal formed rigid plastic containers and development of new products.

Price Performance

Over the past year, shares of Sonoco have gained around 22.1%, outperforming the industry’s growth of 0.6%.

Zacks Rank & Other Stocks to Consider

Sonoco currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the Industrial Products sector are DMC Global Inc. BOOM, Lawson Products, Inc. LAWS and Roper Technologies, Inc. ROP, each sporting a Zacks Rank #1, at present.

DMC Global has an estimated earnings growth rate of 79.7% for the ongoing year. The company’s shares have soared 71%, in the past year.

Lawson Products has a stellar expected earnings growth rate of 24.5% for the current year. The stock has appreciated 62% in a year’s time.

Roper Technologies has a projected earnings growth rate of 7.9% for 2019. The company’s shares have gained 28%, over the past year.

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