Sonoco Products Company SON has been gaining from the consumer packaging business, its strong productivity and cost-control despite volume declines due to lower consumer spending. Moreover, recent acquisitions and further investments will boost growth in the upcoming quarters.
Shares of the company have gained 4.7% in a year compared with the industry’s growth of 15.5%.
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Strategic Actions Aid Margins: Sonoco’s consumer packaging businesses have been benefiting from the Metal Packaging acquisition and pricing efforts. The company is implementing aggressive price actions across its businesses to counter higher raw material and non-material inflation. Continued strong recovery in price and costs across most of its businesses, benefits from the Ball Metalpack (now Sonoco Metal Packaging) acquisition, and solid demand are likely to contribute to the 2024 results.
Sonoco’s focus on optimizing businesses through productivity improvement, standardization and cost control will also aid its results in the near term. It is implementing several synergy opportunities, including optimizing raw material purchases, leveraging indirect expenses and coordinating supply-chain logistics. These factors will help meet Sonoco’s cost-saving target.
Focus on Growth & Innovation Boosts Results: Sonoco is focused on increasing investment in its core consumer and industrial businesses, and achieving an annual EBITDA of $1 billion by 2026.
The company continues to emphasize capital allocation and expects to be able to increase dividends while maintaining an investment-grade balance sheet. It intends to increase returns on invested capital in the coming years through organic investments in core accretive acquisitions and portfolio rationalization.
Moreover, Sonoco is focused on growing in the niche food markets and launching products with new customers. Investment in these markets will add pouch-making capacity for the company and help it expand its presence in the pouch market.
Strategic Acquisitions Drive Performance: On Jan 22, 2022, Sonoco completed the acquisition of Ball Metalpack for a cash payment of $1.35 billion. Ball Metalpack is a foremost producer of sustainable metal packaging for food and household products, and the largest manufacturer of aerosol products in North America.
The deal supported Sonoco’s focus on investing in the core business that strengthens its global Paper Cans and Closures business while bolstering its sustainable packaging portfolio with metal packaging. Notably, metal packaging is preferable by U.S. customers due to its inherent attributes of recyclability and sustainability.
Sonoco expects to realize tax benefits of $180 million from the deal. It expects to generate annual synergies of at least $20 million from procurement and SG&A savings within three years of the transaction.
Also during 2022, Sonoco acquired Denmark-based Skjern, a privately owned manufacturer of paper, for $88 million in cash. The acquisition expanded SON’s production capacity. It helped Sonoco capitalize on the growing market for sustainable paper and packaging products in Europe.
Near-Term Concerns
The company has been facing declining volumes due to lower consumer purchases. This is likely to keep denting margins. Moreover, Sonoco will continue to bear the brunt of raw material, energy and freight cost pressures, and the impacts of supply-chain disruptions. These factors are likely to hurt its performance in 2024
Sonoco’s bottom line is impacted by unfavorable foreign currency translation and divestitures. Increased SG&A expenses are worrisome. These are likely to persist and dent the company’s results in the upcoming quarters.
Zacks Rank & Stocks to Consider
Sonoco currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Industrial Products sector are Intellicheck, Inc. IDN, Applied Industrial Technologies AIT and ACCO Brands Corporation ACCO. IDN currently sports a Zacks Rank #1 (Strong Buy), and AIT and ACCO carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Intellicheck’s 2024 earnings is pegged at 2 cents per share. The consensus estimate for 2024 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 28.9%. IDN shares have gained 13.7% in the past year.
Applied Industrial has an average trailing four-quarter earnings surprise of 8.2%. The Zacks Consensus Estimate for AIT’s 2024 earnings is pinned at $9.62 per share, which indicates year-over-year growth of 9.9%. Estimates have moved north by 2% in the past 60 days. The company’s shares have gained 60.1% in the past year.
The Zacks Consensus Estimate for ACCO Brands’ 2024 earnings is pegged at $1.07 per share. The consensus estimate for 2024 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 25.9%. ACCO shares have gained 1.5% in the past year.
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Sonoco Products Company (SON) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
