Sonoco Products' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Sonoco Products Company (SON)

Q1 2012 Earnings Call

April 19, 2012 11:00 am ET


Roger Schrum – Vice President, Investor Relations & Corporate Affairs

Barry L. Saunders – Vice President and Chief Financial Officer

Harris E. DeLoach, Jr. – Chairman and Chief Executive Officer

M. Jack Sanders – President and Chief Operating Officer


Scott Gaffner – Barclays Capital

George Staphos – Bank of America/Merrill Lynch

Ghansham Panjabi – Robert W. Baird & Co., Inc.

Philip Ng – Jefferies & Company, Inc.

Ian Zaffino – Oppenheimer & Co.

Phil Gresh – JPMorgan

Chip A. Dillon – Vertical Research Partners Inc.

Adam Josephson – KeyBanc Capital Markets Inc.

Mark Wilde – Deutsche Bank

Christopher David Manuel – Wells Fargo Securities, LLC

Albert Kabili – Credit Suisse

Alex Ovshey – Goldman Sachs



Good day, ladies and gentlemen and welcome to the First Quarter 2012 Sonoco Earnings Conference Call. My name is [Geneta], and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Roger Schrum, Vice President of Investor Relations for Sonoco. Please proceed, sir.

Roger Schrum

Thank you, [Geneta]. Good morning, everyone, and welcome to Sonoco’s 2012 first quarter earnings investor call. This call is being conducted on April 19, 2012.

Joining me today are Harris DeLoach, Chairman and Chief Executive Officer; Jack Sanders, President and Chief Operating Officer; and Barry Saunders, Vice President and Chief Financial Officer.

The news release reviewing the company’s financial results was released before the market opened today, and is available on our Investor Relations section of our website at In addition, we will refer to a presentation that is also posted on the investor site during this call.

I’ll briefly remind you that today’s call may contain a number of forward-looking statements that are based on current expectations, estimates, and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Additional information about factors that could cause different results and information about the use by the company of non-GAAP financial measures is available in today’s news release and on the company’s website.

With that, I’ll turn it over to Barry Saunders.

Barry L. Saunders

Thank you, Roger. I’ll begin on slide three. Please see that this morning, we’ve reported first-quarter earnings per diluted share on a U.S. GAAP basis of $0.42 and base EPS of $0.52, which compares to base EPS of $0.57 for the same quarter last year. These results were $0.02 above the top end of our base earnings guidance for the quarter of $0.45 to $0.50. This stronger than expected results are due to the volume and industrial businesses in North America and Europe being slightly better than what we thought coming out of the very weak December and lower-than expected fixed cost.

Before reviewing the base P&L for the quarter, I will mention that a reconciliation of the GAAP to base earnings is in the press release as Roger mentioned. The difference between GAAP and base for the current quarter is due to $0.10 of restructuring charges. The restructuring charges were related to the closure of the Nordhorn Germany paper mill, additional charges related to the closure of a thermoforming plant in Canada, actions in Tegrant related to driving synergies and other miscellaneous cost reduction initiatives.

Turning to slide four, you'll find our base P&L where you see that sales were $1.212 billion, which were 8.5% higher than last year and as you’ll see in the sales bridge, the favorable variant to last year was driven almost entirely by the Tegrant acquisition.

Gross profit of $217 million was 12% better than last year with our gross profit percent at 17.9% as compared to 17.4% for the same quarter last year. Selling and administrative expenses and other charges were $123 million, which were higher than last year due to Tegrant as well; otherwise, the impact of labor and another inflation was essentially offset by fixed cost reductions thus EBIT of $94.2 million, was $3 million higher than last year, and you’ll see the drivers of the change in the EBIT bridge in just a moment.

Interest expense of $50 million, was $7 million higher than last year due to financing the Tegrant acquisition. Taxes were $26.5 million for the quarter as the effective tax rate on base earnings was higher as expected at 33.7% versus 31.2% for the first quarter last year.

Equity and affiliates and minority interest were not notably different. thus base net income was $53.8 million or $0.52 per share again compared to $0.57 last year. The lower year-over-year earnings can really be isolated to $0.02 due to higher pension expense, $0.02 due to a higher effective tax rate, and just under $1 due to foreign currency translation.

Turning to the sales bridge, on slide five, which reconciles the year-over-year change in sales, you see volume was slightly negative, down $11.5 million or right at 1% for the company as a whole. I will point out that there was one less day in the accounting calendar, which could have theoretically accounted for a decline of about that amount, but given its not really statistically significant we just left that difference in volume and not tried to show it separately on the bridge.

Consumer volume was down year-over-year as volume in composite cans and enclosures in North America, each where down 2%, but flexible volume was up 1% and blow-molded plastics was up almost 20% associated with growth and both food and health and beauty segments, which we’re then it was like partially offset by lower volume in our thermoforming business due to lower demand for the dual-ovenable frozen food tray.

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