- Demand uncertainty: Seasonally higher demand, higher productivity and cost management contributed to Sonoco’s better-than-expected Q3 results, executives said on Wednesday’s earnings call. While demand was flat and volumes were low in the industrial sector, volumes in the consumer sector were down year over year but sequentially higher in most business segments. Consumers are “cautious” about their spending right now, executives said, contributing to ongoing demand uncertainty.
- Market trends: Within consumer packaging, the flexibles and rigid paper container segments experienced “near-record profitability,” according to CFO Rob Dillard. However, within flexibles, the confection and snack markets have been weak due to high shelf prices affecting consumer purchasing. Weakness in North America offset global growth in areas like Europe and Latin America.
- Destocking lingers: “This volume decrease was anticipated and was the product of weakening consumer demand due to the impact of inflationary pricing and destocking,” Dillard said. Destocking has moderated but the company is still taking steps to improve demand visibility. Most aerosol can volumes are depressed due to low demand and ongoing customer destocking, said CEO Howard Coker.
- Investments: Executives said that recent investments, such as the $125 million Project Horizon initiative to transform a corrugated machine in Hartsville, South Carolina, to an uncoated recycled paperboard machine, are starting to pay off. Sonoco closed a deal in September to acquire the remaining stake in RTS Packaging from WestRock, including a WestRock mill in Chattanooga, Tennessee. The investment will help Sonoco expand its sustainable consumer packaging portfolio, according to executives. Sonoco anticipates more investments in 2024 for state-of-the-art technology and automation to serve emerging markets for paper cans.
- Cost control: Chief Operating Officer Rodger Fuller said that in Q4, “the team is focused on cost control. Footprint optimization in all forms of productivity will be critical until we see a sustained improvement in customer demand.” Heading into December, “The real question mark is all around what the volumes are going to be,” Coker said.
- Outlook: Sonoco is increasing its guidance for full-year adjusted earnings before interest, taxes, depreciation, and amortization to between $1.05 billion and $1.08 billion, based on improved productivity and the Q4 trajectory so far. Executives expect stable, but flat, volumes in Q4 year over year, but slightly lower volumes sequentially because of holiday seasonality — purchases for which already are underway — especially for flexibles, rigid plastics and food cans.
Sonoco outperforms Q3 guidance, but ‘cautious’ consumers depress demand
Sonoco is beginning to see returns from recent M&A and equipment conversion investments, according to executives on a recent earnings call.