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Sonoco Hopes This Acquisition Will Help Expand Its Business

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Sep. 12 2016, Published 1:17 p.m. ET

Price movement

Sonoco Products (SON) fell 2.9% to close at $51.10 per share during the first week of September 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -1.4%, -0.91%, and 28.0%, respectively, as of September 9. SON is trading 1.2% below its 20-day moving average, 0.22% above its 50-day moving average, and 12.2% above its 200-day moving average.

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Related ETF and peers

The PowerShares S&P Mid-Cap Low Volatility Portfolio ETF (XMLV) invests 1.3% of its holdings in Sonoco. The ETF tracks a volatility-weighted index of the 80 least volatile S&P Mid-Cap 400 companies. The YTD price movement of XMLV was 13.4% on September 9. The market caps of Sonoco Products’ competitors are as follows:

  • WestRock (WRK) — $11.7 billion
  • AptarGroup (ATR) — $4.8 billion
  • Bemis (BMS) — $4.8 billion

Latest news on Sonoco

In a press release on September 6, 2016, Sonoco Products reported that “Sonoco ThermoSafe, a unit of Sonoco (SON) and a leading global provider of temperature-assurance packaging, has acquired the PharmaPort 360 assets, licenses, trademarks and manufacturing rights from AAR, to enter the active temperature-controlled cargo containers market.”

It added that “Sonoco ThermoSafe will own and lease the PharmaPort 360 containers globally while signing a multi-year agreement with AAR to manufacture, repair and perform maintenance services.”

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Performance of Sonoco Products in fiscal 2Q16

Sonoco Products reported fiscal 2Q16 net sales of ~$1.2 billion, a fall of 3.4% from the net sales of ~$1.3 billion in fiscal 2Q15. Sales from its Consumer Packaging, Display & Packaging, and Paper & Industrial Converted Products segments fell 3.8%, 7.6%, and 3.5%, respectively.

Sales from its Protective Solutions segment rose 2.8% between fiscal 2Q15 and fiscal 2Q16. The company’s gross profit margin rose 4.3% and its income before interest and taxes fell 7.0%. Its net income and EPS (earnings per share) fell to $56.3 million and $0.55, respectively, in fiscal 2Q16, compared with $64.4 million and $0.63 in fiscal 2Q15.

SON’s cash and cash equivalents fell 41.0% and its inventories rose 3.1% between fiscal 4Q15 and fiscal 2Q16. Its current ratio rose to 1.5x and its long-term debt-to-equity ratio fell to 0.65x in fiscal 2Q16, compared with 1.4x and ~0.7x, respectively, in fiscal 4Q15. It reported free cash flow of $31.9 million in fiscal 2Q16, a fall of 0.93% from fiscal 2Q15.

Projections

Sonoco Products projected EPS in the range of $0.65–$0.70 for fiscal 3Q16. The company has made the following projections for fiscal 2016:

  • EPS in the range of $2.68–$2.74
  • effective tax rate of 31.5%
  • free cash flow of ~$140 million, which reflects an operating cash flow of $490 million

Next, we’ll discuss Avery Dennison (AVY).

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