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Sonoco Raises Paperboard Prices Due to Rise in Raw Material Costs

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Price movement

Sonoco Products (SON) rose 2.0% to close at $52.89 per share during the third week of September 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 2.0%, 3.0%, and 32.5%, respectively, as of September 23, 2016.

SON is trading 1.6% above its 20-day moving average, 2.8% above its 50-day moving average, and 14.9% above its 200-day moving average.

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Related ETF and peers

The PowerShares S&P MidCap Low Volatility 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 15.9% on September 23, 2016.

The market caps of Sonoco Products’ competitors are as follows:

  • WestRock (WRK): $12.2 billion
  • AptarGroup (ATR): $5.0 billion
  • Bemis (BMS): $4.9 billion

Latest news on Sonoco

Sonoco Alcore, a wholly-owned subsidiary of Sonoco Products, has increased the prices of all recycled paperboard grades sold in the Nordic, Central European, and Greek regions by 40 euros per metric ton, effective on or after October 17, 2016.

According to Phil Woolley, Paper Europe’s director, “This price increase is in response to the continuing rise of raw material costs, which are now at the point where we need to pass on to the market.”

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Performance in fiscal 2Q16

Sonoco Products reported fiscal 2Q16 net sales of ~$1.2 billion, a fall of 3.4% from 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% from fiscal 2Q15 to 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 to $64.4 million and $0.63, respectively, in fiscal 2Q15.

Sonoco’s cash and cash equivalents fell 41.0%, and its inventories rose 3.1% from fiscal 4Q15 to 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 to 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 has projected EPS of $0.65–$0.70 for fiscal 3Q16. The company made the following projections for fiscal 2016:

  • EPS 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

In the next part, we’ll take a look at Harley-Davidson (HOG).

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