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Bank of America Merrill Lynch Downgrades Sonoco Products

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Price movement

Sonoco Products (SON) has a market cap of $5.1 billion. It fell 3.7% to close at $50.87 per share on October 3, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -3.1%, -1.8%, and 27.4%, respectively, on the same day.

SON is trading 2.9% below its 20-day moving average, 1.5% below its 50-day moving average, and 9.6% 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 Products. This ETF tracks a volatility-weighted index of the 80 least volatile S&P Mid-Cap 400 companies. The YTD price movement of XMLV was 13.0% on October 3.

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

  • WestRock Company (WRK): $12.2 billion
  • AptarGroup (ATR): $4.9 billion
  • Bemis Company (BMS): $4.7 billion

Sonoco Products’s rating

Bank of America Merrill Lynch has downgraded Sonoco Products’s rating to “underperform” from “neutral.”

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Performance in 2Q16

Sonoco Products (SON) reported 2Q16 net sales of ~$1.2 billion, a fall of 3.4% from net sales of ~$1.3 billion in 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 2Q15 to 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 2Q16 compared to $64.4 million and $0.63, respectively, in 2Q15.

Sonoco’s cash and cash equivalents fell 41.0%, and its inventories rose 3.1% from 4Q15 to 2Q16. Its current ratio rose to 1.5x, and its long-term debt-to-equity ratio fell to 0.65x in 2Q16 compared to 1.4x and 0.7x, respectively, in 4Q15. It reported free cash flow of $31.9 million in 2Q16, a fall of 0.93% from 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 of this series, we’ll take a look at Ford Motor Company (F).

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