Company Further Increases Earnings Guidance for Full Year 2006
HARTSVILLE, S.C., July 19 /PRNewswire-FirstCall/ -- Sonoco (NYSE: SON),
the global packaging company, today reported earnings per diluted share for
the second quarter of 2006 of $.49, compared with $.40 for the same period
in 2005, it was announced by Harris E. DeLoach, Jr., chairman, president
and chief executive officer. Base earnings per diluted share for the second
quarter of 2006, a non-GAAP measure that excludes restructuring charges and
certain unusual items, were $.51 per diluted share, compared with $.45 per
diluted share, for the same period of 2005. (A reconciliation of base
earnings per share to reported earnings per share is provided immediately
following the Forward-Looking Statements of this news release.) Base
earnings for the second quarter excluded after-tax restructuring charges of
$1.6 million ($.02 per diluted share) and $5.6 million ($.05 per diluted
share) in 2006 and 2005, respectively, related to previously announced
restructuring actions.
(Logo: http://www.newscom.com/cgi-bin/prnh/19991006/SNCLOGO )
Net sales for the second quarter of 2006 were $917 million, up 4.4
percent, compared with $878 million for the same period in 2005. According
to DeLoach, "The increase in sales during the second quarter of 2006 was
due primarily to stronger volumes and higher prices in the Tubes and
Cores/Paper segment and in businesses included in All Other Sonoco, higher
prices in the Consumer Packaging segment and the favorable impact of
foreign currency translation. Partially offsetting these improvements was
reduced volume in the Packaging Services segment, where point-of-purchase
display and fulfillment sales declined from an unusually strong first half
of 2005 including extensive new product display launches and fulfillment
rework activity. The Packaging Services segment's sales are near our 2006
forecast, and we expect significantly improved results in the second half
of 2006."
Net income for the second quarter of 2006 was $49.3 million, compared
with $40.2 million for the second quarter of 2005. Base earnings totaled
$50.9 million for the second quarter of 2006, compared with $45.8 million
for the same period in 2005, an 11.2 percent increase. (A reconciliation of
base earnings to reported net income is provided immediately following the
Forward-Looking Statements of this news release.)
"Strong base earnings in the second quarter of 2006 reflect a continued
favorable selling price/material cost relationship, despite higher raw
material costs, and the impact of productivity improvements which offset
rising energy, freight and labor costs. The higher volume noted in the
discussion of sales had little impact on earnings, due to unfavorable
shifts in the mix within the individual businesses in each of the
segments," said DeLoach.
Cash generated from operations for the second quarter of 2006 was
approximately $89 million, compared with approximately $46 million for the
same period in 2005. The increase was primarily due to the Company's
working capital initiative and improved earnings. Capital expenditures and
cash dividends totaled $31 million and $24 million, respectively, in the
second quarter of 2006.
For the first six months of 2006, net sales increased 2.6 percent, to
$1.7 billion, compared with the first half of 2005. Net income for the
first six months of 2006 was $94.5 million ($.93 per diluted share), up
22.4 percent, compared with $77.2 million ($.77 per diluted share) in the
same period in 2005. Included in 2006 first half results were approximately
$1.8 million after tax ($.02 per diluted share) related to the expensing of
stock options in accordance with Statement of Financial Accounting
Standards No. 123 (revised 2004), 'Share-based Payment'. In addition, a
favorable adjustment to certain state taxes increased earnings per diluted
share by $.04. Earnings for the first six months of 2006 and 2005 were
negatively impacted by after-tax restructuring costs of $2.9 million ($.03
per diluted share) and $8.7 million ($.08 per diluted share), respectively.
Excluding the impact of the restructuring charges, base earnings were
$97.4 million ($.96 per diluted share) in the first half of 2006, up 13.4
percent, compared with $85.9 million ($.85 per diluted share) for the same
period in 2005. (A reconciliation of base earnings per share to reported
earnings per share is provided immediately following the Forward-Looking
Statements of this news release.) The increase in base earnings in the
first half of 2006 was due primarily to productivity improvements and a
positive price/cost relationship, partially offset by increased costs for
energy, freight and labor along with a negative shift in the mix of
business.
For the first six months of 2006, cash flows from operations totaled
approximately $161 million, compared with approximately $68 million for the
same period in 2005. Capital expenditures and cash dividends totaled $59
million and $47 million, respectively for the first six months of 2006.
Additionally, the Company repurchased 2.5 million shares of Sonoco common
stock for approximately $83 million during the first six months of 2006.
Revised 2006 Outlook
"In light of better than expected results for the first half of 2006
and improving results and/or prospects across our business segments, we
expect third quarter 2006 base earnings to be in the range of $.54 to $.57
per diluted share, assuming no significant change in Companywide volumes or
pricing and excluding any restructuring charges and additions to
environmental reserves, which cannot be estimated at this time.
Furthermore, we are raising guidance for full year 2006 earnings to the
upper range of between $2.07 to $2.10 per diluted share, including
approximately $.03 per diluted share related to expensing of stock options,
excluding any restructuring charges and additions to environmental
reserves, and assuming no significant reduction in pricing due to changing
general economic conditions," DeLoach concluded. On April 19, 2006, Sonoco
had increased 2006 base earnings guidance to the upper range of between
$1.96 and $1.99 per diluted share from previous guidance of the upper range
of between $1.90 to $1.94 per diluted share.
Segment Review
Consumer Packaging
The Consumer Packaging segment includes the following products: round
and shaped rigid packaging, both composite and plastic; printed flexible
packaging; and metal and plastic ends and closures.
Second quarter 2006 sales for the Consumer Packaging segment were $328
million, up approximately 5 percent, compared with $312 million for the
same period in 2005. Operating profit for this segment was $26.3 million in
the second quarter of 2006, up approximately 7 percent, compared with $24.5
million in the second quarter of 2005.
The Consumer Packaging segment's 2006 second quarter sales increased as
a result of higher selling prices plus the favorable impact of foreign
exchange translation. Higher volumes in composite cans were basically
offset by decreased volume in flexible packaging. Earnings improved during
the second quarter of 2006 as a result of higher selling prices along with
productivity improvements.
Tubes and Cores/Paper
Effective December 31, 2005, the Company changed the name of the
Engineered Carriers and Paper segment to Tubes and Cores/Paper because the
term "tubes and cores" is more generally understood than "engineered
carriers" in the businesses included in this segment. Its products include:
high- performance paper and composite tubes and cores, fiber-based
construction tubes and forms, recycled paperboard and linerboard.
Second quarter 2006 sales for the Tubes and Cores/Paper segment were
$387 million, up approximately 5 percent, compared with $368 million for
the same period in 2005. Operating profit for the Tubes and Cores/Paper
segment for the second quarter of 2006 was $37.2 million, compared with
$26.5 million in the second quarter of 2005.
Sales in the Tubes and Cores/Paper segment were up year-over-year in
the second quarter 2006 due to higher volumes, mainly in global paper
operations; higher selling prices, primarily in tubes and cores; and the
favorable impact of foreign currency translation. Base operating profit
increased primarily due to productivity improvements and a favorable
price/cost relationship. These improvements were partially offset by higher
energy, freight and labor costs.
Packaging Services
The Packaging Services segment includes the following services:
designing, manufacturing, assembling, packing and distributing temporary,
semipermanent and permanent point-of-purchase displays; brand artwork
management; and supply chain management services including contract
packing, fulfillment and scalable Service Centers.
Second quarter 2006 sales for the Packaging Services segment were $107
million, a decline of 4 percent, compared with $112 million in the same
quarter of 2005. Operating profit for this segment was $8.6 million in the
second quarter of 2006, compared with $10.7 million in the same period in
2005.
Second quarter 2006 sales in the Packaging Services segment declined
primarily due to year-over-year reduction in point-of-purchase display and
rework activity, lower volume from certain European Service Centers as well
as the loss of sales from a single-plant folding carton operation that was
sold at the end of 2005. Operating profits declined in the segment during
the second quarter of 2006 due primarily to lower volumes, partially offset
by productivity improvements and cost containment.
All Other Sonoco
All Other Sonoco includes businesses which are not aggregated in a
reportable segment and include the following products: wooden, metal and
composite reels for wire and cable packaging; molded and extruded plastics;
custom designed protective packaging; and paper amenities such as coasters
and glass covers.
Second quarter 2006 sales for All Other Sonoco were $96 million, up 11
percent, compared with $86 million in the second quarter of 2005. Operating
profit for the second quarter of 2006 for All Other Sonoco was $13.2
million, up approximately 31 percent, compared with $10.1 million in the
same period in 2005.
Second quarter 2006 sales in All Other Sonoco increased over the same
period in 2005, primarily due to increased selling prices and volume gains
for wire and cable reels along with volume gains in protective packaging.
Base operating profit for All Other Sonoco in the second quarter of 2006
increased primarily due to the impact of the higher selling prices along
with productivity improvements.
Corporate
Depreciation and amortization expense for the second quarter of 2006
was $39 million, compared with $42 million in second quarter of 2005. Net
interest expense for the first quarter of 2006 increased to $12.5 million,
compared with $10.8 million during the same period in 2005 due to an
increase in interest rates. The effect of the increase in rates was
partially offset by a decrease in average debt balances.
The effective tax rate for the Company for second quarter 2006 was 34.2
percent, compared with 31.4 percent in same period in 2005. The effective
tax rate for the second quarter of 2005 was lower than the second quarter
of 2006 primarily due to the recognition, in 2005, of a $2 million deferred
tax asset in Mexico.
As previously disclosed, Sonoco-U.S. Mills, Inc. (U.S. Mills), a wholly
owned subsidiary of the Company acquired in 2001, has agreed to participate
in the cleanup of PCB-contaminated sediments at a site on the lower Fox
River near its DePere, Wis., paper mill. U.S. Mills fully accrued for its
estimated share of this liability during the fourth quarter of 2005. More
recently, U.S. Mills has become aware of the potential for further
liability along a larger stretch of the lower Fox River. Although it has
not accepted any liability nor entered into any cost sharing agreements
with interested parties, U.S. Mills is in the early stages of reviewing
this new information and cannot reasonably estimate the amount of
liability, if any, at this time. Accordingly, no additional reserve for
potential remediation costs has been recognized by U.S. Mills at June 25,
2006. Although U.S. Mills' liability could exceed its net worth, Sonoco
believes its maximum exposure (largely non-cash) is limited to the equity
position of U.S. Mills, which is approximately $80 million as of June 25,
2006, excluding any tax benefits that may further reduce the net charge.
Although there can be no assurance that such efforts will be successful,
U.S. Mills expects to aggressively defend its interest and to reduce its
losses, if any, through claims against third parties and insurance
coverage.
Conference Call Web Cast
Sonoco will host its regular quarterly conference call today,
Wednesday, July 19, 2006, at 2 p.m. Eastern time, to review its financial
results for the second quarter of 2006. The conference call can be accessed
in a "listen only" mode via the Internet at http://www.sonoco.com, under
the "Latest News" section. The call will also be archived on the Investor
Information section of the Sonoco Web site for 12 months. A telephonic
replay of the call will be available after 4:30 p.m. Eastern time on July
19, 2006, to U.S. callers at +888/286-8010 and for international callers at
+617/801-6888, access code 27398498.
About Sonoco
Founded in 1899, Sonoco is a $3.5 billion global manufacturer of
industrial and consumer packaging products and provider of packaging
services, with more than 300 operations in 35 countries, serving customers
in 85 nations. Additional information about Sonoco is available at
http://www.sonoco.com.
Forward-looking Statements
Statements included herein that are not historical in nature, are
intended to be, and are hereby identified as "forward-looking statements"
for purposes of the safe harbor provided by Section 21E of the Securities
and Exchange Act of 1934, as amended. The words "estimate," "project,"
"intend," "expect," "believe," "plan," "anticipate," "objective," "goal,"
"guidance," and similar expressions identify forward-looking statements.
Forward-looking statements include, but are not limited to, statements
regarding offsetting high raw material costs, improved productivity and
cost containment, adequacy of income tax provisions, refinancing of debt,
adequacy of cash flows, anticipated amounts and uses of cash flows, effects
of acquisitions and dispositions, adequacy of provisions for environmental
liabilities, financial strategies and the results expected from them,
continued payments of dividends, stock repurchases and producing
improvements in earnings.
These forward-looking statements are based on current expectations,
estimates and projections about our industry, management's beliefs and
assumptions made by management. Such information includes, without
limitation, discussions as to guidance and other estimates, expectations,
beliefs, plans, strategies, and objectives concerning our future financial
and operating performance. These statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions that
are difficult to predict. Therefore, actual results may differ materially
from those expressed or forecasted in such forward-looking statements. The
risks and uncertainties include, without limitation:
- Availability and pricing of raw materials;
- Success of new product development and introduction;
- Ability to maintain or increase productivity levels and contain or
reduce costs;
- International, national and local economic and market conditions;
- Fluctuations of obligations and earnings of pension and postretirement
benefit plans;
- Ability to maintain market share;
- Pricing pressures and demand for products;
- Continued strength of our paperboard-based tubes and cores and
composite can operations;
- Anticipated results of restructuring activities;
- Resolution of income tax contingencies;
- Ability to successfully integrate newly acquired businesses into the
Company's operations;
- Currency stability and the rate of growth in foreign markets;
- Use of financial instruments to hedge foreign currency, interest rate
and commodity price risk;
- Liability for remediation of environmental problems;
- Actions of government agencies;
- Loss of consumer confidence; and
- Economic disruptions resulting from terrorist activities.
The Company undertakes no obligation to publicly update or revise
forward- looking statements, whether as a result of new information, future
events or otherwise.
Additional information concerning some of the factors that could cause
materially different results is included in the Company's reports on forms
10- K, 10-Q and 8-K filed with the Securities and Exchange Commission. Such
reports are available from the Securities and Exchange Commission's public
reference facilities and its Web site, the Company's investor relations
department and the Company's Web site, http://www.sonoco.com.
Definition and Reconciliation of Non-GAAP Financial Measures
The following provides definitions of the non-GAAP financial measures
contained in this press release together with the most directly comparable
financial measures calculated in accordance with GAAP, and a reconciliation
of the differences between the non-GAAP financial measures discussed and
the most directly comparable financial measures calculated in accordance
with GAAP:
Base Earnings Per Share (EPS)
Base EPS is a non-GAAP financial measure of earnings per share, which
excludes the impact of restructuring charges and of non-recurring or
infrequent and unusual items. The following table sets forth the
reconciliation of GAAP Diluted Earnings Per Share to Base Earnings Per
Share:
Three Months Ended
(Unaudited) June 25, 2006 June 26, 2005
Diluted earnings per share,
as reported (GAAP) $ .49 $ .40
Adjusted for:
Restructuring charges,
net of tax .02 .05
Base earnings per share (Non-GAAP) $ .51 $ .45
Six Months Ended
(Unaudited) June 25, 2006 June 26, 2005
Diluted earnings per share,
as reported (GAAP) $ .93 $ .77
Adjusted for:
Restructuring charges,
net of tax .03 .08
Base earnings per share (Non-GAAP) $ .96 $ .85
Base Earnings
Base Earnings is a non-GAAP financial measure of net income, which
excludes the impact of restructuring charges and of non-recurring or
infrequent and unusual items. The following table sets forth the
reconciliation of GAAP Net Income to Base Earnings ($ in millions):
Three Months Ended
(Unaudited) June 25, 2006 June 26, 2005
Net income, as reported (GAAP) $49.3 $40.2
Adjusted for:
Restructuring charges,
net of tax 1.6 5.6
Base earnings (Non-GAAP) $50.9 $45.8
Six Months Ended
(Unaudited) June 25, 2006 June 26, 2005
Net income, as reported (GAAP) $94.5 $77.2
Adjusted for:
Restructuring charges,
net of tax 2.9 8.7
Base earnings (Non-GAAP) $97.4 $85.9
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars and shares in thousands except per share)
THREE MONTHS ENDED SIX MONTHS ENDED
June 25, June 26, June 25, June 26,
2006 2005 2006 2005
Sales $917,010 $878,170 $1,735,779 $1,692,608
Cost of sales 742,984 717,426 1,405,577 1,383,548
Selling, general and
administrative expenses 88,663 88,858 170,000 169,655
Restructuring charges 2,564 9,143 4,919 14,185
Income before interest
and taxes 82,799 62,743 155,283 125,220
Interest expense 13,999 12,584 26,117 23,645
Interest income (1,482) (1,772) (2,747) (3,438)
Income before income
taxes 70,282 51,931 131,913 105,013
Provision for income
taxes 24,060 16,301 43,296 35,480
Income before equity
in earnings of
affiliates/minority
interest in subsidiaries 46,222 35,630 88,617 69,533
Equity in earnings of
affiliates/minority
interest in subsidiaries 3,120 4,546 5,869 7,632
Net income $49,342 $40,176 $94,486 $77,165
Average shares
outstanding - diluted 100,530 100,581 101,211 100,521
Diluted earnings
per share $ .49 $ .40 $ .93 $ .77
Dividends per
common share $ .24 $ .23 $ .47 $ .45
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
June 25, December 31,
2006 2005
Assets
Current Assets:
Cash and cash equivalents $60,650 $59,608
Trade accounts receivables 451,393 413,209
Other receivables 32,401 45,225
Inventories 305,626 318,316
Prepaid expenses and deferred taxes 57,406 49,142
907,476 885,500
Property, plant and equipment, net 954,714 943,951
Goodwill 596,435 573,903
Other intangible assets 77,134 73,037
Other assets 485,226 505,349
$3,020,985 $2,981,740
Liabilities and Shareholders' Equity
Current Liabilities:
Payable to suppliers and others $528,949 $495,860
Notes payable and current portion of
long-term debt 102,543 124,530
Accrued taxes 1,135 96
632,627 620,486
Long-term debt 674,564 657,075
Pension and other postretirement
benefits 180,748 173,939
Deferred income taxes and other 255,514 266,926
Shareholders' equity 1,277,532 1,263,314
$3,020,985 $2,981,740
FINANCIAL SEGMENT INFORMATION (Unaudited)
(Dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
June 25, June 26, June 25, June 26,
2006 2005 2006 2005
Net Sales
Consumer Packaging $327,538 $312,369 $625,839 $589,224
Tubes and Cores/Paper 386,661 367,926 725,149 721,081
Packaging Services 106,898 111,639 203,565 216,377
All Other Sonoco 95,913 86,236 181,226 165,926
Consolidated $917,010 $878,170 $1,735,779 $1,692,608
Income before Income Taxes:
Consumer Packaging -
Operating Profit $26,332 $24,541 $52,156 $46,873
Tubes and Cores/Paper -
Operating Profit 37,222 26,521 64,740 51,757
Packaging Services -
Operating Profit 8,570 10,738 17,698 21,337
All Other Sonoco -
Operating Profit 13,239 10,086 25,608 19,438
Restructuring charges (2,564) (9,143) (4,919) (14,185)
Interest, net (12,517) (10,812) (23,370) (20,207)
Consolidated $70,282 $51,931 $131,913 $105,013
SOURCE Sonoco
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Related links:
http://www.sonoco.com/
Photo Notes:
NewsCom: http://www.newscom.com/cgi-bin/prnh/19991006/SNCLOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
CONTACT:
Allan V. Cecil, Vice President, Sonoco,
+1-843-383-7524, or allan.cecil@sonoco.com
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