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Sonoco (SON) Stock Dips 14% in a Year: Will It Recover?
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Sonoco Products Company’s (SON - Free Report) shares have lost 14.2% in a year compared with the industry’s fall of 8.3%, reflecting low volumes due to weak packaging demand for the past few quarters. Escalating raw material costs and supply-chain headwinds have also added to its woes.
Image Source: Zacks Investment Research
Low Volume, High Costs Ail Sonoco
Sonoco has been facing lower volumes due to inventory destocking, which is likely to continue in the second half of the year and keep denting margins. Moreover, the company is bearing the brunt of raw material, energy and freight cost pressures, and the impacts of supply-chain disruptions.
SON anticipates low-volume trends in the Consumer Packaging and Industrial Paper Packaging businesses to continue for the rest of the year. A less favorable price/cost environment in Industrial during the second half of the year will also impact earnings.
The company has a market capitalization of $5.5 billion. Let’s discuss the factors that indicate that the stock might stage a comeback.
Strategic Actions to Aid Margin
Sonoco’s consumer packaging businesses have been benefiting from the Metal Packaging acquisition and pricing efforts. The company is implementing aggressive price actions across its businesses to counter higher raw material and non-material inflation.
Continued strong recovery in price and costs across most of its businesses, benefits from the Ball Metalpack (now Sonoco Metal Packaging) acquisition, and solid demand are likely to contribute to the company’s 2023 results.
Sonoco emphasizes capital allocation and expects to be able to increase dividends, while maintaining an investment-grade balance sheet. The company intends to increase returns on invested capital in the coming years through organic investments in core accretive acquisitions and portfolio rationalization.
Moreover, Sonoco is focused on growing in niche food markets and launching products with new customers. Investment in these markets will increase the pouch-making capacity of the company and help it expand its presence in the pouch market.
Focus on Optimization to Boost Results
Sonoco’s focus on optimizing businesses through productivity improvement, standardization and cost control will also aid its results in the near term. It is implementing several synergy opportunities, including optimizing raw material purchases, leveraging indirect expenses and coordinating supply-chain logistics.
These factors will help meet Sonoco’s cost-saving target. Sonoco is focused on increasing investment in its core consumer and industrial businesses, and achieving an annual EBITDA of $1 billion by 2026.
Recent Acquisitions Bode Well
On Jan 22, 2022, Sonoco completed the acquisition of Ball Metalpack for a cash payment of $1.35 billion. Ball Metalpack is a foremost producer of sustainable metal packaging for food and household products, and the largest manufacturer of aerosol products in North America.
The deal supported Sonoco’s focus on investing in the core business that strengthens its global Paper Cans and Closures business, while bolstering its sustainable packaging portfolio with metal packaging. Notably, metal packaging is preferable to U.S. customers due to its inherent attributes of recyclability and sustainability.
Sonoco expects to realize tax benefits of $180 million from the deal. It expects to generate annual synergies of at least $20 million from procurement and SG&A savings within three years of the transaction.
In fourth-quarter 2022, Sonoco acquired Denmark-based Skjern, a privately owned manufacturer of paper, for $88 million in cash. The acquisition expanded SON’s production capacity. It will help Sonoco capitalize on the growing market for sustainable paper and packaging products in Europe. The transaction is expected to be accretive to its earnings per share and cash flow.
Worthington Industries has an average trailing four-quarter earnings surprise of 14.9%. The Zacks Consensus Estimate for WOR’s fiscal 2023 earnings is pegged at $5.65 per share. The consensus estimate for 2023 earnings has moved north by 22.6% in the past 60 days. Its shares gained 33.5% in the last year.
Astec has an average trailing four-quarter earnings surprise of 20%. The Zacks Consensus Estimate for ASTE’s 2023 earnings is pegged at $2.81 per share. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. ASTE’s shares gained 22.8% in the last year.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings per share is pegged at $3.57. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days. It has a trailing four-quarter average earnings surprise of 10.5%. AOS gained 11.1% in the last year.
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Sonoco (SON) Stock Dips 14% in a Year: Will It Recover?
Sonoco Products Company’s (SON - Free Report) shares have lost 14.2% in a year compared with the industry’s fall of 8.3%, reflecting low volumes due to weak packaging demand for the past few quarters. Escalating raw material costs and supply-chain headwinds have also added to its woes.
Image Source: Zacks Investment Research
Low Volume, High Costs Ail Sonoco
Sonoco has been facing lower volumes due to inventory destocking, which is likely to continue in the second half of the year and keep denting margins. Moreover, the company is bearing the brunt of raw material, energy and freight cost pressures, and the impacts of supply-chain disruptions.
SON anticipates low-volume trends in the Consumer Packaging and Industrial Paper Packaging businesses to continue for the rest of the year. A less favorable price/cost environment in Industrial during the second half of the year will also impact earnings.
The company has a market capitalization of $5.5 billion. Let’s discuss the factors that indicate that the stock might stage a comeback.
Strategic Actions to Aid Margin
Sonoco’s consumer packaging businesses have been benefiting from the Metal Packaging acquisition and pricing efforts. The company is implementing aggressive price actions across its businesses to counter higher raw material and non-material inflation.
Continued strong recovery in price and costs across most of its businesses, benefits from the Ball Metalpack (now Sonoco Metal Packaging) acquisition, and solid demand are likely to contribute to the company’s 2023 results.
Sonoco emphasizes capital allocation and expects to be able to increase dividends, while maintaining an investment-grade balance sheet. The company intends to increase returns on invested capital in the coming years through organic investments in core accretive acquisitions and portfolio rationalization.
Moreover, Sonoco is focused on growing in niche food markets and launching products with new customers. Investment in these markets will increase the pouch-making capacity of the company and help it expand its presence in the pouch market.
Focus on Optimization to Boost Results
Sonoco’s focus on optimizing businesses through productivity improvement, standardization and cost control will also aid its results in the near term. It is implementing several synergy opportunities, including optimizing raw material purchases, leveraging indirect expenses and coordinating supply-chain logistics.
These factors will help meet Sonoco’s cost-saving target. Sonoco is focused on increasing investment in its core consumer and industrial businesses, and achieving an annual EBITDA of $1 billion by 2026.
Recent Acquisitions Bode Well
On Jan 22, 2022, Sonoco completed the acquisition of Ball Metalpack for a cash payment of $1.35 billion. Ball Metalpack is a foremost producer of sustainable metal packaging for food and household products, and the largest manufacturer of aerosol products in North America.
The deal supported Sonoco’s focus on investing in the core business that strengthens its global Paper Cans and Closures business, while bolstering its sustainable packaging portfolio with metal packaging. Notably, metal packaging is preferable to U.S. customers due to its inherent attributes of recyclability and sustainability.
Sonoco expects to realize tax benefits of $180 million from the deal. It expects to generate annual synergies of at least $20 million from procurement and SG&A savings within three years of the transaction.
In fourth-quarter 2022, Sonoco acquired Denmark-based Skjern, a privately owned manufacturer of paper, for $88 million in cash. The acquisition expanded SON’s production capacity. It will help Sonoco capitalize on the growing market for sustainable paper and packaging products in Europe. The transaction is expected to be accretive to its earnings per share and cash flow.
Zacks Rank and Stocks to Consider
Sonoco currently has a Zacks Rank #4 (Sell).
Some better-ranked stocks from the Industrial Products sector are Worthington Industries, Inc. (WOR - Free Report) , Astec Industries, Inc. (ASTE - Free Report) and A. O. Smith Corporation (AOS - Free Report) . WOR and ASTE sport a Zacks Rank #1 (Strong Buy) at present, and AOS has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Worthington Industries has an average trailing four-quarter earnings surprise of 14.9%. The Zacks Consensus Estimate for WOR’s fiscal 2023 earnings is pegged at $5.65 per share. The consensus estimate for 2023 earnings has moved north by 22.6% in the past 60 days. Its shares gained 33.5% in the last year.
Astec has an average trailing four-quarter earnings surprise of 20%. The Zacks Consensus Estimate for ASTE’s 2023 earnings is pegged at $2.81 per share. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. ASTE’s shares gained 22.8% in the last year.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings per share is pegged at $3.57. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days. It has a trailing four-quarter average earnings surprise of 10.5%. AOS gained 11.1% in the last year.