On July 11, 2017, the US Trade Commission granted Sonoco early termination of the waiting period for its acquisition of Clear Lam Packaging, Inc., a leading developer, manufacturer and converter of innovative flexible and forming film packaging materials used with fresh and processed foods, personal health care products, electronics, household products and industrial products, based in Elk Grove Village, IL. The approximately $170 million transaction is expected to close by the end of this month.
Second Quarter Review
Commenting on Q2 GAAP and base results, Sonoco President and CEO Jack Sanders said, “Sonoco's balanced portfolio of consumer-related, industrial and protective packaging businesses continues to produce consistent results despite generally weak market demand and fluctuating raw material costs. Compared to the prior-year quarter, the company benefited from a positive price/cost relationship, manufacturing productivity improvements, and lower management incentives. However, these positive factors were offset by lower volume/mix, operating cost inflation and higher taxes on our base operating results.
“Operating profit in our Consumer Packaging segment was essentially flat with last year's quarter as total productivity and a slightly positive price/cost relationship essentially offset lower volume. Segment sales rose 2.0% due to acquisitions, net of divestitures, and higher selling prices implemented to recover rising raw material costs which was partially offset by the negative impact of foreign exchange.
"Our Display and Packaging segment's operating profit declined from last year's quarter on lower volume/mix and manufacturing productivity declines. Segment sales declined 11.7% due to loss of the Company's contract packaging business in Mexico and Brazil, as well as lower volumes in our domestic display and retail packaging businesses.
“Operating profit in our Paper and Industrial Converted Products segment improved 16.1% to the highest level in nearly three years as operating margin increased 70 basis points to 9.3%. The segment benefited from strong manufacturing productivity improvements and a positive price/cost relationship which were only partially offset by higher labor, maintenance and other expenses. Current-quarter segment sales grew by 8.3% due primarily to higher selling prices implemented to recover escalating recovered paper costs, partially offset by the prior-year divestiture of a paperboard mill in France, lower volume and the negative impact of foreign exchange.
“Our Protective Solutions segment's operating profit declined 23.0% from the prior-year quarter, as a negative price/cost relationship and declining manufacturing productivity resulting from lower volume were only partially offset by fixed-cost productivity improvements. Sales improved 3.2% in the quarter due primarily to acquisitions and higher selling prices, which offset lower volume.”
Gross profits were $235.9 million in Q2, down $6.1 million, compared with $242.0 million in the same period in 2016. Gross profit as a percent of sales declined to 19.0%, compared with 20.1% in the same period in 2016.
Commenting on the company’s outlook, Sanders said, “We are cautious entering the second half of 2017 as consumer preferences for packaged food continues to evolve and raw material costs remain unpredictable. We believe our diverse mix of consumer-related, industrial and protective packaging businesses are proving we can deliver consistent results in the midst of challenging markets. Our focus remains squarely on our Grow and Optimize strategy. For example, we are working to develop new packaging to serve the faster-growing perimeter of the store. The complementary acquisitions of Clear Lam Packaging and Peninsula Packaging significantly expand our flexible packaging and thermoforming plastics capabilities to build a strong position for developing and producing high-barrier structures necessary to meet growing consumer demand for more fresh and healthy foods.
Finally, while we have been very effective adjusting to the current environment, we realize we must continue to improve our operating structure. In order to do so, we are taking a more holistic look at each business to ensure we are serving the right customers with the right cost structure to ensure we improve our competitiveness and drive long-term margin improvement."