Sonoco executives detailed priorities for the years ahead during the company’s 2024 investor day on Feb. 22. Innovation and business unit restructuring emerged as among the key themes for driving growth and profitability.
Flex-Therm business integration to focus on niche markets
Executives gave more details about the decision announced earlier this month to combine the $600 million flexible packaging and $700 million thermoforming packaging businesses under the consumer segment. They detailed similarities between the two sectors, highlighting a 48% end market overlap but only an 18% customer overlap in 2023, with an estimated total addressable market of $7.5 billion.
“Merging these businesses creates a scaled platform for both organic and inorganic growth,” said Russell Grissett, president of global flexibles and thermoforming, noting the desire to integrate the businesses quickly to capitalize on growth opportunities in niche markets.
About three-quarters of revenue was in the United States. Primary product lines include food categories like snacks, condiments, prepared meals and fresh produce, as well as healthcare and pet. Among growth drivers for the business, Sonoco highlighted CPGs updating packages in line with 2030 sustainability commitments and the development of more targeted products.
Flexibles and thermoforming both are large, fragmented industries, Grissett said, and Sonoco targets niche businesses. The combined flexibles-thermoforming business creates a platform for growth with financial benefits as well as to support customers with innovation and speed-to-market, he said. The move also supports Sonoco's newer strategic focus on fewer, bigger businesses.
The flex-therm business joins metal packaging and rigid paper containers. Those will make up three of Sonoco’s four core businesses, with the other being industrial packaging.
As part of the reshuffle, the thermoforming ops business is also moving out of the “all other” category.
Sonoco still eyeing sales of some businesses
Portfolio alignment remains a top priority, said CEO Howard Coker, explaining that the team has sought to simplify a complicated business structure since he took over as CEO in 2020. “We felt that we couldn't scale without making some major changes,” he said.
Part of the strategy to prioritize fewer, larger businesses involves evaluating which ones no longer are a good fit for Sonoco, CFO Rob Dillard said. The company divested six meaningful assets since 2020, “and we intend to continue this path with the opportunity to unlock up to $1 billion of value from divestitures,” he said.
One area under evaluation is the “all other” category, which generated $780 million in sales in 2023. The company will “appropriately look at strategic sales time for value over the next few years,” Coker said. Remaining businesses there include Paperboard Specialties, ThermoSafe and Industrial Plastics.
Coker said that when the company created that collection of diversified businesses, he had asked that they be run like portfolio companies of a private equity fund.
“Our objective was not to put these businesses aside without attention, but to invest and make them better and improve profitability. We gave these businesses capital, rationalized footprint, we realigned the way some of them are operated,” he said.
The team has taken “decisive actions” across the portfolio in recent years, he said, including the sale of the protective solutions business, announced in January. Following that deal's closure Sonoco will have gained proceeds of about $200 million on the sale of core and non-core businesses since 2021, Coker reported. Other divestitures included BulkSak, S3 and Timber Assets.
Companywide, Sonoco will be 75% focused on the consumer segment by 2028, said Dillard. Overall, the company is orienting itself more toward growth-oriented consumer markets as it pursues $1.5 billion in adjusted earnings before interest, taxes, depreciation and amortization by 2028.
The company’s top priority is funding the growth plan for the rigid paper containers business. “And we'll be opportunistic as we drive growth in flexibles, thermoforming and metals,” Dillard said. “We're being intentional about the role of each of these businesses.”
Brand partnerships are driving growth in rigid paper containers
Key partnerships with customers are fueling innovation, especially in the rigid paper containers sector, said Sean Cairns, president of the global rigid paper and closures business.
Sonoco's decades-old partnership with Kellogg Co. advanced in 2023 with Kellanova’s introduction of 90% paper Pringles chip tubes that eliminate the typical metal base and instead use fiber. “It's the single biggest innovation that that pack has seen since the 1960s,” Cairns said, adding that the innovation makes the Pringles can recyclable and helps to “future-proof” it by advancing sustainability.
Another featured partnership announced this year is with chocolatier Chocolates Valor, which transitioned a portion of its cocoa products packaging to Sonoco's GreenCan, which is made from up to 98% paperboard and is recyclable.
Sustainability is a key trend driving RPC growth, as paper is “clearly the preferred substrate of CPGs and other end consumers,” Cairns said. “There’s a genuine willingness to invest in sustainable packaging.”
RPC sales reached $1.5 billion in 2023. The business’ revenue comes 73% from food and beverage, 13% from household and home care and 12% from health and personal care. The company expects growth to continue in the high single digits in the coming years.
Metal packaging integration advancing
Sonoco is working to transform metal packaging into a new core business, two years after it acquired Ball Metalpack. That business manufactured metal packaging for food and household products and was the largest aerosol can producer in North America. “It represented a clear strategic fit and only furthered our sustainable packaging offerings,” said Ernest Haynes, Sonoco president of metal packaging.
The integration is ahead of schedule, Haynes said, and the company has invested more than $300 million into the business.
“Our capital investments are centered on continuing to drive operational excellence innovations within our aerosol marketplace, where we remain the only producer of both two-piece and three-piece aerosol cans, and accelerating our progress on automation and digital technologies,” he said.
Rustoleum, Sherwin Williams, Ensure, Lysol, Bush’s baked beans and Red Gold tomatoes are among the customers who purchase metal packaging.
