By the numbers: Q1 2024
Net sales: $1.64B
Down 5.3% year over year
Consumer packaging net sales: $911M
Down 4.9% year over year
Net income: $65M
Down 56% year over year
- Overview: Volumes in Sonoco’s consumer segment continue to be affected by lower consumer purchasing amid inflation’s impact on pricing, particularly in the snacks and confectionary sectors. For metal packaging, volumes for aerosols grew year over year, but dipped for food. “Industrial volumes are improving, but the recovery is uneven across our markets in a way that is unique relative to historical recoveries,” said CFO Rob Dillard on a Wednesday earnings call. Q1 was a “difficult quarter” for the North American business, said CEO Howard Coker, namely for the rigid paper container business.
- Restructuring: In Q1, Sonoco announced the sale of its protective solutions business to Black Diamond Capital Management, a deal that executives said was completed on April 1. That move is part of the “portfolio simplification and investment” strategy that involved reshuffling business segments, including combining the flexible packaging and thermoforming packaging businesses under the consumer segment and transforming metal packaging into a new core business, two years after it acquired Ball Metalpack. “The integration of these businesses is well underway, and we expect to see operational and sales benefits in the future,” Coker said Wednesday.
- Investments: Sonoco is focused on investing in its rigid paper container growth strategy and M&A. Coker highlighted recent plant improvements, including replacing older and smaller paper machines with larger, more efficient models. The company is targeting M&A in metal packaging as well as thermoforming and flexible packaging, although Dillard said Sonoco is “being disciplined” with its transactions “in the disrupted M&A market.”
- Pricing: Sonoco said customers honored most of the price increases it announced earlier this year — an effort to offset higher inflationary and heightened OCC costs. But Dillard added that “paper indexes have not met the market,” referencing the controversy this year about Fastmarkets RISI’s monthly pricing data initially not reflecting the increases in January and then showing only partial uptake in February. Sonoco expects that “paper indexes will correct in the second quarter and industrial prices will more accurately reflect the inflationary environment and the improving market conditions,” Dillard said.
- Outlook: Sonoco expects volumes in its consumer packaging segment to be up sequentially in Q2 but largely flat year over year. Industrial volumes are expected to improve in the coming quarters. Globally, the rigid paper containers segment is expected to be down 1% in the second quarter, while flexibles are anticipated to be slightly positive. Retail price inflation and a slower uptick in consumer spending on brands or retailers’ promotions are expected to be drivers in Q2. “Our customers are telling us it's the price on the shelf. They are promoting but we’ve seen limited impact from that,” Fuller said.
