By the numbers: Q4 and full-year 2023
Q4 net sales: $1.64B
Down 2.4% year over year
2023 net sales: $6.78B
Down 6.5% year over year
Q4 net income: $81.8M
Down 15.7% year over year
2023 net income: $475.9M
Up 1.9% year over year
- 2023 recap: “The global economic and external factors did not make this an easy year at all, but we did not stand still,” Sonoco CEO Howard Coker said on Thursday’s fourth-quarter and full-year 2023 earnings call. He said the team delivered record profit margins through diligent cost management. Although sales were down due to factors including destocking and lower consumer spending, Sonoco had a record year for productivity, operating cash flow and free cash flow, said CFO Rob Dillard.
- Results: Dillard said 2023 brought the second-best financial results in the company’s 125-year history in metrics such as net sales, adjusted earnings per share and adjusted earnings before interest, taxes, depreciation and amortization. Many consumer products customers are returning to traditional pricing, including discounts, following a period of destocking, Dillard said. Executives said customers have accepted the price increases that Sonoco implemented this year, with Chief Operating Officer Rodger Fuller saying the increases are “progressing well.”
- Portfolio optimization: Executives discussed ongoing portfolio shifts to optimize business operations and costs. “We will remain laser-focused on simplification and the alignment and fit to what businesses remain in our core,” Coker said. He provided context about last week’s announcement that Sonoco would close an uncoated paperboard mill in Sumner, Washington, and an ends and closures facility in Memphis, Tennessee. The Sumner mill was the oldest in Sonoco’s network, and “the cost to recapitalize just simply was not feasible,” so production is moving to lower-cost mills, Coker said. Executives also discussed the sale of Sonoco’s protective solutions packaging business, announced in January. They anticipate the sale to alternative asset management firm Black Diamond Capital Management will close in the first half of 2024, potentially in Q1.
- Segment integration: Sonoco disclosed in a Feb. 14 regulatory filing that as of Jan. 1, the company integrated its flexible packaging and thermoforming packaging businesses into the consumer segment to streamline operations, enhance customer service and accelerate growth. Analysts on the earnings call questioned the reasoning for the combination, considering the different business processes for these segments, but executives declined to give many details beyond that it makes sense “synergistically” and could open up more acquisition opportunities. They will share more information at Sonoco’s Feb. 22 investor day event.
- Inflation and consumer spending: Executives described how inflation-pressured consumers continue to shift their spending. Large retailers are now pressuring brands to lower prices, and more promotions are emerging. Brands “had a price point where it's really impacted their volume. So what we're hearing from our customers is they're going to be more aggressive on promotions, and more aggressive on regaining some of the volume that has been lost over the last year,” Fuller said.
- Innovation: Sonoco invested a record amount of capital into the company in 2023 to drive growth and productivity. Executives expressed optimism about recovery, especially in the consumer segment, in part thanks to new product launches. One example is Sonoco’s multi-year partnership with Kellanova the Kellogg Co. snack food spinoff to design and commercialize a paper bottom for Pringles rigid paper cans. Kellanova introduced the paper cans in Europe last year, “and the global expansion on those packages has been fantastic. That's why we're more confident about our recovery and consumer volumes as we go throughout the year,” Fuller said.
- Q1 outlook: Severe cold in January affected consumer packaging shipments, especially in the Midwest, and the company faces headwinds in Q1 from year-over-year steel price declines. When an analyst asked about impacts from steelmaker Cleveland-Cliffs’ Thursday morning announcement that it would idle a West Virginia tinplate production plant, Coker said: “We don't really view that as an impact to us in any way.” Executives do not expect volumes improvements in Q1 2024.
- 2024 outlook: Executives anticipate overall sales will be up modestly for the full year, taking an “appropriately conservative” outlook on volumes recovery, Dillard said. They declined to give specific guidance due to the uncertainty within the marketplace.
