It has been about a month since the last earnings report for Sonoco (SON). Shares have added about 4.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sonoco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Sonoco Earnings Trump, Sales Miss Estimates in Q1
Sonoco Products’ first-quarter 2019 adjusted earnings increased 14.8% year over year to 85 cents per share. Earnings also outpaced the higher end of management’s guided range of 77-83 cents. Also, the reported figure beat the Zacks Consensus Estimate of 80 cents.
On a reported basis, including one-time items, earnings per share came in at 73 cents, flat year over year.
Sonoco’s net sales grew 3.8% year over year to $1.35 billion in the quarter. This upside was driven by acquisitions and higher selling prices, partly offset by negative foreign currency-exchange impact. The sales figure, however, missed the Zacks Consensus Estimate of $1.37 billion.
Cost of sales came in at $1.08 billion, up 2.8% year over year. Gross profit during the first quarter totaled $270 million, marking an 8% improvement year over year. Gross margin came in at 20% compared with the prior-year quarter’s 19%.
Selling, general and administrative expenses totaled $142.5 million, up 3.7% year over year, primarily resulting from acquisition-related costs. Adjusted operating income increased 13% year over year to $128 million during the Jan-March quarter. Operating margin came in at 9.5% compared with 8.7% recorded in the year-ago quarter.
The Consumer Packaging segment reported net sales of $590 million, up 3.5% from $570 million recorded in the prior-year quarter. Operating profit went up to $62 million from $61 million witnessed in the comparable period last year.
Net sales in the Paper and Industrial Converted Products segment came in at $496 million, representing an increase of 7.8% year over year on the Conitex acquisition and higher selling prices, partly offset by foreign exchange and lower volume. Operating profit totaled $48.4 million, up 21.6% year over year.
The Display and Packaging segment’s net sales slipped 3.5% year over year to $137.6 million. The segment’s operating profit significantly increased to $6.5 million compared to the $1.7 million reported in the year-earlier quarter.
The Protective Solution segment’s net sales came in at $128.4 million, down 2% year over year on lower volume. Operating profit of the segment improved 3% year over year to $11 million.
Sonoco reported cash and cash equivalents of $124.3 million at the end of the first quarter compared with $305.2 million at the end of the prior-year quarter. The company recorded cash flow from operating activities of $92.3 million in the reported quarter compared with $119.8 million witnessed in the year-earlier period.
As of the first quarter’s end, long-term debt was $1.19 billion, relatively flat with the 2018 end figure. As of Mar 31 2019, the company’s total debt-to-capital ratio was 43.9%, flat with year-end 2018.
For 2019, Sonoco raised its adjusted earnings per share guidance to $3.52-$3.62 from the prior view of $3.47-$3.57. Operating cash flow and free cash flow guidance remained unchanged. Operating cash flow is expected in the range of $600-$620 million, and free cash flow is anticipated between $225 million and $245 million.
For second-quarter 2019, the company projects adjusted earnings per share of 93-99 cents compared with the year-ago quarter’s 93 cents.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Sonoco has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sonoco has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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