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Why Is Sonoco (SON) Up 1.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Sonoco (SON). Shares have added about 1.9% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Sonoco Q3 Earnings Beat Estimates, Decline Y/Y

Sonoco reported adjusted earnings per share (EPS) of $1.46 in third-quarter 2023, beating the Zacks Consensus Estimate of $1.26. The figure came above the company’s guidance of $1.25-$1.35. However, the bottom line fell 8.8% from the prior-year quarter, driven by lower volumes.

Including one-time items, the company reported an EPS of $1.32 compared with the year-ago quarter’s $1.24.

Sonoco’s net sales were $1,710 million, which missed the Zacks Consensus Estimate of $1,735 million. The top line fell 9.5% year over year, hurt by lower volumes.

Operational Update

The cost of sales was $1,346 million, 11.6% lower than the year-earlier quarter. The gross profit in the reported quarter totaled $364 million compared with the prior-year quarter’s $367 million. The gross margin came in at 21.3% compared with the year-ago quarter’s 19.4%.

Selling, general and administrative expenses amounted to $183 million, up 11% year over year.

Adjusted operating income was $213 million in the reported quarter compared with the prior-year quarter’s $225 million. The operating margin came in at 12.4%, down from the year-ago quarter’s 11.9%.

Segmental Performance

The Consumer Packaging segment’s net sales were down 8.9% year over year to $938 million, as volumes were impacted by destocking trends. We predicted the segment’s sales to be $1,018 million in the quarter. Operating profit amounted to $112 million, down 12.4% from the prior-year quarter. The reported figure missed our estimate of $91 million.

Net sales in the Industrial Paper Packaging segment were $580 million, reflecting a year-over-year dip of 12.3% due to a low volume and mix. Our estimate for the segment’s quarterly sales was $537 million. Operating profit totaled $75 million, reflecting an 8.4% year-over-year fall. We expected operating profit to be $79 million in the quarter.

Sales for the All Other segment, which comprises protective, healthcare, retail and industrial plastics units, were $192 million, down 3.1% year over year. The reported figure surpassed our projected sales of $187 million. Operating profit for the segment totaled $25.5 million compared with the year-ago quarter’s $15 million. We predicted operating income to be $20.9 million in the quarter.

Financial Performance

Sonoco reported cash and cash equivalents of $258 million at the end of the third quarter of 2023 compared with $227 million at the 2022 end. The company generated a cash flow from operating activities of around $617 million in the first nine months of 2023 compared with $322 million in the prior-year period.

As of Oct 01, 2023, the total debt was $3.25 billion, up from $3.22 billion as of Dec 31, 2022.

Guidance

Sonoco projects a fourth-quarter 2023 adjusted EPS between $1.01 and $1.16.

The company revised its adjusted EPS guidance for 2023 to $5.25-$5.40 from the previously disclosed $5.10-$5.40. SON anticipates seasonally lower demand volumes in the fourth quarter and unfavorable index-based pricing impacts.

The operating cash flow for the year is expected at $850-$900 million. The free cash flow is projected between $600 million and $690 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -11.67% due to these changes.

VGM Scores

Currently, Sonoco has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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 #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Sonoco belongs to the Zacks Containers - Paper and Packaging industry. Another stock from the same industry, AptarGroup (ATR), has gained 2% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

AptarGroup reported revenues of $893 million in the last reported quarter, representing a year-over-year change of +6.7%. EPS of $1.39 for the same period compares with $0.95 a year ago.

For the current quarter, AptarGroup is expected to post earnings of $1.12 per share, indicating a change of +21.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.2% over the last 30 days.

AptarGroup has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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