Sonoco Products Company (“Sonoco” or the “Company”) (NYSE: SON),
one of the largest sustainable global packaging companies, today
reported financial results for its first quarter ended
March 31, 2024.
Summary:
- Generated $166 million of operating
cash flow and $80 million of Free Cash Flow
- Achieved net income attributable to
Sonoco of $65 million, Adjusted EBITDA of $245 million, diluted
earnings per share of $0.66 and diluted Adjusted earnings per share
of $1.12; higher productivity of $51 million partially offset
price/cost pressures and lower volumes
- Completed the sale of Protective
Solutions on April 1, 2024, as part of our strategy to simplify our
portfolio and used the majority of the $82 million cash proceeds to
pay down debt
- Revised Adjusted EPS and Adjusted
EBITDA guidance to reflect the completed sale of Protective
Solutions and reaffirmed operating cash flow guidance
- Increased the quarterly dividend on
April 17, 2024 for the 41st consecutive year to $0.52 per
share
- Entered a Virtual Power Purchase
Agreement (“VPPA”) to contract a significant portion of Sonoco’s
expected U.S. electricity consumption in 2025 and support Sonoco’s
emissions reduction goals
- Released our 2023 Corporate Sustainability Report detailing
progress on sustainability initiatives
First Quarter 2024 Consolidated
Results |
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(Dollars in millions except per share data) |
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Three Months Ended |
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GAAP
Results |
March 31, 2024 |
April 2, 2023 |
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Change |
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Net sales1 |
$ |
1,638 |
$ |
1,730 |
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(5 |
)% |
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Operating profit |
$ |
112 |
$ |
230 |
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(51 |
)% |
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Net income attributable to
Sonoco |
$ |
65 |
$ |
148 |
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(56 |
)% |
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EPS (diluted) |
$ |
0.66 |
$ |
1.50 |
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(56 |
)% |
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1Net sales for the
three months ended April 2, 2023 include $33 million from recycling
operations. Effective January 1, 2024, recycling operations are
conducted as a procurement function, hence, recycling sales margins
are only reflected in cost of sales. |
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Three Months Ended |
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Non-GAAP Results2 |
March 31, 2024 |
April 2, 2023 |
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Change |
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Adjusted operating profit |
$ |
176 |
$ |
213 |
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(18 |
)% |
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Adjusted EBITDA |
$ |
245 |
$ |
276 |
|
(11 |
)% |
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Adjusted net income
attributable to Sonoco (“Adjusted Earnings”) |
$ |
111 |
$ |
138 |
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(19 |
)% |
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Adjusted EPS (diluted) |
$ |
1.12 |
$ |
1.40 |
|
(20 |
)% |
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2 See the Company’s definitions of non-GAAP
financial measures, explanations as to why they are used, and
reconciliations to the most directly comparable U.S. generally
accepted accounting principles (“GAAP”) financial measures later in
this release.
- Net sales decreased 5% to $1.6
billion driven by lower pricing and the treatment of recycling
operations as a procurement function beginning January 1, 2024;
volumes remained flat as lower volumes offset the benefit of
acquisitions
- GAAP operating profit decreased to
$112 million primarily due to the absence of gains ($72 million)
recognized in Q1 2023 related to the sales of the Company’s
timberland properties and Sonoco Sustainability Solutions; lower
volumes and price/cost were partially offset by higher
productivity
- Effective tax rates on GAAP and
Adjusted Earnings were 21.3% and 25.6%, respectively, in Q1 2024
compared to 24.3% and 24.8%, respectively, in Q1 2023
- GAAP net income attributable to
Sonoco decreased to $65 million resulting in GAAP EPS (diluted) of
$0.66
- Adjusted Earnings decreased to $111
million resulting in Adjusted EPS (diluted) of $1.12
- Adjusted operating profit and
Adjusted EBITDA decreased to $176 million and $245 million,
respectively, due to lower volumes in the Consumer Packaging
(“Consumer”) segment and unfavorable price/cost in the Industrial
Packaging (“Industrial”) segment, which were partially offset by
higher productivity across the portfolio
“Sonoco delivered first quarter results in line
with our expectations”, said Sonoco’s President and CEO, Howard
Coker. “While the overall demand environment remains muted and
price/cost headwinds persist, focused execution and operating
discipline delivered $51 million of productivity from value
creating capital investments and business simplification
initiatives over the past several years. On the strategic front, we
continued to make notable progress on portfolio alignment with the
sale of our Protective Solutions business, integration of our
flexibles and thermoformed businesses, and strengthening our
strategic pipeline of both organic and inorganic investment
opportunities.”
First Quarter 2024
Segment Results(Dollars in millions except per
share data)
Sonoco reports its financial results in two reportable segments:
Consumer and Industrial, with all remaining businesses reported as
All Other.
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Three Months Ended |
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Consumer Packaging |
March 31, 2024 |
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April 2, 2023 |
Change |
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Net sales |
$ |
911 |
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$ |
958 |
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(5 |
)% |
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Segment operating profit |
$ |
93 |
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$ |
96 |
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(4 |
)% |
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Segment operating profit
margin |
|
10 |
% |
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|
10 |
% |
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Segment Adjusted EBITDA1 |
$ |
129 |
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$ |
129 |
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— |
% |
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Segment Adjusted EBITDA
margin1 |
|
14 |
% |
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13 |
% |
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- Effective January 1, 2024, the
Company’s flexible packaging and thermoformed packaging businesses
were integrated within the Consumer segment to streamline
operations, enhance customer service, and better position the
business to accelerate growth
- Consumer net sales were down 5% to
$911 million as volumes continued to be impacted by lower consumer
purchases from inflationary pricing impacts, primarily in snacks
and confectionary markets. Metal Packaging experienced year over
year growth in aerosol volumes and declines in food volumes
- Consumer operating profit decreased
4% to $93 million due to lower volumes and negative price/cost,
partially offset by continued strong productivity
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Three Months Ended |
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Industrial Paper Packaging |
March 31, 2024 |
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April 2, 2023 |
Change |
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Net sales2 |
$ |
593 |
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$ |
616 |
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(4 |
)% |
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Segment operating profit |
$ |
66 |
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$ |
94 |
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(30 |
)% |
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Segment operating profit
margin |
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11 |
% |
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15 |
% |
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Segment Adjusted EBITDA1 |
$ |
95 |
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$ |
121 |
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(21 |
)% |
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Segment Adjusted EBITDA
margin1 |
|
16 |
% |
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20 |
% |
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- Effective January 1, 2024, we began conducting our recycling
operations as a procurement function with recycling sale margins
reflected only in cost of sales
- Industrial net sales decreased 4%
to $593 million driven by lower index-related pricing, continued
weakness in global converted products, and the conduct of recycling
as a procurement function, which was partially offset by higher
demand in paper and revenues from acquisitions
- Continued price/cost pressures were
partially offset by strong productivity and the benefit from
acquisitions which resulted in an operating profit margin of 11%
and Adjusted EBITDA margin of 16%
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Three Months Ended |
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All Other |
March 31, 2024 |
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April 2, 2023 |
Change |
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Net sales |
$ |
134 |
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$ |
156 |
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(14 |
)% |
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Operating profit |
$ |
17 |
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$ |
23 |
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(24 |
)% |
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Operating profit margin |
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13 |
% |
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15 |
% |
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Adjusted EBITDA1 |
$ |
21 |
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$ |
26 |
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(20 |
)% |
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Adjusted EBITDA margin1 |
|
16 |
% |
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17 |
% |
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- Net sales declined 14% due to lower volumes in temperature
assured packaging from product transitions
- Operating profit and Adjusted
EBITDA declined by 24% and 20%, respectively, from lower volumes
and negative price/cost, partially offset by higher
productivity
1Segment and All Other Adjusted EBITDA and
Adjusted EBITDA margin are non-GAAP financial measures. See the
Company’s reconciliations of these non-GAAP financial measures to
the most directly comparable GAAP financial measures later in this
release.2Net sales for the three months ended April 2, 2023 include
$33 million from recycling operations.
Balance Sheet and Cash Flow
Highlights
- Cash and cash equivalents were $172
million as of March 31, 2024, compared to $152 million as of
December 31, 2023
- Total debt was $3.1 billion as of
March 31, 2024, essentially flat compared to December 31,
2023
- On March 31, 2024, the Company
had available liquidity of $1.1 billion, including the undrawn
availability under its revolving credit facility
- Cash flow from operating activities
for the first quarter 2024 was $166 million, compared to $98
million in the same period of 2023
- Capital expenditures, net of
proceeds from sales of fixed assets, for the first three months of
2024 were $86 million, compared to $12 million for the same period
last year, which included net proceeds from the sale of our
timberland properties of $71 million
- Free Cash Flow for the first three
months of 2024 was $80 million compared to $86 million for the same
period of 2023. See the Company’s definition of Free Cash Flow, the
explanation as to why it is used, and the reconciliation to net
cash provided by operating activities later in this release
- Dividends paid during the quarter
ended March 31, 2024 increased to $50 million compared to $48
million for the same quarter of the prior fiscal year
Guidance(1)
Second Quarter
2024
- Adjusted EPS(2):
$1.25 to $1.35
Full Year 2024
- Adjusted EPS(2):
$5.00 to $5.30
- Cash flow from operating
activities: $650 million to $750 million
- Adjusted EBITDA: $1,050 to
$1,090
Commenting on the Company’s outlook, Coker said,
“At the midpoint of second quarter 2024 guidance, we expect
sequential adjusted earnings per share improvement of 16% over
first quarter results from increased sales in metal packaging and
trade paper and continued strong productivity across all
businesses. We will continue to make progress on our portfolio
simplification efforts while remaining focused on financial
discipline and returning capital to our shareholders.”
(1)Although the Company believes the assumptions
reflected in the range of guidance are reasonable, given the
uncertainty regarding the future performance of the overall
economy, the effects of inflation, the continued challenges in
global supply chains, potential changes in raw material prices,
other costs, and the Company’s effective tax rate, as well as other
risks and uncertainties, including those described below, actual
results could vary substantially. Further information can be found
in the section entitled “Forward-looking Statements” in this
release.
(2) Second quarter and full year 2024 GAAP
guidance are not provided in this release due to the likely
occurrence of one or more of the following, the timing and
magnitude of which we are unable to reliably forecast without
unreasonable efforts: restructuring costs and restructuring-related
impairment charges, acquisition/divestiture-related costs, gains or
losses on the sale of businesses or other assets, and the income
tax effects of these items and/or other income tax-related events.
These items could have a significant impact on the Company’s future
GAAP financial results. Accordingly, a quantitative reconciliation
of Adjusted EPS guidance has been omitted in reliance on the
exception provided by Item 10 of Regulation
S-K.
Effective January 1, 2024, the Company
integrated its flexible packaging and thermoformed packaging
businesses within the Consumer segment in order to streamline
operations, enhance customer service, and better position the
business for accelerated growth. As a result, the Company changed
its operating and reporting structure to reflect the way it now
manages its operations, evaluates performance, and allocates
resources. Beginning this reporting period, the Company’s consumer
thermoformed businesses moved from the All Other group of
businesses to the Consumer segment. The Company’s Industrial
segment was not affected by these changes.
Conference Call
WebcastManagement will host a conference call and webcast
to further discuss these results beginning at 8:30 am EDT,
Wednesday, May 1, 2024. The live conference call and a
corresponding presentation can be accessed via the Company’s
Investor Relations website at https://investor.sonoco.com. To
listen via telephone, please register in advance at
https://edge.media-server.com/mmc/p/95xz4bah/. Upon registration,
all telephone participants will receive the dial-in number along
with a unique PIN number that can be used to access the call. A
replay of the conference call and webcast will be archived on the
Company’s Investor Relations website for at least 30 days.
Contact Information: Lisa
WeeksVice President of Investor Relations &
Communicationslisa.weeks@sonoco.com 843-383-7524
About SonocoWith net sales of
approximately $6.8 billion in 2023, Sonoco has approximately 22,000
employees working in more than 300 operations around the world,
serving some of the world’s best-known brands. With our corporate
purpose of Better Packaging. Better Life., Sonoco is committed to
creating sustainable products and a better world for our customers,
employees and communities. Sonoco was named one of America’s Most
Responsible Companies by Newsweek. For more information on the
Company, visit our website at www.sonoco.com.
Forward-looking StatementsStatements included
herein that are not historical in nature, are intended to be, and
are hereby identified as “forward-looking statements” for purposes
of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. In addition, the Company and its
representatives may from time to time make other oral or written
statements that are also “forward-looking statements.” Words such
as “assume,” “believe,” “committed,” “continue,” “could,”
“estimate,” “expect,” “focused,” “future,” “guidance,” “likely,”
“may,” “ongoing,” “outlook,” “potential,” “seek,” “strategy,”
“will,” or the negative thereof, and similar expressions identify
forward-looking statements.
Forward-looking statements in this communication include
statements regarding, but not limited to: the Company’s future
operating and financial performance, including second quarter and
full year 2024 outlook and the anticipated drivers thereof; the
Company’s ability to support its customers and manage costs;
opportunities for productivity and other operational improvements;
price/cost, customer demand and volume outlook; expected benefits
from and integration efforts related to acquisitions and
divestitures; the Company’s expectations with respect to the VPPA
and its contribution to the Company’s emissions reduction goals;
the effectiveness of the Company’s strategy and strategic
initiatives, including with respect to capital expenditures,
portfolio simplification and capital allocation priorities; the
Company’s pipeline of organic and inorganic investment
opportunities; the effects of the macroeconomic environment and
inflation on the Company and its customers; and the Company’s
ability to generate continued value and return capital to
shareholders.
Such forward-looking statements are based on
current expectations, estimates and projections about our industry,
management’s beliefs and certain assumptions made by management.
Such information includes, without limitation, discussions as to
guidance and other estimates, perceived opportunities,
expectations, beliefs, plans, strategies, goals and objectives
concerning our future financial and operating performance. These
statements are not guarantees of future performance and are subject
to certain risks, uncertainties and assumptions that are difficult
to predict.
Therefore, actual results may differ materially
from those expressed or forecasted in such forward-looking
statements.
Such risks, uncertainties and assumptions
include, without limitation, those related to: the Company’s
ability to execute on its strategy, including with respect to
acquisitions (and integrations thereof), divestitures, cost
management, productivity improvements, restructuring and capital
expenditures, and achieve the benefits it expects therefrom; the
operation of new manufacturing capabilities; the Company’s ability
to achieve anticipated cost and energy savings; the availability,
transportation and pricing of raw materials, energy and
transportation, including the impact of potential changes in
tariffs or sanctions and escalating trade wars, and the impact of
war, general regional instability and other geopolitical tensions
(such as the ongoing conflict between Russia and Ukraine as well as
the economic sanctions related thereto, and the ongoing conflict in
Israel and Gaza), and the Company’s ability to pass raw material,
energy and transportation price increases and surcharges through to
customers or otherwise manage these commodity pricing risks; the
costs of labor; the effects of inflation, fluctuations in consumer
demand, volume softness, and other macroeconomic factors on the
Company and the industries in which it operates and that it serves;
the Company’s ability to meet its environmental and sustainability
goals, including with respect to greenhouse gas emissions; and to
meet other social and governance goals, including challenges in
implementation thereof; and the other risks, uncertainties and
assumptions discussed in the Company’s filings with the Securities
and Exchange Commission, including its most recent reports on Forms
10-K and 10-Q, particularly under the heading “Risk Factors.” The
Company undertakes no obligation to publicly update or revise
forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed herein might
not occur.
References to our Website
Address
References to our website address and domain
names throughout this release are for informational purposes only,
or to fulfill specific disclosure requirements of the Securities
and Exchange Commission’s rules or the New York Stock Exchange
Listing Standards. These references are not intended to, and do
not, incorporate the contents of our website by reference into this
release.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) |
(Dollars and shares in thousands except per share data) |
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Three Months Ended |
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March 31, 2024 |
|
April 2, 2023 |
Net sales |
$ |
1,637,543 |
|
|
$ |
1,729,783 |
Cost of sales |
|
1,299,990 |
|
|
|
1,355,355 |
Gross profit |
|
337,553 |
|
|
|
374,428 |
Selling, general,
and administrative expenses |
|
193,482 |
|
|
|
187,976 |
Restructuring/Asset impairment charges |
|
31,618 |
|
|
|
28,814 |
Gain on divestiture
of business and other assets |
|
— |
|
|
|
72,010 |
Operating
profit |
|
112,453 |
|
|
|
229,648 |
Non-operating
pension costs |
|
3,295 |
|
|
|
3,658 |
Net interest
expense |
|
27,662 |
|
|
|
32,670 |
Income before
income taxes |
|
81,496 |
|
|
|
193,320 |
Provision for
income taxes |
|
17,360 |
|
|
|
46,912 |
Income before
equity in earnings of affiliates |
|
64,136 |
|
|
|
146,408 |
Equity in earnings
of affiliates, net of tax |
|
1,137 |
|
|
|
1,856 |
Net income |
|
65,273 |
|
|
|
148,264 |
Net (income)/loss
attributable to noncontrolling interests |
|
(96 |
) |
|
|
55 |
Net income
attributable to Sonoco |
$ |
65,177 |
|
|
$ |
148,319 |
|
|
|
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|
|
Weighted average
common shares outstanding – diluted |
|
99,159 |
|
|
|
98,615 |
|
|
|
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|
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Diluted earnings
per common share |
$ |
0.66 |
|
|
$ |
1.50 |
Dividends per
common share |
$ |
0.51 |
|
|
$ |
0.49 |
|
FINANCIAL SEGMENT INFORMATION (Unaudited) |
(Dollars in thousands) |
|
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|
|
|
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|
|
Three Months Ended |
|
|
|
|
March 31, 2024 |
|
April 2, 2023 |
Net sales: |
|
|
|
|
|
Consumer Packaging |
|
$ |
910,577 |
|
|
$ |
958,008 |
|
|
Industrial Paper
Packaging |
|
|
593,060 |
|
|
|
615,855 |
|
|
Total reportable segments |
|
|
1,503,637 |
|
|
|
1,573,863 |
|
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All Other |
|
|
133,906 |
|
|
|
155,920 |
|
|
Net sales |
|
$ |
1,637,543 |
|
|
$ |
1,729,783 |
|
|
|
|
|
|
|
|
|
|
|
|
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Operating
profit: |
|
|
|
|
|
Consumer
Packaging |
|
$ |
93,027 |
|
|
$ |
96,494 |
|
|
Industrial Paper
Packaging |
|
|
65,844 |
|
|
|
94,367 |
|
|
Segment operating profit |
|
|
158,871 |
|
|
|
190,861 |
|
|
All Other |
|
|
17,125 |
|
|
|
22,560 |
|
|
Corporate |
|
|
|
|
|
Restructuring/Asset impairment charges |
|
|
(31,618 |
) |
|
|
(28,814 |
) |
|
Amortization of acquisition intangibles |
|
|
(22,939 |
) |
|
|
(21,164 |
) |
|
Gains from divestiture of business and other assets |
|
|
— |
|
|
|
72,010 |
|
|
Other operating charges, net |
|
|
(8,986 |
) |
|
|
(5,805 |
) |
|
Operating profit |
|
$ |
112,453 |
|
|
$ |
229,648 |
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) |
(Dollars in thousands) |
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2024 |
|
April 2, 2023 |
|
|
|
|
|
|
Net income |
$ |
65,273 |
|
|
$ |
148,264 |
|
Net (gains)/losses
on asset impairments, disposition of assets and divestiture of
business and other assets |
|
8,364 |
|
|
|
(53,064 |
) |
Depreciation,
depletion and amortization |
|
90,559 |
|
|
|
82,137 |
|
Pension and
postretirement plan (contributions), net of non-cash expense |
|
115 |
|
|
|
(523 |
) |
Changes in working
capital |
|
770 |
|
|
|
(91,489 |
) |
Changes in tax
accounts |
|
4,567 |
|
|
|
23,618 |
|
Other operating
activity |
|
(3,413 |
) |
|
|
(10,941 |
) |
Net cash
provided by operating activities |
|
166,235 |
|
|
|
98,002 |
|
|
|
|
|
|
|
Purchases of
property, plant and equipment, net |
|
(86,357 |
) |
|
|
(11,996 |
) |
Proceeds from the
sale of business, net |
|
— |
|
|
|
13,839 |
|
Cost of
acquisitions, net of cash acquired |
|
(452 |
) |
|
|
— |
|
Net
repayments |
|
(1,774 |
) |
|
|
(62,541 |
) |
Cash
dividends |
|
(50,144 |
) |
|
|
(47,731 |
) |
Payments for share
repurchases |
|
(9,139 |
) |
|
|
(10,576 |
) |
Other, including
effects of exchange rates on cash |
|
1,907 |
|
|
|
3,216 |
|
Net increase in
cash and cash equivalents |
|
20,276 |
|
|
|
(17,787 |
) |
Cash and cash
equivalents at beginning of period |
|
151,937 |
|
|
|
227,438 |
|
Cash and cash
equivalents at end of period |
$ |
172,213 |
|
|
$ |
209,651 |
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) |
(Dollars in thousands) |
|
|
|
March 31, 2024 |
|
December 31, 2023 |
Assets |
|
|
|
Current
Assets: |
|
|
|
|
Cash and cash
equivalents |
$ |
172,213 |
|
$ |
151,937 |
|
Trade accounts
receivable, net of allowances |
|
939,724 |
|
|
904,898 |
|
Other
receivables |
|
102,357 |
|
|
106,644 |
|
Inventories |
|
749,022 |
|
|
773,501 |
|
Prepaid
expenses |
|
101,288 |
|
|
113,385 |
|
|
|
|
2,064,604 |
|
|
2,050,365 |
Property, plant
and equipment, net |
|
1,921,848 |
|
|
1,906,137 |
Right of use
asset-operating leases |
|
332,587 |
|
|
314,944 |
Goodwill |
|
1,796,077 |
|
|
1,810,654 |
Other intangible
assets, net |
|
828,085 |
|
|
853,670 |
Other assets |
|
255,079 |
|
|
256,187 |
|
|
|
$ |
7,198,280 |
|
$ |
7,191,957 |
Liabilities and Shareholders’ Equity |
|
|
|
Current
Liabilities: |
|
|
|
|
Payable to
suppliers and other payables |
$ |
1,116,351 |
|
$ |
1,107,504 |
|
Notes payable and
current portion of long-term debt |
|
453,710 |
|
|
47,132 |
|
Accrued taxes |
|
7,248 |
|
|
10,641 |
|
|
|
|
1,577,309 |
|
|
1,165,277 |
Long-term debt,
net of current portion |
|
2,630,424 |
|
|
3,035,868 |
Noncurrent
operating lease liabilities |
|
282,877 |
|
|
265,454 |
Pension and other
postretirement benefits |
|
142,422 |
|
|
142,900 |
Deferred income
taxes and other |
|
137,766 |
|
|
150,623 |
Total equity |
|
2,427,482 |
|
|
2,431,835 |
|
|
|
$ |
7,198,280 |
|
$ |
7,191,957 |
|
|
Definition and Reconciliation of Non-GAAP Financial
Measures
The Company’s results determined in accordance with U.S.
generally accepted accounting principles (“GAAP”) are referred to
as “as reported” or “GAAP” results. The Company uses certain
financial performance measures, both internally and externally,
that are not in conformity with GAAP (“non-GAAP financial
measures”) to assess and communicate the financial performance of
the Company. These non-GAAP financial measures, which are
identified using the term “Adjusted” (for example, “Adjusted
Operating Profit”), reflect adjustments to the Company’s GAAP
operating results to remove amounts (including the associated tax
effects) relating to:
- restructuring/asset impairment
charges1;
- acquisition, integration and divestiture-related costs;
- gains or losses from the divestiture of businesses and other
assets;
- losses from the early extinguishment of debt;
- non-operating pension costs;
- amortization expense on acquisition intangibles;
- changes in last-in, first-out (“LIFO”) inventory reserves;
- certain income tax events and adjustments;
- derivative gains/losses;
- other non-operating income and losses; and
- certain other items, if any.
1Restructuring and restructuring-related asset
impairment charges are a recurring item as the Company’s
restructuring programs usually require several years to fully
implement, and the Company is continually seeking to take actions
that could enhance its efficiency. Although recurring, these
charges are subject to significant fluctuations from period to
period due to the varying levels of restructuring activity, the
inherent imprecision in the estimates used to recognize the
impairment of assets, and the wide variety of costs and taxes
associated with severance and termination benefits in the countries
in which the restructuring actions occur.
The Company’s management believes the exclusion
of the amounts related to the above-listed items improves the
period-to-period comparability and analysis of the underlying
financial performance of the business.
In addition to the “Adjusted” results described above, the
Company also uses Adjusted EBITDA and Adjusted EBITDA Margin.
Adjusted EBITDA is defined as net income excluding the following:
interest expense; interest income; provision for income taxes;
depreciation, depletion and amortization expense; non-operating
pension costs; net income/loss attributable to noncontrolling
interests; restructuring/asset impairment charges; changes in LIFO
inventory reserves; gains/losses from the divestiture of businesses
and other assets; acquisition, integration and divestiture-related
costs; other income; derivative gains/losses; and other non-GAAP
adjustments, if any, that may arise from time to time. Adjusted
EBITDA Margin is defined as Adjusted EBITDA divided by net
sales.
The Company’s non-GAAP financial measures are
not calculated in accordance with, nor are they an alternative for,
measures conforming to GAAP, and they may be different from
non-GAAP financial measures used by other companies. In addition,
these non-GAAP financial measures are not based on any
comprehensive set of accounting rules or principles.
The Company presents these non-GAAP financial
measures to provide investors with information to evaluate Sonoco’s
operating results in a manner similar to how management evaluates
business performance. The Company consistently applies its non-GAAP
financial measures presented herein and uses them for internal
planning and forecasting purposes, to evaluate its ongoing
operations, and to evaluate the ultimate performance of management
and each business unit against plans/forecasts. In addition, these
same non-GAAP financial measures are used in determining incentive
compensation for the entire management team and in providing
earnings guidance to the investing community.
Material limitations associated with the use of
such measures include that they do not reflect all period costs
included in operating expenses and may not be comparable with
similarly named financial measures of other companies. Furthermore,
the calculations of these non-GAAP financial measures are based on
subjective determinations of management regarding the nature and
classification of events and circumstances that the investor may
find material and view differently.
To compensate for any limitations in such
non-GAAP financial measures, management believes that it is useful
in evaluating the Company’s results to review both GAAP
information, which includes all of the items impacting financial
results, and the related non-GAAP financial measures that exclude
certain elements, as described above. Further, Sonoco management
does not, nor does it suggest that investors should, consider any
non-GAAP financial measures in isolation from, or as a substitute
for, financial information prepared in accordance with GAAP.
Whenever reviewing a non-GAAP financial measure,
investors are encouraged to review and consider the related
reconciliation to understand how it differs from the most directly
comparable GAAP measure.
The following tables reconcile the Company’s non-GAAP financial
measures to their most directly comparable GAAP financial measures
for each of the periods presented:
Adjusted Operating Profit, Adjusted
Income Before Income Taxes, Adjusted Provision for Income Taxes,
Adjusted Earnings, and Adjusted EPS
|
For the three-month period ended March 31,
2024 |
Dollars in thousands,
except per share data |
Operating Profit |
Income Before Income Taxes |
Provision for Income Taxes |
Net Income Attributable to Sonoco |
Diluted EPS |
As Reported (GAAP) |
$ |
112,453 |
|
$ |
81,496 |
|
$ |
17,360 |
|
$ |
65,177 |
|
$ |
0.66 |
|
Acquisition, integration and divestiture-related costs |
|
5,661 |
|
|
5,661 |
|
|
1,452 |
|
|
4,209 |
|
|
0.04 |
|
Changes in LIFO inventory reserves |
|
431 |
|
|
431 |
|
|
108 |
|
|
323 |
|
|
— |
|
Amortization of acquisition intangibles |
|
22,939 |
|
|
22,939 |
|
|
5,573 |
|
|
17,366 |
|
|
0.18 |
|
Restructuring/Asset impairment charges |
|
31,618 |
|
|
31,618 |
|
|
7,067 |
|
|
24,584 |
|
|
0.25 |
|
Non-operating pension costs |
|
— |
|
|
3,295 |
|
|
823 |
|
|
2,472 |
|
|
0.02 |
|
Net gain from derivatives |
|
(286 |
) |
|
(286 |
) |
|
(72 |
) |
|
(214 |
) |
|
— |
|
Other adjustments |
|
3,180 |
|
|
3,180 |
|
|
5,605 |
|
|
(2,425 |
) |
|
(0.03 |
) |
Total adjustments |
|
63,543 |
|
|
66,838 |
|
|
20,556 |
|
|
46,315 |
|
|
0.46 |
|
Adjusted |
$ |
175,996 |
|
$ |
148,334 |
|
$ |
37,916 |
|
$ |
111,492 |
|
$ |
1.12 |
|
Due to rounding,
individual items may not sum appropriately. |
|
|
For the three-month period ended April 2,
2023 |
Dollars in thousands,
except per share data |
Operating Profit |
Income Before Income Taxes |
Provision for Income Taxes |
Net Income Attributable to Sonoco |
Diluted EPS |
As Reported (GAAP) |
$ |
229,648 |
|
$ |
193,320 |
|
$ |
46,912 |
|
$ |
148,319 |
|
$ |
1.50 |
|
Acquisition, integration and divestiture-related costs |
|
5,188 |
|
|
5,188 |
|
|
1,280 |
|
|
3,908 |
|
|
0.04 |
|
Changes in LIFO inventory reserves |
|
(5,425 |
) |
|
(5,425 |
) |
|
(1,354 |
) |
|
(4,071 |
) |
|
(0.04 |
) |
Amortization of acquisition intangibles |
|
21,164 |
|
|
21,164 |
|
|
5,127 |
|
|
16,037 |
|
|
0.16 |
|
Restructuring/Asset impairment charges |
|
28,814 |
|
|
28,814 |
|
|
6,634 |
|
|
22,014 |
|
|
0.22 |
|
Gain on divestiture of business and other assets |
|
(72,010 |
) |
|
(72,010 |
) |
|
(17,122 |
) |
|
(54,888 |
) |
|
(0.55 |
) |
Non-operating pension costs |
|
— |
|
|
3,658 |
|
|
909 |
|
|
2,749 |
|
|
0.03 |
|
Net loss from derivatives |
|
6,085 |
|
|
6,085 |
|
|
1,518 |
|
|
4,567 |
|
|
0.05 |
|
Other adjustments |
|
(43 |
) |
|
(43 |
) |
|
955 |
|
|
(997 |
) |
|
(0.01 |
) |
Total adjustments |
|
(16,227 |
) |
|
(12,569 |
) |
|
(2,053 |
) |
|
(10,681 |
) |
|
(0.10 |
) |
Adjusted |
$ |
213,421 |
|
$ |
180,751 |
|
$ |
44,859 |
|
$ |
137,638 |
|
$ |
1.40 |
|
Due to rounding,
individual items may not sum appropriately. |
|
Adjusted EBITDA and
Adjusted EBITDA Margin |
|
|
|
|
Three Months Ended |
|
Dollars in
thousands |
March 31, 2024 |
April 2, 2023 |
|
|
|
|
|
Net income attributable to Sonoco |
$ |
65,177 |
|
$ |
148,319 |
|
|
Adjustments: |
|
|
|
Interest expense |
|
31,220 |
|
|
34,232 |
|
|
Interest income |
|
(3,558 |
) |
|
(1,562 |
) |
|
Provision for income taxes |
|
17,360 |
|
|
46,912 |
|
|
Depreciation, depletion, and amortization |
|
90,559 |
|
|
82,137 |
|
|
Non-operating pension costs |
|
3,295 |
|
|
3,658 |
|
|
Net income/(loss) attributable to noncontrolling interests |
|
96 |
|
|
(55 |
) |
|
Restructuring/Asset impairment charges |
|
31,618 |
|
|
28,814 |
|
|
Changes in LIFO inventory reserves |
|
431 |
|
|
(5,425 |
) |
|
Gain from divestiture of business and sale of other assets |
|
— |
|
|
(72,010 |
) |
|
Acquisition, integration and divestiture-related costs |
|
5,661 |
|
|
5,188 |
|
|
Net (gain)/loss from derivatives |
|
(286 |
) |
|
6,085 |
|
|
Other non-GAAP adjustments |
|
3,180 |
|
|
(43 |
) |
|
Adjusted
EBITDA |
$ |
244,753 |
|
$ |
276,250 |
|
|
|
|
|
|
Net Sales |
$ |
1,637,543 |
|
$ |
1,729,783 |
|
|
Net Income Margin |
|
4.0 |
% |
|
8.6 |
% |
|
Adjusted EBITDA Margin |
|
14.9 |
% |
|
16.0 |
% |
|
|
|
|
|
|
|
|
|
Segment results, which are reviewed by the
Company’s management to evaluate segment performance, do not
include the following: restructuring/asset impairment charges;
amortization of acquisition intangibles; acquisition, integration
and divestiture-related costs; changes in LIFO inventory reserves;
gains/losses from the sale of businesses or other assets;
gains/losses from derivatives; or certain other items, if any, the
exclusion of which the Company believes improves the comparability
and analysis of the ongoing operating performance of the business.
Accordingly, the term “segment operating profit” is defined as the
segment’s portion of “operating profit” excluding those items. All
other general corporate expenses have been allocated as operating
costs to each of the Company’s reportable segments and the All
Other group of businesses. Total operating profit is comprised of
the sum of reportable segment and All Other operating profit plus
certain items that have been allocated to Corporate, including
amortization of acquisition intangibles; restructuring/asset
impairment charges; changes in LIFO inventory reserves;
acquisition, integration and divestiture-related costs;
gains/losses from the sale of businesses or other assets;
gains/losses on derivatives; and certain other items that were
excluded from reportable segment and All Other operating
profit.
The Company does not calculate net income by
segment; therefore, Segment Adjusted EBITDA is reconciled to the
most directly comparable GAAP measure of segment profitability,
Segment Operating Profit, which is the measure of segment profit or
loss in accordance with Accounting Standards Codification 280 -
Segment Reporting, as prescribed by the Financial Accounting
Standards Board.
Segment Adjusted
EBITDA and All Other Adjusted EBITDA Reconciliation |
|
|
|
|
|
For the Three Months
Ended March 31, 2024 |
|
|
|
|
|
Dollars in thousands |
Consumer Packaging segment |
Industrial Paper Packaging segment |
All Other |
Corporate |
Total |
Segment and Total Operating Profit |
$ |
93,027 |
|
$ |
65,844 |
|
$ |
17,125 |
|
$ |
(63,543 |
) |
$ |
112,453 |
|
Adjustments: |
|
|
|
|
|
Depreciation, depletion and amortization1 |
|
35,465 |
|
|
28,503 |
|
|
3,652 |
|
|
22,939 |
|
|
90,559 |
|
Equity in earnings of affiliates, net of tax |
|
13 |
|
|
1,124 |
|
|
— |
|
|
— |
|
|
1,137 |
|
Restructuring/Asset impairment charges2 |
|
— |
|
|
— |
|
|
— |
|
|
31,618 |
|
|
31,618 |
|
Changes in LIFO inventory reserves3 |
|
— |
|
|
— |
|
|
— |
|
|
431 |
|
|
431 |
|
Acquisition, integration and divestiture-related costs4 |
|
— |
|
|
— |
|
|
— |
|
|
5,661 |
|
|
5,661 |
|
Gain from divestiture of business and other assets |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Net gains from derivatives5 |
|
— |
|
|
— |
|
|
— |
|
|
(286 |
) |
|
(286 |
) |
Other non-GAAP adjustments |
|
— |
|
|
— |
|
|
— |
|
|
3,180 |
|
|
3,180 |
|
Segment Adjusted
EBITDA |
$ |
128,505 |
|
$ |
95,471 |
|
$ |
20,777 |
|
$ |
— |
|
$ |
244,753 |
|
|
|
|
|
|
|
Net Sales |
$ |
910,577 |
|
$ |
593,060 |
|
$ |
133,906 |
|
|
|
Segment Operating Profit
Margin |
|
10.2 |
% |
|
11.1 |
% |
|
12.8 |
% |
|
|
Segment Adjusted EBITDA
Margin |
|
14.1 |
% |
|
16.1 |
% |
|
15.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Included in Corporate is the amortization of
acquisition intangibles associated with the Consumer segment of
$16,102, the Industrial segment of $6,631, and the All Other group
of businesses of $206.2Included in Corporate are
restructuring/asset impairment charges associated with the Consumer
segment of $4,925, the Industrial segment of $22,603, and the All
Other group of businesses of $1,148.3Included in Corporate are
changes in LIFO inventory reserves associated with the Consumer
segment of $92 and the Industrial segment of $339.4Included in
Corporate are acquisition, integration and divestiture-related
costs associated with the Consumer segment of $(124) and the
Industrial segment of $655.5Included in Corporate are net gains on
derivatives associated with the Consumer segment of $(43), the
Industrial segment of $(190), and the All Other group of businesses
of $(53).
Segment Adjusted
EBITDA and All Other Adjusted EBITDA Reconciliation |
|
|
|
|
|
For the Three Months
Ended April 2, 2023 |
|
|
|
|
|
Dollars in thousands |
Consumer Packaging segment |
Industrial Paper Packaging segment |
All Other |
Corporate |
Total |
Segment and Total Operating Profit |
$ |
96,494 |
|
$ |
94,367 |
|
$ |
22,560 |
|
$ |
16,227 |
|
$ |
229,648 |
|
Adjustments: |
|
|
|
|
|
Depreciation, depletion, and amortization1 |
|
32,549 |
|
|
24,878 |
|
|
3,546 |
|
|
21,164 |
|
|
82,137 |
|
Equity in earnings of affiliates, net of tax |
|
75 |
|
|
1,781 |
|
|
— |
|
|
— |
|
|
1,856 |
|
Restructuring/Asset impairment charges2 |
|
— |
|
|
— |
|
|
— |
|
|
28,814 |
|
|
28,814 |
|
Changes in LIFO inventory reserves3 |
|
— |
|
|
— |
|
|
— |
|
|
(5,425 |
) |
|
(5,425 |
) |
Acquisition, integration and divestiture-related costs4 |
|
— |
|
|
— |
|
|
— |
|
|
5,188 |
|
|
5,188 |
|
Gain from divestiture of business and other assets5 |
|
— |
|
|
— |
|
|
— |
|
|
(72,010 |
) |
|
(72,010 |
) |
Net losses from derivatives6 |
|
— |
|
|
— |
|
|
— |
|
|
6,085 |
|
|
6,085 |
|
Other non-GAAP adjustments |
|
— |
|
|
— |
|
|
— |
|
|
(43 |
) |
|
(43 |
) |
Segment Adjusted
EBITDA |
$ |
129,118 |
|
$ |
121,026 |
|
$ |
26,106 |
|
$ |
— |
|
$ |
276,250 |
|
|
|
|
|
|
|
Net Sales |
$ |
958,008 |
|
$ |
615,855 |
|
$ |
155,920 |
|
|
|
Segment Operating Profit
Margin |
|
10.1 |
% |
|
15.3 |
% |
|
14.5 |
% |
|
|
Segment Adjusted EBITDA
Margin |
|
13.5 |
% |
|
19.7 |
% |
|
16.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Included in Corporate is amortization of
acquisition intangibles associated with the Consumer segment of
$16,226, the Industrial segment of $2,934, and the All Other group
of businesses of $2,004.2Included in Corporate are
restructuring/asset impairment charges associated with the Consumer
segment of $2,680, the Industrial segment of $24,544, and the All
Other group of businesses of $53.3Included in Corporate are changes
in LIFO inventory reserves associated with the Consumer segment of
$6,102 and the Industrial segment of $(677).4Included in Corporate
are acquisition, integration and divestiture-related costs
associated with the Consumer segment of $779 and the Industrial
segment of $289.5Included in Corporate are gains from the sale of
the Company’s timberland properties in the amount of $(60,945) and
the sale of its S3 business in the amount of $(11,065), both of
which are associated with the Industrial segment.6Included in
Corporate are net losses on derivatives associated with the
Consumer segment of $946, the Industrial segment of $3,912, and the
All Other group of businesses of $1,170.
Free Cash Flow
The Company uses the non-GAAP financial measure
of “Free Cash Flow,” which it defines as cash flow from operations
minus net capital expenditures. Net capital expenditures are
defined as capital expenditures minus proceeds from the disposition
of capital assets. Free Cash Flow may not represent the amount of
cash flow available for general discretionary use because it
excludes non-discretionary expenditures, such as mandatory debt
repayments and required settlements of recorded and/or contingent
liabilities not reflected in cash flow from operations.
|
Three Months Ended |
FREE CASH
FLOW |
March 31, 2024 |
|
April 2, 2023 |
|
|
|
|
Net cash provided by operating activities |
$ |
166,235 |
|
|
$ |
98,002 |
|
Purchase of property, plant
and equipment, net |
|
(86,357 |
) |
|
|
(11,996 |
) |
Free Cash Flow |
$ |
79,878 |
|
|
$ |
86,006 |
|
|
|
|
|
|
|
|
|
Sonoco Products (NYSE:SON)
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