Sonoco aims for future growth

Related tags Dow jones industrial average Packaging and labeling

Sonoco CEO, Harris DeLoach, has outlined plans for the company to
reach $4 billion (€4bn) in sales by 2006 which include plans for
further growth of the company's European division.

Sonoco president and chief executive officer, Harris DeLoach, has outlined plans for the company to reach $4 billion (€4bn) in sales by 2006 at the company's annual general meeting.

This forecasted earnings range includes the impact of anticipated higher pension costs in 2003, indicative of the decline in the market value of pension fund assets, which will impact 2003 earnings, the company said. The estimated earnings range, without the impact of the higher pension costs, represents an increase of 13 per cent to 16 per cent over the mid-point of the company's 2002 earnings. Estimates for 2003 do not assume any general economic improvement during the year.

The company also said it expects to meet its 2002 fourth quarter earnings guidance, excluding one-time charges. The company indicated that additional restructuring will be most likely to occur in Europe to further reduce its cost structure. As a result, another restructuring charge may be announced as early as this year's fourth quarter.

DeLoach said the company has five primary objectives through 2006. One is to become a $4 billion global packaging company, with almost half of the increase to be generated internally and the remainder coming from acquisitions.

"Historically, about 55 per cent of our sales have come from our industrial segment and 45 per cent from consumer businesses. Our goal over the next four years is to reverse that ratio,"​ said DeLoach.

"Our second objective is to convert these sales into average annual double-digit total returns to shareholders,"​ said DeLoach. "However, we have fallen short of this goal over the last five years, even though we have outperformed the Dow Jones packaging and container index. Over the last 12 months, we have outperformed the Dow and the S&P by approximately 11 per cent and 18 per cent, respectively."

"Our third objective is to be in the top quartile of the S&P 500 in returns on long-term capital and equity. We are a leader in the packaging industry and only a few percentage points out of the S&P top quartile,"​ said DeLoach.

"Our fourth objective is to produce continued strong cash flow. We expect cash flow to remain near current levels and that free cash flow, after dividends and capital expenditures, will be in the range of $140 million to $160 million per year over the coming four years. Average annual capital expenditures should be in the range of $125 million to $150 million over the same period.

"Our fifth objective is to maintain a strong credit rating to ensure leverage for the right opportunities. Presently, we are one of only two 'A range' rated companies in our packaging peer group. Our debt to capital ratio at year-end should remain at or near current levels,"​ added DeLoach.

In his presentation DeLoach went on to explain how the restructuring of the company over the past year has helped to form a leaner and more efficient company, contributing to an estimated annual savings of $54 million to date.

"We are employing a variety of cost reduction and productivity improvement tools, including Six Sigma, our 150 Black Belts and Lean Manufacturing. We expect productivity improvements in 2003 between $40 million and $50 million. To date, over 1,000 positions have been eliminated and 14 plants closed.

"Our global consumer businesses have been expanded and restructured. They now include rigid paper and plastic packaging, composed of composite cans and selective injection moulded, co-extrusion blow molded and thermoformed plastic products. Composite cans are a global market leader expected to grow at about GDP rate.

"Another consumer growth vehicle is flexible packaging. We continue to see strong double-digit sales growth and increasing earnings as issues with new equipment startups improve."

DeLoach also added that a greater emphasis will be placed on its operations outside of North America, particularly in Europe. Here it is expected that its operations in tubes, core, paper and composite can packaging will grow tremendously.

Related topics Processing & packaging

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