Higher costs prompt Sonoco to ease profit forecast
Sonoco had predicted that annual profits could be as high as $2.62 a share but in its first quarter results, published yesterday, the company reduced its top end target figure to $2.60.
The lower forecast fell below Wall Street expectations, according to Reuters, as the company comes under pressure from higher raw material prices.
Reuters quoted Robert W. Baird analyst Ghansham Panjabi saying: “Margin pressure will be worse in Q2 because resin prices went up toward the end of Q1 and that effect will be felt fully in Q2 and a little bit in the third.”
Despite coming under pressure from higher costs, Sonoco has seen its revenues improved significantly from the recessionary slump last year.
Resurgent demand?
Total sales revenue in the first quarter rose 19 per cent to $1.12bn compared to the equivalent period last year.
And in the consumer packaging segment, which produces composite cans, rigid plastic packaging and closures, revenue was up 20 per cent to $444m. But Sonoco did not mention resurgent demand as a cause of the improved sales figures.
It said sales figures were boosted by the acquisition of Associated Packaging Technologies (APT), a thermoform tray maker for the frozen food industry. Other contributing factors cited included higher prices, the extra days in the quarter and favourable currency translation.
Operating profits for the division, which mainly serves the food industry, failed to match the sales increase, rising only very slightly to $45.9m. Sonoco said higher labour and freight costs drowned out gains from the APT acquisition, lower pension costs and improved productivity.
Looking forward Sonoco CEO Harris DeLoach said: “We are focused on expanding margins by better operating our businesses, particularly improving productivity and reducing costs. In addition, we are continuing to invest in growing our businesses, launching new products and making accretive acquisitions.”
