Packaging supplier Sonoco lowers outlook after flat sales
Net income for the plastic packaging supplier was $53.4m, compared with $59m the year previously.
Sonoco’s said profits had been hit by factors such as higher recovered paper, energy, grocery, labour and freight costs.
The packaging company said it now expects full-year adjusted earnings of $2.46-$2.54 a share, down from its previous forecast of $2.52-$2.60 a share.
"Lingering unemployment, along with higher grocery and energy prices, have clearly impacted domestic consumer spending during the first half of 2011, which may have impacted volume and mix in certain of our consumer and industrial markets,” said chairman and CEO Harris DeLoach.
The CEO said the consumer spending trend could continue into the second half and said the firm hoped to offset the negative impact with new product sales, productivity improvements and cost controls.
Segments
DeLoach said the firm’s industrial-focused businesses had showed slightly improved operating profits, although he said the business segment results were mixed.
Net sales for Sonoco’s consumer packaging segment increased to $451m in the quarter from $392m in the year previous.
DeLoach said a slight volume improvement and lower pension expenses had also been offset by a negative price/cost relationship and higher energy, freight and increased labour costs.
“This setback was nearly offset by significantly improved results from our packaging services segment which benefitted from higher volume, particularly in our contract packaging operations," said the CEO.
However, operating profit of the segment declined 17 per cent to $35.0m from $42.1m the previous year's quarter.
Operating profits in the firm’s tubes and cores/paper segment were generally flat for the second quarter and “literally unchanged” in North America and Europe.
However DeLoach said there was growth in some markets, up eight per cent in Eastern Europe, five per cent in South America and two per cent in Asia, although the CEO said even these markets were showing weakening demand over the last few months.
The firm’s packaging services segment showed improved results in the first half, although Deloach said Sonoco had remained cautious going into the second half due to the previously announced loss of business in contract packaging.
“In addition, raw material inflation, particularly for recovered paper, may generate some headwind against our Tubes and Cores/Paper segment during the third quarter,” he said.
