Hartsville, South Carolina, USA, 05 December 2008 -- (BUSINESS WIRE) -- Sonoco (NYSE: SON) executives Harris E. DeLoach, Jr., chairman, president, and chief executive officer, and Charles J. Hupfer, senior vice president and chief financial officer, provided an update on the company's strategic initiatives, outlined financial performance expectations for 2008 and 2009, and announced plans to implement further cost reduction measures.
Fourth Quarter, Full-Year 2008 Base Earnings Guidance Revised
Sonoco expects base earnings for the fourth quarter and full year of 2008 to be USD 0.48 to USD 0.52 per diluted share and USD 2.23 to USD 2.27 per diluted share, respectively. Sonoco had previously projected base earnings for the fourth quarter and full year of 2008 to be USD 0.60 to USD 0.64 per diluted share and USD 2.36 to USD 2.40 per diluted share, respectively. In 2007, full-year base earnings per diluted share was USD 2.38. Base earnings, a non-GAAP financial measure, excludes restructuring charges, asset impairment charges, and certain other nonrecurring or infrequent and unusual items, as applicable. Additional information about base earnings and base earnings per share, including why the company uses such measures, can be found in the company's 2007 Annual Report and in its quarterly earnings releases.
"While sales volume and profitability have held up in our Consumer Packaging segment so far in the fourth quarter of 2008, our businesses that serve industrial markets are seeing a much larger than expected decline in volume and reduced profitability as a result of significantly slowing global economic conditions," said Hupfer.
Cost Reduction Measures Announced
To align its manufacturing capacity and fixed cost structure to match market conditions, Sonoco is implementing further cost reduction measures which are expected to achieve approximately USD 28 million in annualized pre-tax savings when fully phased in through 2009.
"This realignment calls for the closing of approximately 15 plants globally and the reduction of approximately 700 positions," said DeLoach. "The majority of these plant closings are small in size and our focus is on reducing our global industrial products manufacturing footprint."
The cost of the realignment is estimated to be approximately USD 29 million, of which approximately USD 20 million in pre-tax restructuring charges are expected to be taken against earnings in the fourth quarter of 2008. Most of the costs involve severance and other cash costs that will be incurred through 2009.
Pension Plan Overview
According to Hupfer, Sonoco's U.S. pension plan was over funded by approximately USD 40 million at the end of 2007. However, recent projections, based on mid-November asset values and interest rates, indicate the company's U.S. pension plan was under funded by approximately USD 138 million. "Our calculations show that no cash funding is required in 2009 for our U.S. pension plan because of carryover credits that are available due to over funding in prior years," Hupfer said. "However, we are looking at a possible change to our U.S. pension plan that would reduce long-term funding exposure and expenses."
Hupfer continued, "While 2009 pension expense will be based on asset values and interest rates at 31 December 2008, the current decline in asset values would significantly increase future years' pension expense. Reduced nominal returns due to lower asset levels, together with the amortization of current year losses, would result in a year-over-year increase in 2009 pension expense of approximately USD 48 million, or USD 0.30 per share after tax, based on asset values and interest rates at mid-November."
Based on the company's current economic expectations and including the projected impact of higher pension costs, Sonoco estimates base earnings for 2009 to be USD 1.95 to USD 2.05 per diluted share. Excluding the projected impact of higher pension costs, estimated base earnings would be USD 2.25 to USD 2.35 per diluted share. The 2009 earnings estimates are based on an effective tax rate of 32%, compared with an expected effective tax rate of slightly less than 30% in 2008.
Strategic Initiatives Highlighted
Despite slowing general global economic conditions, Sonoco has a consistent, tested strategy to drive long-term shareholder value.
"Our strategy to grow businesses serving consumer markets is clearly working. For the first three quarters of 2008, our Consumer Packaging segment reported a 13% increase in sales and a 29% increase in operating profits," DeLoach said. "We are gaining significant new business wins in our consumer and industrial businesses. New product development and market extensions are providing a strong catalyst for growth. Sonoco's financial state is strong with a solid balance sheet and ample cash flow from operations that we believe will continue to afford us the flexibility to be able to fund our growth plans and return value to shareholders."
During the first three quarters of 2008, Sonoco generated more than USD 91 million in sales from new products. DeLoach said he expects the company to set a record with approximately USD 125 million in new product sales for full-year 2008. The company has averaged greater than USD 100 million in new product sales over each of the past three years.
"Our strategy to drive long-term shareholder value has not changed and, I believe, is more relevant than ever," DeLoach said. "Our consumer growth strategy is clearly working and we are taking the necessary steps to better position our industrial products businesses for a rebound when the economy turns. While we are focused on long-term value creation for shareholders, we have paid cash dividends to shareholders for 334 consecutive quarters and today the current dividend provides about a 4.5% annual yield. Overall, we are optimistic that Sonoco is better positioned than at any time in our nearly 110-year history."
A replay of the event will continue through midnight Eastern Time on 19 December 2008. The toll-free replay number in the United States is 877-660-6853 and the international replay number is +201-621-7415. The replay access code is account 286, ID 298133. The event, including the presentation, also will be archived for 90 days on Sonoco's Investor Relations Web site under conference calls.
Founded in 1899, Sonoco is a USD 4.0 billion global manufacturer of industrial and consumer products and provider of packaging services, with more than 300 operations in 35 countries, serving customers in some 85 nations. For more information, visit http://www.sonoco.com/