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10-Q: SONOCO PRODUCTS CO

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Statements included in this Quarterly Report on Form 10-Q 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

availability and supply of raw materials, and offsetting high raw material costs, including the potential impact of changes in tariffs;

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. The risks, uncertainties and assumptions include, without limitation:

SONOCO PRODUCTS COMPANY availability 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 and other geopolitical tensions (such as the ongoing Russia-Ukraine conflict and economic sanctions related thereto), 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;







        SONOCO PRODUCTS COMPANY
         accuracy of assumptions underlying projections related to goodwill impairment
        testing, and accuracy of management's assessment of goodwill impairment;
         accuracy of assumptions underlying fair value measurements, accuracy of
        management's assessments of fair value and fluctuations in fair value;
         ability to maintain effective internal controls over financial reporting;
         liability for and costs of resolution of litigation, regulatory actions, or
        other legal proceedings;
         liability for and anticipated costs of environmental remediation actions;
         effects of environmental laws and regulations;
         operational disruptions at our major facilities;
         failure or disruptions in our information technologies;
         failure of third party transportation providers to deliver our products to our
        customers or to deliver raw materials to us;
         substantially lower than normal crop yields;
         loss of consumer or investor confidence;
         ability to protect our intellectual property rights;
         changes in laws and regulations relating to packaging for food products and
        foods packaged therein, other actions and public concerns about products
        packaged in our containers, or chemicals or substances used in raw materials or
        in the manufacturing process;
         changing consumer attitudes toward plastic packaging;
         ability to meet sustainability targets and challenges in implementation;
         changing climate, climate change regulations and greenhouse gas effects;
         ability to meet commitments to reduce greenhouse gas emissions;
         actions of domestic or foreign government agencies and changes in laws and
        regulations affecting the Company and increased costs of compliance;
         international, national and local economic and market conditions and levels of
        unemployment;
         economic disruptions resulting from war and other geopolitical tensions,
        including the ongoing Russia-Ukraine conflict and the Company's withdrawal from
        Russian operations, terrorist activities and natural disasters; and
         accelerating inflation and activities and operations in highly inflationary
        economies.
        


More information about the risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or forecasted in forward-looking statements is provided in the Company's Annual Report on Form 10-K under Item 1A-"Risk Factors" and throughout other sections of that report and in other reports filed with the Securities and Exchange Commission. In light of these various risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

The Company undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. You are, however, advised to review any further disclosures we make on related subjects, and about new or additional risks, uncertainties and assumptions, in our future filings with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K.

SONOCO PRODUCTS COMPANY

COMPANY OVERVIEW

Sonoco is a leading provider of consumer, industrial, healthcare and protective packaging, with approximately 300 locations in 31 countries.

Sonoco's operating and reporting structure consists of two reportable segments, Consumer Packaging and Industrial Paper Packaging, with all remaining businesses reported as All Other. Prior to the divestiture of the Company's U.S. display and packaging business on April 4, 2021, this business was included in All Other.

Sonoco competes in multiple product categories, with the majority of the Company's revenues arising from products and services sold to consumer and industrial products companies for use in the packaging of their products for sale or shipment. The Company also manufactures uncoated recycled paperboard for both internal use and open market sale. Each of the Company's operating units has its own sales staff and maintains direct sales relationships with its customers.

On a consolidated basis, by the end of 2021 the impacts of the COVID-19 pandemic on the Company had largely dissipated. For most of the Company's business units, second quarter 2022 sales demand equaled or exceeded pre-pandemic levels. The Company has incurred, and expects to continue to incur for the foreseeable future, localized temporary disruptions in its supply chain and customer demand due to localized resurgences of COVID-19. However, absent a future widespread resurgence, or the emergence of a more severe COVID-19 variant of concern, the Company does not expect such impacts to have a material negative effect on the Company's operations or financial results.

Second Quarter 2022 Compared with Second Quarter 2021

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

Measures calculated and presented in accordance with generally accepted accounting principles are referred to as GAAP financial measures. The following tables reconcile the Company's non-GAAP financial measures to their most directly comparable GAAP financial measures in the Company's Condensed Consolidated Statements of Income for each of the periods presented. These non-GAAP financial measures (referred to as "Base") are the GAAP measures adjusted to exclude amounts (dependent upon the applicable period), including the associated tax effects, relating to restructuring initiatives, asset impairment charges, non-operating pension costs, acquisition and divestiture-related costs, gains/losses from the divestiture of businesses, amortization of acquisition intangibles, changes in last-in, first-out ("LIFO") inventory reserves, losses from the early extinguishment of debt, and certain other items, if any, including other income tax-related adjustments and/or events, the exclusion of which the Company believes improves the comparability and analysis of the underlying financial performance of the business. More information about the Company's use of non-GAAP financial measures is provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 under Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Use of Non-GAAP Financial Measures."







                                    SONOCO PRODUCTS COMPANY
                                                                                                For the three months ended July 3, 2022
                                                                                                Amortization of
                                                                      Restructuring/Asset         Acquisition          Acquisition/Divestiture          Other
        Dollars in thousands, except per share data      GAAP           Impairments(1)           Intangibles(2)              Related(3)             Adjustments(4)        Base
        Operating profit                            $   197,476    $               10,563    $            20,871    $                   12,281    $         8,960    $   250,151
        Non-operating pension costs                       1,677                         -                      -                             -             (1,677)             -
        Interest expense, net                            23,161                         -                      -                             -                136         23,297
        Income before income taxes                      172,638                    10,563                 20,871                        12,281             10,501        226,854
        Provision for income taxes                       44,599                       842                  5,160                         3,009              3,104         56,714
        Income before equity in earnings of
        affiliates                                      128,039                     9,721                 15,711                         9,272              7,397        170,140
        Equity in earnings of affiliates, net of
        tax                                               3,728                         -                      -                             -                  -          3,728
        Net income                                      131,767                     9,721                 15,711                         9,272              7,397        173,868
        Net (income)/loss attributable to
        noncontrolling interests                            (95)                       39                      -                             -                  -            (56)
        Net income attributable to Sonoco               131,672                     9,760                 15,711                         9,272              7,397        173,812
        Per diluted common share*                   $      1.33    $                 0.10    $              0.16    $                     0.09    $          0.07    $      1.76
        


(1) Restructuring/asset impairment charges are a recurring item as Sonoco'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 and 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. In the second quarter of 2022, the Company recognized additional impairment charges of $3,452 related to its exit from Russia given the ongoing Russia-Ukraine conflict.







                                    SONOCO PRODUCTS COMPANY
                                                                                                   For the three months ended July 4, 2021
                                                                                                 Amortization of
                                                                        Restructuring/Asset        Acquisition       Acquisition/Divestiture
        Dollars in thousands, except per share data        GAAP           Impairments(1)           Intangibles               Related              Other Adjustments(2)        Base
        Operating profit                              $   135,291    $               (1,445)   $         12,111    $                   1,462    $              (6,698)   $   140,721
        Non-operating pension costs                       555,009                         -                   -                            -                 (555,009)             -
        Interest expense, net                              14,794                         -                   -                            -                    2,165         16,959
        Loss from the early extinguishment of debt         20,184                         -                   -                            -                  (20,184)             -
        Income before income taxes                    $  (454,696)   $               (1,445)   $         12,111    $                   1,462    $             566,330    $   123,762
        Provision for income taxes                       (118,151)                      715               3,000                          671                  146,268         32,503
        Income before equity in earnings of
        affiliates                                    $  (336,545)   $               (2,160)   $          9,111    $                     791    $             420,062    $    91,259
        Equity in earnings of affiliates, net of tax        2,306                         -                   -                            -                        -          2,306
        Net income                                    $  (334,239)   $               (2,160)   $          9,111    $                     791    $             420,062    $    93,565
        Net loss attributable to noncontrolling
        interests                                             169                         -                   -                            -                        -            169
        Net income attributable to Sonoco             $  (334,070)   $               (2,160)   $          9,111    $                     791    $             420,062    $    93,734
        Diluted weighted average common shares
        outstanding(3):                                   100,082                                                                                                 543        100,625
        Per diluted common share*                     $     (3.34)   $                (0.02)   $           0.09    $                    0.01    $                4.17    $      0.93
        


(1) Restructuring/asset impairment charges are a recurring item as Sonoco'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 and 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. In the second quarter of 2021 gains totaling approximately $5,500 were recognized related to the sale of previously closed facilities in the Company's tubes and core business. These were partially offset by net restructuring and asset impairment charges, mostly related to severance and asset write-offs, totaling approximately $4,000.

RESULTS OF OPERATIONS

The following discussion provides a review of results for the three months ended July 3, 2022 versus the three months ended July 4, 2021.

OVERVIEW

Net sales for the second quarter of 2022 increased 38.4 percent to $1.91 billion, compared with $1.38 billion in the same period last year. This improvement reflects strong pricing performance and sales added from the January 26, 2022 acquisition of Ball Metalpack Holding, LLC, renamed Sonoco Metal Packaging ("Metal Packaging").

Net income/(loss) attributable to Sonoco for the second quarter of 2022 increased to $131.7 million, or $1.33 per diluted share, compared to $(334.1) million, or $(3.34) per diluted share, for the same period of 2021. Net income in the current







        SONOCO PRODUCTS COMPANY
        


period benefited primarily from the Company's strategic pricing initiatives, increases from acquisitions and operational improvements. These benefits were partially offset by higher net interest expense in 2022 related to higher borrowings resulting from the funding of the Metal Packaging acquisition in January 2022. Additionally, net income in the current quarter includes net after-tax, non-base charges totaling $42.1 million, while results for the second quarter of 2021 included net after-tax, non-base charges totaling $427.8 million. The net decrease in non-base items was primarily driven by the 2021 settlement and annuitization of the Inactive Plan. These non-base items consisted of the following, after tax:







                                                                                         Three Months Ended
                                    ($ in millions)                                July 3, 2022       July 4, 2021
        Amortization of fair value adjustments to Metal Packaging inventory     $        6.1        $           -
        Acquisition and divestiture-related costs                                        3.2                  0.8
        Amortization of acquisition intangibles                                         15.7                  9.1
        Changes in LIFO inventory reserve                                                4.8                    -
        Loss from exiting Russia                                                         3.5                    -
        All other net restructuring and asset impairment charges                         6.3                 (2.2)
        Pension settlement charges (Inactive Plan)                                         -                406.5
        Other non-operating pension costs                                                1.2                  6.1
        Loss from the early extinguishment of debt                                         -                 15.0
        . . .
        


Aug 02, 2022

COMTEX_411428501/2041/2022-08-02T11:43:56

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