Sonoco shares slide after 3Q outlook cut
NEW YORK (AP) — Shares of Sonoco Products Co. fell Tuesday after the packaging materials company cut its profit prediction for the current quarter and withdrew its outlook for the year, citing operational problems at several mills and weak volumes.
THE SPARK: For the quarter ending Sept. 30, the Hartsville, S.C.-based company said it now expects to post an adjusted profit of 51 cents to 53 cents per share, down from its previous prediction of 62 cents to 66 cents per share.
Analysts, on average, had expected a profit of 64 cents per share, according to a FactSet poll. Last year, the company posted profit of 66 cents per share in the period.
The company also pulled its guidance for the year. It plans to update its outlook when it releases third-quarter results on Oct. 18.
THE DETAILS: Sonoco said that operating problems at several of its North American paperboard mills led to unscheduled downtime and higher costs. Volumes for several of its consumer and industrial packaging businesses have also been lower than expected.
THE BIG PICTURE: Demand for Sonoco's packaging products suffers when the global economy weakens. The company has also had to deal with higher prices for raw materials and shipping, and has taken a hit from the stronger dollar. For companies that sell products internationally, a rising dollar cuts into the value of revenue generated overseas when it's translated back into the dollar.
THE ANALYSIS: The soft volumes were not a surprise because the company has said before that orders have been "choppy," but the operational problems at the mills were disappointing for investors, said Jefferies analyst Philip Ng. Still, he said the mill problems have been resolved and shouldn't hurt the fourth quarter — so it's "worth noting" that the company pulled its guidance for the last three months of the year.
He kept his "Hold" rating and $33 price target for the company.
THE SHARES: Down $1.03, or 3.3 percent, to $30.01 in midday trading. Over the past 52 weeks, the company's shares have traded between $26.10 and $34.83.