Sonoco Products Company — FY2021 Form 10-K
Business context and period: Fiscal year ended December 31, 2021. Sonoco is a global packaging manufacturer operating in approximately 300 locations across 32 countries. It reported Consumer Packaging, Industrial Paper Packaging and All Other; prior-period segment results were recast to match the 2021 structure.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $5.590 billion | $5.237 billion |
| Gross profit / margin | $1.062 billion / 19.0% | $1.046 billion / 20.0% |
| GAAP operating profit | $486.9 million | $357.8 million |
| Base operating profit (non-GAAP) | $515.4 million | $527.0 million |
| Net income (loss) attributable to Sonoco | $(85.5) million | $207.5 million |
| Base earnings attributable to Sonoco (non-GAAP) | $355.7 million | $345.5 million |
| Cash from operations | $298.7 million | $705.6 million |
| Capital spending | $256.0 million | $194.1 million |
| Cash and total debt at year-end | $171.0 million / $1.611 billion | $564.8 million / $1.700 billion |
Sales rose 6.7%, including higher selling prices and approximately 2.9% organic volume/mix growth after adjusting for the display and packaging divestitures. Operating cash flow less capital spending was approximately $42.7 million, calculated from the reported figures; this is not a company-defined measure. Year-end current assets were $1.659 billion and current liabilities $1.526 billion, for a 1.1 current ratio. The $750 million revolving facility supported a $500 million commercial-paper program; $401 million of revolver capacity was available after commercial paper borrowings.
Material changes versus FY2020
- GAAP net results swung to a loss, principally because of $538.7 million in noncash pension settlement charges associated mainly with settling the Inactive Plan. Sonoco also contributed approximately $124 million to that plan in 2021.
- GAAP operating profit increased 36.1%, largely because restructuring and asset impairment charges fell to $14.2 million from $145.6 million. In contrast, base operating profit declined 2.2%, and gross margin fell one percentage point as inflation was only partly recovered through pricing and productivity.
- Operating cash flow fell by $406.9 million, reflecting pension funding, working-capital investment, higher tax payments and other timing effects. Working capital used $107.4 million of cash.
- By segment, operating profit was $252.8 million in Consumer Packaging (down 9.2%), $218.3 million in Industrial Paper Packaging (up 23.5%) and $44.2 million in All Other (down 38.4%).
- Sonoco sold its U.S. display and packaging business in April 2021; together with the earlier European divestiture, this reduced comparable sales. It also completed four smaller acquisitions during 2021.
Outlook, management commentary and risks
- Management expected a modest increase in sales volume excluding acquisitions, inflationary pressures to flatten in 2022, and selling-price improvements to produce a favorable price/cost relationship. The filing does not provide a clear full-year 2022 revenue or earnings-per-share guidance value.
- Capital spending was expected to be approximately $325 million in 2022. The $125 million Project Horizon paper-machine conversion was expected to be completed in the third quarter of 2022, with significant annualized cost savings targeted from 2023.
- On January 26, 2022, after year-end, Sonoco completed its $1.35 billion acquisition of Ball Metalpack. It financed the purchase primarily with $1.2 billion of unsecured notes, a $300 million term loan and commercial-paper borrowings. Integration, synergies and increased leverage are important post-filing considerations.
- Management cited raw-material, energy, freight and labor inflation; supply-chain constraints; the ability to pass costs through to customers; COVID-19 uncertainty; and geopolitical risk, including sanctions and potential supply effects related to Russia’s invasion of Ukraine. Sonoco had two small Russian manufacturing operations and sourced some inputs from Russian suppliers.
- Goodwill in the Plastics–Healthcare reporting unit was identified as at risk of future impairment if results or the outlook weaken; its estimated fair value exceeded carrying value by 13.3% in the latest test. Environmental contingencies accrued at year-end were $7.4 million; actual remediation costs could differ.
- The annual dividend was $1.80 per share. The board declared a $0.45 quarterly dividend in February 2022. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion.
Important facts for investors to verify
- Whether pricing and productivity offset input-cost inflation sufficiently to restore margins, particularly in Consumer Packaging and All Other.
- Whether operating cash flow improves after the 2021 pension settlement and working-capital outflow, and how the $411.6 million of scheduled 2022 debt maturities are funded.
- Ball Metalpack’s post-acquisition results, purchase-price allocation, integration costs, realized synergies and effect on leverage.
- Progress, costs and timing of Project Horizon and the expected savings beginning in 2023.
- Developments in the Plastics–Healthcare goodwill outlook, environmental matters, and Russia-related sanctions or supply disruptions.