Sonoco Products Company (NYSE: SON) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports annual results; it does not provide a clear standalone fourth-quarter financial summary.
Business context
Sonoco designs and manufactures packaging globally, with approximately 310 locations in 32 countries. Its reporting groups are Consumer Packaging, Industrial Paper Packaging, and All Other. Consumer Packaging accounted for about 52% of 2022 net sales and Industrial Paper Packaging about 37%.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $7.25 billion | $5.59 billion |
| Gross profit margin | 19.9% | 19.0% |
| Operating profit (GAAP) | $675.4 million | $486.9 million |
| Net income (loss) attributable to Sonoco (GAAP) | $466.4 million | $(85.5) million |
| Diluted EPS (GAAP) | $4.72 | $(0.86) |
| Base net income and diluted EPS (non-GAAP) | $639.5 million; $6.48 | $392.9 million; $3.93 |
| Cash from operating activities | $509.0 million | $298.7 million |
| Capital expenditures | $328.8 million | $256.0 million |
| Cash and cash equivalents at year-end | $227.4 million | $171.0 million |
| Total debt at year-end | $3.22 billion | $1.61 billion |
| Current ratio | 1.4 | 1.1 |
Management’s non-GAAP “base” measures exclude specified items, including restructuring, acquisition-related costs, acquired-intangible amortization, and other adjustments. Reconciliation in the filing shows 2022 base earnings of $639.5 million versus GAAP net income attributable to Sonoco of $466.4 million.
Changes versus the prior year
- Net sales rose 29.7%. The increase reflected higher selling prices, acquisitions—particularly Metal Packaging—and was partly offset by lower volume/mix and unfavorable foreign currency translation. Management reported approximately 2.9% lower volume/mix overall.
- Base earnings per diluted share increased to $6.48 from $3.93. Management attributed improvement to favorable price/cost, the Metal Packaging acquisition, and productivity, partly offset by lower volume in Industrial Paper Packaging and currency effects.
- GAAP results turned from a loss to a profit, but comparability is affected by the prior-year $568.4 million non-operating pension cost, primarily associated with settling the Inactive Plan.
- Operating cash flow improved, but working capital used $328.7 million of cash, mainly reflecting higher inventories and timing of supplier payments.
- Debt increased by about $1.6 billion, primarily to finance the Metal Packaging acquisition. Net interest expense rose to $97.0 million from $59.2 million.
Acquisitions, investments, and unusual items
- Sonoco acquired Ball Metalpack, renamed Sonoco Metal Packaging, in January 2022 for approximately $1.35 billion net of cash acquired. It contributed $1.04 billion of sales and $62.8 million of net income from acquisition through year-end.
- Sonoco also acquired Skjern in Denmark and two small Brazilian tube-and-core operations. Total 2022 acquisition cash outflow was $1.43 billion.
- Project Horizon converted a Hartsville paper machine to uncoated recycled paperboard. The company expects the upgraded machine to ramp through 2023 and beyond and produce significant annualized savings; no savings amount is stated in the provided text.
- Restructuring and asset impairment charges were $56.9 million, compared with $14.2 million in 2021. Charges included costs related to plant closures and a $9.2 million impairment associated with exiting two small Russian operations.
- In January 2023, Sonoco completed the sale of its S3 business for $15.3 million in total consideration and expected an approximately $11 million pretax gain in Q1 2023.
- The proposed $330 million purchase of WestRock’s interest in RTS and a Chattanooga paper mill remained pending. A U.S. DOJ Second Request extended antitrust review; Sonoco anticipated closing in the second half of 2023, subject to conditions.
Liquidity, debt, and capital allocation
At year-end, Sonoco reported $227.4 million of cash and $750 million available under its revolving credit facility. Scheduled 2023 debt maturities were $502.4 million. Management stated that cash, available credit, and expected cash flows should be sufficient for 2023 needs. Planned 2023 capital spending was approximately $350 million. Dividends were $1.92 per share in 2022; a quarterly dividend of $0.49 per share was declared in February 2023. No shares were repurchased under the public authorization during 2022.
Outlook, risks, and controls
- The filing gives capital-spending and project expectations but does not provide a clear numerical 2023 earnings or sales guidance figure.
- Management expects productivity and fewer supply-chain and labor disruptions to support performance, while emphasizing inflation offset, pricing, returns on invested capital, and selective investment in core businesses.
- Key risks include raw-material, energy, labor, and transportation costs or shortages; inability to pass cost increases through to customers; economic weakness and demand or volume declines; foreign exchange and geopolitical exposure; acquisition integration and leverage; interest-rate changes; environmental and regulatory obligations; cybersecurity; and potential goodwill impairment.
- Goodwill was $1.68 billion. Management reported no impairment in its 2022 annual test, but identified Plastics - Healthcare and Protexic as at risk if results or valuation assumptions weaken.
- Environmental liabilities accrued were $7.3 million; the company cautioned that ultimate costs may exceed reserves. Goodwill and acquisition-valuation estimates are also subject to significant assumptions.
- Management and the auditor concluded internal control over financial reporting was effective as of year-end. However, Metal Packaging and Skjern, together representing 14.7% of assets and 14.3% of revenue, were excluded from the 2022 control assessment and audit.
Most important facts for investors to verify
- Whether acquired Metal Packaging results, synergies, and integration performance support the earnings contribution reported for 2022.
- Whether pricing continues to offset input-cost inflation and whether Industrial Paper Packaging volume and margins recover.
- Progress and realized savings from Project Horizon as the converted machine ramps during 2023.
- Debt repayment and refinancing plans for the $502.4 million of 2023 maturities, alongside liquidity and interest-cost trends.
- Outcome and timing of DOJ review and financing for the proposed RTS transaction.
- Whether goodwill valuations, environmental reserves, and other material estimates remain supportable as business conditions change.
- How reported GAAP results compare with management’s non-GAAP base measures, including the nature and recurrence of excluded charges.