Sonoco reveals Consumer Packaging segment margin impacts
The firm said weak volume, consumer demand, damage from a fire and an ‘extremely negative productivity situation’ at a flexibles plant impact its Q2 financial results.
However, solid volume growth in flexibles was achieved and rigid plastic was on target.
Sales and volume struggles
Consumer Packaging sales were flat as higher selling prices and sales added from a prior-year acquisition were offset by negative volume and mix, primarily in composite cans and ends and closures, along with the negative impact of foreign exchange.
Volume in the segment was down slightly due to composite can volume being down 5% in North America which more than offset growth of 11% in Asia and 3% in Europe as well as flexibles volume being up 6% for the quarter.
Second quarter 2014 sales for the segment were $474m, compared with $475m in 2013.
Operating profit declined 10% due to lower volume and higher labor, maintenance and other operating costs, only partially offset by modest productivity improvements and lower pension expense
Segment operating profit was $42.8m in the second quarter, compared with $47.4m in the same quarter of 2013.
“Unfortunately, we stumbled in our Consumer Packaging Segment as volume and composite cans in North America was down due to weak consumer demand and inventory destocking by several of our customers,” said Jack Sanders, president and CEO.
“…one of our can plants experienced damage from a fire which impacted productivity as we had to distribute business to other operations.
“We resumed production from the facility this week and never negatively impacted our customers.”
Manufacturing productivity was favorable by $7m for the quarter, which the firm said was lighter than target due to operational issues at one flexibles plant which cost $3m in negative productivity.
The impact of a fire at a composite can plant in June was $0.5m, according to the firm.
Areas of brightness
However, volumes were not depressed in all Consumer Packaging formats, said Sanders.
“We experienced solid volume growth in the flexibles and rigid plastics volume was as planned. In fact, bookings in our flexibles business were at a record level for the second quarter and results in rigid plastics were dramatically improved year-over-year.”
Sanders said one customer in plastics was having filling issues on a high demand product which has impacted demand.
“I think that that’s going to… correct itself and it’s going to have a positive impact on volume into the third quarter. In addition, we have won some new volume in our thermoforming business that should have a positive impact on us as we move forward as well.”
Sonoco said it was looking atacquisitions in the flexibles in Brazil and Southeast Asia, consolidating opportunities in tubes and cores and composite cans and expansion of protective solutions.
“I’ll tell you that we are pursuing opportunities in all three of those areas and that remains a focus area for us…,” said Sanders.
Cash from operations was $60.1m which was down $48m from the same quarter last year.
The most significant driver was US paper mills, a wholly owned subsidiary transferred $15m during the quarter to a court-sponsored trust account to fund the unit’s portion of a proposed settlement related to the Fox River environmental issue.
