The firm said it is working with suppliers to resolve the material issue and added that it is actively seeking to expand the business outside the US and promote and build capability inside North America.
Production has had to be reallocated to different facilities to meet the needs of customers, which has led to higher labor operating and freight costs, said Jack Sanders, president and CEO, to analysts in a conference call discussing the financial results.
“It’s a work in process. As I mentioned earlier, we believe we understand what the situation is and we are trying desperately to get back to ground zero including qualifying other suppliers to help us do just that.”
Understand the cause
When asked if the issue would affect Q4, he said: “Well actually there was a hit in the second quarter and the third quarter…we do understand what’s causing it.
“I expect it to be down the incremental hit to the P&L should fall noticeably into the fourth quarter and then by the time we expect that to continue to go down as we open up the first of the year.”
Barry Saunders, vice president and CFO, said: “Specifically to the issue in flexibles right now, it is a unique issue confined to one plant and one specific material. And we have an idea about the root cause. And we understand it, but we are driving to fix it.”
Consumer Packaging segment third quarter 2014 sales were $480m, compared with $473m in 2013.
Sales were up slightly as volume growth, particularly in metal closures, blow molded plastic containers and flexible packaging, were partially offset by volume declines in North American composite cans and a negative mix of business.
Segment operating profit was $49.8m compared with $49m in the same quarter of 2013.
Operating profit improved slightly as price/cost improvements and lower pension expense were partially offset by a negative mix of business and higher labor and maintenance.
Weidenhammer deal
Sonoco received approval from the German Federal Cartel Office on September 30, and expects to close its acquisition of Weidenhammer Packaging Group for €286m by November 1.
The firm said it is ‘anxious’ to begin exploring opportunities to use Weidenhammer’s technical expertise in non-round paper cans, recessed membrane closures, paper bottom cans, and thin-walled injection molded containers that utilize in-mold labeling for barrier capabilities.
Weidenhammer technology will also boost a new line and plant in China.
Sanders said expectations for the deal and benefits as it grows the composite can into the emerging markets of Southeast Asia, China, Eastern Europe and South America will be presented at the December Analyst Meeting in New York.
Paper and Industrial Converted Products
The Paper and Industrial Converted Products segment third quarter 2014 sales were $481m, up from $468m in 2013.
Segment sales were up nearly 3% during the quarter due to sales added from business acquired during the past twelve months, along with higher selling prices.
Volume in the segment was down slightly during the quarter due primarily to lower sales of corrugated paper and steel reels.
Segment operating profit was a record $49m compared with $37.7m in 2013.
Operating profit grew 30% year over year as a positive price/cost relationship, legal settlement proceeds, modest productivity improvements, positive volume/mix and lower pension expense partially offset by a higher labor, maintenance and other operating costs.