Those looking to understand how the retail industry will perform in the second quarter and beyond can gain an interesting perspective from the outlook shared by one of the world’s largest diversified packaging companies.
First quarter sales in the display and packaging division at Hartsville, S.C.-based Sonoco increased 6% to $153 million and operating profits grew 53% to $5.4 million while sales in the consumer packaging segment were essentially flat at $465 million but operating profits grew 14% to more than $48 million. The performance of both divisions helped the company generate earnings per share of 52 cents that exceeded analysts’ estimates by a penny during the period ended March 30.
The numbers are noteworthy because Sonoco’s performance and second quarter outlook offers an early indication of upcoming retail promotional activity considering demand for its consumer packaging and display and packaging services are fueled by retail and CPG companies. This is especially true in the case of the display and packaging group which designs, manufactures, assembles packs and distributes all manner of temporary, semi-permanent and permanent point-of-purchase displays. Also included in the performance of the division are supply chain management services such as contract packing, fulfillment centers and retail packaging.
This exposure to the retail industry, coupled with the short lag between the end of Sonoco’s quarter (March 30) and when it reports results (April 16) offers a near real time look at industry demand.
"Much of the negative impact from severe winter weather occurred in January and February. As weather improved in March, we saw a strong rebound in customer orders across most of our businesses and a sharp improvement in operating performance,” said Sonoco president and CEO Jack Sanders. “Entering April, customer orders appear to be running at more normal levels, in line with volume expectations and our second-quarter earnings guidance, which anticipates continued improvement in operations."
The severe weather that impacted consumer spending at retail earlier this year also disrupted Sonoco’s operations causing lost productivity and higher operating costs. However those impacts were more concentrated in the company’s industrial-related business segments of paper and industrial converted products and protective solutions.
"For the fifth consecutive quarter, operating profits from our consumer packaging segment increased year-over-year with first quarter results up 14%. This improvement came from a positive price/cost relationship, productivity improvements and lower pension expense, partially offset by higher labor and operating costs. In addition, operating profits from our display and packaging segment improved more than 50% in the quarter due to productivity improvements and modest volume gains.”