Sonoco narrows 2025 outlook to $7.8B-$7.9B net sales as portfolio transformation accelerates

Earnings Call Insights: Sonoco Products Company (SON) Q3 2025

MANAGEMENT VIEW

* Robert Coker, President and CEO, highlighted "record top line and bottom line performance, along with margin expansion despite challenging market conditions, which affected both consumer and industrial demand, particularly in the EMEA region." He noted net sales grew 57%, adjusted EBITDA increased 37%, and adjusted earnings grew 29%. The Consumer Packaging segment saw sales and operating profit rise 117%, with adjusted EBITDA up 112%, primarily due to the Metal Packaging EMEA acquisition and strong Metal Packaging U.S. performance. Food can volumes in the U.S. rose 5%.
* The Industrial Packaging segment delivered operating profits up by 28% and adjusted EBITDA up by 21%, marking the eighth consecutive quarter of margin improvement. Coker emphasized the success of the value-based pricing model and productivity savings.
* Coker announced the agreement to sell the ThermoSafe temperature-assured packaging business for up to $725 million, expecting the transaction to close in the quarter. He stated, "The completion of the sale of ThermoSafe will substantially complete Sonoco's portfolio transformation from a large portfolio of diversified businesses into a stronger, more simplified structure with 2 core global business segments."
* Rodger Fuller, COO & Interim CEO of Sonoco Metal Packaging EMEA, reviewed Metal Packaging EMEA's third quarter, noting "adjusted EBITDA up approximately 9% and EBITDA margins improving to approximately 18%." He acknowledged business activity was below expectations due to macroeconomic headwinds and weaker seafood availability, with a weaker fourth quarter anticipated in EMEA.
* Paul Joachimczyk, CFO, stated, "Adjusted EPS was $1.92, representing a 29% year-over-year increase. This improvement was primarily driven by favorable price/cost performance of $43.5 million, the EMEA Metal Packaging acquisition and continued strong productivity of $11 million, primarily from our converting businesses."

OUTLOOK

* Guidance was tightened with net sales expected in the range of $7.8 billion to $7.9 billion. Adjusted EBITDA guidance narrowed to $1.3 billion to $1.35 billion, with continued strength in North America offset by softness in Europe and Asia. Adjusted EPS was reduced to a range of $5.65 to $5.75, primarily due to subdued market conditions outside the U.S. and deleveraging in declining sales facilities. Operating cash flow guidance moved to $700 million to $750 million.
* Coker described priorities to "continue building momentum for growth and improving our competitive position by further reducing our cost structure," with several new products and market launches planned for 2026 and beyond.

FINANCIAL RESULTS

* Third quarter net sales for continuing operations increased 57% to $2.1 billion, driven by the Metal Packaging EMEA acquisition, strong pricing disciplines, and favorable FX. Adjusted EBITDA reached $386 million, up 37%, with margin improving to 18.1%.
* Operating cash flows were $292 million, up more than 80% over the prior year. Capital investments for the quarter totaled $65 million, with annual capital spending tracking below the $360 million target.
* Consumer sales rose 117% due to the EMEA acquisition, price hikes, and FX, partially offset by unfavorable volume mix. The Global Rigid Paper Can business was flat, with price gains offset by mix and lower volumes. Industrial sales were flat at $585 million, with EBITDA margins up 360 basis points to $123 million.
* All other business sales were $108 million; adjusted EBITDA was $21 million, up 2%.

Q&A

* Gabe Hajde, Wells Fargo, asked about EMEA Food Can business softness and footprint rationalization. Fuller responded that the Africa shortfall, particularly Morocco and Ghana, accounted for most of the volume gap: "If you strip out Africa for the third quarter, we would have been in that -- well into that mid-single-digit range." Fuller also addressed ongoing footprint optimization in Africa and France.
* George Staphos, BofA, inquired about cost or revenue synergies from the Metal and Paper Can businesses. Coker replied, "It's too early for us. I truly mean it." He added that the company is "actioning now to be in a position to start generating the savings side of this thing as early as the first of next year."
* John Dunigan, Jefferies, asked about the URB mill closure in Mexico City. Coker explained the closure was a "math decision as well as the capacity... it just makes better sense." Fuller added, "This is balancing the overall portfolio... at that efficiency rate, we had to balance out logistics costs and everything else."
* Anthony Pettinari, Citi, explored the timing of reacceleration in the Global Rigid Paper Can (RPC) business. Coker stated, "The receleration of our Snack business is... a foot on the gas pedal type thing that really is impactful immediately if and when it happens."
* Multiple analysts pressed for more detail on capital allocation and share repurchase timing; Joachimczyk reiterated debt paydown as "our primary capital allocation strategy."

SENTIMENT ANALYSIS

* Analysts expressed concern over EMEA volume softness, synergy capture, and capital allocation, pressing for clarity on timing and magnitude of expected benefits, with a generally neutral to slightly negative tone.
* Management was confident in prepared remarks, especially when discussing margin gains and the portfolio transformation, but more hesitant and non-committal during Q&A on synergy quantification and share repurchase timing. Trigger phrases such as "too early for us" and "I can't sit here and give you a percentage point at this time" signaled caution.
* Compared to the previous quarter, analysts were more focused on near-term risks and management's confidence was less pronounced when addressing forward-looking uncertainties, particularly in EMEA.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for net sales and adjusted EPS narrowed this quarter, with a notable reduction in EPS range versus last quarter's $6-$6.20 to the current $5.65-$5.75. The EBITDA guidance also narrowed downward.
* Strategic focus shifted further toward portfolio simplification and cost optimization, following the ThermoSafe sale agreement and restructuring actions.
* Analysts pivoted from questions about integration progress and synergy upside last quarter to more immediate concerns about volume softness and cost savings realization.
* Management tone became more measured, especially on questions about synergy realization and capital allocation, compared to a more optimistic tone in the prior quarter.

RISKS AND CONCERNS

* Management cited macroeconomic headwinds, weaker seafood availability, and continued demand softness in EMEA as significant risks. Fuller stated, "With the vegetable harvest season substantially behind us, we believe the fourth quarter will likely be weaker than we had anticipated."
* Cost pressures and volume softness in both Consumer and Industrial segments were partially offset by productivity gains and pricing.
* Analyst concerns centered on the timing of synergy realization, the impact of volume declines, and the clarity of capital allocation priorities.

FINAL TAKEAWAY

Sonoco’s third quarter marked record top and bottom-line results and continued margin expansion, supported by gains from the Metal Packaging EMEA acquisition and productivity improvements in both Consumer and Industrial segments. The company is advancing its portfolio transformation with the planned ThermoSafe divestiture and ongoing cost optimization efforts, while tightening guidance for full-year sales, EBITDA, and EPS in response to persistent market softness—especially in EMEA. Management remains focused on debt reduction and margin expansion, with plans to detail further growth and capital allocation strategies at the upcoming Investor Day.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/son/earnings/transcripts]

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