Presentation Transcript
Nantucket June 20, 2006: Nantucket June 20, 2006
Forward-looking Statements: Forward-looking Statements Today’s presentation contains a number of forward-looking statements based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially.
Information about the Company’s use of non-GAAP financial measures, why management believes presentation of non-GAAP financial measures provides useful information to investors about the Company’s financial condition and results of operations, and the purposes for which management uses non-GAAP financial measures is included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Pursuant to the requirements of Regulation G, the Company has provided definitions of the non-GAAP measures discussed during this annual meeting with the financial community as well as reconciliations of those measures to the most closely related GAAP measure on its Web site at www.sonoco.com.
Business Segments: Business Segments Plastic Containers Global Composite Cans Consumer Flexible Packaging Rigid Paper & Plastic Containers Tubes/Cores/Paper Global Tubes and Cores Global Paper All Other Protective Packaging Paperboard Specialties
Wire and Cable Reels Machinery Mfg
Molded Extruded Plastics Adhesives Services Service Centers Point-of-Purchase Metal & Plastic Closures
Growth Initiatives: Growth Initiatives Change historical ratio of sales from industrial and consumer markets
Objective over next
2000 2005 several years
Industrial Consumer Industrial Consumer Industrial Consumer
Approximately
59% 41% 51% 49% 40% 60%
Operating Environment (2005): Operating Environment (2005) 2005
Increased costs for:
Raw materials
Energy
Hedging natural gas
Positive price/cost relationship
Steel surcharge contractual price recovery began 1/05
Paperboard increase
$30-40/ton, 6/13/05
Tube and core increase
Up to 5%, 6/27/05
Tube and core energy surcharge
1.375%, 9/19/05
Paperboard energy surcharge
$10/ton, 9/16/05
Flexible Packaging increase
7 – 9%, 10/5/05 2006
Continue hedging natural gas
Managing price/cost
N.A. paperboard increase
$30-$40/ton, 2/6/06
N.A. tube and core increase
6%, 2/20/06
European tube and core increase
U.K., central and western
12%-16%, 3/1/06
Nordic region
5%-8%, 3/1/06
European paperboard increase
30 Euro, 6/26/06
N.A. paperboard increase
$40-$50/ton, 7/3/06
2005 – A Strong Operating Performance: 2005 – A Strong Operating Performance Met or exceeded our primary initiatives in 2005
Double-digit growth in sales
Generated strong operating profits
Improved margins
Increased Companywide volumes
Maintained positive price/cost relationship
Integrated acquisitions and joint ventures
U.S. pension plan fully funded at year-end.
Debt-to-capital ratio reduced Net Income from
Continuing Operations
(Millions of dollars)
50 100 150 $200 81.5 125.5 78.2 .98 151.2 01 02 03 04 05
Opportunities for Improvement in 2006: Opportunities for Improvement in 2006 Need increased flexible packaging capacity for growing opportunities with major CPGs
Acquired additional capacity, 2/24/06
Reduce working capital
Reduce number of underperforming plants
Continued margin improvement
Stay focused on putting the right people in the right jobs to execute growth strategy
First Quarter 2006 Financial Results: First Quarter 2006 Financial Results Three Months Ended
(Unaudited) March 27, 2006 March 27, 2005
Diluted Earnings Per Share,
as reported (GAAP) $.44 $.37
Adjusted for:
Restructuring charges, net of tax .02 .03
Base Earnings Per Share (Non-GAAP) $.46 $.40 Base EPS is a non-GAAP financial measure of earnings per share, which excludes the impact of restructuring charges and of non-recurring or infrequent and unusual items. The above table sets forth the reconciliation of GAAP Diluted Earnings Per Share to Base Earnings Per Share. Note: First quarter is historically the weakest of the
year
Growth Strategy: Total Packaging Solutions for Consumer Product Companies Substantial Cash Flow Consecutive
Quarterly Dividends
Since 1925 Average Annual
Double-digit
Total Returns
for Shareholders Strategic Acquisitions
and
Joint Ventures Strong Balance
Sheet Continuous Productivity
Improvement Appropriate
Cost Structure Geographic
Expansion Balance of Sales and Earnings from Consumer and Industrial Markets One Sonoco Face
to the Customer Growth Strategy Top Line Growth “Managing the Guts” New Product and Service
Development Base for Growth
Operating Objective: Operating Objective Average annual double-digit total returns to shareholders
Five-year compound average growth rate of 10.04% Cumulative Total
Shareholder Return
(Dollars) Assumes $100 invested in Sonoco common stock on Dec. 31, 2000, with reinvestment of dividends 45 90 135 $180 100.00 127.00 113.21 126.40 157.47 00 01 02 03 04 05
Growth Base: Growth Base Strong balance sheet and cash flow
Reduced debt by $117.8 million in 2005
Debt-to-capital ratio reduced to 35.7% in 2005
Repurchased 2.5 million shares
Quarterly dividend increased to .24 from .23
324th consecutive quarterly dividend
Debt to Total Capital Ratio
(Percent)
13 26 39 52 01 02 03 04 05 49.3 44.5 36.4 40.7
“Managing the Guts”: “Managing the Guts” Margin Improvement
Objective: Return EBIT margins to historical levels
Structural cost reductions
Increase percent of sales and earnings from consumer markets
Ongoing productivity improvement
Price micro-management
Operating execution
Six Sigma
Lean Manufacturing
Scrap reduction
Top Line Growth Sales Excluding Divestitures ($ in Millions): Top Line Growth Sales Excluding Divestitures ($ in Millions) 6.7% CAGR 4.6% CAGR
Top Line Growth Acquisitions and Joint Ventures: Top Line Growth Acquisitions and Joint Ventures Acquisition criteria
Not dilutive in first year
Meet cost of capital in three to four years
Complementary to existing businesses
CorrFlex Graphics acquisition 5/28/04
One of North America’s largest point-of-purchase (P-O-P) display companies
Sonoco-Alcore joint venture with Ahlstrom of Finland combining respective European tube, core and coreboard operations
The Company has a similar agreement with Demolli of Italy
Alliance with Pacific Paper Tube targets West Coast construction industry
Acquired Markson Rosenthal P-O-P and fulfillment assets
Top Line Growth Geographic Expansion: Top Line Growth Geographic Expansion New Service Center serves P&G European Baby Care New Service Center for P&G – Gillette®
Sonoco moved with Gillette from U.K. to Poland Sonoco is largest tube and core manufacturer
Newest venture: steel easy-open closures
4th largest packaging market in the world Completed second tube and core plant in 2005
Principally serving textile industry Sonoco is the largest tube and core manufacturer
Five converting plants/one paper mill
A sixth tube and core plant to open in 2006
Tube & core converting plants in Wujiang, Shouguang, and Pinghu
Top Line Growth Total Solutions Strategy: Top Line Growth Total Solutions Strategy Creation
Package development
Filling
Market testing Brand artwork management Graphics reproduction:
Laser cylinder
engraving Consumer
Products
Reclaim and
Recycle
Service Centers
- Custom
packing
- Fulfillment
- Purchasing
- Inventory
control
- Delivery to
customer Consumer Packaging Development Center Sonoco Trident
P&G
The Body Shop Keating
MasterFoods
Phillip Morris
Internal
Rigid paper and plastic containers
Kraft
P&G
Flexible Packaging
MasterFoods
Kraft
Metal and plastic closures
Ball
Planters
Point-of-purchase
P&G/Gillette Sonoco
CorrFlex
P&G/Gillette
Packaging Services
P&G
Gillette razors Gillette blades
Hewlett-Packard inkjet cartridges
P&G Germany
baby care products
A full range of packaging supply chain products and services for consumer product companies P&G/Gillette
Pepsi
Wal-Mart
Top-line Growth Total Solutions Strategy: Top-line Growth Total Solutions Strategy “One Sonoco Face” to the customer
Large consumer product goods (CPG) customers want suppliers who can provide a wider range of their packaging supply chain needs.
Sonoco has broadest offerings of packaging products and services in the industry.
CPGs want single point of contact across all Sonoco business units – “One Sonoco Face”.
We have assigned seasoned executives to handle these relationships – initially with P&G and Kraft.
Opened a Sonoco Innovation Center in downtown Cincinnati to serve P&G.
Top-line Growth New Product and Market Development: Top-line Growth New Product and Market Development Increased product development expenditures
Doubling of new patent applications since 2001
New product sales reached nearly $75 million in 2005
New products = those commercialized two years or less
1st quarter 2006 new product sales ahead of 1st quarter 2005
Goal: Average $100 million to $125 million of annual sales from new products
Consumer Packaging Innovations Flexible Packaging: Consumer Packaging Innovations Flexible Packaging
Consumer Packaging Innovations Rigid Paper and Plastics: Consumer Packaging Innovations Rigid Paper and Plastics
Consumer Packaging Innovations Packaging Services Segment: Consumer Packaging Innovations Packaging Services Segment
Consumer Packaging Innovations All Other Sonoco: Consumer Packaging Innovations All Other Sonoco
Industrial Innovations Tubes and Cores/Paper: Industrial Innovations Tubes and Cores/Paper
Conclusions and Outlook Why Invest in Sonoco?: Conclusions and Outlook Why Invest in Sonoco? Effective management of price/cost
Through 2006, expect average annual cash flow from operations of approximately $300 million, excluding any discretionary pension plan contributions, with capital expenditures from $125 million to $150 million annually
Volumes and margins improving in Consumer Packaging
Aggressive new product development, geographic expansion and continued complementary acquisitions and joint ventures
Dividends yielding more than 35% higher than the S&P average and paid consistently since 1925
Financial Review: Financial Review
Income Statement 1st Qtr: 2006 vs. 2005 ($Millions, except EPS): Income Statement 1st Qtr: 2006 vs. 2005 ($Millions, except EPS) 2006 2005 Net sales 818.8 814.4 .5% Cost of sales (662.6) (666.1) .5% SG&A and other expense, net (83.7) (85.8) 2.5% Earnings before interest and taxes 72.5 62.5 16.0% Net interest (10.9) (9.4) -15.5% Income before income taxes 61.6 53.1 16.1% Provision for income taxes (19.2) (19.2) -.3% Income before equity in affiliates 42.4 33.9 25.0% Equity in affiliates/minority interest 2.7 3.1 -10.9% Net income 45.1 37.0 22.0% EPS diluted .44 .37 20.3% Better/(Worse) $ $ $ $ $ $
1st Quarter Summary (2006) ($Millions, except EPS): 1st Quarter Summary (2006) ($Millions, except EPS) As Reported Restructuring Base EBIT 72.5 (2.4) 74.8 Net interest (10.9) - (10.9) Income taxes (19.2) .9 (20.1) Income before affiliates 42.4 (1.5) 43.9 Equity in affiliates 2.7 .1 2.6 Net income 45.1 (1.4) 46.5 EPS .44 (.02) .46 Comprised of $ $ $ $ $ $ $ $ $
1st Quarter Summary (2005) ($Millions, except EPS): 1st Quarter Summary (2005) ($Millions, except EPS) As Reported Restructuring Base EBIT 62.5 (5.0) 67.5 Net interest (9.4) - (9.4) Income taxes (19.2) 1.4 (20.6) Income before affiliates 33.9 (3.6) 37.6 Equity in affiliates 3.1 .5 2.6 Net income 37.0 (3.1) 40.1 EPS .37 (.03) .40 Comprised of $ $ $ $ $ $ $ $ $
Base Income Statement 1st Qtr: 2006 vs. 2005 ($Millions except EPS): Base Income Statement 1st Qtr: 2006 vs. 2005 ($Millions except EPS) 2006 2005 Net sales 818.8 814.4 .5% Cost of sales (662.6) (666.1) .5% SG&A and other expense, net (81.3) (80.8) -.7% Base EBIT 74.8 67.5 10.8% Net interest (10.9) (9.4) -15.5% Income before income taxes 64.0 58.1 10.1% Provision for income taxes (20.1) (20.6) 2.2% Income before equity in affiliates 43.9 37.6 16.8% Equity in affiliates/minority interest 2.6 2.6 3.6% Base Earnings 46.5 40.1 16.0% Base EPS diluted .46 .40 14.3% Better/(Worse) $ $ $ $ $ $
Segment Analysis 1st Qtr: 2006 vs. 2005 ($ Millions): Segment Analysis 1st Qtr: 2006 vs. 2005 ($ Millions) 2006 2005 % Chg 2006 2005 % Chg CONSUMER PACKAGING 298.3 276.9 7.7% 25.8 22.3 15.6% TUBES & CORES / PAPER 338.5 353.2 -4.2% 27.5 25.2 9.0% PACKAGING SERVICES 96.7 104.7 -7.7% 9.1 10.6 -13.9% ALL OTHER SONOCO 85.3 79.7 7.1% 12.4 9.4 32.3% Continuing Operations 818.8 814.4 .5% 74.8 67.5 10.8% Restructuring/Other One-time - - (2.4) (5.0) Interest, Net - - (10.9) (9.4) Total 818.8 814.4 .5% 61.6 53.1 16.1% TRADE SALES INCOME BEFORE TAXES $ $ $ $ $ $ $ $ $ $ $ $
Sales Bridge 1st Qtr: 2006 vs. 2005 ($Millions): Sales Bridge 1st Qtr: 2006 vs. 2005 ($Millions) 2005 Sales 814.4 Volume / Mix 3.6 Price 4.7 Acquisitions/Divestitures (3.7) Exchange / Other (.3) 2006 Sales 818.8 $ $
Base EBIT Bridge 1st Qtr: 2006 vs. 2005 ($Millions): Base EBIT Bridge 1st Qtr: 2006 vs. 2005 ($Millions) 2005 Base EBIT 67.5 Volume / Mix (6.2) Price/Cost 3.1 Productivity 15.7 Other (5.2) 2006 Base EBIT 74.8 $ $
Cash Flow 1st Qtr: 2006 vs. 2005 ($Millions): Cash Flow 1st Qtr: 2006 vs. 2005 ($Millions) 3/26/2006 3/27/2005 $ Change Net Income 45.1 37.0 8.2 Asset Impairment .0 1.7 (1.7) Depreciation & Amortization 38.2 38.6 (.4) NWC Change (15.8) (56.2) 40.5 Benefit Plan Contributions (2.2) (2.3) .2 Other 6.7 3.9 2.8 Operating Cash 72.1 22.6 49.5 Use of Cash: Capital Expenditures (27.8) (28.9) 1.1 Dividends (23.1) (21.7) (1.4) $ $ $ $ $ $
Balance Sheet ($Millions): Balance Sheet ($Millions) Note: Debt / Total Capital ratio is adjusted to increase capital by deferred taxes.