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What's in the Offing for Sonoco's (SON) Earnings in Q2?

Zacks Equity Research

Sonoco Products Company SON is scheduled to report second-quarter 2019 results on Jul 18, before the opening bell. The company is anticipated to benefit from pricing initiatives, acquisitions and cost-control measures despite higher input costs in the to-be-reported quarter.

In the last reported quarter, Sonoco’s earnings per share beat the Zacks Consensus Estimate by a margin of 6.25%. The company has an average positive earnings surprise of 5.74% in the trailing four quarters.

Sonoco Products Company Price and EPS Surprise

Sonoco Products Company Price and EPS Surprise

Sonoco Products Company price-eps-surprise | Sonoco Products Company Quote

What to Expect in Q2?

The Zacks Consensus Estimate for revenues for the second quarter is at $1.42 billion, suggesting growth of 4.03% from the year-ago quarter.

Sonoco’s second-quarter 2019 earnings outlook is at 93-99 cents per share compared with 93 cents in the year-ago quarter. The mid-point of the new guidance indicates an improvement of 3% from the year-ago reported figure. The Zacks Consensus estimate for earnings per share is at 97 cents, suggesting growth of 4.30% from the prior-year quarter.

Expectations from Segmental Performance

The Zacks Consensus Estimate for the Consumer Packaging segment’s sales is at $625 million, suggesting year-over-year growth 1%. The segment is expected to report operating profit of $63 million, down from $64 million reported last year.

The Zacks Consensus Estimate for sales of the Paper and Industrial Converted Products segment is currently pegged at $535 million, indicating year-over-year improvement of 13%. The estimate for operating profit is at $65 million, suggesting a 5% increase year over year.

The Zacks Consensus Estimate for the Display and Packaging segment’s net sales is $135 million for the to-be-reported quarter, suggesting a decline of 6% from the prior-year quarter. The segment is expected to report an operating profit of $5.23 million, a turnaround from the loss of $0.6 million reported in the year-earlier quarter.

The Protective Solution segment’s net sales are projected at $132 million, indicating a decline of 1% year over year. The Zacks Consensus Estimate for the operating profit of the segment is $12.8 million, down 6% from $13.6 million reported in the prior-year quarter.

Key Factors to Consider

Results in the June-ending quarter will benefit from pricing initiatives, lower tax rate, and the Conitex and Highland acquisitions. The company’s focus on optimizing businesses through process improvement, standardization and cost control will also aid the to-be-reported quarter’s results. However, weakening global economic conditions and the uncertainty related to trade disputes and regional policy concerns have been weighing on consumer confidence. Moreover, impact of tariffs on steel, aluminum and other products will continue to hurt Sonoco's margins. The company is also facing inflationary cost pressure from higher freight, wages, energy and elevated cost for materials, particularly resins.

Price Performance

Over the past year, shares of Sonoco have gained 19.8%, against the industry’s decline of 28.8%.

Earnings Whispers

Our proven model does not conclusively show that Sonoco is likely to beat on earnings in the to-be-reported quarter as it lacks the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP for Sonoco is 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are both pegged at 97 cents currently. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Sonoco currently carries a Zacks Rank #3, which increases the predictive power of ESP. But we also need to have a positive earnings ESP to be sure of an earnings beat.

It should be noted that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few Industrial Products stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:

Roper Technologies, Inc. ROP has an Earnings ESP of +0.22% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here .

Terex Corporation TEX has an Earnings ESP of +1.58% and a Zacks Rank #3.

AptarGroup, Inc. ATR, a Zacks #3 Rank stock, has an Earnings ESP of +0.56%.

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