EUR 850.00 For Business Accounts Only

Morningstar | Sonoco Should See Steady Revenue Growth and Stable Margins in the Years to Come

Sonoco Products produces a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. Product diversity and size enable Sonoco to serve nearly any packaging need in developed markets. However, this seeming benefit comes with exposure to giant consumer goods companies like Kraft Heinz or ConAgra, whose size afford them substantial bargaining power. While Sonoco may lack exposure to high-growth emerging markets like competitors Bemis or Sealed Air, stable demand allows a consistent and growing dividend.In consumer packaging (45% of sales), we believe Sonoco will continue to develop new products that can gradually take share in supermarkets. The company is responsible for several well-known and unique packages over the years, like the Pringles can and resealable cookie containers, and continues to spend over $20 million a year on research and development.Protective solutions (10% of sales) should be able to drive revenue growth of around 5% annually and enjoy margin expansion. Automotive end markets could prove lucrative as firms turn to Sonoco for light-weighting solutions such as molded foam seating components or trunk liners and load floors that allow them to meet fuel economy standards. However, this may be offset in the near term as automotive demand softens further. We believe that temperature-assurance products should benefit from positive trends in ready-to-prepare shipped meal subscriptions and delivered groceries.Management has turned its attention to cost reduction in its paper and industrial segment (35% of sales), which serves the mature North American tube and core market and has limited scope for share gains, given its roughly 50% market share. The majority of products in this segment are slow-growth items like paper towel or toilet paper cardboard cores, recycled paperboard, or containerboard used in corrugated boxes. While we forecast low-single-digit revenue growth in this segment, we think operating margins will contract as favorable linerboard and corrugated medium economics attract increased competition and supply.