Is there anything more exciting than investing in a big box company?
No, I'm not talking about "big-box" retailers like Circuit City (NYSE:CC) and Best Buy (NYSE:BBY). I mean, literally, a box company. The kind that makes the boxes that surround all the electronic goodies retailed by those big-name merchants.
What? Not interested anymore? You might want to pay closer attention. Because box-maker Sonoco (NYSE:SON), a recommendation of Motley Fool Income Investor, just turned in stellar results for its second quarter of 2006 -- results good enough to drive the stock up 9% in a day. Reporting on Wednesday, Sonoco announced that it had transformed a 4% increase in sales (versus a year ago) into a 22% leap in profits per diluted share (including restructuring charges), handily besting analyst estimates on Wall Street.
Behind the numbers, there were several moving parts at work in making Sonoco's quarter a success. The company's consumer packaging segment continued to benefit from higher prices. Volume was mixed as higher volumes of composite cans were offset by decreased volumes of flexible packaging.
More important, though, was the turnaround in Sonoco's tubes-and-cores business, where things went much differently this quarter than last. In Q1, that division suffered from both low shipping volumes and lower selling prices. Three months later, we see the opposite: higher volumes and higher prices on products shipped.
On the downside, sales of Sonoco's point-of-purchase display items continued to lag last year's results. Unfortunately, this appears to be a problem that won't quickly be resolved. We saw the same weakness in point-of-purchase sales last quarter, and the main reason for the sales decline was that sales in this category during the first half of 2005 were, in the words of CEO Harris DeLoach, "unusually strong," and boosted by "extensive new product display launches" last year. So it seems that renewed growth in this segment of the business depends in large part on whether consumer goods makers decide to make a lot of new product launches in a given quarter.
Turning to free cash flow, Sonoco reported generating $161 million in cash from operations, and spent $59 million on capital expenditures -- leaving it with $102 million in free cash flow so far this year. Sonoco then spent $47 million on dividend payments, and $83 million more on share buybacks. If you recall from our pre-earnings-news Foolish Forecast, Sonoco had already spent $70 million on buybacks in Q1. So it seems the company scaled back its repurchase program during Q2.
My guess is that, with the shares having now run back up to where they sat for much of Q2, we will therefore see minimal buyback activity unless and until the price begins to lag again.
Can't get enough news about investing in box makers? You're in luck, we've got two more recent articles on Sonoco that should fit the bill nicely:
Best Buy is a Motley Fool Stock Advisor recommendation.
Fool contributor Rich Smith does not own shares of any company named above.
