South Carolina-based packaging firm and Motley Fool Income Investor pick Sonoco Products (NYSE:SON) reported quite a rise in earnings last week. In the third quarter of 2003, one-time charges depressed Sonoco's earnings by more than half, resulting in profits of just $0.14. One year later, the company reported $0.41 -- a nearly 200% increase year on year.

Both years' figures were depressed by one-time charges. But if you net out all the one-time expenses and benefits between the two quarters, the year-on-year increase in profits would have been not 200%, but closer to 50%. Impressive, either way.

Quarterly sales increased 18% year on year, partly because of an increase in volume and partly from price hikes. The latter worked to counteract a rise in the cost of steel and cardboard raw materials that the company uses to manufacture its products. Essentially, it appears that Sonoco had no difficulty passing the additional raw materials costs on to its customers. It's also encouraging to note that, since the rise in sales from the first nine months of 2004 in comparison to the first nine months of 2003 was just 15%, the 18% rate of increase in sales in the third quarter suggests an acceleration in sales may be under way.

The free cash flow situation continues to deteriorate, however (remember that back in July we suggested this should be watched). Once again, quarterly cash from operations declined in comparison to Q3 2003 -- this time, by about 33% (the 30% rise in accounts receivable and 14% growth in inventories probably did not help). Given that the same thing happened last quarter, it's not at all surprising that cash from ops for the year to date suffered a similar year-on-year decline -- from $205.6 million to $135.7 million. Subtract out capital expenditures for the first nine months of 2004, and free cash flow came in at $49.4 million, suggesting a free cash flow run rate for the year of just $66 million. Divide that into the firm's current enterprise value of $3.4 billion, and you are left with an EV/FCF ratio of 51.5.

Granted, from a straight GAAP perspective, things look somewhat better. Sonoco does seem on track to earn about $1.60 per diluted share this year. It already has $1.18 locked up and expects to earn as much as $0.43 more in Q4. In that case, it should top consensus estimates that are currently calling for $1.56 in profits. It would also give the company a not-unreasonable 16 P/E. But with such a large disparity between the EV/FCF and the P/E ratios, an investor has to wonder which side of this package is "up."

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Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.