Good to go? Okay, good morning, everybody. Thanks for joining us today. My name is Ghansham Panjabi. I am the packaging and materials equity research analyst at Baird. This is our 56th conference, of which this is my 18th, so it has been a long time. We welcome everybody joining. We are going to kick things off, over the next three days, we have about 80% of our coverage, 80% + of our coverage represented. We are going to kick things off with our friends at Sonoco Products. From Sonoco, we have Howard Coker, CEO since 2020, right before COVID started. He has had an active decade. We have Paul Joachimczyk, CFO, and we have our new CEO-elect, Ernest Haynes. Ernest, congratulations on your promotion, and Howard, wish you the best. I know Howard has some prepared remarks.
Great
With that, we will turn it over to you.
Appreciate it, Goncho. Good morning, everyone. I was going to read the entire forward-looking statement, but I think everybody understands exactly what is in the forward-looking statement. What I wanted to announce is yesterday, we did announce that I am retiring as Director, President, and CEO at the end of this year. Frankly, let me share with you that it has been a terrific honor of my career to serve as CEO of Sonoco, a company that I have known all of my life. I am extremely proud of what we have accomplished over the past 41 years during my career, and I am particularly proud to have led Sonoco through a defining period of transformation. Together, we have reshaped Sonoco into a more focused, resilient enterprise centered on scaled, market-leading consumer and industrial packaging businesses, and supported by a strong balance sheet.
Now is the right time to hand leadership to the next generation as part of an orderly succession planning process I initiated working with the board over the last year or two. I am pleased to announce that our board has elected Ernest Haynes, who is currently President of our global consumer packaging segment, as the next President and CEO of the company, effective the start of 2027. Ernest is a proven leader who has built a deep understanding of our businesses across nearly three decades with Sonoco. Throughout his career, he has proven himself to be a seasoned operator and a commercial leader with a deep understanding of our consumer and industrial businesses. His knowledge of our customers and markets, and his track record of execution, make him uniquely qualified to lead Sonoco in its next phase of growth and value creation.
With that, I would like to introduce you to Ernest. Ernest, would you care to make a few comments? Thank you, bud.
Thank you, Howard. Certainly, thank you. Glad to be here, and good morning, everyone. I am honored and appreciative to Howard and our board for trusting me to lead Sonoco, and I am energized by the opportunity to guide this tremendous organization going forward. Through Howard's leadership, we are certainly inheriting a strong foundation that positions us well for the future. I am thankful for his investment in me, and we will work very closely together to ensure seamless transition. I am also looking forward to working with our global leadership teams to accelerate value creation while delivering innovative solutions within our served markets.
This leadership transition represents continuity, not change, in Sonoco's strategic direction and core values. Sonoco remains focused on its long-term vision, portfolio, target markets, technologies, and key business priorities. Near term, I remain focused on working with our global consumer team to deliver results in the fourth quarter.
Longer term, we will certainly focus on delivering sustainable growth, profitability improvement, and efficient capital allocation to create lasting value for our customers, for our shareholders, and for our people. Now let me turn it over to Paul Joachimczyk, our Chief Financial Officer, to review third quarter key financial highlights. Paul?
Make sure not to fall. Thanks, Ernest.
Thank you, Paul.
Congratulations.
Thank you.
Yes. Over the course of the next coming months and years, I look forward to working with Ernest and developing a deeper relationship and understanding of the business that's out there. During our third quarter, our businesses faced a combination of challenges. Through strong productivity initiatives and rigorous cost controls, our team was able to mitigate a significant portion of these issues and deliver resilient operating results. Our industrial segment delivered another solid quarter, with results essentially in line with the second quarter, despite a dynamic operating environment. Productivity continued to be a key driver, while North America URB trade sales increased 10% year-over-year, and mill utilization remains strong at 94%. Wire and cable reel sales continued to perform well, with double-digit growth.
Overall volume mix in our industrial segment was modestly positive, and additional URB pricing realized in September further strengthened our ability to recover rising input costs moving forward. Results from our consumer packaging segment were below our expectations. Volume and mix was down 3% year-over-year, primarily due to hot and dry weather conditions and unfavorable price-cost relationships during the quarter. There were several encouraging areas of performance in the consumer segment. Our international paper can operations delivered double-digit growth, supported by continued solid demand for snack products across emerging markets. Also, U.S. aerosol can demand was up 7%, while productivity initiatives generated strong operational benefits across the business. Our three-year Profitability Performance Plan is a company-wide program designed to deliver structural margin improvement, simplify the organization, and strengthen commercial effectiveness. The program is gaining momentum and directly offsetting input costs.
Results through the first nine months reinforce our confidence in the earnings and margin opportunities in 2027 and beyond. The plan delivered $16 million of savings in the third quarter, up from $10 million in the second and $8 million in the first. Year- to- date, our savings have reached $34 million. Annualized savings are now at $51 million, or one-third of the low end of the range of our three-year target of $150 million-$200 million. We remain on track and continue to pursue opportunities to accelerate savings toward the high end of that range. These structural savings create a durable foundation for continued profitability improvement. We continue to generate solid free cash flow, up 2% year-over-year. Even with softer sales and seasonal working capital increases, disciplined capital spending, now tracking at 3.3% of sales for the year, demonstrates our fiscal responsibility.
As a reminder, our year-to-date cash flow included $103 million of one-time tax payments related to gain on sale of 2025 divestitures, which will not repeat in 2027. We remain focused on delivering our cash flow commitments and maintaining our strong balance sheet. We reduced total debt by $162 million and net debt by $176 million during the quarter. We also refinanced $800 million term loan, extending our maturity profile, enhancing our financial flexibility, and maintaining our low funding costs. The strong cash-generating power of our business allows us to reduce debt, invest in the company, and continue our 43-year track record of increasing dividends paid to shareholders. We remain confident in our strategic direction, including the recent move to align our consumer businesses and in the progress of our productivity and profitability initiatives. We are driving additional improvements to offset higher input costs and softer volumes.
Based on current market conditions, our full-year guidance remains unchanged from our October 21st update. As shown on this slide, we expect net sales of $7.2 billion-$7.4 billion, Adjusted EBITDA of $1.2 billion-$1.25 billion, adjusted EPS of $5.30-$5.50, and operating cash flows of $600 million-$650 million. With that, I'd like to congratulate Howard on 41 years with the company, and hopefully you get some fishing time in.
Okay. Well, thank you, Paul. Let me close with some other updates, starting with our recently announced plan to invest in our Richmond, Virginia URB mill. With demand remaining strong and mill utilization rates still running in the mid-90% range, we announced last week that we will be investing $40 million to modernize and expand our Richmond mill over the next two years. Richmond is a key facility within our network. It supplies paperboard used in our iconic paper cans and produces lightweight Tan Bending Chip grades for a broad range of customers. This investment will add state-of-the-art capabilities that enhance operating efficiency, improve product quality, strengthen the employee experience, and increase annual production capacity by roughly 9,000 tons.
This investment reflects our confidence in the future of the market, our commitment to supporting customer growth, and our determination to strengthen Sonoco's leadership position as North America's largest producer of uncoated recycled paperboard. In closing, we clearly remain in a dynamic market, but we also believe that we're entering an important period of opportunity. In industrial, we're benefiting from strong URB demand and continued growth in reels. In consumer, our innovation pipeline in both metal and paper cans positions us well for future growth. Most importantly, we remain confident in our strategy, our leading market positions, and the ability of our team to execute through economic cycles. With that, Ghansham, we'd be very happy to entertain any questions that you may have.
Yeah, thanks again. Congratulations to you both once again.
Thank you.
Great careers. First off, Howard, thinking back to when you took over as CEO, 2020, all the many events that we've gone through from a macro perspective, geopolitical perspective, the wars, COVID, consumer affordability issues, and so on and so forth. What did you inherit as CEO when you took over CEO of Sonoco, and what are you handing off to Mr. Haynes?
First off, I inherited a great company. I've been with it, at that point in time, into 30-some odd years. Started my career as a shift supervisor. Obviously, I'm part of the family, but I worked my way around the world in various jobs. So, a great company with an extremely unique culture of winning, but of culture of values, family orientation, et cetera, et cetera. So, the foundation, fantastic. What I felt like, as I stepped into the responsibilities of CEO, was that we had two terrific franchises. We're the world's largest producer of paper canisters, and same for URB, and had a host of various other businesses, all of which I would characterize as being experiments of my words within the company, the four walls of Sonoco, is we spent too much time looking out the window as opposed to looking in the mirror.
What I meant by that was, just because there's another market over there that seems to be growing, do we have a right to serve that market? Do we have a right to win? Do we have a right to develop a position? So, what I inherited was what I see as an opportunity to take the Frankly, they were still good businesses. We were posting the right results. So, we had good businesses that could be monetized to allow us to shift the portfolio to be in more focus, which is where we've landed today. I'm really proud of the fact that here we sit, a little over $5 billion in turnover when I began, $7.5 billion or so today, EBITDA in the $650 million-$700 million range, $1.2 billion-$1.3 billion today. The dividends are very important to our owners.
Dividend payout ratio of 35%-38% versus 70%-80%. A much more focused portfolio carrying with us an investment grade rating, which is not necessarily the norm for our sector. So, feel like we've done a lot of good things, and the proudest part of it for me right now is to be able to step off the stage, and literally, I will step off this stage. I told my wife I was going to burn my passport when I was 65, and she reminded me that no hell I'm not. We're going to travel. This time, though, we're going to travel and actually enjoy the world and not go to plant after plant after plant.
What I feel good about is that we have such a solid team that has a deep understanding of Sonoco and its culture, of our direction, and we are going to be able to execute the foundation that I am leaving behind.
You ready to go visit all those plants?
Absolutely.
We have already visited all of those.
session7@rwbaird.com if you have any questions, or simply raise your hand. It is a very small room. Ernest, as you kind of think about the two segments that Sonoco has, two distinct end markets, require different strategies and operational skill sets and so on and so forth. Maybe tie that with your background as it relates to your 40-some odd years at the company and your skill sets that align with that.
Well, thank you for the question. I would first say that I spent the bulk of the early part of my career in the consumer businesses. That is where I started in 2014. Howard gave me an opportunity to say, "Hey, bud, we want you to go over to industrial." I spent three and a half years working with James Harrell, who you all know leads our global industrial business. I have rich experience in that group, and that has served me well. Then obviously, back in consumer between both paper and metal. I think what I bring to the table is a real intimate knowledge, and one of the things I inherit is our 22,500 folks who are entirely focused on driving profitability of the company, and I think we have some of the best teammates around the globe.
The other piece that you mentioned relative to Howard that is probably different than I am inheriting is a macroeconomic environment that is incredibly challenging. What we do not expect is that to change. Our ability to be a nimble partner for our customers in the go forward will be a part of my strategy. We have a rock-solid foundation. We have terrific assets around the globe. I have a keen eye on Europe. We made an acquisition that is entirely complementary to what we want to do in the global consumer space, but our ability to accelerate execution will be really important over the next two years, and that is an incredibly big part of what my focus will be.
One of the big challenges over time for most of the companies in our coverage, including yours, is growth. Mature end markets, competitive environments, a lot of private companies that have different motivations as it relates to profitability, et cetera. Where do you see opportunities from a growth standpoint for Sonoco?
I think growth with us starts a lot around innovation. I think when we look at the macroeconomic environment, we normally say we're kind of a GDP+, low single-digit kind of growth business. Certainly nothing wrong with that, but essentially, we have innovation, particularly around our paper can business. You've seen what we've done with the all-paper can in Europe, and we have tremendous swim lanes with that kind of globally in terms of how we think about South America, how we think about Asia, and even North America, bringing that package online. So, innovation is a big part of our growth strategy, and continuing to earn the right to serve customers where we have a geographical right to the business. I think we've done a tremendous job with our metals business since 2022 with the Ball Metalpack acquisition, but there is still room to grow.
As you know, on the industrial side, very stable business for us, continuing to grow, accelerating that profitability as well is a big part of what we do. I think the centerpiece of where we grow still sits around innovation.
Speaking of growth, there were some growth opportunities on the URB side as well. Can you highlight some of those?
You want me to do it, or you want to do it, Howard?
Whoever.
Well, there is a couple. Certainly, we have talked extensively about saturated kraft. That is not going to, well, it will fill up the capacity that I outlined, the 9,000 tons or so in addition. More exciting, I cannot even pronounce the name of the scientist that came up with our new paper core that is a game changer in the linerboard industry in terms of its overall performance. Growth on the industrial side is not sexy. It is not picking up a can of product on the supermarket shelf and saying, "Wow, look at this." You have cheese that is now being offered in a paper canister versus a cardboard box because of enablers that we have put in place. There are lots of folks within our headquarters and around the world looking at the next innovation as it relates to both URB and our converted products.
They are really just not sexy, but they sure make a difference to the market and our customers.
I will just ask one more, then I will prompt the audience. On culture, given how much portfolio reshifting has occurred at Sonoco over the years, right? Where are you on culture? Because obviously, that creates some turmoil in the organization and so on and so forth. Are we on the flip side of that? I mean, Eviosys has been a few months now in terms of integration, et cetera. Your thoughts on that?
Let me jump in on that one, because I have had the privilege going public within our four walls over the last week or two to really compliment our leadership team. If you think about the amount of change that we have been through over the last five years, the macro environments that we have lived in, literally sitting down with our management committee and even closer, our executive committee, and seeing the amount of empty chairs because we have become that much more focused. How we have managed to maintain the culture has just been probably one of the more prouder things that I can pass on to our team and their accomplishments, to maintain that culture and that amount of change and turmoil, seeing career Sonoco veterans that get sold off in an acquisition.
There were many, many times of tears, hugs, farewell parties that, again, I look up and I see a winning culture still in place and a winning team. Probably should have let Paul, because he would have brought it a little closer. But I'm emotional about it, but I'm proud of it.
Great. Josh.
Love to hear your guys' thoughts on just the overall volume environment as it is right now. Then specifically on the consumer volumes, I think on your last call, you talked about baseline assumption of flattish in 2027. Just curious what the puts and takes are there, just given you have pockets of growth there, the weather impact this quarter, which could theoretically be a tailwind. Just easy comps perspective next year, just how you're thinking about that would be great.
Yeah. I think for the next year's volumes, really wanted to set expectations kind of relatively neutral and flat. We didn't put a lot of growth into the numbers that are out there. You expect that if crops do, acreage starts to get planted more, that will be a tailwind for us into 2027. But I'd say as we're going through our budgets, we're trying to be really realistic about what we can expect to really, truly kind of baseline off of and grow the company. That guidance will be coming out kind of in February timeframe when we give the full 2027 outlook that's there.
Anybody else? As it relates to your EBITDA targets, these guys came up with some targets, and you're going to have to execute towards that for 2028. Where are we tracking relative to the 2028 targets you outlined at the beginning of this year?
Yeah. I'd say for the 2028 targets, once again, we'll stay away from the reaffirming of any guidance or anything that's out there. But I'd say the challenging year this year did take a little bit of a pause on that, and we have to go back through and reassess where we can go and what we can actually accomplish. Then in that February time meeting, we can definitely highlight where we'll be. But I would say is, we did take a step backwards, primarily due to the macro events that are there. It was the inflation, it was the lower volumes in our consumer businesses that were there. But those are, I'd say, temporary in nature. You get them back and recover. Our Triple P program is still reducing the foundational costs and creating a really solid structure for us to grow the company off of.
Not going to delay the answer or just pause it, but wait till February, and we'll give you a little bit more update.
Understood. On URB, which has been a pretty strong market from a paperboard substrate standpoint, right, in terms of the verticals, et cetera, pricing has been pretty efficient relative to the other grades. There is new capacity coming in from a peer of yours. The initial reaction is always to dismiss such things, and it turns out to be a bigger deal than it. Over time, as you look back, it turns out to be a material event. What are your thoughts as it relates to the balance in terms of URB?
First off, not seeing a lot, if any, activity in our space. To your point, it remains to be seen. We're running right now the largest URB mill in North America at 180,000 tons. We've been in the business for 125+ years. It's tough. It's a tough grade to manage with all of the SKUs, et cetera. So, still hold to the fact that anyone stepping in with a very, very large machine is probably focused on some of the more simplest grades out there, and we're just not seeing it, we're not feeling it. My understanding, as recently as some comments from our leadership team yesterday, it's probably seen more in the food service side of things.
Takeaway bowls, things like that. We don't participate in that market. But again, if you look at the amount of straight SKUs, then look at the amount of overall SKUs in terms of slitting, et cetera, it's tough to manage a 180,000-ton machine and do that efficiently. Much tougher the larger the machine gets, the more it's important that you're running at full capacity all the time and not changing over a lot. So, we feel really comfortable for just about any investor that's out there today in their planning horizons that shouldn't be a major drama-
Yeah
-in the market.
Every year has its challenges. This conference a year ago, looking back at my notes, the view was very subdued, thinking out to 2026 relative to where we were this time last year. What does the macro feel like? As you look out to 2027, obviously there's another inflationary impulse that's permeating through the supply chain, including to the consumer. Generally speaking, volumes have been at a low point for our coverage for a while now.
Right.
We're actually seeing companies report relatively stable volumes. Just your thoughts as it relates to 2027, high level.
Yeah. I'd say for 2027, I'll even go back to the beginning part of this year. Whoever would have thought, kind of end of February, there would have been a conflict, and that put this whole economy, actually the global economy, into kind of this macro challenges that were out there. I'll even go back to our end of Q2. We said, "Oh, inflation is stabilizing," but it was anything but that. It actually just accelerated in the third quarter and even got worse. I'm afraid to even say it, but inflation seems to be stabilizing, rising fuel prices that are out there. If there was wood on this stage, I would touch it right now.
There isn't. I'd say for 2027, I'd expect us to be in a relatively stable environment. We're seeing things starting to tail off. We're seeing diesel fuel prices starting to drop that are out there. I'd say I would hope that that is a and hope is not a strategy, but I'd say is inflation should slow down. It should not stay at the pace it's at. That does give opportunities for tailwinds as these input costs recede. We still have the pricing power and effects that just went into place in our industrial businesses and our consumer businesses. As you know, we can renegotiate all of those contracts into the early part of 2027 as well too.
Okay. We're almost at time, but maybe a great question for you to end this, Ernest. You're taking over of a wonderful company, right? Long history, many different iterations of changes over time. Most of them have been extremely successful. A high dividend. You look at some of the metrics on valuation, it's well below the 10-year average, not just you guys, but your peer group as well. Short interest is very elevated for a company like yours. What do you think investors are missing? Maybe just close this out with a pitch on Sonoco Products from your lines.
Sure. I think Sonoco remains one of the most stable, credible companies, certainly within the Fortune 500. I think we have a terrific asset base. I think my focus will be on continuing to drive value creation, particularly within our European asset base, which is certainly greater today than it was a few years ago. At the same time, I think we need to continue to build on the credibility and predictability of our earnings. I think that's been an area, as we've transformed the company, that has created some uncertainty relative to the investor base, and fairly so. We're past that level of transformation, and now it is about a high level of execution. I certainly think we have the asset base in place. We have a terrific team throughout the global network, and it's my job to get the most out of that group.
I'm super excited about the ability to do that. We're inheriting a tremendous example from a leadership standpoint. You mentioned about our culture. I think that is the underpinning of everything we do. If you think about Howard's father before him, if you think about the CEOs we've had, the one thing that has remained the same is we believe people build businesses by doing the right things. That will continue to be our mantra going forward, and we will earn the right to serve our customers in every single geography and move the company forward.
That is a good way to end. Thank you again for your time. Ernest, congratulations again. Howard, you will be missed, but congratulations to you and best wishes for the future. This ends the formal presentation. The breakout is going to be right across the hallway, and thanks again for joining.
Thank you.
Thank you.