Executive Summary / Key Takeaways

• Sonoco is undergoing a significant strategic transformation, pivoting towards a simpler, more focused portfolio centered on leading global positions in sustainable metal and fiber packaging, divesting non-core and lower-margin businesses to enhance profitability and capital efficiency.
• The recent acquisition of Eviosys substantially expands Sonoco's metal packaging footprint in EMEA, positioning it as a global leader in food and aerosol cans and is expected to be significantly accretive to earnings and cash flow, driving synergy realization.
• Despite facing mixed market conditions and specific volume softness in certain segments, the company demonstrated strong operational execution in Q1 2025, delivering robust adjusted EBITDA growth and margin expansion, primarily driven by the Eviosys acquisition, favorable price/cost dynamics, and sustained productivity gains.
• Management has reaffirmed its full-year 2025 guidance, projecting substantial growth in adjusted EPS and EBITDA, underpinned by strategic initiatives, productivity, and expected improvements in price/cost and consumer volumes, while focusing on deleveraging the balance sheet post-major transactions.
• Key risks include macroeconomic uncertainty, potential impacts from tariffs and raw material volatility, successful integration of Eviosys, and the execution of planned divestitures, though the company's local manufacturing footprint and pricing strategies offer mitigation.

A Transformed Packaging Powerhouse Takes Shape

Sonoco Products Company, with a history stretching back to 1899, is in the midst of its most significant strategic evolution. For decades, Sonoco built a broad portfolio across various packaging materials and end markets. However, recognizing the need for greater focus and enhanced value creation, the company embarked on a transformation approximately five years ago under current leadership. The objective: simplify operations and concentrate on "fewer, bigger businesses" where Sonoco can achieve and maintain leading global positions. This strategic pivot has reshaped the company, moving away from non-core assets and certain resin-based businesses where scale was challenging, towards a sharpened focus on sustainable metal and fiber packaging.

This journey has involved notable divestitures, including below-margin display and packaging operations, the Protective Solutions business in April 2024, the exit of nonprofitable thermoforming markets, and the reclassification of the recycling business. Most recently, the company completed the sale of the Thermoformed and Flexibles Packaging (TFP) business on April 1, 2025, for approximately $1.8 billion, a move classified as discontinued operations in its latest financials. Complementing these divestitures is an ongoing strategic review of the ThermoSafe temperature-assured packaging business, expected to conclude in the latter half of 2025. These actions are designed not only to streamline the portfolio but also to generate proceeds for deleveraging and enable more focused capital deployment into higher-return opportunities within the core segments.

The cornerstone of this transformation on the acquisition front is the December 2024 purchase of Eviosys for approximately $3.8 billion. This acquisition, the largest in Sonoco's history, significantly bolsters its Consumer Packaging segment by establishing a leading global presence in metal food can and aerosol packaging across Europe, the Middle East, and Africa (EMEA). Rebranded as Sonoco Metal Packaging EMEA in April 2025, this business is central to the strategy of partnering with global customers on innovation and sustainability in metal packaging.

Business Segments and Operational Excellence

Sonoco's operating structure is now primarily defined by two reportable segments: Consumer Packaging and Industrial Paper Packaging, with remaining businesses grouped under All Other.

The Consumer Packaging segment is focused on packaging for consumer staples, including rigid paper, steel, and plastic containers, and metal ends/closures. This segment is strategically important as it tends to perform well during economic downturns due to consumer shifts towards packaged food. The Eviosys acquisition has dramatically increased the scale and global reach of this segment. In Q1 2025, the Consumer Packaging segment reported net sales of $1.07 billion, an impressive 83.4% increase year-over-year, largely driven by the inclusion of Eviosys sales ($464.3 million) and a positive 4% organic volume growth. Segment operating profit surged to $140.8 million, with the margin expanding to 13.2%, benefiting from the Eviosys contribution and favorable price/cost dynamics.

The Industrial Paper Packaging segment produces paperboard tubes, cones, cores, paper-based protective packaging, and uncoated recycled paperboard (URB). It serves industrial end markets like paper, textile, and films. While historically more susceptible to economic cycles, management views the current industrial business as significantly stronger. In Q1 2025, this segment's net sales were $557.7 million, down 6.0% year-over-year, impacted by lower volume/mix, the exit of China operations, and unfavorable foreign currency translation, partially offset by higher selling prices. Despite the sales decline, segment operating profit increased to $71.1 million, and the margin improved to 12.8%, driven by positive price/cost and strong productivity gains.

The All Other group comprises diverse packaging materials and includes the ThermoSafe business. This segment's sales declined significantly in Q1 2025 to $84.9 million, down 36.6% year-over-year, primarily due to the divestiture of the Protective Solutions business and volume declines in other areas. Despite this, the operating profit margin improved to 14.0%, reflecting cost controls and mix.

Operational excellence is a core focus, driving productivity through capital investments, production efficiencies, and fixed cost reductions. The company achieved over $100 million in productivity savings in the first half of 2024 and approximately $183 million for the full year 2024. Capital expenditures are increasingly directed towards value-added growth and productivity projects, such as expanding greenfield paper can production globally and adding capabilities in metal packaging. Footprint optimization, including industrial plant closures in China and ongoing reviews in Europe, is also a key initiative to enhance efficiency.

Technological Edge and Sustainable Innovation

Sonoco's competitive positioning is increasingly underpinned by its technological differentiation, particularly in sustainable packaging and operational efficiency. While specific, quantifiable performance metrics for all proprietary technologies are not detailed, the company emphasizes innovation linked to sustainability as a competitive differentiator.

In rigid paper containers, Sonoco has developed mono-materials designs, such as the Pringles can recognized for its recyclability in Europe. This focus on creating packaging from predominantly single materials simplifies the recycling process and aligns with growing customer and consumer demand for environmentally friendly solutions. The strategic intent is to leverage this innovation to support organic growth and differentiate its offerings in the market.

Across its manufacturing network, Sonoco invests in technology to drive operational efficiency. This includes automation projects and modernizing production lines. The significant productivity gains reported in recent quarters are a direct result of these investments paying off, enabling the company to manage costs and maintain margins even in challenging volume or price/cost environments.

The "so what" for investors is that this technological focus, particularly in sustainable packaging, helps create a competitive moat. By offering innovative, recyclable solutions, Sonoco can command premium pricing, strengthen customer relationships, and potentially capture market share from competitors whose offerings may lag in sustainability features. Operational technology, meanwhile, directly impacts the bottom line by reducing manufacturing costs and improving efficiency, contributing to margin expansion and stronger cash flow generation. This dual focus on product innovation and process efficiency is crucial for sustaining profitability and growth in competitive markets.

Competitive Landscape and Positioning

Sonoco operates in a diverse and competitive packaging industry, facing rivals across its core segments. Key publicly traded competitors include Crown Holdings (CCK) in metal packaging, Packaging Corporation of America (PKG) and International Paper (IP) in paper and paperboard, and Sealed Air (SEE) in protective and flexible packaging.

Comparing Sonoco's latest TTM financial ratios (Gross Margin 33.74%, Operating Margin 5.97%, Net Margin 2.40%, EBITDA Margin 8.87%) to its competitors' latest annual figures (CCK: Gross 22%, Op 12%, Net 4%, EBITDA 10.7%; PKG: Gross 21%, Op 13%, Net 10%, EBITDA 14.5%; IP: Gross 28%, Op 4%, Net 3%, EBITDA 9.4%; SEE: Gross 30%, Op 14%, Net 5%, EBITDA 16.7%) reveals a mixed picture. Sonoco's TTM gross margin appears competitive or even higher than some peers, potentially reflecting its product mix or pricing strategies. However, its TTM operating and net margins are notably lower, suggesting higher operating expenses or other costs impacting profitability below the gross profit line. The TTM EBITDA margin is also lower than PKG and SEE, but competitive with IP and CCK. It's important to note that Sonoco's TTM figures include the impact of discontinued operations and significant acquisition/divestiture activity, which can distort direct comparisons. Looking at Q1 2025 continuing operations, Sonoco's gross margin was 20.7%, GAAP operating margin 7.4%, and Adjusted Operating Margin 12.4%, with Adjusted EBITDA margin at 16.6%. These adjusted figures show stronger operating profitability, particularly at the EBITDA level, becoming more competitive with peers like PKG and SEE.

Sonoco's competitive strengths lie in its diversified portfolio (post-transformation), offering solutions across different materials and end markets, which provides resilience. Its focus on sustainable packaging technology differentiates it, particularly in consumer markets. The company's manufacturing network is designed to serve local markets, mitigating cross-border risks like tariffs, and its business model allows for pricing adjustments to pass through raw material and tariff-related cost increases.

However, vulnerabilities exist. Competitors like PKG and IP may possess cost advantages in paper due to vertical integration and scale. Specialists like CCK and SEE may have faster innovation cycles or more efficient processes within their core material focus areas. Sonoco's reliance on raw materials like steel, aluminum, and recovered paper exposes it to price volatility, although its pricing strategies aim to mitigate this. The integration of a large acquisition like Eviosys and the execution of planned divestitures also present operational and financial risks.

Strategically, Sonoco positions itself by leveraging its combined global scale (especially post-Eviosys), focusing on service, quality, and innovation to win business. The integration of global metal packaging and rigid paper container businesses under single umbrellas aims to capture best practices and synergies. The company actively manages its supply chain and works with customers to navigate market challenges, including tariffs and economic uncertainty.

Financial Performance and Liquidity

Sonoco's recent financial performance reflects the ongoing transformation and operational efforts amidst a mixed market environment. In Q1 2025, consolidated net sales from continuing operations grew significantly by 30.6% year-over-year to $1.71 billion, primarily driven by the Eviosys acquisition and higher selling prices, partially offset by divestitures and a slight net decline in volume/mix. GAAP operating profit saw a substantial increase to $126.9 million, up 74.8% from Q1 2024, benefiting from higher gross profit and lower restructuring costs. Adjusted Operating Profit, which excludes certain non-recurring items, also saw a strong increase to $212.7 million.

GAAP net income attributable to Sonoco decreased in Q1 2025 to $54.4 million ($0.55 per diluted share) compared to $65.2 million ($0.66 per diluted share) in Q1 2024. This was primarily due to a decrease in Net Income from discontinued operations (TFP) and increased net interest expense ($48.7 million in Q1 2025 vs $27.0 million in Q1 2024, driven by higher debt levels from Eviosys financing), which more than offset the increase in continuing operations operating profit. Adjusted net income attributable to Sonoco and Adjusted diluted earnings per share, which provide a clearer view of core operational performance, increased to $136.8 million and $1.38, respectively, up from $111.5 million and $1.12 in Q1 2024.

Cash flow from operating activities was a use of $208.1 million in Q1 2025, a significant decrease from the $166.2 million provided in Q1 2024. This was largely attributable to a substantial use of cash in net working capital ($309.4 million use in Q1 2025 vs $0.8 million provide in Q1 2024), driven by changes in accounts receivable, inventory builds (particularly tinplate steel), and accounts payable timing, as well as higher payments for incentives, interest, and restructuring. Investing activities used $88.6 million, primarily for capital expenditures ($92.7 million). Financing activities provided $29.6 million, reflecting proceeds from commercial paper issuance ($528 million) partially offset by debt repayments ($448.8 million).

Liquidity remains robust. As of March 30, 2025, Sonoco had $181.8 million in cash and cash equivalents, with $161.4 million held outside the U.S. The company had $528 million outstanding under its commercial paper program, supported by a $1.25 billion revolving credit facility, leaving $722 million available capacity. Post-quarter, on April 3, 2025, the company used a portion of the TFP sale proceeds to repay the $1.5 billion term loan, significantly reducing near-term debt obligations. The company believes its cash position, expected future operating cash flows, available credit, and potential proceeds from the ThermoSafe divestiture provide sufficient liquidity to meet obligations and fund strategic initiatives. Debt covenants related to interest coverage and net worth were comfortably met as of March 30, 2025.

Outlook and Guidance

Sonoco has reaffirmed its full-year 2025 guidance, signaling confidence in its strategic direction and operational execution. The company expects adjusted EPS to be in the range of $6.00 to $6.20, representing approximately 20% growth over the 2024 adjusted EPS (excluding the initial Eviosys impact). Adjusted EBITDA is projected to grow by approximately 30%. Net sales are expected to grow by approximately 20% to nearly $8 billion.

This outlook is based on several key assumptions: a full year of the accretive Eviosys acquisition (expected to contribute 25% accretion to adjusted EPS), the impact of the TFP divestiture (expected to be 7-9% dilutive), and approximately 10% adjusted EPS growth from the legacy businesses. Management anticipates continued strength in consumer volumes, particularly in North America metal packaging and rigid paper, although some regional softness may persist. The industrial segment is expected to see low single-digit organic volume growth. Favorable price/cost dynamics are anticipated, along with continued benefits from fixed cost reduction initiatives and productivity gains. Headwinds include a higher effective tax rate (around 25%) and potential unfavorable currency translation impacts.

Cash flow generation is expected to remain strong, with operating cash flow projected between $800 million and $900 million and free cash flow between $450 million and $550 million. Capital expenditures are targeted at approximately $300 million, with a focus on growth and margin expansion opportunities, representing a slower percentage of net sales compared to 2024 as the company prioritizes debt repayment. The company's capital allocation strategy remains focused on investing in high-return projects, maintaining a competitive dividend (recently increased for the 42nd consecutive year), and achieving its leverage target of 3x to 3.3x net debt to adjusted EBITDA by the end of 2026, utilizing divestiture proceeds and strong free cash flow.

Longer term, Sonoco targets adjusted EBITDA of $1.5 billion with high teens EBITDA margins and cumulative operating cash flow of $4 billion to $5 billion over the next five years, driven by the execution of its "Next Era" enterprise strategy, including the Eviosys integration and further portfolio simplification.

Risks and Challenges

Despite the positive outlook, Sonoco faces several risks. Macroeconomic uncertainty, including potential economic downturns, inflation, and changing consumer spending patterns, could impact demand across its segments, particularly in industrial markets. Volatility in raw material costs (steel, aluminum, recovered paper, resin) and energy prices remains a challenge, although the company's pricing strategies and hedging activities aim to mitigate this.

Recent developments in U.S. and foreign trade policy, including the imposition of tariffs and potential retaliatory measures, could increase input costs and disrupt supply chains. While Sonoco's local manufacturing footprint and ability to pass costs through to customers offer some protection, the ultimate impact is uncertain and could affect sales volumes if customers face increased costs for their end products. Geopolitical tensions and instability in regions where Sonoco operates also pose risks.

The successful integration of Eviosys is critical to realizing expected synergies ($100 million target by end of 2026, $40 million expected in 2025) and achieving the targeted financial accretion. Integration challenges could impact operational performance and synergy capture. Similarly, the successful execution of planned divestitures, including ThermoSafe, is necessary to achieve portfolio simplification and deleveraging goals.

The goodwill balance associated with the Metal Packaging - US reporting unit ($384.3 million at March 30, 2025) is noted as being at risk of impairment if operational performance or the long-term financial outlook for that unit deteriorates. Environmental liabilities and other legal proceedings, while currently assessed as not having a material adverse effect, could result in unexpected costs.

Conclusion

Sonoco Products Company is fundamentally reshaping itself, moving decisively towards a more focused and resilient business model centered on sustainable metal and fiber packaging. The strategic rationale behind divesting non-core assets and making a transformative acquisition like Eviosys is clear: to create a simpler, stronger company with leading global positions, capable of driving enhanced profitability, improving capital efficiency, and generating robust cash flow.

While the path involves navigating macroeconomic uncertainties, competitive pressures, and the complexities of integrating and divesting businesses, the company's operational discipline, demonstrated productivity gains, and focus on sustainable technology provide a solid foundation. The reaffirmed 2025 guidance signals confidence in the near-term trajectory, projecting significant growth in earnings and EBITDA, supported by strategic execution and expected market dynamics. For investors, the story is one of a legacy company actively transforming to unlock value, leveraging its core strengths and technological capabilities to compete effectively in key packaging markets, all while maintaining a commitment to returning capital through a long-standing dividend tradition. The successful realization of synergies from Eviosys and the efficient execution of remaining portfolio actions will be key determinants of achieving the company's ambitious long-term targets and fully demonstrating the value of the transformed Sonoco.