Executive Summary / Key Takeaways

• Portfolio Transformation Nears Completion: Sonoco has strategically divested non-core assets, including TFP and the pending ThermoSafe sale, to streamline operations into two core global segments: Consumer Packaging (metal and paper cans) and Industrial Paper Packaging, aiming for enhanced focus and agility.
• Robust Financial Performance Amidst Headwinds: Despite macroeconomic softness in EMEA and Asia, Sonoco achieved record Q3 2025 net sales of $2.10 billion and Adjusted EBITDA of $386 million, driven by the Eviosys acquisition, strong pricing, and productivity gains.
• Technological Edge and Operational Excellence: The company leverages advanced material science, digital printing, and robotic automation to differentiate products, optimize manufacturing, and drive cost efficiencies, particularly in its rigid paper containers and wire and cable reels businesses.
• Clear Deleveraging Pathway: Proceeds from divestitures, coupled with strong operating cash flow, are prioritizing debt reduction, targeting a net leverage ratio of 3.0x to 3.3x by the end of 2026, which is expected to significantly reduce interest expenses.
• Outlook and Shareholder Returns: While Q4 2025 guidance reflects continued market softness, Sonoco projects full-year 2025 net sales of $7.8-$7.9 billion and Adjusted EBITDA of $1.3-$1.35 billion, underpinned by synergy realization, new product launches, and a commitment to its 100-year dividend payment streak.

A Century of Packaging Innovation and Strategic Focus

Sonoco Products Company, founded in 1899, has cultivated a rich history of innovation and shareholder returns, notably maintaining quarterly dividend payments for 100 consecutive years. Over the past five years, the company has embarked on a profound strategic transformation, shedding complexity to concentrate on "fewer, bigger businesses" in global metal and fiber packaging. This strategic pivot involved divesting non-core and below-margin assets, such as resin-based molded foam products and plastic packaging, where achieving necessary scale proved challenging.

The culmination of this transformation is evident in recent significant divestitures. On April 1, 2025, Sonoco completed the sale of its Thermoformed and Flexibles Packaging (TFP) business to TOPPAN Holdings Inc. (TOPPY) for $1.81 billion, with proceeds primarily allocated to debt reduction. Further streamlining is underway with the definitive agreement to sell its ThermoSafe temperature-assured packaging business by the end of 2025 for up to $725 million. This transaction is poised to substantially complete the portfolio transformation, allowing Sonoco to sharpen its focus on its two core global business segments: Consumer Packaging and Industrial Paper Packaging.

Technological Moats and Operational Agility

Sonoco's competitive edge is increasingly defined by its advanced material science and technology expertise, which underpins its product differentiation and operational efficiency. In its Consumer Packaging segment, the company is actively developing new all-paper and paper-bottom cans, offering customers sustainable alternatives to traditional packaging substrates. These innovations leverage Sonoco's deep understanding of fiber-based materials to create solutions that meet evolving environmental demands while maintaining product integrity.

Beyond material science, Sonoco is investing in cutting-edge manufacturing technologies. The company is making a $30 million investment to expand production capacity for the U.S. adhesives and sealants market, incorporating new state-of-the-art technology, including digital printing. This initiative is expected to add 100 million additional units of annual capacity across three facilities, enhancing both efficiency and product customization. In its Industrial Paper Packaging segment, Sonoco has expanded robotic assembly for nailed wood reels in Hartselle, Alabama, to accelerate production, increase capacity, and reduce unit costs. This automation is critical for meeting surging demand from customers expanding domestic energy and communications infrastructure. Furthermore, the company is deploying autonomous forklifts and robotic assemblers in its Jackson, Tennessee Rigid Paper Containers operation, targeting $65 million in productivity savings in 2025. These technological advancements contribute directly to Sonoco's competitive moat by enabling higher production efficiency, lower manufacturing costs, and the ability to offer differentiated, sustainable, and high-performance packaging solutions.

Competitive Landscape and Strategic Positioning

Sonoco operates in a competitive packaging industry, facing direct rivals such as International Paper (IP), Packaging Corporation of America (PKG), Crown Holdings (CCK), and Berry Global (BERY). Each competitor brings distinct strengths and strategic focuses.

International Paper, a giant in fiber-based packaging, leverages its vast scale and global supply chain for cost efficiency in commodity products. Sonoco, in contrast, differentiates itself with a broader range of consumer-focused packaging and integrated solutions, potentially offering greater adaptability for retail needs. While IP may lead in raw material sourcing efficiency, Sonoco's diversified portfolio and customer-centric innovation in rigid and protective packaging provide a competitive advantage, particularly in niche segments.

Packaging Corporation of America excels in containerboard and corrugated packaging, emphasizing sustainable solutions for e-commerce. Sonoco's diversified material offerings, including rigid paper and metal, allow for greater versatility in addressing varied market demands. PKG's operational efficiency in high-volume corrugated production is a strength, but Sonoco's expertise in specialized protective components like wire and cable reels provides an edge in specific industrial applications.

Crown Holdings is a leader in metal packaging for food, beverage, and aerosol. Sonoco's acquisition of Eviosys directly positions it as a formidable competitor in this space, offering a mix of metal and rigid paper options. While CCK boasts technological specialization in metal forming, Sonoco's strategy of combining materials allows for cost-effective, multi-material solutions, potentially enhancing customer loyalty through integrated offerings.

Berry Global focuses on plastic packaging, emphasizing innovation in flexible and rigid plastics. Sonoco's offerings in rigid paper and metal cans, alongside its remaining plastic capabilities, provide a more integrated approach to packaging. While BERY may lead in plastic-specific technological advancements, Sonoco's emphasis on recycled materials and multi-material solutions offers a distinct value proposition in the evolving landscape of sustainable packaging.

Overall, Sonoco's market positioning is that of a diversified provider with strong capabilities in both consumer and industrial segments. Its strategic focus on integrated solutions and sustainable materials, backed by technological investments, allows it to compete effectively against more specialized rivals. The company's local manufacturing networks also mitigate exposure to cross-border disruptions and tariffs, a key strategic response to global trade developments.

Financial Performance and Operational Momentum

Sonoco's strategic transformation is yielding tangible financial results. In the third quarter of 2025, the company reported record consolidated net sales of $2.10 billion, a significant 57.3% increase year-over-year. This surge was primarily fueled by the Eviosys acquisition, contributing $758.20 million in net sales, alongside robust price increases of $63.90 million. GAAP operating profit for the quarter climbed 90.9% to $195 million, benefiting from a $167.50 million increase in gross profit, largely attributable to the new Metal Packaging EMEA business. Adjusted EBITDA reached a record $386 million, up 37% year-over-year, with the Adjusted EBITDA margin expanding by 130 basis points to 18.1%. This margin expansion underscores the effectiveness of strong price/cost discipline and ongoing productivity initiatives. Adjusted EPS also saw a healthy 29% increase to $1.92 per diluted share.

The Consumer Packaging segment demonstrated exceptional growth, with net sales increasing 117.2% and operating profit rising 117% in Q3 2025. This was driven by the Metal Packaging EMEA business and favorable price/cost dynamics. The Industrial Paper Packaging segment, despite flat net sales, saw its operating profit jump 28%, with the operating profit margin expanding to 15.40% from 12% in the prior year, a testament to positive price/cost trends and strong productivity. Howard Coker noted that the North American industrial team has "completely restructured how they manage the business... It's driven cost out," indicating a sustainable improvement in operational efficiency.

Liquidity remains strong, with Sonoco generating $276.90 million in operating activities during the first nine months of 2025. The company's strategic divestitures have significantly bolstered its cash position, with investing activities providing $1584.30 million in the same period, largely from the TFP sale proceeds of $1.81 billion. This has enabled substantial debt reduction, with financing activities utilizing $2090.30 million for net debt repayments, including a $1.50 billion term loan. As of September 28, 2025, Sonoco maintained a revolving credit facility with $1.16 billion available, and its debt covenants were "substantially above the minimum levels required".

Outlook and Strategic Initiatives

Sonoco is tightening its full-year 2025 guidance, projecting net sales in the range of $7.8 billion to $7.9 billion and Adjusted EBITDA between $1.3 billion and $1.35 billion. Adjusted EPS is expected to be in the range of $5.65 to $5.75. This adjusted outlook reflects continued strength in North American businesses, partially offset by softening market conditions in Europe and Asia, a trend observed in August and September 2025 and continuing into Q4. Operating cash flow guidance has also been adjusted to $700 million to $750 million.

A key driver for future performance is the realization of synergies from the Eviosys acquisition. Sonoco expects to achieve an annual run rate of $100 million in synergies by the end of 2026, with approximately $40 million to $50 million realized by the end of 2025, and roughly $30 million of the remainder expected to be realized in 2026. These synergies are anticipated from procurement, indirect costs, and leveraging shared services across the European platform. Proceeds from the ThermoSafe divestiture are earmarked for further debt reduction, which is expected to significantly lower interest expenses in 2026, with Q4 2025 interest expense projected at around $50 million.

Management is focused on building momentum for growth and reducing the cost structure. The company has "solid funnels in place with several new products and market launches planned in 2026 and beyond" for both consumer and industrial businesses. This includes gaining additional wins with aerosol and food can customers in North America, expanding pet food and seafood business in Eastern Europe, reigniting growth in global stacked chips, and driving share gains in new industrial categories like wire and cable reels. Sonoco has also actioned approximately $25 million in annual savings from stranded costs related to divested businesses and plans further optimization of support functions.

Risks and Challenges

Despite the positive trajectory, Sonoco faces several risks. Macroeconomic headwinds, particularly in the EMEA region, have impacted consumer and industrial demand, leading to weaker-than-anticipated seafood availability and a softer Q4 2025 outlook for Metal Packaging EMEA. A "temporary situation with a very major customer" in the paper can business is also causing inventory drawdown, particularly impacting international and North American perspectives.

Goodwill balances for Metal Packaging EMEA and Global Paper Products APAC reporting units are at risk of impairment if operations do not meet management's expectations or if there's a negative shift in the long-term financial outlook or discount rates. The company also faces uncertainty from U.S. and foreign trade policies, including tariffs, which could increase costs and reduce demand. While Sonoco's local manufacturing network and contractual pricing adjustments mitigate some tariff risks, sustained increases could impact profitability and market share. The highly inflationary economy in Turkey continues to pose a risk, having resulted in a pretax charge to earnings of $9.50 million in the first nine months of 2025.

Conclusion

Sonoco Products Company stands at a pivotal juncture, having successfully executed a multi-year strategic transformation to emerge as a more focused, agile, and sustainable packaging leader. By divesting non-core assets and strategically acquiring Eviosys, the company has solidified its position in global metal and fiber packaging, creating a unified "cans" business poised for growth. The integration of advanced material science and automation technologies provides a tangible competitive advantage, driving efficiency, innovation, and differentiated product offerings in a demanding market.

While macroeconomic headwinds and geopolitical uncertainties present ongoing challenges, Sonoco's disciplined approach to cost management, synergy realization, and strategic capital allocation, prioritizing debt reduction, underpins a compelling investment thesis. The company's commitment to its long-standing dividend record, coupled with a clear roadmap for future growth and margin expansion, positions it to unlock significant long-term value for shareholders. The successful execution of its deleveraging plan and the continued leveraging of its technological leadership will be critical indicators of its sustained success in the evolving global packaging landscape.