Sonoco Products Co.

The negative outlook reflects our view that there is a 1-in-3 chance of lower ratings on Sonoco during the next two years, as macroeconomic uncertainty and an appetite for debt-funded acquisitions to enhance growth could result in the company's inability to sustain credit measures commensurate with the ratings. While economic growth is recovering, supply chain shortages and cost inflation issues raise other uncertainties, with the price-cost dynamic in resins likely facing its toughest test in the second quarter of this year. There is also uncertainty regarding the potential impact of new COVID-19 variants. Global consumer and industrial sentiment would need to stabilize while management realizes solid operational execution and abides by prudent financial policies for the rating before we contemplate

...We expect Sonoco's operating performance will begin to recover over the next 12 months and will gradually return to the pre-pandemic levels The company's operating performance was pressured in 2020 stemming from the COVID-19 pandemic's impact on demand in a majority of its segments, along with lower selling prices and the impact of the European contract packaging business divestiture (sold November 29, 2020). Sales were down 2.5% in 2020, but we expect end-market demand to return in 2021 coupled with a full year's contribution from the $45 million Can Packaging acquisition made in August 2020. The company's 3.8% sales growth in the first quarter of 2021 is a good start, with the consumer segment growing 7.8% and the industrial segment up 12.5%. Price-cost management is important given cost inflation Many industries are experiencing rising costs, and packaging is not exempt. Price-cost headwinds contributed to 40 basis points (bps) of adjusted EBITDA margin degradation in the first quarter....

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