Sonoco Products Co Business Update Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: George Staphos - BofA Global Research - Analyst : Hey. Good morning, everybody. Thanks for the details. Thanks for taking my questions. I guess, the first question, just a point of clarification. You mentioned that this should be accretive to earnings per share in 2025 on your adjusted basis. I'm assuming that assumes the increase in the share count from the equity offering. So that's question number one. Relatedly, if we think about synergies and the P&L, what sort of assumptions do we need to see in terms of volume or macro for you to be able to get at the synergies that you're expecting? And do you have a view on what the intangible write-up would be from this? And then the third question and kind of bigger picture, I'll turn it over. Historically, aerosol can businesses, which is largely what you have right now, and food can businesses are different. They're different customers. And in the past, we've seen some of your peers try to get bigger in metal packaging and then pull back, which is why you've wound up with these assets. Why do you think -- what do you think you're doing differently that will allow Sonoco to have a sort of better track record, five and ten years from now when we look back, versus what we've seen from other companies? Thank you, guys.

Question: George Staphos - BofA Global Research - Analyst : I guess, Rob, is there an underlying volume assumption we should have for you to be able to get that? Is it 1%, 2%, don't need it?

Question: George Staphos - BofA Global Research - Analyst : Got it.

Question: George Staphos - BofA Global Research - Analyst : It's helpful color. Understood.

Question: George Staphos - BofA Global Research - Analyst : All right, thanks. I'll turn it over. Appreciate all the detail.

Question: Matt Krueger - Robert W. Baird & Co., Inc. - Analyst : Hi, good morning. This is actually Matt Krueger sitting in for Ghansham. Thanks for taking our questions. So I guess I wanted to start out around the divestiture package of the business. Can you provide some added detail around your high level of confidence on that $1 billion in in the proceeds related to the divestitures? I mean, where are you at in the process of divesting these businesses? And can you provide any detail on general financial metrics behind the package or at least what you're assuming anything from a multiple perspective earnings, revenue to be divested? Anything there would be helpful.

Question: Matt Krueger - Robert W. Baird & Co., Inc. - Analyst : Got it. That's helpful. And I totally understand on the timing of any disclosures. I just wanted to follow up with Eviosys is a business that is relatively familiar to many of us on the Street and across the packaging landscape. That business was sold years ago to KPS. What has changed under KPS ownership as far as the asset goes that you're now purchasing that makes it comparatively more attractive to Sonoco? Have there been any significant investments or adjustments to the acquired footprint or asset base? I know you mentioned $250 million in CapEx. That's somewhere around 3% of revenues spent over that on an annual basis. Is there anything we should know about as far as the asset goes that has changed?

Question: Matt Krueger - Robert W. Baird & Co., Inc. - Analyst : Got it. That's helpful. That's it for me. I'll turn it over. Thanks.

Question: Anthony Pettinari - Citigroup Inc. - Analyst : Good morning. Maybe just following up on Matt's question, Eviosys grew EBITDA 50% from 2021, which is a big jump. I'm just wondering if you could talk about the sustainability of that increase. And is there anything in there, given we had the pandemic, maybe some big moves in metal, obviously private equity ownership? And external to the asset, has the European industry changed at all as it consolidated or has the competitive environment there changed since some of us covered it back when Crown owned it? And then maybe just a minor final question, does Crown still retain a 20% ownership stake here? Thanks.

Question: Anthony Pettinari - Citigroup Inc. - Analyst : Great. That's very helpful. I'll turn it over.

Question: Mark Weintraub - Seaport Global Securities LLC - Analyst : Thank you. First, perhaps, if you could just share us if you have the 2022 and 2023 sales and EBITDA numbers for Eviosys, that would be great.

Question: Mark Weintraub - Seaport Global Securities LLC - Analyst : Rob, I noticed in Crown's 10-K that the equity and earnings fell quite a bit in '23. I realize there can be lots of noise in that, but could you just give us a sense as to adjusted EBITDA in '23 versus '22? Did that -- directionally, was that similar? Did it go down a lot and if it did go down a bunch, sort of?

Question: Mark Weintraub - Seaport Global Securities LLC - Analyst : Got you. That's very helpful. Thank you. And then just two quick ones too. Given the sort of, potentially, the equity issue, et cetera, and the seller potentially retaining, I just want to confirm. I assume the asset base does get written up to the acquisition price for tax cash tax purposes. Is that correct?

Question: Mark Weintraub - Seaport Global Securities LLC - Analyst : Okay, so just to clarify, does the tax basis get written up to the $3.9 billion?

Question: Mark Weintraub - Seaport Global Securities LLC - Analyst : Okay. Thank you. And then just lastly, is there anything you can share in terms of potential impacts from PPWR in Europe for this business and your thoughts there?

Question: Mark Weintraub - Seaport Global Securities LLC - Analyst : And potentially, advantages, or is it sort of neutral from your perspective?

Question: Mark Weintraub - Seaport Global Securities LLC - Analyst : I'm sorry, I don't know if I have a bad connection here. I didn't know if there were potential benefits from a relative competitive perspective you thought related, or should we just view -- do you basically view it as a neutral, PPWR?

Question: Mark Weintraub - Seaport Global Securities LLC - Analyst : And then if I could just squeeze one last one. Again, kind of clarifying on that the pro forma EPS for 2025, does that also include the divestiture impact potentially or is that -- not assuming anything on the divestiture side, just the acquisition impact.

Question: Mark Weintraub - Seaport Global Securities LLC - Analyst : Super. Appreciate the color.

Question: Gabe Hajde - Wells Fargo Securities Inc. - Analyst : Good morning, Howard. Rob. I had a couple questions, I guess, on the financing element of the deal. It seems like you guys are structuring this to maintain IG rating. Would you have a point of view about blended cost of debt on the transaction? And then typically, there's some costs associated with achieving synergies, but this transaction almost seems like a gift that keeps on giving in terms of -- a lot of it is procurement related, so it may not necessarily require a lot of spend. But just curious, when I look back at the assets that were sold versus what's being acquired, I think both cite 44 facilities, so just any costs associated with synergy realization.

Question: Gabe Hajde - Wells Fargo Securities Inc. - Analyst : Okay. And then have you given us -- and I know you said you're going to provide a little bit more detail as things get a little bit closer and maybe get deeper in the process. But just high level, the $1 billion of sale proceeds, maybe associated rough EBITDA with that, and then I guess going back to the Eviosys transaction, I think average CapEx for that business had been $45 million or so in the five years prior to it being sold. It looks like it's around $80 million today. Is that a safe number to kind of pencil in $80 million or so?

Question: Gabe Hajde - Wells Fargo Securities Inc. - Analyst : And EBITDA associated with the $1 billion in divestitures? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 24, 2024 / 12:30PM, SON.N - Sonoco Products Co Business Update Call

Question: Gabe Hajde - Wells Fargo Securities Inc. - Analyst : Great. Thank you.

Question: George Staphos - BofA Global Research - Analyst : Hi, thank you. Hi, guys. Two questions for me. Can you talk to the degree to which there's been positive or negative price cost in the markets for Eviosys over the last couple of years? What kind of environment has it been? Relatedly, have you seen increases in pack sizes, in contract acreage, which in turn is driving this growth? I know you said it's sustainable, but I just want to see if there's any kind of, if you will, cyclical element here. And then back to my earlier question, again, history says that aerosol can and food can bids as well, they're frequently tinplate steel. They're different. Different customers, different commercial terms, different growth rates. Why do you think -- I know there's going to be a purchasing benefit here, a supply chain benefit, but why do you think these are businesses that will work well together, if you agree with that narrative, especially given the fact that one is larger in aerosol in North America and one is larger in food cans in Europe? Thank you, guys.

Question: George Staphos - BofA Global Research - Analyst : Hey, Rob, one last one, I'm sorry. Recognizing you want to keep investment great and you're going to be managing the balance sheet very carefully, including potentially an equity offering, the right deal came across. I mean, maybe I'm phrasing it conveniently, but do you envision growing this business further through acquisition since there are other assets that are potentially out there that you'd be competing against, and you'd now have scale and size advantages versus? Thank you. Good luck -- well, good luck with the process.

Question: George Staphos - BofA Global Research - Analyst : Thank you very much.