Executive Summary / Key Takeaways

• Focused Portfolio Transformation: Sonoco is executing a significant strategic pivot, divesting non-core assets like Thermoformed & Flexibles Packaging (TFP) and the upcoming ThermoSafe sale, while integrating the transformative Eviosys acquisition to concentrate on high-value metal and fiber packaging.
• Strong Financial Performance & Deleveraging: The strategic shift is yielding results, with Q2 2025 net sales up 49% and adjusted EBITDA up 25%, driven by acquisitions and productivity. Proceeds from divestitures are actively reducing net leverage, targeting below 3.8x currently and 3.0-3.3x by end of 2026.
• Technological Edge & Operational Excellence: Sonoco leverages advanced material science, digital printing, and robotic automation to enhance product functionality, improve efficiency, and reduce costs, reinforcing its market leadership in key niches like adhesives/sealants and wire/cable reels.
• Resilient Outlook Amid Headwinds: Despite macroeconomic pressures and tariff uncertainties, the company maintains its FY2025 guidance, expecting continued strength in North American consumer and industrial segments, supported by robust synergy capture from Eviosys and favorable price/cost dynamics.
• Commitment to Shareholder Returns: With a century of consecutive quarterly dividends and 42 consecutive years of increases, Sonoco remains a strong cash flow generator, prioritizing capital investments in core growth areas and consistent shareholder returns.

A Century of Evolution: Forging a Focused Packaging Powerhouse

Sonoco Products Company, founded in 1899, has built a century-long legacy in the packaging industry, marked by a steadfast commitment to financial discipline and shareholder returns, evidenced by its remarkable 100 consecutive years of quarterly dividend payments. This deep-rooted history provides the foundation for its current strategic evolution. Over the past five years, Sonoco has embarked on a profound transformation, streamlining its vast portfolio into "fewer, bigger businesses" centered on value-added metal and fiber packaging. This strategic realignment involved divesting non-core assets, notably exiting resin-based operations where achieving necessary scale for market leadership proved challenging.

The company's strategic focus is now firmly on markets where it can drive a competitive advantage through advanced material science and technology expertise, high product functionality, and continuous process improvements. This approach is designed to maximize productivity and profitability. Broad industry trends, such as increasing demand for sustainable packaging solutions and a consumer shift towards center-of-the-store packaged foods during economic stress, align favorably with Sonoco's refined portfolio.

Technological Differentiators: Engineering the Future of Packaging

Sonoco's competitive moat is significantly bolstered by its technological differentiation and continuous innovation. The company's core strength lies in its advanced material science and engineering capabilities, particularly within its metal and fiber-based packaging solutions. This expertise allows Sonoco to develop products with superior functionality and sustainability attributes. For instance, in its Rigid Paper Containers business, Sonoco has launched new all-paper and paper-bottom cans, including the GREENCAN® container, which boasts 92-98% fiber content and enhanced print capabilities, offering strong curbside recyclability. This directly addresses customer demand for more sustainable alternatives to traditional packaging substrates.

Beyond materials, Sonoco is investing heavily in operational technology to drive efficiency and expand capacity. In its U.S. rigid paper can facilities, a $30 million investment is expanding production capacity for adhesives and sealants, adding 100 million units annually, incorporating new state-of-the-art technology, including digital printing. This investment is critical as Sonoco is currently sold out in this market, highlighting the direct impact of technology on meeting demand and capturing growth. Similarly, in its wire and cable reels business, where Sonoco is a market leader, expanded robotic assembly of nailed wood reels in Hartselle, Alabama, is speeding production, increasing capacity, and lowering unit costs. The company is also deploying autonomous forklifts and robotic assemblers in its Jackson, Tennessee Rigid Paper Containers operation to improve efficiency and reduce costs. These technological advancements not only enhance operational performance but also reinforce Sonoco's competitive position by offering differentiated products and more efficient production processes, directly contributing to higher margins and market share.

Strategic Portfolio Transformation and Operational Excellence

The strategic transformation gained significant momentum in late 2024 and early 2025. On December 4, 2024, Sonoco completed its largest acquisition to date, purchasing Eviosys, Europe's leading food cans and enclosure manufacturer, for approximately $3.77 billion. This acquisition, rebranded as Sonoco Metal Packaging (SMP) EMEA, is a cornerstone of the strategy, positioning Sonoco as a global leader in metal food and aerosol packaging. The integration of SMP EMEA is progressing well, with management projecting $40-50 million in run-rate synergies by the end of 2025 and line of sight to achieve over $100 million in cost savings through 2026, including delayed procurement synergies expected in 2026. This integration also includes combining U.S. and EMEA steel procurement teams to leverage global scale.

Complementing this acquisition, Sonoco has actively divested non-core assets. On April 1, 2025, the company completed the sale of its Thermoformed and Flexibles Packaging (TFP) business to TOPPAN Holdings Inc. (TOPPY) for approximately $1.81 billion. This divestiture, which generated $1.56 billion in after-tax proceeds, was crucial for accelerating portfolio simplification and deleveraging. Sonoco is also preparing for the sale of its ThermoSafe business in the second half of 2025, with proceeds earmarked for further debt reduction. These strategic moves are designed to enhance focus and allocate capital to higher-return opportunities within the core metal and fiber packaging segments.

Operational excellence remains a key driver of profitability. Sonoco achieved approximately $183 million in productivity savings in 2024, split equally between its consumer and industrial segments, marking seven consecutive quarters of year-over-year improvement. This includes ongoing footprint optimization, such as the closure of a paper mill and three paper converting operations in China by the end of 2024, and efforts to address unprofitable capacity in Europe.

Financial Performance and Liquidity Strength

For the second quarter of 2025, the company reported consolidated net sales of $1.91 billion, a significant 49% increase year-over-year. Adjusted EBITDA grew by an impressive 25% to $328 million, with the adjusted EBITDA margin expanding by 100 basis points to 17.2%. Adjusted earnings per share (EPS) increased 7% year-over-year to $1.37.

The Consumer Packaging segment was a primary growth engine, with net sales increasing 110% to $1.23 billion and operating profit surging 117.4% to $160.35 million in Q2 2025. This was largely driven by the SMP EMEA acquisition and strong volume/mix gains in the U.S. metal business. The Industrial Paper Packaging segment, despite a 2% sales decline to $588.2 million, demonstrated remarkable operational resilience, with operating profit increasing 21.3% to $81.2 million and adjusted EBITDA margins expanding to 19.2%, marking its seventh consecutive quarter of margin improvement. This was attributed to a favorable price/cost environment and productivity gains.

Liquidity and capital management are central to Sonoco's strategy. Following the TFP divestiture, the company reduced its net leverage ratio to below 3.8x. While operating cash flow used $14.7 million in the first half of 2025, primarily due to higher net working capital usage from material inflation and increased inventory levels (especially tinplate steel), the company's overall liquidity position remains strong, with approximately $915 million in available capacity. Sonoco has strategically financed the Eviosys acquisition with a mix of term loans and $1.8 billion in bond financing at a weighted average cost of debt of 4.7%, with plans to repay the term loans using divestiture proceeds. The company's debt covenants, including interest coverage and net worth, remain substantially above minimum required levels.

Competitive Landscape and Market Positioning

Sonoco operates in a competitive packaging landscape, vying with industry giants like International Paper (IP), Packaging Corporation of America (PKG), Crown Holdings (CCK), and Sealed Air (SEE). Sonoco's strategic repositioning aims for market leadership in its core segments.

Compared to International Paper, which focuses broadly on fiber-based packaging and pulp, Sonoco differentiates itself with a more diversified product portfolio that includes metal and specialized fiber solutions. While IP's vast scale may offer cost efficiencies, Sonoco's emphasis on advanced material science and integrated solutions provides a competitive edge in customized, high-value applications.

Against Packaging Corporation of America, a specialist in containerboard and corrugated products, Sonoco competes directly in industrial paper packaging. Sonoco's broader product range and focus on innovation in protective packaging, such as its wire and cable reels business where it is a U.S. leader, allows it to offer more comprehensive solutions. PKG's operational excellence in its core may lead to superior margins in that specific area, but Sonoco's versatility enhances customer loyalty across diverse needs.

In metal packaging, the Eviosys acquisition positions Sonoco as a global leader, directly challenging Crown Holdings. Rodger Fuller, interim CEO of SMP EMEA, asserts that Sonoco is now the "service, quality, technical support leader in the market." While CCK has a strong global presence in metal, Sonoco's combined global metal packaging enterprise aims to leverage its integrated procurement and technical expertise to gain share, as evidenced by new multi-year contracts in pet food and powder nutrition in Europe.

Against Sealed Air, which specializes in protective and food packaging films and foams, Sonoco's offerings in thermoformed trays and foams overlap. However, Sonoco's broader material capabilities and end-to-end packaging solutions provide a more holistic approach for customers.

Sonoco's competitive advantages stem from its diversified portfolio, strong brand reputation in sustainable packaging, and established distribution channels. Its technological investments in digital printing, robotics, and advanced materials create tangible benefits like increased capacity, lower costs, and enhanced product differentiation. While facing macroeconomic pressures, including tariffs on steel and aluminum, Sonoco's localized manufacturing network and contractual ability to pass on cost increases mitigate these risks. The company's consumer packaging business, now representing nearly two-thirds of sales post-TFP divestiture, is inherently resilient, tending to perform well during economic downturns as consumers shift to value-oriented, center-of-the-store products.

Outlook and Guidance

Sonoco maintains a confident outlook for the remainder of 2025, reaffirming its full-year guidance. The company expects net sales in the range of $7.75 billion to $8 billion and adjusted EBITDA between $1.3 billion and $1.4 billion. Adjusted EPS is targeted at the low end of the $6.00 to $6.20 range, primarily reflecting higher-than-anticipated interest expense in the first half of the year. Operating cash flow is projected at the lower end of its previous guidance, mainly due to higher net working capital usage from material inflation.

Management anticipates continued strength from its North American consumer and industrial businesses. The European vegetable packaging season, delayed in Q2, is expected to ramp up significantly in Q3, potentially driving mid- to upper single-digit volume increases year-over-year for SMP EMEA. The U.S. metal can business is projected to sustain its strong volume/mix improvements, including double-digit growth in food and aerosol cans. The industrial segment is expected to be flat to slightly up globally, benefiting from a positive price/cost environment, particularly from URB price increases, which are modeled to provide a healthy benefit in Q3 and Q4. Sonoco is targeting $65 million in productivity savings for 2025.

Looking further ahead, Sonoco has ambitious long-term targets, aiming for adjusted EBITDA of $1.5 billion with a high-teens EBITDA margin and cumulative operating cash flow of $4 billion to $5 billion over the next five years. These targets are underpinned by the full realization of Eviosys synergies, continued operational improvements, and strategic capital investments in high-growth areas.

Conclusion

Sonoco Products Company is in the midst of a transformative journey, strategically reshaping its portfolio to focus on high-value, sustainable metal and fiber packaging. This bold pivot, marked by the significant Eviosys acquisition and the divestiture of non-core assets, is designed to simplify operations, enhance capital efficiency, and strengthen market leadership. Early financial results from Q2 2025 demonstrate the positive impact of this strategy, with robust top-line growth and margin expansion driven by acquisitions and relentless productivity efforts.

While macroeconomic uncertainties, tariff impacts, and regional volume softness present challenges, Sonoco's resilient business model, localized manufacturing, and ability to adjust pricing provide a strong defense. The company's commitment to technological innovation, from digital printing to robotic automation, reinforces its competitive advantages and supports future organic growth in key niches. With a clear path to deleveraging and a century-long history of consistent dividend payments, Sonoco is positioning itself as a focused, financially disciplined leader in the packaging industry, poised to unlock substantial long-term value for discerning investors.