Sonoco Invests in Growth

Dec. 3.09 | About: Sonoco Products (SON)

Sonoco Products Company (NYSE:SON) completed the acquisition of injection molded plastics spools and reels assets of EconoReel Corporation. The company did not disclose the terms of the deal. Through this transaction, Sonoco acquired a molded plastics spools and reels manufacturing facility in Logan, Utah, and additional manufacturing assets in Mississippi.

Management said that this acquisition fills an important gap in Sonoco’s existing plastic, plywood and composite wire and cable reel business by adding mid-range diameter plastic and plywood-replacement spools and reels. In a separate announcement, Sonoco revealed its plans to offer semi-chemical corrugating medium starting from January 1, 2010.

The company plans to expand its mill in Hartsville, South Carolina for this purpose. The Hartsville machine currently has 170,000 tons of annual capacity, which it offers exclusively through contract relationships. Sonoco is currently plagued with continued weak demand conditions prevailing in most of its businesses.

However, over the long-term the company is confident of achieving growth equally from acquisitions and organic growth. The company’s investments in acquisitions as well as existing facility expansions are helped by its strong cash generation ability.

Sonoco generated $358 million in cash from operations in the first nine months of 2009. Also, the company generated free cash flow of $194 million in the first nine months and expects to generate full year free cash flow of over $200 million. We maintain a Neutral rating on the stock.