Sonoco’s Q1 Surge: Strategic Shifts Fuel Growth Amid Headwinds

Sonoco Products Co. (NYSE: SON) delivered a robust first-quarter 2025 earnings report, showcasing the fruits of its strategic pivot toward high-margin consumer packaging. The company’s Q1 net sales hit a record $1.7 billion, up 30.6% year-over-year, driven by the full integration of its Eviosys acquisition and operational efficiencies. Yet, beneath the headline numbers lies a complex narrative of debt reduction, geographic challenges, and the balancing act of sustaining growth in a volatile macroeconomic environment.

The Numbers: A Tale of Two Metrics

Sonoco’s Q1 performance starkly illustrates the difference between GAAP and adjusted metrics. While GAAP net income fell 16.5% to $54 million—hobbled by higher interest expenses and currency headwinds—adjusted metrics told a far brighter story. Adjusted diluted EPS rose 23% to $1.38, and adjusted EBITDA hit a record $338 million, up 38% year-over-year. This divergence underscores the importance of Sonoco’s strategic moves, such as the $1.8 billion sale of its Thermoformed and Flexibles Packaging (TFP) business in April, which allowed the company to reduce net leverage below 4.0x.

Segment Breakdown: Consumer Packaging Dominates

The star of Q1 was Sonoco’s Consumer Packaging segment, which now accounts for over two-thirds of sales. Net sales here surged 83% to $1.07 billion, fueled by the Eviosys acquisition (now rebranded as Sonoco Metal Packaging EMEA). Adjusted EBITDA in this segment jumped 127% to $190 million, with margins expanding to 18%—a reflection of pricing power and synergies from the integration. The U.S. metal can business, in particular, thrived, with strong demand for aerosol and food cans.

In contrast, Industrial Paper Packaging faced headwinds, with sales down 6% to $558 million due to reduced volumes in China and currency impacts. However, segment profitability improved, with adjusted EBITDA rising 6% to $101 million. This highlights Sonoco’s ability to optimize margins even in challenging regions.

Debt Reduction and Capital Allocation

The sale of TFP was a watershed moment. Proceeds were used to repay $1.5 billion of high-cost debt, dropping net leverage to below 4.0x—a significant step toward its target of 3.0x–3.3x by year-end 2026. CEO Howard Coker emphasized that deleveraging remains a priority, alongside shareholder returns. The dividend, now at $0.53 per share, marks the company’s 100th consecutive year of dividend growth—a rare feat in corporate America.

Risks and Challenges

Despite the strong results, Sonoco faces hurdles. Currency fluctuations shaved $20 million off adjusted EBITDA in Q1, and European industrial packaging volumes remain soft due to macroeconomic uncertainty. Geopolitical risks, such as the Ukraine conflict, could disrupt supply chains or pricing. Management, however, remains confident in its “localized manufacturing” strategy, which minimizes tariff exposure and ensures flexibility.

Full-Year Outlook: Betting on Resilience

Sonoco reaffirmed its 2025 guidance: adjusted EPS of $6.00–$6.20, up 20% from 2024, and adjusted EBITDA of $1.3–$1.4 billion—marking a 30% year-over-year increase. The company also aims for operating cash flow of $800–$900 million. These targets hinge on continued synergy realization from Eviosys (targeting $100 million in annual savings by 2026) and strong performance in consumer packaging, which is recession-resistant given its dominance in food and beverage markets.

Conclusion: A Strategic Bet on the Future

Sonoco’s Q1 results are a testament to its strategic discipline. By shedding non-core assets like TFP and doubling down on high-margin consumer packaging, the company has positioned itself for sustained growth. The 38% surge in adjusted EBITDA and the deleveraging progress are particularly compelling. Yet, investors must weigh these positives against near-term risks like currency volatility and European softness.

With a dividend yield of 4.6% and a track record of resilience, Sonoco offers a blend of income and growth potential. Its focus on operational excellence and portfolio simplification suggests that the company is well-equipped to navigate both current headwinds and future opportunities. For now, the jury is in: Sonoco’s strategic shifts are working—but the road to 3.0x leverage remains a critical proving ground.

Data Points to Remember:
- Adjusted EBITDA grew 38% to $338 million.
- Consumer Packaging now accounts for >66% of sales.
- Net leverage dropped below 4.0x post-TFP sale.
- Full-year 2025 adjusted EPS guidance: $6.00–$6.20 (+20% vs. 2.024).