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Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-05-03 · 347 added, 155 removed, 322 unchanged (61% of the section changed)

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FORWARD LOOKING STATEMENTS

Statements included in this Quarterly Report on Form 10-Q that are not historical in nature, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended.

In addition, the Company and its representatives may from time to time make other oral or written statements that are also “forward-looking statements.” Words such as “anticipate,” “aspires,” “assume,” “believe,” “can,” “committed,” “consider,” “could,” “envision,” “estimate,” “expect,” “forecast,” “future,” “goal,” “guidance,” “intend,” “may,” “might,” “objective,” “opportunity,” “outlook,” “plan,” “potential,” “project,” "seek," “re-envision,” “strategy,” “target,” “will,” “would,” or the negative thereof, and similar expressions identify forward-looking statements.

In addition, the Company and its representatives may from time to time make other oral or written statements that are also “forward-looking statements.” Words such as “anticipate,” “assume,” “believe,” “can,” “committed,” “consider,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “goal,” “guidance,” “intend,” “likely,” “may,” “might,” “objective,” “opportunity,” “outlook,” “plan,” “potential,” “project,” “seek,” “strategy,” “target,” “will,” “would,” or the negative thereof, and similar expressions identify forward-looking statements.

Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding:

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• improving margins and leveraging strong cash flow and financial position;

• effects and timing of, and anticipated synergies and gains resulting from our pending and completed acquisitions and divestitures, including the Company's acquisitions of Ball Metalpack Holding, LLC (“Ball Metalpack”), renamed Sonoco Metal Packaging (“Metal Packaging”), S.P.

Holding, Skjern A/S (“Skjern”), RTS Packaging, LLC ("RTS”), and the Company's sale of its Sonoco Sustainability Solutions (“S3”) business and the sale of South Carolina timberland properties;

• effects and timing of, and anticipated synergies and gains resulting from our pending and completed acquisitions and divestitures, including the Company’s acquisitions of Ball Metalpack Holding, LLC, renamed Sonoco Metal Packaging (“Metal Packaging”), S.P.

Holding, Skjern A/S (“Skjern”), RTS Packaging, LLC (“RTS”), Nordeste Tubetes and NE Tubetes (“Nordeste”), and the Company’s sale of its Sonoco Sustainability Solutions (“S3”) business, its U.S.

and Mexico BulkSak businesses, and its South Carolina timberland properties;

• costs, timing and effects of restructuring and portfolio simplification activities;

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• market opportunities and anticipated growth thereof;

as well as improvements in demand for the Company’s products;

• market leadership;

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• creation of long-term value and returns for shareholders;

SONOCO PRODUCTS COMPANY

• continued payment of dividends;

• planned stock repurchases.

SONOCO PRODUCTS COMPANY

Such forward-looking statements are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management.

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Such risks, uncertainties and assumptions include, without limitation:

• availability and pricing of raw materials, energy and transportation, including the impact of potential changes in tariffs or sanctions and escalating trade wars and the impact of war and other geopolitical tensions (such as the ongoing military conflict between Russia and Ukraine and economic sanctions related thereto), and the Company’s ability to pass raw material, energy and transportation price increases and surcharges through to customers or otherwise manage these commodity pricing risks;

• availability, transportation and pricing of raw materials, energy and transportation, including the impact of potential changes in tariffs or sanctions and escalating trade wars and the impact of war and other geopolitical tensions (such as the ongoing military conflict between Russia and Ukraine and economic sanctions related thereto), and the Company’s ability to pass raw material, energy and transportation price increases and surcharges through to customers or otherwise manage these commodity pricing risks;

• impacts arising as a result of the COVID-19 pandemic on our results of operations, financial condition, value of assets, liquidity, prospects, growth, and on the industries in which we operate and that we serve, resulting from, without limitation, recent and ongoing financial market volatility, potential governmental actions, changes in consumer behaviors and demand, changes in customer requirements, disruptions to the Company’s suppliers and supply chain, availability of labor and personnel, necessary modifications to operations and business, and uncertainties about the extent and duration of the pandemic;

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• work stoppages due to labor disputes;

• success of new product development, introduction and sales;

• success of new product development, introduction and sales, including successful timing of new product or product innovation introductions;

• success of implementation of new manufacturing technologies and installation of manufacturing equipment, including the startup of new facilities and lines;

• consumer demand for products and changing consumer preferences;

• consumer demand for products and changing consumer preferences, including changes related to inflation and other macroeconomic factors;

• ability to be the low-cost global leader in customer-preferred packaging solutions within targeted segments;

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• inventory management strategies of customers;

• timing of introduction of new products or product innovations by customers;

• collection of receivables from customers;

• ability to improve margins and leverage cash flows and financial position;

• ability to manage the mix of business and execute on the Company's portfolio simplification strategy to take advantage of growing markets while reducing cyclical effects of some of the Company’s existing businesses on operating results;

• ability to manage the mix of business and execute on the Company’s portfolio simplification strategy, including with respect to divestitures, to take advantage of growing markets while reducing cyclical effects of some of the Company’s existing businesses on operating results;

• ability to maintain innovative technological market leadership and a reputation for quality;

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• ability to profitably maintain and grow existing domestic and international business and market share;

• ability to expand geographically and win profitable new business;

• ability to identify and successfully close suitable acquisitions at the levels needed to meet growth targets;

• ability to successfully integrate newly acquired businesses into the Company’s operations and realize synergies and other anticipated benefits within the expected time period, or at all;

• the costs, timing and results of restructuring activities;

• availability of credit to us, our customers and suppliers in needed amounts and on reasonable terms;

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• fluctuations in obligations and earnings of pension and postretirement benefit plans;

• accuracy of assumptions underlying projections of benefit plan obligations and payments, valuation of plan assets, and projections of long-term rates of return;

SONOCO PRODUCTS COMPANY

• accuracy of assumptions underlying projections of benefit plan obligations and payments, valuation of plan assets, and projections of long-term rates of return;

• timing of funding pension and postretirement benefit plan obligations;

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• changes in U.S.

and foreign tariffs, tax rates, tax laws, regulations and interpretations thereof;

and foreign tariffs, tax rates, tax laws, regulations and interpretations thereof, including income, sales and use, property, value added, employment, and other taxes;

• the adoption of new, or changes in, accounting standards or interpretations;

• challenges and assessments from tax authorities resulting from differences in interpretation of tax laws, including income, sales and use, property, value added, employment, and other taxes;

• accuracy in valuation of deferred tax assets;

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• failure or disruptions in our information technologies;

• failure of third party transportation providers to deliver our products to our customers or to deliver raw materials to us;

• substantially lower than normal crop yields;

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• changing consumer attitudes toward plastic packaging;

• ability to meet sustainability targets and challenges in implementation;

• changing climate, climate change regulations and greenhouse gas effects;

• ability to meet commitments to reduce greenhouse gas emissions and to meet environmental, social, and governance (“ESG”) goals and other sustainability commitments;

• ability to meet commitments to reduce greenhouse gas emissions and to meet environmental, social, and governance (“ESG”) goals and other sustainability commitments, and challenges in implementation;

• actions of domestic or foreign government agencies and changes in laws and regulations affecting the Company and increased costs of compliance;

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COMPANY OVERVIEW

Sonoco is a leading provider of consumer packaging, industrial products, and protective packaging with approximately 310 locations in 32 countries as of April 2, 2023.

Sonoco is a leading provider of consumer packaging, industrial products, and protective packaging with approximately 310 locations in 32 cou ntries as of July 2, 2023.

The Company’s operating and reporting structure consists of two reportable segments, Consumer Packaging and Industrial Paper Packaging, with all remaining businesses reported as All Other.

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Over the past several years, the Company has simplified our business portfolio around fewer, bigger businesses which has reduced operating complexity and improved agility.

The Company is focused on efficient capital deployment into these larger, core business units to improve economic returns and improve integration effectiveness and speed for acquired strategic assets.

For example, during the quarter ended July 2, 2023, the Company completed the divestiture of its non-core U.S.

BulkSak businesses, consisting of the manufacturing and distribution of flexible intermediate bulk containers, plastic and fiber pallets, and custom fit liners, for a total cash selling price of $20.8 million, and agreed to sell its Mexico BulkSak business for a total cash selling price of $1.5 million.

The Company is focused on efficient capital deployment into its larger, core business units to improve economic returns and improve integration effectiveness and speed for acquired strategic assets.

In parallel, Sonoco continues to work on commercial, operational, and supply chain excellence programs to shift the mix of our business towards higher-valued products, improve the contracting process to better capture input costs and the value of the services provided, and increase overall productivity.

First Quarter 2023 Compared with First Quarter 2022

Second Quarter 2023 Compared with Second Quarter 2022

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

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• acquisition/divestiture-related costs;

• gains or losses from the divestiture of businesses or other assets;

• gains or losses from the divestiture of businesses and other assets;

• losses from the early extinguishment of debt;

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The Company’s management believes the exclusion of these amounts improves the period-to-period comparability and analysis of the underlying financial performance of the business.

Non-GAAP figures previously identified by the term “Base” are now identified using the term “Adjusted,” for example, “Adjusted Operating Profit” and “Adjusted Net Income.” More information about the Company's use of non-GAAP financial measures is provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, under Item 7 - “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Use of Non-GAAP Financial Measures.”

Non-GAAP figures previously identified by the term “Base” are now identified using the term “Adjusted,” for example, “Adjusted Operating Profit”, “Adjusted Net Income” (referred to as “Adjusted Earnings”) and “Adjusted EPS.” More information about the Company’s use of non-GAAP financial measures is provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, under Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Use of Non-GAAP Financial Measures.”

In addition to the “Adjusted” results described above, the Company also uses Adjusted EBITDA and Adjusted EBITDA Margin.

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changes in LIFO inventory reserves;

gains/losses from the divestiture of businesses or other assets;

gains/losses from the divestiture of businesses and other assets;

acquisition/divestiture-related costs;

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Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales.

The Company's non-GAAP financial measures are not calculated in accordance with, nor are they an alternative for, measures conforming to generally accepted accounting principles and may be different from non-GAAP financial

SONOCO PRODUCTS COMPANY

measures used by other companies.

The Company’s non-GAAP financial measures are not calculated in accordance with, nor are they an alternative for, measures conforming to generally accepted accounting principles, and they may be different from non-GAAP financial measures used by other companies.

In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles.

Sonoco continues to provide all information required by GAAP, but it believes that evaluating its ongoing operating results may not be as useful if an investor or other user is limited to reviewing only GAAP financial measures.

The Company consistently applies its non-GAAP performance measures presented herein and uses them for internal planning and forecasting purposes, to evaluate its ongoing operations, and to evaluate the ultimate performance of management and each business unit against plans/forecasts, including evaluation of the Chief Executive Officer's performance by the Board of Directors.

The Company presents these non-GAAP financial measures to provide investors with information to evaluate Sonoco’s operating results in a manner similar to how management evaluates business performance.

The Company consistently applies its non-GAAP financial measures presented herein and uses them for internal planning and forecasting purposes, to evaluate its ongoing operations, and to evaluate the ultimate performance of management and each business unit against plans/forecasts.

In addition, these same non-GAAP financial measures are used in determining incentive compensation for the entire management team and in providing earnings guidance to the investing community.

Sonoco management does not, nor does it suggest that investors should, consider these non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

The Company presents these non-GAAP financial measures to provide users information to evaluate Sonoco’s operating results in a manner similar to how management evaluates business performance.

Material limitations associated with the use of such measures are that they do not reflect all period costs included in operating expenses and may not be comparable with similarly named financial measures of other companies.

Material limitations associated with the use of such measures include that they do not reflect all period costs included in operating expenses and may not be comparable with similarly named financial measures of other companies.

Furthermore, the calculations of these non-GAAP financial measures are based on subjective determinations of management regarding the nature and classification of events and circumstances that the investor may find material and view differently.

To compensate for these limitations, management believes that it is useful in understanding and analyzing the results of the business to review both GAAP information which includes all of the items impacting financial results and the non-GAAP financial measures that exclude certain elements, as described above.

Whenever reviewing a non-GAAP financial measure, readers are encouraged to review the related reconciliation to fully understand how it differs from the related GAAP measure.

To compensate for any limitations in such non-GAAP financial measures, management believes that it is useful in evaluating the Company’s results to review both GAAP information, which includes all of the items impacting financial results, and the related non-GAAP financial measures that exclude certain elements, as described above.

Further, Sonoco management doe not, nor does it suggest that investors should, consider any non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Whenever reviewing a non-GAAP financial measure, investors are encouraged to review the related reconciliation to understand how it differs from the most directly comparable GAAP measure.

The following tables reconcile the Company’s non-GAAP financial measures to their most directly comparable GAAP financial measures in the Company’s Condensed Consolidated Statements of Income for each of the periods presented in conjunction with management’s analysis of the Company’s results of operations.

Adjusted Operating Profit, Adjusted Income Before Income Taxes, Adjusted Provision for Income Taxes, Adjusted Net Income Attributable to Sonoco, and Adjusted Diluted Earnings Per Share (“EPS”)

For the three-month period ended April 2, 2023

For the three-month period ended July 2, 2023

Dollars in thousands, except per share data Operating Profit Income Before Income Taxes Provision for Income Taxes Net Income Attributable to Sonoco Diluted EPS

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Acquisition/Divestiture-related costs 4,532 4,532 990 3,542 0.03

LIFO reserve change (5,425) (5,425) (1,354) (4,071) (0.04)

Changes in LIFO inventory reserves (1,575) (1,575) (395) (1,180) (0.01)

Amortization of acquisition intangibles 20,539 20,539 4,992 15,547 0.16

Restructuring/Asset impairment charges 6,057 6,057 1,325 4,669 0.05

Gain on divestiture of business and sale

of other assets

(72,010) (72,010) (17,122) (54,888) (0.55)

Gain on divestiture of business and other assets (7,371) (7,371) (1,825) (5,546) (0.06)

Non-operating pension costs — 3,342 828 2,514 0.03

Derivative losses 6,085 6,085 1,518 4,567 0.05

Net gain from derivatives (4,288) (4,288) (1,070) (3,219) (0.04)

Other adjustments 5,187 5,187 212 4,975 0.06

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Adjusted $ 210,940 $ 178,600 $ 45,797 $ 135,951 $ 1.38

Due to rounding, individual items may not sum appropriately.

SONOCO PRODUCTS COMPANY

For the three-month period ended April 3, 2022

For the three-month period ended July 3, 2022

Dollars in thousands, except per share data Operating Profit Income Before Income Taxes Provision for Income Taxes Net Income Attributable to Sonoco Diluted EPS

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Acquisition/Divestiture-related costs 12,281 12,281 3,009 9,272 0.09

LIFO reserve change 19,050 19,050 4,833 14,217 0.14

Changes in LIFO inventory reserves 6,340 6,340 1,563 4,777 0.05

Amortization of acquisition intangibles 20,871 20,871 5,099 15,772 0.16

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Non-operating pension costs — 1,677 461 1,216 0.01

Derivative gains (6,596) (6,596) (1,673) (4,923) (0.05)

Net loss from derivatives 2,802 2,802 718 2,084 0.02

Other adjustments (182) (318) 423 (741) —

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Adjusted $ 250,151 $ 226,854 $ 56,714 $ 173,812 $ 1.76

Due to rounding, individual items may not sum appropriately.

Adjusted EBITDA and Adjusted EBITDA Margin

Three Months Ended

Dollars in thousands April 2, 2023 April 3, 2022

Dollars in thousands July 2, 2023 July 3, 2022

Net income attributable to Sonoco $ 114,649 $ 131,672

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Non-operating pension costs 3,342 1,677

Net (loss)/income attributable to noncontrolling interests (55) 274

Net income attributable to noncontrolling interests 100 95

Restructuring/Asset impairment charges 6,057 10,563

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Acquisition/Divestiture-related costs 4,532 12,281

Derivative losses/(gains) 6,085 (6,596)

Net (gain)/loss from derivatives (4,288) 2,802

Other non-GAAP adjustments 5,187 (182)

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SONOCO PRODUCTS COMPANY

Segment results viewed by Company's management to evaluate segment performance do not include restructuring/asset impairment charges, amortization of acquisition intangibles, acquisition/divestiture-related costs, changes in LIFO inventory reserves, gains/losses from the sale of businesses, or certain other items, if any, the exclusion of which the Company believes improves the comparability and analysis of the ongoing operating performance of the business.

Segment results viewed by Company’s management to evaluate segment performance do not include restructuring/asset impairment charges, amortization of acquisition intangibles, acquisition/divestiture-related costs, changes in LIFO inventory reserves, gains/losses from the sale of businesses and other assets, or certain other items, if any, the exclusion of which the Company believes improves the comparability and analysis of the ongoing operating performance of the business.

Accordingly, the term “segment operating profit” is defined as the segment’s portion of “operating profit” excluding those items.

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Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Three Months Ended April 2, 2023

For the Three Months Ended July 2, 2023

Dollars in thousands Consumer Packaging segment Industrial Paper Packaging segment All Other Corporate Total

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— — — (7,371) (7,371)

Derivative losses 6

Net gains from derivatives 6

— — — (4,288) (4,288)

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2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $1,928, the Industrial Paper Packaging segment of $1,987, and All Other of $2,952.

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $6,102 and the Industrial Paper Packaging segment of $(677).

3 Included in Corporate are changes in LIFO inventory reserves associated with and the Industrial Paper Packaging segment of $(1,575).

4 Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer Packaging segment of $112 and the Industrial Paper Packaging segment of $60.

5 Gains from the divestiture of business and other assets includes the sale of the Company's timberlands ($60,946) and the sale of its S3 business ($11,064), both of which are associated with the Industrial Paper Packaging segment.

6 Included in Corporate are losses on certain derivatives associated with the Consumer Packaging segment of $874, the Industrial Paper Packaging segment of $3,912, and All Other of $1,242.

5 Included in Corporate is the gain from the sale of the Company’s U.S.

BulkSak businesses, associated with the Industrial Paper Packaging segment, in the amount of $(7,371).

6 Included in Corporate are net gains on derivatives associated with the Consumer Packaging segment of $(600), the Industrial Paper Packaging segment of $(2,835), and All Other of $(853).

SONOCO PRODUCTS COMPANY

Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Three Months Ended April 3, 2022

For the Three Months Ended July 3, 2022

Dollars in thousands Consumer Packaging segment Industrial Paper Packaging segment All Other Corporate Total

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— — — 12,281 12,281

Derivative gains 5

Net losses from derivatives 5

— — — 2,802 2,802

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3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $4,150 and the Industrial Paper Packaging segment of $2,190.

4 Included in Corporate are Acquisition/Divestiture-related costs are charges associated with the Consumer Packaging segment of $26,694 and the Industrial Paper Packaging segment of $1,057.

5 Included in Corporate are gains on certain derivatives associated with the Consumer Packaging segment of $(956), the Industrial Paper Packaging segment of $(4,281), and All Other of $(1,359).

4 Included in Corporate are Acquisition/Divestiture-related costs are charges associated with the Consumer Packaging segment of $10,490.

5 Included in Corporate are net losses on derivatives associated with the Consumer Packaging segment of $406, the Industrial Paper Packaging segment of $1,819, and All Other of $577.

RESULTS OF OPERATIONS

The following discussion provides a review of results for the three-month period ended April 2, 2023 versus the three-month period ended April 3, 2022.

Net sales for the first quarter of 2023 declined by $41.2 million or 2.3%, to $1.73 billion , compared to $1.77 billion in the same period last year.

The decline was attributable to lower overall volume/mix, including acquisitions, of $116.4 million, and unfavorable foreign currency translation and other net costs totaling $22.9 million, partially offset by higher selling prices of $98.1 million.

Net income attributable to Sonoco for the first quarter of 2023 increased to $148.3 million, or $1.50 per diluted share, compared to $115.3 million, or $1.17 per diluted share, for the same period of 2022.

The following discussion provides a review of results for the three-month period ended July 2, 2023 versus the three-month period ended July 3, 2022.

Net sales for the second quarter of 2023 declined by $208.0 million or 10.9%, to $1.71 billion, compared to $1.91 billion in the same period last year.

The decline was attributable to lower overall volumes, including the impact of divestitures, of $189.8 million, lower selling prices of $15.0 million, destocking trends among our customers, and the unfavorable impact of foreign currency translation.

Net income attributable to Sonoco for the second quarter of 2023 decreased to $114.6 million, or $1.16 per diluted share, compared to $131.7 million, or $1.33 per diluted share, for the same period of 2022.

Net income in the current period continued to benefit primarily from the Company’s strategic pricing actions in the Industrial Paper Packaging segment and improving manufacturing productivity;

These benefits were partially offset by higher net interest expense and lower overall volume and mix.

however, these benefits were offset by lower overall volume and mix and higher net interest expense.

Adjusted Earnings for the second quarter of 2023 were $136.0 million ($1.38 per diluted share), compared with $173.8 million ($1.76 per diluted share), during the same period in 2022.

SONOCO PRODUCTS COMPANY

Excluding the non-GAAP adjustments shown above, Adjusted Net Income (“Adjusted Earnings”) for the first quarter of 2023 was $137.6 million ($1.40 per diluted share), compared with $182.7 million ($1.85 per diluted share), during the same period in 2022.

GAAP O perating Profit for the first quarter of 2023 was $229.6 million, an increase of 35.8% from the $169.1 million reported in the first-quarter of 2022.

The increase in GAAP Operating Profit was primarily the result of gains from the divestiture of the S3 business and sale of the Company's timberland properties.

Adjusted O perating Profit for the first quarter of 2023 was $213.4 million, a decrease of 18.2% from the $260.8 million reported in the same period in 2022.

The declines in Adjusted Earnings and Adjusted Operating Profit were due to an unfavorable metal price overlap in the Metal Packaging business resulting from the consumption of higher-cost inventories during the first quarter of 2023, as well as lower overall volume and mix.

GAAP o perating profit for the second quarter of 2023 w as $187.9 million, a decrease of 4.9% from the $197.5 million reported in the second-quarter of 2022.

The decrease in GAAP operating profit was primarily the resu lt of lower overall volume and mix across most of the businesses, destocking trends among our customers, partially offset by the favorable impact of strategic pricing actions in the Industrial Paper Packaging segment, manufacturing productivity, the gain on the divestiture of the U.S.

BulkSak businesses, and lower quarter over quarter restructuring and acquisition/divestiture-related costs.

Adjusted O perating Profit for the second quarter of 2023 was $210.9 million, a decrease of 15.7% from the $250.2 million reported in the same period in 2022.

The declines in Adjusted Earnings and Adjusted Operating Profit were due to lower overall volume and mix across most of the businesses, partially offset by favorable impact of strategic pricing actions and manufacturing productivity.

COSTS AND EXPENSES

Cost of goods sold decreased by $44.1 million, or 3.1%, in the first quarter of 2023 compared with the same period last year.

Cost of goods sold decreased by $178.4 million, or 11.7%, in the second quarter of 2023 compared with the same period last year.

The decrease was driven primarily by lower volumes and lower input costs.

Gross profit was $374.4 million for the three-month period ended April 2, 2023, which was $2.9 million higher than the prior-year period.

The increase in gross margin was driven by strategic pricing actions and the full-quarter impact of the Metal Packaging acquisition, which offset volume declines.

Additionally, gross profit as a percent of sales increased to 21.6% from 21.0% in the prior- year quarter due to these factors.

Selling, general and administrative costs decreased by $2.4 million , or 1.3% , in the first quarter of 2023 compared with the same period last year.

The decrease was due to lower acquisition costs related to the Metal Packaging acquisition, which more than offset inflation increases.

Restructuring/Asset impairment charges totaled $28.8 million in the first quarter of 2023, compared with $12.1 million during the same period last year.

Gross prof it was $357.3 million for the three-month period ended July 2, 2023, which was $29.7 million lower than the prior-year period.

The decrease in gross profit was driven by volume declines which were partially offset by the benefit from strategic pricing actions and productivity.

Gross profit as a percent of sal es increased to 21.0% from 20.2% in the prior- year quarter.

Selling, general an d administrative costs decreased by $8.2 million, or 4.6%, in the second quarter of 2023 compared with the same period last year.

The decrease was due to lower year-over-year management incentive accruals, which more than offset salary inflation increases.

Restructuring/Asset impairment charges totaled $6.1 million in the second quarter of 2023, compared with $10.6 million during the same period last year.

Additional information regarding restructuring and asset impairment charges is provided in Note 5 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Gain on divestiture of business and other assets of $72.0 million in the first quarter of 2023 reflects gains from the divestiture of the Company's S3 business and the sale of the Company's timberland properties.

Net interest expense for the first quarter of 2023 increased to $32.7 million, compared with $19.1 million during the first quarter of 2022.

The increase is primarily due to higher year-over-year average debt balances resulting from the term loan executed in December 2022 and the prior year financing of the Metal Packaging acquisition, as well as the impact of higher interest rates on the Company's variable rate debt.

The effective tax rates on GAAP and Adjusted Earnings in the first quarter of 2023 were 24.3% and 24.8%, respectively, compared with 23.7% and 25.3%, respectively, in the prior year’s quarter.

The increase in the GAAP effective tax rate is primarily attributable to the absence of a tax benefit received in the first quarter of 2022 associated with the acquisition of Metal Packaging.

The decrease in the tax rate on Adjusted Earnings was due to a variety of small variances, mostly related to items discrete to the period in which they occurred.

Gain on divestiture of business and other assets of $7.4 million in the second quarter of 2023 reflects the gain from the divestiture of the Company’s U.S.

BulkSak businesses.

Net interest expense for the second quarter of 2023 increased to $32.3 million, compared with $23.2 million during the second quarter of 2022.

The increase of $9.2 million was primarily due to higher quarter-over-quarter average debt balances resulting from the term loan executed in December 2022 and the impact of higher interest rates on the Company’s variable rate debt.

The effective tax rates reflected in GAAP net income and Adjusted Earnings in the second quarter of 2023 were 26.8% and 25.6%, respectively, compared with 25.8% and 25.0%, respectively, in the prior year’s quarter.

The increase in the effective tax rates on both GAAP and Adjusted Earnings was due primarily to activity discrete to the second quarter of 2022.

The GAAP rate varied more from the prior year’s quarter due to variances in tax rates between the jurisdictions in which the respective income and charges were taxed.

REPORTABLE SEGMENTS

As previously disclosed, the Company's operating and reporting structure consists of two reportable segments, Consumer Packaging and Industrial Paper Packaging, with all remaining businesses reported as All Other.

The following table summarizes net sales attributable to each of the Company’s segments and All Other for the first quarters of 2023 and 2022:

The Company’s operating and reporting structure consists of two reportable segments, Consumer Packaging and Industrial Paper Packaging, with all remaining businesses reported as All Other.

The following table summarizes net sales attributable to each of the Company’s segments and All Other for the second quarters of 2023 and 2022:

Three Months Ended

($ in thousands) April 2, 2023 April 3, 2022 %

(Dollars in thousands) July 2, 2023 July 3, 2022 %

Consumer Packaging $ 923,605 $ 989,982 (6.7) %

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SONOCO PRODUCTS COMPANY

The following table summarizes operating profit attributable to each of the Company’s segments during the first quarters of 2023 and 2022:

The following table summarizes operating profit attributable to each of the Company’s reportable segments, the All Other group of businesses, and Corporate-related activity during the second quarters of 2023 and 2022:

Three Months Ended

($ in thousands) April 2, 2023 April 3, 2022 %

(Dollars in thousands) July 2, 2023 July 3, 2022 %

Operating profit:

6 unchanged sentences

Operating profit $ 187,859 $ 197,476 (4.9) %

The following table summarizes Adjusted EBITDA attributable to each of the Company’s segments during the first quarters of 2023 and 2022:

The following table summarizes Adjusted EBITDA attributable to each of the Company’s reportable segments, and the All Other group of businesses during the second quarters of 2023 and 2022:

Three Months Ended

($ in thousands) April 2, 2023 April 3, 2022 %

(Dollars in thousands) July 2, 2023 July 3, 2022 %

Adjusted EBITDA:

3 unchanged sentences

Adjusted EBITDA $ 275,392 $ 311,637 (11.6) %

The following table summarizes restructuring/asset impairment charges attributable to each of the Company’s segments during the first quarters of 2023 and 2022:

The following table summarizes restructuring/asset impairment charges/(income) attributable to each of the Company’s reportable segments, the All Other group of businesses, and Corporate-related activity during the second quarters of 2023 and 2022:

Three Months Ended

($ in thousands) April 2, 2023 April 3, 2022

Restructuring/Asset impairment charges:

(Dollars in thousands) July 2, 2023 July 3, 2022

Restructuring/Asset impairment charges/(income):

Consumer Packaging $ 1,928 $ 2,798

9 unchanged sentences

These products primarily serve the consumer staples market, focused on food, beverage, household, and personal products.

Segment sales increased approximately 4.7% compared to the prior year’s quarter due to continued strong strategic pricing performance and acquisitions.

Volume and mix were lower as compared to the prior year due to softer demand in metal packaging (aerosol) and rigid plastic food packaging.

Segment operating profit declined 47.1% in the first quarter of 2023 compared to the same period last year.

The decline was largely due t o an unfavorable metal price overlap in metal packaging resulting from the consumption of higher-cost inventories during the first quarter of 2023, as well as volume declines in both metal aerosols and rigid plastics food packaging.

As a result, segment operating margin declined to 10.1% during the quarter from 20.0% for the same period in 2022.

The impact of the unfavorable metal price overlap is expected to lessen beginning in the second quarter as the higher cost metal inventories are consumed.

Segment sales decreased approximately 6.7% compared to the prior year’s quarter as volumes were impacted by destocking trends among our customers and inflationary pressures within the retail sector.

Segment operating profit and Adjusted EBITDA decreased by 31.7% and 25.3%, respectively.

The decline was largely due to continued unfavorable metal price overlap in metal packaging and non-market share related volume declines in several key food and aerosol accounts.

These declines were partially offset by continued strong performance in the flexible packaging and rigid paper container businesses.

SONOCO PRODUCTS COMPANY

Consumer Packaging segment operating profit and Adjusted EBITDA decreased by 47.1% and 38.8% , respectively, due to the previously discussed unfavorable metal price overlap and volume declines in metal aerosols and rigid plastics food packaging, which were partially offset by positive manufacturing productivity.

Industrial Paper Packaging

3 unchanged sentences

Products across this segment support multiple end markets in industrials (construction and building products, and industrial distribution), consumer staples (food and beverage, food distribution, household and personal products), and consumer discretionary (home building, appliances, apparel, and home furnishings), as well as various other end markets.

Segment sales decreased 11.9% from the prior year's quarter due to continued volume and mix declines across a variety of end markets as well as declines due to divestitures and the exit from the corrugated medium market.

Segment operating profit increased 29.9% from the prior year’s quarter, primarily due to strategic pricing actions which were partially offset by lower volume and mix .

As a result, segment operating profit margin improved to 15.3% in the current year's quarter from 10.4% in the prior year.

Industrial Paper Packaging segment operating profit and Adjusted EBITDA improved 29.9% and 24.1%, respectively, primarily due to the benefits of strategic pricing actions and lower material costs, which more than offset lower volumes.

Segment operating profit margin improved to 15.3% in the first quarter of 2023 from 10.4% in the same period last year.

Segment sa les decreased 19.6% fr om the prior year’s quarter due to general volume and mix declines attributable to both the exit from the corrugated medium market and the sale of S3, as well as weakness in global demand for converted paper, which appears to have shown limited signs of near-term improvement.

Segment operating profit and Adjusted EBITDA decreased 7.6% and 4.8%, respectively, as the impact of lower volumes was partially offset by the price/cost benefits of strategic pricing actions and lower material costs.

Segment operating profit margin improved to 15% in the second quarter of 2023 from 13% in the same period last year and Segment Adjusted EBITDA margin improved to 20% in the second quarter compared to 17% in the same period last year due to favorable resets in commercial contracts with certain customers and suppliers and improved operational efficiencies in our manufacturing facilities.

The primary products produced with the All Other group of businesses consist of a variety of packaging materials including plastic, paper, foam, and various other specialty materials serving a wide variety of end markets including consumer staples, consumer discretionary, industrial and pharmaceuticals.

Sales for All Other improved 0.4% from the prior year’s quarter due to strategic pricing actions, which were partially offset by volume and mix declines.

All Other operating profit improved 87.5% in the first quarter of 2023 compared to the same period last year, primarily due to strategic pricing performance and strong productivity.

As a result, operating margin increased to 13.3% in the current year's quarter from 7.1% in the prior year's quarter.

All Other Adjusted EBITDA improved by 61.0% due to the previously mentioned reasons.

Sales improved 0.3% from the prior year’s quarter due to strategic pricing actions, which were largely offset by volume and mix declines.

Operating profit improved 73.5% and Adjusted EBITDA improved 52.8% in the second quarter of 2023 compared to the same period last year, primarily due to positive strategic pricing performance and strong productivity.

As a result, operating margin increased to 14.6% in the second quarter of 2023 compared to 8.4% in the same quarter last year.

SONOCO PRODUCTS COMPANY

Six Months Ended July 2, 2023 Compared with Six Months Ended July 3, 2022

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

Adjusted Operating Profit, Adjusted Income Before Income Taxes, Adjusted Provision for Income Taxes, Adjusted Net Income Attributable to Sonoco, and Adjusted Diluted Earnings Per Share (“EPS”)

For the six-month period ended July 2, 2023

Dollars in thousands, except per share data Operating Profit Income Before Income Taxes Provision for Income Taxes Net Income Attributable to Sonoco Diluted EPS

As Reported $ 417,507 $ 345,497 $ 87,652 $ 262,968 $ 2.66

Acquisition/Divestiture-related costs 9,720 9,720 2,270 7,450 0.08

Changes in LIFO inventory reserves (7,000) (7,000) (1,749) (5,252) (0.05)

Amortization of acquisition intangibles 41,703 41,703 10,119 31,584 0.32

Restructuring/Asset impairment charges 34,871 34,871 7,959 26,683 0.27

Gain on divestiture of business and sale

of other assets

(79,381) (79,381) (18,947) (60,434) (0.61)

Non-operating pension costs — 7,000 1,737 5,263 0.05

Net loss from derivatives 1,797 1,797 448 1,348 0.01

Other adjustments 5,144 5,144 1,167 3,979 0.04

Total adjustments $ 6,854 $ 13,854 $ 3,004 $ 10,621 $ 0.11

Adjusted $ 424,361 $ 359,351 $ 90,656 $ 273,589 $ 2.77

Due to rounding, individual items may not sum appropriately.

For the six-month period ended July 3, 2022

Dollars in thousands, except per share data Operating Profit Income Before Income Taxes Provision for Income Taxes Net Income Attributable to Sonoco Diluted EPS

As Reported $ 366,538 $ 321,310 $ 79,888 $ 247,005 $ 2.50

Acquisition/Divestiture-related costs 60,633 60,633 14,764 45,869 0.47

Changes in LIFO inventory reserves 25,390 25,390 6,396 18,994 0.19

Amortization of acquisition intangibles 39,671 39,671 9,728 29,942 0.30

Restructuring/Asset impairment charges 22,705 22,705 2,477 20,329 0.21

Non-operating pension costs — 3,002 844 2,157 0.02

Net gain from derivatives (3,795) (3,795) (955) (2,838) (0.03)

Other adjustments (198) (334) 4,619 (4,953) (0.05)

Total adjustments $ 144,406 $ 147,272 $ 37,873 $ 109,500 $ 1.11

Adjusted $ 510,944 $ 468,582 $ 117,761 $ 356,505 $ 3.61

Due to rounding, individual items may not sum appropriately.

SONOCO PRODUCTS COMPANY

Adjusted EBITDA and Adjusted EBITDA Margin

Six Months Ended

Dollars in thousands July 2, 2023 July 3, 2022

Net income attributable to Sonoco $ 262,968 $ 247,005

Interest expense 68,516 44,528

Interest income (3,506) (2,302)

Provision for income taxes 87,652 79,888

Depreciation, depletion, and amortization 163,817 151,944

Non-operating pension costs 7,000 3,002

Net income attributable to noncontrolling interests 45 369

Restructuring/Asset impairment charges 34,871 22,705

Changes in LIFO inventory reserves (7,000) 25,390

Gain from divestiture of business and sale of other assets (79,381) —

Acquisition/Divestiture-related costs 9,720 60,633

Net loss/(gain) from derivatives 1,796 (3,794)

Other non-GAAP adjustments 5,144 (198)

Adjusted EBITDA $ 551,642 $ 629,170

Net Sales $ 3,435,073 $ 3,684,314

Adjusted EBITDA Margin 16.1 % 17.1 %

SONOCO PRODUCTS COMPANY

The following tables reconcile Segment Operating Profit, the closest GAAP measure of profitability, to Segment Adjusted EBITDA.

Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Six Months Ended July 2, 2023

Dollars in thousands Consumer Packaging segment Industrial Paper Packaging segment All Other Corporate Total

Segment and Total Operating Profit $ 187,045 $ 181,407 $ 55,908 $ (6,853) $ 417,507

Depreciation, depletion and amortization 1

59,994 49,886 12,234 41,703 163,817

Equity in earnings of affiliates, net of tax 209 4,959 — — 5,168

Restructuring/Asset impairment charges 2

— — — 34,871 34,871

Changes in LIFO inventory reserves 3

— — — (7,000) (7,000)

Acquisition/Divestiture-related costs 4

— — — 9,720 9,720

Gains from divestiture of business and other assets 5

— — — (79,381) (79,381)

Net losses from derivatives 6

— — — 1,796 1,796

Other non-GAAP adjustments — — — 5,144 5,144

Segment Adjusted EBITDA $ 247,248 $ 236,252 $ 68,142 $ — $ 551,642

Net Sales $ 1,832,883 $ 1,200,998 $ 401,192

Segment Operating Profit Margin 10.2 % 15.1 % 13.9 %

Segment Adjusted EBITDA Margin 13.5 % 19.7 % 17.0 %

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $28,633, the Industrial Paper Packaging segment of $5,499, and All Other of $7,571.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $3,504, the Industrial Paper Packaging segment of $26,531, and All Other of $4,109.

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $(6,103) and the Industrial Paper Packaging segment of $(897).

4 Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer Packaging segment of $892 and the Industrial Paper Packaging segment of $349.

5 Included in Corporate are gains from the sale of the Company’s timberland properties in the amount of $(60,945), the sale of its S3 business in the amount of $(11,065), and the sale of its U.S.

BulkSak businesses in the amount of $(7,371), all of which are associated with the Industrial Paper Packaging segment.

6 Included in Corporate are losses on derivatives associated with the Consumer Packaging segment of $274, the Industrial Paper Packaging segment of $1,133, and All Other of $389.

SONOCO PRODUCTS COMPANY

Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Six Months Ended July 3, 2022

Dollars in thousands Consumer Packaging segment Industrial Paper Packaging segment All Other Corporate Total

Segment and Total Operating Profit $ 313,030 $ 166,862 $ 31,053 $ (144,407) $ 366,538

Depreciation, depletion, and amortization 1

54,059 45,777 12,437 39,671 151,944

Equity in earnings of affiliates, net of tax 9 5,943 — — 5,952

Restructuring/Asset impairment charges 2

— — — 22,705 22,705

Changes in LIFO inventory reserves 3

— — — 25,390 25,390

Acquisition/Divestiture-related costs 4

— — — 60,633 60,633

Net gain from derivatives 5

— — — (3,794) (3,794)

Other non-GAAP adjustments — — — (198) (198)

Segment Adjusted EBITDA $ 367,098 $ 218,582 $ 43,490 $ — $ 629,170

Net Sales $ 1,858,081 $ 1,426,529 $ 399,704

Segment Operating Profit Margin 16.8 % 11.7 % 7.8 %

Segment Adjusted EBITDA Margin 19.8 % 15.3 % 10.9 %

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $26,612, the Industrial Paper Packaging segment of $4,125, and All Other of $8,934.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $5,109, the Industrial Paper Packaging segment of $11,520, and All Other of $(417).

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $24,242 and the Industrial Paper Packaging segment of $1,148.

4 Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer Packaging segment of $37,184 and the Industrial Paper Packaging segment of $1,066.

5 Included in Corporate are net gains on derivatives associated with the Consumer Packaging segment of $(550), the Industrial Paper Packaging segment of $(2,462), and All Other of $(782).

RESULTS OF OPERATIONS

The following discussion provides a review of results for the six-month period ended July 2, 2023 compared with the six-month period ended July 3, 2022.

Net sales for the first six months of 2023 decreased 6.8 percent to $3.4 billion , compared with $3.7 billion in the same period last year.

The decline was attributable to lower overall volume/mix, including the impact of acquisitions and divestitures of $306.1 million and the unfavorable impact of foreign currency translation totaling approximately $26.2 million.

These reductions were partially offset by higher selling prices in the amount of $83.1 million.

Net income attributable to Sonoco for the first six months of 2023 in creased to $263.0 million, or $2.66 per diluted share, compared to $247.0 million , or $2.50 per diluted share, reported for the same period of 2022.

These GAAP results include net after-tax, non-GAAP charges totaling $10.6 million and $109.5 million in the first six months of 2023 and 2022, respectively.

In both years, these net non-GAAP charges included acquisition/divestiture-related charges, amortization of acquisition intangibles, restructuring/asset impairment charges, changes in LIFO inventory reserves, and other non-GAAP adjustments as reflected in the preceding reconciliations.

In addition, the non-GAAP adjustments in 2023 also included gains from the divestiture of businesses and from the sale of other assets.

Excluding these non-GAAP adjustments, Adjusted Earnings for the six-month period ended July 2, 2023 d ecreased 23.3 percent to $273.6 million, or $2.77 per diluted share, from $356.5 million, or $3.61 per diluted share, in the same period in 2022.

SONOCO PRODUCTS COMPANY

The decrease in Adjusted Earnings of $82.9 million was largely attributable to lower volumes in most businesses and higher interest expense.

Price/cost, though favorable in the Industrial Paper Packaging segment and All Other, was more than offset by negative price/cost in the Consumer Packaging segment.

These declines were partially offset by strong year-over-year productivity improvements.

COSTS AND EXPENSES

Cost of goods sold decreased $222.4 million, or 7.6 percent, while the Company’s gross profit margin percentage increased to 21.3 percent for the first six months of 2023, compared to 20.6 percent in the prior-year period.

The decrease in cost of goods sold was driven primarily by lower volumes, lower input costs, and the non-recurrence in the current year of $33.2 million acquisition-date fair value adjustments to finished goods inventory recognized in cost of goods sold in the first six months of 2022 in connection with the Metal Packaging acquisition.

GAAP Selling, general and administrative costs for the first six months of 2023 decreased $10.6 million, or 2.9 percent, year over year.

The decrease was largely driven by lower year-over-year acquisition/divestiture-related costs and lower management incentive compensation costs, partially offset by salary inflation.

Net restructuring costs and asset impairment charges totaled $34.9 million in the first six months of 2023, compared with $22.7 million of net charges in the same period las t year.

The year-over-year increase was primarily the result of costs associated with the closure of the Company’s paper mill in Hutchinson, Kansas in the first quarter of 2023.

Charges in the first six months of 2022 included $9.2 million of asset impairment charges resulting from the Company’s exit from its operations in Russia.

Gain on divestiture of business and other assets of $79.4 million in the six-month period ended July 3, 2023 reflects gains from the sales of the Company’s timberland properties and S3 and U.S.

BulkSak businesses.

Non-operating pension c osts increased $4.0 million year over year due primarily to higher interest costs resulting from rising interest rates.

Additional information regarding costs of the Company’s retirement plans is provided in Note 11 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

GAAP net interest expense for the first six months o f 2023 increased to $65.0 million, compared with $42.2 million during the first six months of 2022.

The increase of $22.8 million was primarily due to higher year-over-year average debt balances resulting from the term loan executed in December 2022 and the impact of higher interest rates on the Company’s variable rate debt.

The effective tax rates reflected in GAAP net income and Adjusted Earnings in the first six months of 2023 were 25.4 percent and 25.2 percent, respectively, compared with 24.9 percent and 25.1 percent for the GAAP net income and Adjusted Earnings, respectively, in the prior-year period.

The increase in the effective tax rate on GAAP net income was due primarily to activity discrete to the second quarter of 2022.

The effective tax rate on Adjusted Earnings was flat year over year.

SONOCO PRODUCTS COMPANY

REPORTABLE SEGMENTS

The following table summarizes net sales attributable to each of the Company’s reportable segments, and the All Other group of businesses during the first six months of 2023 and 2022:

Six Months Ended

(Dollars in thousands) July 2, 2023 July 3, 2022 % Change

Consumer Packaging $ 1,832,883 $ 1,858,081 (1.4) %

Industrial Paper Packaging 1,200,998 1,426,529 (15.8) %

All Other 401,192 399,704 0.4 %

Net sales $ 3,435,073 $ 3,684,314 (6.8) %

Six Months Ended

(Dollars in thousands) July 2, 2023 July 3, 2022 % Change

Operating profit:

Consumer Packaging $ 187,045 $ 313,030 (40.2) %

Industrial Paper Packaging 181,407 166,862 8.7 %

All Other 55,908 31,053 80.0 %

Restructuring/Asset impairment charges (34,871) (22,705)

Amortization of acquisition intangibles (41,703) (39,671)

Other non-GAAP charges, net 69,721 (82,031)

Operating profit $ 417,507 $ 366,538 13.9 %

The following table summarizes Adjusted EBITDA attributable to each of the Company’s reportable segments and the All Other group of businesses during the first six months of 2023 and 2022:

Six Months Ended

(Dollars in thousands) July 2, 2023 July 3, 2022 %

Adjusted EBITDA:

Consumer Packaging $ 247,248 $ 367,098 (32.6) %

Industrial Paper Packaging 236,252 218,582 8.1 %

All Other 68,142 43,490 56.7 %

Adjusted EBITDA $ 551,642 $ 629,170 (12.3) %

Six Months Ended

(Dollars in thousands) July 2, 2023 July 3, 2022

Restructuring/Asset impairment charges/(income):

Consumer Packaging $ 3,504 $ 5,109

Industrial Paper Packaging 26,531 11,520

All Other 4,109 (417)

Corporate 727 6,493

Restructuring/Asset impairment charges $ 34,871 $ 22,705

SONOCO PRODUCTS COMPANY

Consumer Packaging

Segment sales decreased 1.4 percent year to date compared to the prior-year period as $57.9 million from higher selling prices, largely implemented to recover increased raw material and other operating costs, and approximately $78.7 million of sales from the January 2022 Metal Packaging acquisition, were more than offset by $157.1 million of unfavorable volume/mix and $4.7 million from the unfavorable impact of foreign currency translation.

Year-to-date segment operating profit decreased 40.2 percent as both unfavorable price/cost and unfavorable volume/mix were only partially offset by productivity gains.

As a result, segment operating profit margin decreased from 16.8 percent in the first six months of 2022 to 10.2 percent in the first six months of 2023.

Industrial Paper Packaging

Segment sales decreased 15.8 percent year to date versus the prior-year period due to unfavorable volume/mix of $192.3 million, the impact of divestitures of $10.9 million, and other unfavorable impacts, principally foreign currency translation totaling $22.3 million.

Segment operating profit increased 8.7 percent from the prior-year period driven by price/cost gains, including the benefits of strategic pricing initiatives.

These gains were partially offset by lower volumes and a negative impact from foreign exchange.

As a result, segment operating margins were up 341 basis points to 15.1 percent.

Sales for All Other increased 0.4 percent year to date to increased selling prices, which were implemented to recover increased costs, and increased productivity, were mostly offset by the impact of lower volumes.

All Other operating profit increased 80.0 percent year to date due to the impact of a favorable price/cost relationship and strong productivity gains, partially offset by the impact of lower volumes.

Segment operating margin increased to 13.9 percent year to date from 7.8 percent in 2022.

Financial Position, Liquidity and Capital Resources

Cash generated from operations for the first three months of 2023 was $98.0 million, compared with $1.1 million in the same period of 2022, an increase of $96.9 million.

GAAP net income increased by $32.7 million year over year, reflecting the non-cash gains from the sales of the Company's S3 business and timberland properties during the first quarter of 2023.

Net working capital used $91.5 million of cash in the first three months of 2023, compared with $185.5 million in the same period of 2022, for a year-over-year decrease in the use of cash of $94.0 million.

Beginning in the first quarter of 2022, inventory levels increased to mitigate supply chain uncertainty caused by lack of availability and shipment delays.

While inventories at April 2, 2023 were higher than at April 3, 2022, they decreased during the first quarter of 2023 and increased during the same period last year.

Conversely, changes in accounts payable effectively offset the changes in inventory, as we worked to right-size inventory and the cost of inputs declined, most notably for steel and old corrugated containers.

Lastly, while accounts receivable increased during the first quarter of 2023, the increase was much smaller than experienced during the first quarter of 2022, when growing volumes and higher selling prices increased accounts receivable significantly.

The Company continues to actively manage all components of net working capital in an effort to minimize the impact on cash utilization while also supporting the needs of our customers.

Cash contributions to the Company's retirement plans were $4.9 million in the first quarter of 2023, compared with $28.1 million in the same period last year.

Cash generated from operations for the first six months of 2023 was $348.6 million, compared with $184.5 million in the same period of 2022, an increase of $164.1 million.

GAAP net income increased by $15.6 million year over year, reflecting the non-cash gains from the sales of the Company’s S3 business, U.S.

BulkSak businesses and timberland properties during the first six months of 2023.

Cash contributions to the Company’s retirement plans were $7.5 million in the first six months of 2023, compared with $30.8 million in the same period last year.

The contributions in the prior year included the final Sonoco Retirement Contribution (“SRC”), the non-elective component of the Sonoco Savings Plan.

The SRC was terminated as of December 31, 2021.

Changes in accrued expenses and other assets and liabilities used $18.9 million in the three-month period ended April 2, 2023, compared with using $2.5 million in the same period last year.

Net working capital provided $0.9 million of cash in the first six months of 2023, while it used $258.5 million in the same period last year, for a year-over-year increase in operating cash flow of $259.4 million.

The year-over-year improvement was driven largely by inventory reductions in the current year.

Beginning in the first six months of 2022, inventory levels increased to mitigate supply chain uncertainty caused by lack of availability and shipment delays.

While inventories at July 2, 2023 were at a consistent level with July 3, 2022, they decreased during the first six months of 2023 driven by a strong focus on inventory reduction across all businesses.

The year-over-year decrease in accounts payable was attributable to the lower spending on inventories and a decline in the cost of inputs (principally steel and old corrugated containers).

While accounts receivable increased during the first six months of 2023, the increase was much smaller than experienced during the first six months of 2022, when higher selling prices increased accounts receivable significantly.

The Company continues to actively manage all components of net working capital, particularly inventory reduction initiatives in response to supply chain normalization, in an effort to manage operational efficiency and cash management goals while supporting the needs of its customers.

Changes in accrued expenses and other assets and liabilities used $38.0 million in the six-month period ended July 2, 2023, compared with a cash provision of $5.6 million in the same period last year.

The $43.5 million additional use of cash was largely driven by the higher year-over-year payout of management incentive compensation.

Investing activities used $3.0 million of cash in the first three months of 2023, compared with $1,415.8 million in the same period last year.

The lower year-over-year use of cash was primarily attributable to the Metal Packaging acquisition on January 26, 2022 for a total of $1,348.6 million.

Capital expenditures during the first three months of 2023 were $83.4

Investing activities used $80.4 million of cash in the first six months of 2023, compared with $1,480.3 million in the same period last year.

The lower year-over-year use of cash was primarily attributable to lower acquisition spending as the Company invested $1,333.8 million in the Metal Packaging acquisition in the first six months of 2022, but did not complete any acquisitions in the first six months of 2023.

Capital expenditures during the first six months of 2023 were $161.7 million, $12.8 million higher than the same period last year.

The year-over-year increase was largely driven by increased investments in strategic growth and productivity projects in both the Consumer Packaging and the Industrial Packaging segments.

Proceeds from the sale of businesses provided $13.8 million of cash in the first six months of 2023 as the Company received cash from the sale of its S3 business and proceeds from the sale of assets were $67.1 million

SONOCO PRODUCTS COMPANY

million, $15.9 million higher than the same period last year.

The year-over-year increase was largely driven by increased strategic investments in growth and productivity projects in the Consumer Packaging segment and the Industrial Packaging segment, including spend on Project Horizon.

Proceeds from the sale of businesses added $13.8 million of cash in the first three months of 2023 as the Company received cash from the sale of its S3 business and proceeds from the sale of assets were $71.2 million higher year over year, primarily due to proceeds from the sale of the Company's timber lands in March 2023.

Other net investing activities used $5.0 million more cash year over year, primarily as a result of the Company's purchase of a 2.7% equity interest in Northstar during the three-month period ended April 2, 2023.

higher year over year, primarily due to proceeds from the sale of the Company’s timberland properties in March 2023.

Other net investing activities used $2.1 million more cash year over year, primarily as a result of the Company’s purchase of a 2.7% equity interest in Northstar during the six-month period ended July 2, 2023.

Net capital spending for 2023 is expected to be approximately $305 million compared to $319 million in 2022.

Financing activities used $118.2 million of cash in the three-month period ended April 2, 2023, while providing $1,392.6 million in the corresponding prior-year period, a year-over-year decrease of $(1.5) billion.

The decrease was largely driven by higher debt proceeds in the prior year used primarily to fund the Metal Packaging acquisition.

Financing activities used $185.0 million of cash in the six-month period ended July 2, 2023, while providing $1,303.4 million in the corresponding prior-year period, a year-over-year decrease of $1.5 billion.

The decrease was largely driven by higher debt proceeds in the prior year, primarily to fund the Metal Packaging acquisition.

These included $1.2 billion of net proceeds from the issuance of unsecured notes and $300 million of proceeds from a three-year term loan facility.

The Company used cash of $14.5 million to purchase a noncontrolling interest in Graffo in the first quarter of 2022.

Cash used to repurchase the Company's common stock to satisfy employee tax withholding obligations in association with the exercise of certain share-based compensation awards was $10.6 million in the three-month period ended April 2, 2023, compared to $3.4 million in the same period last year.

Cash used to repurchase the Company’s common stock to satisfy employee tax withholding obligations in association with the exercise of certain share-based compensation awards was $10.6 million in the six-month period ended July 2, 2023, compared to $4.0 million in the same period last year.

The C ompany’s cash balances are held in numerous locations throughout the world.

At April 2, 2023 and December 31, 2022, approximately $190.5 million and $170.1 million, respectively, of the Company's reported cash and cash equivalents balances of $209.7 million and $227.4 million, respectively, were held outside of the United States by its foreign subsidiaries.

At July 2, 2023 and December 31, 2022, approximately $173.0 million a nd $170.1 million, respectively, of the Company’s reported cash and cash equivalents balances of $319.2 million an d $227.4 million, respectively, were held outside of the United States by its foreign subsidiaries.

Cash held outside of the United States is available to meet local liquidity needs or for capital expenditures, acquisitions, and other offshore growth opportunities.

As the Company has maintained sufficient domestic liquidity through a combination of operating cash flow generation and access to bank and capital market borrowings, management has generally considered its foreign unremitted earnings to be indefinitely invested outside the United States and currently has no plans to repatriate such earnings, other than excess cash balances that can be repatriated at minimal tax cost.

Accordingly, as of April 2, 2023 the Company is not providing for taxes on these amounts for financial reporting purposes.

Accordingly, as of July 2, 2023 the Company is not providing for taxes on these amounts for financial reporting purposes.

Computation of the potential deferred tax liability associated with unremitted earnings considered to be indefinitely reinvested is not practicable.

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Under this pooling arrangement, the Company and its participating subsidiaries may maintain either a cash deposit or borrowing position through local currency accounts with the bank, so long as the aggregate position of the global pool is a notionally calculated net cash deposit.

Because it maintains a security interest in the cash deposits, and has the right to offset the cash deposits against the borrowings, the bank provides the Company and its participating subsidiaries favorable interest terms on both.

The Company operates a $500 million commercial paper program, supported by a $750 million unsecured revolving credit facility with a syndicate of banks.

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The Company has the contractual right to draw funds directly on the underlying revolving credit facility, which could possibly occur if there were a disruption in the commercial paper market.

Recent events in the banking sector have caused the Company to review and assess risk with respect to our banking partners, including the syndicate of nine banks that participate in our term loan facilities and revolving credit facilities.

Recent events in the banking sector have caused the C ompany to review and assess risk with respect to our banking partners, including the syndicate of nine banks that participate in our term loan facilities and revolving credit facilities.

All of our banks are considered Large Financial Institutions and subject to higher reporting and stress testing requirements, and six of the nine banks are considered Globally Systemically Important Banks (“GSIB”) and subject to the highest stress testing and capital requirements.

All of the banks that participate in our term loans and the $750 million revolving credit facility which backstops our commercial paper program are of the highest credit.

All of the banks that participate in our term loans and the $750 million revolving credit facility which backstops our commercial paper program are of the highest credit quality.

The Company generally does not hold cash deposits with banks in excess of operational needs, and our operating balances across the world are held in a well-diversified group of international banks.

During the three-month period ended April 2, 2023, the Compa ny reported a net increase in cash and cash equivalents of $5.4 million due to currency translation adjustments resulting from a weaker U.S.

During the six-month period ended July 2, 2023, the Company reported a net increase in cash and cash equivalents of $8.6 million due to currency translation adjustments resulting from a weaker U.S.

dollar relative to certain foreign currencies in which cash and cash equivalents were held.

At April 2, 2023, the Company had scheduled debt maturities of approximately $448 million over the next twelve months, including $12 million of outstanding commercial paper balances.

Also at April 2, 2023, the Company had approximately $210 million in cash and cash equivalents on hand and $750 million in committed capacity under its revolving credit facility, of which $738 million was available for draw down net of outstanding commercial paper balances.

The Company believes these amounts, combined with expected net cash flows generated from operating and

SONOCO PRODUCTS COMPANY

investing activities, provide ample liquidity to cover these debt maturities and other cash flow needs of the Company over the remainder of 2023 and beyond.

At July 2, 2023, the Company had scheduled debt maturities of approximately $437 million over the next twelve months, including no outstanding commercial paper balances.

Also at July 2, 2023, the Company had approximately $319 million in cash and cash equivalents on hand and $750 million in committed capacity under its revolving credit facility, all of which was available for draw down.

The Company believes these amounts, combined with expected net cash flows generated from operating and investing activities, provide ample liquidity to cover these debt maturities and other cash flow needs of the Company over the remainder of 2023 and beyon d.

Certain of the Company’s debt agreements impose restrictions with respect to the maintenance of financial ratios and the disposition of assets.

The most restrictive covenants currently require the Company to maintain a minimum level of interest coverage and a minimum level of net worth, as defined in the agreements.

As of April 2, 2023, the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants.

During the three-month period ended April 2, 2023, the Company received net cash proceeds totaling approximately $13.8 million and $70.8 million from the sales of its S3 business and timberland properties, respectively.

The most restrictive covenants currently require the Company to maintain a minimum level of

SONOCO PRODUCTS COMPANY

interest coverage and a minimum level of net worth, as defined in the agreements.

As of July 2, 2023, the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants.

During the six-month period ended July 2, 2023, the Company received net cash proceeds totaling approximately $13.8 million and $70.8 million from the sale of its S3 business and timberland properties, respectively.

The Company used these proceeds for general Corporate purposes.

Cash proceeds totaling $16.8 million from the sale of its U.S.

BulkSak businesses were received on July 3, 2023 after the end of the reporting period, with the remainder held in escrow.

The Company continually explores strategic acquisition opportunities which may result in the use of cash.

Given the nature of the acquisition process, the timing and amounts of such expenditures are not always predictable.

The Company expects that any acquisitions requiring funding in excess of cash on hand would be financed using available borrowing capacity.

The Company anticipates making additional contributions to its other pension and postretirement plans of approximately $10 million during the remainder of 2023, which would result in total contributions to these plans of approximately $15 million in 2023.

The Company expects that any acquisitions requiring funding in excess of cash on hand would be financed using existing credit facilities or additional borrowings.

The Company anticipates making additional contributions to its other pension and postretirement plans of approximately $7 million during the remainder of 2023, resulting in expected total contributions to these plans of approximately $14 million in 2023.

Future funding requirements beyond the current year will vary depending largely on actual investment returns, future actuarial assumptions, and legislative actions.

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The Company’s foreign operations are exposed to political, geopolitical, and cultural risks, but these risks are mitigated by diversification and the relative stability of the countries in which the Company has significant operations.

Due to the highly inflationary economy in Venezuela, the Company considers the U.S.

Because the economy in Venezuela is considered highly inflationary under U.S.

GAAP, the Company considers the U.S.

dollar to be the functional currency of its Venezuelan operations and uses the official exchange rate when remeasuring the financial results of those operations.

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Further deterioration could result in the recognition of an impairment charge or a deconsolidation of the subsidiary.

At April 2, 2023, the carrying value of the Company's net investment in its Venezuelan operations was approximately $2.1 million.

In addition, at April 2, 2023, the Company's “Accumulated other comprehensive loss” included a cumulative translation loss of $3.8 million related to its Venezuelan operations which would need to be reclassified to net income in the event of a complete exit of the business or a deconsolidation of the Venezuelan operations.

At July 2, 2023, the carrying value of the Company’s net investment in its Venezuelan operations was approximately $2.1 million.

In addition, at July 2, 2023, the Company’s “Accumulated other comprehensive loss” included a cumulative translation loss of $3.8 million r elated to its Venezuelan operations which would need to be reclassified to net income in the event of a complete exit of the business or a deconsolidation of the Venezuelan operations.

Turkey has been deemed to be a highly inflationary economy under U.S.

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dollars with changes recorded through earnings.

The impact of applying highly inflationary accounting to Turkey has not been significant to the Company's earnings.

The magnitude of future earnings impacts, however, is uncertain as such impacts are dependent upon unpredictable movements in the Turkish lira relative to the U.S.

The cumulative impact of applying highly inflationary accounting to Turkey has been a pretax charge to earnings of $5.2 million ($4.1 million after tax), including $2.5 million ($2.0 million after tax) during the six-month period ended July 2, 2023.

Th e magnitude of future earnings impacts, however, is uncertain as such impacts are dependent upon unpredictable movements in the Turkish lira relative to the U.S.

In addition to remeasurement-related charges, significant deterioration in the Turkish economy could result in the recognition of future impairment charges.

However, the Company believes its exposure is limited to its net investment in Turkey which was approximately $17.7 million as of April 2, 2023.

SONOCO PRODUCTS COMPANY

However, the Company believes its exposure is limited to its net investment in Turkey which was approximat ely $16.9 million as of July 2, 2023.

The Company is a purchaser of various raw material inputs such as recovered paper, energy, steel, aluminum, and plastic resin.

The Company generally does not engage in significant hedging activities for these purchases other than for energy and, from time to time, aluminum, because there is usually a high correlation between the primary input costs and the ultimate selling price of its products.

SONOCO PRODUCTS COMPANY

ultimate selling price of its products.

Inputs are generally purchased at market or at fixed prices that are established with individual suppliers as part of the purchase process for quantities expected to be consumed in the ordinary course of business.

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In addition, the Company may occasionally use traditional, unleveraged interest-rate swaps to manage its mix of fixed and variable rate debt and control its exposure to interest rate movements within select ranges.

At April 2, 2023, t he Company had derivative contracts outstanding to hedge the prices on a portion of anticipated natural gas and aluminum purchases.

At July 2, 2023, t he Company had derivative contracts outstanding to hedge the prices on a portion of anticipated natural gas and aluminum purchases.

These contracts, some of which qualify as cash flow hedges, include natural gas swaps totaling approximately 7.0 million metric million British thermal units (“MMBTUs”) and aluminum swaps totaling 447 metric tons.

These contracts have various maturity dates ranging through December 2024.

The total fair market value of these instruments resulted in a net loss position of $15.0 million and $8.8 million at April 2, 2023 and December 31, 2022, respectively.

The total fair market value of these instruments resulted in a net loss position of $10.8 million a nd $8.8 million at July 2, 2023 and December 31, 2022, respectively.

The Company routinely enters into derivative currency contracts to mitigate the risk of unfavorable fluctuations in the exchange rate on certain anticipated foreign currency cash flows.

These contracts qualify as cash flow hedges and have various maturity dates ranging through May 2024.

The total market value of these instruments resulted in a net gain position of $2.6 million at April 2, 2023 and a net loss position of $0.9 million at December 31, 2022.

In addition, the Company had various currency contracts to mitigate the risk of unfavorable fluctuations in the exchange rate on certain foreign currency assets and liabilities as of April 2, 2023 .

During the first three months of 2023, the U.S.

dollar w eakened against the euro, the British pound, the Brazilian real, the Canadian dollar, and the Mexican peso, which are the functional currencies in which a majority of the Company's foreign investments are held.

The net impact of t hese changes resulte d in a translation gain of $31.6 million being recorded in “Accumulated other comprehensive loss” during the three-month period ended April 2, 2023.

The total market value of these instruments resulted in a net gain position of $3.9 million at July 2, 2023 and a net loss position of $0.9 million at December 31, 2022.

In addition, the Company had various currency contracts to mitigate the risk of unfavorable fluctuations in the exchange rate on certain foreign currency assets and liabilities as of July 2, 2023.

During the first six months of 2023, the U.S.

dollar weakened against the euro, the British pound, the Brazilian real, the Mexican peso and the Polish zloty, w hich are the functional currencies in which a majority of the Company’s foreign investments are held.

The net impact of t hese changes resulte d in translation income of $53.6 million being recorded in “Accumulated other comprehensive loss” during the six-month period ended July 2, 2023.

Restructuring and Impairment

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis