What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-02 · 262 added, 217 removed, 452 unchanged (51% of the section changed)

12 unchanged sentences

• 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, 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.

• effects and timing of, and anticipated costs, 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, the remaining interest in RTS Packaging, LLC (“RTS Packaging”) and a paper mill in Chattanooga, Tennessee (the “Chattanooga Mill”), Nordeste Tubetes and NE Tubetes, 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;

3 unchanged sentences

• the Company’s capital structure, including the incurrence of debt and the refinancing and repayment of debt;

• the Company’s ability to adhere to restrictive covenants in its debt agreements;

• financial and business strategies and the results expected of them, including with respect to strategic pricing initiatives, capital deployment and commercial, operational and supply chain excellence;

13 unchanged sentences

• anticipated contributions to pension and postretirement benefit plans, fair values of plan assets, long-term rates of return on plan assets, and projected benefit obligations and payments;

SONOCO PRODUCTS COMPANY

• expected impact of implementation of new accounting pronouncements;

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

SONOCO PRODUCTS COMPANY

• continued payment of dividends;

5 unchanged sentences

Such risks, uncertainties and assumptions include, without limitation:

• 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;

• 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 ongoing conflict in Israel and Gaza), 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, including demand for temperature-controlled packaging, 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;

• costs of labor;

17 unchanged sentences

• 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;

SONOCO PRODUCTS COMPANY

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

2 unchanged sentences

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

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;

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• 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, and challenges in implementation;

• ability to meet commitments to reduce greenhouse gas emissions and to meet environmental, social, and governance 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;

• international, national and local economic and market conditions and levels of unemployment;

• economic disruptions resulting from war and other geopolitical tensions (such as the ongoing military conflict between Russia and Ukraine), terrorist activities and natural disasters;

• economic disruptions resulting from war and other geopolitical tensions (such as the ongoing military conflict between Russia and Ukraine and the ongoing conflict in Israel and Gaza), terrorist activities and natural disasters;

• accelerating inflation and the activities and operations in highly inflationary economies.

5 unchanged sentences

COMPANY OVERVIEW

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.

Sonoco is a leading provider of consumer packaging, industrial products, and protective packaging with approximately 320 locations in 32 cou ntries as of October 1, 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.

3 unchanged sentences

Sonoco’s strategy is to increase its long-term profitability and return capital to shareholders.

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

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.

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

For example, during the third quarter of 2023, the Company completed the acquisition of the remaining equity interest in RTS Packaging from joint venture partner WestRock, to further strengthen and expand the Company’s 100% recycled fiber-based packaging solutions.

Earlier in 2023, the Company completed the divestiture of its non-core U.S.

BulkSak business, 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, as adjusted for working capital, of $20.3 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.

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.

Second Quarter 2023 Compared with Second Quarter 2022

Third Quarter 2023 Compared with Third Quarter 2022

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

2 unchanged sentences

• restructuring/asset impairment charges 1 ;

• acquisition/divestiture-related costs;

• acquisition, integration and divestiture-related costs;

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

4 unchanged sentences

• certain income tax events and adjustments;

• other items, if any.

• derivative gains/losses;

• other non-operating income and losses;

• certain other items, if any.

1 Restructuring and restructuring-related asset impairment charges are a recurring item as the Company’s restructuring programs usually require several years to fully implement and the Company is continually seeking to take actions that could enhance its efficiency.

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interest income;

provision for income taxes;

SONOCO PRODUCTS COMPANY

for income taxes;

depreciation, depletion and amortization expense;

non-operating pension costs;

net income/(loss) attributable to noncontrolling interests;

net income attributable to noncontrolling interests;

restructuring/asset impairment charges;

1 unchanged sentence

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

acquisition/divestiture-related costs;

acquisition, integration and divestiture-related costs;

derivative gains/losses;

1 unchanged sentence

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

SONOCO PRODUCTS COMPANY

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.

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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.

Further, Sonoco management does 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.

SONOCO PRODUCTS COMPANY

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 July 2, 2023

For the three-month period ended October 1, 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 $ 162,937 $ 166,782 $ 39,351 $ 130,749 $ 1.32

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

Acquisition, integration and divestiture-related costs 12,472 12,472 1,979 10,493 0.10

Changes in LIFO inventory reserves (3,186) (3,186) (816) (2,370) (0.02)

1 unchanged sentence

Restructuring/Asset impairment charges 18,110 18,110 4,385 13,974 0.14

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

Loss on divestiture of business and other assets 537 537 125 412 —

Other income, net

— (36,943) (8,929) (28,014) (0.28)

Non-operating pension costs — 3,424 852 2,572 0.03

4 unchanged sentences

Due to rounding, individual items may not sum appropriately.

SONOCO PRODUCTS COMPANY

For the three-month period ended July 3, 2022

For the three-month period ended October 2, 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 $ 181,942 $ 155,127 $ 36,824 $ 122,229 $ 1.24

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

Acquisition, integration and divestiture-related costs 2,022 2,022 765 1,257 0.01

Changes in LIFO inventory reserves (302) (302) — (302) —

7 unchanged sentences

Due to rounding, individual items may not sum appropriately.

SONOCO PRODUCTS COMPANY

Adjusted EBITDA and Adjusted EBITDA Margin

Three Months Ended

Dollars in thousands July 2, 2023 July 3, 2022

Dollars in thousands October 1, 2023 October 2, 2022

Net income attributable to Sonoco $ 130,749 $ 122,229

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Changes in LIFO inventory reserves (3,186) (302)

Gain from divestiture of business and sale of other assets (7,371) —

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

Loss on divestiture of business and other assets

Acquisition, integration and divestiture-related costs 12,472 2,022

Other income, net

Net (gain)/loss from derivatives (3,310) 1,478

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Net Sales $ 1,710,419 $ 1,890,216

Net Income Margin

Adjusted EBITDA Margin 16.4 % 15.2 %

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therefore, Adjusted EBITDA by Segment is reconciled to the closest GAAP measure of segment profitability, Segment Operating Profit, which is another method to achieve the same result.

Segment Operating Profit is the measure of segment profit or loss reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance in accordance with Accounting Standards Codification 280 “Segment Reporting,” as prescribed by the Financial Accounting Standards Board.

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 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.

Segment Operating Profit is the measure of segment profit or loss reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance in accordance with Accounting Standards Codification (“ASC”) 280 - “Segment Reporting,” as prescribed by the Financial Accounting Standards Board.

Segment results viewed by the Company’s management to evaluate segment performance do not include the following:

restructuring/asset impairment charges;

amortization of acquisition intangibles;

acquisition, integration and divestiture-related costs;

changes in LIFO inventory reserves;

gains/losses from the sale of businesses or 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.

All other general corporate expenses have been allocated as operating costs to each of the Company’s reportable segments and All Other.

SONOCO PRODUCTS COMPANY

Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Three Months Ended July 2, 2023

For the Three Months Ended October 1, 2023

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

7 unchanged sentences

— — — (3,186) (3,186)

Acquisition/Divestiture-related costs 4

Acquisition, integration and divestiture-related costs 4

— — — 12,472 12,472

Gain from divestiture of business and other assets 5

Loss from divestiture of business and other assets

— — — 537 537

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2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $8,288, the Industrial Paper Packaging segment of $6,430, and All Other of $1,766.

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 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).

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $(3,325) and the Industrial Paper Packaging segment of $139.

4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $410 and the Industrial Paper Packaging segment of $5,046.

5 Included in Corporate are net gains on derivatives associated with the Consumer Packaging segment of $(468), the Industrial Paper Packaging segment of $(2,178), and All Other of $(664).

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Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Three Months Ended July 3, 2022

For the Three Months Ended October 2, 2022

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

7 unchanged sentences

— — — (302) (302)

Acquisition/Divestiture-related costs 4

Acquisition, integration and divestiture-related costs 4

— — — 2,022 2,022

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3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $(1,653) and the Industrial Paper Packaging segment of $1,351.

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

4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $855 and Industrial Paper Packaging of $800.

5 Included in Corporate are net losses on derivatives associated with the Consumer Packaging segment of $203, the Industrial Paper Packaging segment of $986, and All Other of $289.

RESULTS OF OPERATIONS

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;

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.

The following discussion provides a review of results for the three-month period ended October 1, 2023 versus the three-month period ended October 2, 2022.

Net sales for the third quarter of 2023 declined by $179.8 million or 9.5%, to $1.71 billion, compared to $1.89 billion in the same period last year.

The decline was attributable to lower overall volumes of $143.4 million, lower selling prices of $58.4 million, and destocking trends among our customers.

Net income attributable to Sonoco for the third quarter of 2023 increased to $130.7 million, or $1.32 per diluted share, compared to $122.2 million, or $1.24 per diluted share, for the same period of 2022.

Net income in the current period included the gain from the step-up to fair value of the Company’s 35% investment in RTS Packaging upon acquiring the remaining 65% interest on September 8, 2023.

This gain and higher productivity were partially offset by lower overall volume and mix, price/cost, and higher net interest expense.

Adjusted Earnings for the third quarter of 2023 were $144.9 million ($1.46 per diluted share), compared with $157.5 million ($1.60 per diluted share), during the same period in 2022.

SONOCO PRODUCTS COMPANY

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.

GAAP o perating profit for the third quarter of 2023 was $162.9 million, a decrease of 10.4% from the $181.9 million reported in the third quarter of 2022.

The decrease in GAAP operating profit was primarily the result of lower overall volume and mix across most of the businesses, pricing, and destocking trends among our customers, partially offset by productivity.

Adjusted Operating Pro fit for the third quarter of 2023 was $212.5 million, a decrease of 5.6% from the $225.1 million reported in the same period in 2022.

COSTS AND EXPENSES

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.

Cost of goods sold decreased by $176.9 million, or 11.6%, in the third quarter of 2023 compared with the same period last year.

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

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.

Gross prof it was $364.3 million for the three-month period ended October 1, 2023, which was $2.9 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.

Gross profit as a percent of sales increased to 21.3% from 19.4% in the prior-year quarter.

Selling, general and administrative costs increased by $18.1 million, or 11.0%, in the third quarter of 2023 compared with the same period last year.

The increase was due to acquisition-related costs and salary inflation increases.

Restructuring/Asset impairment charges totaled $18.1 million in the third quarter of 2023, compared with $20.7 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 $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.

(Loss)/Gain on divestiture of business and other assets reflects a $0.5 million reduction in the previously recognized gain from the divestiture of the Company’s U.S.

BulkSak business due to working capital adjustments.

See Note 3 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Other income, net of $36.9 million in the third quarter of 2023 reflects a gain of $44.0 million resulting from the remeasurement of the Company’s previously held equity interest in RTS Packaging to fair value, partially offset by a loss of $7.1 million from the settlement of a contract associated with the acquisition of the Chattanooga Mill that was determined to have unfavorable terms given market conditions at the time of the acquisition.

See Note 3 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Non-operating pe nsion costs were $2.2 million higher year over year due to higher interest costs on the Company’s defined benefit plan liabilities.

Additional information regarding costs of the Company’s retirement plans is provided in Note 12 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Net interest expense for the third quarter of 2023 increased to $29.7 million, compared with $25.6 million during the third quarter of 2022.

The increase of $4.1 million was due to higher quarter-over-quarter average debt balances resulting from the term loans executed in December 2022 and August 2023 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 third quarter of 2023 were 23.6% and 22.7%, respectively, compared with 23.7% and 23.1%, respectively, in the prior year’s quarter.

The decrease in the effective tax rate on Adjusted Earnings was due primarily to adjustments related to changes in estimate recognized at the time of completing the Company’s 2022 federal income tax return.

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

SONOCO PRODUCTS COMPANY

REPORTABLE SEGMENTS

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:

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

Three Months Ended

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

(Dollars in thousands) October 1, 2023 October 2, 2022 %

Consumer Packaging $ 938,407 $ 1,030,549 (8.9) %

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Net sales $ 1,710,419 $ 1,890,216 (9.5) %

SONOCO PRODUCTS COMPANY

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

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

(Dollars in thousands) October 1, 2023 October 2, 2022 %

Operating profit:

6 unchanged sentences

Operating profit $ 162,937 $ 181,942 (10.4) %

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:

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

Three Months Ended

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

(Dollars in thousands) October 1, 2023 October 2, 2022 %

Adjusted EBITDA:

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Adjusted EBITDA $ 280,364 $ 287,751 (2.6) %

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:

SONOCO PRODUCTS COMPANY

Three Months Ended

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

(Dollars in thousands) October 1, 2023 October 2, 2022

Restructuring/Asset impairment charges/(income):

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

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 sales decreased approximately 8.9% compared to the prior year’s quarter as volumes were impacted by inflationary pressures within the retail sector along with unfavorable pricing.

Segment operating profit and Adjusted EBITDA decreased by 12.4% and 8.6%, 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

The decline was largely due to lower volumes across the segment and price/cost.

These declines were partially offset by continued strong productivity throughout the segment.

Industrial Paper Packaging

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paper-based protective packaging;

and uncoated recycled paperboard for high-end applications such as folding cartons, can board and laminated structures.

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 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.

and uncoated recycled paperboard for folding cartons, can board and laminated structures.

Products across this segment support multiple end markets, primarily in paper, textile, and films.

Segment sales decreased 12.3% from the prior year’s quarter due to general volume and mix declines attributable to both the exit from the corrugated medium market, the sale of the S3 and U.S.

BulkSak businesses, as well as weakness in global demand for converted paper.

These were partially offset by the acquisitions of the remaining interest in RTS Packaging and the Chattanooga Mill.

Segment operating profit and Adjusted EBITDA decreased 8.4% and 3.6%, respectively, as the impact of lower volumes and price/cost headwinds were only partially offset by productivity and net acquisition and divestiture activity.

Segment operating profit margin increased to 13% in the third quarter of 2023 from 12% in the same period last year and Segment Adjusted EBITDA margin improved to 18% in the third quarter compared to 16% 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 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.

Sales declined 3.1% from the prior year’s quarter primarily due to lower volumes.

Operating profit improved 65.9% and Adjusted EBITDA improved 47.1% in the third quarter of 2023 compared to the same period last year, primarily due to positive strategic pricing performance and strong productivity, partially offset by lower volumes.

As a result, operating margin increased to 13.3% in the third quarter of 2023 compared to 7.8% in the same quarter last year.

SONOCO PRODUCTS COMPANY

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

Nine Months Ended October 1, 2023 Compared with Nine Months Ended October 2, 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

Adjusted Operating Profit, Adjusted Income Before Income Taxes, Adjusted Provision for Income Taxes, Adjusted Net Income Attributable to Sonoco, and Adjusted Diluted EPS

For the nine-month period ended October 1, 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 $ 580,444 $ 512,279 $ 127,003 $ 393,717 $ 3.98

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

Acquisition, integration and divestiture-related costs 22,192 22,192 4,249 17,943 0.18

Changes in LIFO inventory reserves (10,186) (10,186) (2,564) (7,622) (0.08)

1 unchanged sentence

Restructuring/Asset impairment charges 52,981 52,981 12,344 40,658 0.41

Gain on divestiture of business and sale

of other assets

Gain on divestiture of business and other assets (78,844) (78,844) (18,823) (60,021) (0.61)

Other income, net

— (36,943) (8,929) (28,014) (0.28)

Non-operating pension costs — 10,424 2,589 7,835 0.08

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

Net gain from derivatives

(1,513) (1,513) (381) (1,132) (0.01)

Other adjustments 8,750 8,750 1,423 7,327 0.09

2 unchanged sentences

Due to rounding, individual items may not sum appropriately.

For the six-month period ended July 3, 2022

For the nine-month period ended October 2, 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 $ 548,480 $ 476,437 $ 116,712 $ 369,234 $ 3.74

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

Acquisition, integration and divestiture-related costs 62,655 62,655 15,529 47,126 0.48

Changes in LIFO inventory reserves 25,088 25,088 6,396 18,692 0.19

9 unchanged sentences

Adjusted EBITDA and Adjusted EBITDA Margin

Six Months Ended

Dollars in thousands July 2, 2023 July 3, 2022

Nine Months Ended

Dollars in thousands October 1, 2023 October 2, 2022

Net income attributable to Sonoco $ 393,717 $ 369,233

7 unchanged sentences

Changes in LIFO inventory reserves (10,186) 25,088

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)

Gain from divestiture of business and other assets

Acquisition, integration and divestiture-related costs 22,192 62,655

Other income, net

Net gain from derivatives

(1,514) (2,316)

Other non-GAAP adjustments 8,750 (1,589)

1 unchanged sentence

Net Sales $ 5,145,492 $ 5,574,530

Net Income Margin

Adjusted EBITDA Margin 16.2 % 16.4 %

2 unchanged sentences

Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Six Months Ended July 2, 2023

For the Nine Months Ended October 1, 2023

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

7 unchanged sentences

— — — (10,186) (10,186)

Acquisition/Divestiture-related costs 4

Acquisition, integration and divestiture-related costs 4

— — — 22,192 22,192

1 unchanged sentence

— — — (78,844) (78,844)

Net losses from derivatives 6

Net gains from derivatives 6

— — — (1,514) (1,514)

7 unchanged sentences

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $(9,428) and the Industrial Paper Packaging segment of $(758).

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.

4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $1,302 and the Industrial Paper Packaging segment of $5,394.

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

BulkSak business of $(6,834), all of which are associated with the Industrial Paper Packaging segment.

6 Included in Corporate are gains on derivatives associated with the Consumer Packaging segment of $(194), the Industrial Paper Packaging segment of $(1,045), and All Other of $(275).

SONOCO PRODUCTS COMPANY

Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Six Months Ended July 3, 2022

For the Nine Months Ended October 2, 2022

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

7 unchanged sentences

— — — 25,088 25,088

Acquisition/Divestiture-related costs 4

Acquisition, integration and divestiture-related costs 4

— — — 62,655 62,655

9 unchanged sentences

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $22,589 and the Industrial Paper Packaging segment of $2,499.

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.

4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $38,039 and the Industrial Paper Packaging segment of $1,866.

5 Included in Corporate are net gains on derivatives associated with the Consumer Packaging segment of $(347), the Industrial Paper Packaging segment of $(1,477), and All Other of $(492).

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.

The following discussion provides a review of results for the nine-month period ended October 1, 2023 compared with the nine-month period ended October 2, 2022.

Net sales for the first nine months of 2023 decreased 7.7 percent to $5.1 billion, co mpared with $5.6 billion in the sa me period last year.

The decline was primarily attributable to lower overall volume/mix, including the impact of acquisitions and divestitures of $450.7 million, partially offset by the favorable year-over-year impact of higher selling prices.

Net income attributable to Sonoco for the first nine months of 2023 increased to $393.7 million, or $3.98 per diluted share, compared to $369.2 million , or $3.74 per diluted share, reported for the same period of 2022.

Adjusted Earnings were adjusted to exclude net after-tax charges totaling $24.7 million and $144.8 million in the first nine months of 2023 and 2022, respectively.

In both years, these net non-GAAP adjustments included acquisition, integration and 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 and the gain from the step-up to fair value of the Company’s 35% investment in RTS Packaging upon acquiring the remaining 65% interest on September 8, 2023.

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.

Excluding these non-GAAP adjustments, Adjusted Earning s for the nine-month period ended October 1, 2023 decreased 18.6 percent to $418.5 million, or $4.24 per diluted share, from $514.1 million, or $5.21 per diluted share, in the nine-month period ended October 2, 2022.

The decrease in Adjusted Earnings of $95.6 million was largely attributable to lower volumes in most businesses and higher net interest expense of $26.9 million.

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 driven by metal price overlap.

These declines were partially offset by strong year-over-year productivity improvements and strong performance in acquisitions.

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.

Cost of go ods sold decreased $399.3 million, or 9.0 percent, while the Company’s gross profit margin percentage increased to 21.3 percent for the first nine months of 2023, compared to 20.2 percent in the prior-year period.

The decrease in cost of goods sold was driven primarily by lower volumes, lower input costs, and a year-over-year reduction in the acquisition date fair value adjustments to finished goods inventory recognized in cost of goods sold.

These adjustments totaled $4.9 million for the RTS Packaging acquisition in the first nine months of 2023 compared with $33.2 million for the Metal Packaging acquisition in the first nine months of 2022.

GAAP Selling, general and administrative costs for the first nine months of 2023 increased $7.5 million, or 1.4 percent, year over year.

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

Restructuring/Asset impairment charges totaled $53.0 million in the first nine months of 2023, compared with $43.4 million of n et charges in the same period last year.

The greater restructuring activity in the current year reflects the closure of several operations, including a paper mill in Hutchinson, Kansas and a perimeter-of-the-store facility in Exeter, California.

Charges in the first nine 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.

Gain on divestiture of business and other assets of $78.8 million in the nine-month period ended October 2, 2023 reflects net gains from the sale of the Company’s timberland properties and the divestitures of its 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.

See Note 3 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Non-operating pe nsion costs increased $6.2 million year over year due to higher interest costs on the Company’s defined benefit plan liabilities.

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.

GAAP net interest expense for the first nine months of 2023 increased to $94.7 million, compared with $67.8 million during the first nine months of 2022.

The increase of $26.9 million was primarily due to higher year-over-year average debt balances resulting from the term loans executed in December 2022 and August 2023 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 nine months of 2023 were 24.8 percent and 24.4 percent, respectively, compared with 24.5 percent and 24.5 percent for GAAP net income and Adjusted Earnings, respectively, in the prior-year period.

The effective tax rate on GAAP net income increased slightly from the prior year due primarily to an increase in the valuation allowance on foreign tax credits.

The effective tax rate on Adjusted Earnings varied slightly from the prior year due to variances in tax rates between jurisdictions in which the respective income and charges were taxed.

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

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 nine months of 2023 and 2022:

Nine Months Ended

(Dollars in thousands) October 1, 2023 October 2, 2022 % Change

Consumer Packaging $ 2,771,290 $ 2,888,630 (4.1) %

2 unchanged sentences

Net sales $ 5,145,492 $ 5,574,530 (7.7) %

Six Months Ended

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

Nine Months Ended

(Dollars in thousands) October 1, 2023 October 2, 2022 % Change

Operating profit:

6 unchanged sentences

Operating profit $ 580,444 $ 548,480 5.8 %

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 %

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 nine months of 2023 and 2022:

Nine Months Ended

(Dollars in thousands) October 1, 2023 October 2, 2022 %

Adjusted EBITDA:

3 unchanged sentences

Adjusted EBITDA $ 832,005 $ 916,920 (9.3) %

Six Months Ended

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

SONOCO PRODUCTS COMPANY

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

Nine Months Ended

(Dollars in thousands) October 1, 2023 October 2, 2022

Restructuring/Asset impairment charges/(income):

4 unchanged sentences

Restructuring/Asset impairment charges $ 52,981 $ 43,357

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.

Segment sales decreased 4.1 percent year to date compared to the prior-year period due to $240.1 million of lower volume/mix, partially offset by higher selling prices of $33.5 million and approximately $78.7 million of sales from the January 2022 Metal Packaging acquisition.

Year-to-date segment operating profit decreased 32.2 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.

As a result, segment operating profit margin decreased from 15.3 percent in the first nine months of 2022 to 10.8 percent in the first nine 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.

Segment sales decreased 14.7 percent year to date versus the prior-year period due to unfavorable volume/mix of $242.0 million and the impact of net acquisitions and divestitures of $12.3 million.

Segment operating profit increased 3.1 percent versus the prior-year period as price/cost gains, including the benefits of strategic pricing initiatives, were only partially offset by lower volumes.

As a result, segment operating margins were up 248 basis points to 14.4 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.

Sales for All Other declined 0.8 percent year to date compared to the prior-year period due to lower volume, partially offset by increased selling prices and productivity.

All Other operating profit increased 75.4 percent year to date compared to the prior-year period 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 13.7 percent year to date compared to 7.8 percent in 2022.

SONOCO PRODUCTS COMPANY

Financial Position, Liquidity and Capital Resources

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.

Cash generated from operations for the first nine months of 2023 was $616.9 million, compared with $322.1 million in the same period of 2022, an increase of $294.8 million.

GAAP net income increased by $24.2 million year over year, reflecting the non-cash gains resulting from the remeasurement of the Company’s previously held equity interest in RTS Packaging to fair value, the sales of the Company’s S3 business, U.S.

BulkSak business and timberland properties during the first nine months of 2023.

Cash contributions to the Company’s retirement plans were $10.3 million in the first nine months of 2023, compared with $33.5 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.

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.

Net working capital provided $67.3 million of cash in the first nine months of 2023, while it used $317.0 million in the same period last year, for a year-over-year increase in operating cash flow of $384.3 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.

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

Inventory levels decreased in the first nine months of 2023 as the Company focused on inventory reduction in a lower sales volume environment, specifically in tinplate steel.

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.

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

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.

Changes in accrued expenses and other assets and liabilities used $9.5 million in the nine-month period ended October 1, 2023, compared with a cash provision of $15.7 million in the same period last year.

The $25.3 million additional use of cash was largely driven by the higher year-over-year payout of management incentive compensation.

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.

Investing activities used $459.7 million of cash in the first nine months of 2023, compared with $1,570.4 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 $1,337.7 million in the Metal Packaging acquisition in the first nine months of 2022, compared with $313.4 million in the RTS Packaging and Chattanooga Mill acquisitions in the first nine months of 2023.

Capital expenditures during the first nine months of 2023 were $254.9 million, $18.1 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

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.

Proceeds from the sale of businesses provided $31.1 million of cash in the first nine months of 2023 as the Company received cash from the sale of its S3 and BulkSak businesses.

Additionally, proceeds from the sale of assets increased by $66.7 million year over year, primarily from the sale of the Company’s timberland properties in March 2023.

Other net investing activities provided $6.6 million more cash year over year, primarily as a result of higher life insurance proceeds received in the current year.

Net capital spending for 2023 is expected to be approximately $250 million compared to $319 million in 2022.

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 six-month period ended July 2, 2023, compared to $4.0 million in the same period last year.

Financing activities used $129.1 million of cash in the nine-month period ended October 1, 2023, while providing $1.3 billion in the corresponding prior-year period, a year-over-year decrease of $1.4 billion.

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

Cash used to pay dividends increased by $8.2 million year over year reflecting the increase in the quarterly dividend payment from $0.49 per share to $0.51 per share approved by the Company’s Board of Directors in February 2023.

The Company used cash of $14.5 million to purchase a noncontrolling interest in Graffo Paranaense de Embalagens S/A 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 nine-month period ended October 1, 2023, compared to $4.1 million in the same period last year.

SONOCO PRODUCTS COMPANY

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

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.

At October 1, 2023 and December 31, 2022, approximatel y $171.7 million and $170.1 million, respectively, of the Company’s reported cash and cash equivalents balances of $257.9 million and $227.4 million, respectively, were held outside of the United States by its foreign subsidiaries.

Cash held outside of the U nited 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 July 2, 2023 the Company is not providing for taxes on these amounts for financial reporting purposes.

Accordingly, as of October 1, 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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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 cash deposit and borrowing positions.

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

The revolving credit facility is committed through June 2026.

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 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 quality.

The Company operates a $500 million commercial paper program, supported by a $900 million unsecured revolving credit facility with a syndicate of banks that is committed through June 2026.

The Company increased the commitments from the original $750 million revolving credit facility by $150 million in August 2023.

T he 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.

The Company entered into a new term loan facility with the ability to borrow up to $900 million in August 2023.

Borrowings under the term loan facility totaling $870 million were used to repay the syndicated term loans that were due in December 2023 and January 2025, to fund the acquisitions of RTS Packaging and the Chattanooga Mill and to make certain capital expenditures.

See Note 9 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

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 twenty-four banks that participate in our term loan facility and revolving credit facility.

All of our banks are considered Large Financial Institutions and subject to higher reporting and stress testing requirements, and six of the twenty-four banks are considered Globally Systemically Important Banks and subject to the highest stress testing and capital requirements.

All of the banks that participate in our term loan and the $900 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 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.

During the nine-month period ended October 1, 2023, the Company reported a net increase in cash and cash equivalents of $2.4 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 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.

At October 1, 2023, the Company had scheduled debt maturities of approximately $42 million over the next twelve months.

Also at October 1, 2023, the Company had no commercial paper balances outstanding;

accordingly, and all of the $900 million in com mitted capacity under its revolving credit facility was available for draw down.

The Company believes these amounts, combined with cash and cash equivalents on hand of approximately $258 million and expected net cash flows generated from operating and investing activities, provide ample liquidity to cover debt maturities and other cash flow needs of the Company over the remainder of 2023 and beyond.

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

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 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 October 1, 2023, the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants.

During the nine-month period ended October 1, 2023, the Company received net cash proceeds totaling approximately $13.8 million, $70.8 million, and $17.3 million from the sales of its S3 business, timberland properties, and U.S.

BulkSak business, 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.

SONOCO PRODUCTS COMPANY

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

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The Company anticipates making additional contributions to its other pension and postretirement plans of approximately $4 million during the remainder of 2023, resulting in expected total contributions to these plans of approximately $15 million in 2023.

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

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

Fair Value Measurements, Foreign Exchange Exposure and Risk Management

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

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.

At October 1, 2023, the carrying value of the Company’s net investment in its Venezuelan operations was approximately $2.1 million.

In addition, at October 1, 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.

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

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dollars with changes recorded through earnings.

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.

The cumulative impact of applying highly inflationary accounting to Turkey has been a pretax charge to earnings of $6.2 million ($4.8 million after tax), including $3.4 million ($2.6 million after tax) during th e nine-month period ended October 1, 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 approximat ely $16.9 million as of July 2, 2023.

However, the Company believes its exposure is limited to its net investment in Turkey which was approximat ely $16.9 million as of October 1, 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

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

SONOCO PRODUCTS COMPANY

At October 1, 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 5.6 million metric million British thermal units (“MMBTUs”) and aluminum swaps totaling 179 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 $10.8 million a nd $8.8 million at July 2, 2023 and December 31, 2022, respectively.

The total fair market value of these instruments resulted in a net loss position of $7.3 million and $8.8 million at October 1, 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 $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.

The total market value of these instruments resulted in a net gain position of $2.2 million at October 1, 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 October 1, 2023.

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

dollar weakened against the British pound, the Brazilian real, the Mexican peso and the Colombian peso and strengthened against the euro, the Danish krone, and Australian dollar, the functional currencies in which a majority of the Company’s foreign investments are held.

The net impact of these changes resulted in net translation gains of $3.2 million being recorded in “Accumulated other comprehensive loss” during the nine-month period ended October 1, 2023.

Restructuring and Impairment

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Information regarding new accounting pronouncements is provided in Note 2 to the Company’s Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Form 10-Q.

Critical Accounting Estimates

Impairment of Goodwill

The Company assesses its goodwill for impairment annually and from time to time when warranted by the facts and circumstances surrounding individual reporting units or the Company as a whole.

If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s assets, including goodwill, there is no impairment.

If the carrying value of a reporting unit exceeds the fair value of that reporting unit, an impairment charge to goodwill is recognized for the excess.

The Company’s reporting units are the same as, or one level below, its operating segments, as determined in accordance with ASC 350 - “Intangibles-Goodwill and Other”.

The Company completed its most recent annual goodwill impairment testing during the third quarter of 2023.

For testing purposes, the Company performed an assessment of each reporting unit using either a qualitative evaluation or a quantitative test.

The Company’s assessments, whether qualitative or quantitative, incorporate management’s expectations for the future, including forecasted growth rates and/or margin improvements.

Therefore, should there be changes in the relevant facts and circumstances and/or expectations, management’s conclusions regarding goodwill impairment may change as well.

In considering the level of uncertainty regarding the potential for goodwill impairment, management has concluded that any such impairment would, in most cases, likely be the result of adverse changes in more than one assumption.

Management considers the assumptions used to be its best estimates across a range of possible outcomes based on available evidence at the time of the assessment.

Other than in the Plastics-Medical reporting unit, which is discussed below and was previously known as Plastics-Healthcare, there is no specific singular event or single change in circumstances management has identified that it believes could reasonably result in a change to expected future results in any of its reporting units sufficient to result in goodwill impairment.

In management’s opinion, a change of such magnitude would more likely be the result of changes to some combination of the factors identified above, a general deterioration in competitive position, introduction of a superior technology, significant unexpected changes in customer preferences, an inability to pass through significant raw material cost increases, and other such items as identified in “Item 1A.

Risk Factors” on pages 9-19 of the Company’s 2022 Annual Report on Form 10-K.

SONOCO PRODUCTS COMPANY

Critical Accounting Policies and Estimates

Sensitivity Analysis

In the annual goodwill impairment analys is completed during the third quarter of 2023, projected future cash flows for the Plastics-Medical reporting unit were discounted at 12.0% and its estimated fair value was determined to exceed its carrying value by approximately 29.9%.

Based on the discounted cash flow model and holding other valuation assumptions constant, the discount rate would have to be increased to 14.5% in order for the estimated fair value of the reporting unit to fall below carrying value.

Total goodwill associated with this reporting unit was $62.6 million at October 1, 2023.

Other Critical Accounting Estimates

See Part II, Item 7, “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022.

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