What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-01 compared with 2023-11-02 · 192 added, 420 removed, 294 unchanged (68% of the section changed)

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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 (the “Exchange Act”).

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.

In addition, Sonoco Products Company (the “Company” or “Sonoco”) 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,” “consider,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “goal,” “guidance,” “intend,” “is designed to,” “likely,” “maintain,” “may,” “might,” “objective,” “ongoing,” “opportunity,” “outlook,” “plan,” “possible,” “potential,” “predict,” “seek,” “strategy,” “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:

• availability and supply of raw materials and energy, and offsetting high raw material and energy costs, including the potential impact of changes in tariffs;

• the effects of economic downturns, inflation, volatility and other macroeconomic factors on the Company and its industry;

• availability and supply of raw materials and energy, and offsetting high raw material and energy costs;

• the effects of economic downturns, inflation, volatility and other macroeconomic factors on the Company and its industry, including effects on consumers and customers;

• the resiliency of the Company’s operating model;

• reduced supply chain and labor disruptions and benefits to the Company therefrom;

• potential impacts of the COVID-19 pandemic on the Company’s business, operations and financial condition;

• consumer and customer actions in connection with the COVID-19 pandemic, inflation, and the Russia-Ukraine military conflict;

• reduced supply chain disruptions;

• consumer and customer actions in connection with political, social, and economic instability, war and other geopolitical tensions;

• improved productivity and cost containment, including cost savings from the Company’s investments;

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

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;

• leveraging strong cash flow and financial position;

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

• 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, the remaining interest in RTS Packaging, LLC (“RTS Packaging”) and a paper mill in Chattanooga, Tennessee (the “Chattanooga Mill”), and Inapel Embalagens Ltda.

(“Inapel”), and the Company’s sale of its Sonoco Sustainability Solutions (“S3”) business, its U.S.

and Mexico BulkSak businesses, its South Carolina timberland properties, and its Protective Solutions business;

• adequacy and anticipated amounts and uses of cash flows;

• capital allocation, including expected amounts of capital spending and expected annualized cost savings and other benefits therefrom;

• capital allocation, including expected amounts of capital spending;

• 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;

• financial results and profitability for future periods;

• financial and business strategies and the results expected of them;

• producing improvements in earnings;

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• market opportunities and anticipated growth thereof;

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

• market leadership;

• expected impact and costs of resolution of legal proceedings;

• extent of, and adequacy of provisions for, environmental liabilities and sustainability commitments;

• commitments to reduce greenhouse gas emissions;

• the Company’s human capital management strategy

• extent of, and adequacy of provisions for, environmental liabilities;

• the Company’s ability to achieve its sustainability goals, including with respect to greenhouse gas emissions;

• adequacy of income tax provisions, realization of deferred tax assets, outcomes of uncertain tax issues and tax rates;

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• 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;

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

• 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, 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;

• ability to manage the mix of business and execute on the Company’s portfolio simplification strategy, including with respect to divestitures;

• 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;

• 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, general regional instability and other geopolitical tensions (such as the ongoing conflict between Russia and Ukraine as well as the 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;

• costs of labor;

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

• competitive pressures, including new product development, industry overcapacity, customer and supplier consolidation, and changes in competitors’ pricing for products;

• competitive pressures, including new product development, and technological market leadership, reputation for quality, industry overcapacity, customer and supplier consolidation, and changes in competitors’ pricing for products;

• financial conditions of customers and suppliers;

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• 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, 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;

• ability to attract and retain talented and qualified employees, managers, and executives;

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

• 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;

SONOCO PRODUCTS COMPANY

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

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• fluctuations in interest rates and our borrowing costs;

• 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;

• timing of funding pension and postretirement benefit plan obligations;

• fluctuations in obligations and earnings of pension and postretirement benefit plans, including the timing of funding plan obligations, and the accuracy of assumptions of underlying projections of benefit plan obligations and payments, valuation of plan assets, and projections of long-term rates of return;

• foreign currency exchange rate fluctuations, interest rate and commodity price risk and the effectiveness of related hedges;

• cost of employee and retiree medical, health, and life insurance benefits;

• resolution of income tax contingencies;

• foreign currency exchange rate fluctuations, interest rate and commodity price risk and the effectiveness of related hedges;

• changes in U.S.

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;

• accuracy in valuation of deferred tax assets;

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

• accuracy of assumptions underlying projections related to goodwill impairment testing, and accuracy of management’s assessment of goodwill impairment;

SONOCO PRODUCTS COMPANY

• accuracy of assumptions underlying fair value measurements, accuracy of management’s assessments of fair value and fluctuations in fair value;

• ability to maintain effective disclosure controls and internal controls, including with regard to financial reporting;

• ability to maintain effective disclosure controls and internal controls, including with regard to financial reporting, to prevent or detect errors or acts of fraud;

• liability for and costs of resolution of litigation, regulatory actions, or other legal proceedings;

• liability for and anticipated costs of environmental remediation actions;

• effects of environmental laws and regulations;

• effects of environmental laws and regulations, including with respect to climate change and emissions reporting and the effectiveness of the final rules adopted by the Securities and Exchange Commission to enhance public company climate disclosures;

• operational disruptions at our major facilities;

• failure or disruptions in our information technologies;

• substantially lower than normal crop yields;

• failure or disruptions in our information technology systems;

• loss of consumer or investor confidence;

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• changing consumer attitudes toward plastic packaging;

• 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 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;

• changing climate and greenhouse gas effects;

• ability to meet environmental, sustainability and other social and governmental goals, including with respect to greenhouse gas emissions, and challenges in implementation thereof;

• actions of domestic or foreign government agencies, 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 and the ongoing conflict in Israel and Gaza), terrorist activities and natural disasters;

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

More information about the risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or forecasted in forward-looking statements is provided in the Company’s Annual Report on Form 10-K under Item 1A-“Risk Factors” and throughout other sections of that report and in other reports filed with the Securities and Exchange Commission.

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

More information about the risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or forecasted in forward-looking statements is provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 under Item 1A - “Risk Factors” and throughout other sections of that report and in other reports filed with the Securities and Exchange Commission.

In light of these various risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report on Form 10-Q might not occur.

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COMPANY OVERVIEW

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.

Sonoco is a multi-billion dollar global designer, developer, and manufacturer of a variety of highly-engineered and sustainable packaging products serving multiple end markets.

As of March 31, 2024, the Company had more than 300 locations in 33 countries, serving some of the world’s best-known brands in some 85 nations.

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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Each of the Company’s operating units has its own sales staff and maintains direct sales relationships with its customers.

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 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.

Third Quarter 2023 Compared with Third Quarter 2022

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

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

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

In addition, the Company acquired Inapel in December 2023, significantly expanding its presence in the flexibles packaging services market in Latin America.

Effective January 1, 2024, the Company integrated its flexible packaging and thermoformed packaging businesses within the Consumer Packaging segment in order to streamline operations, enhance customer service and better position the business for accelerated growth.

As a result, the Company changed its operating and reporting structure to reflect the way it now manages its operations, evaluates performance, and allocates resources.

Accordingly, the Company’s consumer thermoformed businesses have moved from the All Other group of businesses to the Consumer Packaging segment.

Also effective January 1, 2024, the Company began conducting its recycling operations, part of the Industrial Paper Packaging segment, as a procurement function.

As a result, no recycling net sales are recorded and the margin from the Company’s recycling operations reduces “Cost of sales.”

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.

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 and increase overall productivity, as well as strategic pricing initiatives to better capture input costs and the value of the services provided.

First Quarter 2024 Compared with First Quarter 2023

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

To assess and communicate the financial performance of the Company, Sonoco’s management uses, both internally and externally, certain financial performance measures that are not in conformity with generally accepted accounting principles.

These “non-GAAP” financial measures (referred to as “Adjusted”) reflect adjustments to the Company’s GAAP results to exclude amounts, including the associated tax effects, relating to:

These “non-GAAP” financial measures reflect adjustments to the Company’s GAAP operating results to exclude amounts, including the associated tax effects, relating to:

• restructuring/asset impairment charges 1 ;

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Although recurring, these charges are subject to significant fluctuations from period to period due to the varying levels of restructuring activity and the inherent imprecision in the estimates used to recognize the impairment of assets and the wide variety of costs and taxes associated with severance and termination benefits in the countries in which the restructuring actions occur.

SONOCO PRODUCTS COMPANY

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,” “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.”

Non-GAAP figures are identified using the term “Adjusted,” for example, “Adjusted Operating Profit,” “Adjusted Net Income Attributable to Sonoco” (referred to as “Adjusted Earnings”) and “Adjusted Diluted Earnings Per Share.” 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, 2023, 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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interest income;

SONOCO PRODUCTS COMPANY

for income taxes;

provision for income taxes;

depreciation, depletion and amortization expense;

non-operating pension costs;

net income attributable to noncontrolling interests;

net income/loss attributable to noncontrolling interests;

restructuring/asset impairment charges;

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acquisition, integration and divestiture-related costs;

other income;

derivative gains/losses;

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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 October 1, 2023

For the three-month period ended March 31, 2024

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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Restructuring/Asset impairment charges 31,618 31,618 7,067 24,584 0.25

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 — 3,295 823 2,472 0.02

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Due to rounding, individual items may not sum appropriately.

For the three-month period ended October 2, 2022

For the three-month period ended April 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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Restructuring/Asset impairment charges 28,814 28,814 6,634 22,014 0.22

Gain on divestiture of business and sale of other assets (72,010) (72,010) (17,122) (54,888) (0.55)

Non-operating pension costs — 3,658 909 2,749 0.03

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Three Months Ended

Dollars in thousands October 1, 2023 October 2, 2022

Dollars in thousands March 31, 2024 April 2, 2023

Net income attributable to Sonoco $ 65,177 $ 148,319

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Depreciation, depletion and amortization

90,559 82,137

Non-operating pension costs 3,295 3,658

Net income attributable to noncontrolling interests 309 273

Net income/(loss) attributable to noncontrolling interests 96 (55)

Restructuring/Asset impairment charges 31,618 28,814

Changes in LIFO inventory reserves 431 (5,425)

Loss on divestiture of business and other assets

Gain on divestiture of business and other assets

Acquisition, integration and divestiture-related costs 5,661 5,188

Other income, net

Net (gain)/loss from derivatives (286) 6,085

Other non-GAAP adjustments 3,607 (1,391)

Other adjustments 3,180 (43)

Adjusted EBITDA $ 244,753 $ 276,250

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Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Three Months Ended October 1, 2023

For the Three Months Ended March 31, 2024

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

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— — — 5,661 5,661

Loss from divestiture of business and other assets

— — — 537 537

Net gains from derivatives 5

— — — (286) (286)

Other non-GAAP adjustments — — — 3,607 3,607

Other adjustments — — — 3,180 3,180

Segment Adjusted EBITDA $ 128,505 $ 95,471 $ 20,777 $ — $ 244,753

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Segment Adjusted EBITDA Margin 14.1 % 16.1 % 15.5 %

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $14,197, the Industrial Paper Packaging segment of $3,414, and All Other of $3,768.

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.

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $16,102, the Industrial Paper Packaging segment of $6,631, and the All Other group of businesses of $206.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $4,925, the Industrial Paper Packaging segment of $22,603, and the All Other group of businesses of $1,148.

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $92 and the Industrial Paper Packaging segment of $339.

4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $(124) and the Industrial Paper Packaging segment of $655.

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).

5 Included in Corporate are net gains on derivatives associated with the Consumer Packaging segment of $(43), the Industrial Paper Packaging segment of $(190), and the All Other group of businesses of $(53).

SONOCO PRODUCTS COMPANY

Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Three Months Ended October 2, 2022

For the Three Months Ended April 2, 2023

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

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— — — 5,188 5,188

Net losses from derivatives 5

Gain from divestiture of business and other assets 5

— — — (72,010) (72,010)

Other non-GAAP adjustments — — — (1,391) (1,391)

Derivatives losses 6

— — — 6,085 6,085

Other adjustments — — — (43) (43)

Segment Adjusted EBITDA $ 129,118 $ 121,026 $ 26,106 $ — $ 276,250

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Segment Adjusted EBITDA Margin 13.5 % 19.7 % 16.7 %

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $14,326, the Industrial Paper Packaging segment of $1,973, and All Other of $4,392.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $4,350, the Industrial Paper Packaging segment of $7,674, and All Other of $18.

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $16,226, the Industrial Paper Packaging segment of $2,934, and the All Other group of businesses of $2,004.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $2,680, the Industrial Paper Packaging segment of $24,544, and the All Other group of businesses of $53.

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).

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.

4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $779 and the Industrial Paper Packaging segment of $289.

5 Included in Corporate are gains from the sale of the Company’s timberland properties in the amount of $(60,945) and the sale of its S3 business in the amount of $(11,065), both 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 $946, the Industrial Paper Packaging segment of $3,912, and the All Other group of businesses of $1,170.

RESULTS OF OPERATIONS

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.

The following discussion provides a review of results for the three-month period ended March 31, 2024 versus the three-month period ended April 2, 2023.

Net sales for the first quarter of 2024 declined by $92.2 million or 5.3%, to $1.64 billion, compared to $1.73 billion in the same period last year.

The decline was primarily driven by lower selling prices of $57.1 million and the treatment of recycling operations as a procurement function beginning January 1, 2024.

Volumes remained flat as lower volumes were offset by the impact of acquisitions.

SONOCO PRODUCTS COMPANY

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.

Net income attributable to Sonoco for the first quarter of 2024 decreased to $65.2 million, or $0.66 per diluted share, compared to $148.3 million, or $1.50 per diluted share, for the same period of 2023.

This decrease was primarily due to the absence of a $72.0 million benefit from the sale of the Company’s timberland properties and the divestiture of the S3 business in the first quarter of 2023, as well as lower volumes and pricing, which were partially offset by higher productivity.

Adjusted Earnings for the first quarter of 2024 were $111.5 million ($1.12 per diluted share), compared with $137.6 million ($1.40 per diluted share) for the same period in 2023.

GAAP o perating profit for the first quarter of 2024 was $112.5 million, a decrease of 51.0% from the $229.6 million reported in the first quarter of 2023.

T he decrease in GAAP operating profit was primarily due to the absence of a $72.0 benefit from the sale of the Company’s timberland properties and the divestiture of the S3 business in the first quarter of 2023, as well as lower volumes and pricing, which were partially offset by higher productivity.

Adjusted Operating Pro fit for the first quarter of 2024 was $176.0 million, a decrease of 17.5% from the $213.4 million reported for the same period in 2023.

COSTS AND EXPENSES

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 $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 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.

Cost of goods sold decreased by $55.4 million, or 4.1%, in the first quarter of 2024 compared with the same period last year.

The decrease was primarily driven by lower volumes, partially offset by cost of sales related to the acquisitions of Inapel, the Chattanooga mill and the remaining interest in RTS Packaging.

Gross profit was $337.6 million for the three-month period ended March 31, 2024, which was $36.9 million lower than the prior-year period.

The decrease in gross profit was driven by volume and pricing declines, which were partially offset by a $51.5 million benefit from improved productivity.

Gross profit as a percent of sales decreased to 20.6% from 21.6% in the prior-year quarter.

Selling, general and administrative costs increased by $5.5 million, or 2.9%, in the first quarter of 2024 compared with the same period last year, primarily due to incremental costs associated with the prior year acquisitions of Inapel, the remaining interest in RTS Packaging and the Chattanooga Mill.

Restructuring/Asset impairment charges totaled $31.6 million in the first quarter of 2024, compared with $28.8 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.

(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.

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.

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.

Non-operating pe nsion costs were $0.4 million lower year over year primarily attributable to settlement costs in Canada in the prior year related to the Company’s defined benefit plan liabilities.

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.

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.

Net interest expense for the first quarter of 2024 decreased to $27.7 million, compared with $32.7 million during the first quarter of 2023.

The decrease of $5.0 million was primarily due to lower year over year average debt balances and interest income from the Company’s cross-currency swap entered into in December 2023.

The effective tax rates reflected in GAAP net income and Adjusted Earnings in the first quarter of 2024 were 21.3% and 25.6%, respectively, compared with 24.3% and 24.8%, respectively, in the corresponding prior year quarter.

The decrease in the GAAP rate was primarily due to a 2024 benefit from a deferred tax adjustment.

The increase in the effective tax rate on Adjusted Earnings was due to variances in tax rates between the jurisdictions in which the respective income and charges were taxed.

SONOCO PRODUCTS COMPANY

1 unchanged sentence

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 third quarters of 2023 and 2022:

The following table summarizes net sales attributable to each of the Company’s segments and the All Other group of businesses for the first quarters of 2024 and 2023:

Three Months Ended

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

(Dollars in thousands) March 31, 2024 April 2, 2023 %

Consumer Packaging $ 910,577 $ 958,008 (5.0) %

Industrial Paper Packaging 593,060 615,855 (3.7) %

Total reportable segments $ 1,503,637 $ 1,573,863 (4.5) %

All Other 133,906 155,920 (14.1) %

Net sales $ 1,637,543 $ 1,729,783 (5.3) %

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 third quarters of 2023 and 2022:

Three Months Ended

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

(Dollars in thousands) March 31, 2024 April 2, 2023 %

Operating profit:

1 unchanged sentence

Industrial Paper Packaging 65,844 94,367 (30.2) %

Segment operating profit $ 158,871 $ 190,861 (16.8) %

All Other 17,125 22,560 (24.1) %

1 unchanged sentence

Amortization of acquisition intangibles (22,939) (21,164)

Other non-GAAP charges, net (10,120) (1,807)

Gains from divestiture of business and other assets — 72,010

Other operating charges, net (8,986) (5,805)

Operating profit $ 112,453 $ 229,648 (51.0) %

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:

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 quarters of 2024 and 2023:

Three Months Ended

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

(Dollars in thousands) March 31, 2024 April 2, 2023 %

Adjusted EBITDA:

4 unchanged sentences

SONOCO PRODUCTS COMPANY

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 third quarters of 2023 and 2022:

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 quarters of 2024 and 2023:

Three Months Ended

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

Restructuring/Asset impairment charges/(income):

(Dollars in thousands) March 31, 2024 April 2, 2023

Restructuring/Asset impairment charges:

Consumer Packaging $ 4,925 $ 2,680

6 unchanged sentences

metal and peelable membrane ends, closures, and components;

thermoformed plastic trays;

thermoformed plastic trays and applications;

and high-barrier flexible packaging.

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

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.

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

Segment sales decreased approximately 5.0% compared to the corresponding prior year quarter as volumes continued to be impacted by lower consumer purchases from inflationary pricing impacts, primarily in snacks and confectionary markets, partially offset by year over year growth in aerosol volumes.

Segment operating profit and Adjusted EBITDA decreased by 3.6% and 0.5%, respectively.

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

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

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

4 unchanged sentences

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 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

Nine Months Ended October 1, 2023 Compared with Nine Months Ended October 2, 2022

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

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.

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, 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)

Amortization of acquisition intangibles 63,082 63,082 15,312 47,770 0.48

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

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 gain from derivatives

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

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

Total adjustments $ 56,462 $ 29,943 $ 5,220 $ 24,744 $ 0.26

Adjusted $ 636,906 $ 542,222 $ 132,223 $ 418,461 $ 4.24

Due to rounding, individual items may not sum appropriately.

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, 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

Amortization of acquisition intangibles 60,361 60,361 14,666 45,695 0.46

Restructuring/Asset impairment charges 43,357 43,357 7,339 36,304 0.37

Non-operating pension costs — 4,251 1,184 3,067 0.03

Net gain from derivatives (2,316) (2,316) (578) (1,738) (0.02)

Other adjustments (1,589) (1,725) 2,605 (4,330) (0.04)

Total adjustments $ 187,556 $ 191,671 $ 47,141 $ 144,816 $ 1.47

Adjusted $ 736,036 $ 668,108 $ 163,853 $ 514,050 $ 5.21

Due to rounding, individual items may not sum appropriately.

SONOCO PRODUCTS COMPANY

Adjusted EBITDA and Adjusted EBITDA Margin

Nine Months Ended

Dollars in thousands October 1, 2023 October 2, 2022

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

Interest expense 101,363 71,242

Interest income (6,679) (3,450)

Provision for income taxes 127,003 116,712

Depreciation, depletion, and amortization 249,387 231,095

Non-operating pension costs 10,424 4,251

Net income attributable to noncontrolling interests 354 642

Restructuring/Asset impairment charges 52,981 43,357

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

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)

Adjusted EBITDA $ 832,005 $ 916,920

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

Net Income Margin

Adjusted EBITDA Margin 16.2 % 16.4 %

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 Nine Months Ended October 1, 2023

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

Segment and Total Operating Profit $ 299,083 $ 256,413 $ 81,409 $ (56,461) $ 580,444

Depreciation, depletion and amortization 1

91,395 76,444 18,466 63,082 249,387

Equity in earnings of affiliates, net of tax 493 8,302 — — 8,795

Restructuring/Asset impairment charges 2

— — — 52,981 52,981

Changes in LIFO inventory reserves 3

— — — (10,186) (10,186)

Acquisition, integration and divestiture-related costs 4

— — — 22,192 22,192

Gains from divestiture of business and other assets 5

— — — (78,844) (78,844)

Net gains from derivatives 6

— — — (1,514) (1,514)

Other non-GAAP adjustments — — — 8,750 8,750

Segment Adjusted EBITDA $ 390,971 $ 341,159 $ 99,875 $ — $ 832,005

Net Sales $ 2,771,290 $ 1,781,033 $ 593,169

Segment Operating Profit Margin 10.8 % 14.4 % 13.7 %

Segment Adjusted EBITDA Margin 14.1 % 19.2 % 16.8 %

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $42,829, the Industrial Paper Packaging segment of $8,913, and All Other of $11,340.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $11,792, the Industrial Paper Packaging segment of $32,961, and All Other of $5,875.

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, 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 Nine Months Ended October 2, 2022

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

Segment and Total Operating Profit $ 440,889 $ 248,721 $ 46,426 $ (187,556) $ 548,480

Depreciation, depletion, and amortization 1

83,161 68,941 18,631 60,361 231,094

Equity in earnings of affiliates, net of tax 368 9,783 — — 10,151

Restructuring/Asset impairment charges 2

— — — 43,357 43,357

Changes in LIFO inventory reserves 3

— — — 25,088 25,088

Acquisition, integration and divestiture-related costs 4

— — — 62,655 62,655

Net gain from derivatives 5

— — — (2,316) (2,316)

Other non-GAAP adjustments — — — (1,589) (1,589)

Segment Adjusted EBITDA $ 524,418 $ 327,445 $ 65,057 $ — $ 916,920

Net Sales $ 2,888,630 $ 2,087,981 $ 597,919

Segment Operating Profit Margin 15.3 % 11.9 % 7.8 %

Segment Adjusted EBITDA Margin 18.2 % 15.7 % 10.9 %

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $40,938, the Industrial Paper Packaging segment of $6,098, and All Other of $13,325.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $9,459, the Industrial Paper Packaging segment of $19,194, and All Other of $(399).

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, 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 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

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 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 $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.

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.

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.

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 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) %

Industrial Paper Packaging 1,781,033 2,087,981 (14.7) %

All Other 593,169 597,919 (0.8) %

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

Nine Months Ended

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

Operating profit:

Consumer Packaging $ 299,083 $ 440,889 (32.2) %

Industrial Paper Packaging 256,413 248,721 3.1 %

All Other 81,409 46,426 75.4 %

Restructuring/Asset impairment charges (52,981) (43,357)

Amortization of acquisition intangibles (63,082) (60,361)

Other non-GAAP charges, net 59,602 (83,838)

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 nine months of 2023 and 2022:

Nine Months Ended

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

Adjusted EBITDA:

Consumer Packaging $ 390,971 $ 524,418 (25.4) %

Industrial Paper Packaging 341,159 327,445 4.2 %

All Other 99,875 65,057 53.5 %

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

SONOCO PRODUCTS COMPANY

Nine Months Ended

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

Restructuring/Asset impairment charges/(income):

Consumer Packaging $ 11,792 $ 9,459

Industrial Paper Packaging 32,961 19,194

All Other 5,875 (399)

Corporate 2,353 15,103

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

Consumer Packaging

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 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 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 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.

Segment sales decreased 3.7% from the corresponding prior year quarter due to lower index-related pricing, continued weakness in global converted products, and the conduct of recycling as a procurement function, partially offset by higher demand in paper and the benefit of the acquisitions of the remaining interest in RTS Packaging and the Chattanooga Mill.

Segment operating profit and Adjusted EBITDA decreased 30.2% and 21.1%, respectively, as continued price/cost pressures were only partially offset by strong productivity and the benefit from acquisitions.

Segment operating profit margin decreased to 11% in the first quarter of 2024 from 15% in the same period last year, and Segment Adjusted EBITDA margin declined to 16% in the first quarter compared to 20% in the same period last year, in each case due to unfavorable resets in commercial contracts with certain customers and suppliers tied to indices.

These declines were partially offset by manufacturing productivity improvements due primarily to higher utilization in our paper mills and optimization of the operations footprint.

The primary products produced within 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, and industrial.

Sales declined 14.1% from the same quarter of the prior year primarily due to lower volumes.

Operating profit and Adjusted EBITDA dropped by 24.1% and 20.4%, respectively, in the first quarter of 2024 compared to the same period last year, primarily due to lower volumes and negative price/cost, partially offset by higher productivity.

As a result, operating margin decreased to 12.8% in the first quarter of 2024 compared to 14.5% in the same quarter last year.

SONOCO PRODUCTS COMPANY

Financial Position, Liquidity and Capital Resources

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 $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.

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 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 $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 $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 $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.

Cash generated from operations for the first three months of 2024 was $166.2 million, compared with $98.0 million in the same period of 2023, a year-over-year increase of $68.2 million.

While GAAP net income decreased by $83.0 million year over year, this decline was primarily attributable to the absence of non-cash gains from the sales of the Company’s S3 business and timberland properties during the first quarter of 2023.

Net working capital provided $0.8 million of cash in the first three months of 2024, while using $91.5 million in the same period last year, for a year-over-year increase in operating cash flow of $92.3 million driven primarily by a year-over-year increase in cash provided by payable to suppliers of $97.3 million.

Purchasing activity in the first quarter of 2023 was lower than normal due to abnormally high levels of certain inventory items that were maintained at the end of 2022 as a result of supply chain challenges, whereas inventory and purchasing activity returned to more normalized levels in the current period.

Accounts receivable used $9.8 million more cash during the first three months of 2024 than in the same period last year as a result of the impact of changing mix in customer payment terms more than offsetting lower sales volumes.

The Company continues to actively manage all components of net working capital by managing inventories and reviewing payment terms with customers and suppliers to appropriately address risk and balance economic benefit.

Changes in accrued expenses and other assets and liabilities used $7.1 million in the three-month period ended March 31, 2024, compared with using $18.9 million in the same period last year.

The $11.8 million lower use of cash in the current year was largely driven by the lower year-over-year payout of management incentive compensation.

Cash contributions to the Company’s retirement plans were $4.0 million in the first three months of 2024, compared with $4.9 million in the same period last year.

Investing activities used $81.7 million of cash in the first three months of 2024, compared with $3.0 million in the same period last year, a higher year-over-year use of cash of $78.8 million.

While capital expenditures during the first three months of 2024 were $86.5 million, $3.1 million higher than the same period last year, this use of cash was partially offset in the prior year by proceeds from the sale of assets of $71.4 million, primarily from the March 2023 sale of the Company’s timberland properties.

In addition, proceeds from the sale of the Company’s S3 business provided $13.8 million of cash in the first three months of 2023.

Investments in affiliated companies used $5.0 million of cash during the three-month period ended April 2, 2023 as a result of the Company’s purchase of a 2.7% equity interest in Northstar Recycling Co.

Other net investing activities provided $4.9 million more cash year over year, primarily as a result of higher life insurance proceeds received in the current year.

Net capital spending for 2024 is expected to be approximately $350 million compared to $283 million in 2023.

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

Financing activities used $62.7 million of cash in the three-month period ended March 31, 2024, while using $118.2 million in the corresponding prior-year period, a year-over-year decrease of $55.5 million.

The decrease was largely driven by higher debt repayments in the prior year.

Cash used to pay dividends increased by $2.4 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 April 2023.

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 $9.1 million in the three-month period ended March 31, 2024, compared to $10.6 million in the same period last year.

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

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.

At March 31, 2024 and December 31, 2023, approximatel y $114.0 million and $93.8 million, respectively, of the Company’s reported cash and cash equivalents balances of $172.2 million and $151.9 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 October 1, 2023 the Company is not providing for taxes on these amounts for financial reporting purposes.

Accordingly, as of March 31, 2024 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.

SONOCO PRODUCTS COMPANY

During the three-month period ended March 31, 2024, the Company reported a net decrease in cash and cash equivalents of $1.6 million due to currency translation adjustment s resulting from a stronger U.S.

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

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 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 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.

At March 31, 2024, the Company had scheduled debt maturities of approximately $454 million over the next twelve months, including $400 million aggregate principal amount of its 1.80% notes due February 2025.

As the Company ha d no commercial paper balances outstanding at March 31, 2024 , all of the $900 million in committed capacity under its revolving credit f acility was available for draw down.

The Company believes that cash and cash equivalents on hand and expected net cash flows generated from operating and investing activities, together with available capacity under the Company’s existing borrowing arrangements and the potential for additional borrowings or the issuance of new debt securities, will provide sufficient liquidity to cover debt maturities and other cash flow needs of the Company over the next twelve months 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 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.

SONOCO PRODUCTS COMPANY

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

As of March 31, 2024 , the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants.

On April 1, 2024, subsequent to the end of the first quarter, the Company completed the sale of Protexic , part of the All Other group of businesses, to Black Diamond Capital Management, LLC for cash proceeds of $82 million.

The Company used the majority of these proceeds to pay down debt.

The Company continually explores strategic acquisition opportunities that 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 existing credit facilities or additional borrowings.

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.

The Company anticipates making additional contributions to its other pension and postretirement plans of approximately $16 million durin g the remainder of 2024, resulting in expected total contributions to these plans of approximately $20 million in 2024.

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

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Certain assets and liabilities are reported in the Company’s financial statements at fair value, the fluctuation of which can impact the Company’s financial position and results of operations.

Items reported by the Company at fair value on a recurring basis include derivative contracts and pension and deferred compensation related assets.

Items reported by the Company at fair value on a recurring basis include derivative contracts and pension-related assets.

The valuation of the vast majority of these items is based either on quoted prices in active and accessible markets or on other observable inputs.

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The exposure is well diversified, as the Company’s facilities are located throughout the world, and the Company generally sells in the same countries where it produces with both revenue and costs transacted in the local currency.

The Company monitors these exposures and foreign currency forward contracts and other risk management instruments to manage exposure to changes in foreign currency cash flows and the translation of monetary assets and liabilities on the Company’s condensed consolidated financial statements by hedging a portion of forecasted transactions that are denominated in foreign currencies, foreign currency assets and liabilities, or its net investment in foreign subsidiaries.

The Company monitors these exposures and uses foreign currency forward contracts and other risk management instruments to manage exposure to changes in foreign currency cash flows and the translation of monetary assets and liabilities on the Company’s condensed consolidated financial statements by hedging a portion of forecasted transactions that are denominated in foreign currencies, foreign currency assets and liabilities, or its net investment in foreign subsidiaries.

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.

SONOCO PRODUCTS COMPANY

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

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

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.

At March 31, 2024, the carrying value of the Company’s net investment in its Venezuelan operations was approximately $2.1 million.

In addition, at March 31, 2024, 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 also been deemed to be a highly inflationary economy under U.S.

GAAP since the first quarter of 2022.

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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 $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.

The cumulative impact of applying highly inflationary accounting to Turk ey has been a pretax charge to earnings of $7.6 million ($5.8 million after tax), including $1.1 million ($0.8 million after tax) during th e three-month period ended March 31, 2024.

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 October 1, 2023.

However, the Company believes its exposure is limited to its net investment in Turkey which was approximat ely $18.1 million as of March 31, 2024.

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

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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.

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.

At March 31, 2024, 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 6.6 million metric million British thermal units (“MMBTUs”) and aluminum swaps totaling 355 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 $7.3 million and $8.8 million at October 1, 2023 and December 31, 2022, respectively.

The total fai r market value of these instruments resulted in a net loss position of $6.6 million and $6.8 million at March 31, 2024 and December 31, 2023, respectively.

SONOCO PRODUCTS COMPANY

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 $2.2 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.

These contracts qualify as cash flow hedges and have various maturity dates rangi n g from April 2024 through Decembe r 2024.

T he total market value of these instruments resulted in net gain positions of $1.5 million and $1.5 million at March 31, 2024 and December 31, 2023, respectively.

In addition, at March 31, 2024, the Company had various currency contracts outstanding to hedge the currency exposure of intercompany debt and foreign currency denominated receivables and payables.

Although placed as economic hedges, the Company does not apply hedge accounting to these instruments.

As such, changes in fair value are recorded directly to income and expense in the periods that they occur.

During the fourth quarter of 2023 , the Company became party to cross-currency swap agreements with a total notional amount of $500 million to effectively convert a portion of the Company’s fixed-rate U.S.

dollar-denominated debt, including the semi-annual interest payments, to fixed-rate euro-denominated debt.

The swap agreements provide for the Company to receive semi-annual interest payments in U.S.

dollars at a fixed rate and to make semi-annual interest payments in euros at a fixed rate.

The risk management objective of entering into such agreements is to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in euros.

The agreements are designated as net investment hedges for accounting purposes.

The gain or loss on the net investment hedge derivative instrument is included in the foreign currency translation component of accumulated other comprehensive loss until the net investment is sold, diluted, or liquidated.

Interest payments received for the cross-currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense.

At March 31, 2024, the fair value of the Company’s net investment hedges was a gain position o f $4.9 million, and a translation gain of $3.6 million (net of income taxes o f $1.2 million) wa s reported as a component of “Accumulated other comprehensive loss” within “Foreign currency items.”

During the first three months of 2024, the U.S.

dollar strengthened against most of the functional currencies in which the Company’s foreign investments are held, including the euro, the Canadian dollar, the British pound, the Brazilian real, and the Danish krone.

The net impact of these changes, and the changes in the net investment hedge discussed above, resulted in net translation losses of $19.3 million being recorded in “Accumulated other comprehensive loss” during the three-month period ended March 31, 2024.

As a result of continued strengthening of the U.S.

dollar against the euro, as well as a reduction in the differential between U.S.

and European interest rates, the fair value of the Company’s net investment hedge continued to appreciate into the month of April.

On April 15, 2024, subsequent to the end of the quarter, the Company terminated the swap agreements and received a cash settlement of $11.6 million.

The foreign currency translation gain of approximately $3.1 million, net of tax, will be included as a component of “Accumulated other comprehensive loss” in the second quarter of 2024.

Following the unwind of the swaps, the Company entered into new cross-currency swap agreements with a total notional amount of $500 million to effectively convert a portion of the Company’s fixed-rate U.S.

dollar-denominated debt, including the semi-annual interest payments, to fixed-rate euro-denominated debt.

The new swap agreements have a maturity of May 1, 2027.

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

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