SONOCO PRODUCTS CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. FORWARD LOOKING STATEMENTS Statements included in this Quarterly Report on Form 10-Q that are not historical in nature, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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,” “develop,” “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; • 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 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; • leveraging strong cash flow and financial position; • costs, timing and effects of restructuring and portfolio simplification activities; • the Company’s proposed acquisition of Eviosys, including the satisfaction of conditions precedent thereto and the anticipated timing and financing thereof, and the anticipated benefits of the acquisition, including with respect to market leadership, strategic alignment, customer relationships, sustainability, innovation and cost synergies; • effects and timing of, and anticipated costs, synergies and gains resulting from our other contemplated, 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”), 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 (“Protexic”); • adequacy and anticipated amounts and uses of cash flows; • 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; • producing improvements in earnings; • profitable sales growth and rates of growth; • market opportunities and anticipated growth thereof; • expected impact and costs of resolution of legal proceedings; • 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; • goodwill impairment charges and fair values of reporting units; • future asset impairment charges and fair values of assets; • 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; • expected impact of implementation of new accounting pronouncements; • creation of near-term and long-term value and returns for shareholders; • continued payment of dividends; and • planned stock repurchases. 40 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. Such information includes, without limitation, discussions as to guidance and other estimates, perceived opportunities, expectations, beliefs, plans, strategies, goals and objectives concerning our future financial and operating performance. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements. Such risks, uncertainties and assumptions include, without limitation: • ability to manage the mix of business and execute on the Company’s portfolio simplification strategy, including with respect to divestitures; • ability to identify suitable acquisitions at the levels needed to meet growth targets; • ability to satisfy closing conditions and close acquisitions, including the pending acquisition of Eviosys, and to finance such acquisitions on acceptable terms; • ability to receive regulatory approvals for the pending acquisition of Eviosys in a timely manner; • ability to successfully integrate newly acquired businesses, including Eviosys, into the Company’s operations and realize expected cost savings, synergies and other anticipated benefits relating thereto within the expected time period, or at all; • the potential impact of the consummation of newly acquired businesses, including Eviosys, on relationships with clients and other third parties; • 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; • work stoppages due to labor disputes; • success of new product development, introduction and sales, including successful timing of new product or product innovation introductions; • success of implementation of new manufacturing technologies and installation of manufacturing equipment, including the startup of new facilities and lines; • consumer demand for products and changing consumer preferences, including changes related to inflation and other macroeconomic factors; • ability to be the low-cost global leader in customer-preferred packaging solutions within targeted segments; • 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; • ability to maintain or increase productivity levels, contain or reduce costs, and maintain positive price/cost relationships; • ability to negotiate or retain contracts with customers, including in segments with concentration of sales volume; • inventory management strategies of customers; • collection of receivables from customers; • ability to improve margins and leverage cash flows and financial position; • 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; • availability of credit to us, our customers and suppliers in needed amounts and on reasonable terms; • effects of our indebtedness on our cash flow and business activities; • fluctuations in interest rates and our borrowing costs; • 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; 41 SONOCO PRODUCTS COMPANY • cost of employee and retiree medical, health, and life insurance benefits; • resolution of income tax contingencies; • 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; • 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; • 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, 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, 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 technology systems; • loss of consumer or investor confidence; • ability to protect our intellectual property rights; • changes in laws and regulations relating to packaging for food products and foods packaged therein, other actions and public concerns about products packaged in our containers, or chemicals or substances used in raw materials or in the manufacturing process; • changing consumer attitudes toward plastic packaging; • 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), public health events (such as the COVID-19 pandemic), terrorist activities, and natural disasters; and • 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. The Company undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. You are, however, advised to review any further disclosures we make on related subjects, and about new or additional risks, uncertainties and assumptions, in our future filings with the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K. 42 SONOCO PRODUCTS COMPANY COMPANY OVERVIEW 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 June 30, 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. Sonoco competes in multiple product categories, with the majority of the Company’s revenues arising from products and services sold to consumer and industrial products companies for use in the packaging of their products for sale or shipment. The Company also manufactures uncoated recycled paperboard for both internal use and open market sale. Each of the Company’s operating units has its own sales staff and maintains direct sales relationships with its customers. 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 June 2024, the Company announced it had entered into an agreement to acquire Eviosys, a leading European manufacturer of food cans, ends and closures, for approximately $3.9 billion. The transaction is expected to expand Sonoco’s global leadership in metal food can and aerosol packaging and to facilitate Sonoco’s ability to partner with customers and advance innovation and sustainability in metal packaging offerings. In addition, 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. Sonoco’s portfolio transformation strategy also includes significant divestitures. In April 2024, Sonoco completed the divestiture of Protexic, which manufactured molded expanded polypropylene and expanded polystyrene foam components serving the automotive, electronics, appliances, and other markets. In 2023, the Company completed the divestitures of its U.S. and Mexico Bulksak businesses, which consisted of the manufacture and distribution of flexible intermediate bulk containers, plastic and fiber pallets, and custom fit liners, and its S3 business, which provided customized waste and recycling management programs. The Company believes that these and other potential divestitures will enable greater strategic clarity and operational focus while also generating proceeds to fund deleveraging and capital investments in core businesses. 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 has continued to work on commercial, operational, and supply chain excellence programs intended to shift the mix of our business towards higher-valued products and increase overall productivity, as well as strategic pricing initiatives intended to better capture input costs and the value of the services provided. 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.” 43 SONOCO PRODUCTS COMPANY Second Quarter 2024 Compared with Second 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 (“GAAP”). 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 ; • acquisition, integration and divestiture-related costs; • gains or losses from the divestiture of businesses and other assets; • losses from the early extinguishment of debt; • non-operating pension costs; • amortization expense on acquisition intangibles; • changes in last-in, first-out ( “ LIFO ”) inventory reserves; • certain income tax events and adjustments; • derivative gains/losses; • other non-operating income and losses; and • certain other items, if any. 1 Restructuring and restructuring-related asset impairment charges are a recurring item as the Company’s restructuring programs usually require several years to fully implement, and the Company is continually seeking to take actions that could enhance its efficiency. Although recurring, these charges are subject to significant fluctuations from period to period due to the varying levels of restructuring activity, 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. 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 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. Adjusted EBITDA is defined as net income excluding the following: interest expense; interest income; provision for income taxes; depreciation, depletion and amortization expense; non-operating pension costs; net income/loss attributable to noncontrolling interests; restructuring/asset impairment charges; changes in LIFO inventory reserves; gains/losses from the divestiture of businesses and other assets; acquisition, integration and divestiture-related costs; other income; derivative gains/losses; and other non-GAAP adjustments, if any, that may arise from time to time. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales. The Company’s non-GAAP financial measures are not calculated in accordance with, nor are they an alternative for, measures conforming to generally accepted accounting principles, and they may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. The Company presents these non-GAAP financial measures to provide investors with information to evaluate Sonoco’s operating results in a manner similar to how management evaluates business performance. The Company consistently applies its non-GAAP financial measures presented herein and uses them for internal planning and forecasting purposes, to evaluate its ongoing operations, and to evaluate the ultimate performance of management and each business unit against plans/forecasts. In addition, these same non-GAAP financial measures are used in determining incentive compensation for the entire management team and in providing earnings guidance to the investing community. Material limitations associated with the use of such measures include that they do not reflect all period costs included in operating expenses and may not be comparable with similarly named financial measures of other companies. Furthermore, the calculations of these non-GAAP financial measures are based on subjective determinations of management regarding the nature and classification of events and circumstances that the investor may find material and view differently. 44 SONOCO PRODUCTS COMPANY To compensate for any limitations in such non-GAAP financial measures, management believes that it is useful in evaluating the Company’s results to review both GAAP information, which includes all of the items impacting financial results, and the related non-GAAP financial measures that exclude certain elements, as described above. Further, Sonoco management does not, nor does it suggest that investors should, consider any non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever reviewing a non-GAAP financial measure, investors are encouraged to review the related reconciliation to understand how it differs from the most directly comparable GAAP measure. The following tables reconcile the Company’s non-GAAP financial measures to their most directly comparable GAAP financial measures in the Company’s Condensed Consolidated Statements of Income for each of the periods presented in conjunction with management’s analysis of the Company’s results of operations. 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 June 30, 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 As Reported $ 140,372 $ 115,984 $ 27,307 $ 90,811 $ 0.92 Acquisition, integration and divestiture-related costs 22,269 22,269 5,706 16,563 0.17 Changes in LIFO inventory reserves (1,418) (1,418) (356) (1,062) (0.01) Amortization of acquisition intangibles 22,511 22,511 5,536 16,975 0.17 Restructuring/Asset impairment charges 19,250 19,250 3,190 16,116 0.16 Gain on divestiture of business and other assets (4,478) (4,478) 1,222 (5,700) (0.06) Other income, net — (5,867) — (5,867) (0.06) Non-operating pension costs — 4,170 1,032 3,138 0.03 Net gains from derivatives (3,485) (3,485) (876) (2,609) (0.03) Other adjustments (2,056) (1,634) (26) (1,608) (0.02) Total adjustments 52,593 51,318 15,428 35,946 0.36 Adjusted $ 192,965 $ 167,302 $ 42,735 $ 126,757 $ 1.28 Due to rounding, individual items may not sum appropriately. For the three-month period ended July 2, 2023 Dollars in thousands, except per share data Operating Profit Income Before Income Taxes Provision for Income Taxes Net Income Attributable to Sonoco Diluted EPS As Reported $ 187,859 $ 152,177 $ 40,740 $ 114,649 $ 1.16 Acquisition, integration and divestiture-related costs 4,532 4,532 990 3,542 0.03 Changes in LIFO inventory reserves (1,575) (1,575) (395) (1,180) (0.01) Amortization of acquisition intangibles 20,539 20,539 4,992 15,547 0.16 Restructuring/Asset impairment charges 6,057 6,057 1,325 4,669 0.05 Gain on divestiture of business and sale of other assets (7,371) (7,371) (1,825) (5,546) (0.06) Non-operating pension costs — 3,342 828 2,514 0.03 Net gains from derivatives (4,288) (4,288) (1,070) (3,219) (0.04) Other adjustments 5,187 5,187 212 4,975 0.06 Total adjustments 23,081 26,423 5,057 21,302 0.22 Adjusted $ 210,940 $ 178,600 $ 45,797 $ 135,951 $ 1.38 Due to rounding, individual items may not sum appropriately. 45 SONOCO PRODUCTS COMPANY Adjusted EBITDA and Adjusted EBITDA Margin Three Months Ended Dollars in thousands June 30, 2024 July 2, 2023 Net income attributable to Sonoco $ 90,811 $ 114,649 Adjustments Interest expense 29,640 34,284 Interest income (3,555) (1,944) Provision for income taxes 27,307 40,740 Depreciation, depletion and amortization 89,486 81,679 Non-operating pension costs 4,170 3,342 Net income attributable to noncontrolling interests 140 100 Restructuring/Asset impairment charges 19,250 6,057 Changes in LIFO inventory reserves (1,418) (1,575) Gain on divestiture of business and other assets (4,478) (7,371) Acquisition, integration and divestiture-related costs 22,269 4,532 Other income, net (5,867) — Net gains from derivatives (3,485) (4,288) Other adjustments (2,056) 5,187 Adjusted EBITDA $ 262,214 $ 275,392 Net Sales $ 1,623,479 $ 1,705,290 Net Income Margin 5.6 % 6.7 % Adjusted EBITDA Margin 16.2 % 16.1 % The Company does not calculate net income by segment; therefore, Adjusted EBITDA by Segment is reconciled to the closest GAAP measure of segment profitability, Segment Operating Profit, which is another method to achieve the same result. Segment Operating Profit is the measure of segment profit or loss reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance in accordance with Accounting Standards Codification (“ASC”) 280 - “Segment Reporting,” as prescribed by the Financial Accounting Standards Board. Segment results viewed by the Company’s management to evaluate segment performance do not include the following: restructuring/asset impairment charges; amortization of acquisition intangibles; acquisition, integration and divestiture-related costs; changes in LIFO inventory reserves; gains/losses from the sale of businesses or other assets; gains/losses from derivatives; or certain other items, if any, the exclusion of which the Company believes improves the comparability and analysis of the ongoing operating performance of the business. Accordingly, the term “segment operating profit” is defined as the segment’s portion of “operating profit” excluding those items. All other general corporate expenses have been allocated as operating costs to each of the Company’s reportable segments and All Other. 46 SONOCO PRODUCTS COMPANY Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation For the Three Months Ended June 30, 2024 Dollars in thousands Consumer Packaging segment Industrial Paper Packaging segment All Other Corporate Total Segment and Total Operating Profit $ 112,142 $ 66,958 $ 13,865 $ (52,593) $ 140,372 Adjustments: Depreciation, depletion and amortization 1 35,617 28,641 2,717 22,511 89,486 Equity in earnings of affiliates, net of tax 35 2,239 — — 2,274 Restructuring/Asset impairment charges 2 — — — 19,250 19,250 Changes in LIFO inventory reserves 3 — — — (1,418) (1,418) Acquisition, integration and divestiture-related costs 4 — — — 22,269 22,269 Gains from divestiture of business 5 — — — (4,478) (4,478) Net gains from derivatives 6 — — — (3,485) (3,485) Other adjustments — — — (2,056) (2,056) Segment Adjusted EBITDA $ 147,794 $ 97,838 $ 16,582 $ — $ 262,214 Net Sales $ 927,729 $ 600,770 $ 94,980 Segment Operating Profit Margin 12.1 % 11.1 % 14.6 % Segment Adjusted EBITDA Margin 15.9 % 16.3 % 17.5 % 1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $16,074, the Industrial Paper Packaging segment of $6,231, 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 $11,163, the Industrial Paper Packaging segment of $7,737, and the All Other group of businesses of $214. 3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $(462) and the Industrial Paper Packaging segment of $(956). 4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $177 and the Industrial Paper Packaging segment of $215. 5 Included in Corporate are gains from the divestiture of businesses including $(1,250) from the sale of the S3 business, part of the Industrial Paper Packaging segment, and $(3,228) from the sale of Protexic, part of the All Other group of businesses. 6 Included in Corporate are net gains from derivatives associated with the Consumer Packaging segment of $(540), the Industrial Paper Packaging segment of $(2,278), and the All Other group of businesses of $(667). 47 SONOCO PRODUCTS COMPANY Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation For the Three Months Ended July 2, 2023 Dollars in thousands Consumer Packaging segment Industrial Paper Packaging segment All Other Corporate Total Segment and Total Operating Profit $ 101,115 $ 87,040 $ 22,785 $ (23,081) $ 187,859 Adjustments: Depreciation, depletion and amortization 1 32,465 25,008 3,667 20,539 81,679 Equity in earnings of affiliates, net of tax 134 3,178 — — 3,312 Restructuring/Asset impairment charges 2 — — — 6,057 6,057 Changes in LIFO inventory reserves 3 — — — (1,575) (1,575) Acquisition, integration and divestiture-related costs 4 — — — 4,532 4,532 Gain from divestiture of business and other assets 5 — — — (7,371) (7,371) Net gains from derivatives 6 — — — (4,288) (4,288) Other adjustments — — — 5,187 5,187 Segment Adjusted EBITDA $ 133,714 $ 115,226 $ 26,452 $ — $ 275,392 Net Sales $ 971,320 $ 585,143 $ 148,827 Segment Operating Profit Margin 10.4 % 14.9 % 15.3 % Segment Adjusted EBITDA Margin 13.8 % 19.7 % 17.8 % 1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $15,987, the Industrial Paper Packaging segment of $2,565, and the All Other group of businesses of $1,987. 2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $4,015, the Industrial Paper Packaging segment of $1,987, and the All Other group of businesses of $865. 3 Included in Corporate are changes in LIFO inventory reserves associated with the Industrial Paper Packaging segment of $(1,575). 4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $112 and the Industrial Paper Packaging segment of $60. 5 Included in Corporate is the gain from the sale of the Company’s U.S. BulkSak businesses, associated with the Industrial Paper Packaging segment, in the amount of $(7,371). 6 Included in Corporate are net gains from derivatives associated with the Consumer Packaging segment of $(650), the Industrial Paper Packaging segment of $(2,835), and the All Other group of businesses of $(803). RESULTS OF OPERATIONS The following discussion provides a review of results for the three-month period ended June 30, 2024 versus the three-month period ended July 2, 2023. OVERVIEW Net sales for the second quarter of 2024 declined by $81.8 million or 4.8%, to $1.62 billion, compared to $1.71 billion in the same period last year. The decline was primarily driven by the absence of $44.9 million sales related to the Protexic divestiture in April 2024, the absence of $33.7 million sales related to the closure of a thermoformed food packaging plant in November 2023, lower sales of $22.5 million resulting from the accounting for the Company’s recycling operations as a procurement function effective January 1, 2024, and lower selling prices of $32.4 million. O verall volumes, including revenue from acquisitions, increased over the prior period. 48 SONOCO PRODUCTS COMPANY GAAP net income attributable to Sonoco for the second quarter of 2024 decreased to $90.8 million, or $0.92 per diluted share, compared to $114.6 million, or $1.16 per diluted share, for the same period of 2023. This decrease was primarily due to higher quarter-over-quarter acquisition, integration and divestiture-related costs of $17.7 million and restructuring and asset impairment charges of $13.2 million as unfavorable price/cost was offset by higher productivity. Adjusted Earnings for the second quarter of 2024 were $126.8 million ($1.28 per diluted share), compared with $136.0 million ($1.38 per diluted share) for the same period in 2023. GAAP o perating profit for the second quarter of 2024 was $140.4 million, a decrease of 25.3% from the $187.9 million reported in the second quarter of 2023. T he decrease in GAAP operating profit was primarily due to additional acquisition, integration and divestiture-related costs of $17.7 million, higher employee-related costs of $13.6 million and additional restructuring and asset impairment charges of $13.2 million as unfavorable price/cost was offset by higher productivity. Adjusted Operating Pro fit for the second quarter of 2024 was $193.0 million, a decrease of 8.5% from the $210.9 million reported for the same period in 2023. COSTS AND EXPENSES Cost of goods sold decreased by $81.8 million, or 6.1%, in the second quarter of 2024 compared with the same period last year. The decrease was primaril y driven by increased productivity and lower costs related to the sale of Protexic, 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 $357.4 million for the three-month period ended June 30, 2024, which was flat compared to the prior-year period. Gross profit as a percent of sales increased to 22.0% from 21.0% in the prior-year quarter. Selling, general and administrative cost s increased by $31.4 million, or 18.4% , in the second quarter of 2024 compared with the same period last year, primarily due to higher year-over-year acquisition, integration and divestiture-related costs of $17.7 million, increased employee-related costs of $13.6 million, and incremental costs of $8.2 million associated with the prior year acquisitions of Inapel, the remaining interest in RTS Packaging, and the Chattanooga Mill. Restructuring/Asset impairment charges totaled $19.3 million in the second quarter of 2024, compared with $6.1 million during the same period last year. Additional information regarding restructuring and asset impairment charges is provided in Note 5 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Gain on divestiture of business and other assets of $4.5 million in the second quarter of 2024 reflects gains from the Company’s divestitures of Protexic and the S3 business. Gains of divestiture of business and other assets of $7.4 million in the second quarter of 2023 reflects gain s from the divestiture of the Company’s U.S. BulkSak business. 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 was $5.9 million in the second quarter of 2024, reflecting a gain upon the remeasurement to fair value of one of the Company’s investments in affiliates. Non- operating pension costs were $0.8 million higher in the second quarter of 2024 compared to the second quarter of 2023, primarily attributable to higher settlement losses in Canada and higher year-over-year interest cost, partially offset by increased expected returns on assets. A dditional information regarding costs of the Company’s retirement plans is provided in Note 12 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Net interest expense for the second quarter of 2024 decreased to $26.1 million, compared with $32.3 million during the second quarter of 2023. The decrease o f $6.3 million was primarily due to lower year over year average debt balances and interest income from the Company’s cross-currency swaps. The effective tax rates reflected in GAAP net income and Adjusted Earnings in the second quarter of 2024 were 23.5% and 25.5%, respectively, compared with 26.8% and 25.6%, respectively, in the corresponding prior year quarter. The decrease in the GAAP effective tax rate was primarily related to the difference between the tax basis and the book basis on the sale of the shares of Protexic in Mexico. The effective tax rate on Adjusted Earnings was relatively flat quarter over quarter. 49 SONOCO PRODUCTS COMPANY REPORTABLE SEGMENTS The Company’s operating and reporting structure consists of two reportable segments, Consumer Packaging and Industrial Paper Packaging, with all remaining businesses reported as All Other. The following table summarizes net sales attributable to each of the Company’s segments and the All Other group of businesses for the second quarters of 2024 and 2023: Three Months Ended (Dollars in thousands) June 30, 2024 July 2, 2023 % Change Net sales: Consumer Packaging $ 927,729 $ 971,320 (4.5) % Industrial Paper Packaging 600,770 585,143 2.7 % Total reportable segments 1,528,499 1,556,463 (1.8) % All Other 94,980 148,827 (36.2) % Net sales $ 1,623,479 $ 1,705,290 (4.8) % The following table summarizes operating profit attributable to each of the Company’s reportable segments, the All Other group of businesses, and Corporate-related activity during the second quarters of 2024 and 2023: Three Months Ended (Dollars in thousands) June 30, 2024 July 2, 2023 % Change Operating profit: Consumer Packaging $ 112,142 $ 101,115 10.9 % Industrial Paper Packaging 66,958 87,040 (23.1) % Segment operating profit 179,100 188,155 (4.8) % All Other 13,865 22,785 (39.1) % Corporate Restructuring/Asset impairment charges (19,250) (6,057) Amortization of acquisition intangibles (22,511) (20,539) Gains from divestiture of business and other assets 4,478 7,371 Acquisition, integration and divestiture-related costs (22,269) (4,532) Other operating charges, net 6,959 676 Operating profit $ 140,372 $ 187,859 (25.3) % The following table summarizes Adjusted EBITDA attributable to each of the Company’s reportable segments and the All Other group of businesses during the second quarters of 2024 and 2023: Three Months Ended (Dollars in thousands) June 30, 2024 July 2, 2023 % Change Adjusted EBITDA: Consumer Packaging $ 147,794 $ 133,714 10.5 % Industrial Paper Packaging 97,838 115,226 (15.1) % All Other 16,582 26,452 (37.3) % Adjusted EBITDA $ 262,214 $ 275,392 (4.8) % 50 SONOCO PRODUCTS COMPANY The following table summarizes restructuring/asset impairment charges attributable to each of the Company’s reportable segments, the All Other group of businesses, and Corporate-related activity during the second quarters of 2024 and 2023: Three Months Ended (Dollars in thousands) June 30, 2024 July 2, 2023 Restructuring/Asset impairment charges: Consumer Packaging $ 11,163 $ 4,015 Industrial Paper Packaging 7,737 1,987 All Other 214 865 Corporate 136 (810) Restructuring/Asset impairment charges $ 19,250 $ 6,057 Consumer Packaging The products produced and sold within the Consumer Packaging segment are generally used to package a variety of consumer pro ducts and consist primarily of round and shaped rigid paper, steel and plastic containers; metal and peelable membrane ends, closures, and components; thermoformed plastic trays and applications; and high-barrier flexible packaging. These products primarily serve the consumer staples market, focused on food, beverage, household, personal, and pharmaceutical products. Segment sales decreased approximately 4.5% compared to the corresponding prior year quarter due to the absence of $33.7 million in sales related to the closure of a thermoformed food packaging plant in November 2023, and lower pricing of $19.5 million, partially offset by a net $22.9 million increase in sales driven by the benefit of acquisitions. Segment operating profit and Adjusted EBITDA increased by 10.9% and 10.5%, respectively. The increase was largely due to strong productivity of $24.6 million, which was partially offset by higher employee-related expenses. As a result, segment operating profit margin increased to 12.1% in the second quarter of 2024 from 10.4% in the same period last year. Industrial Paper Packaging The primary products produced and sold within the Industrial Paper Packaging segment include goods produced from recycled fiber, including paperboard tubes, cones, and cores; paper-based protective packaging; and uncoated recycled paperboard for folding cartons, can board and laminated structures. Products across this segment support multiple end markets, primarily in paper, textile, and films. Segment sales increased 2.7% from the corresponding prior year quarter from organic volume improvements of $9.9 million in global paper and converted products and $51.0 million in revenues from the acquisitions of the remaining interest in RTS Packaging and the Chattanooga Mill. These increases were partially offset by lower quarter-over-quarter sales resulting from the prior year disposition of BulkSak, lower index-related pricing of $12.4 million, and the reduction in sales of $22.5 million related to the treatment of the segment’s recycling operations as a procurement function effective January 1, 2024. Segment operating profit and Adjusted EBITDA decreased 23.1% and 15.1%, respectively, as continued price/cost pressures lowered profitability by $46.5 million and higher employee-related expenses were only partially offset by strong productivity of $23.1 million and the benefit of higher volumes, including acquisitions, of $15.2 million. As a result, segment operating profit margin decreased to 11% in the second quarter of 2024 from 15% in the same period last year. All Other 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 36.2% from the same quarter of the prior year primarily due to the sale of Protexic. Operating profit and Adjusted EBITDA dropped by 39.1% and 37.3%, respectively, in the second quarter of 2024 compared to the same period last year, primarily due to the sale of Protexic, lower volumes and negative price/cost, partially offset by higher productivity. As a result, operating margin decreased to 14.6% in the second quarter of 2024 compared to 15.3% in the same quarter last year. 51 SONOCO PRODUCTS COMPANY Six Months Ended June 30, 2024 Compared with Six Months Ended July 2, 2023 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 six-month period ended June 30, 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 As Reported $ 252,825 $ 197,480 $ 44,667 $ 155,988 $ 1.57 Acquisition, integration and divestiture-related costs 27,930 27,930 7,158 20,772 0.21 Changes in LIFO inventory reserves (987) (987) (248) (739) (0.01) Amortization of acquisition intangibles 45,450 45,450 11,109 34,341 0.35 Restructuring/Asset impairment charges 50,868 50,868 10,256 40,702 0.41 Gain on divestiture of business and other assets (4,478) (4,478) 1,222 (5,700) (0.06) Other income, net — (5,867) — (5,867) (0.06) Non-operating pension costs — 7,465 1,855 5,610 0.06 Net gains from derivatives (3,771) (3,771) (948) (2,823) (0.03) Other adjustments 1,124 1,546 5,580 (4,034) (0.04) Total adjustments 116,136 118,156 35,984 82,262 0.83 Adjusted $ 368,961 $ 315,636 $ 80,651 $ 238,250 $ 2.40 Due to rounding, individual items may not sum appropriately. For the six-month period ended July 2, 2023 Dollars in thousands, except per share data Operating Profit Income Before Income Taxes Provision for Income Taxes Net Income Attributable to Sonoco Diluted EPS As Reported $ 417,507 $ 345,497 $ 87,652 $ 262,968 $ 2.66 Acquisition, integration and divestiture-related costs 9,720 9,720 2,270 7,450 0.08 Changes in LIFO inventory reserves (7,000) (7,000) (1,749) (5,252) (0.05) Amortization of acquisition intangibles 41,703 41,703 10,119 31,584 0.32 Restructuring/Asset impairment charges 34,871 34,871 7,959 26,683 0.27 Gain on divestiture of business and other assets (79,381) (79,381) (18,947) (60,434) (0.61) Non-operating pension costs — 7,000 1,737 5,263 0.05 Net losses from derivatives 1,797 1,797 448 1,348 0.01 Other adjustments 5,144 5,144 1,167 3,979 0.04 Total adjustments 6,854 13,854 3,004 10,621 0.11 Adjusted $ 424,361 $ 359,351 $ 90,656 $ 273,589 $ 2.77 Due to rounding, individual items may not sum appropriately. 52 SONOCO PRODUCTS COMPANY Adjusted EBITDA and Adjusted EBITDA Margin Six Months Ended Dollars in thousands June 30, 2024 July 2, 2023 Net income attributable to Sonoco $ 155,988 $ 262,968 Adjustments Interest expense 60,860 68,516 Interest income (7,113) (3,506) Provision for income taxes 44,667 87,652 Depreciation, depletion and amortization 180,045 163,817 Non-operating pension costs 7,465 7,000 Net income attributable to noncontrolling interests 236 45 Restructuring/Asset impairment charges 50,868 34,871 Changes in LIFO inventory reserves (987) (7,000) Gain from divestiture of business and other assets (4,478) (79,381) Acquisition, integration and divestiture-related costs 27,930 9,720 Other income, net (5,867) — Net (gains)/losses from derivatives (3,771) 1,796 Other adjustments 1,124 5,144 Adjusted EBITDA $ 506,967 $ 551,642 Net Sales $ 3,261,022 $ 3,435,073 Net Income Margin 4.8 % 7.7 % Adjusted EBITDA Margin 15.5 % 16.1 % 53 SONOCO PRODUCTS COMPANY The following tables reconcile Segment Operating Profit, the closest GAAP measure of profitability, to Segment Adjusted EBITDA. Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation For the Six Months Ended June 30, 2024 Dollars in thousands Consumer Packaging segment Industrial Paper Packaging segment All Other Corporate Total Segment and Total Operating Profit $ 205,169 $ 132,802 $ 30,990 $ (116,136) $ 252,825 Adjustments: Depreciation, depletion and amortization 1 71,082 57,144 6,369 45,450 180,045 Equity in earnings of affiliates, net of tax 47 3,364 — — 3,411 Restructuring/Asset impairment charges 2 — — — 50,868 50,868 Changes in LIFO inventory reserves 3 — — — (987) (987) Acquisition, integration and divestiture-related costs 4 — — — 27,930 27,930 Gains from divestiture of business 5 — — — (4,478) (4,478) Net gains from derivatives 6 — — — (3,771) (3,771) Other adjustments — — — 1,124 1,124 Segment Adjusted EBITDA $ 276,298 $ 193,310 $ 37,359 $ — $ 506,967 Net Sales $ 1,838,306 $ 1,193,830 $ 228,886 Segment Operating Profit Margin 11.2 % 11.1 % 13.5 % Segment Adjusted EBITDA Margin 15.0 % 16.2 % 16.3 % 1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $32,176, the Industrial Paper Packaging segment of $12,862, and the All Other group of businesses of $412. 2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $16,088, the Industrial Paper Packaging segment of $30,340, and the All Other group of businesses of $1,362. 3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $(370) and the Industrial Paper Packaging segment of $(617). 4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $54 and the Industrial Paper Packaging segment of $871. 5 Included in Corporate are gains from the divestiture of businesses including $(1,250) from the sale of the S3 business, part of the Industrial Paper Packaging segment, and $(3,228) from the sale of Protexic, part of the All Other group of businesses. 6 Included in Corporate are net gains from derivatives associated with the Consumer Packaging segment of $(583), the Industrial Paper Packaging segment of $(2,467), and the All Other group of businesses of $(721). 54 SONOCO PRODUCTS COMPANY Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation For the Six Months Ended July 2, 2023 Dollars in thousands Consumer Packaging segment Industrial Paper Packaging segment All Other Corporate Total Segment and Total Operating Profit $ 197,608 $ 181,407 $ 45,345 $ (6,853) $ 417,507 Adjustments: Depreciation, depletion and amortization 1 65,015 49,886 7,213 41,703 163,817 Equity in earnings of affiliates, net of tax 209 4,959 — — 5,168 Restructuring/Asset impairment charges 2 — — — 34,871 34,871 Changes in LIFO inventory reserves 3 — — — (7,000) (7,000) Acquisition, integration and divestiture-related costs 4 — — — 9,720 9,720 Gains from divestiture of business and other assets 5 — — — (79,381) (79,381) Net losses from derivatives 6 — — — 1,796 1,796 Other adjustments — — — 5,144 5,144 Segment Adjusted EBITDA $ 262,832 $ 236,252 $ 52,558 $ — $ 551,642 Net Sales $ 1,929,328 $ 1,200,998 $ 304,747 Segment Operating Profit Margin 10.2 % 15.1 % 14.9 % Segment Adjusted EBITDA Margin 13.6 % 19.7 % 17.2 % 1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $32,213, the Industrial Paper Packaging segment of $5,499, and the All Other group of businesses of $3,991. 2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $6,695, the Industrial Paper Packaging segment of $26,531, and the All Other group of businesses of $918. 3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $(6,103) and the Industrial Paper Packaging segment of $(897). 4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $892 and the Industrial Paper Packaging segment of $349. 5 Included in Corporate are gains from the sale of the Company’s timberland properties in the amount of $(60,945), the sale of its S3 business in the amount of $(11,065), and the sale of its U.S. BulkSak businesses in the amount of $(7,371), all of which are associated with the Industrial Paper Packaging segment. 6 Included in Corporate are net losses from derivatives associated with the Consumer Packaging segment of $297, the Industrial Paper Packaging segment of $1,133, and the All Other group of businesses of $366. RESULTS OF OPERATIONS The following discussion provides a review of results for the six-month period ended June 30, 2024 compared with the six-month period ended July 2, 2023. OVERVIEW Net sales for the first six months of 2024 decreased 5.1% to $3.3 billion, compared with $3.4 billion in the same period last year. The decline was primarily attributable to the absence of $44.9 million in sales related to the Protexic divestiture in April 2024, the absence of $40.9 million in sales related to the closure of a thermoformed food packaging plant in November 2023, lower sales of $55.4 million resulting from the accounting for the Company’s recycling operations as a procurement function beginning January 1, 2024, and lower pricing of $89.5 million. These decreases were partially offset by sales from acquisitions of $163.7 million. 55 SONOCO PRODUCTS COMPANY GAAP net income attributable to Sonoco for the first six months of 2024 decreased to $156.0 million, or $1.57 per diluted share, compared to $263.0 million , or $2.66 per diluted share, reported 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 2023, additional acquisition, integration and divestiture-related costs of $18.2 million and higher restructuring and asset impairment charges of $16.0 million, as unfavorable price/cost was offset by higher productivity. Adjusted Earning s for the six-month period ended June 30, 2024 decreased 12.9% to $238.3 million, or $2.40 per diluted share, from $273.6 million, or $2.77 per diluted share, in the s ix-month period ended July 2, 2023 . GAAP o perating profit for the first six months of 2024 was $252.8 million, a decrease of 39.4% from the $417.5 million reported in the same period last year . T he decrease in GAAP operating profit 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 2023, additional acquisition, integration and divestiture-related costs of $18.2 million, and higher restructuring and asset impairment charges of $16.0 million, as unfavorable price/cost was offset by higher productivity. Adjusted Operating Pro fit for the first six months of 2024 was $369.0 million, a decrease of 13.1% from the $424.4 million reported for the same period in 2023. COSTS AND EXPENSES Cost of goods sold decreased $137.2 million, or 5.1% primarily related to increased productivity and lower costs related to the sale of Protexic, partially offset by cost of sales related to the acquisitions of Inapel, the Chattanooga mill, and the remaining interest in RTS Packaging. Gross profit decreased $36.8 million, or 5.0%, year over year, while the Company’s gross profit margin percentage remained flat at 21.3% for the first six months of 2024, compared to the prior-year period. The decrease in gross profit was driven by volume and pricing declines, partially offset by positive margin related to the acquisitions of Inapel, the Chattanooga mill, and the remaining interest in RTS Packaging. Selling, general and administrative costs for the first six months of 2024 increased $36.9 million, or 10.3%, year over year. The increase was largely driven by higher year-over-year acquisition, integration and divestiture-related costs of $18.2 million, increased employee-related costs, and incremental costs of $16.6 million associated with the prior year acquisitions of Inapel, the Chattanooga mill, and the remaining interest in RTS Packaging. Restructuring/Asset impairment charges totaled $50.9 million in the first six months of 2023, compared with $34.9 million of n et charges in the same period last year. Additional information regarding restructuring and asset impairment charges is provided in Note 5 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Gain on divestiture of business and other assets of $4.5 million in the first six months of 2024 reflects gains from the Company’s divestitures of Protexic and the S3 business. Gain on divestiture of business and other assets of $79.4 million in the first six months of 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. Other income, net was $5.9 million in the first six months of 2024, reflecting a gain upon the remeasurement to fair value of one of the Company’s investments in affiliates. Non-operating pe nsion costs increased $0.5 million year over year due to higher interest costs on the Company’s defined benefit plan liabilities, partially offset by increased expected returns on assets. 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 six months of 2024 decreased to $53.7 million, compared with $65.0 million during the first six months of 2023. The decrease of $11.3 million was primarily due to lower year-over-year average debt balances and interest income from the Company’s cross-currency swaps. The effective tax rates reflected in GAAP net income and Adjusted Earnings in the first six months of 2024 were 22.6% and 25.6%, respectively, compared with 25.4% and 25.2% for GAAP net income and Adjusted Earnings, respectively, in the prior-year period. The decrease in the GAAP effective tax rate was primarily related to the difference between the tax basis and the book basis on the sale of the shares of Protexic in Mexico and a net benefit from deferred tax adjustments. The effective tax rate on Adjusted Earnings was relatively flat year over year. 56 SONOCO PRODUCTS COMPANY REPORTABLE SEGMENTS The following table summarizes net sales attributable to each of the Company’s reportable segments, and the All Other group of businesses during the first six months of 2024 and 2023: Six Months Ended (Dollars in thousands) June 30, 2024 July 2, 2023 % Change Net sales: Consumer Packaging $ 1,838,306 $ 1,929,328 (4.7) % Industrial Paper Packaging 1,193,830 1,200,998 (0.6) % All Other 228,886 304,747 (24.9) % Net sales $ 3,261,022 $ 3,435,073 (5.1) % 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 first six months of 2024 and 2023: Six Months Ended (Dollars in thousands) June 30, 2024 July 2, 2023 % Change Operating profit: Consumer Packaging $ 205,169 $ 197,608 3.8 % Industrial Paper Packaging 132,802 181,407 (26.8) % Segment operating profit 337,971 379,015 (10.8) % All Other 30,990 45,345 (31.7) % Corporate Restructuring/Asset impairment charges (50,868) (34,871) Amortization of acquisition intangibles (45,450) (41,703) Gains from divestiture of business and other assets 4,478 79,381 Acquisition, integration and divestiture-related costs (27,930) (9,720) Other operating charges, net 3,634 60 Operating profit $ 252,825 $ 417,507 (39.4) % The following table summarizes Adjusted EBITDA attributable to each of the Company’s reportable segments and the All Other group of businesses during the first six months of 2024 and 2023: Six Months Ended (Dollars in thousands) June 30, 2024 July 2, 2023 % Change Adjusted EBITDA: Consumer Packaging $ 276,298 $ 262,832 5.1 % Industrial Paper Packaging 193,310 236,252 (18.2) % All Other 37,359 52,558 (28.9) % Adjusted EBITDA $ 506,967 $ 551,642 (8.1) % 57 SONOCO PRODUCTS COMPANY The following table summarizes restructuring/asset impairment charges attributable to each of the Company’s reportable segments, the All Other group of businesses, and Corporate-related activity during the first six months of 2024 and 2023: Six Months Ended (Dollars in thousands) June 30, 2024 July 2, 2023 Restructuring/Asset impairment charges: Consumer Packaging $ 16,088 $ 6,695 Industrial Paper Packaging 30,340 26,531 All Other 1,362 918 Corporate 3,078 727 Restructuring/Asset impairment charges $ 50,868 $ 34,871 Consumer Packaging Segment sales decreased 4.7% year to date compared to the prior-year period due to the absence of $40.9 million in sales related to the closure of a thermoformed food packaging plant in November 2023, lower pricing of $39.9 million, and lower net volumes of $9.2 million, which included an increase in sales related to the Inapel acquisition. Year-to-date segment operating profit increased 3.8% as strong productivity of $40.5 million was partially offset by unfavorable net volumes of $12.7 million and higher employee-related expenses. As a result, segment operating profit margin increased from 10.2% in the first six months of 2023 to 11.2% in the first six months of 2024. Industrial Paper Packaging Segment sales remained fairly flat year to date compared to the prior-year period as net increases in sales of $100.6 million related to the acquisitions of the remaining interest in RTS Packaging and the Chattanooga Mill, reduced by the disposition of BulkSak, were offset by lower index-related pricing of $49.4 million and the reduction in sales of $55.4 million related to the treatment of the segment’s recycling operations as a procurement function effective January 1, 2024. Segment operating profit decreased 26.8% versus the prior-year period primarily due to pricing pressures resulting in lower profitability of $102.3 million and higher employee-related costs, which were only partially offset by increased productivity of $51.5 million and higher volumes from acquisitions of $18.7 million. As a result, segment operating margin decreased from 15.1% in the first six months of 2023 to 11.1% in the first six months of 2024. All Other Sales for the All Other group of businesses declined 24.9% year to date compared to the prior-year period primarily due to the sale of Protexic and lower volumes in temperature assured packaging. All Other operating profit declined 31.7% year to date compared to the prior-year period due to the sale of Protexic, lower volumes and negative price/cost, partially offset by higher productivity. Segment operating margin declined to 13.5% year to date compared to 14.9% in 2023. 58 SONOCO PRODUCTS COMPANY Financial Position, Liquidity and Capital Resources Cash generated from operations fo r the first six months of 2024 was $275.5 million, compared with $348.6 million in the same period of 2023, a year-over-year decrease of $73.1 million. While GAAP net income decreased by $106.8 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 capit al used $29.2 million o f cash in the first six months of 2024, while providing $0.9 million in the same period last year, for a year-over-year decrease in operating cash flow o f $30.1 million. A ccounts receivable used $85.2 million more cash during the first six months of 2024 than in the same period last year as a result of the impact of the changing mix in customer payment terms more than offset lower revenues. Inventory was a source of cash of $15.4 million in the first six months of 2024, while last year was a source of cash of $148.9 million . This year-over-year decrease was expected as the Company ended 2022 with a substantial inventory position driven by pandemic-related supply chain uncertainty. Conversely, accounts payable was a source of cash of $57.9 million in the first six months as compared to a use of cash of $130.7 million in the same period last year. As inventories and supply chain normalized in the second half of 2023 and first half of 2024, purchasing activity has normalized. The Company has continued 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 cash totaling $3.7 million in the six-month period ended June 30, 2024, and used $38.0 million in the same period last year. The $34.3 million lo wer 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 $9.1 million in the first six months of 2024, compar ed with $7.5 million in the same period last year. Investing activities used $96.6 million of cash in the first six months of 2024, compared with $80.4 million in the same period last year, a higher year-over-year use of cash of $16.2 million. Capital expenditures during the first six months of 2024 were $179.7 million, $18.0 million higher than the same period last year. Proceeds from sale of businesses provided $81.5 million in the first six months of 2024, primarily driven by the sale of Protexic, compared with $13.8 million in the prior year, from the sale of the Company’s S3 business. Proceeds from the sale of assets were $71.9 million in the first six months of 2023, primarily from the March 2023 sale of the Company’s timberland properties. Additionally, proceeds from the settlement of a net investment hedge provided $9.1 million of cash in the first six months of 2024. Investing cash flows in the first six months of 2024 also reflect the Company’s $10.0 million investment to increase its ownership in a small South Carolina based designer and manufacturer of sustainable protective packaging solutions from 20.5% to 39.9%. In the same period last year, the Company used $5.0 million of cash to purchase 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 insurance proceeds received in the current year. Net capital spending for 2024 is expected to be approximately $350 million to $375 million compared to $283 million in 2023. Financing activities used $178.0 million of cash in the six-month period ended June 30, 2024, compared with $185.0 million in the same period last year. The $7.0 million lower year-over-year use of cash was largely driven by lower year-over-year net debt repayments of $24.0 million, partially offset by payments of loan financing costs of $19.0 million in the first six months of 2024. Cash used to pay dividends increased by $3.6 million year over year reflecting the increase in the quarterly dividend payment from $0.51 per share to $0.52 per share approved by the Company’s Board of Directors in April 2024. 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 $9.2 million in the six-month period ended June 30, 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 June 30, 2024 and December 31, 2023, approximatel y $116.4 million and $93.8 million, respectively, of the Company’s reported cash and cash equivalents balances of $140.2 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 June 30, 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. 59 SONOCO PRODUCTS COMPANY The Company uses a notional pooling arrangement with an international bank to help manage global liquidity requirements. Under this pooling arrangement, the Company and its participating subsidiaries may maintain either a cash deposit or borrowing position through local currency accounts with the bank, so long as the aggregate position of the global pool is a notionally calculated net cash deposit. Because it maintains a security interest in the cash deposits and has the right to offset the cash deposits against the borrowings, the bank provides the Company and its participating subsidiaries favorable interest terms on both the cash deposit and borrowing positions. During the six-month period ended June 30, 2024, the Company reported a net decrease in cash and cash equivalents of $12.6 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. On May 3, 2024, the Company increased the commitments under its unsecured revolving credit facility by $350 million to an aggregate amount of $1.25 billion and extended the maturity date to May 3, 2029, and also increased its $500 million commercial paper program by $750 million to $1.25 billion . The commercial paper program is supported by the Company’s revolving credit facility. The Company has the contractual right to draw funds directly on the underlying revolving credit facility, which could possibly occur if there were a disruption in the commercial paper market. On June 22, 2024, to secure funding for the pending Eviosys acquisition, the Company entered into a 364-day senior unsecured bridge term loan facility (the “Bridge Loan Facility”) in an amount not to exceed $4.0 billion. The Bridge Loan Facility is comprised of two tranches, Tranche A in the amount of $700 million and Tranche B in the amount of $3.3 billion. On July 12, 2024, subsequent to the end of the quarter, the Company entered into a credit agreement (the “Term Loan Agreement”), providing the Company with the ability to borrow up to $700 million on an unsecured basis to finance a portion of the cash consideration for the Eviosys acquisition. Funding of the Term Loan Agreement is expected to occur substantially concurrently with the closing of the acquisition. The aggregate principal amount of the commitments under the Term Loan Agreement have replaced a corresponding amount of the commitments in respect of the Bridge Loan Facility in accordance with the terms of the Bridge Loan Facility commitment letter. As a result, an aggregate principal amount of up to $3.3 billion in Bridge Loan Facility commitments remain. On April 1, 2024, the Company completed the sale of Protexic, part of the All Other group of businesses, to Black Diamond Capital Management, LLC for net cash proceeds of $80.3 million. The Company used the majority of these proceeds to pay down deb t. The Company believes that this and other potential divestitures will enable greater strategic clarity and operational focus while also generating proceeds to fund deleveraging and capital investments in core businesses. At June 30, 2024, the Company had scheduled debt maturities of approximately $485 million over the next twelve months, including $400 million aggregate principal amount of its 1.80% notes due February 2025. As the Company had $28 million in commercial paper balances outstanding at June 30, 2024, $1.22 billion in committed capacity under its revolving credit facility was available for draw down. The Company believes that cash and cash equivalents on hand, expected net cash flows generated from operating and investing activities, and expected proceeds from divestitures, together with available capacity under the Company’s increased borrowing arrangements and the opportunity to raise additional capital through one or more capital markets transactions, will provide sufficient liquidity to fund the Eviosys acquisition and 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 June 30, 2024 , the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants. 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 additional 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 $12 million durin g the remainder of 2024, resulting in expected total contributions to these plans of approximately $21 million in 2024. Future funding requirements beyond the current year will vary depending largely on investment performance, future actuarial assumptions, and legislative actions. 60 SONOCO PRODUCTS COMPANY Fair Value Measurements, Foreign Exchange Exposure and Risk Management 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-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. As a result of operating globally, the Company is exposed to changes in foreign exchange rates. 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 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. Because the economy in Venezuela is considered highly inflationary under U.S. GAAP, the Company considers the U.S. dollar to be the functional currency of its Venezuelan operations and uses the official exchange rate when remeasuring the financial results of those operations. Economic conditions in Venezuela have worsened considerably over the past several years and there are no indications that conditions are likely to improve in the foreseeable future. Further deterioration could result in the recognition of an impairment charge or a deconsolidation of the subsidiary. At June 30, 2024, the carrying value of the Company’s net investment in its Venezuelan operations was approximately $2.1 million. In addition, at June 30, 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. Accordingly, the Company considers the U.S. dollar to be the functional currency of its operations in Turkey and has remeasured monetary assets and liabilities denominated in Turkish lira to U.S. dollars with changes recorded through earnings. The cumulative impact of applying highly inflationary accounting to Turk ey has been a pretax charge to earnings of $7.5 million ($5.8 million after tax), including $1.0 million ($0.8 million after tax) during th e six-month period ended June 30, 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. dollar. 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 $22.6 million as of June 30, 2024. The Company is a purchaser of various raw material inputs such as recovered paper, energy, steel, aluminum, and plastic resin. The Company generally does not engage in significant hedging activities for these purchases other than for energy and, from time to time, aluminum, because there is usually a high correlation between the primary input costs and the ultimate selling price of its products. Inputs are generally purchased at market or at fixed prices that are established with individual suppliers as part of the purchase process for quantities expected to be consumed in the ordinary course of business. On occasion, where the correlation between selling price and input price is less direct, the Company may enter into derivative contracts such as futures or swaps to manage the effect of price fluctuations. In addition, the Company may occasionally use traditional, unleveraged interest-rate swaps to manage its mix of fixed and variable rate debt and control its exposure to interest rate movements within select ranges. At June 30, 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 6.3 million metric million British thermal units (“MMBTUs”) and aluminum swaps totaling 222 metric tons. These contracts have various maturity dates ranging through December 2025. The total fai r market value of these instruments resulted in a net loss position of $3.0 million and $6.8 million at June 30, 2024 and December 31, 2023, respectively. 61 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 rangi n g through Decembe r 2024. T he total market value of these instruments resulted in a net loss position of $1.1 million at June 30, 2024 and a net gain position of $1.5 million at December 31, 2023. In addition, at June 30, 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 a 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, which had a maturity of December 18, 2026, provided 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 the swap agreements was to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in euros. The agreements were designated as net investment hedges for accounting purposes. The gain or loss on the net investment hedge derivative instruments 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 swaps are excluded from the net investment hedge effectiveness assessment and are recorded in “Interest expense” in the Company’s Condensed Consolidated Statements of Income. The assumptions used in measuring fair value of the cross-currency swaps are considered level 2 inputs, which are based upon the Euro-to-U.S. dollar exchange rate market. The fair value of the Company’s net investment hedges was a loss position of $0.3 million and a loss position of $5.1 million at June 30, 2024 and December 31, 2023, respectively. Translation losses of $0.2 million (net of income taxes of $0.1 million) and $3.8 million (net of income taxes of $1.3 million) were reported as components of “Accumulated other comprehensive loss” within “Foreign currency items” at June 30, 2024 and December 31, 2023, respectively. 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 hedges appreciated significantly through April 2024. On April 15, 2024, the Company terminated the swap agreements and received a cash settlement of $9.1 million. The foreign currency translation gain of approximately $3.1 million, net of tax, is included as a component of “Accumulated other comprehensive loss.” 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, which have a maturity of May 1, 2027, share the same risk management objective as the terminated cross-currency swap agreements and are also designated as net investment hedges for accounting purposes. The Company has an investment in preferred stock of a nonaffiliated private company that is accounted for under the measurement alternative of cost less impairment, adjusted for any qualifying observable price changes. Observable price changes would consist of Level 2 inputs based on privately negotiated transactions with the nonaffiliated company. The preferred stock balance of $21 million is included in “Other assets” in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2024. During the first six months of 2024, the U.S. dol lar strengthened against most of the functional currencies in which the Company’s foreign investments are held, including the euro, the Canadian dollar, the Mexican peso, 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 $55.6 million being recorded in “Accumulated other comprehensive loss” during the six-month period ended June 30, 2024. Restructuring and Impairment Information regarding restructuring charges and restructuring-related asset impairment charges is provided in Note 5 to the Company’s Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Form 10-Q. New Accounting Pronouncements 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. 62 SONOCO PRODUCTS COMPANY