SONOCO PRODUCTS CO 10-Q

Item 1A. Risk Factors Risks Related to the Domestic and Global Economies and to Doing Business Globally Changes in United States trade policies and global regulations, as well as the overall uncertainty surrounding international trade relations, could materially and adversely affect our consolidated financial condition and results of operations. We continue to face uncertainty with respect to trade relations between the United States and many of its trading partners. For example, beginning in the first quarter of 2025, the U.S. government has announced, delayed, re-imposed and revised a series of broad-based, as well as country-, bloc- and sector-specific, tariffs on imports, as well as other trade policy changes. Some countries have announced retaliatory actions or plans for retaliatory actions, which may continue to give rise to further escalations of trade measures by the United States and impacted countries. The exact scope of any tariffs or other trade policy changes that will ultimately be implemented is not known at this time, and the impacts on our business and results of operations are uncertain. Such tariffs have had, and may in the future have, an adverse effect on our costs of products sold and margins in our North America operations. Additional measures targeting U.S. trade with China and other countries may have a further adverse effect on our consolidated financial condition and results of operations. In addition, in July 2020, the USMCA, which replaced the North American Free Trade Agreement, became effective. In response to this agreement, other countries may change their own trade policies, including the imposition of additional tariffs and quotas, which could also adversely affect our business outside the United States. If further tariffs are imposed on a broader range of imports, further retaliatory trade measures are taken by countries in response to tariffs, or efforts are made to withdraw from or substantially modify such agreements, then we may be required to raise our prices or incur additional expenses, which may result in the loss of customers and harm our sales, earnings, business, financial condition, and results of operations. Furthermore, while the duty preferential treatment for goods that qualify for the USMCA was temporarily exempted from the Administration’s 25% tariff on 59 SONOCO PRODUCTS COMPANY Mexican and Canadian goods, Canada has imposed retaliatory tariffs on goods coming from the United States that do not exempt USMCA-qualified goods. Some of the enumerated goods subject to this tariff include products and materials shipped to Sonoco’s plants in Canada . These or any future retaliatory measures, or the removal of the exemption by the Administration, could impact our operations by increasing the cost of imported raw materials and finished goods from Canada and Mexico. Tariff increases have in the past had, and we expect that such measures and any additional measures will have, an adverse effect on our costs of products sold and margins in our North America operations, including by increasing the cost of imported raw materials, which costs we may be unable to pass on to our customers without affecting demand, and potentially disrupting supply chains, causing delays and logistical challenges. In order to mitigate the impact of these trade-related increases on our costs of products sold, we have increased, and may in the future, increase, prices in certain markets and, over the longer term, make changes in our supply chain and potentially, our U.S. manufacturing strategy. For example, a portion of the steel and aluminum we purchase for our metal packaging and industrial paper packaging businesses is sourced from outside the United States, and although we generally have the contractual ability to pass on cost increases due to tariffs to our customers, any price increases may cause our customers to find alternative suppliers and result in reduced demand for our products. If we are unable to successfully pass on these costs through price increases, adjust our supply chain without incurring significant costs, or locate alternative suppliers for raw materials or finished goods at acceptable costs or in a timely manner, our net sales, costs, and margins could be adversely affected. Higher tariffs also may increase the cost of purchasing and maintaining manufacturing equipment used in our operations. We believe the impact of higher tariffs on purchases of manufacturing equipment, while modest to our results of operations, will result in higher cash costs of such items and may therefore reduce both the number of capital projects we are able to undertake and the return on investment on such capital projects. Further, the Company may incur higher costs due to tariffs on maintenance and repair spending. If we are unable to effectively manage the impact of higher tariffs on our capital expenditures and repairs and maintenance spending through price pass-through mechanisms or locating lower-cost alternative suppliers, our results of operations, including our cash flows, could be materially and adversely affected. Further, the uncertainty surrounding global trade policy and its broader economic impacts requires significant management attention and makes it difficult to make long-term strategic decisions regarding the best way to respond to these pressures. Such uncertainty has in the past increased, and may in the future increase the volatility of currency exchange rates. In addition, even if we are able to mitigate the direct impacts to our operations from changes in U.S. and foreign trade policy, our sales volumes may be adversely affected by any reduction in sales of or demand for end products incorporating our packaging products or changes in consumer behavior, whether resulting from increased costs of such products attributable to increased tariffs or other trade barriers or the broader economic impact of such measures, such as increased inflation, decreased consumer spending or other adverse macroeconomic trends. Our inability to effectively manage the adverse impacts of changing U.S. and foreign trade policies could materially and adversely impact our consolidated financial condition and results of operations.