These declines were partially offset by volume improvement and sales price gains in the Company's Display and Packaging and Protective Solutions segments.
Gross profits were $206 million in the 1Q 2013, compared with $217 million in the same period in 2012. Gross profit as a percent of sales was 17.4%, compared with 17.9% in the same period in 2012. The decline in total gross profits was due to lower volume, a negative LIFO inventory adjustment, and higher maintenance, labor and other costs, partially offset by productivity improvements. The Company's 1Q selling, general and administrative expenses declined 2% to $120 million, but remained flat as a percentage of sales due to lower revenues.
Commenting on the Company's 1Q results, Sonoco President and CEO Jack Sanders, said, "While base earnings for the 1Q were within our guidance, they were off 4% from 2012 due to challenging economic conditions and some operating inefficiencies. Base earnings were negatively impacted by lower volume and higher maintenance, labor, pension and other expenses. Productivity improvements, which were below our historical average, and a slightly positive price/cost relationship only partially offset these negative factors."
"Operating profits from our Paper and Industrial Converted Products segment declined 4% in the 1Q. Negative factors contributing to the decline included higher than anticipated maintenance, labor and other expenses associated with paper mill repair outages and lower volume. These factors were partially offset by a positive price/cost relationship and modest productivity gains."
"Our Protective Solutions segment reported a 22% improvement in operating profits during the 1Q due primarily to synergies and productivity improvements. Improved volume in the segment's molded foam and temperature-assurance businesses was more than offset by lower retail security business."
Sonoco expects 2Q 2013 base earnings to be in the range of $.56 to $.60 per diluted share. The Company's 2Q 2012 base earnings were $.58 per diluted share. Annual base earnings per diluted share are expected to be in the range of $2.26 to $2.32. Projections for free cash flow are raised to approximately $150 million, compared with previous guidance of $130 million in anticipation of a federal incentive related to the Hartsville biomass boiler project.
The Company's base earnings guidance assumes modest volume growth, productivity improvements and a slightly positive price/cost relationship. Partially offsetting these improvements are several negative items, including higher year-over-year pension expenses. Although the Company believes the assumptions reflected in the range of guidance are reasonable, given the uncertainty regarding the global economy and fluctuating raw material prices and other costs, actual results could vary substantially.
Sonoco is a global provider of a variety of consumer packaging, industrial products, protective packaging and packaging supply chain services.