Shares of are under pressure after the company delivered its Q1 2026 earnings. The company missed on the top and bottom lines with the business under pressure, largely due to inflationary duress from rising energy prices.
Sonoco’s earnings report is a good example of what happens during earnings season when results don’t meet expectations. In this case, management had previously been bullish about the company growing adjusted earnings by 20% in its fiscal year 2026. That prediction is in jeopardy after the company delivered Q1 earnings that were flat year-over-year (YOY). But that requires more context.
An Earnings Number That Gets Complicated
Sonoco reported Q1 2026 adjusted earnings per share (EPS) of $1.20, which the company characterized as flat YOY. However, the adjusted EPS figure for Q1 2025 was $1.38, which included contributions from ThermoSafe, the temperature-assurance logistics business Sonoco subsequently divested. Stripping ThermoSafe out of the prior-year comparison, continuing operations generated $1.20 in Q1 2025 as well, making the flat characterization technically accurate on a like-for-like basis.
However, this isn’t a trivial distinction for shareholders. Investors who owned Sonoco a year ago received the economic benefit of $1.38 in earnings per share. The portfolio is now smaller, and the difference of 18 cents represents earnings that left with ThermoSafe.
Whether that trade was worthwhile depends on two factors. First, how Sonoco deploys the divestiture proceeds. The report shows that the company has primarily been putting those toward debt reduction and the ongoing integration of Eviosys. Second, whether the remaining two-segment business can grow earnings from the $1.20 baseline. Management’s decision to guide toward the low end of full-year adjusted EPS guidance of $5.80-$6.20 suggests the path forward, while intact, faces real near-term headwinds from volume softness and input cost inflation.
Cash Flow: Ugly Number, Understandable Reason
Sonoco’s Q1 operating cash flow was approximately $368 million, compared to approximately $208 million in Q1 2025. That’s a sharp decline, but context matters. Approximately $103 million of the difference reflects taxes paid on gains from the divested ThermoSafe business, which is a non-recurring item. Management left full-year operating cash flow guidance unchanged at $700 million to $800 million. That means they view Q1 as an anomaly, not a trend.
Still, total debt increased by $363 million during the quarter. Net debt to total capital rose to 55.5% from 52.1% at year-end. That’s not alarming yet, but it’s a number worth watching. If free cash flow remains pressured into Q2, leverage could become part of the conversation.
A Growth Catalyst Hidden in the Industrial Segment
Amid the headline noise, one number stands out. Sonoco’s reels volume. This means the industrial spools used to transport fiber-optic cables. The sector grew approximately 7% in Q1. That’s directly tied to data center and AI infrastructure buildout. Demand for fiber connectivity is accelerating as hyperscalers expand capacity.
Sonoco is not waiting passively. The company is investing $20 million to expand nailed-wood reel capacity in Hartselle, Alabama. The expansion adds 15% incremental capacity. For investors looking past near-term inflation headwinds, this positions Sonoco as a quiet infrastructure play.
Priced for Perfection, What’s Next for SON
SON gapped down after the earnings miss, but that shouldn’t have been a big surprise. The stock was trading near its 52-week high in the weeks before earnings, which made the report a make-or-break moment.
The stock sliced below its 50-day simple moving average and is now trading near its 200-day SMA, which may be a key line in the sand. If SON drops below that, the 52-week low could be in play. But with the stock showing signs of being oversold, that could be a buying opportunity for patient, risk-tolerant investors.
Is the Dividend Enough?
At the high end of the company’s full-year EPS guidance, it would deliver 8% YOY growth. However, management is now guiding to the lower end of that range, which would mean earnings would effectively be flat YOY.
There are reasons to believe that Sonoco’s prospects could improve, particularly if inflationary pressure eases. But “if” is not always a sound investable thesis.
However, even if Sonoco continues to face revenue pressure, SON looks inexpensive at only about 8.4X forward earnings. That’s a discount to its historic average. On top of that, investors get a safe dividend that the company increased for the 43rd consecutive year on April 15.
It’s also important to note that the analyst forecasts have a consensus price target of $61.78 on SON, which is a greater-than 20% premium to the current price. Investors should watch to see if the stock gets any significant re-ratings or changes to its price targets in the next few weeks.