Shares of Sonoco Products Company (NYSE:SON) are trading down by 3.29% following the release of the company’s second quarter financial results, which missed on both the top and bottom line estimates. While the EPS of $0.66 was $0.01 lower than expectations, revenues of $1.25 billion came in $40 million lighter than what analysts anticipated. Even though the operating profit from the Consumer Packaging segment grew by 33% during the quarter, it was more than offset by higher labor, pension, maintenance and other operating costs. Sales from the Paper and Industrial Converted Products segment declined by 8% on a year-over-year basis to $449 million. The company’s guidance range for its third quarter EPS also came in lower than the $0.72 mark that analysts had previously expected the company to hit, with the company projecting earnings per share of $0.65 to $0.70. Consequently, the full year outlook also fell to between a range of $2.48-$2.58, from a range from $2.60-$2.70.
Hedge funds had a bearish outlook towards Sonoco Products Company (NYSE:SON) during the first quarter, with the smart money seeming to collectively anticipate a rougher ride forthcoming for the company’s shares. Among the funds that we track, a total of 17 firms had about $60.05 million in shares of the company at the end of March, compared to 20 funds with $74.99 million in holdings one quarter earlier. The flight of capital from the company was even higher than what these figures suggest if we factor in the 4.42% appreciation in the stock price during the first quarter, and amount to an over 20% flight of capital from the stock. Shares are now down by just under 7% since the end of the first quarter.
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks have returned 139% since then and outperformed the S&P 500 Index by around 81 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
As far as the insider activity surrounding Sonoco Products Company (NYSE:SON) is concerned, there has been one insider purchase, by Director Marc Oken in February, to the tune of 2,000 shares, while the most prominent insider sale was by CFO Barry Saunders, who disposed of 13,666 shares in the same month. It is worthwhile to note that insider purchases are a much stronger indicator than insider sales.
Let us take a closer look at the hedge fund activity in Sonoco Products Company (NYSE:SON), before we pass a verdict on the company.
How have hedgies been trading Sonoco Products Company (NYSE:SON)?
Heading into the second quarter, a total of 17 hedge funds tracked by Insider Monkey held long positions in this stock, as compared to 20 funds one quarter earlier. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings substantially.
When looking at the hedgies followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the most valuable position in Sonoco Products Company (NYSE:SON). Royce & Associates has a $15.5 million position in the stock, comprising 0.1% of its 13F portfolio. The second-largest stake is held by Citadel Investment Group, led by Ken Griffin, holding a $15.4 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Further members of the smart money that are bullish encompass Israel Englander‘s Millennium Management, Cliff Asness’ AQR Capital Management, and Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital.
Because Sonoco Products Company (NYSE:SON) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedgies that decided to sell off their full holdings in the March quarter. It’s worth mentioning that Joel Greenblatt‘s Gotham Asset Management cut the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $6.1 million in stock. David E. Shaw’s fund, D E Shaw, also dropped its holding, about $1.1 million worth of shares. These bearish behaviors are interesting, as total hedge fund interest dropped by three funds last quarter.
A disappointing outlook and bearish hedge fund sentiment suggest a long recovery time for Sonoco Products Company (NYSE:SON). We would advise investors to look for other opportunities in the sector.
Disclosure: None
