Sonoco Suffers Aging Pains

Sonoco Products is being boxed in by pension costs. The packaging company disappointed investors who thought it would offer positive news in a scheduled presentation, but instead it reduced its outlook, saying its underfunded retirement plan will weigh on 2009 results.

The packaging company's units that serve industrial markets are seeing a much larger than expected decline in volume and profitability as a result of the significantly slowing global economy, according to Charles Hupfer, the Sonoco chief financial officer.

Before the announcement, analysts had been bullish KeyBanc Capital Markets thought the meeting would go so well that it raised its fourth-quarter earnings outlook to 63 cents from 59 cents per share. Citigroup's analyst called the stock one of the most compelling in his coverage universe.

Investors sent shares packing, trading Sonoco Products (nyse: SON - news - people ) down 6.2%, or $1.53, to $22.97.

On average analysts thought Sonoco would pull in 60 cents per share in the fourth quarter, and the company previously expected between 60 and 64 cents. But now the firm expects profit of only 48 cents to 52 cents a share.

The coming year doesn't look much better. Sonoco expects earnings for 2009 to range between $1.95 to $2.05 per share, while Wall Street had hoped for $2.43.

Mid-November asset values and interest rates indicate Sonoco's U.S. pension plan was under-funded by about $138.0 million, the company said. Sonoco estimated a year-over-year increase in 2009 pension expense of about $48.0 million, or 30 cents per share after taxes. Falling stock prices were one likely culprit, and weak interest rates, while in the short run supportive of bond investments, make it hard for pension plans to finance future liabilities in the fixed-income market.