(upbeat music) - [Announcer] This is "Carolina Business Review."

Major support provided by High Point University, the Premier Life Skills University, focused on preparing students for the world as it is going to be, BlueCross BlueShield of South Carolina, an independent licensee of the BlueCross and BlueShield Association.

Sonoco, a global manufacturer of consumer and industrial packaging products and services with more than 300 operations in 35 countries.

- It is certainly a new year, but it is also the proverbial new day in business in the Carolinas.

Welcome into the most widely watched and the longest running dialogue on Carolina business policy and public affairs.

Tariffs are top of mind, front and center, and that certainly means something to this Carolina-based international manufacturer and exporter.

In a moment, we will engage again on this executive profile with the chief executive officer of one of the largest manufacturers and publicly traded companies in the Carolinas.

He is the president and chief executive officer of Sonoco, Howard Coker.

Stay with us.

- [Announcer] Major funding also by Foundation for the Carolinas, a catalyst for philanthropy and driver of civic engagement, helping individuals, nonprofits, and companies bring their charitable visions to life.

Truliant Federal Credit Union, proudly serving the Carolinas since 1952 by focusing on what truly matters, our members' financial success.

Welcome to brighter banking.

And Martin Marietta, a leading provider of natural resource-based building materials, providing the foundation on which our communities improve and grow.

(lively music) On this edition of Carolina Business Review, an executive profile featuring Howard Coker, president and CEO of Sonoco.

(lively music continues) - Hello, welcome to our program.

And I'd like to say here at the top of the program that Sonoco has been an underwriter of this program for many years, and not only are we grateful for it, but it's important to disclose that information now that we have the chief executive officer back on the program.

Welcome to our dialogue again, Howard.

Good to see you.

- Hey, Chris.

Great to be here.

Thank you for having us.

- Boy, we talk about tariffs.

It is front and center since the election, of course, but in manufacturing and international import-export business that you've been in decades, for decades, do tariffs loom very large for you?

Is this something that's tough to get through or over or around?

- Yeah.

Well, they do.

You know, frankly, most of our portfolio is radius-driven, so we manufacture within countries 300 miles, typically our shipping radius.

So we have about 300 plants around the world in, gosh, 40-some odd different countries.

But yes, tariffs, even more recently, have become more and more of a concern.

The good news here is that, if there is good news in this, is that, you know, eight years ago was when we first really got hit hard by tariffs, and it was a bit of pandemonium at that point in time.

It's like we weren't set up, we didn't have the supply chain optionality, and it was a tough period for us.

As we enter this new administration, the new talk about tariffs, I feel like, in multiple ways, we're better prepared for it.

We don't like it, but from our customers who now know the reality that this is coming, contractually, and less so even contractually, more relationship-wise, they understand the pressures that tariffs may put on our cost structure, and our understanding, in fact, are standing beside us as well as others in the industry to say let's be smart about what we're doing here and make sure that we're not putting tariffs in place that may, first off, hurt the consumer, and frankly, long-term cause damage to a category.

So, you know, we don't like it, but at the same time, we've got our plans in place and whatever comes our way, we will sort through.

- As you referenced eight years ago, this came up and it was a shock to the system as I think we talked about earlier.

Howard, do you think this is a Trump 2.0 now kind of seeing his playbook when it comes to negotiating and he's bombastic and he's iconoclast and he drops a grenade in the room for hello, usually when it comes to negotiation.

Do you think that there's some of that element going on here with trade and tariffs?

- For sure, and I think that we're seeing a maturity in terms of the approach.

Optionality, trailing words at the end, you know, tariff tax, which is it gonna be, and you know, kind of keeping the door open in terms, from his perspective, in terms of the negotiation aspect of this.

So still uncertainty, but we're not hearing the same amount of definitive "This will happen tomorrow" and more of a "Look, let's create a potentially a win-win environment with each of the countries that he's having conversations with or targets.

And equally important and probably more important from our perspective, there's been less talk about specific commodities.

"This is what I'm going after, this is where we're gonna hit you and hit you hard and we're gonna do it tomorrow."

- If you tease out the politics and the policy in general, and you start looking down the road for the maybe the next 24 months for manufacturing, for a manufacturing economy, are you encouraged domestically, when you report and as a publicly traded company, of course, that's probably another level of scrutiny, but it is.

But when you report earnings, when you look at how your top line growth may be, how do you look at it the next 24 months?

Good, bad, challenging, indifferent, optimistic?

- You know, really looking back over the last year, two years, we felt like, as we entered the year, you know, there were some headwinds and we felt like we were gonna work through them.

And lessons learned.

Last year, you know, as we planned, when we budgeted for the year, we said, you know, midyear, we should see the economy start improving.

And I'm really talking as it relates to our core businesses, our industrial business, our consumer businesses.

And we didn't see that happen.

So frankly, we haven't released our next year's expectations, but I can tell you, as a bit of a teaser, that we're gonna be more conservative.

I'm not, you know, telling our team, let's don't get too aggressive in the second half of the year thinking that there's gonna be a broader recovery in the markets that we serve.

- Cost of money, the fed's been dropping interest rates.

Is that a wind at your back as a manufacturer and capital intensive?

- You know, it's always a wind at your back, you know, and it's less about our balance sheet.

You know, we're pretty much locked into to our debt structure at this point in time with some deals that we've done recently, but it's more about the impact that it has on the consumer, on the housing market, et cetera.

All of those are waterfall events that would be very positive for us and the rest of the economy.

- You talked about acquisition, you talked about divestiture in Q4 of last year, in actually December, you announced a divestiture sale of an asset and a major acquisition, almost $4 billion buy into sustainable packaging in Europe.

That was a big stake in the ground.

Why are you so optimistic about that?

- You know, Chris, you gotta really go back, well, five years ago when I became CEO.

One of the things that had been concerning to me is we'd become a very complex company.

If you looked at our portfolio, you'd be amazed at the amount of products that we produced.

And, you know, the team, back then, we got together and said, look, you know, follow the money.

Where have we really been most successful?

Where have we earned returns greater than cost of capital returns that our shareholders expect of us?

And we did just a ton of work.

And end of the day, it's the old 80/20.

The company was founded on our industrial paper business, and frankly, our global paper can business think of the ambassador to the paper can being Pringles.

We did our work and said for 20 years, those two businesses, while looked at as really cash cows within the portfolio, were the ones that were really delivering the performance of the company.

In the meantime, that we were acquiring into various different spaces.

And so five years ago we look up and say, "Wow, we are in almost every substrate.

We are a confusing company from the outside looking in.

We're getting to be a company that's hard to manage."

And we said, "We need to pair it down.

We need to focus on what our core competencies and core strengths are."

They were in our industrial business, they were in our cans enclosures business, and we set off on a journey.

The first thing we did was said, "We've gotta start feeding these cash cows."

So if you look, we were spending around $190 million a year in capital.

We jumped that up to 300 to 350.

We did that on the backs of going to these businesses saying, "We've starved you for capital.

Tell us what you need."

Today, five years later, our industrial businesses returns are 500 basis points better than they were five years ago and that's simply because we said we are going to invest in ourselves.

On a parallel path, we said, "Let's look at this portfolio."

We have 20 disparate businesses under the Sonoco umbrella.

You know, which ones of these have the potential to be the next leg of the stool?

Then we tested each one and frankly we walked away and said, you know, it's not there.

Same time, we defined what were the things about those two core businesses?

What are the aspects of them that made them so successful and continue to make them successful?

And I said, "What else is out there that matches that?

What do we have a right to be in?"

And and we landed in the metal can space.

It is one degree, two degrees, separation from the paper can space.

And coincidentally, the strategics that were involved in the metal can space were were starting to divest.

So we acquired into the segment three years ago with ball metal pack acquisition here in North America.

Fantastic results coming from that.

We sold a few of these diverse businesses during that time.

And then we're approached last year about this European asset.

Massive, big, this is not Sonoco's DNA.

- You mean to go that big to buy?

- I mean, when we did ball metal pack at a 1.3 billion, that was two X the largest acquisition we've done in the history of the company.

Now we've jumped to four.

But at the same time, we've been pairing the portfolio down.

So the vesture that you mentioned was our thermoform and flexible packaging division, generated 1.8 billion in proceeds.

It basically took out five of those diverse business units that I described, which allows us to do a couple of things.

One, get our leverage down, but more importantly, for the long term, really focus the company to now be in the world's largest can maker.

The world's largest paper and paper-converted products maker.

Simplification, focus, and markets that we understand that we will be able to drive significant return off of.

- You were, how's the best way to say this?

You are the son of a former CEO and people may look at that and say, "Well, of course, the guy's the son of a CEO, he's gonna get the job."

I'm not going there, but what I am gonna say is, you're a family member.

You've been in the business for close to four decades now, so you've got DNA, family DNA, but more than that, it seems like you've got this sense of a place and what the company is and why it's in Hartsville, why it's in some of these small towns.

What is it about Sonoco?

And I wanna shift a little bit to the more social science about Sonoco, DEI, housing, the cost of raw materials for some of the team members.

How do you take that and make that part of who Sonoco is?

How is that your job too?

- Well, you're right.

I've been with the company for a long, long time, for almost four decades, sometimes I'll say my entire life.

I grew up in the company, So I understand the culture extremely well.

You mentioned DEI, you know, all of the news that's going on in the last week, I think about it.

You know, Sonoco's founder created a women's high school, now known as Coker University in Hartsville, in the early 1900s, recognizing that there were challenges with education of females in the southeast coming out in the early 1990s.

It's been part of who we are all along and other examples that you gave, they all fit under the same umbrella.

You know, we've got a saying within Sonoco, and it comes actually from the founder.

You know, doing business for the right reasons, having the right people doing business for the right reasons and the right causes.

And we're 125-year-old company today, and that remains the case.

Whatever is in front of us, we first and foremost recognize.

I've been in Europe talking to new team members and I'm standing in front of shifts of employees and one of the things I constantly say to them is, "Anybody can go out and buy equipment, anybody can fill factories.

It's the team members, it's the culture, it's building an environment where that we can get the best of, collectively, our organizations."

That's how you win.

And that is something that I think, and I hear it.

I've only worked for Sonoco.

That's the only job I've ever had.

So my perspective on culture is what I know.

But I hear it from folks that come in either as new employees or even investors looking at our company and say, you know, "You're different."

I trust that that's true, but I feel it.

And yes, to your point, I've been involved with the company my entire life and we're special and it's the people that make the difference.

- So do you think that, and I watched the video of you doing DEI on the website, I watched that video and read the dialogue.

You know, there aren't many companies that don't have DEI initiatives, and I know as you had referenced it, that there's a lot of pressure now to go the other way.

Is DEI, it seems to be still alive and well at Sonoco, but does it mean something differently than it did even a year or two ago?

- You know, it certainly is, from an external perspective within Sonoco.

Again, you know, we've had a public and employee responsibility committee on our board for decades now.

We have always looked at how we ensure that we have a healthy, diverse employee base.

It is just the right thing for business.

It's the right things for the owners of the company.

And so we didn't go in and add a lot of costs associated with DEI programs, metrics, et cetera, we just continued to do what we've always done.

We have a DEI council, I chair it, but it's led by our team members.

We have business resource groups.

This doesn't cost anything.

It's a benefit.

It's a benefit when you have, in fact, if there's an outcome of DEI that I have headlined, we've been so focused on employee safety, not getting injured in the workplace.

We've changed that in the last two to three years to when we talk about safety, we're talking about physical safety and emotional safety.

And to do that, you're not spending extra money.

We're just making sure that our training programs, that how we manage our operations, that employees come in and they come in feeling safe, that they're not gonna be injured physically and/or psychologically or mentally.

And there's no cost to doing that.

It's just putting the right programs and processes in place.

- So a lot of companies do talk about behavior or mental health with team members.

Is that an intentional push?

- Yeah, yeah.

But what we've done is we've married it under our safety program, so it falls under a well-established physical safety program that we are now saying, "Let's make sure that we're also incorporating the right training and giving the right, you know, I'm saying the same thing, the right education to ensure that we are as serious about emotional safety as we are physical safety."

- Has the immigration debate that gone on made it harder to find talent in your domestic operations?

- No, you know, of course we all went through the COVID scarcity, and we still are challenged, but frankly, we're spending more time as it relates to automation.

You know, redundant jobs, Americans, frankly, I wouldn't want to do some of these jobs.

And so we're slowly automating positions where we have high turnover.

But I think, you know, that's really not an issue for us at this time.

- So, when you talk about automation, streamlining more efficient models, is that AI for you?

Is that what we do with AI?

Is that what you do?

- AI is certainly part of it, but this is more, you know, pure of the sense, pick and place robotics and the factories, AGVs, et cetera.

So that's where the big dollars are going.

But certainly, AI is starting to show itself into our factories where we're actually learning.

Frankly, there was an example brought to me not long ago in a paper mill that thought that in under certain weather conditions that we had to hit this button, this button, and this button to be able to operate.

And now with AI, we're like, well, you got there, it worked, but that's not the problem and here's the solution.

So we're early, but I think it's gonna be very, very powerful.

AI's got certainly its negatives that are out there in the public, but when the operating environments, it's gonna be very powerful to help us really, really optimize our operations.

- One of the issues that the South Carolina Commerce Secretary Harry Lightsey said when he sat in that chair, along with North Carolina's Commerce Secretary as well, said that energy, we're at a crisis point for energy.

They both went on to say that it's not about the energy right now, it's about the energy a month from now and a year from now that may or may not be as consistently available for the growth, both through economic development, but also through AI and all of the servers that have been talked about.

Is that a concern for you?

- Well, not for Sonoco as much as for the state of the Carolinas and, you know, our ability to continue to prosper and grow through economic and investment, to have the energy sources to support growth opportunities that should be coming our way.

It's a real challenge and it's a debate that will continue.

Hopefully, you know, we'll see the pipeline gas improvements.

You know, there's talk now about nuclear... - Restarts.

- Restarts.

Yeah.

But for Sonoco, it's not a major issue for us at this point in time.

- What about tax reform in South Carolina?

- Tax reform is always something that we're looking at.

And if it goes the right way, we love it.

- Are you optimistic it will go the right way?

- We'll see.

We'll see.

- That's good.

For you, we've got about four minutes left, three or four minutes left, what do you think the biggest challenge is?

What are you optimistic about, but what do you think is also gonna be a headwind that we really have to keep our eye on the ball about, either industrial or economically or something else?

- You know, you've already talked about it, you know, a big headwind is an uncertainty.

- [Chris] Economically.

- Yes.

Well, in the context of, as you talked about, no more geopolitically as it relates to tariffs, et cetera.

The unknowns.

How do you plan for this?

So, you know, how do you model it?

It was one of your opening questions but it is a daily, we feel like we're prepared, but it's uncertainty.

We want certainty.

We want to know, you know, are we gonna see 10% across the board?

Is it gonna be select?

Again, as we said earlier, the tone right now seems to be a lot softer than before, but certain things that are in the conversations today that are in potentially new policy today that, you know, is it gonna go this way or is it gonna go this way?

And how do you, you know, you've gotta prepare for both scenarios, but that's it for me.

I think you have more certainty, you know what to do, and you take action and you move forward.

- Business like certainty.

Do you use some of your colleagues?

Conference board, CEO associations, just friends that you have, are they guarded?

Are they optimistic?

Are they worried?

What's the general tenant?

- No, I'd say if you're talking about the overall- - We have about 30 seconds.

- I wouldn't know.

I would say there's more optimism at this point in time.

Yeah, I think that, you know, we certainly feel that way.

I mentioned that we're taking conservatism as it relates to how we're gonna forecast through the year, but I feel some tailwinds blowing and what I just talked to, are there interruptions to those that unintended consequences to any type of political stances that we may take.

That's the bigger concern.

- And that'll be the last word.

Howard, thank you for making the trip up here.

This is not a small commitment and time to sit down here, but also supporting this program, but your leadership as well in the region.

Thank you.

- Chris, thank you for having me.

It's been a pleasure.

- Until next week, I'm Chris William.

(bright music) - [Announcer] Gratefully acknowledging support by Martin Marietta, Truliant Federal Credit Union, Foundation for the Carolinas, Sonoco, BlueCross BlueShield of South Carolina, High Point University, and by viewers like you.

Thank you.

(lively music)