Sonoco's AI-driven reel boom: Data center demand reshapes the industrial side

Sonoco's second-quarter report hit the numbers, but the real signal is a portfolio shift: the industrial segment is increasingly riding the AI infrastructure wave. “Our Sunoco team delivered solid second quarter results that met our expectations that exceeded consensus estimates” — Robert Coker, Chief Executive Officer (CEO) · 2026-07-23 — and the key driver was not the steady consumer packaging line, but a 10% volume jump in cable reels, tied to data center buildouts. data centers are now a visible growth engine for a company historically known for paper tubes and cans.

The industrial segment's URB mills ran at 95% utilization, the highest in years, and reels volumes were up 10% with sales up 13%. Management noted they were “essentially sold out” — Robert Coker, Chief Executive Officer (CEO) · 2026-07-23 and had to complete a $20 million Alabama expansion to meet demand. That investment is already paying off as robotic equipment will lift nailed wood reel production by ~15%. This is a marked change from a year ago, when reels were a quiet sideline. In the July 2025 call, Howard Coker described them as “not necessarily a very large business for us but it's just a highlight. A very profitable business.” — Robert Howard Coker, Chief Executive Officer (CEO) · 2025-07-24 Now they are a headline growth story.

The AI angle is fresh and aligns with global themes around PCIe Gen 6 and high-bandwidth infrastructure. Sonoco is not a chipmaker, but it is a quiet beneficiary of the power grid and communication upgrades that accompany AI data centers. The company is also developing saturated URB for laminates, an entirely new market.

Recognizing an unmet need in this market, we took more than a year of technical development, trialing and testing to develop a recycled paper grade.

Inflation remains the headwind. Higher energy, freight, and OCC (up $40/ton) cost the company about $10 million of operating profit in Q2. But recovery mechanisms are now in place: contract price increases on URB and paper cans, plus fuel surcharges. Management expects full pass-through by Q3. That's a message they've repeated since Q1 — “We do expect earnings to grow in Q2” — Paul Joachimczyk, Chief Financial Officer · 2026-04-22 — and so far they've delivered.

The consumer side is more mixed. Aerosol and adhesive/sealant volumes were soft on tough comps, but international paper cans were strong, especially in Asia (+29%) and EMEA (+9%). Pack seasons are already being tracked closely for Q3, which historically accounts for ~40% of annual profits. The profitability performance plan contributed $0.07 in Q2, its second consecutive quarter, and the CFO expects acceleration in H2 as structural footprint changes kick in.

Financially, the company is deleveraging and generating cash. Operating cash flow in Q2 was $301M, up 56% yoy, and free cash flow jumped 139%. The balance sheet remains a focus, with net debt down 32% yoy (to $3.3B). Despite the operational momentum, the stock trades at a modest 5.3x P/E (TTM), reflecting lingering skepticism about end-market volatility.

Bottom line: Sonoco is finding growth in unexpected places — AI infrastructure — while managing the classic packaging cycles. The reels business, once a footnote, is now a lead story. If the AI capex supercycle persists, Sonoco could be a quiet compounder. The next test is the upcoming pack season, which management says looks strong. productivity improvement remains the lever to protect margins if volumes disappoint.