Silgan Falls Short of Estimates

Zacks

Silgan Holdings Inc. (SLGN) posted adjusted earnings per share (EPS) of 55 cents per share in the second-quarter 2012, a 4% increase from the year-ago quarter EPS of 53 cents. The EPS was on the lower end of its guided range of 55-60 cents per share, and fell short of the Zacks Consensus Estimate of 58 cents per share.

Including new plant start-up costs of 2 cents per share, acquisition costs of 1 cent per share and a 37 cent per share loss on early extinguishment of debt, EPS was 15 cents in the reported quarter.  Earnings in the prior-year quarter were 73 cents per share including a rationalization charge of 2 cents per share, acquisitions costs of 2 cents per share and proceeds of 37 cents per share from termination of merger agreement.

Total revenues declined 0.1% year over year to $821.6 million in the quarter, missing the Zacks Consensus Estimate of $834 million. Sales dipped in the metal container and closures businesses mainly due to the impact of unfavorable foreign currency translation, which was somewhat offset by increased sales in the plastic container business.

Cost and Margins

Cost of goods sold increased 0.1% to $706.3 million. Gross profit declined 1% to $115 million. Consequently, gross margin contracted 20 basis-points (bps) to 14% in the quarter.

Selling, general and administrative expenses increased to $46.5 million from $20 million in the year-ago quarter. Adjusted operating income plunged 29% to $68.8 million, thereby contracting operating margin by 340 bps to 8.4% in the reported quarter.

Segment Performance

Total revenues in the Metal containers segment decreased 1% to $479.7 million, and operating income declined 12% to $42.0 million in the quarter. Sales declined as a result of unfavorable foreign currency translation, a less favorable mix of products sold, partially offset by higher average selling prices. Unit volumes benefitted from the Nestlé Purina PetCare steel can operations acquisition last year.  However, this improvement was offset by volume declines due to a slow start to the vegetable pack and weakness in the European markets, particularly in general line cans. A less favorable mix of products sold, increased price pressure and volume declines in European markets led to the decline in operating income.

Closure segment’s total revenues dipped 1% to $183.0 million due to unfavorable foreign currency translation, weaker sales in Europe which was partially offset by favorable unit volumes in the U.S. single-serve beverage market. Operating income remained flat at $29 million.

In the Plastic containers segment, total revenues increased 2% to $158.8 million attributed to a  favorable mix of products sold and an increase in unit volumes, both due primarily to strong seasonal sales in the agricultural and chemical markets and customers building inventory in advance of planned shut downs. However, foreign currency translation had a negative impact of approximately $1.6 million. Consequently, operating income jumped 79% to $9.3 million in the quarter.

Financial Updates    

Cash and cash equivalents were $368.9 million as of June 30, 2012, compared with $684.5 million as of March 31, 2012. Inventories were worth $741.4 million as of June 30, 2012, compared with $687.9 million as of March 31, 2012.

Current and long-term debt amounted to $1,781.5 million as of June 30, 2012, compared with $1,911.8 million as of March 31, 2012. Debt-to-capitalization ratio remained flat at 73% as of June 30, 2012 compared with as of March 31, 2012.

Cash used in operating activities was $195 million during the first half of fiscal 2012 compared with $52.5 million in the first half of fiscal 2011. Capital expenditure was $59.4 million during the period versus $84.2 million during first-half 2011.

Share Repurchase

During second-quarter 2012, Silgan repurchased 396,679 shares of its common stock for $17.1 million at an average price of $43.03 per share. Aggregate dividend payment amounted to $8.5 million.

Fiscal 2012 Outlook

The company re-affirmed its previous guidance of adjusted earnings to lie in between $2.80-$2.90 per share for fiscal 2012. It projected adjusted earnings in the range of $1.15-$1.25 per share for the third-quarter 2012.  

Peer Comparison

Silgan competes with companies like Ball Corporation (BLL) and Crown Holding Inc. (CCK). Ball Corporation reported second-quarter adjusted earnings of 89 cents per share, exceeding the Zacks Consensus Estimate of 87 cents as well as the year-ago quarter earnings of 85 cents. Crown Holdings reported second-quarter adjusted EPS of 84 cents, flat with the year-ago quarter and also in line with the Zacks Consensus Estimate.

Currently, we have a long-term Neutral recommendation for Silgan. The stock retains a short-term Zacks #4 (Sell rating).

Read the Full Research Report on SLGN

Read the Full Research Report on BLL

Read the Full Research Report on CCK

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