Silgan Shares Up on Record 2013 Results

Zacks

Shares of Silgan Holdings Inc. (SLGN) rose 0.2% on Jan 28 on record fiscal 2013 results and an upbeat guidance for 2014. However, Silgan’s adjusted earnings declined 4.2% to 45 cents per share in the fourth quarter of 2013 from 47 cents in the year-ago quarter.

The results also fell short of the Zacks Consensus Estimate of 49 cents. Earnings came a penny above the lower end of the company’s guided range of 44–54 cents per share.

Including rationalization charges of 9 cents per share, the company’s EPS came in at 36 cents in the quarter, compared with 42 cents in the prior-year quarter. EPS in the year-ago quarter included rationalization charges of 3 cents and plant start-up costs of 2 cents.

Total revenue inched up 0.7% year over year to $864.8 million. Revenues however missed the Zacks Consensus Estimate of $887 million. The year-over-year sales growth was driven by an increase in unit volumes in the closures business, higher average selling prices from the pass through of higher raw material costs and the favorable impact of foreign currency translation. These positives were, however, partially offset by a fall in volumes in the metal and plastic container businesses.

Cost and Margins

Cost of goods sold decreased to $744.8 million from $749.4 million in the year-ago quarter. Gross profit improved 9.6% year over year to $120 million. Consequently, gross margin expanded 110 basis points (bps) to 13.8%.

Selling, general and administrative expenses increased 17.7% year over year to $56.3 million. Adjusted operating income grew 3.4% year over year to $63.7 million. Operating margin increased 20 bps to 7.3% from the year-ago quarter.

Segment Performance

Total revenue in the Metal Containers segment fell 7% year over year to $515.4 million. Adjusted operating income was $42.7 million, down 6.9% from the prior-year quarter. Operating margin remained flat at 8.2%.

The Closures segment’s total revenue rose 27% year over year to $192.3 million, Adjusted operating income fell 4.9% $7.7 million and operating margin declined 100 bps to 4%, both on a year-over-year basis.

In the Plastic Containers segment, total revenue grew 3% year over year to $157.1 million. Adjusted operating income in the quarter was $8.1 million, up 22.7% from $6.6 million in the prior-year quarter.

Financial Updates

Silgan ended 2013 with cash and cash equivalents of $160.5 million, down from $465.6 million in 2012. Cash from operations for the fiscal 2013 was $350.7 million versus $351.7 million in prior year.

Total debt of the company increased to $1.7 billion as of Dec 31, 2013 from $1.6 billion as of Dec 31, 2012. Debt-to-capitalization ratio increased to 70% as of Dec 31, 2013 from 69% as of Dec 31, 2012. Free cash flow in 2013 was $260.7 million as against $303.7 million in 2012.

Fiscal 2013 Performance

For full-year 2013, Silgan reported record adjusted EPS of $2.77, up 2.5% from $2.70 in 2012. Earnings were in line with the company’s guidance range of $2.75 to $2.85 per share. The results, however, lagged the Zacks Consensus Estimate of $2.80. Including one-time items, EPS was $2.87 compared with $2.17 in the prior year.

The year-over-year growth was driven by a rise in volumes in the metal container business, partly offset by weather-related headwinds and economic challenges.

Revenues for the year 2013 increased 3.3% year over year to $3.71 billion but missed the Zacks Consensus Estimate of $3.72 billion.

Outlook

For full-year 2014, Silgan expects adjusted EPS in the range of $3.10 to $3.30. The guidance excludes the impact of rationalization charges and loss on early extinguishment of debt.

Net sales in the metal container business is expected to be higher in 2014 when compared to 2013 primarily due to the contractual pass through of higher raw material and other manufacturing costs, along with an anticipated increase in unit volumes. The segment’s income from operations is expected to benefit from improved manufacturing efficiencies and decrease in depreciation and pension expenses.

Silgan anticipates net sales and income from operations in the closures business to increase in 2014 primarily due to the inclusion of Portola Packaging, partly offset by the possible impact from political instability in Venezuela.

Additionally, net sales and income from operations in the plastic container business are expected to improve owing to modest volume growth, improvement in manufacturing performance as well as lower depreciation and pension expense.

The company currently estimates free cash flow in 2014 to be approximately $200 million as compared with $260.7 million in 2013.

For the first quarter of 2014, Silgan guided adjusted net income per diluted share range of $0.45 to $0.55.

Our Take

Silgan will benefit from its successful acquisition of Portola Packaging in Oct 2013. The acquisition will enhance Silgan’s Closure business and also enable expansion of its plastic closures offerings in Europe. Geographic expansion will also help in long-term growth.

Increasing productivity and cost reduction initiatives such as the newly started Can Vision 2020 will also drive growth. However, soft demand in Europe, a high debt-to-capitalization ratio and lower volume expectation remain concerns.

Stamford, CT-based Silgan is a leading manufacturer of consumer goods packaging products, operating 81 manufacturing facilities across the Americas, Europe and Asia. In North America, Silgan is the largest supplier of metal containers for food products and a major supplier of plastic containers for personal care products.

Silgan currently carries a Zacks Rank #3 (Hold). Ball Corp. (BLL) also belongs to the containers-metal/glass industry and holds a Zacks Rank #2 (Buy). Among Silgan’s peers, Crown Holdings Inc. (CCK) and Mobile Mini, Inc. (MINI) have yet to announce their fourth-quarter results.

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