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Silgan Buys Albea's Dispensing Unit, Expands Closures Business

Zacks Equity Research
·4 min read

Silgan Holdings Inc. SLGN recently completed the acquisition of the Albéa Group’s dispensing business for $900 million. The acquisition is a strategic fit for the closures business and is likely to strengthen its position in the dispensing markets.

Albéa’s dispensing business is the leading global supplier of highly-engineered pumps, sprayers and foam-dispensing solutions to major consumer goods product companies largely serving in the beauty and personal care markets. It has a global network of 10 plants operating across North and South America, Europe as well as Asia. This business generated approximately $395 million revenues in 2019.

Notably, the buyout is likely to be accretive to Silgan’s current-year earnings after considering the possible negative impacts of the coronavirus pandemic on its beauty and personal care markets. The company funded the acquisition through its revolving credit facility, including a term loan of $900 million.

Through this buyout, Silgan expects to realize operational cost synergies of $20 million on an annual run rate basis, within an 18-month period. These synergies would be achieved primarily through reductions in general and administrative expenses, procurement savings and manufacturing efficiencies. In fact, the acquisition is beneficial to the company as customer-buying patterns for beauty and personal care markets have resumed to normal levels after being impacted by the pandemic. Beauty and personal care products account for around 25-30% of the company’s sales.

Since its inception, Silgan Holdings has acquired 36 businesses. Backed by acquisitions and organic growth, the company has increased its share in the metal food-container market in the United States from 10% in 1987 to slightly more than half of the market in 2019.

The company has become a leading global manufacturer of closures for food, beverage, health care, garden, personal care, home and beauty products through buyouts, with net sales of $1.41 billion in 2019. This marks a seven-fold increase since 2003. Silgan Holdings has also fortified its market position in the plastic container business since 1987, with net sales increasing sevenfold to $611 million in 2019.

During the second-quarter 2020 earnings call, Silgan will update the current-year earnings estimate for this acquisition and its recent debt financing transactions. For the second quarter, Silgan expects adjusted earnings per share of 55-70 cents compared with the 55 cents recorded in prior-year quarter. For 2020, adjusted earnings per share are expected between $2.30 and $2.50 compared with the prior range of $2.28 to $2.38. The mid-point of these guided ranges indicates a year-over-year increase of 13.6% and 11%, respectively.

Given the surge in demand for vital products like food, beverage and consumer health and personal care products amid the coronavirus crisis, Silgan has been witnessing strong volumes across its segments. The company is likely to gain from the ongoing momentum in demand for food and consumer health products, such as soap and sanitizer bottles and dispensing systems.

Price Performance

Silgan’s shares have gained 10.5% in the past year compared with the industry’s growth of 14.2%.

Zacks Rank & Other Key Picks

Silgan Holdings currently sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the Industrial Products sector are Axon Enterprise, Inc AAXN, Broadwind Energy, Inc. BWEN and Energous Corporation WATT, each carries a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axonhas a projected earnings growth rate of 14.4% for 2020. The company’s shares have gained 15% in the past three months.

Broadwind Energy has an expected earnings growth rate of 174% for the current year. The stock has appreciated 6% over the past three months.

Energous has an estimated earnings growth rate of 17.3% for the ongoing year. The company’s shares have rallied 37% in three months’ time.

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Silgan Holdings Inc. (SLGN) : Free Stock Analysis Report
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