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Silgan Holdings Strong on Acquisitions, Input Costs High

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On Dec 16, we issued an updated research report on Silgan Holdings Inc. SLGN. The company is poised to gain from acquisitions and manufacturing efficiencies despite inflated freight and material costs.

The company has outpaced the Zacks Consensus Estimate in three of the trailing four quarters, resulting in an average positive earnings surprise of 3.60%.

Acquisitions: A Key Catalyst

Since its inception, Silgan Holdings has acquired 35 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 2018.

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 $1.46 billion in 2018, marking 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 $614.1 million in 2018.

Capital Expenditure to Drive Growth

Year to date, capital spending was around $166.8 million compared with the $134.6 million recorded in the comparable period last year. The company projects free cash flow at $275 million for the current year. It remains focused on returning value to shareholders through dividend payment.

Solid Beverage Demand to Spur Growth

Beverage demand in the United States remains favorable, which will lead to volume growth for plastic containers. In 2020, new products and elevated demand for dispensing systems will likely offset soft closure sales in Europe.

Tepid 2019 Guidance

Silgan lowered its adjusted earnings per share guidance to the range of $2.12 to $2.17 from the prior projection of $2.10-$2.20 for the ongoing year. The company’s year-to-date performance and impact of the earlier-than-anticipated end to the fruit and vegetable pack in the fourth quarter resulted in this outlook. While soft food pack will likely limit metal-container volumes through year-end 2019, dismal demand trends in Europe might affect closure volumes. Silgan has also provided adjusted earnings per share guidance of 34-39 cents for the current quarter. In the fourth quarter of 2018, the company had reported earnings per share of 38 cents.

Higher Cost to Hurt Results

Tariff on steel and aluminum prices imposed by the U.S. government has flared up material costs. The company expects inflated material and freight costs to keep affecting results in 2019. It is also bearing the risks of currency fluctuations and commodity pricing.

Silgan Holdings Inc. Price and Consensus

Silgan Holdings Inc. Price and Consensus
Silgan Holdings Inc. Price and Consensus

Silgan Holdings Inc. price-consensus-chart | Silgan Holdings Inc. Quote

Zacks Rank & Key Picks

Silgan Holdings currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company NWPX, Tennant Company TNC and Reliance Steel & Aluminum Co. RS. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 43.8% over the past year.

Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 44.2% over the past year.

Reliance Steel & Aluminum has an estimated earnings growth rate of 7.4% for the ongoing year. In a year’s time, the company’s shares have gained 60.8%.

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Silgan Holdings Inc. (SLGN) : Free Stock Analysis Report
 
Tennant Company (TNC) : Free Stock Analysis Report
 
Northwest Pipe Company (NWPX) : Free Stock Analysis Report
 
Reliance Steel & Aluminum Co. (RS) : Free Stock Analysis Report
 
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