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Will Silgan (SLGN) Disappoint This Earnings Season?

Zacks Equity Research

Silgan Holdings Inc. (SLGN) is set to report third quarter 2013 results on Oct 23. The packaging company had delivered a negative earnings surprise of 3.08% in the second quarter. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

Silgan Holdings posted adjusted earnings of 63 cents per share in the second quarter, up 15% year over year driven by solid operating performance by the metal and plastic container businesses. Earnings missed the Zacks Consensus Estimate of 65 cents. However, revenues increased 7% year over year to $880 million and surpassed the Zacks Consensus Estimate of $862 million. Sales increased at the metal food container and plastic container businesses, partly offset by lower sales in the closures business. This packaging company has delivered a negative earnings surprise in three of the past four quarters, with an average of -2.02%.

Silgan’s metal can and closure businesses were negatively affected in the second quarter by economic uncertainty caused by the ongoing political instability in the Middle East and Venezuela. Thus, Silgan trimmed its fiscal 2013 guidance for adjusted earnings per share to $3.00 to $3.15 from the previous range of $3.05 to $3.20. For the third quarter, adjusted earnings per share are expected to range from $1.25 to $1.35, based on the normal but slightly delayed distribution of fruit and vegetable pack season. However, political volatility in various international regions could hurt earnings.

Earnings Whispers?

Our proven model does not conclusively show that Silgan will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:  The Most Accurate estimate stands at $1.29 while the Zacks Consensus Estimate is higher at $1.32. That is a difference of -2.27%.

Zacks Rank: Silgan Holdings’ Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Packaging Corporation of America (PKG), Earnings ESP of +1.18% and Zacks Rank #2 (Buy).

Domtar Corporation (UFS), Earnings ESP of +0.80% and Zacks Rank #3 (Hold).

KapStone Paper and Packaging Corporation (KS), Earnings ESP of +7.06% and Zacks Rank #3 (Hold).

Read the Full Research Report on SLGN
Read the Full Research Report on PKG
Read the Full Research Report on UFS
Read the Full Research Report on KS

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