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Silgan (SLGN) Q4 Earnings Meet Estimates, '18 View Upbeat

Zacks Equity Research

Silgan Holdings Inc. SLGN reported record fourth-quarter 2017 adjusted earnings of 32 cents per share, up 33% from the year-ago quarter. Earnings came in line with the Zacks Consensus Estimate and within management’s guidance range of 30-35 cents. The improvement in earnings can be attributed to the acquisition of the Dispensing Systems operations in April 2017, which continued to perform well and benefited from improving demand as well as good operation performance, manufacturing efficiencies and lower costs across all businesses.

 

Including rationalization charges, the company’s earnings per share came in at $1.31, up from 20 cents recorded in the prior-year quarter.

 

Total revenues increased 24% year over year to $996 million, ahead of the Zacks Consensus Estimate of $942 million. This can be attributed to inclusion of the Dispensing Systems operations, the pass through of higher raw material costs, favorable foreign currency translation and 4% increase in volumes in the plastic container business. However, a 4% dip in unit volumes in the legacy closures operations and 1% decline in metal container business volumes were a negating factor.

 

Silgan Holdings Inc. Price, Consensus and EPS Surprise

 

Silgan Holdings Inc. Price, Consensus and EPS Surprise

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

Cost and Margins

Cost of goods sold increased 20% to $837 million from $696 million in the year-ago quarter. Gross profit rose 44% to $159 million. Gross margin expanded 230 basis points (bps) year over year to 15.9%.

 

Selling, general and administrative expenses surged 35% year over year to $71 million. Adjusted operating income went up 53% to $88 million. Operating margin expanded 170 bps year over year to 8.8%.

 

Results benefited from the inclusion of the Dispensing Systems operations, manufacturing efficiencies and lower costs in each of the businesses, the favorable impact of increase in inventories in the metal container business in the reported quarter compared with a decrease in inventories in the prior-year period and higher volumes in the plastic container business. However, these gains were offset by lower unit volumes in the legacy closures operations along with metal container business and the unfavorable impact from the contractual pass through to customers of indexed deflation in the metal container business.

 

Segment Performance

 

Revenues at the Metal Containers segment improved 4% year over year to $510 million. The segment’s adjusted operating income increased 21% to $44.7 million.

 

The Closures segment’s revenues soared 88% year over year to $342.6 million. Adjusted operating income improved 82% to $39.6 million.

 

At the Plastic Containers segment, revenues increased 9% year over year to $143.4 million. The segment reported an adjusted profit of $8.6 million, up from $4.7 million in the prior-year quarter.

 

Financial Updates

 

Silgan had cash and cash equivalents of $53.5 million at the end of fiscal 2017 compared with $24.7 million at the end of fiscal 2016. The company generated $389.7 million of cash in operating activities in fiscal 2017 compared with $394.6 million in the prior year.

 

Fiscal 2017 Performance

 

Silgan Holdings’ fiscal 2017 adjusted earnings was a record $1.65, up 20% from the prior year. Earnings beat the Zacks Consensus Estimate of $1.64. Earnings came within management’s adjusted earnings per share guidance range of $1.62-$1.67. Including rationalization charges, the company’s earnings per share came in at $1.31, up from 20 cents recorded in the prior-year quarter.

 

Total revenues increased 13% year over year to $4.09 billion, surpassing the Zacks Consensus Estimate of $4.07 billion. The improved performance stemmed from the acquisition of the Dispensing Systems operations in April 2017 and higher net sales across all businesses.

 

Investment in New Facilties to Drive Growth

 

Silgan Holdings has initiated construction of a metal container manufacturing facility in Allentown, PA to serve a major pet food customer and a thermoformed plastic container manufacturing facility in Fort Smith, AR.

 

Guidance

 

For fiscal 2018, the company guides adjusted earnings per share in the range of $2.03-$2.13. The midpoint of the range depicts a year-over-year growth of 26%. The company expects improvement in sales and operating across all its three segments.

 

However, interest expense will be higher in fiscal 2018 due to higher average outstanding borrowings as a result of additional borrowings for the acquisition of Dispensing and higher weighted average interest rates due primarily to market rate increases on variable rate debt.

 

Silgan Holdings expects effective tax rate for the year to be approximately 24%, a substantial improvement from the 33.8% in 2018, excluding certain effective tax rate adjustments. The lower effective tax rate for 2018 reflects the impact of the recently enacted U.S. Tax Cuts and Jobs Act of 2017. Silgan Holdings, which had been operating with comparative tax rate disadvantages to many of its competitors, will benefit substantially. This new tax reform will reduce future cash obligations for existing net deferred tax liabilities, reduce tax rates on future U.S. earnings and allow greater flexibility to utilize global cash to invest in the most optimal locations.

 

For first-quarter 2018, the company initiated a guidance range of 32-36 cents for adjusted earnings per share.

 

Share Price Performance

 

 

In the last three months, Silgan Holdings outperformed the industry it belongs to. The stock dipped 0.3%, narrower than the 7.4% decline witnessed by the industry.

 

Zacks Rank & Stocks to Consider

 

Silgan currently carries a Zacks Rank #4 (Sell).

 

Better-ranked stocks in the same space include Caterpillar Inc. CAT, H&E Equipment Services, Inc. HEES and Komatsu Ltd. KMTUY. H&E Equipment and Komatsu flaunt a Zacks Rank # 1 (Strong Buy) while Caterpillar carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Caterpillar has an expected long-term earnings growth rate of 10.3%. Its shares have appreciated 72% in a year’s time.

 

H&E Equipment Services has an expected long-term earnings growth rate of 18.6%. The company’s shares have gained 53% over the past year.

 

Komatsu has an expected long-term earnings growth rate of 16.2%. Its shares have surged 58% over the past year.

 

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