Silgan Holdings Inc.
) dropped around 1.5% after Moody's Investors Service - the
rating unit of
) - assigned a Ba1 rating to the proposed senior secured revolver
and term loans. The stock closed at $46.65 at the end of trading
on Jan 17.
On the other hand, Moody's reaffirmed Silgan's Ba1 corporate
family rating (CFR). The rating is attributable to the
consolidated industry structure in Silgan's metals segment and
strong market shares and contract structures in food cans.
The rating also reflects the presence of a significant number of
customers in the food can segment and custom products in the
plastics segment. However, the rating is also constrained by
inherent risks pertaining to Silgan's acquisition strategy and
low growth in the food can market.
In addition, Silgan's probability of default (PDR) rating has
been affirmed at Ba1-PD. The ratings outlook has also remained
stable. These ratings came on the back of Silgan's focus on cost
cutting and productivity improvement. It also reflects Silgan's
expansion into higher growth markets. Silgan also maintains good
However, weaker contract terms in the plastic vacuum closures and
plastics segments as well as volatile resin prices remain as
looming concerns. Additionally, the industry structures for both
plastic segments are fragmented with significant competitive
Moody's is cautious about Silgan's high leverage for the rating
category. Moody's also stated that the ratings could be
downgraded if the earnings before interest, taxes, depreciation
and amortization (EBITDA) or interest coverage stays above 3.5x,
free cash flow to debt remains below 9.5% and EBIT to interest
expense declines to below 4x.
Additionally, significant debt financed acquisitions may prompt a
downgrade as well. The rating agency is apprehensive about
deterioration in the operating and competitive environment, fall
in credit metrics and change in financial policies.
For 2013, Silgan lowered its expectation for adjusted earnings
per share to the band of $2.75 to $2.85. The company will benefit
from its successful acquisitions, increasing productivity and
cost containment initiatives. However, soft demand in
Europe continues to be a challenge.
Silgan's exposure to Europe has increased following its Vogel
& Noot acquisition and expansion of the Closures segment in
the region. Additional pricing pressure is expected as the
European scenario will likely remain tough over the next few
Stamford, Conn.-based Silgan is a leading manufacturer of
consumer goods packaging products, operating 81 manufacturing
facilities in 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
Currently, Silgan has a Zacks Rank #3 (Hold). However, not all
stocks in the industrial products sector are performing as poorly
as Silgan. Some better-ranked stocks in the same sector include
). Both these stocks carry a Zacks Rank #2 (Buy).
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