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Silgan Q3 Earnings Miss Estimates, Trims 2015 Guidance

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Silgan Holdings Inc .'s SLGN third-quarter 2015 earnings of $1.26 per share declined 5% year over year due to logistical challenges and incremental costs related to its footprint optimization programs. Earnings also fell short of the Zacks Consensus Estimate of $1.39 as well as management's guidance of $1.35 to $1.45. Silgan's share price has declined 7% since reporting the weak results on Oct 21.

Including rationalization charges of 10 cents, the company's earnings per share came in at $1.16 in the quarter. Earnings in the year-ago quarter excluded rationalization charge of 3 cents per share and income from the Venezuelan operations of 1 cent per share. Including these items, earnings in the prior-year quarter were $1.33.

Silgan Holdings Inc. - Earnings Surprise | FindTheBest

Total revenue went down 2% year over year to $1.203 billion, surpassing the Zacks Consensus Estimate of $1198 million. The company witnessed declines in closure and plastic containers businesses, which was somewhat offset by an increase in the metal container business.

Cost and Margins

Cost of goods sold decreased 0.4% to $1018 million from $1023 million in the year-ago quarter. Gross profit declined 10% year over year to $185 million. Gross margin contracted 130 basis points to 15.4% in the quarter.

Selling, general and administrative expenses decreased 2% year over year to $54 million. Adjusted operating income declined 13% year over year to $131 million. Operating margin contracted 130 bps year over year to 10.9%.

Segment Performance

Total revenue in the Metal Containers segment increased 2% year over year to $845 million. Unit volumes increased approximately 8% mainly due to volumes of smaller size cans associated with the recent acquisition of the Van Can operations and for pet food products, which was offset by unfavorable foreign currency translation. The segment's adjusted operating income decreased 6% to $106 million.

The Closures segment's total revenue dipped 10% year over year to $216 million due to unfavorable foreign currency translation and the pass through of lower resin costs, and the cessation of operations in Venezuela at the end of 2014, partially offset by an increase in unit volumes of approximately 1%. Adjusted operating income for the segment decreased 16% year over year to $27 million.

In the Plastic Containers segment, total revenue declined 11% year over year to $142 million doe to pass through of lower raw material costs, unfavorable foreign currency translation, lower volumes and negative financial impact from recent longer-term customer contract renewals. Adjusted segment operating income in the quarter was $1.6 million; down 89% from $14 million in the prior-year quarter.

Financial Updates

As of Sep 30, 2015, cash and cash equivalents were $104 million, down from $223 million as of Dec 31, 2014. Cash used in operations was $48 million in the first nine months of 2015 compared with $53 million in the prior-year period.

Total debt of the company was at $1.93 billion as of Sep 30, 2015 compared with $1.97 billion as of Dec 31, 2014. Debt-to-capitalization ratio further worsened to 75% as of Sep 30, 2015 compared with 72% as of Dec 31, 2014.

Guidance

Based on the company's performance so far in the year and expectations of incremental spending in the plastic container business as well as the impact of a truncated fruit and vegetable pack in the U.S., Silgan lowered its adjusted net income per share estimate for full year 2015 to the range of $2.88 to $2.98. The company had earlier projected earnings in the range of $3.10-$3.30. Compared with $3.17 earned in fiscal 2014, this reflects a decline in the range of 6% to 9%.

For the fourth quarter of 2015, Silgan projects adjusted income per share in the range of 38 cents to 48 cents. This includes the impact of continued incremental spending associated with the footprint optimization programs. Compared to the record adjusted net income per share of 58 in the fourth quarter of 2014, the guidance assumes a decline in the range of 17% to 34%.

Our Take

Silgan will continue to benefit from the Portola Packaging and Van Can acquisitions. Geographic expansion and investment in capacity will also help in long-term growth. Increasing productivity and cost reduction initiatives, such as the Can Vision 2020, will also drive growth. However, high debt-to-capitalization ratio and foreign exchange volatility remain concerns.

Stamford, CT-based Silgan is a leading manufacturer of consumer goods packaging products, operating 88 manufacturing facilities across 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 care products.

Silgan currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the packaging sector include Berry Plastics Group, Inc. BERY , Greif, Inc., GEF and Graphic Packaging Holding Co. GPK . While Berry Plastics sports a Zacks Rank #1 (Strong Buy), Greif and Graphic Packaging carry a Zacks Rank #2 (Buy).

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SILGAN HOLDINGS (SLGN): Free Stock Analysis Report

GRAPHIC PKG HLD (GPK): Free Stock Analysis Report

BERRY PLASTICS (BERY): Free Stock Analysis Report

GREIF INC (GEF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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