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Silgan (SLGN) Q3 Earnings Beat, Stock Down on Weak Q4 View

Silgan Holdings Inc. SLGN reported third-quarter 2020 record adjusted earnings of $1.01 per share, beating the Zacks Consensus Estimate of 95 cents. The bottom line also improved 37% year over year. Solid demand across food, health and hygiene products, and contributions from the recent acquisitions of Cobra Plastics and the dispensing operations of Albéa led to the improved results.

Despite the better-than-expected third-quarter results, Silgan’s shares have lost 3% since. The decline can primarily be attributed to weaker-than-expected fourth-quarter guidance. Notably, the company expects fourth-quarter 2020 adjusted earnings per share in the range of 47 cents to 52 cents, which is lower than the current Zacks Consensus Estimate of 53 cents. Further, its guidance for 2020 factors in strong demand for home food consumption, household cleaning and hygiene products and anticipates the earnings growth momentum to continue in 2021. Considering that the demand for these goods have surged amid the pandemic, it might return to normal levels once the situation stabilizes.

Including one-time items, the company’s earnings per share was $1.01 compared with the prior-year quarter’s 73 cents.

Total revenues for the manufacturer of sustainable rigid packaging solutions for consumer goods increased 13% year over year to $1,489 million on higher sales across its business segments. Further, the top line surpassed the Zacks Consensus Estimate of $1,454 million.

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

During third quarter-2020, cost of goods sold climbed 11% to $1,230 million from the prior-year quarter. Gross profit improved 25% year over year to $258 million. Gross margin came in at 17.4% compared with the year-ago quarter’s 15.7%.

Selling, general and administrative expenses increased 21% year over year to $92 million during the third quarter. Adjusted operating income was up 27% year over year to $167 million. Operating margin improved to 11.2% in the reported quarter compared with the 10% in the prior-year period.

Segment Performance

Revenues in the Metal Containers segment was up 4% year over year to $857 million. The segment’s adjusted operating income increased 13% year over year to $95 million.

The Closures segment’s revenues surged 34% year over year to $475 million. Adjusted operating income for the segment came in at $65 million compared with the prior-year quarter’s $45 million.

In the Plastic Containers segment, revenues improved to $157 million from the year-ago quarter’s $146 million. The segment reported an adjusted operating profit of $22 million, reflecting a significant improvement of 91% from the year-ago quarter.

Financial Updates

The company had cash and cash equivalents of $194 million at the end of the third quarter compared with $204 million at the end of fiscal 2019. The company generated cash flow of $118 million from operating activities in the nine-month period ended Sep 30, 2020 compared with the $2.5 million of cash utilization in the prior-year period.

Outlook

For fourth-quarter 2020, Silgan expects adjusted earnings per share (EPS) in the range of 47 cents to 52 cents, projecting an increase of 30% at the mid-point from the 38 cents in year-ago quarter.

Silgan has raised its adjusted EPS guidance for the ongoing year backed by the current demand for its products and strong year-to-date performance. The company now anticipates adjusted EPS between $2.92 and $2.97 compared with the prior range of $2.70 to $2.85. The mid-point of the guidance indicates year-over-year increase of 36%. For 2021, the company anticipates overall operating earnings to remain at these strong levels.

Share-Price Performance

Silgan’s shares have gained 13.3% year to date, compared with the industry’s rally of 35.1%.

Zacks Rank and Other Stocks to Consider

Silgan currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the Industrial Products sector are Crown Holdings, Inc. CCK, Pentair plc PNR and Worthington Industries, Inc. WOR. All of these stocks sport a Zacks Rank #1.

Crown Holdings has a projected earnings growth rate of 11.7% for fiscal 2020. Year to date, the company’s shares have appreciated 22%.

Pentair has an estimated earnings growth rate of 2% for the ongoing year. The company’s shares have rallied 10% so far this year.

Worthington has an expected earnings growth rate of 19% for 2020. The stock has climbed 16% year to date.

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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.

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