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Silgan (SLGN) Q3 Earnings Miss Estimates, Trims '17 Guidance

Silgan Holdings Inc. SLGN reported third-quarter 2017 adjusted earnings of 66 cents, up 8% year over year. However, earnings fell short of the Zacks Consensus Estimate of 69 cents but came within management’s guidance range of 64-71 cents. The improvement in earnings can be attributed to the acquisition of the Dispensing Systems operations in April, which continued to perform well and benefited from improving demand as well as good operation performance. Results were impacted by hurricanes as each of the businesses experienced temporary plant shutdowns and incremental logistical cost in supporting customers.

Including rationalization charges, the company’s earnings per share came in at 65 cents, up from 57 cents recorded in the prior-year quarter.

Total revenues increased 11.2% year over year to $1,267 million, missing the Zacks Consensus Estimate of $1,291 million. Higher net sales in the plastic container business and the closures business owing to the acquisition of the Dispensing Systems operations in April 2017 led to the improvement. However, lower net sales in the metal container business were a minor headwind.
 

Silgan Holdings Inc. Price, Consensus and EPS Surprise
 

Silgan Holdings Inc. Price, Consensus and EPS Surprise | Silgan Holdings Inc. Quote

Cost and Margins

Cost of goods sold increased 10.1% to $1,054 million from $958 million in the year-ago quarter. Gross profit rose 17% to $212.6 million. Gross margin expanded 80 basis points (bps) year over year to 16.8%.

Selling, general and administrative expenses surged 42% year over year to $73.4 million. Adjusted operating income went up 7% to $139.2 million. Higher income from operations in the closures business due to the benefit from the acquisition of Dispensing Systems and in the plastic container business were somewhat offset by lower income from operations in the metal container business. Operating margin contracted 40 bps year over year to 11%.

Segment Performance

Revenues at the Metal Containers segment dipped 3% year over year to $772 million. The segment’s adjusted operating income declined 6% to $92.6 million.

The Closures segment’s revenues surged 68.6% year over year to $357.3 million. Adjusted operating income improved 60% to $45.4 million.

At the Plastic Containers segment, revenues increased 5% year over year to $137.2 million. The segment reported an adjusted profit of $6.6 million, up from $4.3 million in the prior-year quarter.

Financial Updates

Silgan had cash and cash equivalents of $199.2 million at the end of third-quarter 2017 compared with $24.7 million at the end of 2016. The company used $4.4 million of cash in operating activities in the nine-month period ended Sep 30, 2017 compared with cash usage of $11.5 million recorded in the prior-year period.

Guidance

Silgan narrowed full year 2017 adjusted earnings per share guidance range to $1.62-$1.67. This was backed by the company’s performance so far in 2017 and higher anticipated resin cost in the fourth quarter. Further, it was aided by continued strong performance in the Dispensing Systems operations and plastic container business. The company’s previous range had been $1.60-$1.70. The mid-point of the new guidance range reflects year-over-year growth of 19%. The guidance excludes transaction related costs attributed to announced acquisitions, rationalization charges and loss from early extinguishment of debt.

For the fourth quarter, the company anticipates earnings per share in the range of 30-35 cents. Compared with the earnings per share of 24 cents in fourth-quarter 2016, the mid-point of the guidance range depicts a year-over-year growth of 35%.

Silgan continues to enhance profitability through strategic acquisitions and footprint expansion. The company remains well on track with the integration process of Dispensing Systems business, both in terms of integrating into the management system and on the administrative side. The Dispensing Systems acquisition will deliver the full synergy estimate of $15 million over the next 24 months. Moreover, the acquisition will help boost the scope and breadth of Silgan’s market leading closure business. However, unfavorable foreign currency translation and higher debt levels remain concerns.

Share Price Performance



Over the last year, Silgan outperformed the industry it belongs to. The stock gained around 12.6%, while the industry recorded growth of 9.6%.

Zacks Rank & Stocks to Consider

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

Better-ranked stocks in the same include Caterpillar Inc. CAT, Komatsu Ltd. KMTUY and China National Materials Company Limited CASDY. All three stocks flaunt a Zacks Rank #1 (Strong 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 9.5%.

Komatsu has an expected long-term earnings growth rate of 12.7%.

China National Materials has an expected long-term earnings growth rate of 20%.

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