Market Overview

Silgan Announces Record Second Quarter Earnings and Confirms Full Year Earnings Outlook

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Highlights

  • Record net income per share of $0.50
  • Record adjusted net income per share increased 49 percent to $0.52
  • Record second quarter segment income in the closures business
  • Continued improvement in the plastic container business
  • Completed favorable amendment to senior secured credit facility

Silgan Holdings Inc. (NASDAQ:SLGN), a leading supplier of rigid
packaging for consumer goods products, today reported record second
quarter 2018 net income of $55.3 million, or $0.50 per diluted share, as
compared to second quarter 2017 net income of $27.9 million, or $0.25
per diluted share.

"The second quarter of 2018 demonstrated the benefits of Silgan's cash
deployment model, as the Company delivered record adjusted net income
per diluted share of $0.52, an increase of 49 percent over the prior
year period," said Tony Allott, President and CEO. "The Dispensing
Systems operations drove record second quarter segment income in our
closures business, notwithstanding softer volumes for single-serve
beverages. Our plastic container business continued to demonstrate its
enhanced operational capability and delivered volume growth in a
seasonally strong quarter for this business. Volumes in our metal
container business were down in the quarter more than anticipated due to
specific customer activities and delays in the fruit and vegetable pack
in the geographies that we serve primarily as a result of unfavorable
weather worldwide," continued Mr. Allott. "While some of these factors
will impact full year volumes, others will shift volumes to later
quarters as is typical in this business. Based on our performance to
date and our outlook for the remainder of the year, we are confirming
our full year 2018 earnings estimate of adjusted net income per diluted
share in the range of $2.03 to $2.13, an increase of 26 percent at the
midpoint of the range as compared to 2017," concluded Mr. Allott.

Adjusted net income per diluted share was $0.52 for the second quarter
of 2018, after adjustments increasing net income per diluted share by
$0.02. Adjusted net income per diluted share was $0.35 for the second
quarter of 2017, after adjustments increasing net income per diluted
share by $0.10. A reconciliation of net income per diluted share to
"adjusted net income per diluted share," a Non-GAAP financial measure
used by the Company that adjusts net income per diluted share for
certain items, can be found in Tables A and B at the back of this press
release.

Net sales for the second quarter of 2018 were $1.06 billion, an increase
of $37.3 million, or 3.7 percent, as compared to $1.02 billion in 2017.
This increase was the result of higher net sales in the closures and
plastic container businesses, partially offset by lower net sales in the
metal container business.

Income before interest and income taxes for the second quarter of 2018
was $104.1 million, an increase of $28.9 million, or 38.4 percent, as
compared to $75.2 million for the second quarter of 2017, and margins
increased to 9.8 percent from 7.4 percent for the same periods. The
increase in income before interest and income taxes was the result of
higher segment income in the closures and plastic container businesses,
slightly offset by lower segment income in the metal container business.
Rationalization charges were $0.5 million and $3.0 million in the second
quarters of 2018 and 2017, respectively. Additionally, the second
quarter of 2017 included the unfavorable impact from the write-up of
inventory for purchase accounting in the Dispensing Systems operations
of $11.9 million and costs attributed to announced acquisitions of $9.8
million.

Interest and other debt expense before loss on early extinguishment of
debt for the second quarter of 2018 was $29.9 million, an increase of
$0.8 million as compared to the second quarter of 2017. This increase
was primarily due to higher weighted average interest rates, partially
offset by lower average outstanding borrowings largely as a result of
the partial repayment of acquisition borrowings under the senior secured
credit facility at the end of 2017. Loss on early extinguishment of debt
of $2.5 million in the second quarter of 2018 was the result of the
redemption of all remaining outstanding 5% Senior Notes due 2020 in
April 2018 and the amendment to the senior secured credit facility in
May 2018. Loss on early extinguishment of debt of $4.4 million in the
second quarter of 2017 was primarily a result of the partial redemption
of the 5% Senior Notes in April 2017.

The effective tax rates were 22.8 percent and 33.0 percent for the
second quarters of 2018 and 2017, respectively. The effective tax rate
in the second quarter of 2018 primarily benefitted from the U.S. Tax
Cuts and Jobs Act of 2017 and the timing of certain state tax rate
changes in the current year quarter.

Metal Containers

Net sales of the metal container business were $524.9 million for the
second quarter of 2018, a decrease of $4.8 million, or 0.9 percent, as
compared to $529.7 million in the second quarter of 2017. This decrease
was primarily the result of lower unit volumes of approximately nine
percent, partially offset by the pass through of higher raw material and
other manufacturing costs and the impact of favorable foreign currency
translation. More than half of the volume decrease was due to a seasonal
customer adjusting its inventory levels in the current period. Volumes
were also impacted by a delay in the pack as a result of unfavorable
weather worldwide, a customer plant shutdown in the fruit market and the
competitive loss of a smaller, lower margin customer. These decreases in
volume were partially offset by continued growth in certain other
markets such as the pet food and protein markets.

Segment income of the metal container business in the second quarter of
2018 decreased $1.2 million to $48.2 million as compared to $49.4
million in the second quarter of 2017, and segment income margin
decreased slightly to 9.2 percent from 9.3 percent over the same
periods. The decrease in segment income was primarily attributable to
lower unit volumes and higher freight expense, partially offset by lower
manufacturing costs, a non-recurring charge in the second quarter of
2017 related to the resolution of a past non-commercial legal dispute
and lower rationalization charges. Rationalization charges were $0.3
million and $2.2 million in the second quarters of 2018 and 2017,
respectively.

Closures

Net sales of the closures business were $378.8 million in the second
quarter of 2018, an increase of $29.7 million, or 8.5 percent, as
compared to $349.1 million in the second quarter of 2017. This increase
was primarily due to the impact of favorable foreign currency
translation, the pass through of higher raw material costs and a more
favorable mix of products sold, partially offset by lower unit volumes
of approximately two percent principally as a result of lower demand for
single-serve beverages.

Segment income of the closures business for the second quarter of 2018
increased $13.9 million to $47.7 million as compared to $33.8 million in
the second quarter of 2017, and segment income margin increased to 12.6
percent from 9.7 percent over the same periods. The increase in segment
income was primarily due to the unfavorable impact in the prior year
period from the write-up of inventory of the Dispensing Systems
operations for purchase accounting of $11.9 million, a more favorable
mix of products sold as a result of strong volumes of dispensing
closures, foreign currency transaction losses in the prior year period
and the favorable impact from the lagged pass through to customers of
lower resin costs, partially offset by lower unit volumes.

Plastic Containers

Net sales of the plastic container business were $155.4 million in the
second quarter of 2018, an increase of $12.4 million, or 8.7 percent, as
compared to $143.0 million in the second quarter of 2017. This increase
was principally due to the pass through of higher raw material costs,
higher volumes of approximately four percent and the impact of favorable
foreign currency translation.

Segment income of the plastic container business for the second quarter
of 2018 was $13.2 million, an increase of $6.5 million as compared to
$6.7 million in the second quarter of 2017, and segment income margin
increased to 8.5 percent from 4.7 percent over the same periods. The
increase in segment income was primarily attributable to higher volumes
and lower manufacturing costs.

Six Months

Net income for the first six months of 2018 was $101.1 million, or $0.91
per diluted share, an increase of over 97 percent as compared to net
income of $51.2 million, or $0.46 per diluted share, for the first six
months of 2017. Adjusted net income per diluted share for the first six
months of 2018 was $0.94 versus $0.66 in the prior year period, after
adjustments increasing net income per diluted share by $0.03 for the
first six months of 2018 and adjustments increasing net income per
diluted share by $0.20 for the first six months of 2017.

Net sales for the first six months of 2018 increased $244.2 million, or
13.4 percent, to $2.07 billion as compared to $1.83 billion for the
first six months of 2017. This increase was primarily a result of the
acquisition of the Dispensing Systems operations in April 2017, the pass
through of higher raw material costs across all businesses, the impact
of favorable foreign currency translation and higher volumes in the
plastic container business, partially offset by lower unit volumes in
the metal container business and legacy closures operations and a less
favorable mix of products sold in the metal container business.

Income before interest and income taxes for the first six months of 2018
was $196.3 million, an increase of $64.3 million, or 48.7 percent, from
the same period in 2017, and margins increased to 9.5 percent from 7.2
percent for the same periods. The increase in income before interest and
income taxes was a result of lower acquisition related costs, the
inclusion of the Dispensing Systems operations, the unfavorable impact
in the prior year period from the write-up of inventory of the
Dispensing Systems operations for purchase accounting, lower
manufacturing costs in all businesses, higher volumes in the plastic
container business, a non-recurring charge in the prior year period
related to the resolution of a past non-commercial legal dispute, lower
rationalization charges, foreign currency transaction losses in the
prior year period and the favorable impact from the lagged pass through
of lower resin costs in the closures business. These increases were
partially offset by lower unit volumes in the metal container business
and legacy closures operations, the unfavorable impact from the planned
lower seasonal inventory build in the current year period as compared to
the prior year period in the metal container business, a less favorable
mix of products sold in the metal container business and higher freight
costs. Margins in 2017 were unfavorably impacted due to acquisition
related costs of $23.0 million and the write-up of inventory of the
Dispensing Systems operations for purchase accounting of $11.9 million.
Rationalization charges were $1.2 million and $3.9 million in the first
six months of 2018 and 2017, respectively.

Interest and other debt expense before loss on early extinguishment of
debt for the first six months of 2018 was $60.4 million, an increase of
$10.8 million as compared to the same period in 2017. This increase was
primarily due to higher average outstanding borrowings as a result of
borrowings for the acquisition of Dispensing Systems in April 2017 and
higher weighted average interest rates. Loss on early extinguishment of
debt of $2.5 million in 2018 was the result of the redemption of all
remaining outstanding 5% Senior Notes in April 2018 and the amendment to
the senior secured credit facility in May 2018. Loss on early
extinguishment of debt of $7.1 million in 2017 was primarily a result of
the prepayment of outstanding U.S. term loans and Euro term loans under
the previous senior secured credit facility and the partial redemption
of the 5% Senior Notes in April 2017.

The effective tax rate for the first six months of 2018 was 24.2 percent
as compared to 32.1 percent for the first six months of 2017. The
effective tax rate in 2018 benefitted from the U.S. Tax Cuts and Jobs
Act of 2017.

Outlook for 2018

The Company confirmed its estimate of adjusted net income per diluted
share for the full year of 2018 in the range of $2.03 to $2.13, which
excludes rationalization charges and loss on early extinguishment of
debt. At the midpoint of this range, this estimate reflects a 26 percent
increase over adjusted net income per diluted share for the full year of
2017 of $1.65.

The Company is providing an estimate of adjusted net income per diluted
share for the third quarter of 2018, which excludes rationalization
charges, in the range of $0.74 to $0.78. At the midpoint of this range,
this estimate reflects a 15 percent increase over adjusted net income
per diluted share of $0.66 in the third quarter of 2017. Given the
uncertainties around timing of the fruit and vegetable harvest in the
U.S. and Europe, the results of the back half of the year could shift
between the third and fourth quarters.

Conference Call

Silgan Holdings Inc. will hold a conference call to discuss the
Company's results for the second quarter of 2018 at 11:00 a.m. eastern
time on July 25, 2018. The toll free number for those in the U.S. and
Canada is (800) 458-4121, and the number for international callers is
(323) 794-2597. For those unable to listen to the live call, a taped
rebroadcast will be available through August 8, 2018. To access the
rebroadcast, U.S. and Canadian callers should dial (888) 203-1112, and
international callers should dial (719) 457-0820. The pass code is
2571155.

* * *

Silgan is a leading supplier of rigid packaging for consumer goods
products with annual net sales of approximately $4.1 billion in 2017.
Silgan operates 100 manufacturing facilities in North and South America,
Europe and Asia. The Company is a leading supplier of metal containers
in North America and Europe for food and general line products. The
Company is also a leading worldwide supplier of metal and plastic
closures and dispensing systems for food, beverage, health care, garden,
personal care, home and beauty products. In addition, the Company is a
leading supplier of plastic containers for shelf-stable food and
personal care products in North America.

Statements included in this press release which are not historical facts
are forward looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and
the Securities Exchange Act of 1934, as amended. Such forward looking
statements are made based upon management's expectations and beliefs
concerning future events impacting the Company and therefore involve a
number of uncertainties and risks, including, but not limited to, those
described in the Company's Annual Report on Form 10-K for 2017 and other
filings with the Securities and Exchange Commission. Therefore, the
actual results of operations or financial condition of the Company could
differ materially from those expressed or implied in such forward
looking statements.

 
 

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

For the quarter and six months ended June 30,

(Dollars in millions, except per share amounts)

       

Second Quarter

Six Months

2018

 

2017

2018

 

2017

 
Net sales $1,059.1 $1,021.8 $2,071.4 $1,827.2
 
Cost of goods sold (1) 885.8 863.1 1,738.1 1,550.5
 
Gross profit 173.3 158.7 333.3 276.7
 
Selling, general and administrative expenses (1) 78.3 88.7 155.0 157.3
 
Rationalization charges 0.5 3.0 1.2 3.9
 
Other pension and postretirement income (1) (9.6) (8.2) (19.2) (16.5)
 
Income before interest and income taxes 104.1 75.2 196.3 132.0
 

Interest and other debt expense before loss
  on early
extinguishment of debt

29.9

29.1

60.4

49.6

 
Loss on early extinguishment of debt 2.5 4.4 2.5 7.1
 
Interest and other debt expense 32.4 33.5 62.9 56.7
 
Income before income taxes 71.7 41.7 133.4 75.3
 
Provision for income taxes 16.4 13.8 32.3 24.1
 
Net income $ 55.3 $ 27.9 $ 101.1 $ 51.2
 
Earnings per share:
Basic net income per share $0.50 $0.25 $0.91 $0.46
Diluted net income per share $0.50 $0.25 $0.91 $0.46
 
Cash dividends per common share $0.10 $0.09 $0.20 $0.18
 
Weighted average shares (000's):
Basic 110,645 110,358 110,566 110,291
Diluted 111,574 111,326 111,564 111,267
 
(1) Includes the impact of the Accounting Standards Update issued by the
Financial Accounting Standards Board which amended the presentation
of net periodic pension and postretirement benefit costs to report
certain components, including interest cost, expected return on plan
assets, amortization of prior service cost or credits and actuarial
gains and losses, separately. These items have been restated from
cost of goods sold and selling, general and administrative expenses
to other pension and postretirement income for each of the quarters
and six months ended June 30, 2018 and 2017.
 
 

SILGAN HOLDINGS INC.

CONSOLIDATED SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)

For the quarter and six months ended June 30,

(Dollars in millions)

             

Second Quarter

Six Months

2018

   

2017

2018

   

2017

Net sales:
Metal containers $ 524.9 $ 529.7 $ 1,010.8 $ 995.9
Closures 378.8 349.1 749.1 546.8
Plastic containers   155.4     143.0     311.5     284.5  
Consolidated $ 1,059.1   $ 1,021.8   $ 2,071.4   $ 1,827.2  
 
Segment income:
Metal containers (a) $ 48.2 $ 49.4 $ 85.3 $ 93.3
Closures (b) 47.7 33.8 96.0 57.6
Plastic containers (c) 13.2 6.7 24.2 13.5
Corporate (d)   (5.0 )   (14.7 )   (9.2 )   (32.4 )
Consolidated $ 104.1   $ 75.2   $ 196.3   $ 132.0  
 
 

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in millions)

           
June 30, June 30, Dec 31,

2018

2017

2017

Assets:
Cash and cash equivalents $ 181.2 $ 142.1 $ 53.5
Trade accounts receivable, net 648.5 528.4 454.6
Inventories 833.7 830.9 721.3
Other current assets 63.4 68.0 62.5
Property, plant and equipment, net 1,480.4 1,452.6 1,489.9
Other assets, net   1,852.5   1,872.6   1,863.6
Total assets $ 5,059.7 $ 4,894.6 $ 4,645.4
 
Liabilities and stockholders' equity:
Current liabilities, excluding debt $ 765.0 $ 630.4 $ 849.4
Current and long-term debt 2,962.7 3,093.8 2,547.3
Other liabilities 494.0 627.4 482.6
Stockholders' equity   838.0   543.0   766.1
Total liabilities and stockholders' equity $ 5,059.7 $ 4,894.6 $ 4,645.4
     
(a) Includes rationalization charges of $0.3 million and $2.2 million
for the three months ended June 30, 2018 and 2017, respectively, and
$0.8 million and $2.9 million for the six months ended June 30, 2018
and 2017, respectively. Includes a $3.0 million charge for the three
and six months ended June 30, 2017 related to the resolution of a
past non-commercial legal dispute.
(b) Includes rationalization charges of $0.3 million and $0.4 million
for the three and six months ended June 30, 2017, respectively.
(c) Includes rationalization charges of $0.2 million and $0.5 million
for the three months ended June 30, 2018 and 2017, respectively, and
$0.4 million and $0.6 million for the six months June 30, 2018 and
2017, respectively.
(d) Includes costs attributed to announced acquisitions of $9.8 million
and $23.0 million for the three and six months ended June 30, 2017,
respectively.
 
 

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the six months ended June 30,

(Dollars in millions)

         

2018

2017

 
Cash flows provided by (used in) operating activities:
Net income $ 101.1 $ 51.2
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 97.9 83.3
Rationalization charges 1.2 3.9
Loss on early extinguishment of debt 2.5 7.1
Other changes that provided (used) cash, net of
effects from acquisition:
Trade accounts receivable, net (135.0 ) (118.5 )
Inventories (176.2 ) (134.4 )
Trade accounts payable and other changes, net   15.6     (31.4 )
Net cash used in operating activities   (92.9 )   (138.8 )
 
Cash flows provided by (used in) investing activities:
Purchase of business, net of cash acquired - (1,022.1 )
Capital expenditures (91.3 ) (81.3 )
Other investing activities  

0.5

    0.5  
Net cash used in investing activities   (90.8 )   (1,102.9 )
 
Cash flows provided by (used in) financing activities:
Dividends paid on common stock (22.4 ) (20.3 )
Changes in outstanding checks – principally vendors (87.8 ) (78.9 )
Net borrowings and other financing activities   425.7     1,458.3  
Net cash provided by financing activities   315.5     1,359.1  
 
Effect of exchange rate changes on cash and cash equivalents   (4.1 )   -  
 
Cash and cash equivalents:
Net increase 127.7 117.4
Balance at beginning of year   53.5     24.7  
Balance at end of period $ 181.2   $ 142.1  
 
 

SILGAN HOLDINGS INC.

RECONCILIATION OF ADJUSTED NET INCOME PER DILUTED SHARE (1)
(UNAUDITED)

For the quarter and six months ended June 30,

 

 

Table A

           

Second Quarter

Six Months

2018

   

2017

2018

   

2017

 
Net income per diluted share as reported $ 0.50 $ 0.25 $ 0.91 $ 0.46
 
Adjustments:
Rationalization charges - 0.02 0.01 0.02
Loss on early extinguishment of debt 0.02 0.02 0.02 0.04
Costs attributed to announced acquisitions   -   0.06   -   0.14
Adjusted net income per diluted share $ 0.52 $ 0.35 $ 0.94 $ 0.66
 
 

SILGAN HOLDINGS INC.

RECONCILIATION OF ADJUSTED NET INCOME PER DILUTED SHARE (1)
(UNAUDITED)

For the quarter and year ended,

 

Table B

       

Third Quarter

Year Ended

September 30,

December 31,

Estimated

 

Actual

Estimated

 

Actual

Low   High Low   High

2018

2018

2017

2018

2018

2017

Net income per diluted share as estimated
for 2018 and as reported for 2017 $ 0.74 $ 0.78 $ 0.65 $ 2.00 $ 2.10 $ 2.42
 
Adjustments:
Rationalization charges - - - 0.01 0.01 0.04
Loss on early extinguishment of debt - - - 0.02 0.02 0.04
Costs attributed to announced acquisitions - - 0.01 - - 0.15
Effective tax rate adjustments   -   -   -   -   -   (1.00 )

Adjusted net income per diluted share as
 estimated for 2018
and presented for 2017

$ 0.74 $ 0.78 $ 0.66 $ 2.03 $ 2.13 $ 1.65  
 
(1) The Company has presented adjusted net income per diluted share for
the periods covered by this press release, which measure is a
Non-GAAP financial measure. The Company's management believes it is
useful to exclude rationalization charges, costs attributed to
announced acquisitions, the loss on early extinguishment of debt and
the effective tax rate adjustments primarily due to the U.S. Tax
Cuts and Jobs Act of 2017 from its net income per diluted share as
calculated under U.S. generally accepted accounting principles
because such Non-GAAP financial measure allows for a more
appropriate evaluation of its operating results. While
rationalization costs are incurred on a regular basis, management
views these costs more as an investment to generate savings rather
than period costs. Costs attributed to announced acquisitions
consist of third party fees and expenses that are viewed by
management as part of the acquisition and not indicative of the
on-going cost structure of the Company. The loss on early
extinguishment of debt consists of third party fees and expenses
incurred or debt costs written off that are viewed by management as
part of the cost of prepayment of debt and not indicative of the
on-going cost structure of the Company. The effective tax rate
adjustments are primarily a result of the impact of the U.S. Tax
Cuts and Jobs Act of 2017 principally as a result of the revaluation
of the net deferred tax liabilities at the new lower estimated
corporate tax rate and is viewed by the Company as a period
adjustment that is not indicative of the effective tax rate of the
Company. Such Non-GAAP financial measure is not in accordance with
U.S. generally accepted accounting principles and should not be
considered in isolation but should be read in conjunction with the
unaudited condensed consolidated statements of income and the other
information presented herein. Additionally, such Non-GAAP financial
measure should not be considered a substitute for net income per
diluted share as calculated under U.S. generally accepted accounting
principles and may not be comparable to similarly titled measures of
other companies.

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