Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Silgan Holdings Inc (SLGN, Financial) delivered second quarter adjusted EPS above the midpoint of their estimate range.
- The company observed improving volume trends across all segments and strong operational and cost performance.
- Silgan Holdings Inc (SLGN) announced an agreement to acquire Werner Packaging, a differentiated dispensing business with attractive margins and strong organic growth.
- The Dispensing and Specialty Closures segment showed double-digit volume growth driven by market-leading innovation and manufacturing capabilities.
- The Custom Containers segment delivered strong results with 7% volume growth due to improving market demand and successful commercialization of new business.
Negative Points
- Net sales declined by 3% from the prior year period due to the pass-through of lower raw material costs.
- The Metal Container segment experienced an 8% decline in sales, primarily due to lower raw material costs and unfavorable price-cost mix.
- The impact of lower production and less inventory build led to under-absorbed fixed costs in the Metal Container segment, affecting financial performance.
- The company faced challenges with capacity constraints in the Dispensing and Specialty Closures segment, impacting their ability to meet certain market demands.
- Higher legal and corporate development costs increased corporate expenses, affecting overall financial performance.
Q & A Highlights
Q: Can you give us a better sense as to what's going on in the Dispensing and Specialty Closures market from your vantage point?
A: We see a lot of the same reports and trends in the marketplace. We focus on where we choose to compete and win. For example, in fragrance and beauty, we don't participate in the mass market but are successful at the high end. This market continues to perform well with new product launches. Our broad portfolio allows us to offset challenges in some markets with strengths in others, such as lawn and garden and aerosol businesses.
Q: How did the volume expectations for the Metal Container segment go in the second quarter?
A: The second quarter was slightly below our expectations due to the significant impact of a customer's volume reduction. This reduction accounted for most of the year-over-year change in the business. Our utilization rates are very high in Q2 and Q3, and the volume reduction had an outsized impact.
Q: Can you remind us where your pro forma leverage will be by the end of this year, and do you expect a full pipeline of deals heading into 2025?
A: By the end of the year, we should be just below the high end of our range, which is 2.5 to 3.5 times net debt. We are focused on completing the acquisition of Werner and its integration. However, we continue to look at investment opportunities, particularly in the dispensing space. Our balance sheet allows us to move swiftly and with certainty in the current market backdrop.
Q: Are you seeing any changes in how customers evaluate performance in metal packaging, and has there been any change in the competitive landscape?
A: Our metrics and relationships with customers have not changed significantly. We have deep, long-term contracts and are often on-site with our customers. The competitive landscape has not changed much for us, and we continue to protect our business with strong relationships and long-term contracts.
Q: How do you see the long-term strategic fit of the Custom Containers segment, especially with the addition of Werner?
A: Nothing has changed about our view of the Custom Containers business. It is performing well operationally, and we are not constraining capital to it. We like the business for what it is and are happy to have it as part of our portfolio.
Q: Was price cost favorable in the quarter, and how has it been for the first two quarters?
A: In the Metal Container segment, we faced under-absorption of fixed costs, which was a negative. In the resin-based businesses, there wasn't much variance on the price-cost line. Overall, the significance of the metal containers item drove a slight negative for the total company in the quarter.
Q: Are you seeing any improvement in food and beverage volumes, and what is your outlook for the back half of the year?
A: We have seen nice year-over-year recovery in our food and beverage businesses, and we expect volume growth in the second half of the year. Promotional activity has been successful, and we are looking for more of it with our customers as we head through the remainder of 2024.
Q: Are you seeing any restocking activity from customers, and how are you navigating through this?
A: We saw some restocking activity in the first quarter and a bit in Q2. In our Dispensing and Specialty Closures segment, customers are forecasting higher demand, leading to capacity constraints. We are working closely with our customers to address these needs and ensure we can support their market demands.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
