Packaging

Silgan Announces Record Third Quarter Earnings Per Share

Wednesday 24. October 2012 - Silgan Holdings Inc. (Nasdaq:SLGN), a leading supplier of rigid consumer goods packaging products, today reported third quarter 2012 net income of $78.7 million, or $1.13 per diluted share, as compared to third quarter 2011 net income of $78.8 million, or $1.12 per diluted share. Adjusted net income per diluted share was $1.17 for the third quarter of 2012 as compared to $1.14 for the third quarter of 2011, after adjustments increasing net income per diluted share by $0.04 for the third quarter of 2012 and $0.02 for the third quarter of 2011. A reconciliation of net income per diluted share to "adjusted net income per diluted share," a Non-GAAP financial measure used by the Company, which adjusts net income per diluted share for certain items, can be found in Tables A and B at the back of this press release.

“Silgan had another strong quarter and performed as expected in the face of continued volatility in growing conditions and European economic challenges. We delivered adjusted net income per diluted share of $1.17 for the third quarter of 2012 and $2.22 for the first nine months of 2012, which was an increase of 7.2 percent over the prior year comparable nine month period,” said Tony Allott, President and CEO. “Our metal container business benefited slightly from domestic fresh pack volumes that were better than the prior year, but were well short of our initial expectations. In addition, our metal container business reduced inventory by a greater amount than in the third quarter of 2011 and was therefore negatively impacted by under absorbed overhead costs. Unit volumes in our closures business benefited from the continuation of strong single-serve beverage volumes in the U.S., but our European closures operations continued to experience weaker demand patterns which we attribute to general economic conditions. Our plastic container business benefited from improved operating performance and effect of the timing of resin pass throughs, which more than overcame expected volume shortfalls. Our recent acquisition of the plastic food container business from Rexam PLC has been integrated into our plastic container segment and we are very pleased with its performance thus far,” continued Mr. Allott. “Based on our year-to-date performance and continued caution given the global economic environment, we are refining our full year 2012 earnings estimate of adjusted net income per diluted share in the range of $2.80 to $2.85,” concluded Mr. Allott.
Net sales for the third quarter of 2012 were $1,139.5 million, a decrease of $8.5 million, or slightly under 1.0 percent, as compared to $1,148.0 million in 2011. This decrease was the result of lower net sales over the prior year period in the closures and plastic container businesses, partially offset by higher net sales in the metal container business.
Income from operations for the third quarter of 2012 was $132.4 million as compared to $136.1 million for the third quarter of 2011, and operating margin decreased to 11.6 percent from 11.9 percent over the same periods. The decrease in income from operations was primarily attributable to a decrease in income from operations in the metal container business, partially offset by an increase in income from operations in the plastic container business and lower selling, general and administrative expenses.
Interest and other debt expense before loss on early extinguishment of debt for the third quarter of 2012 was $16.0 million, a decrease of $0.3 million as compared to 2011. The third quarter of 2011 included a loss on early extinguishment of debt of $1.0 million as a result of the refinancing of the senior secured credit facility in July 2011.
The effective tax rate was 32.4 percent and 33.7 percent for the third quarters of 2012 and 2011, respectively. The effective tax rate for the third quarter of 2012 benefited from the resolution of certain issues with tax authorities and changes to statutory tax rates enacted in certain jurisdictions.
Metal Containers
Net sales of the metal container business were $814.1 million for the third quarter of 2012, an increase of $15.4 million, or 1.9 percent, as compared to $798.7 million in 2011. This increase was primarily due to an increase in unit volumes and higher average selling prices as a result of the pass through of higher raw material costs, partially offset by the impact of unfavorable foreign currency translation of approximately $12.0 million. Unit volumes increased in the third quarter of 2012 primarily as a result of an improved fresh vegetable pack in 2012 as compared to a weak vegetable pack in 2011 and net sales contributed from the recent acquisition of Önta? in Turkey.
Income from operations of the metal container business decreased $8.2 million in the third quarter of 2012 to $103.5 million as compared to $111.7 million in 2011, and operating margin decreased to 12.7 percent from 14.0 percent over the same periods. These decreases were primarily the result of the negative impact from lower absorption of overhead costs due to inventory reductions in the third quarter of 2012 in excess of reductions in 2011. Also contributing to this decline in income from operations were lower price realization in the European markets largely in exchange for improved customer credit terms negotiated earlier in the year, rationalization charges of $1.7 million in the third quarter of 2012 from the recently announced closing of the Kingsburg, California manufacturing facility and costs of $1.4 million associated with the start-up of new production facilities in eastern Europe and one new facility in the Middle East. These decreases were partially offset by an increase in unit volumes.
Closures
Net sales of the closures business were $182.7 million in the third quarter of 2012, a decrease of $6.8 million, or 3.6 percent, as compared to $189.5 million in 2011. This decrease was primarily the result of the impact of unfavorable foreign currency translation of approximately $10.9 million, partially offset by an increase in unit volumes.
Income from operations of the closures business for the third quarter of 2012 decreased $0.3 million to $24.1 million as compared to $24.4 million in 2011, while operating margin increased to 13.2 percent from 12.9 percent over the same periods. Volume improvements in the U.S. largely in the single-serve beverage market, improved manufacturing efficiencies and on-going operating cost savings were more than offset by declines in Europe resulting from on-going macroeconomic issues and higher rationalization charges.
Plastic Containers
Net sales of the plastic container business were $142.7 million in the third quarter of 2012, a decrease of $17.1 million, or 10.7 percent, as compared to $159.8 million in 2011. This decrease was principally a result of lower unit volumes partially due to planned third quarter shut downs by certain customers, lower average selling prices as a result of the pass through of lower resin costs and the unfavorable impact of foreign currency translation of approximately $0.5 million, partially offset by the inclusion of net sales from the plastic food container business acquired from Rexam PLC on August 30, 2012.
Income from operations of the plastic container business for the third quarter of 2012 was $6.2 million, an increase of $2.4 million as compared to $3.8 million in 2011, and operating margin increased to 4.3 percent from 2.4 percent over the same periods. These increases were primarily attributable to continued improvement in operating performance, the favorable comparison of the year-over-year resin pass through lag effect which benefited the third quarter of 2012 and lower rationalization charges, partially offset by a decrease in unit volumes.
Nine Months
Net income for the first nine months of 2012 was $122.0 million, or $1.74 per diluted share, as compared to net income for the first nine months of 2011 of $156.1 million, or $2.22 per diluted share. Adjusted net income per diluted share for the first nine months of 2012 was $2.22 versus $2.07 in the prior year period, after adjustments increasing net income per diluted share by $0.48 for the first nine months of 2012 and adjustments decreasing net income per diluted share by $0.15 for the first nine months of 2011.
Net sales for the first nine months of 2012 increased $56.2 million, or 2.1 percent, to $2.73 billion as compared to $2.67 billion for the first nine months of 2011. This increase was primarily due to the inclusion of net sales from acquisitions, higher average selling prices in the metal container and plastic container businesses due to the pass through of higher raw material costs, higher unit volumes in the metal container and closures businesses principally in the U.S. and a favorable mix of products sold in the plastic container business. These increases were partially offset by the impact of unfavorable foreign currency translation of approximately $46.6 million, lower unit volumes in the plastic container business and lower net sales in Europe due to weak economic conditions.
Income from operations for the first nine months of 2012 was $266.8 million, a decrease of $17.4 million, or 6.1 percent, from the same period in 2011. This decrease was primarily a result of income of $25.2 million included in the first nine months of 2011 in corporate selling, general and administrative expenses for proceeds received as a result of the termination of the Graham Packaging merger agreement, net of costs attributable to certain corporate development activities, volume declines and price pressure in Europe due to weak economic conditions, the unfavorable impact from inventory reductions in the metal container business, start-up costs of $4.3 million for new metal container production facilities in eastern Europe and the Middle East and higher rationalization charges. These decreases were partially offset by the favorable comparison of the year-over-year resin pass through lag effect, higher unit volumes in the metal container and closures businesses and improved manufacturing efficiencies and ongoing cost controls across all businesses. Rationalization charges were $5.8 million in the first nine months of 2012 as compared to $4.8 million in the first nine months of 2011, and results for 2011 included a $3.3 million charge related to the resolution of a past product liability dispute.
Interest and other debt expense before loss on early extinguishment of debt for the first nine months of 2012 was $47.6 million, an increase of $0.9 million as compared to the first nine months of 2011. This increase was primarily due to higher average outstanding borrowings largely attributable to the refinancing of the senior secured credit facility in July 2011 and the issuance in March 2012 of $500 million of 5% Senior Notes due 2020, partially offset by lower average interest rates. The first nine months of 2012 included a loss on early extinguishment of debt of $38.7 million related to the early redemption of the 7¼% Senior Notes due 2016.
The effective tax rate was 32.4 percent and 34.0 percent for the first nine months of 2012 and 2011, respectively. The effective tax rate for the first nine months of 2012 was favorably impacted by changes to statutory tax rates enacted in certain jurisdictions and the resolution of certain issues with tax authorities.
Acquisition
On August 30, 2012, the Company acquired the plastic thermoformed food business of Rexam PLC. This business, with anticipated sales of approximately $100 million in 2012, provides thermoformed packaging solutions such as retortable bowls and barrier trays to the world’s leading packaged food and ready-meal companies.
Capital Stock and Dividends
The Company repurchased an aggregate of 288,655 shares of its common stock at an average price per share of $40.80, for a total purchase price of $11.8 million, in the third quarter of 2012.
On September 18, 2012, the Company paid a quarterly cash dividend in the amount of $0.12 per share to holders of record of common stock of the Company on September 4, 2012. This dividend payment aggregated $8.4 million.
Outlook for 2012
The Company refined its estimate of adjusted net income per diluted share for the full year of 2012 in the range of $2.80 to $2.85 from the previous range of $2.80 to $2.90. This estimate compares to adjusted net income per diluted share of $2.63 for 2011.
The Company is providing an estimate of adjusted net income per diluted share for the fourth quarter of 2012 in the range of $0.58 to $0.63. This estimate compares to adjusted net income per diluted share of $0.56 in the fourth quarter of 2011.