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By the numbers
Q2 net income: $78.9M
Down from $92.7M in Q2 2022
- Q2 readout: “The team here at Silgan is very disappointed with our performance in the second quarter and our revised outlook for the remainder of the year,” CEO Adam Greenlee said during Wednesday’s earnings call. “We believe the current issues we're facing are transitory in nature and will be contained to the year of 2023.”
- Business performance: The Connecticut-based consumer goods packaging company highlighted “strong operating performance” during Q2 in its metal containers segment, as well as increased demand and volume growth for dispensing products. But it also faced softening demand for food and beverage closures in Europe, and noted an absenteeism issue at a U.S. closure, food and beverage facility that limited output. At its lowest point Wednesday, Silgan Holdings’ stock was down more than 14% from its previous close.
- Consumer demand trends: Greenlee described U.S. consumers as “very resilient thus far.” The European consumer, however, has been weaker — that impact shows up in Silgan’s dispensing and specialty closures business as well as its food and beverage business, Greenlee said. But the company is also poised to do well in difficult economic times because consumers are more likely to “trade down” and purchase canned food, which benefits Silgan’s metal food container sales.
- Customer destocking and inventory management: Silgan is still being affected by inventory issues, but their nature has changed. Destocking issues the last few years were related to products that surged amid the COVID-19 pandemic, such as household cleaners and sanitizers, Greenlee said. While those products are now back to growth, new issues have emerged stemming from inflation passed through to both consumers and customers, “not just in the products that we sell, but in ingredients and other packaging raw materials,” Greenlee said. The volumes that customers hold hasn’t changed notably, Greenlee said, but “the dollar value of that inventory is significantly higher than it's been at any time in recent past.” The interest expense of holding inventory seems to be driving customers’ decision-making, Greenlee said.
- Lower guidance: Free cash flow for 2023 is now expected to be $375 million, down from $425 million. The company also revised-down the expected adjusted net income per diluted share. Despite the impact from inventory management programs, the company expects that adjusted earnings before interest and taxes in the dispensing and specialty closures and metal containers segments for 2023 will be “comparable to record levels achieved in 2022.” But volumes in custom containers are anticipated to be 10% lower than last year. Greenlee said Silgan’s outlook for the remainder of the year is shaped by customers’ inventory management programs, the ongoing impact of the U.S. labor challenge, and incremental interest costs due to higher interest rates.
- Rightsizing at Silgan: “Due to our customers' changed priorities for the second half, we are also shifting our focus to align our operational footprint and business activities to the revised second half projections and we will be driving out cost from each of our businesses,” Greenlee said. When asked about potential cost benefits from restructuring programs, Greenlee said the company has “a lot more activities that we're going to be talking about on the next call that we have in October.”
