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By the numbers
Dispensing and specialty closures net sales: $559.1M
Down 2.8% year over year, impacted by food and beverage destocking
Metal containers net sales: $1.1B
Down 9.7% year over year, impacted by food and beverage destocking
Custom containers net sales: $149.4M
Down 18.3% year over year, impacted by delays in commercialization of new business and destocking
Q3 net income: $110.6M
Down from $138.7M in Q3 2022
- Q3 readout: Silgan’s results reflect “softer than expected volumes in the quarter,” said CEO Adam Greenlee during a Q3 earnings call Wednesday. The “destocking we saw [develop] near the end of the second quarter across all three segments expanded during the third quarter, as these efforts deepened in the food and beverage markets and grew to include adjacent categories,” Greenlee explained, adding that consumer-level demand for its products appears to remain “robust.” Executives highlighted demand for high-value dispensing products as the bright spot in the quarter, including recovery in certain fragrance dispensing products following post-pandemic destocking last year.
- Destocking: Customer destocking activities have expanded, Silgan executives described. U.S. food and beverage volumes were flat year over year as destocking “had a more pronounced impact on our volume than we anticipated in our guidance,” Greenlee said. Likewise, customer inventory reductions expanded to pet food, which is expected to impact Q4 results as well. “I think we are as frustrated with destocking as anybody else is at this point,” Greenlee said, but acceleration of that trend could provide upside come 2024.
- Cost-cutting plans: The company announced a $50 million cost reduction program through the end of 2025, with “footprint rationalizations and other cost reduction actions” to benefit all segments. “It's really not about taking any capacity out of that market. It is about optimizing the footprint, taking growing volume and putting it in more efficient facilities and driving improvement in that manner,” Greenlee said. The company is confident that with rightsizing, as metal and custom container volumes grow, it will “have the ability to meet that demand head on,” Greenlee said. The company does not plan to rationalize any pet food assets. “We're anxious to move on to 2024 and get back to a more normalized volume level,” he said.
- Spending: Year-to-date, Silgan has repurchased $175 million worth of stock. Capital expenditures on the year are expected to total $230 million. Regarding the potential for acquisitions, Bob Lewis, executive vice president for corporate development and administration, said “generally, the M&A activity is kind of on a pause, if you will, likely waiting for the calendar to flip.”
- Q4 outlook: The company anticipates lower volumes in Q4. Largely citing destocking, Silgan foresees low-single-digit year-over-year volume declines in dispensing and specialty closures as well as in custom containers, and mid-single-digit declines in metal containers.
- Lowered full-year expectations: Silgan revised downward its full-year 2023 expectations for earnings per share from a range of $3.40 to $3.60 to between $3.30 and $3.40, in part citing higher interest expense. It lowered free cash flow estimates from $375 million to $340 million, in part due to cash costs associated with the cost reduction program.
