Silgan Holdings Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Silgan manufactures rigid packaging through its Dispensing and Specialty Closures, Metal Containers, and Custom Containers segments. The filing renamed the former Closures and Plastic Containers segments; their operations were unchanged.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $1,238.1 million | $1,030.4 million | +20.2% |
| Gross profit / margin | $221.5 million / 17.9% | $185.1 million / 18.0% | Margin down 0.1 percentage point |
| Income before interest and taxes | $126.5 million | $102.1 million | +23.9%; margin 10.2% vs. 9.9% |
| Net income | $73.3 million | $57.6 million | +27.2% |
| Diluted earnings per share | $0.66 | $0.52 | Up $0.14 |
| Net cash used in operating activities | $172.1 million | $168.1 million | Use increased $4.0 million |
Revenue by segment: Dispensing and Specialty Closures $509.4 million (+42.6%); Metal Containers $554.1 million (+9.0%); Custom Containers $174.7 million (+6.1%). Closures growth included Albéa dispensing operations acquired in June 2020, higher volumes, pricing pass-through and favorable currency translation. Metal Containers benefited from higher volumes and continued strong food-can demand. Custom Containers had comparable aggregate volumes to prior-year record levels.
Profitability: SG&A was $97.4 million, up from $89.9 million, but declined to 7.9% of sales from 8.7%. Rationalization charges increased to $10.4 million from $2.8 million. Segment income rose in Closures and Custom Containers but fell in Metal Containers to $45.6 million from $47.5 million; Metal Containers’ margin declined to 8.2% from 9.3%. Interest and other debt expense was $27.3 million versus $25.0 million, including a $0.9 million early debt-extinguishment charge (prior year: $1.5 million). The effective tax rate was 26.2%, compared with 25.4%.
Cash, debt and liquidity
- Cash and cash equivalents were $190.1 million at March 31, 2021, down from $409.5 million at year-end 2020 and $614.8 million at March 31, 2020.
- Cash used in operations was $172.1 million, primarily reflecting working-capital outflows, including $118.1 million for inventory and $103.5 million for receivables, partly offset by other operating adjustments.
- Capital expenditures were $68.8 million; net cash used in investing activities was $68.4 million. Financing provided $25.7 million. Cash decreased $219.4 million during the quarter.
- Total debt at carrying value was $3.36 billion, including $195.1 million current and $3.16 billion long-term, versus $3.25 billion at December 31, 2020. The company had $137.0 million of revolving loans outstanding and reported approximately $1.04 billion and Cdn $15.0 million of available revolving capacity after letters of credit.
- In February, Silgan issued $500 million of 1.4% senior secured notes due 2026 and used the proceeds to prepay $500 million of term loans. The transaction refinanced debt and generated a $0.9 million extinguishment loss.
- Management said operating cash generation and available borrowing capacity should meet foreseeable needs and stated the company was in compliance with its debt covenants, with expected continued compliance during 2021.
Material changes, outlook and risks
Management attributed higher operating income mainly to increased volumes, favorable product mix and operating performance in Closures and Custom Containers, plus lower corporate expenses. These benefits were partly offset by delayed pass-through of sharply higher resin costs in those segments, higher Metal Container production costs, increased rationalization charges and foreign-currency transaction losses. Metal Container costs also reflected severe winter weather and one-time hiring and training expenses. Consolidated gross margin edged lower despite higher sales.
No specific earnings or revenue guidance was provided. Management noted seasonal working-capital needs generally peak in summer or early fall and have historically averaged approximately $350 million; harvest-dependent packaging sales typically make Q3 the strongest volume and income quarter. The filing also identifies exposure to interest rates, foreign exchange and commodity prices, including natural gas; Silgan uses hedges for risk management, not speculation.
Contingencies include ongoing European antitrust investigations involving the metal packaging industry and Silgan subsidiaries in Germany and Europe. The company said it could not reasonably assess potential actions or costs at this stage. The 2019 Central States Pension Plan withdrawal liability is expected to require approximately $3.1 million of annual cash expenditures through 2040, with interest accretion expense averaging about $1.1 million annually. Management reported no other pending legal matter expected to have a material adverse effect on business or financial condition.
Important facts for investors to verify
- Whether volume growth and Albéa-related sales contributions are sustainable, and how comparable growth develops after the acquisition effect.
- Whether higher resin and other input costs are passed through promptly, and whether margins recover or remain pressured.
- Seasonal working-capital requirements, operating cash conversion and use of revolving credit through the summer and early-fall peak.
- Debt levels, refinancing economics, covenant compliance and capacity available after seasonal borrowing needs.
- Developments and potential financial exposure from the European antitrust investigations and long-term pension withdrawal obligations.