Silgan Holdings Inc. — FY 2019 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019. Silgan manufactures rigid packaging through three segments: metal containers, closures and dispensing systems, and plastic containers. It reported 100 manufacturing plants worldwide and approximately $4.49 billion in consolidated sales.
Key financial results
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $4,489.9 million | $4,448.9 million |
| Gross profit / margin | $713.7 million / 15.9% | $689.8 million / 15.5% |
| Income before interest and taxes / margin | $359.5 million / 8.0% | $412.1 million / 9.3% |
| Net income | $193.8 million | $224.0 million |
| Diluted earnings per share | $1.74 | $2.01 |
| Net cash from operating activities | $507.4 million | $506.5 million |
| Capital expenditures | $230.9 million | $191.0 million |
| Cash and cash equivalents at year-end | $203.8 million | $72.8 million |
| Total debt principal at year-end | $2,258.9 million | $2,317.7 million |
Gross margin improved, but operating income and net income fell. The filing reports $56.3 million of 2019 rationalization charges, versus $6.3 million in 2018, primarily related to U.S. metal-container footprint actions and withdrawal from a multiemployer pension plan. Interest and other debt expense was $107.4 million, including a $1.7 million early-extinguishment charge. The effective tax rate was 23.1%.
At year-end, current assets were $1.41 billion and current liabilities were $1.02 billion. The company reported no revolving-loan borrowings and approximately $1.17 billion of available multicurrency revolving capacity, plus Cdn $15 million, after letters of credit. Debt figures above are principal; the balance-sheet carrying amount, net of unamortized issuance costs, was $2.24 billion.
Segments and changes versus the prior year
| Segment | 2019 sales | 2019 segment income | Change in sales vs. 2018 |
|---|---|---|---|
| Metal containers | $2,473.2 million | $160.0 million | Up 4.0% |
| Closures | $1,405.6 million | $173.5 million | Down 3.5% |
| Plastic containers | $611.1 million | $48.9 million | Down 0.5% |
Consolidated sales increased 0.9%, largely from metal-container raw-material and manufacturing-cost pass-through and higher plastic-container volumes. Metal and closures volumes and product mix weakened; unfavorable currency translation also reduced sales. Segment income declined in metal containers and closures, while plastic-container income improved. Metal-container results included $49.4 million of rationalization charges; closures included $6.6 million.
Operating cash flow was nearly unchanged year over year. The company spent $230.9 million on capital expenditures and reported $145.5 million of net cash used in financing activities, while year-end cash increased by $131.0 million. Dividends paid were $50.8 million. The quarterly results reflect seasonality: third-quarter 2019 sales were $1,321.3 million and net income was $81.3 million; fourth-quarter sales were $1,048.3 million and net income was $34.8 million.
Outlook, commentary, risks and unusual items
- Management anticipates a relatively flat North American metal food-container market, with growth opportunities in some areas such as pet food. It plans continued productivity work, cost reductions, acquisitions and internal growth.
- Expected 2020 capital expenditures were approximately $200 million. Management said operating cash flow and available credit were expected to cover operating needs, planned capital spending, debt service, taxes, pensions, dividends and repurchases for the foreseeable future.
- A U.S. metal-container footprint plan targets likely closures of six facilities over three years; two facilities closed in the fourth quarter of 2019. The company recorded a substantial estimated Central States pension withdrawal liability, with expected payments of approximately $3.1 million annually for 20 years beginning in 2020.
- After year-end, Silgan acquired Cobra Plastics on February 4, 2020; its 2018 sales were approximately $30 million. Silgan also made a binding $900 million offer for Albéa’s dispensing business. The proposed transaction remained subject to the sellers’ action, a definitive agreement and regulatory clearances; a $25 million break or termination fee could apply in specified circumstances. Management estimated potential annual synergies of approximately $20 million within 18 months of closing.
- On February 26, 2020, the company issued an additional $200 million of 4⅛% notes and €500 million of 2¼% notes, using proceeds to prepay most U.S. term loans. These are subsequent events, not year-end debt balances.
- Key exposures include leverage and floating interest rates, raw-material availability and pass-through timing, customer and supplier concentration, seasonal crop yields, foreign exchange, labor, pension obligations, and economic or supply-chain disruption. A one-percentage-point rate change was estimated to affect 2019 interest expense by approximately $13.1 million after swaps.
- European antitrust investigations involving metal packaging remained at an early stage; the company said it could not estimate potential costs or outcomes. Management reported no pending legal proceeding expected to have a material adverse effect. The filing also identifies goodwill impairment estimates as a critical audit matter; goodwill was $1.14 billion and no impairment was recorded in the 2019 annual test.
Important facts for investors to verify
- Whether the 2019 earnings decline was chiefly driven by one-time rationalization and pension items or reflects ongoing weakness in metal-container and closures segment performance.
- Progress, total costs, closure timing and customer-retention effects of the multi-year U.S. metal-container footprint optimization plan.
- Completion terms, financing, antitrust outcomes, integration risks and realized synergies for the proposed Albéa transaction; separately, the financial contribution from Cobra Plastics.
- Debt maturities, covenant headroom, seasonal borrowing needs and the effect of variable rates and refinancing on cash available for investment and shareholder returns.
- Whether raw-material cost changes continue to pass through to customers without significant timing gaps, and whether crop yields and customer volumes recover.
- Potential exposure from the European antitrust investigations and multiemployer pension plans, including the scheduled Central States withdrawal-liability payments.