Silgan Holdings Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Silgan manufactures dispensing and specialty closures, metal containers, and custom plastic containers for consumer products. The company reported $5.99 billion in net sales and operated 107 manufacturing facilities.
Key financial results
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $5.99 billion | $6.41 billion |
| Gross profit / margin | $992.6 million / 16.6% | $1,047.8 million / 16.3% |
| Income before interest and taxes (EBIT) | $595.4 million | $602.0 million |
| Net income | $326.0 million | $340.8 million |
| Diluted earnings per share | $2.98 | $3.07 |
| Cash provided by operating activities | $482.6 million | $748.4 million |
| Capital expenditures | $226.8 million | $215.8 million |
Gross margin improved, but lower volume and higher interest expense weighed on results. Interest and other debt expense before early-extinguishment charges rose $47.0 million to $173.3 million, primarily reflecting higher interest rates. The effective tax rate was 22.8%, compared with 28.1% in 2022.
Segments
| Segment | 2023 sales | 2023 EBIT | Change in sales vs. 2022 |
|---|---|---|---|
| Dispensing and specialty closures | $2.22 billion | $281.0 million | -4.1% |
| Metal containers | $3.14 billion | $287.4 million | -6.9% |
| Custom containers | $626.0 million | $52.8 million | -13.4% |
Segment sales declines were driven principally by lower volumes and customer destocking. Custom containers also faced an unfavorable mix and lower resin-cost pass-through pricing. Metal-container EBIT increased from $234.2 million, while EBIT declined in the other two segments.
Liquidity, debt and capital allocation
- At year-end, cash and cash equivalents were $642.9 million and total debt principal was $3.44 billion. No revolving loans were outstanding under the Credit Agreement; $1.48 billion of revolving capacity was available after letters of credit.
- Cash from operations fell to $482.6 million from $748.4 million. Inventory increased by $162.3 million, a significant use of operating cash; the filing also cites working-capital movements and seasonal requirements.
- Cash interest paid was $155.4 million. After swaps, $675.3 million of year-end debt was floating-rate; a one-percentage-point rate change would have affected 2023 interest expense by about $13.2 million.
- The debt maturity schedule lists $852.7 million due in 2024. This includes $718.0 million of 3⅜% Senior Notes due March 2025, which are classified as current because the Credit Agreement would mature on December 14, 2024 if those notes were not repaid in full by then. Management says it intends to repay them by that date.
- Management expects approximately $240 million of capital expenditures in 2024 and approximately $135 million of federal, state and foreign tax payments. It believes operating cash flow and available borrowing capacity will cover expected needs.
- Silgan repurchased $174.6 million of shares in 2023 and paid $78.9 million in dividends. About $93.3 million remained under its share repurchase authorization at year-end.
Material changes, outlook and unusual items
- Consolidated sales declined 6.6%, with lower volumes across all segments, customer destocking, and non-recurring 2022 Russia-related sales among the key factors. The two Russian metal-container facilities ceased operations in early 2023.
- 2022 included a $73.8 million charge to write off assets associated with serving the Russian market. In 2023, Silgan recorded a $17.7 million recovery related to those assets. Rationalization charges were $8.4 million in 2023 versus $74.1 million in 2022.
- Other pension and postretirement results shifted from $45.2 million of income in 2022 to $4.3 million of expense in 2023, partly reflecting lower pension asset returns and a reduced expected return assumption. Domestic pension plan assets were 134% of projected benefit obligations at year-end.
- Management announced a cost-reduction initiative targeting $50 million of savings over two years through footprint rationalization and other actions. Facilities have been closed or announced for closure across the dispensing, metal-container and custom-container businesses; execution, customer retention and realization of savings remain risks.
- For 2024, management expects growth in higher-margin dispensing products, improved metal-container volumes led primarily by pet food, and new custom-container business wins to offset some destocking. It also expects continued destocking in some end markets during the first half. The filing does not provide consolidated 2024 revenue or earnings guidance.
- Approximately 90% of projected 2024 metal-container sales and a majority of projected dispensing and custom-container sales are expected to be under multi-year supply arrangements. Nestlé represented approximately 13% of consolidated sales in 2023.
Risks and contingencies
- Major risks include customer concentration and destocking, competition and pricing pressure, crop and weather variability, supplier concentration, raw-material and energy costs, inflation, foreign exchange, geopolitical disruption, labor availability and union negotiations, and cybersecurity threats.
- Customer contracts generally allow pass-through of raw-material costs, sometimes with a lag; the company cautions that full or timely recovery is not assured. Supplier-based supply-chain financing covered about $330.2 million of payables at year-end, while customer-based arrangements applied to approximately 12% of 2023 sales. Changes or termination could increase working-capital needs.
- The European Commission investigation into European metal packaging operations was settled in 2022 for a €23.9 million fine; the company stated it did not fully concur with the Commission’s facts and legal qualifications. The filing reports no pending legal proceeding expected to have a material adverse effect.
- Goodwill was $2.02 billion at year-end and is subject to impairment testing. Management reported no impairment in its 2023 annual assessment. Pension assumptions and goodwill valuation estimates are significant areas of judgment.
- The company reported that its financial statements received an unqualified audit opinion and that internal control over financial reporting was effective as of December 31, 2023.
Important facts for investors to verify
- How the company will address the 2024 debt maturities, particularly the $718 million notes and the Credit Agreement’s December 2024 cross-maturity condition.
- Whether operating cash flow recovers from 2023’s decline and whether inventory, seasonal working capital and supply-chain financing remain manageable.
- Whether destocking eases as expected and whether segment volumes and custom-container margins stabilize.
- Progress toward the $50 million cost-savings target, including closure costs, timing, customer retention and realized savings.
- Exposure to higher interest rates, raw-material and energy costs, and customer concentration, particularly Nestlé.