Silgan Holdings Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Silgan manufactures dispensing and specialty closures, metal containers, and custom containers for consumer-product markets. Amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $1,418.3 million | $1,441.9 million | Down 1.6% |
| Gross profit / margin | $238.0 million / 16.8% | $233.5 million / 16.2% | Margin up 0.6 percentage points |
| Income before interest and taxes | $131.2 million | $143.4 million | Down 8.5%; margin 9.3% vs. 9.9% |
| Net income | $72.0 million | $84.9 million | Down 15.1% |
| Diluted EPS | $0.65 | $0.76 | Down $0.11 |
| Adjusted EBIT (non-GAAP) | $149.4 million | $146.2 million | Up 2.2% |
Segments: Dispensing and Specialty Closures sales were $579.9 million, down 3.0%; adjusted EBIT was $82.9 million versus $96.5 million. Metal Containers sales were $670.1 million, up 3.0%; adjusted EBIT rose to $52.4 million from $32.9 million. Custom Containers sales were $168.3 million, down 12.9%; adjusted EBIT was $20.1 million versus $23.4 million. Adjusted EBIT is a company-defined non-GAAP measure.
Cash flow, debt and liquidity
- Operating cash flow was negative $631.8 million, compared with negative $267.4 million in Q1 2022. The company attributed the cash use primarily to working-capital movements, including increases in receivables and inventories and decreases in payables.
- Capital expenditures were $67.9 million. Cash and cash equivalents ended the quarter at $501.1 million, down from $585.6 million at year-end 2022.
- Total debt carrying value was $4.155 billion, including $784.8 million classified as current; long-term debt was $3.370 billion. Cash less reported total debt implies net debt of approximately $3.654 billion.
- Revolving loans outstanding under the credit agreement were $755.0 million. Available revolving capacity, after letters of credit, was $724.6 million. The company reported compliance with its financial and operating covenants and said liquidity should be sufficient for expected needs for the foreseeable future.
- Cash dividends paid were $20.6 million and share repurchases were $13.4 million. The quarterly dividend declared was $0.18 per share. Approximately $263.1 million remained under the $300 million share repurchase authorization.
Material changes and management commentary
- Lower sales reflected reduced volumes in closures and custom containers, unfavorable foreign-currency translation, the absence of Russia-related sales recorded in 2022, lower custom-container selling prices as resin costs declined, and less favorable metal-container mix. Higher metal-container volumes and inflation-related price increases partly offset these factors.
- Gross margin improved, but income before interest and taxes declined. Management cited pension expense instead of prior-year pension income, resin-cost pass-through timing, lower volumes in two segments, higher rationalization charges, and foreign exchange as pressures. These were partly offset by metal-container pricing and volume, favorable closures mix, and custom-container cost savings and pricing.
- Interest and other debt expense increased to $36.8 million from $30.8 million, primarily due to higher weighted-average interest rates. The effective tax rate was 23.8%, versus 24.6%.
- Inventory was $1.055 billion at March 31, 2023, up from $769.4 million at December 31, 2022. Trade receivables were $936.0 million, up from $658.0 million at year-end.
Outlook, risks and contingencies
- The filing provides no specific earnings or sales guidance. Management noted that seasonal working-capital requirements generally peak in summer or early fall and have historically averaged approximately $350 million. Harvest-dependent packaging demand has historically produced higher unit sales and a disproportionate share of annual adjusted EBIT in the third quarter.
- Key exposures include interest rates, foreign exchange, and commodity prices, including natural gas. The company uses derivatives for hedging, not speculation; it entered into four interest-rate swaps in March with $75 million notional each, fixed rates of 3.930%–3.942%, and maturities in April 2026.
- Rationalization charges were $4.1 million, versus $1.4 million a year earlier. The filing estimates $1.7 million of remaining rationalization expenses and $5.4 million of remaining cash expenditures, excluding the Central States pension-plan withdrawal liability. That liability is expected to generate about $0.9 million of annual interest expense through 2040, with expected cash payments of $0.8 million in 2023 and $2.6 million annually thereafter through 2040.
- Supplier invoices in the supply-chain-finance program totaled $318.4 million and remain included in accounts payable. The company reported ordinary-course legal claims but no pending proceedings it believed could materially adversely affect its business or financial condition.
Important facts for investors to verify
- Whether working-capital outflows and elevated inventory normalize as seasonal demand builds, and how much revolving borrowing is required.
- Whether the metal-container improvement can offset continued weakness in closures and custom containers.
- How higher borrowing costs affect interest expense, debt service, and covenant headroom.
- The timing and impact of pension-plan investment changes, rationalization spending, and long-term withdrawal-liability payments.
- The scale and terms of supplier participation in the supply-chain-finance program and its implications for payables and operating cash flow.