Silgan Holdings Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results; dollars in millions except per-share data. Silgan manufactures rigid packaging through Dispensing and Specialty Closures, Metal Containers, and Custom Containers.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $1,970.4 | $1,651.1 | $4,956.1 | $4,237.8 |
| Gross profit | $307.8 | $248.2 | $815.1 | $704.6 |
| Income before interest and taxes | $219.4 | $167.9 | $520.8 | $447.4 |
| Net income | $138.7 | $106.3 | $316.3 | $274.0 |
| Diluted EPS | $1.25 | $0.96 | $2.85 | $2.47 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(117.5) | $(5.8) |
- Q3 sales rose 19.3%; net income increased 30.5%. Gross margin improved to 15.6% from 15.0%, and operating-income margin to 11.1% from 10.2%.
- Nine-month sales rose 16.9% and net income increased 15.4%. Gross margin eased to 16.4% from 16.6%; operating-income margin was 10.5% versus 10.6%.
- Q3 sales growth reflected higher selling prices from inflation pass-through, partly offset by unfavorable currency translation and lower unit volumes in Metal and Custom Containers. Metal Containers sales increased 28.6%, while unit volume fell about 9%. Nine-month Metal Containers volume fell about 11%.
- Q3 segment income increased across all three segments. For the first nine months, Dispensing and Specialty Closures income rose to $257.8 million, Metal Containers to $225.6 million, and Custom Containers to $79.8 million; Metal Containers’ margin declined to 8.6% from 9.4%.
Cash, debt and liquidity
- Cash was $243.6 million at September 30, 2022, down from $631.4 million at year-end 2021. Nine-month operating cash use was $117.5 million, driven substantially by increases in receivables and inventory and a decrease in accounts payable. Capital expenditures were $162.3 million.
- Total debt was $3,838.0 million, including $591.3 million classified as current; long-term debt was $3,246.7 million. The company had $497.0 million drawn on its revolving facility and $983.3 million of revolver availability after letters of credit.
- Current assets were $2,332.2 million and current liabilities $1,681.4 million. Interest and other debt expense was $33.7 million for Q3 and $93.2 million year to date, including a $1.5 million early-extinguishment loss in the nine-month period.
- Management said operating cash generation and available borrowing capacity should cover foreseeable operating needs, capital spending, debt service, taxes, pension contributions, dividends and share repurchases. The company reported compliance with financing covenants and expected to remain compliant during 2022.
Material changes, outlook and risks
- Sales and earnings gains were supported by inflation-related price increases, operating performance, and favorable timing of resin-cost pass-throughs. Inflation in manufacturing and SG&A costs, foreign exchange, and weaker volumes offset some benefits. Management provided no specific numerical earnings or sales guidance.
- Inventory-layer liquidations under the LIFO method reduced cost of goods sold by $26.2 million in Q3 and $33.5 million for the first nine months. This benefited reported earnings and should be considered when assessing underlying performance.
- On July 12, 2022, Silgan settled the European Commission investigation into its European metal packaging operations. The company recorded a $25.2 million charge in the nine-month period and paid a €23.9 million fine in October 2022; it stated that it did not fully concur with the Commission’s facts and legal qualifications.
- Silgan redeemed $300 million of 4¾% Senior Notes in March 2022, funded with revolver borrowings and cash on hand. Nine-month share repurchases totaled $26.4 million under a $300 million authorization; dividends paid were $54.3 million.
- Key exposures include seasonal demand tied to fruit and vegetable harvests, working-capital needs, customer supply-chain and labor challenges, inflation and price pass-through timing, foreign-currency and interest-rate movements, and commodity prices. Management noted that harvest seasonality has historically concentrated unit sales and segment income in Q3.
- Goodwill and indefinite-lived intangible assets were not impaired in the annual 2022 assessment. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter; integration of controls at 2021 acquisitions remained in progress.
Important facts for investors to verify
- Whether working-capital cash use, particularly receivables and inventory, reverses or persists, and how this affects borrowing needs.
- How much reported earnings benefited from LIFO inventory liquidation and favorable resin-cost pass-through timing, and whether those benefits are repeatable.
- Whether lower volumes in Metal and Custom Containers and customer supply-chain and labor constraints continue.
- The cash and earnings impact of the European Commission fine, including its October payment and any related future obligations.
- Debt maturity and refinancing needs, interest-rate exposure, and continued covenant compliance, alongside seasonal revolver usage and available liquidity.