Silgan Holdings Inc. — 2018 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2018; the company’s fourth-quarter figures are unaudited. Silgan manufactures rigid consumer packaging through metal containers, closures and dispensing systems, and plastic containers, operating 100 manufacturing plants across multiple regions. The filing was signed February 28, 2019.
Financial results and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Net sales | $4,448.9 million | $4,089.9 million |
| Gross profit / margin | $689.8 million / 15.5% | $634.5 million / 15.5% |
| Income before interest and taxes / margin | $412.1 million / 9.3% | $357.0 million / 8.7% |
| Net income | $224.0 million | $269.7 million |
| Diluted earnings per share | $2.01 | $2.42 |
| Cash provided by operating activities | $506.5 million | $389.8 million |
| Capital expenditures | $191.0 million | $174.4 million |
| Cash and cash equivalents at year-end | $72.8 million | $53.5 million |
| Gross debt principal at year-end | $2,317.7 million | $2,564.3 million |
Cash from operations less capital expenditures was approximately $315.5 million in 2018. At year-end, revolving loans were undrawn; after letters of credit, reported borrowing availability was approximately $1.17 billion plus Cdn $15 million. Current assets were $1,290.1 million and current liabilities $1,079.1 million. Interest and other debt expense was $118.8 million, including a $2.5 million early-extinguishment charge. The company reported $947.5 million of floating-rate debt; a one-percentage-point rate change would have affected 2018 interest expense by about $14.3 million.
Fourth quarter: 2018 net sales were $1,070.5 million and net income $38.2 million, or diluted EPS of $0.34. Fourth-quarter 2017 net income was $146.1 million, including a $110.9 million tax benefit related primarily to U.S. tax reform.
Segment results: Metal containers generated sales of $2,378.0 million and segment income of $198.8 million; closures generated $1,456.8 million and $189.9 million; plastic containers generated $614.1 million and $42.6 million, respectively. Segment income excludes corporate expense as presented in the filing.
Material changes versus 2017
- Sales rose 8.8%, driven by a full year of Silgan Dispensing Systems (SDS), higher raw-material and other manufacturing cost pass-throughs, favorable currency translation, and increased plastic-container volumes. Metal-container unit volumes fell about 4%; legacy closures volumes fell about 2%.
- Operating income increased 15.4%, with improved closures and plastic-container results and lower manufacturing costs. Metal-container segment income declined $31.4 million, reflecting lower volumes and about $18 million of unfavorable overhead absorption as finished-goods inventory declined approximately $65 million.
- Net income fell despite higher operating income, principally because 2017 included the $110.9 million tax benefit from tax reform. The 2018 effective tax rate was 23.6%, compared with a 2017 benefit rate of 12.5% (33.8% excluding the tax-reform adjustments).
- Operating cash flow increased to $506.5 million. Gross debt principal declined by approximately $246.5 million; the company redeemed its remaining $280 million of 5% Notes in April 2018, using revolver borrowings and cash on hand.
Outlook, commentary and risks
- No specific 2019 earnings or revenue guidance is provided. Management expects operating cash flow and available credit to meet foreseeable operating needs, debt service, planned capital expenditures, taxes and dividends, and expects to finance seasonal working capital with cash, revolver borrowings and foreign bank loans.
- Expected capital expenditures are approximately $200 million in 2019, followed by approximately $175–$200 million annually, potentially higher for specific growth or cost-saving projects. Estimated federal, state and foreign tax payments for 2019 are $50–$70 million.
- Debt principal payments are scheduled at $170.2 million in 2019, $84.5 million in 2020, $83.2 million in 2021 and $383.3 million in 2022, with substantial later maturities. Management reported compliance with debt covenants and expected continued compliance during 2019.
- Key exposures include leverage and floating interest rates; seasonal working-capital borrowing and harvest variability; customer concentration (Nestlé accounted for about 11% of 2018 sales); competition and possible customer volume losses; and dependence on a limited number of suppliers. Steel tariffs and quotas raised cost volatility, while raw-material pass-throughs may lag or prove incomplete.
- The business is exposed to foreign-exchange movements, labor negotiations, environmental and product regulation, pension funding and acquisition integration risks. Management estimated an approximately $20 million non-cash unfavorable 2019 impact from 2018 pension-asset market declines.
- European Commission antitrust investigations involving the metal packaging industry include the company’s European subsidiaries. The filing says the investigations were at an early stage and their outcomes and costs could not be estimated. Routine proceedings were not expected to have a material adverse effect.
- Adoption of the new lease accounting standard in 2019 was expected to add $160–$180 million of lease assets and liabilities, without a material impact on earnings or cash flows.
Important facts for investors to verify
- Whether metal-container volumes and margins recover after the 2018 decline, inventory reduction and freight/start-up cost pressures.
- How effectively the company passes steel, resin, labor and other cost increases through to customers, particularly given tariff volatility and pass-through lags.
- Debt repayment capacity, future interest costs and seasonal liquidity needs, including the effect of any acquisition or rate changes.
- The outcome and potential financial exposure of the European antitrust investigations and the company’s pension obligations, including multiemployer-plan exposure.
- Whether reported earnings comparisons are normalized for the substantial 2017 tax benefit and SDS acquisition-related effects.