Silgan Tops EPS, Reaffirms Guidance

Silgan Holdings Inc. ( SLGN - Analyst Report ) posted adjusted earnings of 50 cents per share in the first-quarter 2012, exceeding the Zacks Consensus Estimate of 46 cents per share as well as the year-ago quarter of 41 cents.

Including rationalization charges of 3 cents per share, earnings were 47 cents per share in the reported quarter. Earnings in the prior year quarter were 37 cents per share including a rationalization charge of 2 cents per share and costs related to acquisitions of 2 cents per share.

Total revenues increased 9.3% year over year to $768.4 million in the quarter, missing the Zacks Consensus Estimate of $793.0 million. The year-over-year improvement was driven by growth in sales across all the segments.

Cost and Margins

Cost of goods sold increased 8.9% to $654.4 million. Gross profit increased 11.8% to $114.0 million. Consequently, gross margin improved 30 basis-points (bps) to 14.8% in the quarter.

Selling, general and administrative expenses declined 4.7% to $44.6 million in the quarter. Income from operations rose 22.8% to $65.8 million, thereby, expanding operating margin by 100 bps to 8.6% in the reported quarter.

Segment Performance

Total revenues in the Metal containers segment increased 13.9% to $444.9 million, while operating income rose 9.4% to $42.0 million in the quarter.

Closure segment’s total revenues increased 1.9% to $163.0 million. Operating income, too, saw an increase of 13.9% to $18.0 million.

In the Plastic containers segment, total revenues increased 5.2% to $160.5 million. Consequently, operating income jumped 41.3% to $8.9 million in the quarter.

Financial Updates

Cash and cash equivalents were $684.5 million as of March 31, 2012, compared with $135.8 million as of March 31, 2011. Inventories were worth $687.9 million as of March 31, 2012, compared with $654.5 million as of March 31, 2011.

Current and long-term debt amounted to $1,911.8 million as of March 31, 2012, compared with $1,443.0 million as of March 31, 2011. Debt-to-capitalization ratio was 73.4% as of March 31, 2012, increasing from 68% as of December 31, 2011 and from 71% as of March 31, 2011.

Cash used in operating activities was $105.5 million during the reported quarter compared with $58.9 million in the year-ago quarter. Capital expenditure was $26.3 million during first-quarter 2012 versus $33.5 million during first-quarter 2011.

Share Repurchase

During first-quarter 2012, Silgan repurchased 114,119 shares of its common stock for $5.0 million at an average price of $43.92 per share. Aggregate dividend payment amounted to $8.5 million.

Fiscal 2012 Outlook

The company re-affirmed its previous guidance of adjusted earnings to lie in between $2.80-$2.90 per share for fiscal 2012. It projected adjusted earnings in the range of 55-60 cents per share for the second-quarter 2012.

The Zacks Consensus Estimates of $2.87 per share for fiscal 2012 and 56 cents per share for fiscal second-quarter 2012 lie between the guidance ranges provided. Free cash flow is expected in the range of $200-$250 million for fiscal 2012.

Peer Comparison

Silgan competes with companies like Ball Corporation ( BLL - Analyst Report ) and Crown Holding Inc. ( CCK - Snapshot Report ) . Ball Corp. reported first-quarter adjusted earnings of 63 cents per share, exceeding the Zacks Consensus Estimate of 59 cents as well as the year-ago quarter earnings of 58 cents.

Currently, we have a long-term Neutral recommendation for Silgan. The stock retains a short-term Zacks #3 (Hold rating).