Silgan Hikes Dividend

Silgan Holdings Inc. ( SLGN - Analyst Report ) has upped its dividend by 16.7% to 14 cents. The increased dividend will be paid on Mar 29, 2013, to stockholders of record as on Mar 12, 2013.

The company has hiked its dividend exactly after a year. In Feb last year, Silgan raised its dividend by 9% to 12 cents per share. Silgan has hiked its dividend consistently every year since 2004.

In 2012, the company paid a dividend of $33.8 million. The current dividend yield is 1.10% and the dividend hike will increase the yield to 1.30%. The dividend yield of its peers, Ball Corporation ( BLL - Analyst Report ) and Greif, Inc. ( GEF - Snapshot Report ) stands at 1.20% and 3.30%, respectively. On the other hand, Crown Holdings Inc. ( CCK - Snapshot Report ) and Mobile Mini, Inc. (MINI) do not pay dividends.

This dividend hikes comes on the heels of an impressive fiscal 2012 performance. Silgan reported record adjusted EPS of $2.70 in fiscal 2012, up 3% from $2.63 in fiscal 2011 and a penny ahead of the Zacks Consensus Estimate. The reported earnings were within management guidance of $2.65 to $2.75. Revenues stood at $3.59 billion, up 2.3% from $3.5 billion in 2011. This increase was driven by higher sales in the metal container and plastic container businesses, partially offset by a decline in sales in the closures business.

As of 2012 end, Silgan had cash and cash equivalents of $466 million compared with $397 million as of 2011 end. Cash flow from operating activities was $351.7 million during 2012 compared with an inflow of $359.6 million in 2011. Free cash flow almost doubled to $303.7 million in 2012 from $152.9 million in 2011. Free cash flow per share was a record $4.35 in 2012 compared with $2.17 in 2011.

Looking ahead into 2013, the company expects adjusted earnings per share in the range of $3.05 to $3.20 on the back of improved profitability in each business, full-year benefit from the 2012 acquisitions and share repurchase. Adjusted earnings are expected to be in the range of 40 cents-50 cents per share for the first quarter of 2013.

Silgan has managed to increase its overall share in the U.S. metal food container market to approximately 50% on the back of accretive acquisitions and organic growth. Silgan Holdings continues to enhance profitability through productivity and cost reduction opportunities. Backed by the additional capacity resulting from the acquisitions, the company has been able to rationalize plant operations and reduce overhead costs by closing plants and work force downsizing.

However, Silgan’s exposure to Europe has increased after its Vogel & Noot acquisition and expansion of the Closures segment in the region, accounting for almost 50% of the segment’s revenues. In Europe, weakening demand and softer pricing has emerged as a result of the ongoing economic instability in the region. With the European conditions expected to remain challenging over the next few quarters, we expect additional pricing pressure.

Furthermore, Silgan Holdings high debt-to-capitalization ratio is a concern. Its strategy to leverage for acquisitions will further aggravate the company’s debt position. Silgan retains a short-term Zacks Rank #3 (Hold).

Silgan is a leading manufacturer of consumer goods packaging products operating 81 manufacturing facilities in North and South America, Europe and Asia. In North America, Silgan is the largest supplier of metal containers for food products and a leading supplier of plastic containers for personal care products.