Learn what Wall Street already knows in our "Billion Dollar Secret" guide.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating indiv idual securities.
If you wish to go to ZacksTrade, click
OK. If you do not, click Cancel.
Back to top
On July 5, we maintained our Neutral recommendation on
Silgan Holdings Inc. ( SLGN - Analyst Report) based on expected benefits from its successful acquisitions, increasing productivity and cost reduction initiatives as well as decline in resin prices. However, soft demand in Europe, a high debt-to-capitalization ratio and lower volume expectation remain concerns for this manufacturer of metal and plastic consumer goods packaging products. Why Reiterated?
Silgan Holdings’ first-quarter 2013 earnings declined 10% year over year to 46 cents per share, due to higher resin costs and macroeconomic conditions in Europe. Total revenue increased 4% year over year to $796 million.
Resin costs were a headwind to both the Plastics and Closures segments in the first quarter. However, in the second half of fiscal 2013, resin headwinds will turn into tailwinds due to the recent decline in polypropylene prices.
The company’s recent acquisition of Rexam’s high-barrier food business will not only add to its growth platform through an adjacent product/technology, but also augment its scope for international expansion. The acquisition is expected to be accretive to 2013 earnings.
Silgan Holdings continues to enhance profitability through productivity and cost reduction opportunities. In 2013, Silgan is expected to witness improvement in the core metal food can business from volume growth and benefits from lean manufacturing initiatives as well as continued profit improvement in the legacy plastics business from greater operational efficiencies.
Silgan is funding two major initiatives to promote the food can as a sustainable long-term packaging solution for shelf-stable products - Can Vision 2020 and an industry-wide campaign through the Can Manufacturing Institute. The Can Vision 2020 program aims to reduce the overall supply chain cost of the food can. According to the company, there exists long-term cost reduction opportunities of $200 million across the supply chain. The second initiative in collaboration with the Can Manufacturing Institute is intended to improve consumers’ perception and increase awareness regarding the advantages of the food can compared with other forms of food preservation/delivery.
On the flipside, Silgan’s exposure to Europe has increased following its Vogel & Noot acquisition and expansion of the Closures segment in the region, accounting for almost 50% of the segment’s revenues. With the European conditions expected to remain challenging, we expect results to be affected over the next few quarters.
Furthermore, Silgan Holdings’ high debt-to-capitalization ratio is a concern. As of Mar 31, 2013, its debt-to-capitalization ratio was 78%. Its strategy to take up debt to finance acquisitions will further aggravate the company’s debt position. Other Stocks to Consider
Other stocks in the industry that are currently performing well and have a good visibility include Mobile Mini, Inc. ( MINI - Snapshot Report) , with a Zacks Rank #1 (Strong Buy), and Berry Plastics Group, Inc. ( BERY - Snapshot Report) and Rock-Tenn Company , both carrying a Zacks Rank # 2 (Buy).