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Silgan (SLGN) Down 11% in a Year: Will It Bounce Back in 2024?
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Silgan Holdings Inc. (SLGN - Free Report) shares have lost 10.6% in a year against the industry’s growth of 10.3%. This mainly reflects the lower volumes and supply-chain headwinds. Higher interest expenses, as well as unfavorable foreign currency, have also added to the company’s woes.
Image Source: Zacks Investment Research
Low Volume, High Costs Act as Woes
In the third quarter of 2023, lower volumes and mix, and higher costs impacted the company’s results. Sales of all the segments are likely to be affected by unfavorable currency translation in the upcoming quarters.
Moreover, the Custom Containers segment is expected to face lower volumes for home, personal care, and lawn and garden products. Silgan expects 2023 adjusted earnings per share (EPS) between $3.30 and $3.40, declining from the previously mentioned $3.40-$3.60 per share due to expected lower volumes and higher interest expenses in the fourth quarter of 2023.
The company has also been facing supply chain challenges that are likely to impact its production and hamper margins in the upcoming quarter. Moreover, the ongoing customer and retail inventory destocking due to the current inflationary pressure remains concerning for SLGN.
The company has a market capitalization of around $5 billion. It currently carries a Zacks Rank #3 (Hold). Let’s discuss the factors that indicate that the stock might stage a comeback.
Focus on Capital Allocation to Aid Growth
Silgan has been gaining from a disciplined capital allocation model and a strong operational performance. It delivered a 10-year compounded annual growth rate for adjusted earnings per share of 12% in 2022.
The company expects strong operating performances and improvements in working capital to drive the free cash flow.
Solid Metal Containers Segment to Boost Margin
Higher average selling prices due to the pass-through of higher raw materials and other manufacturing costs are helping the Metal Containers segment’s performance. The segment’s revenues reached a record high in 2022.
The segment will benefit from a strong operating performance, including the benefit of an inventory management program and higher average selling prices due to the pass-through of inflationary costs.
Acquisition Strategy Bodes Well
In February 2020, Silgan acquired Cobra Plastics, which expanded the product offering of its global closures franchise into a variety of new markets and applications. In June 2020, the company acquired Albea’s dispensing business, which strengthened its position in the dispensing markets. In September 2021, SLGN closed the acquisitions of Unicep and Gateway Plastics to expand Dispensing and Specialty Closures.
In October 2022, it acquired Easytech, a manufacturer and seller of easy-open and sanitary metal ends used with metal containers primarily for food applications in Europe. This buyout will enable Silgan to efficiently utilize its existing capacity for metal ends, reduce capital investment and accelerate the company’s cost-reduction program.
These buyouts will help the company generate attractive cash returns in the near term. The company is focused on deploying capital to expand its business and reduce operating costs, while increasing shareholders’ return.
Key Picks
Some better-ranked stocks from the Industrial Products sector are Resideo Technologies, Inc. (REZI - Free Report) , Applied Industrial Technologies (AIT - Free Report) and A. O. Smith Corporation (AOS - Free Report) .
The Zacks Consensus Estimate for Resideo Technologies’ 2023 earnings per share is pegged at $1.48. The consensus estimate for 2023 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 5.7%. REZI shares have gained 15.6% year to date.
Applied Industrial has an average trailing four-quarter earnings surprise of 15%. The Zacks Consensus Estimate for AIT’s 2023 earnings is pinned at $9.43 per share, which indicates year-over-year growth of 7.8%. Estimates have moved up 4% in the past 60 days. The company’s shares have surged 40% year to date.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings is pegged at $3.77 per share. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days and suggests year-over-year growth of 20.1%. The company has a trailing four-quarter average earnings surprise of 14%. AOS shares have gained 45.6% year to date.
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Silgan (SLGN) Down 11% in a Year: Will It Bounce Back in 2024?
Silgan Holdings Inc. (SLGN - Free Report) shares have lost 10.6% in a year against the industry’s growth of 10.3%. This mainly reflects the lower volumes and supply-chain headwinds. Higher interest expenses, as well as unfavorable foreign currency, have also added to the company’s woes.
Image Source: Zacks Investment Research
Low Volume, High Costs Act as Woes
In the third quarter of 2023, lower volumes and mix, and higher costs impacted the company’s results. Sales of all the segments are likely to be affected by unfavorable currency translation in the upcoming quarters.
Moreover, the Custom Containers segment is expected to face lower volumes for home, personal care, and lawn and garden products. Silgan expects 2023 adjusted earnings per share (EPS) between $3.30 and $3.40, declining from the previously mentioned $3.40-$3.60 per share due to expected lower volumes and higher interest expenses in the fourth quarter of 2023.
The company has also been facing supply chain challenges that are likely to impact its production and hamper margins in the upcoming quarter. Moreover, the ongoing customer and retail inventory destocking due to the current inflationary pressure remains concerning for SLGN.
The company has a market capitalization of around $5 billion. It currently carries a Zacks Rank #3 (Hold). Let’s discuss the factors that indicate that the stock might stage a comeback.
Focus on Capital Allocation to Aid Growth
Silgan has been gaining from a disciplined capital allocation model and a strong operational performance. It delivered a 10-year compounded annual growth rate for adjusted earnings per share of 12% in 2022.
The company expects strong operating performances and improvements in working capital to drive the free cash flow.
Solid Metal Containers Segment to Boost Margin
Higher average selling prices due to the pass-through of higher raw materials and other manufacturing costs are helping the Metal Containers segment’s performance. The segment’s revenues reached a record high in 2022.
The segment will benefit from a strong operating performance, including the benefit of an inventory management program and higher average selling prices due to the pass-through of inflationary costs.
Acquisition Strategy Bodes Well
In February 2020, Silgan acquired Cobra Plastics, which expanded the product offering of its global closures franchise into a variety of new markets and applications. In June 2020, the company acquired Albea’s dispensing business, which strengthened its position in the dispensing markets. In September 2021, SLGN closed the acquisitions of Unicep and Gateway Plastics to expand Dispensing and Specialty Closures.
In October 2022, it acquired Easytech, a manufacturer and seller of easy-open and sanitary metal ends used with metal containers primarily for food applications in Europe. This buyout will enable Silgan to efficiently utilize its existing capacity for metal ends, reduce capital investment and accelerate the company’s cost-reduction program.
These buyouts will help the company generate attractive cash returns in the near term. The company is focused on deploying capital to expand its business and reduce operating costs, while increasing shareholders’ return.
Key Picks
Some better-ranked stocks from the Industrial Products sector are Resideo Technologies, Inc. (REZI - Free Report) , Applied Industrial Technologies (AIT - Free Report) and A. O. Smith Corporation (AOS - Free Report) .
While REZI sports a Zacks Rank #1 (Strong Buy), AIT and AOS carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Resideo Technologies’ 2023 earnings per share is pegged at $1.48. The consensus estimate for 2023 earnings has been unchanged in the past 60 days. The company has a trailing four-quarter average earnings surprise of 5.7%. REZI shares have gained 15.6% year to date.
Applied Industrial has an average trailing four-quarter earnings surprise of 15%. The Zacks Consensus Estimate for AIT’s 2023 earnings is pinned at $9.43 per share, which indicates year-over-year growth of 7.8%. Estimates have moved up 4% in the past 60 days. The company’s shares have surged 40% year to date.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings is pegged at $3.77 per share. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days and suggests year-over-year growth of 20.1%. The company has a trailing four-quarter average earnings surprise of 14%. AOS shares have gained 45.6% year to date.