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Why Is Silgan (SLGN) Down 3.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Silgan Holdings (SLGN - Free Report) . Shares have lost about 3.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Silgan due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Silgan Q1 Earnings & Revenues Top Estimates, View Up

Silgan Holdings reported first-quarter 2020 adjusted earnings of 57 cents per share, beating the Zacks Consensus Estimate of 49 cents. Further, the figure increased 24% year over year. Record volumes across all business segments contributed to the quarterly results.
Including one-time items, the company’s earnings per share came in at 52 cents compared with the prior-year quarter’s 42 cents.

Total revenues inched up 0.3% year over year to $1,030 million on higher sales across its business segments. The top-line figure also surpassed the Zacks Consensus Estimate of $1,028 million.

Cost and Margins

In the March-end quarter, cost of goods sold edged down 1.9% to $845 million from the prior year’s $861 million. Gross profit improved 11.5% year over year to $185 million. Gross margin came in at 18% compared with the year-ago quarter’s 16%.

Selling, general and administrative expenses flared up 15.4% year over year to $89.9 million during the first quarter. Adjusted operating income was up 10.6% year over year to $102.6 million. Operating margin was 9.9% in the first quarter compared with the 9% witnessed in the prior-year period.

Segment Performance

Revenues in the Metal Containers segment inched up 0.3%, year over year, to $508.5 million. The segment’s adjusted operating income increased 6.4% year over year to $49.5 million.

The Closures segment’s revenues were up 0.3% year over year to $357.2 million. Adjusted operating income for the segment was $45.9 million, flat year over year.

In the Plastic Containers segment, revenues improved to $164.7 million from the $163.9 million reported in the prior-year quarter. The segment reported an adjusted operating profit of $22.1 million, up from the year-ago quarter’s $12.3 million.

Financial Updates

The company had cash and cash equivalents of $614.8 million as of Mar 31, 2020, significantly up from the $141.4 million as of Mar 31, 2019. Cash utilized in operating activities were $168.2 million in the March-end quarter compared with the $155.8 million recorded in the prior-year period.

Outlook

Despite the economic uncertainties due to the coronavirus crisis, Silgan has increased its adjusted earnings per share guidance for 2020. It now expects adjusted earnings per share between $2.30 and $2.50 compared to prior range of $2.28 to $2.38. The mid-point of the guidance indicates an 11.1% year-over-year increase from $2.16 in 2019.

The increased guidance factors in higher demand for food and consumer health products used mainly in homes in the first half of the year, as people are forced to stay at home due to the coronavirus pandemic. However, this will be somewhat negated by lower demand for products that are used in public venues. This also considers that the company, along with its customers and suppliers, will be able to keep operating plants during this crisis.

For the second quarter of 2020, Silgan now expects adjusted earnings per share in the range of 55 cents to 70 cents compared with the 55 cents recorded in second-quarter 2019.

During the first quarter, the company completed the Cobra Plastics acquisition. Silgan also announced that it expects to complete the pending acquisition of the dispensing business of Albea Group in second-quarter 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 5.28% due to these changes.

VGM Scores

Currently, Silgan has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Silgan has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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