Silgan Holdings (SLGN) Strong on Buyouts, Input Costs High

On Aug 12, we issued an updated research report on Silgan Holdings Inc. SLGN. The company is poised to gain from acquisitions, manufacturing efficiencies and higher unit volumes despite inflated freight and material costs.

Upbeat Q2 Results & 2019 Outlook

Silgan Holdings had reported second-quarter 2019 adjusted earnings of 55 cents per share, beating the Zacks Consensus Estimate of 54 cents. Further, the figure improved 6% from the year-ago quarter. Total revenues were up 3.2% year over year to $1,093 million, surpassing the Zacks Consensus Estimate of $1,077 million.

Focus on Cost Reduction to Aid 2019 Results

Tariff on steel and aluminum prices imposed by the U.S. government led to rise in material costs. The company expects inflated material and freight costs to continue to affect results in 2019. Nevertheless, the company continually evaluates cost reduction opportunities across each of its businesses, including rationalizations of its existing facilities through plant closures and downsizings, which in turn will aid margins.
The company anticipates adjusted earnings per share at $2.10-$2.20 for 2019. Silgan Holdings had reported earnings per share of $2.08 in 2018.

Acquisitions: A Key Catalyst

Since its inception, Silgan Holdings acquired 35 businesses. Backed by acquisitions and organic growth, the company has increased share in the metal food container market in the United States from 10% in 1987 to slightly more than half of the market in 2018.

The company has become a leading global manufacturer of closures for food, beverage, health care, garden, personal care, home and beauty products through buyouts, with net sales of $1.46 billion in 2018, a sevenfold increase since 2003. Silgan Holdings has also improved market position in the plastic container business since 1987, with net sales increasing sevenfold to $614.1 million in 2018.

Capital Expenditure to Drive Growth

In the first half of fiscal 2019, capital spending was around $116 million compared with $91 million in the comparable period last year. For 2019, the company anticipates capital expenditures of $200 million, up from $191 million in fiscal 2018. The company also projects free cash flow guidance at $275 million for 2019. It remains focused on returning value to shareholders.

Share Price Performance

 

Over the past year, shares of Silgan Holdings have gained 12.2%, underperforming the industry’s growth of 65.1%.

Zacks Rank & Key Picks

Silgan Holdings currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Industrial Products sector are Unifirst Corporation UNF, Albany International Corporation AIN and Cintas Corporation CTAS. While Unifirst flaunts a Zacks Rank #1 (Strong Buy), Albany International and Cintas carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Unifirst has a projected earnings growth rate of 15.17% for the current year. The stock has gained 7% in a year’s time.

Albany International has an estimated earnings growth rate of 32.3% for 2019. The company’s shares have gained 10% in the past year.

Cintas Corporation has an expected earnings growth rate of 11.15% for the ongoing year. The stock has appreciated 26% over the past year.

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Silgan Holdings Inc. (SLGN) : Free Stock Analysis Report
 
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