Silgan's Q1 earnings jump 24% year-over-year to US$31.5M as increased sales across all businesses drive net sales up 7.6% to US$855.8M

STAMFORD, Connecticut , April 30, 2014 (press release) – Silgan Holdings Inc. (Nasdaq:SLGN), a leading supplier of rigid packaging for shelf-stable food and other consumer goods products, today reported first quarter 2014 net income of $31.5 million, or $0.49 per diluted share, as compared to first quarter 2013 net income of $25.4 million, or $0.38 per diluted share.

“We are pleased with our first quarter 2014 results, as our businesses performed as expected and we delivered record adjusted net income per diluted share of $0.53, representing a 12.8 percent increase over last year” said Tony Allott, President and CEO. “As expected, we benefited from the inclusion of Portola Packaging which was acquired in the fourth quarter of the prior year and from lower depreciation expense. Our metal container business performed well, benefiting from higher than expected unit volumes, primarily in the pet food market, which were partially offset by the impact of a lower than anticipated inventory build and unfavorable foreign currency rates in Eastern Europe and Russia. Our closures business continues to perform well, with the integration of Portola Packaging well underway. In our plastic container business, we continued to benefit from a favorable mix of products sold, partially offset by lower volumes as we focus on rebalancing our business portfolio,” continued Mr. Allott. “Based on our first quarter performance and a positive outlook for the remainder of the year, we are confirming our full year 2014 earnings estimate of adjusted net income per diluted share in the range of $3.10 to $3.30, an increase of 13.1 percent to 20.4 percent over the prior year,” concluded Mr. Allott.

Adjusted net income per diluted share was $0.53 for the first quarter of 2014 as compared to $0.47 for the first quarter of 2013, after adjustments increasing net income per diluted share by $0.04 for the first quarter of 2014 and $0.09 for the first quarter of 2013. A reconciliation of net income per diluted share to “adjusted net income per diluted share,” a Non-GAAP financial measure used by the Company which adjusts net income per diluted share for certain items, can be found in Tables A and B at the back of this press release. Adjustments include the net results from operations in Venezuela because such operations are unable to import raw materials on a regular basis due to the political environment in Venezuela and an increasingly restrictive monetary policy.

Net sales for the first quarter of 2014 were $855.8 million, an increase of $60.1 million, or 7.6 percent, as compared to $795.7 million in 2013. This increase was the result of an increase in net sales across all businesses.

Income from operations for the first quarter of 2014 was $68.0 million, an increase of $9.9 million, or 17.0 percent, as compared to $58.1 million for the first quarter of 2013, and operating margin increased to 8.0 percent from 7.3 percent for the same periods. The increase in income from operations was a result of higher income from operations in all businesses. Income from operations in the first quarter of 2014 included rationalization charges of $1.6 million and a loss of $0.5 million from operations in Venezuela. Income from operations in the first quarter of 2013 included rationalization charges of $1.4 million, plant start-up costs of $0.8 million and a loss of $4.2 million from operations in Venezuela, including a $3.0 million charge for the remeasurement of net assets due to a currency devaluation.

Interest and other debt expense before loss on early extinguishment of debt for the first quarter of 2014 was $18.7 million, an increase of $3.4 million as compared to the first quarter of 2013, primarily due to higher average outstanding borrowings. Loss on early extinguishment of debt of $1.5 million in the first quarter of 2014 was a result of the refinancing of the senior secured credit facility in January 2014. Loss on early extinguishment of debt of $2.1 million in the first quarter of 2013 was a result of the prepayment of $300.9 million of term debt under the previous senior secured credit facility.

The effective tax rate was 34.2 percent and 37.5 percent for the first quarters of 2014 and 2013, respectively. The effective tax rate for the first quarter of 2013 was unfavorably impacted by the cumulative adjustment of increases in the enacted tax rates in several foreign countries and the nondeductible portion of the charge for the remeasurement of net assets in the Venezuela operations.

Metal Containers

Net sales of the metal container business were $468.4 million for the first quarter of 2014, an increase of $4.6 million, or 1.0 percent, as compared to $463.8 million in 2013. This increase was primarily the result of an increase in unit volumes of approximately 2 percent, the impact of favorable foreign currency translation and the pass through of higher raw material and other manufacturing costs, partially offset by the financial impact from significantly longer-term renewals and extensions of a large number of customer contracts over the past two years.

Income from operations of the metal container business in the first quarter of 2014 increased $0.9 million to $40.5 million as compared to $39.6 million in 2013, and operating margin increased slightly to 8.6 percent as compared to 8.5 percent in 2013. The increase in income from operations was primarily a result of lower depreciation expense, lower manufacturing costs, an increase in unit volumes, lower rationalization charges and lower new plant start-up costs. These increases were largely offset by the financial impact from customer contract renewals, a smaller inventory build in the first quarter of 2014 as compared to the prior year period and foreign currency losses primarily in Russia and Ukraine. Rationalization charges and new plant start-up costs were $1.1 million and $0.8 million, respectively, in the first quarter of 2013.

Closures

Net sales of the closures business were $213.8 million in the first quarter of 2014, an increase of $52.7 million, or 32.7 percent, as compared to $161.1 million in 2013. This increase was primarily the result of an increase in unit volumes due largely to the inclusion of net sales from Portola Packaging which was acquired in October 2013 and the impact of favorable foreign currency translation.

Income from operations of the closures business for the first quarter of 2014 increased $7.2 million to $17.8 million as compared to $10.6 million in 2013, and operating margin increased to 8.3 percent from 6.6 percent over the same periods. The increase in income from operations was primarily attributable to the inclusion of the operations of Portola Packaging and a smaller loss in Venezuela as compared to the prior year period. Rationalization charges were $0.6 million in the first quarter of 2014. The loss from operations in Venezuela was $0.5 million and $4.2 million in the first quarters of 2014 and 2013, respectively.

Plastic Containers

Net sales of the plastic container business were $173.6 million in the first quarter of 2014, an increase of $2.8 million, or 1.6 percent, as compared to $170.8 million in 2013. This increase was primarily due to an increase in average selling prices due primarily to the pass through of higher raw material costs and a more favorable mix of products sold, partially offset by a decrease in volumes of approximately 2 percent and the impact of unfavorable foreign currency translation. The decrease in volumes was primarily due to the ongoing efforts to rebalance the portfolio of the business.

Income from operations of the plastic container business for the first quarter of 2014 was $12.8 million, an increase of $2.4 million as compared to $10.4 million in 2013, and operating margin increased to 7.4 percent from 6.1 percent over the same periods. These increases were primarily attributable to lower depreciation expense, a more favorable mix of products sold and lower manufacturing costs, partially offset by lower volumes, the unfavorable impact from the lagged pass through of increases in resin costs and higher rationalization charges. Rationalization charges were $1.0 million and $0.3 million in the first quarters of 2014 and 2013, respectively.

Outlook for 2014

The Company confirmed its estimate of adjusted net income per diluted share for the full year of 2014 in the range of $3.10 to $3.30, which excludes rationalization charges, the net results from operations in Venezuela and loss on early extinguishment of debt. This estimate compares to record adjusted net income per diluted share of $2.74 in the prior year, which excludes the net results from operations in Venezuela.

The Company is providing an estimate of adjusted net income per diluted share for the second quarter of 2014, which excludes rationalization charges and the net results from operations in Venezuela, in the range of $0.60 to $0.70. This estimate compares to adjusted net income per diluted share of $0.64 in the second quarter of 2013, which excludes the net results from operations in Venezuela. The year-over-year comparison of adjusted net income per diluted share includes the expected benefit from Portola Packaging and lower depreciation and pension expense. These benefits are expected to be partially offset by a decrease in unit volumes in the metal container business as compared to a strong second quarter of 2013, the financial impact from renewals of customer contracts and an increase in interest expense.

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

For the quarter ended March 31,

(Dollars in millions, except per share amounts)

             
           

2014

     

2013

                     
Net sales           $ 855.8       $ 795.7
                     
Cost of goods sold             727.8         684.4
                     
Gross profit             128.0         111.3
                     
Selling, general and administrative expenses             58.4         51.8
                     
Rationalization charges             1.6         1.4
                     
Income from operations             68.0         58.1
                     
Interest and other debt expense before loss on                    
early extinguishment of debt             18.7         15.3
                     
Loss on early extinguishment of debt             1.5         2.1
                     
Interest and other debt expense             20.2         17.4
                     
Income before income taxes             47.8         40.7
                     
Provision for income taxes             16.3         15.3
                     
Net income           $ 31.5       $ 25.4
                     
Earnings per share:                    
Basic net income per share           $0.50       $0.38
Diluted net income per share           $0.49       $0.38
                     
Cash dividends per common share           $0.15       $0.14
                     
Weighted average shares (000’s):                    
Basic             63,497         66,440
Diluted             63,923         66,809

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