BLL Ball Corp

Silgan Holdings Inc. (SLGN) has reported fiscal 2011 second quarter results, delivering an EPS of 73 cents versus 47 cents in the year-earlier quarter.

The quarter noted some special items including rationalization charges of 2 cents, benefit of 37 cents related to termination of merger agreement, 12 cents pertaining to acquisition cost and a charge of 3 cents related to a dispute. Netting these, adjusted EPS amounted to 53 cents versus 48 cents in the prior-year quarter.

Total revenue during the quarter amounted to $822.2 million, up from $693.9 million in the year-earlier quarter.

Costs and Margins

Costs of goods sold increased to $705.3 million during the quarter, from $585.3 million in the year-earlier quarter. Gross profit increased marginally to $116.9 million from $108.6 million in the year-ago quarter. However, gross margins declined 140 basis points year over year to 14.2%. 

Selling, general and administrative expenses decreased to $20.0 million from $40.8 million in the year-ago quarter. Income from operations increased substantially to $94.5 million from $67.1 million in the prior-year quarter, thereby expanding operating margins by 180 basis points year over year to 11.5%.

Segmental Performance

Net sales of Metal containers segment increased to $482.3 million, from $378.1 million in the year-over-year quarter. Operating income of the segment declined slightly to $42.9 million in the reported quarter from $44.0 million in the year-earlier quarter.

Total revenue in Closures segment totaled $184.5 million versus $165.8 million in the prior-year quarter. Operating income of this segment also declined to $22.7 million from $24.0 million in the year-earlier quarter.

Plastic containers segment reported total revenue of $155.4 million, up slightly from $150.0 million in the year-earlier quarter; while operating profit of the segment jumped to $24.4 million from a loss of $4.9 million in the previous year’s quarter.

Financial Position

As of June 30, 2011, cash and cash equivalents increased to $127.5 million, from $52.1 million as of June 30, 2010.

As of June 30, 2011, the debt-to-capitalization ratio improved to 70.1% from 71.1% as of March 31, 2011 and 62% as of December 31, 2010.

Cash from operating activities was an outflow of $52.5 million at the end of second quarter versus an outflow of $172.5 million at the end of prior-year period.

The company recently paid a quarterly dividend of 11 cents per share to  the holders of record of common stock on June 1, 2011.

Outlook

The company confirmed its previous adjusted EPS guidance for full year in the range of $2.60 to $2.70. Besides, the company also expects to complete the refinancing of its senior secured credit facility. For the third quarter, the company expects adjusted EPS in the range of $1.05 to $1.15.

Our Take

Silgan is the largest manufacturer of metal food containers in North America, controlling half the total volume market share in the United States. Silgan has increased its sales and market share through acquisitions as well as internal growth and, in the process, expanded and diversified its customer base, geographic presence and product lines.

The company is currently undertaking various corporate development activities, including manufacturing efficiencies, which are likely to improve volumes across the board. The improving economy would also aid in volume expansion. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Silgan is a leading manufacturer of consumer goods packaging products operating 66 manufacturing facilities in North and South America, Europe and Asia. In North America, Silgan is the largest supplier of metal containers for food products and a leading supplier of plastic containers for personal care products. Silgan is also a leading worldwide supplier of metal, composite and plastic vacuum closures for food and beverage products. Silgan competes with Ball Corporation (BLL) and Crown Holdings Inc. (CCK).

 
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