BLL Ball Corp

Silgan Holdings, Inc. (SLGN) has reported fourth quarter adjusted EPS of 56 cents, up from the year-ago adjusted EPS of 45 cents. Adjusted EPS beats the Zacks Consensus Estimate of 54 cents per share.

EPS in the fourth quarter in 2011 excluded a rationalization charge of 3 cents and the prior year quarter excluded pre-tax realization charges of 17 cents, pre-tax loss on debt extinguishment of 3 cents, and 3 cents of acquisition costs. Including these items, net income in the fourth quarter of 2011 increased to $37.1 million or 53 cents per share compared with $16.4 million or 22 cents per share in the fourth quarter of 2010.

Total revenue during the reported quarter increased 17.5% year over year to $835.9 million from $711.6 million. Total revenue surpassed the Zacks Consensus Estimate of $813 million.

Fiscal 2011 Performance

In the full year 2011, adjusted EPS increased 18.5% to a record $2.63 per share from $2.22 per share in 2010. Adjusted EPS beat the Zacks Consensus Estimate by a penny.

Including some special items, net earnings in the year 2011 increased to $193.2 million or $2.75 per share from $144.6 million or $1.89 per share in 2010.

Total revenue increased to $3.51 billion compared with $3.07 billion in 2010. Total revenue surpassed the Zacks Consensus Estimate of $3.49 billion.

Cost and Margins

Costs of goods sold increased to $719.1 million during the quarter from $613.5 million in the year-earlier quarter. Gross profit increased substantially to $116.8 million from $98.1 million in the year-ago quarter. However, gross margin increased marginally year over year to13.9% from 13.7%. 

Selling, general and administrative expenses increased to $43.9 million in the fourth quarter from $41.0 million in the year-ago quarter. Income from operations increased substantially to $70.0 million from $38.6 million in the prior-year quarter, thereby expanding operating margins by 300 basis points year over year to 8.4%.

Segmental Performance

Total revenue from Metal Containers increased to $540.1 million from $422.1 million in the year ago quarter. Operating income from the segment inched up to $63.4 million in the fourth quarter of 2011 from $46.9 million in the year-ago quarter.

Total revenue in Closures totaled $153.7 million in the quarter, compared to $146.2 million in the prior year quarter. Operating income from the segment increased to $13.1 million in the fourth quarter of 2011 from $10.7 million in the year-ago quarter.

Plastic containers segment’s total revenue declined marginally to $142.1 million in the quarter compared to $143.3 million in the prior-year quarter. Operating income from the segment was $0.3 million in the fourth quarter of 2011 compared with $4.5 million in the year-ago quarter.  

Financial Position

As of December 31, 2011, cash and cash equivalents increased to $397.1 million, from $175.2 million as of December 31, 2010. Inventories, as of December 31, 2011, amounted to $554.2 million from $438.5 million as of December 31, 2011.

Current and long-term debt also increased to $1,376.3 million as of December 31, 2011 from $904.6 million as of December 31, 2010. As of December 31, 2011, the debt-to-capitalization ratio improved to 68% from 62% as of December 31, 2010.

Cash from operating activities was $359.6 million in 2011 versus $187.3 million in 2010. The company recently paid a quarterly dividend of 11 cents per share to the holders of record of common stock on December 01, 2011. The dividend hike translates to a 36% increase from the prior dividend of 11 cents.

Aggregate dividend payment amounted to $7.7 million. The company has also authorized to buy back $300 million of common stock, including the previous authorization, within December 31, 2014.

Outlook

Management expects adjusted earnings per share for the full year 2012 to be in the range of $2.80 - $2.90. It expects free cash flow in 2012 to be in the range of $200 million-$250 million. For the first quarter of 2012, management anticipates that adjusted income per sharewould be around 41 cents.

Our Take

Silgan Holdings is the largest manufacturer of metal containers for food products in North America. Through both acquisitions and organic growth, Silgan has increased its overall share in the U.S. metal food container market to the current market share of approximately 50%.

However, the prices of the company’s raw materials, such as steel, aluminum, plastic resins and others, are highly inflationary. The company’s ability to adjust selling prices according to the changes in raw material costs is constrained.

Moreover, as Silgan’s historical growth has primarily been driven by acquisitions, its inability to identify suitable targets at attractive valuations could hamper its growth rate. Currently, the shares of the company maintain a Zacks#3 Rank (short-term Hold recommendation).

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.

The company also leads in providing metals worldwide, along with composite and plastic vacuum closures for food and beverage products. Silgan competes with Ball Corporation (BLL) and Crown Holdings Inc. (CCK).

 
BALL CORP (BLL): Free Stock Analysis Report
 
CROWN HLDGS INC (CCK): Free Stock Analysis Report
 
SILGAN HOLDINGS (SLGN): Free Stock Analysis Report
 
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