Silgan Holdings Inc. (SLGN) reported its fourth-quarter earnings last week. The company posted earnings of 63 cents per share, beating the Zacks Consensus Estimate of 54 cents and up 40.0% from the year-ago earnings of 45 cents per share.
Net sales in the quarter declined 4.9% to $705.3 million from $741.6 million in the prior-year quarter, primarily lower unit volumes in the Metal Food Container and Closures segments due to the effect of the buy ahead in the fourth quarter of 2008 and lower average selling prices in the Plastic Container business resulting from the pass through of resin price declines.
Silgan’s Metal Food Container segment’s fourth quarter revenue fell 4.0% year over year due to lower unit volumes, partially offset by lower average selling prices. Revenue in the Plastic Container segment was down 9.0% based on lower average selling prices, partially offset by higher unit volumes, and favorable foreign currency translation impact. The Closures business posted revenue decline of 3.5% reflecting lower volumes due to soft demand in the single-serve beverage markets.
Operating margin increased 210 basis points year over year to 7.2% as the company benefited from effective cost controls and improved manufacturing efficiencies across all the businesses, which were partially offset by increased pension expense and lower unit volumes in the Metal Food Container and Closures businesses due to the buy ahead in the fourth quarter of 2008 in advance of 2009 price increases.
For the full year 2009, Silgan reported earnings of $4.19 per share on net sales of $3.07 billion, compared to 2008 earnings of $3.51 per share on net sales of $3.12 billion. The company offsets the impact of lower sales with its cost control efforts and improved manufacturing efficiencies.
Silgan generated free cash flow of $264.1 million in 2008, up 46% on a year over year basis. The company achieved this through earnings growth, lower capital expenditures, and a reduction in working capital. The company expects 2010 free cash flow in the range of $175 million to $225 million.
Silgan forecast 2010 earnings in the range of $4.25-$4.45 per share, excluding rationalization charges of 8 cents per share as well as the impact from the re-measurement of net assets in Venezuelan operations, which is estimated at another 8 cents per share. For the first quarter, the company expects earnings in the range of 60-70 cents per share, compared to 73 cents in the first quarter of 2009.
For 2010, the company anticipates an improvement in net sales in the Closures and the Plastic Container segments due to a slight expected recovery in unit volumes. However, it expects lower net sales in the Metal Food Container business due to the contractual pass through of lower manufacturing costs. Silgan expects to post higher operating income in all the three segments, driven by ongoing cost reductions and productivity initiatives.
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