Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Silgan Holdings Inc (SLGN, Financial) reported adjusted EPS at the high end of the expected range for Q1 2024, driven by strong operational and cost performance.
- The company is seeing positive trends in customer activities with increased promotional spending in 2024, which includes more products produced by Silgan Holdings Inc (SLGN).
- Silgan Holdings Inc (SLGN)'s Dispensing and Specialty Closure segment delivered strong performance due to sustained market demand and operational execution.
- The Custom Container segment showed improvement with volumes increasing sequentially for the first time in several quarters.
- Silgan Holdings Inc (SLGN) confirmed its full-year outlook for 2024, expecting volume and profit growth with adjusted EPS growth of 7% at the midpoint of guidance.
Negative Points
- Net sales declined by 7% from the previous year, primarily due to lower volumes in each segment and the pass-through of lower raw material costs.
- Total adjusted EBIT for Q1 2024 decreased by 9% year-over-year, mainly due to lower volumes across all segments.
- The company experienced accelerated customer destocking in Q1, particularly in the Dispensing and Specialty Closures and Metal Container segments, impacting volumes.
- Fruit and vegetable volumes in the Metal Container segment are expected to decline by a mid-single-digit rate due to a large pack customer reducing their North American pack in 2024.
- Despite confirming the full-year outlook, there are ongoing challenges with unfavorable price cost, including mix, particularly noted in the Metal Container segment for Q2 2024.
Q & A Highlights
Q: So Adam, on the accelerated destocking in the first quarter that you called out, I assume that was to some extent a pull forward from the -- what you previously expected in the second quarter as well. Can you just give us a bit more color on that, which categories were most impacted as you kind of think of the various operating segments.
A: Yes. I think you've got the right way to think about it, Ghansham. I mean, we had expected some destocking activity, primarily in food and beverage, again, mostly in North America for our business to impact the first half of the year. And what we saw, again, we talk a lot about our customer relationships. So just kind of in those regular discussions that we have with our food and beverage customers during the first quarter, several made the decision to bring forward that destocking activity. And really, they increase the percentage of their sales from their inventory, and that affected late in the first quarter, our shipment volume. So really, we were really right on plan kind of halfway through the quarter as far as our volume expectations. And so what's interesting is that did happen late in Q1, we're sitting here on May 1. So we've got a pretty good read to how Q2 has started now to at least from a volume perspective. So we've started Q2 strongly. So we are seeing the benefit of that volume returning and the positive inflection that we were anticipating for Q2. That's with the month of April already behind us. And our order book for Q2 is really solid right now. So we believe that we're reaching that inflection point that we've been talking about for some time. Again, product specific. You can think about pet food on the metal container side, and you can really think about our beverage business in the closure, dispensing the Specialty Closure segment.
Q: Okay. Great. And then just as a follow-up question to that. So if your customers pull forward inventory destocking into the first quarter, does that necessarily mean that they've changed their promotional cadence as they look out to 2Q and beyond? I'm just asking because, obviously, you've seen a slight reacceleration of input costs and so on and so forth. So has there been any change in terms of your customers -- the dialogue with your customers as it relates to promotional activity.
A: Really, there hasn't. We've got pretty good intel into that spend for promotional activity in Q1 and how that compares to the prior year. And so the increases that we were expecting were actually realized in Q1. And I think the important part of that, at least for our product, Ghansham, those promotional activities were pretty effective for our customers. So they were pleased with kind of that very directed targeted promotional activity for the products that they were looking to promote, and it did lead to incremental sell-through. I think the other thing for us is we talk a lot about promotional activity in food and beverage. It certainly has expanded outside of those 2 categories into other segments for us in other parts of our business. And you can talk about home care, you can talk about lawn care, personal care, other products, we're seeing increased promotional activity across those segments as well.
Q: I just had a question. You called out 20% of the pack mix of your metal containers business being fruit veggie. Are you -- would you disclose how much of that might be co-located with your customers? And we asked a similar question earlier today. Just in terms of reading articles about imported full cans of food, just trying to measure risk across the portfolio.
A: Sure. Maybe for that first question. Look, I think when you think about fruit and vegetables for us, it's just the business model itself, right? We're near site to where those products are growing, right? They typically are grown across certain set of acreage, then they're aggregated to a filling site. We're really close to where the products are actually filled. So that is broadly across our fruit and vegetable category. So that's how I'll answer the first part of that. Clearly, on the import of finished goods, that's something that we've been tracking for some time. We continue to monitor that in fairness, Gabe. We've seen that over time with some fruit products particularly coming from Asia. But as far as what's in our business today in fruit and vegetables, it really hasn't had much of an impact at all. It's really not a material volume that we've seen coming through. And really just not enough to impact our customers' business at this point.
Q: Okay. And then maybe a little bit trying to tie together the Q1, I think segment profit or EBITDA, however we want to think about it was generally in line despite the little bit of weaker volume backdrop -- and so when I think about the rest of the year, and kind of this multiyear cost-out program. Did you guys perform a little bit better on that? I mean I know you still called out $20 million, I think, for this year, keeping another $30 million on the table for next year. But was it just -- what was the offset better performance? And then like I said, that $20 million, is there a potential for this year to be a little bit better than that? Or let's just kind of wait and see?
A: It's a really good question. And as we look at Q1, what I'd tell you, Gabe, we have a very stable kind of operating environment for the first time in several years. And so we're sort of back to the Silgan playbook. I mean we are good operators at the end of the day. And really, I think the primary impact to the first quarter was really just really good solid operating performance and our normal continuous improvement activities really benefited the quarter and all the other programs that we've been working on. That's in addition to the multiyear $50 million cost reduction initiative. So we made really good progress. We've got several plans that we've rationalized. We've got assets that are if not already in the location, they need to be, they're on their way. So we've made significant progress. There was a little savings in the first quarter from that $50 million project. But really, it was much more about the Silgan operating model and our continuous improvements that drove great operating performance in the quarter.
Q: I guess, I want to take a different sort of approach to the question of destocking. So to the extent that your customers accelerated destocking in the quarter, Adam, does that -- I know your order books are good. and that's encouraging. But does that give you any concern about what customers are thinking about their volume outlook for the year, their ability to get product whenever they need it through the supply chain, right? I mean you get restocking when -- as a purchasing manager
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
