Silgan, a supplier of rigid packaging for shelf-stable food and other consumer goods products, reported third quarter 2016 net income of $69.8 million, or $1.15 per diluted share, as compared to third quarter 2015 net income of $70.3 million, or $1.16 per diluted share.
“We are pleased with our third quarter 2016 results, as we reported adjusted net income per diluted share of $1.23 which was in line with our expectations,” said
Tony Allott, President and CEO. “Volumes in our metal container business were flat compared to the prior year period as a result of stronger sales for pet food, offset by a weaker than anticipated seasonal harvest in Europe due to unfavorable weather conditions across the region. The metal container business is on track with the qualification process of the new can manufacturing facility, allowing for the shutdown of the LaPorte plant in the beginning of October.
Our closures business continued to experience strong volume growth due to the demand for single-serve beverages in the U.S., partially offset by softer volumes in Europe as a result of unfavorable weather conditions,” continued Mr. Allott. “As expected, our plastic container business saw sequential improvement in its manufacturing performance, allowing it to close operations in Cape Girardeau at the end of September. Based on our year to date performance and an early completion of the pack season, we are narrowing our full year 2016 earnings estimate of adjusted net income per diluted share to a range of $2.70 to $2.80,” continued Mr. Allott.
Adjusted net income per diluted share was $1.23 for the third quarter of 2016, after adjustments increasing net income per diluted share by $0.08. Adjusted net income per diluted share was $1.26 for the third quarter of 2015, after adjustments increasing net income per diluted share by $0.10. A reconciliation of net income per diluted share to “adjusted net income per diluted share,” a Non-GAAP financial measure used by the Company that adjusts net income per diluted share for certain items, can be found in Tables A and B at the back of this press release.
Net sales for the third quarter of 2016 were $1.14 billion, a decrease of $63.9 million, or 5.3 percent, as compared to $1.20 billion in 2015. This decrease was the result of lower net sales in all of our businesses, each of which was unfavorably impacted by the pass through of lower raw material costs.
Income from operations for the third quarter of 2016 was $122.4 million, an increase of $0.5 million, or 0.4 percent, as compared to $121.9 million for the third quarter of 2015, and operating margin increased to 10.7 percent from 10.1 percent for the same periods. The increase in income from operations was the result of an increase in income from operations in the closures and plastic container businesses, partially offset by a decrease in income from operations in the metal container business. Rationalization charges were $7.8 million and $9.1 million in the third quarters of 2016 and 2015, respectively.
The effective tax rates were 33.6 percent and 32.9 percent for the third quarters of 2016 and 2015, respectively. The effective tax rate in 2015 benefited from higher income in lower tax jurisdictions.
Metal Containers
Net sales of the metal container business were $797.4 million for the third quarter of 2016, a decrease of $48.0 million, or 5.7 percent, as compared to $845.4 million in 2015. This decrease was primarily the result of the pass through of lower raw material and other manufacturing costs and a less favorable mix of products sold. Unit volumes in the third quarter of 2016 were flat as compared to the same period in the prior year, as higher volumes for pet food were offset by a decrease in unit volumes across Europe due to wet weather which resulted in poor growing conditions for the fruit and vegetable pack.
Income from operations of the metal container business in the third quarter of 2016 decreased $8.0 million to $98.0 million as compared to $106.0 million in 2015, and operating margin decreased to 12.3 percent from 12.5 percent over the same periods. The decrease in income from operations was primarily due to the unfavorable impact from the contractual pass through to customers of indexed deflation, higher rationalization charges and a less favorable mix of products sold, partially offset by better operating performance than in the prior year quarter. Rationalization charges were $4.3 million in the third quarter of 2016 primarily related to the shutdown of the LaPorte, Indiana manufacturing facility.
Closures
Net sales of the closures business were $211.9 million in the third quarter of 2016, a decrease of $3.8 million, or 1.8 percent, as compared to $215.7 million in the third quarter of 2015. This decrease was primarily the result of the pass through of lower raw material costs, partially offset by an increase in unit volumes of approximately 2 percent. The increase in unit volumes was primarily due to continued strong demand from U.S. beverage markets, partially offset by volume declines in Europe due to wet weather and poor growing conditions for the fruit and vegetable pack.
Income from operations of the closures business for the third quarter of 2016 increased $1.3 million to $28.4 million as compared to $27.1 million in 2015, and operating margin increased to 13.4 percent from 12.6 percent over the same periods. The increase in income from operations was primarily due to higher unit volumes and improved manufacturing efficiencies.
Plastic Containers
Net sales of the plastic container business were $130.3 million in the third quarter of 2016, a decrease of $12.1 million, or 8.5 percent, as compared to $142.4 million in the third quarter of 2015. This decrease was principally due to lower unit volumes of approximately 6 percent as a result of the continued rebalancing of the customer portfolio in conjunction with the footprint optimization program and the pass through of lower raw material costs.
Income from operations of the plastic container business for the third quarter of 2016 was $0.8 million, an increase of $8.1 million as compared to a loss from operations of $7.3 million in 2015. The increase in income from operations was primarily attributable to lower rationalization charges and improved manufacturing performance, partially offset by lower unit volumes. Rationalization charges were $3.5 million and $8.9 million in the third quarters of 2016 and 2015, respectively.
Nine Months
Net income for the first nine months of 2016 was $129.7 million, or $2.13 per diluted share, as compared to net income for the first nine months of 2015 of $145.9 million, or $2.37 per diluted share. Adjusted net income per diluted share for the first nine months of 2016 was $2.27 versus $2.49 in the prior year period, after adjustments increasing net income per diluted share by $0.14 for the first nine months of 2016 and by $0.12 for the first nine months of 2015.
Net sales for the first nine months of 2016 decreased $127.3 million, or 4.3 percent, to $2.81 billion as compared to $2.93 billion for the first nine months of 2015. This decrease was primarily the result of the pass through of lower raw material and other manufacturing costs in the metal container and closures businesses and lower unit volumes, the pass through of lower raw material costs and the impact of unfavorable foreign currency translation in the plastic container business, partially offset by an increase in unit volumes in the closures business.
Income from operations for the first nine months of 2016 was $247.5 million, a decrease of $19.8 million, or 7.4 percent, from the same period in 2015. This decrease was primarily due to higher manufacturing costs in the metal and plastic container businesses including start-up costs related to the new manufacturing facilities, lower unit volumes in the plastic container business, the contractual pass through to customers of indexed deflation in the metal container business, the unfavorable impact from the lagged pass through of changes in resin costs in the closures and plastic container businesses as compared to the prior year period and higher rationalization charges.
These decreases were partially offset by an increase in unit volumes and improved manufacturing efficiencies in the closures business. Rationalization charges were $13.9 million and $10.8 million in the first nine months of 2016 and 2015, respectively.
The effective tax rate for the first nine months of 2016 was 34.1 percent as compared to 32.8 percent for the first nine months of 2015. The effective tax rate in 2015 benefited from higher income in more favorable tax jurisdictions.
