Silgan, a supplier of rigid packaging for shelf-stable food and other consumer goods products, reported second quarter 2016 net income of $33.3m, or $0.55 per diluted share, as compared to second quarter 2015 net income of $42.2m, or $0.70 per diluted share.
“We are pleased with our second quarter 2016 results, as we reported adjusted net income per diluted share of$0.60, at the high end of our estimate, with each business segment exceeding expectations,” said Tony Allott, President and CEO. “Our metal container business benefited from an earlier than expected midwest vegetable pack in the U.S., though not as early or strong as in the prior year. In addition, we advanced the qualification process of the new can manufacturing facility and incurred related start-up costs in the quarter. Our closures business continued to experience volume growth due to strong demand for single-serve beverages, particularly in the U.S.,” continued Mr. Allott. “In our plastic container business, meeting the needs of our customers is our primary focus as we continue to make positive strides with our customer service and operating performance objectives. However, to ensure continued success with our customers we are continuing to implement the optimization program on a more measured pace. Based upon revised estimates of our customers’ pack demand and the gradual pace of improvement in the plastic container business, we are revising our full year 2016 earnings estimate of adjusted net income per diluted share to a range of $2.70 to $2.90,” continued Mr. Allott.
Adjusted net income per diluted share was $0.60 for the second quarter of 2016, after adjustments increasing net income per diluted share by $0.05. Adjusted net income per diluted share was $0.71 for the second quarter of 2015, after adjustments increasing net income per diluted share by $0.01. 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 second quarter of 2016 were $874.6 million, a decrease of $39.6 million, or 4.3 percent, as compared to $914.2 million in 2015. This decrease was the result of lower net sales in all of our businesses due primarily to the pass through of lower raw material costs.
Income from operations for the second quarter of 2016 was $67.7 million, a decrease of $10.6 million, or 13.5 percent, as compared to $78.3 million for the second quarter of 2015, and operating margin decreased to 7.7 percent from 8.6 percent for the same periods. The decrease in income from operations was the result of the anticipated decrease in income from operations in the metal and plastic container businesses, partially offset by an increase in income from operations in the closures business. Rationalization charges were $5.0 million and$1.0 million in the second quarters of 2016 and 2015, respectively.
The effective tax rates were 34.4 percent and 31.3 percent for the second quarters of 2016 and 2015, respectively. The effective tax rate in the second quarter of 2015 benefited from higher income in lower tax jurisdictions.
Metal Containers
Net sales of the metal container business were $529.6 million for the second quarter of 2016, a decrease of$24.1 million, or 4.4 percent, as compared to $553.7 million in 2015. This decrease was primarily the result of the pass through of lower raw material costs and a decrease in unit volumes of approximately 2 percent, partially offset by a favorable mix of products sold and the impact of slightly favorable foreign currency translation. The decrease in unit volumes was primarily the result of a stronger start to the U.S. midwest vegetable pack in the prior year quarter and a slower start to this year’s seasonal vegetable pack in Europe due to cool and wet conditions.
Income from operations of the metal container business in the second quarter of 2016 decreased $2.4 million to $45.9 million as compared to $48.3 million in 2015, while operating margin remained constant at 8.7 percent over the same periods. The decrease in income from operations was primarily attributable to rationalization charges related to the shutdown of the LaPorte, Indiana manufacturing facility, start-up costs related to the new can manufacturing facility and lower unit volumes, partially offset by a favorable mix of products sold and better operating performance than in the prior year quarter. Rationalization charges were $4.0 million in the second quarter of 2016.
Closures
Net sales of the closures business were $206.5 million in the second quarter of 2016, a decrease of $0.6 million, or 0.3 percent, as compared to $207.1 million in the second quarter of 2015. This decrease was primarily the result of the pass through of lower raw material costs, largely offset by an increase in unit volumes of approximately 3 percent and the impact of slightly favorable foreign currency translation. The increase in unit volumes was primarily due to continued strong demand from U.S. beverage markets.
Income from operations of the closures business for the second quarter of 2016 increased $0.7 million to $25.3 million as compared to $24.6 million in 2015, and operating margin increased to 12.3 percent from 11.9 percent over the same periods. The increase in income from operations was primarily due to higher unit volumes and strong operating performance, partially offset by the unfavorable impact from the lagged pass through of increases in resin costs.
Plastic Containers
Net sales of the plastic container business were $138.5 million in the second quarter of 2016, a decrease of$14.9 million, or 9.7 percent, as compared to $153.4 million in the second quarter of 2015. This decrease was principally due to lower unit volumes of approximately 5 percent as a result of the continued rebalancing of the customer portfolio in conjunction with the footprint optimization program, the pass through of lower raw material costs and the impact of slightly unfavorable foreign currency translation.
Income from operations of the plastic container business for the second quarter of 2016 was $1.0 million, a decrease of $8.4 million as compared to $9.4 million in 2015, and operating margin decreased to 0.7 percent from 6.1 percent over the same periods. The decrease in income from operations was primarily attributable to higher incremental costs and inefficiencies incurred to service customers during the footprint optimization program, lower unit volumes, start-up costs related to the new manufacturing facilities and the favorable impact in the prior year period from the lagged pass through of decreases in resin costs.
Six Months
Net income for the first six months of 2016 was $59.9 million, or $0.98 per diluted share, as compared to net income for the first six months of 2015 of $75.5 million, or $1.22 per diluted share. Adjusted net income per diluted share for the first six months of 2016 was $1.05 versus $1.24 in the prior year period, after adjustments increasing net income per diluted share by $0.07 for the first six months of 2016 and adjustments increasing net income per diluted share by $0.02 for the first six months of 2015.
Net sales for the first six months of 2016 decreased $63.4 million, or 3.7 percent, to $1.67 billion as compared to $1.73 billion for the first six months of 2015. This decrease was primarily the result of the pass through of lower raw material costs across all businesses and lower unit volumes 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 and a favorable mix of products sold in the metal container business.
Income from operations for the first six months of 2016 was $125.1 million, a decrease of $20.3 million, or 14.0 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, 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, higher rationalization charges, lower unit volumes in the plastic container business and foreign currency transaction losses. These decreases were partially offset by an increase in unit volumes in the closures business, a favorable mix of products sold in the metal container business and manufacturing efficiencies in the closures business. Rationalization charges were $6.1 million and$1.6 million in the first six months of 2016 and 2015, respectively.
The effective tax rate for the first six months of 2016 was 34.7 percent as compared to 32.6 percent for the first six months of 2015. The effective tax rate in 2016 was unfavorably impacted by the cumulative adjustment of a change in tax law in a certain foreign jurisdiction, partially offset by higher income in more favorable tax jurisdictions. The effective tax rate in 2015 benefited from higher income in more favorable tax jurisdictions.
