Silgan Holdings Inc. ( SLGN)

Q3 2011 Earnings Call

October 26, 2011 11:00 am ET

Executives

Kim Ulmer - VP and Controller

Tony Allott - President and CEO

Bob Lewis - EVP and CFO

Adam Greenlee - EVP and COO

Analysts

Matt Wooten - Robert W. Baird

Chris Manuel - Wells Fargo

Benjamin Wong - Bank of America-Merrill Lynch

Alton Stump - Longbow Research

Phil Gresh - JPMorgan

Christopher Butler - Sidoti & Company

Tim Burns - Cranial Capital

Tim Thein - Citigroup

George Staphos - Bank of America-Merrill Lynch

Presentation

Operator

Thank you for joining Silgan Holdings’ third quarter 2011 earnings conference call. Today's call is being recorded. At this time I would like to turn the call over to Kim Ulmer VP and Controller for Silgan Holdings. Please go ahead.

Kim U lmer

Thank you. Joining me from the company today, I’ve Tony Allott, President and CEO, Bob Lewis, EVP and CFO and Adam Greenlee, EVP and COO.

Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore involve a number of uncertainties and risks including, but not limited to those described in the company's annual report on Form 10-K for 2010 and other filings with the SEC.

Therefore, the actual results of operations or financial conditions of the company could differ materially from those expressed or implied in the forward-looking statements.

With that, I will turn it over to Tony.

Tony Allott

Thanks, Kim. Welcome everyone to our third quarter 2011 earnings conference call. Our agenda for this morning to review the financial performance for the third quarter. To make a few comments about our outlook for fourth quarter of 2011 and to provide some preliminary thoughts about 2012. After these prepared remarks, Bob, Adam and I will be pleased to answer any questions.

As you saw in the press release, despite several external challenges, this was another record quarter for Silgan Holdings. We reported adjusted earnings per share of $1.14 increasing nearly 27% versus the prior year quarter. Further demonstrating the strength of our franchises and the power of our disciplined approach to capital deployment. These results were achieved in spite of sluggish demand for single serve beverages, one of the worst fruit and vegetable pack seasons in recent memory and a worsening of economic conditions in Europe.

Each of the recently acquired businesses Vogel & Noot, IPEC and DGS performed well in the quarter and were accretive to earnings. Only our plastics container business had a declining profit quarter which resulted largely from costs and productivity losses incurred to address specific operating challenges. While we’re seeing signs of operational progress, our response to this situation will likely continue to negatively impact results in the near term.

During the quarter, we also have continued to deploy capital to enhance our business by acquiring the steel pet food business from Nestlé Purina PetCare and buying back additional shares under our share repurchase program.

Given our year-to-date performance through these volatile market conditions, we’ve refined our full estimate of adjusted earnings per diluted share to $2.60 to $2.65 representing a forecasted annual increase of between 17.1% and 19.4% over 2010 results.

With that, I’ll now turn over to Bob to review the financial results in more detail and provide additional explanation around our earnings estimates for ’11.

Bob Lewis

Thank you Tony, good morning everyone. As Tony highlighted the third quarter of 2011 was a record quarter as we delivered adjusted earnings inline with our expectations and 27% above the third quarter 2010 despite the fact that each of our businesses were faced with significant headwinds during the quarter.

Key to the quarter are positive contributions from our recently acquired businesses and solid operating performance in our metal container and closures businesses, while the third quarter continue to experience the negative impact of the lag in pass through our resin costs to our customers in our U.S. closure business. As a result we delivered third quarter adjusted earnings per diluted shares of $1.14 versus the prior year quarter of $0.90.

On a consolidated basis net sales for the third quarter of 2011 were $1,148 million, an increase of $145.9 million or 14.6% as net sales in each of our businesses improved. Net income for the third quarter was $78.8 million or $1.12 per diluted share compared to the third quarter of 2010 net income of $65.2 million or $0.84 per diluted share.

While we experienced volatility in foreign exchange across the business, the net impact of foreign currency was immaterial as we continued to be effectively hedged having financed the international businesses in their local currencies. We did, however, experienced a transaction loss as a result of the significant devaluation of the Polish Zloty late in the third quarter.

Interest expense for the quarter was virtually unchanged from the same period a year ago as additional costs associated with incremental year-over-year borrowings were largely offset by lower average cost of borrowings. We also recorded a loss on early extinguishment of debt during the quarter to reflect the July 2011 refinancing of our senior secure credit facility.

Capital expenditures for the third quarter 2011 totaled $39.1 million compared with $27.9 million in the prior year quarter. On a year-to-date basis, capital expenditures totaled $123.2 million in 2011 versus $76 million in the prior year. We continue to estimate that capital expending for the full-year will be in the range of $160 million to $170 million, largely a result of the compression of capital into 2011 to maximize tax deductibility, incremental investments in Eastern Europe and the impact of foreign currency.

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