Silgan Holdings' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Silgan Holdings, Inc. (SLGN)

Q2 2012 Earnings Call

July 25, 2012 11:00 am ET

Executives

Kimberly I. Ulmer – Vice President and Controller

Anthony J. Allott – President and Chief Executive Officer

Robert B. Lewis – Executive Vice President and Chief Financial Officer

Adam J. Greenlee – Executive Vice President and Chief Operating Officer

Analysts

Christopher D. Manuel – Wells Fargo Securities LLC

George Staphos – Bank of America/Merrill Lynch

Ghansham Panjabi – Robert W. Baird & Co. Equity Capital Markets

Adam Josephson – Keybanc Capital Markets

Scott Gaffner – Barclays Capital

Chip Dillon – Vertical Research Partners LLC

Albert T. Kabili – Credit Suisse AG

Christopher W. Butler – Sidoti & Company, LLC

Alton Stump – Longbow Research

Alex Ovshey – Goldman Sachs & Co.

Mark Wilde – Deutsche Bank Securities

Phil Gresh – JPMorgan

Presentation

Operator

Thank you for joining Silgan Holdings Second Quarter Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Kim Ulmer, Vice President and Controller. Please go ahead.

Kimberly I. Ulmer

Thank you. Joining me from the Company today, I have 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 maybe 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 2011 and other filings with the SEC. Therefore, the actual results of operations or financial condition of the Company could differ materially from those expressed or implied in these forward-looking statements.

With that, let me turn it over to Tony.

Anthony J. Allott

Thank you, Kim. Welcome everyone to our second quarter 2012 earnings conference call. Our agenda for this morning is review the financial performance for the second quarter and to make a few comments about our outlook for 2012. After our prepared remarks, Bob, Adam and I will be pleased to answer any questions.

As you saw in the press release, our businesses performed well in the quarter, but were challenged with the timing of volume and pack concerns in the metal food can business and weakening demand and softer pricing in Europe as a result of ongoing economic instability.

Nevertheless, we did deliver record adjusted earnings per diluted share of $0.55, posting a nearly 4% gain over the previous record second quarter of 2011 of $0.53 per diluted share. We're not expecting any quick recovery in European fundamentals, nor has the visibility improved to the midwest vegetable pack given the dry hot weather. However, at this time we are confirming our full-year estimates of adjusted earnings per diluted share to be in the range of $2.80 to $2.90.

On a longer-term basis, we are confident each of our business franchises are continuing to be enhanced. This confidence is based on the operational improvement under way in our plastics business, the new plant is being ramped up in important Eastern European and Middle East markets, and the recently announced acquisitions of the Rexam thermoformed food business and the on-task can and closure business in Turkey.

We believe each of these enhances our competitive advantage allowing us to better to meet the needs of our global customers and to continue to drive long-term shareholder value.

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 2012.

Robert B. Lewis

Thank you, Tony. Good morning, everybody. As Tony highlighted, the second quarter of 2012 was challenging as we delivered adjusted earnings per share at the low end of our expectations. The biggest impact was in our metal container business where economic weakness in Europe led to a weaker demand in certain categories, particularly general line cans and the hot dry growing conditions led to a slower start to the pack and a less favorable mix of products sold, largely due to the timing of shipments.

As a result, we delivered adjusted earnings per share of $0.55 in the second quarter, versus $0.53 in the prior year quarter. On a consolidated basis, net sales for the second quarter of 2012 were $821.6 million, a decrease of $600,000, primarily as a result of unfavorable foreign currency of $18.4 million, partially offset by higher net sales in the plastic container business and the pass through of higher raw material costs.

Net income for the second quarter was $10.6 million or $0.15 per diluted share, compared to second quarter of 2011 net income of $51.2 million or $0.73 per share. The primary drivers behind the change in net income was a $38.7 million loss on early extinguishment of debt recorded this quarter and $27 million net benefit of the Graham termination fee recorded in the second quarter of 2011.

Foreign exchange remain neutral to earnings as we continue to be effectively hedged. Interest expense before the loss on early extinguishment of debt for the quarter decreased to $0.5 million to $16 million versus $16.5 million in the same period a year ago. This decrease was largely driven by lower average interest rates, partially offset by higher average borrowings as a result of the recent 5% senior note issuance and the refinancing of our senior secured credit facility in July 2011.

In addition, we incurred a $38.7 million loss from the early extinguishment of debt as a result of the make-whole provision of the 7.25 notes, which were retired with the proceeds from the 5% note issuance. I’ll also point out that the loss on early extinguishment of debt had a bearing on our effective tax rate for the quarter as the $1.7 million cumulative rate adjustments in certain foreign jurisdictions were applied to a much lower taxable base as a consequence of this loss.

Capital expenditures for the second quarter of 2012 totaled $33.1 million, compared to $50.7 million in the prior year quarter. On a year-to-date basis, capital expenditures totaled $59.5 million in 2012, versus $84.2 million in the prior year. And we do continue to anticipate capital spending for the full year to be in the lower end of our range of $125 million to $150 million as we compressed capital in 2011 to take advantage of the accelerated tax deductions.

Additionally, we paid a quarterly dividend of $0.12 per share, in June with a total cash cost of $8.5 million, and also during the quarter, we repurchased approximately 397,000 shares for an aggregate amount of $17.1 million through a series of open market transactions.

I’ll now provide some specifics regarding to the individual businesses. The metal container business recorded net sales of $479.7 million for the second quarter of 2012, a decrease of $2.6 million versus the prior year quarter. And this decrease was primarily due to unfavorable foreign currency translation of approximately $7.5 million and a less favorable mix of products sold partially offset by higher average selling prices as a result of the pass through of higher raw material costs. Unit volumes were up slightly for the quarter as incremental units from the Nestlé Purina steel can operations were largely offset by volume declined attributable to a slower start for the vegetable pack and general softness in European volumes, particularly in general line.

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