Silgan powers through Middle East and Venezuelan volatility
The Metal Containers segment was impacted due to issues in the Middle East with the firm’s plant in the Jordan Valley situated on the Syrian border, Anthony Allott, CEO, president and director told analysts in a conference call discussing the firm’s Q2 results.
“Its intention was to sell to Jordan, Syria and Lebanon. And with a civil war going on in Syria right now, we can't sell into Syria, you can't ship through Syria to get to Lebanon, and so that plant is pretty much sitting idle and waiting.”
He added: “But sure, if we could go back, would be we building a plant right on the border of Syria? No, we wouldn't. But we do have an excellent plant there, and so we are certainly looking to see if there are ways to fill or keep that plant full until the conflict settles down.”
Net sales of the metal container business were $531.2m for Q2 2013, an increase of 10.7% because of higher unit volumes and average selling prices as a result of the pass through of raw material costs and the impact of favorable foreign currency translation.
The increase in unit volumes was due to growth in the US, in the pet food and soup markets, sales from the new plants in Eastern Europe and sales from Turkey which were acquired inJuly 2012.
Sourcing issues
The firm said they continued to experience greater-than-expected volatility in Venezuela and the Middle East due to sourcing issues for raw materials as a result of government currency restrictions.
Continued political instability in Venezuela, Turkey and Jordan led to lower operating income from the Closures segment because of delays in sourcing steel as a result of political instability and currency restrictions.
The firm reported that there had been no domestic steel supply in Venezuela but the situation was starting to loosen.
Income from the closures business for Q2 2013 decreased $1.2m to $21.7m and operating margin decreased to 12% from 12.5% over the same period.
The decrease was primarily due to $2.3m lower operating income in Venezuela due to delays in sourcing steel in the quarter as a result of political instability and currency restrictions.
The Bisphenol effect
When asked about bisphenol A (BPA), Allott said they are hearing more on the issue, in part due to France’s decision to ban it from 2015.
“We have been working on solutions for many years now, doing thousands of test samples, et cetera. And so for most of our business, not all, but most of our business, we believe there are replacements that can work.
“They may be more expensive, they may be harder to manufacture, they may reduce shelf life in some cases, but for much of the business, there are solutions that exist.
“In the US, it's still quieter right now. There is just -- we still work with certain customers who are focused on it, but it does seem to be kind of media-driven effort. I think most of our customers just don't want to incur the cost, if they can help it.”
Quotes taken from the Seeking Alpha transcript of the call.
