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Silgan’s net income battered in Q2

By Joe Whitworth , 25-Jul-2012
Last updated the 26-Jul-2012 at 10:54 GMT

Silgan Holding’s net income plummeted year-on-year in Q2 by $40.6m (€33.5m) and warned planned customer shutdowns could further impact results.   

Selling, general and administrative expenses jumped from $20m to $46.5m in Q2 2012 and the firm recorded a $38.7m loss in the early extinguishment of debt. 

Income from operations for Q2 was $68.6m, compared to $94.5m for the Q2 2011. 

Silgan said this was due to $27m in corporate selling, general and administrative expenses for proceeds received as a result of the termination of the Graham Packaging merger agreement. 

Income was also affected by a decrease from operations in the metal container business, partially offset by an increase from the plastic container and closures businesses. 

Silgan’s net sales for Q2 2012 were down $0.6m to $821.6m from lower sales in the metal container and closures business which was partially offset by better sales in the plastic container business. 

‘Disappointing’ quarter 

Tony Allott, Silgan president and CEO described the quarter as a “bit more challenging than expected.” 

“While we do expect some volume shift between quarters, we were disappointed with our metal food container volumes thus far as the vegetable pack got off to a slow start and we saw a less favourable mix of products sold versus the prior year period due in large part to the timing of shipments. 

“In addition, weaker demand patterns in Europe negatively impacted volumes and pricing in both our metal containers and closures operations. 

“However, our businesses are reacting well to these challenges, and our plastic container business continues to show signs of improvement in its operating performance.”

Silgan also announced the acquisition of Öntaş Öner Teneke Ambalaj Sanayii Ve Tikaret A.S., which operates under the name of Öntaş in Izmir, Turkey on 10 July. 

Öntaş, with sales of $30m in 2011, is a supplier of food cans and vacuum closures in Turkey. 

Earlier this month, the firm acquired Rexam's plastic thermoformed business for $250m and is expected to close in Q3.

Segment outlook 

Net sales of the metal container business were down $2.6m to $479.7m for the Q2 2012 primarily due to unfavourable foreign currency translation and a less favourable mix of products sold. 

This was partially offset by higher average selling prices as a result of the pass through of higher raw material costs. 

Unit volumes increased slightly overall but declined due to a slow start to the vegetable pack and softness in the European markets, particularly in general line cans. 

Income from operations of the metal container business decreased $2.8 million to $40.1m and operating margin decreased to 8.4%. 

The decrease in income from operations was due to less favourable mix of products sold, volume declines in European markets due to economic weakness and $1.9m costs associated with the start-up of three production facilities in eastern Europe and one facility in the Middle East. 

This was partially offset by charges in the second quarter of 2011 of $3.3m related to the resolution of a past product liability dispute. 

Net sales of the closures business were $183.1m a decrease of 0.8%, attributed to lower net sales in Europe due to weak market conditions, partially offset by favourable unit volumes in the US single-serve beverage market.

Income increased $0.2m to $22.9m and operating margin increased to 12.5%, driven by higher unit volumes in the US single-serve beverage market, improvement in manufacturing efficiencies and operating cost savings, largely offset by weaker volumes and increased price pressure in the European market due to macroeconomic issues. 

Net sales of the plastic container business were up 2.2% to $158.8m, principally a result of a favourable mix of products sold and an increase in unit volumes, both due to strong seasonal sales in the agricultural and chemical markets and customers building inventory in advance of planned shut downs.

Income was $9.1m, an increase of $4.6m and operating margin increased to 5.7% due to the year-over-year resin pass through lag effect which benefited Q2 2012, a favourable mix of products sold, cost reductions and an increase in unit volumes and lower rationalization charges.