Stamford, Conn.-based Silgan Holdings was founded in 1987, but traces its roots to 1899 when the Carnation Co. began packaging evaporated milk in Kent, Wash. It's now the largest metal-can supplier in North America. Silgan was formed from the canning operations of Campbell Soup and Del Monte, among others. And today, the company provides cans and caps for a swath of food packagers around the world. Life isn't exciting as a can specialist, but a consistent revenue stream and healthy profit spread compensate for the boredom.
Silgan's second-quarter revenue declined 6% to $690-million (U.S.) as earnings inched up to $34-million, or 88 cents per share. Plastic-container sales dropped 22% during the quarter and closure sales fell 19%, hurt by lower unit volumes and foreign currency cuts. But sales increased 7% in the bread-and-butter metal-cans segment.
Despite weakened demand, the operating margin remained steady at 9% and the net margin increased slightly to 5%. Because of Silgan's scale-production in the cans segment, it's able to pass on higher commodities costs to customers without materially affecting its sales volume. But in the plastic containers and closures divisions, weaker demand coupled with higher commodities prices hurt performance.
Silgan's financial position is poor. The company holds just $80-million of cash, as compared to $985-million of debt. A debt-to-equity ratio of 1.7 indicates sizable leverage. Consequently, our model gives Silgan a financial strength score of 5.7 out of 10, lower than our "buy"-rated average of 7.
The company seems uninterested in bolstering liquidity, but has made progress in diminishing its debt load. Total obligations have fallen 19% to $985 million since the year-earlier quarter, whereas cash and cash equivalents fell 8% to $80 million over the same period.
Silgan's stock has ascended 6% in 2009, beating the Dow Jones Industrial Average, but underperforming the S&P 500 Index. The shares are trading at a price-to-earnings ratio of 14, indicating a 27% discount to the metal-and-glass-containers industry. The stock is also cheap relative to peers on the basis of sales and cash flow.
According to our quantitative model, Silgan is a more attractive investment than several of its larger peers, including Crown Holdings, Pactiv and Aptar Group. Silgan offers a dividend yield of 1.5% and has a beta, a measure of market correlation, of 0.5.