Rigid packaging maker Silgan Holdings Inc., not happy with second-quarter financial results, is promising to make permanent changes that could impact production capacity and manufacturing sites.
"I would say that the actions that we're going to be taking are more permanent. We are rightsizing our capacities, our footprint, our business activities to the projections from our customers for the second half of the year," CEO Adam Greenlee said on a conference call to discuss quarterly results.
Silgan's largest business is metal containers, but the company has a significant business in plastic containers, caps, closures and dispensers.
"I just want to make it really clear to everybody that the team here at Silgan is very disappointed with our performance in the second quarter and our revised outlook for the remainder of the year. We believe the current issues we're facing are transitory in nature and will be contained to the year of 2023," Greenlee said.
"What I can also tell you is that the Silgan team collectively understands the challenge that's right in front of us, and we remain confident in the earnings power and the outlook for each of our franchise businesses," he added.
That being said, the company is revising its earnings outlook for 2023, dropping expected earnings per share by 55 cents. Silgan's new adjusted net income per diluted share expectation is $3.40 to $3.60 per share, down from $3.95 to $4.15 per share, Chief Financial Officer Kim Ulmer said.
While expressing disappointment with quarterly results, Greenlee did indicate the company faced tough comparisons with last year's second quarter, which was a record performance.
"Strong performance in metal containers and inline performance in custom [plastic] containers were offset by two primary items in our dispensing and specialty closures segment. The largest item was the result of a skilled labor challenge at one of our U.S. closures, food and beverage facilities, which limited the output of that facility and created significant incremental costs in our overall system to serve those customers," Greenlee said.
Silgan did not immediately respond to a July 27 email seeking further comment.
"Due to our customers' changed priorities for the second half, we are also shifting our focus to align our operational footprint and business activities to the revised second-half projections, and we will be driving out cost from each of our businesses," Greenlee said.
Demand for Silgan's products was strong during the first portion of the second quarter, but the company saw "what appeared to be a broad-based volume shift with many of our customers" as the quarter progressed, the CEO said.
Silgan also ran into skilled labor shortage problems at an unnamed closure, food and beverage facility that limited production and increased costs for the company to serve customers.
"Silgan worked diligently to insulate our customers from any operational issues we may face as we work to mitigate these impacts. We will continue to incur incremental costs to serve our customers in the second half but have already taken aggressive actions that will result in those costs reducing through the end of the year and the issue itself being resolved as we transition into 2024," Greenlee said.
Robert Lewis, executive vice president and former CFO at Silgan, said the company is "rightsizing with the ability to flex back up when we need to."
Silgan, he said, has always been able to reduce costs as the company sees softness and then increase production as needed when business returns.
Second-quarter profit was $78.9 million, or 71 cents per diluted share, on sales of $1.43 billion. That compares with profit of $92.7 million, or 83 cents per diluted share, on sales of $1.54 billion during last year's second quarter.
Silgan was No. 8 in the most recent ranking of North American injection molders by Plastics News with $860 million in sales. It was the No. 9 blow molder ranked by PN with $708 million in sales.