Silgan Trims Guidance (BLL) (CCK) (SLGN)

Silgan Holdings Inc. (SLGN) has trimmed its earnings per share guidance for fourth quarter and fiscal 2012 and extended the expiration date of its tender offer to purchase up to $250 million worth of common stock to February 5, 2013.

For fiscal 2012, Silgan now expects earnings per share to range between $2.65 and $2.75, down from the prior expectation of $2.80 to $2.85. Compared to adjusted earnings per share of $2.63 in 2011, this represents an annual growth of 1% to 5%.

The company also lowered its adjusted earnings per share guidance to the band of 43 cents to 53 cents, down from the previous range of 58 cents to 63 cents. Compared on the base quarter’s earnings per share of 56 cents, this depicts a decline of 5% to 23%.

The reduction in guidance was primarily due to lower demand for metal food containers. Even though volumes are expected to trend higher on a year-over-year basis, it is expected to remain below the prior expectations. Furthermore, the extended shutdown of two facilities, due to hurricane Sandy, has affected product mix and manufacturing costs in the fourth quarter.

The company has also extended the expiration date of its tender offer to purchase up to $250 million of its common stock at a price not less than $40.75 per share or higher than $45.25 per share to February 5, 2013. The offer was previously scheduled to expire at on December 18, 2012. As of December 17, 2012, a total of 4,547,611 shares of common stock have been deposited under the tender offer.

Silgan Holdings posted adjusted earnings of $1.17 per share in the third-quarter 2012; a 3% increase from the year-ago quarter’s EPS of $1.14. Earnings were on the lower end of its guided range of $1.15-$1.25 per share, missing the Zacks Consensus Estimate by a penny. Total revenue declined 0.7% year over year to $1.140 billion in the quarter, missing the Zacks Consensus Estimate of $1.155 million. Sales dipped in the plastic container and closures businesses, which were somewhat offset by increased sales in the metal container business.

Silgan Holdings is the largest manufacturer of metal containers for food products in North America. Silgan has managed to increase its overall share in the U.S. metal food container market to approximately 50% on the back of accretive acquisitions and organic growth. Silgan Holdings continues to enhance profitability through productivity and cost reduction opportunities. Backed by the additional capacity resulting from the acquisitions, the company has been able to rationalize plant operations and reduce overhead costs by closing plants and work force downsizing.

However, Silgan’s exposure to Europe has increased after its Vogel & Noot acquisition and expansion of the Closures segment in the region, accounting for almost 50% of the segment s revenues. In Europe, weakening demand and softer pricing has emerged as a result of the ongoing economic instability in the region. With the European conditions expected to remain challenging over the next few quarters, we expect additional pricing pressure.

Silgan Holdings high debt-to-capitalization ratio is a concern. As of September 30, 2012, debt-to capitalization ratio of Silgan was 73%. Its strategy to leverage for acquisitions will further aggravate the company s debt position.

Silgan is one of the leading North American manufacturers of metal and plastic consumer goods packaging products. Its products are used in a wide variety of end-markets. It is the largest metal container supplier for food products in North America. The company has 82 manufacturing plants throughout North and South America, Europe, and Asia.

Silgan retains a short-term Zacks #3 Rank (Hold). Silgan competes with Ball Corporation (BLL) and Crown Holdings Inc. (CCK).