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Silgan's Fourth-Quarter Earnings Remain Heady Amid Elevated North American COVID-19 CasesSilgan's Fourth-Quarter Earnings Remain Heady Amid Elevated North American COVID-19 Cases Charles Gross Equity Analyst Analyst Note | by Charles Gross Updated Jan 27, 2021 With restaurant traffic subdued through the fourth quarter, food cans continue to fly off the shelves, which has benefited Silgan. Fourth-quarter revenue leaped to $1.23 billion, up 17% from the prior year. Improving operating leverage and robust sales growth drove adjusted EPS to jump over 50% to $0.60 per share. All three segments performed solidly during the quarter and year. North America's gradual recovery from the coronavirus epidemic suggests that 2021 should be similarly robust. We think management's guidance to $3.30-$3.45 in adjusted earnings per share will be attainable and have modestly increased our near-term forecasts. However, beyond 2021, we expect a volume slowdown as consumption trends normalize. Our fair value rises to $33 per share from $32, and our narrow moat rating is unchanged. Metal can volumes were up a solid 15% in the fourth quarter, while plastics rose 8%. Both figures are stellar relative to the more typical low-single-digit growth rates investors have grown accustomed to. A leisurely vaccine rollout in North America suggests that more families will be eating at home at least through the first half of 2021, which bodes very well for Silgan's near-term outlook. That said, we think Silgan's current share price reflects unrealistically strong growth for an extended time. In 2022, we expect a volume slowdown as home dining slows. Margins expanded for both packaging materials, thanks to high throughput. Closure sales were no slouch, with volumes up 8% for the year and sales rising 22% to $1.7 billion. However, the acquisitions of Albea and Cobra were the leading segment growth drivers. Thanks to improved throughput and favorable mix, segment income margin widened nearly 100 basis points to 13.1% for the year. In 2021, another five months of Albea's results will support solid overall sales and earnings growth for Silgan--a pivotal component to reach management's EPS guidance. |
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