February 28, 2023 | 12:55 PM by Jay Kunstman | jkunstman@jaguaranalytics.com

Silgan Holdings (SLGN) – From The Call to The CAGNY

Silgan Holdings (SLGN), admittedly not the most exciting name in the world, is a packaging company that operates through 3 segments: Dispensing & Specialty Closures, Metal Containers, and Custom Containers. When looking at its specific end markets, the company touches all areas of the consumer from Food to Pet Food to Lawn and Garden to Beverages to Personal Care.

When the company reported its Q4 earnings in late-January, headline numbers weren’t spectacular. EPS came in at $0.84 vs $0.82 estimate while Revenue came in at $1.46B vs $1.54B estimate. Meanwhile, for Q1, they saw EPS coming in at $0.75 – $0.85 vs $0.82 estimate and FY23 EPS coming in at $3.95 – $4.15 vs $4.08 estimate. Looking beyond those numbers to what management discussed on the earnings call, they said that earnings for its Dispensing and Specialty Closures segment are expected to increase significantly due to higher volumes (i.e growth in beauty and fragrance markets and improved demand for cleaning and hygiene products) and better operating performance. For Metal Containers, this segment is expected to improve Y/Y with higher volumes driven by pet food, less customer pre-buying, as well as cost improvements and operating performance.

In a post-earnings note, RBC Capital said they continue to like Silgan for its defensive product mix (i.e. soups, fruit and veg and cleaning products) and its ability to manage through any macro headwinds as it would benefit from higher at-home consumption of food. In addition, FCF generation of $425M allows for debt paydown and keeps the door open for opportunistic M&A, likely in the DSC segment and buybacks. Similarly, Raymond James noted that Silgan’s key end markets exhibit stable demand, even in recessionary periods.

Pet Food – From The Call to The CAGNY

Whether it be during prepared remarks or during Q&A, Silgan management would certainly highlight the pet food category. CEO Adam Greenlee would say, There was a lot of investment that went into the pet food category and filling additional products. And for the most part, we’re seeing the progress that we wanted to see, and it is part of our growth assumption for 2023 that roughly in the early part of the year here, the rest of that gets figured out at our customers.”

Meanwhile, CFO Robert Lewis would comment, “I think what’s different this go around is the fact that there has been such a change in pet ownership and pet population that it is far more dependent on the wet pet food market and less likely to see a meaningful change away from what the pets are eating and how people are treating the pet. So I would expect that the food can business will continue to do well.”

This brings me to the recent CAGNY Conference, which took place last week and can act as a positive read-through for shares of Silgan. For example, during its presentation, Nestlé noted that global wet dog food and wet cat food increased at CAGRs of 7.1% and 7.5%, respectively, between 2017-2021. From 2022-2025, the company expects the global pet care market to grow at a 6-8% CAGR. In order to meet this demand, Nestlé is investing in new capacity. Truist would note:

“In 2022, Nestlé represented ~13% of SLGN’s consolidated sales as SLGN has been supplying Nestlé with substantially all of its metal food container requirements since SLGN’s founding in 1987. In 2018, SLGN entered into a long-term supply agreement extending through 2025 with Nestlé to supply all of Nestlé’s North American metal food container requirements for pet food and other food products and to support Nestlé’s growth initiatives.”

Finally, as I discussed in Sunday’s Consumer Callouts note, General Mills (GIS) would raise its FY23 Guidance and highlighting its own Pet segment. Management would say that growth has rebounded in the Pet segment, supported by a stronger supply chain performance as the company improves upon the second quarter. Its guidance calls for double-digit growth in the second half and margin improvement and the company noted it is on track to deliver that guidance with strong customer orders and encouraging growth in non-measured channels which represent 40% of segment sales.

Overall, General Mills noted a $2B revenue opportunity for Blue Buffalo in North America supported by the mid-to-high single digit category growth and continued premiumization of the category. For example, General Mills launched Tastefuls by Blue Buffalo, a new line of wet cat food. Over the last year, sales of Tastefuls increased 30% Y/Y. General Mills is one of Silgan’s largest customers. Bottom line, this is yet another positive read-through for Silgan.

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