Q1 2021 Silgan Holdings Inc Earnings Call
Thank you for joining the Silicon Holdings first quarter 2021 earnings results Conference today's call is being recorded at this time I would like to turn the conference call over to MS. Kim Ulmer, Vice President Finance and Treasurer. Please go ahead and.
Thank you joining me from the company today, I have Tony Allott, Chairman and CEO, Adam Greenlee, President and CFO, and Bob Lewis EVP and CFO.
Before we begin the call today, we would like to make it clear of that certain statements made today on this conference call. Maybe forward looking statements. These forward looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore involve a number of of uncertainties and risks, including but not limited to those described in the company's annual report on form 10.
K for 'twenty, and 'twenty and other filings with the SEC and therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward looking statements.
And I'll turn it over to Tony.
Thank you Kim and welcome everyone to our first quarter earnings Conference call, We trust that you're safe and healthy as we enter the second year of the COVID-19 pandemic.
Like many of you are eager for this difficult situation to come due and N. But we're also committed to remaining diligent and until it does so.
In light of the significant changes its still going over the past several years and culminating with the recent addition of Albea dispensing.
Thought 2021 would be a good time to renamed two of our operating segments to better capture of the evolving nature of their products and align with our ongoing strategic focus.
The closures segment has been renamed to dispensing and specialty closures to better reflect the importance of the wide variety of dispensing technologies offered by this segment. In addition to the specially designed performance attribute of our entire closures line.
Accustomed container segment, formerly of plastics has been increasing its focus and investments targeted to customers and containers require and custom design and elevated customer support.
With that said and I'll make a few comments about the first quarter, our thoughts about the remainder of the year.
And the Bob will provide more details of Bob and well be happy to take any questions that you have.
And as you've seen in this morning's press release, we reported another strong quarter with adjusted earnings of <unk> 75 per diluted share at the high end of our estimates and 32% ahead of the record first quarter 2020 results of <unk> 57 per diluted share.
On an adjusted basis each of our businesses exceeded a very strong prior year quarter. The benefited from the initial pantry stocking and response to the global COVID-19 pandemic and earnings grew solidly despite significant headwinds from severe winter weather throughout the southern U S and unparalleled increases of resin cost.
Yes.
We're pleased with the results of each of our business segments volumes of held strong and we continue to expect strong performance for the year.
Accordingly, we are reconfirming, our full year guidance of $3 30 to $3 45 per diluted share representing a 10, 3% increase at the midpoint over our record 2020 levels.
And the second quarter, we anticipate adjusted earnings per diluted share of between 75 and 85.
As compared with 85 down from the second quarter of 2020.
Recall that the second quarter of 2020 was particularly strong as we benefited from an outsized inventory liquidation to meet the significant custom.
Customer pantry loading and ongoing increased demand as home lockdowns were enacted across the globe.
In addition to this tough volume comps, we also anticipate of significant impact from the contractual lag and passing through and unprecedented inflation and resin and other raw materials and our full year estimate assumes some returned to more normal resin cost levels later in the year.
In summary, our end markets remain strong our businesses are executing exceptionally well and these volatile times and our strategic positioning for further growth has never been better with that I'll turn it over to Bob.
Thank you Tony Good morning, everyone I hope everyone is doing well.
And as expected results for the first quarter of 2021 significantly exceeded the prior year and were at the high end of our estimate.
We delivered adjusted earnings per diluted share of <unk> 75.
And increase of 32% versus the prior year period as each of the segments delivered favorable results on.
On a consolidated basis net sales for the first quarter 2021 increased 207 <unk>.
$7 million or 22% versus the prior year to $1 billion and $240 million as each of our businesses delivered top line improvement.
These increases were largely the result of higher volume and the dispatching and specialty closures and metal container segments and the inclusion of a full quarter of the Albea dispensing business, which contributed $91 $8 million to the top line the pass through of raw higher raw material costs favorable foreign currency translation of approximately 80.
<unk> million and.
And a more favorable mix of products sold and dispatching and specialty closures and custom containers segments.
We converted the sales to adjusted income before interest and taxes for the quarter of $136 9 million after adjustments of $10 $3 million per rationalization charges versus the $107 2 million after adjustments of $5 1 million rationalization charges and costs attributable to announced the act.
<unk> and the prior year quarter.
The improvement was primarily a result of increases and each of our segments and lower corporate expenses.
The first quarter of 2021 incurred incremental costs associated with the winter storm, Yuri which crippled parts of the southern U S shutting down certain facilities significantly increasing the cost of power and other facilities, disrupting logistics and transportation and impacting the cost and availability of certain raw materials.
Highlights of adjusted segment income for each of our segments is as follows.
Adjusted segment income and the dispensing and specialty closures segment increased 25 million to $79 million and the first quarter of 2021.
After adjustments of $5 2 million and 700000 for rationalization charges and 2021 and 2020, respectively.
The increase was primarily due to higher unit volumes, including from the Albea dispensing acquisition, which contributed nearly $12 million and more favorable mix of products sold and strong operating performance, including the realization of synergies. These benefits were partially offset by a significant unfavorable impact from the delayed.
<unk> through of higher resin costs and foreign currency transaction losses.
Adjusted segment income and the metal container business was a record $50 6 million up $1 $1 million versus the prior year after adjustments of $5 million and 2021 and $2 million in 2020 for rationalization charges. This increase was primarily attributable to higher unit volumes of 9% and close.
The higher percentage of smaller size containers and pension income.
Significant cost, resulting from winter storm and.
And of one time investment and hiring and training new employees largely offset these gains we made significant new hire decisions during the quarter to enable the business to cost effectively meet continued strong consumer demand on a longer term basis, the aggregate costs incurred related to the storm and the significant hiring were approximately $6 million.
Adjusted segment income and the custom container segment increased $2 5 million to $24 6 million for the quarter after adjusting for rationalization charges of $100000 and each year. This increase was largely attributable to more favorable mix of products sold and strong operating performance, partially offset by the unfavorable.
The impact from the delayed pass through of significant resin increases.
Turning now to our outlook for 2021 as expected we're off to a good start and we continue to anticipate strong full year of demand from our customers at or above prior year levels. As a result, we are confirming our full year earnings estimate and the range of $3 32.
The $3 45.
Which at the midpoint represents 10, 3% increase over the 2020 performance. We're also providing a second quarter of 2021 estimate of adjusted earnings and the range of 75 to 85 per diluted share as compared to a record adjusted earnings.
Of the 85 and the second quarter of 2020.
This estimate includes a significant headwind from the delayed pass through of unprecedented resin price increases and assumes that the second quarter 2020 benefit of consumer pantry stocking will not repeat.
Based on our current outlook for 2021, we're also maintaining our free cash flow guidance of approximately $300 million as compared to $383 million and the prior year.
That concludes our prepared comments so beyond I'll now turn it over to us to provide directions for the Q&A session.
Sure. So if you would like to ask a question. Please signal by pressing star one and your telephone keypad.
And you were using a speaker phone. Please make sure. Your mute function is turned off to one of your signal to reach our equipment.
And that is star one on your telephone keypad to ask the question.
And when I pause for a moment to know everyone and opportunity to take a couple of questions.
Thanks, Simon and I will take our first question from George Staphos from Bank of America.
Hi, guys good morning.
Details of quick question to start can you talk us about the.
And we put some additional numbers around the employment increases you're seeing and in metal containers and what that implies in terms of your.
Longer term outlook for the business and then a couple of follow ons.
Good morning, George It's Adam.
<unk> and when you think about.
What we do.
Did and metal containers from the hiring and training of new employees as you know us very well George we spent a lot of time about right talking about right sizing, our operational footprint and our head count to the businesses as we.
See it for the future so I think and investments that we made in the first quarter and new employees and we're talking about something like 100, new employees and these are not.
Packers. These are full line main operating employees for our manufacturing lines and metal containers.
So those are significant training timing and expense that we're investing so it does take a matter of three or four months for new employees to get trained and that business and I think again going back to my first comment I would say we spend a lot of time, making sure we've got the right cost structure and.
We've talked about the expectation for.
Volume growth and 2021 over the record 2020 volume. This is another kind of confirmation that that's what we're expecting and this is our investment and to what we believe we need to the manufacturer for our customers to support their business plans and just one further clarification of them, we're not talk about incremental ongoing costs.
And the quarter, the cost of hiring and training and really what youre doing for the future is offsetting what we have been making up with overtime.
Since the demand levels came up so this isn't this is really about the the ramping up of those people in the first quarter rather than an ongoing conversation.
That makes sense of Tony but ultimately it affirms what you've been saying because you expect more growth.
And we get that and I appreciate the the.
Clarification.
Second question I had and I know, it's a little bit challenging and talk about something like this.
Yeah and necessarily are on a line Mike broadcast, but does the recent transaction that occurred in Europe present, any operating more commercial opportunities for silica and recognizing you're a smaller company. There than you are in North America, and if you could provide some wise or why not around that and I had one last question.
Sure and I'm going to ask a favorite and I have the last question go to the and just because we try and give everybody. The two but then it kind of.
I missed that and well I will go back to queue.
Okay, but well definitely will get you back through so.
So I assume you are alluding to the sale and Europe of crowns metal packaging businesses.
Lucky.
Yes, yes.
Okay. Good.
[laughter].
So we obviously we are aware of that.
It looks like we're not the only ones and to think metal packaging is a really good business and so that makes sense to us I don't think as to the dynamics of our markets et cetera, I don't think it will change a lot I mean, it's not a change in terms of the consolidation or deconsolidation of the industry I assume that anybody paying that kind of price floor of business is going to be very.
Learned about protecting and taking care of that business. So I don't think it creates a risk to us.
On the opportunity side I think it's the same opportunity. We always had we think we've got a really good business there.
Much more focused east today.
And stronger position on the east side, but we've seen opportunities from time to time of little more west and well.
We'll look at those but I don't think its a major change to our strategies.
But you don't think you might be able to pick up a bit of.
Customers, who might of been served who might be looking to someone who's been in the market for a longer period of time relative to the transition that's occurring at the other company.
The cooking some of it on the edge, that's not generally thats not the way. We think we think long term customer of course affinities and long term trends and so I think for US we would view it as not a meaningful change to the situation.
Tony I'll go back in queue.
Yeah.
Thank you so and then I would take our next question from Adam Josephson.
Joseph and ask Keybanc. Please go ahead.
Thanks, Good morning, everyone and hope you and your families are well.
Tony or of Adam just on volume and it sounds like your volume expectations are comparable to what they were three months ago and that you expect flat to up volumes can you just talk about with the reopening with the well publicized declines in soup and March, albeit on a tremendously difficult year ago comp with the patch.
Restocking.
Why.
Why investors.
Should think that underlying demand is not going to deteriorate anytime soon and I know that you've got the inventory rebuilding among your customers for the balance of this year, but perhaps thereafter.
Can you just address that that the potential.
Concern that soup is going to go down and the reopening is going to cause food can demand and to revert to more normal levels of not this year then next year.
Sure Adam.
And maybe just to clarify one thing we are expecting food can volumes to be up this year and 2021 over the record 2020 volume level. So.
We were.
A bit above your flat to slight increase so I just want to make sure of that is crystal clear and what gives US a lot of comfort first of all we have of 9% growth and the first quarter. So we had a really strong first quarter.
I think our trends and our business would tell you that.
Our volumes were consistent through the quarter and.
March is typically the end of the soup season.
Now soup is is moving to kind of their off season, and and we'll come back and talk a lot more about soup and probably Q3 as we now ramp from now until then we've got really strong markets and pet food that we continue to talk about that we're seeing very nice growth I think the single largest component of our confidence.
And there's going to relate to what our customers are doing from the pack and.
And what we know now is there there is something close to a double digit increase and the contracted acreage for a pack and vegetable fruit harvest type products that will occur throughout the course of 2021.
And we're expecting and.
Earlier of packs. According to our customers. We're also expecting of later pack because they say theyre trying to pack everything they possibly can into a metal package for this harvest season. So.
That feels really good to us and we.
We've spent a lot of time working with them and preparing to support their volume requirements. So that's that is what gives us a lot of confidence and it's more than just soup soup with a terrific story last year I think we can.
Discuss what you want to talk about as far as the reports of of how well students doing I think there are certain reports out there that would say soup is also winning through the pandemic and with all of the new consumers that have tried the repurchase rate is exceptionally high and maybe one of the higher repurchase rates of any of the products out there to the pandemic.
So a long answer to your question, but we've got really really appreciate it.
Really good confidence and what we're looking at and 21.
No that's great. Thank you adamant and Bob just a two part of for you can you quantify the earnings hit Youre expecting and the second quarter from the lagged pass through of input cost inflation and.
And when do you expect to get that back weather and three of <unk> and then just I just want to confirm that you confirmed your free cash flow guidance of of 380, thanks very much.
So Adam I'm going to jump in with the resin.
And I will answer your free cash flow. So as we look at Q2 of where we're looking at more than a $10 million negative impact from the contractual lag pass through of resin. So.
We saw the peak and resin and in Q1, and just and maybe just talk quickly about some of the materials. We're talking about we had upwards of anywhere from 40% to two times the cost of raw materials. So polypropylene. The Great example, and November.
All of the propylene was roughly 60.
A pound on the indices and and February peaked out at over $1 26, the pound. So thats the kind of magnitude of inflation and we're talking about the good news is as I said it did peak in Q1, and we've seen kind of the the tip. If you will where we're going back down on polypropylene.
And both indices IHS and CDI are projecting further decreases but to be crystal clear, it's going to be a net negative on the year and then maybe Bob with the free cash flow. Yeah. We are confirming our free cash flow estimated at $380 million and Thats essentially in line with exactly what we delivered in the prior.
Per year.
Got it thanks, so much Bob.
Yeah.
Thank you. So we will now take our next question from Mac World.
And the bank of Montreal and please go ahead.
Thanks, Good morning, Tom Tony Bob the.
Adam.
I'm wondering if you could start out Tony just a little bit of.
And of return to Georges question about the transaction and Europe I'm just curious.
Curious about just the transaction and it just interested and your thoughts about the fact that much of the North American and European food can business has moved into private equity hands over the last three years and at the same place Sylvia and started and what impact do you think this will have on the sector overtime if any.
Yes, I think it's a good question I don't think its our.
And our view of the one of big changes to the market a lot of it has already happened of course.
But as I said and George the answer to George There is no real change in terms of the scale of the players involved it's just a bit about one of them et cetera.
I think the what you had before was corporate entities that did not necessarily view that as their primary of our core business and so it moved from them to smaller interests and sponsors and but everything we've seen so far is that those are all responsible players we're thinking long term for the market et cetera.
So we really have not traditionally seen much change from it and I don't really think we would expect to from here again I'll repeat that I think it is another strong affirmation of the strong cash flow characteristics of these businesses that the.
And that the interest is there for these kinds of investments.
I guess I'm kind of curious Tony and whether you think it leads to more consolidation on either side of the Atlantic and also whether it might lead to some capacity rationalization.
Well it could.
So we don't we don't tend to try to.
Overly speculate on the positive aspects of until it happens so sure I mean, and there is some logic you'd see consolidation and that would certainly be a good thing.
Like I said of your if youre, making the kind of investments of the man made and that market space.
A certain amount of consolidation to be sure. That's not oversupplied is important and there are some spaces that had been oversupplied in recent years.
I think the the maybe the balance is a little bit favorable on that side, but not enough that its really made any major changes yet.
Okay, Alright, you every person and I wanted to ask is just kind of longer term about.
Sylvia and the company is clearly in transition you're growing and new business areas now and I'm just curious.
The company was founded over 35 years ago by a couple of entrepreneurs they still own about a quarter of the equity you've worked for them for I think much of that time.
Can you just give us you know.
As best you can some perspective on where you think those large shareholders.
Our are headed with the equity stake and the company over time.
The large position of the company I think it's a fair question book or other public shareholders.
Sure I think and I think we've talked about before and obviously ultimately I don't control it and I can't say a lot on it I think that.
I think youre talking about individuals who have had a long term interest and this business who have slowly done as I understand it certain transitions in terms of to their foundations of the state's et cetera. So I don't as far as I can see and I don't see any major shifts that I'd expect that haven't already occurred a lot of the ownership of that has already moved to next generation et cetera.
So I think that part of the answer the question.
I'm not sure of this way of going but I'm going to go there, which is the second part is sort of.
Of that 35 years, what's that mean as you go through that transition and a lot of ways. We've been through it because of these changes have happened and we have new management in place et cetera, I think what is so special about silk and thats hard for us to convey and these calls is that we are of culturally driven organization and those founders embedded NAV and our culture and it's the culture of believing.
And the importance of customer service and customer first of all the time, it's rigor around numbers and it's not your title. It's the value of the ideas you have the wins the day and so I think what's really important and what I spend and we all in this room and spent a lot of time thinking about and how do we protect that and thats. The important special source of sales.
And and that's why we hit our numbers, so often and it's why we make I think better decisions daily than others, frankly over a long period of time and it's and now you can come back to your transition point and you say that's why we've grown taking the last decade, our EPS has grown at almost 11% over 10% twice the average of our Pea.
Years over that time, and it's because of all of that it's the way we deploy the cash it's the way we get growth both organic and through the investments and all of that really does flow of originally from our founders.
Okay. That's good answer thanks, Tony and blood from the ROE.
First of the work.
Okay.
Thank you so and they will take our next question from Gabe <unk> Wells Fargo.
Please go ahead.
Hi, Good morning, Tony Bob Adam.
I wanted to not to believe at the point of kind of revisit the the hiring discussion really quick if you brought the folks on presumably kind of Ftes and I heard you right youre kind of replacing some overtime.
And that was kind of being incurred across the business is that and I guess to the tune of $10 million.
So that's question number one and then I guess question number two is.
And again, bringing these folks on kind of full time commitment that would suggest kind of some longer term visibility and to some potential.
The business that you might be looking at the is that fair.
The gave us Adam just a couple of things I guess.
The 100 employees that we were talking about earlier really thats about a two and $5 million cost the balance that Bob was talking about earlier up to the $6 million was really the impact of what the storm Yuri. So those were the two specific items that impacted our metal container segment. So.
Youre right and that those new employees are are replacing overtime costs that we utilized last year again thinking about a global pandemic and the impact on our business. We went literally from a day of normal operations to the very next day, making every possible can and we can make and squeezing out every ounce of.
<unk> from our system and we did that for all of last year.
As we came into this year again as we've said, we clearly thought that we'd see some additional volume growth and 21, we're seeing that we have a lot of confidence and it I think we believe that is for the longer term one pack typically does not.
Recover of the inventory and supply chain system of the entire retail segment.
For fruits and vegetables. So we do think there's runway beyond 'twenty, one, but we're really early to talk about that right now, but this was the longer term investment for us very clearly.
Maybe just one on one.
One cleanup there is that.
And we should make it clear that that $2 3 million is incremental one time costs right because they came in and the quarter. They are being trained and retained in the quarter. We have not yet started to see the benefit of offsetting the overtime Thats. The point that's why it's that's why it's a call out for the quarter, but as we go through the year, we will start to see the benefit offsetting.
And the overtime.
And it does speak to the confidence and the ongoing volume.
Understood. Thank you guys and then one of the things that I thought was encouraging you mentioned and the press release was kind of and early return of some of these more of a discretionary kind of fragrance.
I was hoping if you can build on that a little bit and and.
And sort of.
Maybe decompose for us the.
I think the organic volumes and the <unk>.
And.
And especially closures segment.
And then kind of what's expected maybe going forward to the or embedded in your guidance.
Sure. So very pleased with the earlier recovery of fragrance that we saw and the first quarter and again.
Think about what we talked about last year, we said something like 25% to 30%.
Negative impacts from the pandemic on our beauty and fragrance market and.
And our expectation coming into the year that we would recover roughly half of that and so kind of in that low double digit kind of year on year growth and 21 is what we were expecting the.
The impact in Q1 was essentially at that same rate that we were expecting for the full year.
And so what's really interesting and we're expecting that now it's the whole so it'll be.
A little bit more favorable and the beauty and fragrance markets and I think what we came into the year, but it's still early.
What I would tell you also as Lockdowns have gone away. They are back now in Europe. So some of our core markets still have some uncertainty around them regarding the pandemic. So.
And then as we go out to the balance of the business and our dispensing and specialty closures segment, the organic dispensing products.
We had a really good first quarter, we were up 10% and our dispensing products and the quarter. So I think that's a really important number to understand the balance of our business and food and beverage and other products also saw a nice growth as well.
And of in the lower single digits so organically.
Two the acquisition the segment itself saw something like two 5% volume growth versus prior year. So.
Really good start to the year for the segment and we're we're excited about the remainder of the year.
Thank you.
Okay.
Thank you and I will take our next question from Salvatore at Seaport Global. Please go ahead.
Yeah, Hi, Adam and bulb so.
Mike My first question a little bit on the.
Plastic containers or I guess custom containers and so as we called him now.
The the volumes were flat, but I think of for the full year.
And my understanding is that you still expected to see some additional growth here as well.
Correct me, if I'm wrong, and I would've thought that Q1 had that'll be the the easier comps and also you have the new business wins throughout last year, So a little bit surprised that you didnt grow more of the volumes from Q1.
Was there and specifically explanation for that and does this means that it's going to be a little bit harder for the full year volumes to be up this year.
Great question, Sal, but no actually Q1 was a terrific quarter for our plastics business and it was a very difficult comp as well do you think about Q1 of last year first of all we literally double the segment income in Q1 of 2020, we posted another 11%.
Growth on top of the segment income and Q1 of 'twenty. One so from a bottom line perspective, the business is performing exceptionally well from a unit volume perspective.
The Q1, and 2020 was again a record for the business or for the operating segment.
And we maintain that and and.
And if you think about our what we've talked about and custom containers. We spent several years getting our footprint and our capacity right sized for the market, we executed that and we performed very well.
Against that plan and then we said the next step and the growth profile for custom containers, it's filling those assets and that low cost footprint. The pandemic presented the opportunity to essentially do that so well.
We're filling our low cost operating footprint and the final piece of it is we're winning and the market and I think Bob has talked about on the last couple of calls and our new business wins and our custom containers segment are coming in at higher margins and margin rates and business that we've transitioned away from so custom containers again of terrific.
<unk> has.
With our most profitable operating segment in Q1 as well so.
We feel really good about it as we invest with our customers and add capacity throughout the year on new contractual commitments, we will see growth year over year, I'd say, it's probably going to be and the the lower single digit range, but the operating segment income is going to be nicely enhanced versus 2020.
Yes, let me let me go to a different just listen to this call.
For all of our businesses, let me tell you what I think the volume our view of volume story has been all along which is starting late in Q1 of 2020 and through most of Q2 of 2020, there was the pantry stuff, which we set at the time, we'd never argue that and and so that's what we're now going to cycle against you see a little bit of that I'm, just that and Q1 will go and see a lot more.
Of that and Q2, then we have what we would call sustained higher levels of demand, which we're seeing across our businesses and we continue to see we never thought that we were kind of cycle.
Usually against this the pantry stuffing what we've been talking about is elevated over time and so that's why over the course of the year. We believe we'll be up and volumes across most of our businesses and that's why you get some of these confusing question about like I see soup numbers little weaker will suit definitely had the pantry stock. There is a set of volume to suit that was unique to those three or four months of time period.
But over the course of what we still think there is a sustained benefit that we're seeing and the soup category of for example, and across other categories as well that is because people are home more because new consumers have experienced these products again and that so I just want to cover that again that that's how the volume works and that's why we might be the <unk>.
Comp is tough in Q2, but that doesn't mean that the sustained benefit isn't still there. It's just against the pantry stuffing period.
Perfect and.
I guess my second question first and it's great to hear the the new business and Inc.
Kind of some containers coming at higher margins.
I guess the second related to that these that you.
You highlighted the strong operating line operating performance, both in cost and containers and and dispensing and closures.
And the margins were very strong for both Viking and cash and containers should be that margins could have been 20% or something like that now.
How's the what drove the strong operating performance, especially because I would assume there were still some issues from the.
And the bad weather for the speed of Ms, Susan and how sustainable it leaves the.
And again good question sales, so I think the really the driver and the the margin performance for the quarter as were running all out and so our businesses. Our order books are very full and they are solid.
And and we're executing very well so it's almost the perfect operational playbook, we're performing well at the plant levels, we are full and our capacity and we're getting that absorption across all of our businesses.
Yeah and on the dispensing of specialty closure side, we're getting better mix and.
Things like fragrance are coming up and so that is helping improve margins there and the expectation of course is that that's going to continue to grow and thats sort of the story line of that element of our business is that it. It is higher margin higher value added and there's more to go and that is as it continues to recover on the fragrance side.
Yeah.
Perfect. Thank you very much.
Yeah.
Thank you. So we will now take our next question from Arun assets RBC capital markets. Please go ahead.
Yes.
Great. Thanks for taking my question I.
I guess the similar question on the volume of front.
We've noticed some pretty steep declines and the IRI data.
And and you know and the month ending March as well as in April.
What do you make of those numbers I mean is it is it just the up against the pantry stuffing periods of last year or maybe on an absolute basis is there any comment you can give on the potentially like the velocity or.
Some of your larger categories.
The share of Rona and and I think Tony just hit on it if you turn the clock back 12 months ago March there was absolutely a pantry stuffing that occurred and IRI data would have shown that because everybody was at the grocery store buying products to lockdown and their homes. So it was a one time event for certain.
Aspects of our product portfolio.
And what's really important is we've been seeing for the remainder of the year and through the first quarter of of our 2021, a very high level of the ongoing demand and I would say that's a broad based statement across many many of our markets and our categories and our products. So.
I'm not troubled by that at all and I think the collectively here in this room, we all see our data as far as what's being transacted with our customers and what their plans are as far as their systems are concerned and they're filling rates and we feel really good about it. So unfortunately, I think the IRI data against something.
That is it.
It's a onetime very unique global pandemic event that occurred at 12 months ago and the data set that we're talking about.
And so that and then also if I could ask the question just on new product development.
One of the other trends that we did see as you.
You know maybe some of the the CPG companies favoring the.
There highest velocity.
The products during the pandemic and maybe delaying some new product development. So have you have you noticed that some of your customers are actually introducing new products is there is there is there a pipeline or of backlog of new products that could drive.
Continued growth and you know maybe the structural growth for for the next little while.
Sure I think again going back to kind of the height of the pandemic and 2020, we definitely saw our customers as well as ourselves trying to maximize their capacity. So they did limit of skus that they were running through their filling locations et cetera trying to maximize the output I think that is kind of.
Trended back to a more normal SKU proliferation as far as what they're running and they're operating facilities and then I'm going to shift your question a little bit more to the sustainability question and just say during that time of lot of the sustainability projects projects. We were working on with customers from the new product development standpoint did get put on.
Hold those are now back.
Front and center and so our new product development activities have increased actually I'd say significantly over prior year period, and as we sit here today.
And talk about sustainability and how advantaged metal packaging is we actually have line trials, I think Tony and I actually and either last call or of the call before that said, we usually talk about the results of our of our business is not the things that we're working on or what may happen and the future. We're running line trials right now with metal <unk>.
<unk> from a sustainability product standpoint project standpoint, with customers that we think are going to be commercialized within the year. So we think theres a lot of activity and new product development and a very much.
Plant on the sustainability and metal packaging.
Great. Thanks.
Thank you. So we will now take our next question from Anthony of Citi. Please go ahead.
Good morning.
Your capex as a percentage of sales I think has been four and 5% to 5% in recent years.
And the kind of unprecedented growth that you've seen I think and all three segments over the last 12 months do you see incremental opportunities for maybe discretionary capex going forward and I.
Thank you reaffirmed your capex guidance as part of the free cash flow guidance, maybe I can confirm that for 'twenty one.
But just wondering if you go to the kind of broad thoughts on capex going forward.
Yeah, Anthony this is Bob.
We did reconfirm, our free cash flow, which which by definition implies the capex as well I would point out to you, though that we are constantly looking for opportunities where we've got good returns on capital.
And particularly where they are aligned with customers that are key or core customers for us so where we find those opportunities. We certainly will not be shy of about making those investments.
But I think there is something to that that as particularly the pointed out it was just making as some of the sustainability projects come to fruition.
We will certainly be happy to make those investments and and that's the way we've operated from day, one quite frankly.
Okay. That's helpful.
And then I'm wondering if you could talk maybe about the M&A environment, and specifically, which segments you may be seeing the most opportunities. If theres anything you can generally say about valuations that youre seeing and the market kind of the well.
Or maybe just broadly the attractiveness of it.
Inorganic versus organic growth here.
Yeah look I think we're at a point here of where we were and are.
The cat bird seat, if you will where you've got both happening right, we've got growth and our business organically and.
Our leverage is back to a point, where we can really take advantage of those opportunities as they come to fruition.
We will be selective of course, and we'll be disciplined about what we do.
But we feel really good about where our balance sheet is right now relative to the opportunities that might might come in front of us.
Obviously, we've had good success around the dispensing of specialty closures side of the business, we'd be happy to continue to build out that segment.
We would also look at other other portions of the business if the opportunities where we're right, meaning do they have the right kind of returns and the right kind of customer profile with them.
All of you have to do is look at the the press releases and recognize that valuations are are at a high level.
For us that's not the way we look at it you know obviously, you've got to take into account, what not only what price youre paying but what's the growth rate what kind of capex goes into it. So it's really again it sound like a broken record, but it's really about the cash on cash returns. So we feel good about where we are and hopefully we can find opportunities to take advantage of that.
Okay. That's helpful I'll turn it over.
Yes.
Thank you. So we will now take our next question from Ghansham from Baird. Please go ahead.
Okay. Thanks, good morning, everybody.
And back to maybe Adam's question earlier.
Obviously costs are much higher than you probably thought going into the year, just based on inflation and.
And the winter storm impacts of etcetera, and then you sort of reiterated guidance for the full year I know there's a range.
But what would you point to two words as it relates to some of the upside that you're seeing this early in the year or is it sort of the mix effect you were talking about specific to the dispensary closures or or or anything else.
We should think of it.
Sure Ghansham I think.
The the mix impact of dispensing closures and the volume impact of dispensing closures.
<unk> is a big part of our success, thus far and the year and the expectation for 'twenty, one and so as.
And as markets and beauty and fragrance continue to recover not only this year and beyond that will be.
A favorable mix to the overall all segment I think custom containers.
What we talked about earlier is that we do have new business wins that we're commercializing throughout the course of the year. So again those are our strong profit contributors and volume contributors as well and then and the metal container business as we talked.
It's a.
Very large planned packed with our customers expected to start early and expected to finish late and so as that translates into volumes by quarter. Obviously, we always talk about how quarters may shift our volume may shift between quarters, certainly that's the case and 2021 as well.
Got it thanks, Adam and then in terms of the name change from plastic containers to now accustomed containers.
How should we interpret the could this and tail and other substrate as part of that segment as well are you going to try and target new product categories.
And also of you're Trialing alternative residence for your customers just given your comments on.
Re prioritization of if you will and sustainability followed the brief pause last year.
Yes, so definitely and last question, we're looking at all kinds of different resin solutions and as opposed to the consumer.
Biodegradable and everything is on the table in that regard.
I think really the name changes just to say that this is more about the custom nature of the business than it is about the substrate. So it doesn't necessarily mean, we would do a different substrate and theyre not.
And not necessarily.
Is this kind of cost and container is more suited the plastic part of the reason that we are in blasts as there are markets that need them I mean, let's be honest, we're not going to go back and glass and our kitchens and bathrooms and so.
You really just is the need for plastic.
But that isn't what we kind of looked and said is that the differentiating element of our business. The answer is no. There are a lot of plastic business out there that are not as customer focus that are not a solutions based focus as our business is becoming and so really the name changes more to highlight what we think is unique about the business rather than the substrate.
Okay. Thanks, so much.
Okay.
Thank you Sue and I will take our next question from Kyle at Deutsche Bank. Please go ahead.
Hey, good morning, Thanks for taking the question.
And the inflation and I know you have the raw material pass throughs from metal and resin, but are you offsetting other inflation that you're experiencing such as freight coding and labor with your typical of contractual arrangements for these and other items within your business.
Hey, Kyle Yes, we do.
And typically on the lagged basis, but yes, we typically have the pass through provisions for the other costs that you laid out including freight and logistics and and.
And the other labor cost et cetera, with our customers.
It's on a lag basis are you incurring any kind of rest of the here and the nurture near term related to the spot.
No we don't believe so.
This is how we've always run the business and the business model is pretty clear so.
And the pass through and what the passenger weighted and we don't think there's much risk to that.
Got it and then on metal containers and regards to the mix should we should we expect the mixed food.
And we need to move towards smaller cans, even after the point of making people would turn.
Back to the restaurants or should we see more of these number of big 10 kids coming back and it's the way the mix that's the bigger cans.
Yes, I think it's a really good question I think when you think about the growth and metal containers and as we've been talking now for several years.
Pet food containers of continued to grow the expectation is they will continue to grow in the future. We're cycling over a year, where those large number of tin cans were down and volume. So the expectation is there is some recovery the number 10 cans and 2021.
And probably back to normal and 2022.
We'll see how the mix plays out, but I think the expectation that you should have is that we will continue to see of transition to smaller cans and the metal container segment.
Got it thank you.
Thank you so we're going to take our next question from Jeff ask J P. Morgan.
Please go ahead.
Thanks, very much in your and your 10-K.
And you still had 41 million.
And.
Charges, where you've made the outlays.
You work that number down and what do you think of it might be at the end of the year.
Yeah, So I think a big portion of that.
As the charge, we took for the central States.
Which is really it was really just recognizing the ongoing payments as a liability on the balance sheet, so that will sort of of trip over.
Very lengthy period of time, it's probably 2020 years or so.
Okay, and that was roughly $36 million of the of the total.
And in terms of your you were speaking about your resin costs.
So you know polypropylene has collapsed right and that you talked about going to a $1 25, maybe and maybe it's 53 per pound now.
Under the circumstances, what happened can you.
Can you get back the extra moneys you paid even though the rest and has already fallen and what was the what was the resin penalty and the first quarter.
Hey, Jeff just maybe just to clarify the polypropylene price point, so again, the peak and February I'm, just looking right now and part of me at the.
Alright.
Yes, It was $1 26, four of CDI and the April price was 107.
So I wouldn't say, it's the collapsed because it was back in the 60 range and Q3 Q4 of 2020, it's falling like I said earlier and the comments. It peaked in February and we start to starting to see that decline, it's not projected to get back to those levels of 60, if you will.
And that we experienced in the middle part of last year the.
And the CDI forecast say and the mid to upper Ninety's. So.
I just wanted to clarify that price point.
So we're talking about the same kind of numbers and then the contractual pass throughs.
And again, it's just lagged and our lag depending upon the business and the customer arrangement are between 30 and we've got some of it 60, we've got as far as 90 is the outlier for us and and most of the quarterly pass throughs on 90 days would relate to our dispensing and specialty closures business because thats, our most recent acquisition.
Got a really good job across our resin based businesses shortening the lag for the pass through both up and down with our customers and we're starting to see that improvement and and the dispensing portion of our dispensing of the specialty closures segment.
What was the penalty and the first quarter.
So the total penalty and the first quarter was something close to $7 million.
And again and what I can tell you.
Well, we expected part of that and our guidance because again that peaked in February and we knew that there was some inflation coming coming out of and so yes, I do think for the Q1 and inflation, we will recover that and the second half of the year the.
Question is the.
The pass through and the timing of whats happening in Q2 and Q3.
So as the base case does it all come back this year.
I don't think it's all going to come back this year I think as I said earlier I think the net impact of resin is going to be of negative for us across the operating segments, we're going to largely recover the inflation. The peak that we saw the we're not I don't believe we're getting back to the 60 that we saw and <unk>.
Q3 of 2020.
Okay. Thank you so much.
Thank you. So we will now take our next question from Daniel from.
Jefferies. Please go ahead.
Hi, guys. Thank you thanks for taking my questions.
Just coming back to what you talked about labor with hiring with the new hirings and I'm just wondering given the current environment is finding the the suitable labor tougher.
Just with everything that's going on now.
Broadly speaking absolutely.
It's difficult to find and folks that want to come in and work and our operating facilities across the board and the good news for us.
We've already hired 100 employees that we're talking about so there they are part of our network and they are one of them.
So, there's but there's not going to be any significant demand for additional of hirings. Besides the original 100, I'm sorry, if I missed it.
I think youre right I think we're set with that was the incremental add the onetime add that Bob talked about two of our labor force to support our customers' needs for the rest of the year per metal containers.
Okay. Thanks, and then I don't know if I missed this or not but so I think when you first made the that'll be the acquisition, you said $20 million and synergies.
And within 18 months is that does that still the case how much of this kind of already been realized whats left and then I wonder if any revenue synergies have kind of and identified or if theres any any color around that.
Sure So synergies Youre right it was $20 million and approximately 18 months and what we said on our last call us and we feel really good about it be we're probably getting there a little bit faster and we're going to achieve a little bit more than the $20 million. So we're inside of 18 months.
We're going to be a little more than $20 million I think we're right on track and we sit here now.
Seven months through the acquisition.
And Bob and I know, if you have anything to add.
That pretty much nailed that down and that's very consistent with what we've said for the last couple of quarters as we've come through it. So so no real change to to where we are.
Yes.
<unk> synergies and hang on a revenue synergies I would say that the.
We've been very impressed by kind of the power of the two businesses together the.
The ability to kind of communicate our strength to market et cetera. So there has been some kind of joint product development. That's already occurred and I think so none of that was really factored into our initial thinking but I think the answer is yes that theres more of their than than we had originally thought.
Thank you for the color guys.
Yeah.
Thank you Sue and I will take our next question from George asked of Bank of America. Please go ahead.
Thanks very much.
Thanks for taking the follow on so I wonder if first dig into the innovation and sustainability comments you were making earlier.
And really in relation to two the growth outlook, specifically when we've tended to see a lot of focus on sustainability for pack types.
<unk> because of where the products are ultimately disposed.
These are packages that are used on the go beverage can of plastic bottle.
And that sort of thing.
Are you seeing any kind of.
The increased interest for using a template can food can on more of and on the go type of application and some sort of you know.
Beverage product like a true sort of dairy or anything else and related to the to the the comments from making about the soup are you seeing any kind of.
Innovation from your customers that.
Would that be focused on convenience ease of preparation again.
And to some degree on the go which in turn might mean that the the growth outlook is actually even improving relative to what we've talked about today.
So that's.
Question number one and then of course.
And number two and and I think Mark was kind of hitting on this you know as we look at your opportunity set for capital allocation.
And these have opportunities and M&A you have opportunities clearly.
For organic growth.
In aggregate.
Where would the best capital allocation of opportunity occur right now for.
And for Silicon to the most improved its return on capital given all the things that you are looking at today, if there's a a weighted average answer thanks, guys and good luck in the quarter.
Yeah. Thanks, George that's the we got from making the wave.
That's right that's the big.
No no good deed goes unpunished Tony.
Yeah.
And so I would first of all I would say that they're on.
Sustainability.
Many of taking up a lot of directions more so than I think we would have certainly I would have said a year ago et cetera. So there's a lot. We're looking at that we never thought we would of before and so even the word can is confusing at some point, so which is by the way it's the metal containers and it really is it's more than cans.
And today, not so much but maybe in the future and so.
The answer is yes, there are amongst the things there are a few more on the go of possibilities that are happening that we are looking at but there's a lot of it in.
And the metal World, you're right that that is not quite as easy. So I think more of the angle of solutions are probably going to be and other substrates like plastic, but there are some and maybe just to add to that Tony I think some of the focus that we've certainly seen with our customers is.
Taking and.
Metal package to replace the single use plastic package, so not necessarily on the go but that single use kind of component of plastic packaging and the other thing I would add is where there is packaging and that doesn't really add value to the the overall package that may be and a non desirable substrate that we can put a metal.
And it onto an existing package and create the value add for our customers and and.
And it also check the box for sustainability, because it's a fully recyclable products. So I think thats more of the focus George are those two areas and maybe on the go for what we're looking at specifically right now.
Understood.
I think what you heard really it's across the board I definitely agree what else I think the bigger point then yes, I think single serve is probably a stronger point than on the go and that I think you've said that well.
But there are a lot of a lot of areas and so I think we are we're scratching our mind that everybody else and saying, it's more about metals and work and metals do things and others can't and so that's actually been good for US I think is going to be good for the planet ultimately.
So your second one the opportunity for capital I think and we look all over for best place for capital I think Bob said exactly right, where we look for.
Whereas the growth needed where is the opportunity what are the returns on it I think we are of skewed a little bit more towards growth than maybe we were at one time on just cash generation and that's really because of the equity markets seem to be sending us a pretty strong signal right now the growth support so that means that probably on balance dispensing and specialty.
<unk> is going to get the earlier nod for things and there is plenty of opportunities there.
But I wouldn't go so far as to say the metal containers came up with the really good let's come back of our sustainability answer as an example.
We wouldn't fund it we would so I think I'll go back to Bob's point, which is anything that's going to get us a strong return.
Cash is pretty cheap and so we're going to make the investments where we need to but see a very direct question on balance if everything else were equal probably dispensing and specialty closures. We get of first just because it's probably a growth of your long term answer and that seemed to be more value today.
And in D. C is it more organic or M&A in terms of the opportunity set recognizing there's no, yes, or no black and white answer and thanks, again, and Oh, yes, or no black and white. There is there is plenty of organic opportunities first of all just what I've already said there is embedded in what we bought and Theres still opportunity, but there's also a lot of wet edges to what we do there's a lot of direction of that.
We are in health care with really good stuff. We're in all kinds of skin care, which is a booming market and in certain parts of the world.
And so what's great about the dispensing, especially closure business uniquely as it touches a lot of really interesting market opportunities and so there's plenty of organic but then also if you can do acquisitive with it and really the one of the strength that we always talk about fulfillment is you've got so much of this cash generation that comes from some of our other businesses.
And as the kind of gives us a turbo charger to go after these growth areas and when we want to.
Thank you guys really appreciate it.
Thanks, George sorry to make you wait.
Yeah.
Thank you so and that would take our next question from Adam <unk> Keybanc.
Please go ahead.
Thanks, everyone really appreciate Tony just following up on that last question and your response about what the equity markets of rewarding you had an analyst day, a couple of years ago at which time you made the case that you thought you were undervalued versus peers and obviously since then we've had of pandemic that no one saw coming that's been quite.
Beneficial for your business for however, long it lasts so one would think that all else equal the GAAP versus peers would have narrowed.
As a consequence of the pandemic, but.
I am guessing you would agree that that has not been the case.
Can you just kind of revisit those sentiments you expressed two years ago and what if anything has changed in your mind since and do.
And you think the current GAAP as appropriate or unwarranted for any particular reason.
Sure I'll try and get the whole, but because of a lot to it. So first of all of the basic thesis, we put all of them, which I think is still true is true today, although things have changed a bit but the point. We made is exactly what I, just said, which is to look at silicon one needs to look at the organic growth and of the free cash flow and the deployment of that free cash flow and if you look at that over time.
And we have outgrown most and I gave a stat earlier I'll give it again, which is we're 10 seven times EPS growth over the last decade, and there are very few other packaging companies that can say that and so.
And by the way.
DVA per second and some of you said, which is yes COVID-19 has had some positive force, but like anybody else and had some negatives to whats really happening our numbers to a large degree as we've done some really good acquisition dispensing and specialty closure business is a great franchise for us now and is generating a lot of opportunity and.
And again I'll highlight we just went to the high end of the range of the first quarter, despite having $6 million of one time costs and $7 million of resin costs and the quarter. So in the why do we feel comfortable of the numbers just look at the first quarter or the second part of what we're saying and deal with those adjusted.
And you'll see that the business is just firing on all cylinders right now.
And so that's.
And for that deviation so that is the theme of the.
Question is the market and so what we have been doing of course over a long period of time, but more lately is we have been using that cash to deploy and more growth areas and I think once you all come to fully appreciate the scale of the dispensing and specialty closures business the growth aspects of it our market opportunities and and I think slowly the.
And equity market is going to have to come around to that business alone needs to be valued and much higher than where silicon and secondly, you look at where the food can business is and it has seen some growth. We're not here to tell you it's going to be of 5% growth in the future, but it generates the my turbocharger and I haven't used that before I'll use it again it creates the cash generation, which.
We can deploy and these other things we could never have built the dispensing, especially closure business that we have today without the benefit of the food can business or the metal container business delivering the cash that it did and we still have that we can still grow faster because of that and so that's yes, I think the market does not fully appreciate that.
Just thoughts and recent charts on right now of the market I believe it's far and disparity between growth and EBITDA that it's ever been and so right now we just got to keep our heads down and say market swing and they come back and I absolutely have to believe that good cash deployment and good opportunities for long term growth ultimately has to be.
Given value and the equity markets or there is no reason for any company to be public.
And I really appreciate that Tony and just one last one Adam or Bob just to put a fine point on the full year guidance. So would it be fair to assume that resin slash raws have been relative to three months ago. A few cent hit in terms of your full year expectation and then offsetting that has been better.
I'll pay a result, slash accretion and then than what you were thinking or am I missing something there.
No I think that's probably right, although I might argue it's more than a few cents for the for the full year right because you've got.
As Adam said earlier, you got another $10 million or so of headwind coming from rather than in Q2.
We're only talking about getting a part of that back. So it's maybe a little steeper than you were suggesting but but yes, certainly the performance of the overall businesses and.
And particularly some of the recovery.
And fragrance and the dispensing and specialty closures market is helping us kind of offset that headwind and look that's quite frankly, that's the silicon the story, that's how we operate right.
The beauty of having.
Our balanced portfolio across the board and so you're you can offset some of your sick children and so to speak.
Got it thanks, so much and best of luck and the corner.
Yeah.
Thank you. So that is all of the questions. We have for today I would now like to turn the conference back over to 20 out of <unk> for any additional or closing remarks.
Thank you for your non and thank you everyone for your time today, we look forward to talking about our second quarter of late in July. Thank you.
Yeah.
This concludes today's call. Thank you for your participation you may now disconnect.
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