Q3 2021 Silgan Holdings Inc Earnings Call
You are currently on hold for the Silicon Holdings third quarter 2021 earnings results conference call. At this time, we are assembling today's audience from time to be underway. Shortly we appreciate your patience and please remain on the line.
[music].
Yeah.
Thank you for joining the Silicon Holdings third quarter 2021 earnings results Conference call.
Today's call is being recorded at this time I'd like to turn the call over to Kim Ulmer, Vice President Finance and Treasurer. Please go ahead.
Thank you joining me from the company today I have Tony Allott Executive Chairman, Adam Greenlee, President and CEO, and Bob Lewis EVP and CFO.
So we begin the call today, we would like to make it clear 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 uncertainties and risks, including but not limited to those described in the company's annual report on Form 10-K for 2020 and other filings with the SEC. Therefore, the actual results of operations or financial condition of the company.
Differ materially from those expressed or implied in the forward looking statements.
With that I'll turn it over to Tony Thank you, Tim and welcome everyone to our third quarter 2021 earnings Conference call.
As you've seen we had an exceptionally successful quarter, particularly considering the negative impacts from the economy wide inflation supply chain and labor challenges.
Even more importantly, we recently completed three compelling acquisitions that will further drive growth and cost leadership in our markets.
We remain confident that silicon has the team the focus and the positioning to continue to deliver market, leading earnings growth and superior free cash flow yields.
With that I'm going to turn it over to Adam Bob to take you through all of this in greater detail great. Thank you Tony as you saw in today's press release, our businesses continued to perform at a very high level in a challenging environment in order to meet our customers' unique needs and keep all of our employees safe and deliver strong results for our shareholders. The third.
There was no exception to that despite unprecedented inflation and continued supply chain and labor disruptions the effects of the ongoing pandemic and tough year over year comparisons we delivered a very strong adjusted earnings per diluted share of $1 <unk> for the third quarter.
Demand for many of our products remain at high levels as we achieved record volumes in our dispensing and specialty closures and metal container segment.
And the custom container business continues to outpace pre pandemic demand levels.
During the quarter, our dispensing and specialty Cologuard segment benefited from strong volume in the beauty fragrance food and beverage markets. These benefits were more than offset by the impact from the significant ongoing inflation in raw materials and the contractual lag and passing these increased costs onto our customers.
Volumes in our metal container segment were the highest in the Companys history, driven primarily by strong seasonal vegetable and our pet food markets.
This business also experienced higher production costs and operating inefficiencies as a result of continued supply chain disruptions and labor labor challenges.
Our custom container segment benefited from strong operating performance and effective cost controls, which helped to offset the expected lower volumes versus the prior year record volume levels.
Previously announced we did complete three strategic acquisitions, two in our dispensing and specialty closures segment late in the third quarter and a smaller metal container acquisition and the beginning of the fourth quarter and we are excited to welcome our newest team members to the Silicon family.
Our combined teams are hard at work to ensure a successful and seamless integration of these acquisitions and we remain confident about the prospects of each of these businesses.
Wei and UNICEF each provide broad opportunities for continued growth as we expand our product capabilities product offerings and customer base and our growing dispensing specialty closures segment. The easy Tech acquisition, while smaller provides a lower cost and more efficient means to supply easy open and sanitary.
<unk> to our European customer base.
While we expect market demand to remain strong and our operating teams to continue to deliver on behalf of our customers supply chain and labor challenges are expected to continue through the fourth quarter and likely into 2022.
As a result of these expectations and the fact that the fourth quarter is seasonally our smallest quarter, we are tightening the adjusted.
We are tightening the range of adjusted earnings per share for 2021 from $3 32.
To $3 45.
To a new range of $3 32.
To $3 40.
Which at the midpoint represents a nine 5% increase versus the prior year record.
Additionally, we are again, raising our estimate of free cash flow from approximately $400 million to approximately $450 million for full year 2021, as we continue to reduce inventory levels and utilize the tax benefits from the recent acquisitions.
Finally, as we take an early look at 2020 to give them, both our and our customer views that the demand levels are holding we anticipate another year of significant earnings growth, which are expected to exceed the 2021 growth rate before considering the impact from our recent acquisitions.
That I will now turn it over to Bob to review the financial results in more detail and provide some additional explanation around our earnings estimates for 2021.
Thanks, Adam Good morning, everyone as Adam highlighted the third quarter had a number of competing dynamics.
He is across the board for our businesses were very good as compared to historical trends.
Why chain and labor challenges were pervasive and inflation continues to impact almost every aspect of our business our.
Our businesses did an excellent job offsetting many of these headwinds through price pass throughs operational performance and cost reductions. Additionally, we have now closed the three acquisitions that will benefit our businesses going forward and as a result, we delivered adjusted earnings per diluted share of the dollar in Tucson.
On a consolidated basis net sales for the third quarter of 2021 were $1 $650 million, an increase of $162 6 million or 10, 9%.
Net sales increased in each of our businesses.
This increase is primarily the result of higher volumes in the dispensing and specialty closures and metal container businesses the pass through of higher raw material costs and foreign currency translation of approximately $6 million.
We converted these sales into adjusted income before interest and taxes for the quarter of $175 2 million after adjustments of $4 1 million for costs attributable to announced acquisitions $2 3 million for rationalization charges of 900000 for the purchase accounting write up of inventory versus.
$177 2 million in 2020.
After adjustments of $2 5 million for rationalization charges and $700 for costs attributable to announced acquisitions.
The decline was primarily a result of the lag pass through of inflation, primarily in rather than a less favorable mix of products sold the negative impact of supply chain and labor challenges and lower volumes in custom containers, partially offset by volume increases in dispensing and specialty closures in metal containers and strong.
<unk> performance.
Highlights of adjusted segment income for each of our operating segments is as follows.
Adjusted segment income in the dispensing and specialty closures segment for the third quarter of 2021 decreased $3 6 million to 61 4 million, primarily due to the unfavorable impact of approximately $10 million from the lagged pass through of significantly higher resin costs and less favorable mix of products sold.
Higher costs associated with labor and supply chain challenges, partially offset by the pass through other cost increases plant productivity improvements and higher unit volumes.
Adjusted segment income in the metal container segment was $96 1 million for the third quarter of 2021, essentially flat to the prior year as the benefit of approximately 6% higher unit volumes and higher pension income were offset by the negative impact from operational inefficiencies and higher costs associated.
With labor and supply challenges and the mix effect of more smaller sized cans sold.
Adjusted segment income in the custom container segment increased 800000 to $22 8 million for the third quarter of 2021. This increase was primarily attributable to strong operating performance and cost control, partially offset by higher lower volumes of approximately 14% as compared to record pandemic.
Volumes in the prior year and a less favorable mix of products sold.
Turning now to our outlook for the remainder of 2021 as is typical for the seasonally smaller fourth quarter. We are tightening our range of estimate to a range of 10 sets based on our year to date performance. Our current volume outlook expected operating performance and the inclusion of the recently announced acquisitions.
We expect to be slightly accretive for the quarter. We are providing an estimate of adjusted net income per diluted share for 2021, and the range of $3 30 to $3 40.
Mid point of this tightened range represents a nine 5% year over year increase this estimate excludes the impact from certain adjustments outlined in table B of our press release.
We're also providing a fourth quarter 2021 estimate of adjusted earnings in the range of 69 to 79 cents per diluted share a 23% increase at the midpoint of the range as compared to adjusted net income per diluted share of <unk> 60 in the prior year period.
In addition, we are increasing our estimate of free cash flow from approximately 400 million to approximately $450 million for the year as we expect to continue to liquidate inventory as a result of tight supply relative to customer demand.
We are also expecting lower cash taxes as a result of benefits from the recently acquired acquisitions.
That concludes our prepared comments. So we can open it up for Q&A before turning it over I'd like to ask everyone to limit your questions to one question and one brief follow up if time allows we will take further questions from the queue.
At this point Kian I'll turn it back to you to provide directions for the Q&A session.
Thank you if you would like to ask a question. Please shaken by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question.
Just a moment, while everyone's taken us for questions.
We can now take the first question from George Staphos from Bank of America.
Hi, everyone. Good morning, Thanks for taking my questions I hope Youre doing well.
Two questions from me first.
Bob.
Can you talk about the steel supply chain.
If you had mentioned earlier on the call I might have missed it.
Some technical difficulties getting in how is the on time in full quality ratio and total running for you in terms of your steel supply and do you project any problems into 'twenty two on that in that regard secondly, it's the first call that you had since you've had all these acquisition announcements can you give us a bit more color on gay.
UNICEF easy Tech.
Kind of returns you're expecting accretion anything that would be helpful to us sitting here trying to build out the models for 'twenty two and beyond thank you.
Good morning, George.
I'll take the first question and Bob will cover the acquisitions quickly but.
Regarding steel supply chain, our supplier performance did improve a little bit in the third quarter, we were talking about some significantly low on time and full delivery performance numbers in the last quarter. We are in the 50% range now so it actually got a little bit better through the quarter.
Accordingly, we're getting everything we need to meet our customers' needs.
So certainly getting all of the items that we won.
And again as we talked about on the last call. We also are looking to reward those suppliers that are performing well and meeting our needs. We are going to be making some some supply mix changes as we look into 2022 and feel pretty good that we've got lineup.
Lineup site that we're going to continue to get the support that we need to meet our customers demand.
No disruptions.
Getting better it's not as good as it should be and it still has an impact on our operations.
Yeah, So George I'll take the.
Sort of the metrics around the acquisition. So as you know to date we.
Announced acquisitions of about 758.
<unk> 8 million on the on the purchase price side.
With about $79 million of acquired EBITDA and that does include.
The synergies there.
So we're feeling good about each of the respective.
Acquisitions that we did and I think we got.
Pretty interesting deals that will give us a lot of opportunity to continue to grow the business along with our customers.
And at a pretty reasonable multiple so we did get some some net tax benefits in the gateway and the UNICEF deal. So we're getting you know roughly $125 million of tax shield. There. If you look at the purchase price multiple all in net of synergies, including the.
The tax benefit.
Got an $8 two on UNICEF I'm, sorry on Gateway and 11, one on UNICEF.
And in a sub three on the easy Tech acquisitions. So we think all in all good transactions for us across the board.
As we think about what the what the accretion looks like obviously, it's early days, we need to see what the forward looking budget looks like relative to the acquisition profile.
We need to finish our purchase accounting, but my guess is based on what we know right now that it'll.
It'll be modest for the quarter Q4.
And by modest I mean, maybe maybe we get a penny out of it for the for the quarter looking forward to next year.
It improves pretty significantly I think we will get somewhere in the 10 to 12 stats again. These are early days.
And that that's where the drag if you will.
From the amortization of intangibles. So so the cash earnings of that would be significantly higher.
That's great.
Pretty much where we were I will turn it over thank you.
We can now take the next question from Salvator Tiano from Seaport Research partners.
Yeah.
Hi, Thanks for taking my questions. So the first one is you mentioned that excluding acquisitions you expect.
Pretty much doubled each day.
Smile Youre applying the hoppers.
The guidance. So what gives you confidence on these big step up in earnings given that inflation is still.
Going strong and that your volumes are already very high so your place and tough comps.
Hi, good morning.
Question and as we sit here, maybe we'll talk about Q3 for just a moment to answer that question, we did suffer $10 million of Av.
Resident lag unfavorable impact in our dispensing and specialty closures segment. So we know that contractually we will be passing those costs onto our customers.
And the next.
Quarter to two quarters, maybe three quarters, depending upon what happens with resin. We've also had a very challenging operating environment with.
Our supply chain disruption and labor challenges not been all of those go away, but we do think that we are seeing some signs of a positive performance as we look into Q4 as far as the supply chain disruptions and labor challenges. So we feel good about next year.
Q3 was essentially what we'll call a blow out quarter four for our business as children and it had a couple of very specific items.
We don't anticipate will repeat next year. So we're feeling good about 'twenty, two and and where we are today.
Okay perfect.
The other question I wanted to ask.
If you can provide a little bit more color on that.
The negative mix that seems to have affected you got across the board I think in all three segments. Just looking at the end markets that tend to be improving from the pandemic whether that big.
No food can sort of museum.
Fragrance dispensing systems. These tended to have had a positive margin.
Sorry positive mix impact.
Now you have started magnetic so why is that.
Well good question I'll go through each of the segments for you we will start with dispensing and specialty closures again. Some of this is because we're doing a comparative versus last year. So you have to think about last year and and really the surge and the products that we supply to the health and hygiene markets Youre talking about pumps and sprayers hard surface cleaners.
Those types of products and that will also apply to our custom container business here in a moment as well, but those those products surge last year from a volume standpoint fragrance.
Fragrance fragrance and beauty struggled a bit last year as we talked at great length about and what's happened. This year as you've had a reversal of those trends fragrance and beauty of recovering and recovering very nicely. We have an inventory correction kind of in the hand, sanitizer and hard surface cleaner market and then we've also had content.
Strength in our food and beverage market.
When you put those components together.
Yes.
Our flat cat business.
<unk> continued growth does inherently have a negative mix across the segment. So it's as simple as that when you get to the metal container business, we've talked for quite a long time about the growth in pet food and smaller cans that does continue and that is driving the unfavorable mix or less favorable mix as we describe it in <unk>.
Some containers again, it's much more about what happened last year as you turn the clock back.
Nine to 12 months ago any product that was available in a bottle or a custom container format with being used to sell for hand sanitizer products as we were getting those products out into the market and those margins were quite good at because literally anything that was available on the floor on the shelf was sold.
For hand Sanitizers so.
Now we've got more of a normalized year, where that volume is not recurring as you saw we were up 14% in Q3 last year and custom container volume were down 14%. This year. So we're at the pre pandemic level and youre seeing a much more normalized mix of product.
Okay, great. Thank you very much.
We can now take the next question from Adam Josephson from Keybanc.
Thanks, Adam and Bob Good morning, Hope you're well.
Adam or Bob one more question about next year. Your commentary about next year can you give us some sense of what your volume expectations are embedded in that.
Growth to which you guided are there any below the line our non operating benefits that you're expecting just if you could flesh out a little bit more where you think the EBIT it and perhaps below the line growth will come from beyond just getting back the resin lag that you've experienced this year hopefully the operating environment will be a little.
More normal anything else would be helpful. Just to give us a little more context.
Hey, Adam before before Adam It takes the detailed question I just wanted to be careful here that this isn't necessarily our formal guidance right. We're just trying to give you an indication of where the business is headed here. So there's a there's a lot of work to do between here and why we provide actual guidance.
Mhm.
Great and totally agree Bob and as we are early days, where the preliminary volume again will kind of go by segment for you Adam I mean, we're dispensing and specialty closures, we'll see much more of a.
Kind of our normal long term kind of growth rate.
Before the addition of the acquisition so call it 4% to 5% in dispensing the specialty closures.
You've got a metal containers I think.
Interestingly at this point, we're projecting down volume flat to down volume, we had a very nice pack in Q3 of 2021, we're expecting next year to have a normal pack.
Soup has been.
More normal in 2021, we expect soup to have a normal soup season next year as well and we will have continued growth in pet food. So I would say think about metal containers is flat to down slightly and then our custom container business. We continue to win new business Awards and have success in the marketplace.
We've got a couple of new items coming on board next year that will drive growth in that 2% to 3% range for next year as well and then what I have to say just in summary, that's against record volume essentially in all three of our product categories. So we feel pretty good about where we are as far as the resin lag you mentioned.
We are expecting resin to recover and in fact, we're expecting resin to recover a bit here in Q4, where we do pass through some of those incremental cost to customers.
I think those are the big items the operating.
Inefficiencies, we discussed we're going to continue to get better and we'll continue to chip away at those which we are already but it is having a negative impact on us in 2021.
Lastly, I'm.
I'm sorry go ahead, Bob Yes, I was just going to finalize your question there we are.
It really is nothing below the line that's okay. That's what I was getting that we would point you to.
I appreciate that Bob and just on the acquisitions and the leverage so I think at your pro forma leverage is at about it will be at about three five times at year end, that's basically at the high end of your long term target range of two and a half to three and up should we assume that Youll stand Pat and just get your leverage back down to the three or two.
And a half range or where should we expect should we be surprised if you. If you announce more sizeable acquisitions in and lever up to four times or higher in the foreseeable future. Thank you.
Yeah, Great question I think he got it about right. So so obviously the the leverage at the end of the quarter it looks a little bit higher because you've got all the acquisition borrowings and none of the earnings essentially right. So.
But on a on a pro forma basis at the end of the year will be sort of right at the high end of the leverage there.
We think these are really good acquisitions, our focus will turn at least near term to make sure. We get the the integration in hand, I don't suspect that there is any real challenge there, but that'll be our priority.
This thing is given where we sit and given the free cash flow profile of this business. Our hands are not tied relative to other opportunities that may come our way that set our our priority is to make sure we get the integration done, but we're not taking our foot off the accelerator so to speak in terms of making sure.
We understand what the opportunities out there are.
Thank you Bob.
We can now take the next question from Anthony Pettinari from Citi.
Good morning, this is actually Brian birchmeier sitting in for Anthony.
You did a few acquisitions in a relatively short period of time did anything change in M&A markets or have your internal views towards that they changed in any way or is this just a matter of timing and a bit of a coincidence.
Yeah, I would say quite honestly. These are these are straight down the middle of the fairway type acquisitions for us. So nothing has changed in the strategy or and financial discipline.
Got it thanks and.
Do you have any early thoughts on Capex for 2022, you did the handful of acquisitions. The business has grown organically in the last two years I'm just trying to think about baseline capex the business moving forward.
Yeah, well look it's probably early to put a fine point on it but I would say directionally, probably up a little bit just because on a go forward basis because of the acquisitions.
But not not materially.
Got it thanks, I'll turn it over.
We can now take the next question from Gabe <unk> from Wells Fargo Securities.
Hi, Adam good morning.
Hey, Ken.
I was curious if you could address maybe.
Tin plate inflation I know those negotiations I think at least starts right around now.
Some of the things that we've read seems to suggest a pretty big numbers going into next year. So I'm curious two things one.
When we think about again consumer demand elasticity.
And food inflation.
Have you guys I'm sure you have thought about that as part of providing your preliminary 2022 view and to the extent consumers trade down.
Is that a net positive I'm, assuming yes for metal containers.
Maybe help us understand how it can flow throughs euro the two businesses.
And then potential for your customers to do anything.
I guess walkie with inventories at the technical term.
In and around.
The steel buy and I suspect the answer is no because of availability, but just asking the question.
It sounds like a very educated question Gabe So I think youre right on just about everything that you mentioned so.
The one exception, maybe just the timing of the negotiations of the Tin plate.
Bye for 2022, you're right typically we would start a little bit later about now.
In the throws of this negotiation for some time.
We are looking at substantial inflation across the world for template so.
Our expectations are somewhere we're getting.
Poses in the 50% to 100% type increase range for tin plate products, so 50% to 100% that is unprecedented in our our time with the business. So.
We have factored that into our assumptions for next year I think.
The quick conversation around that as we understand and are very sensitive to what that means for consumers and what it means for our customers.
In food cans. So yes, we have the contractual rights to pass that through to our customers, but we're fighting like crazy.
One get them the supply of raw materials, because that actually is the bigger issue right. Now is raw materials are incredibly tight so I will answer one of your other questions and say, we're getting what we need not necessarily what we want so raw materials tight at the end of the year in 2021, we don't believe it's going to allow for any pre buy activity.
<unk>.
From us or from our customers at this point and really it's about locking in the supply. So because we believe the supply is so critical for next year. We did start the negotiations earlier and we have contracted a couple of our suppliers on on 10 slate for 2022. So we have line of sight into that extraordinary inflation.
<unk> that we're talking about.
You think about the store shelf, it's very likely food is going to go up at the food can is not unique in that scenario, we're seeing inflation across all substrates and we feel terrific about the food cans proposition and value that it provides consumers not only from a cost standpoint, but but getting nutrition to the.
Consumers in a very efficient cost effective way, so it's going to be a challenge, but we're right in the middle of it right. Now we've included those those items in our assumptions for 'twenty, two and we will keep fighting the fight for our customers.
Great. Thank you and then.
This capital intensity I'm, assuming that not much associated with easy Tech.
I think.
Gateway was was the single facility operation, but just.
I know you said directionally higher Bob but is that a $10 million to $15 million kind of annual number that we should be thinking about for capital associated with with all three acquisitions.
Yeah, well, maybe I'll walk you through it I think an easy tech side, it's quite the opposite right. This is an opportunity for capital avoidance for us.
Because of the open capacity that they have there.
So that one won't won't be a driver I think on the other two.
They are well capitalized really good.
Platforms. The question will be around Capex is how fastest growth plan.
And obviously, we will certainly invest into that growth as it comes.
So I think that could be either side, but again, we're not talking about large dollar capex.
Spend here, so I think on the margin it'll be up a little bit but not significantly.
Okay. Thank you and good luck.
We can now take the next question from <unk> Shah.
Sure from BMO capital markets.
Hi, good morning.
I just wanted to stick with that topic of the recent acquisitions, we were very impressed by the margins, particularly at gateway and units up.
Could you give us any more detail on our product lines that are contributing to that kind of margin and then how you think you'll be able to improve on that I think for our gateway you had you said 2 million of synergies.
Hi, good morning, so very excited about both businesses and the products and the operating footprint.
Come into the Silicon family, So specific the gateway really its integrated dispensing packages. So it really starts with the closure and in some cases, they have expanded beyond the closure to meet our customers' unique need for an entire package. But these are these are functional packages, which we think is really important.
As Bob mentioned, Theyre, very well capitalized so they are very efficient in how they manufacture those products and really those two in combination are the drivers behind the margin rates that we see at gateway, we do have incremental capacity available to us at gateway.
What Bob just covered for you a moment ago and so it's not so much about improving the margin of gateway. What we're looking to do now is to grow into the capacity that they have and grow the EBITDA that way.
I'll transition over to units up quickly for you and unicef's, a very exciting venture for silicon as we go further into the health care markets, where we already have a reasonable position as well.
Again, UNICEF has opened capacity for growth and so there are two functions with UNICEF.
It's a health care business number one health care and diagnostics number two the open capacity as we fill that opening capacity, it's across shared customers and its end markets that support the kind of margins that health care businesses have so we feel really positive about the impact that we're going to have an and utilizing the capacity in both business.
And then as Bob talked about with easy CAC. The third acquisition that is much more.
A cost avoidance capital avoidance fill capacity for existing customers in the European market as well.
Great. Thank you that's very helpful.
And then just for my second question, if we could just switch over to the European food can business you mentioned, a really strong pack in the U S. Can you talk about what Youre seeing in Europe, and maybe if I set up going into next year.
Sure and just maybe as a reminder, our European food can business, we really are.
Central and eastern facing so I'm, not really going to talk much about the packs in the western part of Europe, but the packs in Europe are good.
All the way through to Russia, Sweet Peas, and corn were good across the board.
I will give a little bit further west, but the Italian tomato pack was very good pizza.
Peaches were good as well, so I wouldn't say, a boomer, but just sort of right in line with our expectations for the European pack.
Great. Thank you very much.
We can there.
Next question from Arun.
<unk> <unk> from RBC capital markets.
Great. Thanks for taking my question I guess first off just on the raw material inflation.
Have you seen any kind of relief when what's your expectations I guess for for resin as we move into 'twenty. Two it does appear that there's been some moderation in and polyethylene in the last couple of weeks.
And then again, maybe you can also just help us understand kind of inventory wise, where where you are or maybe you know your suppliers or what youre hearing from from the market as well. Thanks.
Sure just resin, specifically, maybe just going back.
The forecast from the indices in our last quarterly call projected resin to start falling in Q3 to reach its peak in fall in Q3.
That did not happen in fact, they continue to inflate during Q3 Youre right in the last couple of weeks we have seen.
What we believe is a little bit of that.
The crest, if you will and we're now projected to.
We then turn to 2022, the indices again and I'm just going straight from the indices. It does call for resin prices to abate now, we'll see what happens.
With feedstocks and natural gas as a component to refining oil to get the resin.
But as we sit here today, we think that we've got are appropriate pass throughs in it it may be lagged as we're dealing with in Q3, but we'll pass those costs onto the market.
Okay. Thanks for that.
And then if I could just ask maybe a question on demand for each of the segments. So in closures.
It looks like there has been some recovery in some of the markets that were impacted I guess due to the pandemic on the beauty side in fragrance side.
I guess first maybe if you can just update us on what your outlook is for for that area and then in metal I know, we've gone through a couple of odd periods here, where you saw some pretty robust growth last year and we've seen you know maybe some shift as is.
Now reopening.
Kris.
And then just lastly on custom containers again, there was also a lot of.
Positive I guess from from Sanitizers, and so on but some other areas as well and so maybe you can just kind of update us on your outlook and if there was any kind of COVID-19 pull forward.
In any of those segments. If you are kind of concerned about that as you go into 'twenty two.
Yes really good question.
I'll try to come back through each of the segments to answer that but what I would tell you is the COVID-19 pull forward that all happened last year.
So for us.
I think the Covid surge happened last year that was favorable for many of our products from a volume standpoint will go into fragrance and beauty here in a second but that was favorable into can again, our all time record volume in metal food cans just happened in Q3 of this year versus the prior record, which was Q3 of last year.
So I think we're past the point of having the real COVID-19 surge impact to our businesses. So when you go back to fragrance and beauty what I would tell you is we came into the year expecting a 50 ish percent kind of recovery it happened a little faster and a little stronger than we anticipated and so the nice the nice benefit.
We've seen this year is it's recovered to about 70% and we're holding that number for the full year and then continued recovery obviously in 2022 back to kind of historic levels.
As far as the metal container business.
Again, I'll just say it was all time record volume in the quarter. There was a good mix of at home consumption and kind of the institutional volume that supports restaurants, so nothing out of the ordinary there except for possibly a very strong pack in the U S market.
And then when you think about custom containers again, it was really more about last year that the surge that happened last year and getting containers to still hand sanitizer products.
The surge was tremendous it was 14% growth in Q3 of 2021.
We're still looking at pre pandemic levels of growth in our custom container business and feel good about where we're going it's just we're cycling over that surge period from last year and I think thats the most relevant point.
Alright, thanks for that.
Reaching their case the next question from Alton Stump from loop capital.
Great. Thanks, Good morning, and thanks for taking my question.
Just wanted to ask on the food can volume growth of 6% also with a 14.
<unk> gross number from last year, obviously, it was a strong vegetable pack season as you referenced.
You know also pet is still <unk>.
But I was surprised at that kind of big number given how difficult. The comparison was there anything else going on in the quarter outside of auto.
Those two factors that you mentioned that you know kind of way to the euro.
With the tough comparison.
Uh huh.
It was obviously paper shop performance in the quarter.
It's a great question Alton and really the simple answer is no, but I think we have to talk about it a little bit more you know we've talked a lot. This year about how through the pandemic, we were able to reach new consumers for the can.
Been a lot of marketing campaigns targeted at new consumers for the can and really the repurchase rates are very high for those new consumers. So we do think that there is an engagement with consumers and we've been talking about it all year. It appears to be sticking and who knows what that will mean going forward, but when you think about <unk>.
Our record volumes that we're experiencing we will have again, our full year, we will have a record year of food can volumes for silicon.
We're not surprised actually we've talked about continuing to grow over the years, we've talked a lot about the pack we had a nice bump in the pack in Q3 and everything else is really.
On a slightly elevated but I would just say normalized level at this point and we feel very comfortable in our Fujian position and the growth rates that we're looking at going forward.
Thank you and then just as.
A quick follow up to that I mean.
Have you seen any evidence year to date that consumers know us markets reopening up.
A couple of quarters.
Yeah.
But that should mean that they are going out more.
Eating.
At home is often but you know clearly your results would suggest that that is not happening.
Any evidence of it.
What the at home versus away from home.
So consumption trends look like for consumers year to date.
Well year to date I'd say, it's a tough question to answer but I'll take a shot at it. So I think the first thing is is over the last several months, maybe even quarter as things have opened up there has been more consumption on premise and restaurants. That's one thing. So that's definitely happening happening I think you still have a component of the work for.
<unk> that is working remotely so actually the data that we have says.
Home consumption of food and meal occurrences in the home is actually up versus prior year.
Excuse me now versus prior year versus the historic norm.
So we think that's a very positive statement for the food can we are continuing to evaluate that as we go forward, but it's sort of the best of both worlds. The reopening is happening restaurant consumption is driving certain components of our business and volume growth and then you have got at home consumption that staying at a very elevated rate.
Yeah.
Great. Thanks, so much to color I'll hop back in queue.
Okay.
We can now take our next question from Ghansham Panjabi from Baird.
Thank you Hey, Adam maybe a question for you.
Related to the supply chain.
Constrained narrative, that's propagating throughout many different supply chains, including yours.
Just curious as to how that's changing your order patterns if at all.
Customer optimism on 'twenty to 'twenty, two you gave us some color on that.
That supported by higher backlogs and order visibility versus what you would normally see and then related to that just given the shipping chaos and so on and.
And some of the products from dispensing that may be imported from China are you seeing more sort of inbounds as it relates to a more localized sourcing specific to that.
Sure good questions and when we think about the supply chain.
It's a difficult time right now because <unk> got in our metals based businesses, where we're staring at a wall of inflation, that's going to come through on on raw material pricing. So unfortunately, our customers frankly would like to buy more theres not enough raw material to manufacture products for them.
So that's.
The order book is fine.
Stable as it has always been and again with that requirements contract.
We're meeting their needs, but they would like to buy more we'd like to make more with just not available to us and I would say that's on a global basis for the metals business.
When you think about how we source our raw materials, we do source in our local markets for the most part.
So.
Neil for the U S. Typically comes from the U S market, Europe's from Europe et cetera, China from Asia.
And.
We typically manufacture our products in the local economies as well so Fortunately, we're not quite as subject to that global.
Issue in logistics and moving product around the world. We certainly obviously have some parts that we do ship around the world, but largely we're in country, where we supply is where we manufacture so I think we're a little less.
Expose there than maybe some others and I think we view it as a tremendous opportunity to locally source those products that we manufacture locally.
Okay terrific and then in terms of your own utilization levels. I mean, you ran pretty hard last year, you're running pretty hard this year and inventories seem pretty low as evidenced by the free cash flow adjustment with the as it relates to working capital.
How are you sort of planning for production next year and how does that influence your capital plans and just bringing a bottleneck. If you if you need to go in that direction.
Well I'll talk first about 'twenty, one and what we're doing in 'twenty, one so and with that you have to go back to 2000, and so last year the height of the pandemic our customers, we're trying to increase their own efficiencies and throughput. They did limited skus, we had fewer changeovers across our entire business and so we had in it.
Credibly efficient operating system last year, there were limited skus that helped to get more product into the market made perfect sense. As you now I'll turn the page to 2021, what we're seeing is we now are repopulating that skews that were taken off of our.
Our our customers order books last year. So we do have more changeovers, we're slightly less efficient than last year just in managing the order book that we have with our customers and it's just it's more normalized to what we've typically done and Thats how were.
Planning our 2022 preliminary look as if it's just going to be a more normalized pattern, where we have typical run rates and changeover rates for all of our businesses.
Thank you.
We can now take the next question from Kyle White from Deutsche Bank.
Hey, good morning, Thanks for taking the question wanted to talk about metal containers and labor, obviously labor has been an issue for everyone and I believe your overtime hours have been up.
Are you seeing any moderation on this our overtime hours now relative to historical periods and have you been it hasnt been finding labor had been more challenging since the last quarter.
Great question.
Well start with the first one thought I mean, we have had significant over time as we've talked we've been essentially running all out since the early days of the pandemic and I would also tell you that in most of our operating facility not just for metal containers, but certainly for metal container Thats true.
As we now look forward into Q4, we are going to take some downtime in Q4 and not only do we need to continue to perform the maintenance of our equipment to make sure. We can meet all of the needs of our customers next year as our employees need a little bit of a break as well. So that is something that we're planning right now for Q4.
As far as labor availability, it's been a challenge all year I think one of the hallmarks of silicon as we identify those challenges and we put really good plans in place to address them, we're seeing progress now on.
Ill say, maybe the availability of labor, but getting new folks into our system, we're having success and it's not perfect yet by any stretch, but but we are making progress and I think that's an important point as we go towards next year those overtime hours, we're anticipating them coming back and having to be up.
More normal operating year, a platform for us in 'twenty two.
Got it and then can you just provide some color on dispensing volumes, particularly with Albea and beauty and fragrance how.
How is the pace of recovery gone in the third quarter and into the fourth quarter relative to your expectations has there been any kind of slowdown on the pace.
No I'll talk broadly.
Businesses are fully integrated now here, we're well over a year past the acquisition of the Albea business, but what I would tell you is if you go back and you think about the surge that we saw in dispensing systems and custom containers for products like hand, sanitizers and hard surface cleaners.
There was a rush to buy everything that was available at the height of the pandemic.
Our customers probably overbought for some period of time, we've been in an inventory correction for those specific products now for the most part it was in Q3 and we're starting to see the signs that that inventory correction might be.
Coming to the end and we think that the volumes will normalize from there for those products.
As I said earlier.
Rents in beauty recovery this year has been terrific.
Above the expectations that we had at the beginning of the year and we think we will have recovered upwards of 70% of the volume and the units that go to the beauty and fragrance market for.
For the dispensing and specialty closures segment.
Got it appreciate all that didn't appreciate all the details.
We can now take our final question from Daniel Rizzo from Jefferies.
Hi, Thanks for thanks for fitting me in.
Just mentioned, taking some downtime in the fourth quarter I was wondering if that's like a pull forward, whereas you're taking downtime now because it's run out but it was something that was likely scheduled for next year, where the euro after.
No I think it's more just a function of we've been running really hard for 18 months and again, we have to do maintenance to keep our equipment in top operating shape and so it just we actually have the time right now to do that in Q4, and we're taking advantage of it and also giving our employees a bit of a break.
Okay and then.
Last question, you mentioned, a lot about taking pricing catching up with raw materials and input costs, but I was wondering if you're able to take price beyond that.
Given some of the some of the well you offer security of supply and I was wondering how much of your customers are willing to pay up for that.
So it's a really good question and our business model for a long time has been weak we pass through the cost changes that we experienced at our businesses.
Tell you given the supply chain given.
The capacity utilization that we've had we have exerted some price power and our businesses, where we've elected to do so I think if you go back to our custom container business.
The margin.
Ramp up that we've seen over the last X number of years to current state we understood that our business was not performing and we did go after price in the market and offer a unique value proposition to our customers. The combination of price service and engagement that we thought was was better than the alternatives in the marketplace.
So.
We do have some pricing power again, it's not necessarily the business model that we've had but we've got some.
Hey, Dan I might just put a finer point on that for you. It's not one size fits all for our business because we've got a we've got a high degree of contract business through this through to our portfolio.
What Adam was referencing is obviously, where we're giving up capacity for customers that are not under contract. We're certainly getting those those opportunities where we are under contract. We are we are operating within the confines of the contract. So it's a bit of a mixed bag.
Okay. No. That's very helpful. Thank you very much.
That concludes today's question and answer session. Mr. Greeley at this time I would like to turn the conference back to you for any additional or closing remarks.
Great. Thank you very much Qian and thank you all for your time today and your continued interest in Silicon, we look forward to discussing our full year results for the year 2021 and January thank you.
Yeah.
This concludes today's call. Thank you for your participation you may now disconnect.
Yes.
[music].
Yes.
[music].
Yes.
Yes.
Yeah.
[music].
Hum.
Yeah.
[music].
Yeah.
[music].
Right.
[music].
Okay.
[music].