Q4 2023 Silgan Holdings Inc Earnings Call
Good day and welcome to the Silicon Holdings fourth quarter 2023 earnings call Today's conference is being recorded.
At this time I'd like to turn the conference over to Mr. Alex Hutter, Vice President of Investor Relations. Please go ahead Sir.
Alexander Gerhard Hutter: Thank you and good morning, joining me on the call today are Adam Greenlee, President and CEO, Bob Lewis EVP, corporate development and administration, and Kim Ulmer SVP and CFO.
Before we begin the call today, we'd like to make it clear that certain statements made on this call may be forward looking statements.
Alexander Gerhard Hutter: These forward looking statements are 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 2022 and other filings with the Securities Exchange Commission.
Alexander Gerhard Hutter: 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. In addition commentary on today's call may contain references to certain non-GAAP financial metrics, including adjusted EBIT adjusted EBITDA free cash flow and adjusted net income per diluted share.
Alexander Gerhard Hutter: A reconciliation of these metrics, which should not be considered substitutes for similar GAAP metrics can be found in today's press release and.
Alexander Gerhard Hutter: Under non-GAAP financial information available on the Investor Relations section of our website at Silicon Holdings Dotcom.
Alexander Gerhard Hutter: With that let me turn it over to Adam.
Adam J. Greenlee: You, Alex and we'd like to welcome everyone to Silicon <unk> fourth quarter and full year 2023 earnings call. Our team delivered another year of strong performance in 2023.
Adam J. Greenlee: Unprecedented and rapidly changing market backdrop, proving once again that our businesses and our company a resilient regardless of the broader economic circumstances, we delivered our second highest adjusted EPS and adjusted EBIT in the history of the company and our robust free cash flow and strong balance sheet allowed us to return over 250 million.
Adam J. Greenlee: To our shareholders through buybacks and dividends.
Adam J. Greenlee: <unk> approach to everything we do including our customer partnerships, our contractual arrangements and our capital deployment has positioned the company to continue to perform for years to come.
Adam J. Greenlee: During the year, we embarked upon a multi year $50 million cost improvement program, which is the largest in our company's history to strengthen our already market leading cost positions across each of our businesses.
Adam J. Greenlee: To achieve these savings we made several difficult decisions beginning in late 2023 and have announced the consolidation of five of our manufacturing facilities to date.
Adam J. Greenlee: These actions will position the company to continue to meet the unique needs of our customers and compete in the wet and compete and win in the markets. We serve with an even lower cost the operating footprint.
Adam J. Greenlee: Volume trends in 2023 were mixed among the end markets, we serve and the products we produce.
Our strategic growth products for dispensing and pet food continued to see success and performance to outpace broader market trends and products that had experienced post pandemic destocking in 2022 delivered strong recovery and growth in 2023.
Adam J. Greenlee: While consumer demand for our essential food and beverage products remains resilient midway through the year. It became apparent that our volumes would be adversely impacted across the segments by our customers' decisions to focus on destocking initiatives in the food beverage and pet food markets as a result of the impact of inflation throughout the <unk>.
Adam J. Greenlee: Fly chain.
Adam J. Greenlee: At the segment level, our dispensing, especially closure segment delivered another year of strong organic growth and new business wins for our high value dispensing products, particularly in the high end fragrance market.
Adam J. Greenlee: This growth drove margin improvement and a more favorable mix that partially offset the impact of lower volumes in food and beverage products for from customer Destocking.
Adam J. Greenlee: We successfully recovered our cost in the marketplace and mitigated the impact of a unique situation at one of our U S. Operating facilities that presented discrete labor challenges and drove incremental cost and the operating system during the year.
Adam J. Greenlee: In metal containers, we reported our sixth consecutive year of record adjusted EBIT are long term contractual arrangements and disciplined pass through mechanisms helped our business to offset lower volumes and the impact of our own inventory management program in the prior year to grow adjusted earnings.
Adam J. Greenlee: Custom containers are volumes fell short of the prior year due to continued customer destocking, primarily in the second half of the year and the delay of commercializing new business wins into 2024.
Adam J. Greenlee: As we now turn our focus to 2024, we believe the business is positioned to deliver volume growth and with the benefit of our cost savings initiatives beginning to impact profitability, we expect to meet or exceed our prior record for adjusted EBITDA.
Adam J. Greenlee: We have seen early signs of recovery in certain end markets for the customer destocking activities that we experienced in 2023 and expect these favorable trends to continue to improve through the first half of 2024.
Adam J. Greenlee: We are expecting dispensing and specialty closures volumes to grow by a mid single digit rate driven by another year of high single digit growth in our dispensing products and low single digit growth in our closures products, resulting in an improved mix for the segment.
Adam J. Greenlee: Metal containers volumes are expected to grow by a low single digit percentage driven primarily by mid single digit growth in pet food.
Adam J. Greenlee: Custom container volumes are expected to be comparable to prior year levels with more pronounced destocking in the first quarter offset by growth driven by new business wins in the subsequent quarters of the year.
Adam J. Greenlee: As we enter 2024, we continue to make progress and execute our strategic priorities. We have taken strong actions to effectively manage the factors within our control and believe the company is positioned for earnings and free cash flow growth in 'twenty, four and beyond our customer partnerships remain strong we continue to compete and win in the markets we serve.
Adam J. Greenlee: Our strategic growth initiatives continue to shape, the company's future and our disciplined capital deployment model continues to create significant value for shareholders.
Adam J. Greenlee: That I will turn it to Ken who will take you through the financials for the quarter and our estimates for the first quarter and full year of 2024. Thank you Adam.
Ken: As Adam highlighted our business continues to deliver strong financial results. Despite several headwinds in 2023 as we achieved our second highest adjusted EPS in the history of the company and once again show that our business performed well despite challenging economic circumstances.
Ken: We continue to convert our profits and strong cash generation in 2023 and used our cash to return over $250 million to shareholders, including $175 million through share repurchases.
Ken: We used the remaining cash to deleverage near the mid point of our target leverage range leverage range and our balance sheet remains strong as we enter 2024.
Ken: Turning to the fourth quarter of 2023 results net sales of approximately $1 3 billion declined 8% from the prior year period, driven primarily by lower volumes at each of our segments.
Ken: Total adjusted EBIT for the quarter of $135 $9 million decreased by 9% on a year over year basis with record adjusted EBIT in dispensing, especially closures and higher adjusted EBIT was Hudson containers.
Ken: Set by expected lower adjusted EBIT in the metal container segment.
Ken: Adjusted net income per diluted share declined 22 cents from the record achieved in the fourth quarter of 2022 with lower volumes and higher interest expense of <unk> driving the year over year decline.
Ken: Turning to our segment sales in our dispensing sales that are dispensing and specialty closures segment declined 3% versus the prior year, primarily as a result of lower volume mix of 5%.
Ken: The decline in volume was driven primarily by customer destocking activities in domestic food and beverage market and double digit declines for higher volume metal closures for international food and beverage market.
Ken: Record fourth quarter, 2023, dispensing, especially closures adjusted EBIT increased $12 $4 million versus the record achieved in the prior year period as a result of strong cost recovery and lower manufacturing costs, which were partially offset by the impact of lower volume.
Ken: And our metal container segment sales declined 10% versus the prior year, excluding a 2% impact from Russia sales in 2022.
Ken: Lower volume in several product categories drove a 7% decrease as customer destocking priority continue to weigh on order patterns throughout the quarter, but showed improved trends relative to the year over year declines in the third quarter of 2023.
Ken: Price mix was negative 4% in the quarter, which was partially offset by a 1% 1% improvement in foreign currency translation.
Ken: As expected metal containers adjusted EBIT was below the record level in the prior year quarter, primarily due to the prior year benefit of inventory management, which did not repeat in 2023.
Ken: Sure volumes as a result of customer Destocking.
Ken: And custom containers sales declined 5% compared to the prior year quarter, driven by a 2% decline in volumes the pass through of lower resin costs and a less favorable mix of products sold.
Ken: That's been containers adjusted EBIT increased $1 8 million as compared to the fourth quarter of 2022, primarily due to improved cost management, which more than offset the impact of lower volume.
Ken: Looking ahead to 2024, we are estimating adjusted net income per diluted share in the range of $3 55 to $3 75.
Ken: 7% increase at the midpoint of the range as compared to $3 40 in 2023.
Ken: Estimated includes corporate expense of approximately $25 million interest expense of approximately $170 million a tax rate of 24% to 25% and a weighted average share count of approximately 107 million shares.
Ken: Appreciate it is expected to increase 15% to $20 million a year over year basis and be in the range of $225 million to $230 million.
At the midpoint of our 2024 adjusted EPS range, we expect to meet or exceed the record level record levels of adjusted EBITDA achieved in 2022.
Ken: From a segment perspective, our mid single digit percentage total adjusted EBIT growth in 2024 is expected to be driven primarily by the expensing, especially closure segment with slightly higher adjusted EBIT in the metal containers and custom container segments relative to 2023 levels due to the impact of anticipated customer destocking in the first half of <unk>.
Ken: 24.
Ken: Based on our current earnings outlook for 2024, we are providing an estimate of free cash flow of approximately $375 million a 5% increase from 2023 as earnings growth in 2024 will be partly offset by higher Capex, capex, which we expect to be approximately $240 million by approximately 30 million.
Ken: Cash costs to support our cost reduction program, including additional working capital to facilitate the program.
Ken: Turning to our outlook for the first quarter of 2024, we're providing an estimate of adjusted earnings in the range of 60 to 70 cents per diluted share as compared to adjusted net income per diluted share of <unk> 78 in the prior year period.
Ken: Year over year decline in adjusted earnings in the first quarter is driven primarily by lower volumes the impact of the sell through of higher cost inventory from the prior year, and our metal and our European metal operations and higher interest expense.
Ken: First quarter 2020 for adjusted EBIT is expected to be above prior year levels, and dispensing, especially closures with a low single digit decline in volumes driven by customer destocking more than offset by improved profitability and stronger mix.
First quarter 2020 for metal containers, adjusted EBIT is expected to be slightly higher on a sequential basis from the fourth quarter of 2023, but down approximately $10 million year over year due to a low single digit percentage decrease in volumes as a result of continued destocking and the sell through of higher cost inventory from the prior year due to a double.
Ken: Digit percentage decline in steel costs in Europe in 2024.
Ken: Adjusted EBIT in the custom container segment is expected to be stable on a sequential basis, but below prior year levels. Due to continued destocking trends, our sequential volumes remained stable year over year comparisons become more difficult in the first quarter.
Ken: Volumes in the custom container segment are expected to improve throughout the year as new business wins ramp up and Destocking is expected to abate.
Ken: That concludes our prepared comments and we'll open up the call for questions. Ana would you kindly provide the directions for the question and answer session.
Ana: Yes, ma'am, thank you and if you would like to ask a question. Please signal 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.
Ana: And also you may remove yourself from the queue at any time by pressing star.
Ana: Once again that is star one if you would like to ask a question.
Ana: And well take our first question from George Staphos with Bank of America.
George Leon Staphos: Hi, everyone. Good morning, Thanks for the details and congratulation on the progress in the year I guess the question I had first on Destocking.
George Leon Staphos: Thank you said you expect it to continue through the first half of the year Destocking has been going on for a long time now.
George Leon Staphos: How should we think about if I heard that correctly how.
George Leon Staphos: How that will vary across the segments.
George Leon Staphos: What gives you confidence after what's been an extended period of Destocking that where we're getting close to the end of it and then a related volume question. What are you seeing in soup for metal Oh, we've heard that things have seen some pick up there you had some thoughts around that that'd be great I had one other follow on.
Speaker Change: Okay sure. Thanks George.
So destocking I know, we talked about it a little bit on the last call, but let's just try to put destocking in a few buckets. So the COVID-19 items that saw a significant surge during the COVID-19 pandemic period.
Speaker Change: Created a destocking item as we came out of the pandemic and those are things like lawn and garden in some of our hard surface cleaners are.
Speaker Change: You know help health products and I can sanitizers those types of products.
Speaker Change: As you know went through a destocking phase post pandemic and essentially those products have now fully recovered as we exit 2023. So some of the early signs of recovery that we're going to talk about I'm sure at some point on the call are the items like our trigger sprayers, we did see sustained double digit recovery.
Later in 2023 and are expecting that growth to continue in 2024 as well so.
Speaker Change: So that's the first part of Destocking, then we ran into.
Speaker Change: A bit of food and beverage destocking.
Speaker Change: Some challenges in Europe with inflation et cetera. So you know it expanded to other categories. Once we got through the pandemic I think for the most part we're seeing those now dwindle and really it's just a few dribs and drabs that are carrying into 2024.
Speaker Change: The last item I would call a destocking, Georgia as the pet food item that we talked about on the last call and it occurred later in the cycle.
Speaker Change: Really the fourth quarter played out almost exactly like we thought it was going to with pet food and you know as we look forward into 2024.
Speaker Change: Well, we'll have some continued destocking in pet food for sure.
Speaker Change: Some other categories again, the trends are improving and what I would say about pet food.
Speaker Change: You know, we're going to see nice growth in the full year of 2024, when Destocking ends for pet food is it's somewhere between that and the first quarter into the second quarter. So work, we're saying through the first half of the year and we should be beyond destocking at that point. So I think as you know to answer your.
Speaker Change: And how should you think about it I think it's dwindling in Q1, you've got the impact of pet food that we've talked about and as we cycle out of the second quarter, we think will be beyond the destocking activities.
Speaker Change: And so the related question I had was just what are you seeing in soup and then my follow on and I'll turn it over so as we think about 2024.
Speaker Change: And the discrete items or things that are relatively new or control. However, you want to define it in terms of earnings.
Speaker Change: Earnings gains you have the cost out program.
Speaker Change: Have some new wins, what should we bake in for this year and not that it's ever easy.
Speaker Change: Relative to <unk>, 23, and I'll turn it over there.
Speaker Change: Okay. Good question on so I'm, sorry, I missed that on the first round there.
Speaker Change: You know we had talked on the last call that we were not only anticipating but seen some further promotional activity.
Speaker Change: In our food markets, particularly into <unk>.
Speaker Change: <unk> did have a good quarter.
Speaker Change: In the fourth quarter CMI data showed nice recovery and growth in soup and I think from our perspective, George Suk sort of played out exactly like we thought it was going to for the course of the year, we knew that our we anticipated the soup was going to have a more normal soup filling season than.
Speaker Change: And then maybe what we had seen in 2022 and that's really what happened. So you know for the year on year comps it was difficult through the summer when soup isn't typically so.
But as we now get into call. It Q4, we're seeing a normal soup season. We're also seeing I think the positive impact of some of the promotional activity that our customers have done and it seems to be resonating with consumers. So part of that is what also gives us confidence back to your original question in 'twenty four.
There are actions that our customers have taken from a promotional standpoint to began to refocus on.
Speaker Change: Returning value to consumers and potentially driving volume and we're seeing some green shoots as we sit here today.
And maybe the last question George you know just how how you should think about all the items that come together, obviously, they're all encompassed in our guidance as we we think about 2024.
Speaker Change: And you know you go across the segments sure we had the one plant in.
Speaker Change: In the U S.
Dispensing and specialty closure segment, that's fully recovered.
Speaker Change: <unk> cost as we expected we're going to be reduced as we got through the end of the year and each quarter, we made progress and really those costs have now been driven out of the system as we sit here for 2020 for maybe the last one and I can move on but the new wins in the custom container business, we talked about the first one coming on.
Speaker Change: In Q1, we're right on track that will be commercialized. We are fully qualified just in the final stages of commercializing right now and the second large item, it's kind of a midyear qualification and commercialization. So we're feeling very good.
Speaker Change: Those are on track and on time and then finally, the first piece of our $50 million two year program.
Speaker Change: Those savings are expected to hit in 'twenty, four and as we said on our last call. The savings will be about 40% of the total so we think we'll be at a run rate of call it $20 million.
Speaker Change: Savings as we exit 'twenty, four and heading into 'twenty five.
Speaker Change: Okay. Thanks, I'll turn it over.
Speaker Change: Well now take our next question from Matt Roberts with Raymond James.
Matt Roberts: Hey, good morning, everybody. Thanks for taking the questions here, Adam if you could just to expand on in regard to Jordan's question earlier on pet food I I believe I heard 2024, you're expecting mid single digit growth rate.
Matt Roberts: In that correct me, if I'm wrong, please but that was going to be dampened and firstly maybe into two key destocking. So.
Adam J. Greenlee: If you could provide any additional color into how inventory levels were exiting 2023 and in what indications are there that.
Adam J. Greenlee: Pension more supply is coming online or I'm, just trying to reconcile getting to mid single digit growth there.
Adam J. Greenlee: After a destocking in the first half.
Speaker Change: Sure and you're right. So there is some continued destocking in the first quarter I think we're being a little cautious Matt because as we've seen in other categories that Destocking does sort of linger on just a little bit longer. So we're working with closely with our customers and as you well know, we're we're near site or onsite.
Operator: Good day, and welcome to the Snellgun Holdings fourth quarter 2023 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Alex Hutter, Vice President of Investor Relations. Please go ahead, sir.
Speaker Change: With many of those customers in this category, we've got really good visibility into what they are filling.
Speaker Change: Plans are for 2024, they've added some additional capacity as well so that's helpful.
Alexander Gerhard Hutter: Thank you and good morning. Joining me on the call today are Adam Greenlee, President and CEO; Bob Lewis, EVP, Corporate Development and Administration; and Kim Ulmer, SVP and CFO. Before we begin the call today, we'd like to make it clear that certain statements made on this call may be forward-looking statements. These forward-looking statements are 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 2022 and other filings with the Securities and Exchange Commission. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statement.
As we think about it for the year, you've got some destocking activity that'll cause a difficult comp for us in the first quarter and we will see growth the remainder of the year and pet food and on a full year basis again remember you know.
Speaker Change: Our first quarter and fourth quarter are two seasonally smallest quarters in the metal containers business. So.
Speaker Change: We anticipate nice growth for the full year as we sit here and in wet pet food.
Speaker Change: Okay. That's very helpful. Thank you.
Speaker Change: And then on high value or beating in fragrance and I might've missed this in the prepared remarks as well, but I believe in the release you said further growth in 2024, how does that compare to the growth rates you saw on that category in 2023.
Alexander Gerhard Hutter: In addition, commentary on today's call may contain references to certain non-GAAP financial metrics, including adjusted EBIT, adjusted EBITDA, free cash flow, and adjusted net income per diluted share. A reconciliation of these metrics, which should not be considered substitutes for similar GAAP metrics, can be found in today's press release and under non-GAAP financial information available in the investor relations section of our website at silkenholdings.com. With that, I will turn it over to Adam. Thank you, Alex.
Speaker Change: What factors are driving that are either higher or lower than 2023 is it.
New new products from new customers or just any additional color on that high value would be great. There. Thank you.
Speaker Change: Sure.
Speaker Change: It's a highlight for us it's an area, where we've been winning in that market for sure we've seen really nice growth.
I would say, we're still expecting significant growth in that particular sector sector. It's just it's moderating just a little bit. So you know instead of very consistent kind of.
Adam J. Greenlee: And we'd like to welcome everyone to Silgin's fourth quarter and full year 2023 earnings call. Our team delivered another year of strong performance in 2023 amid an unprecedented and rapidly changing market backdrop, proving once again that our businesses and our company are resilient, regardless of the broader economic circumstances. We delivered our second-highest adjusted EPS and adjusted EBIT in the history of the company, and our robust free cash flow and strong balance sheet allowed us to return over $250 million to our shareholders through buybacks and dividends. Our disciplined approach to everything we do, including our customer partnerships, our contractual arrangements, and our capital deployment, has positioned the company to continue to perform for years to come. During the year, we embarked upon a multi-year, $50 million cost improvement program, which is the largest in our company's history, to strengthen our already market-leading cost positions across each of our businesses. To achieve these savings, we made several difficult decisions beginning in late 2023 and have announced the consolidation of five of our manufacturing facilities to date.
Speaker Change: Mid double digit levels will be kind of low double digit high single digit is as we look forward into those products and that.
Speaker Change: Silicones volume so I think we're gonna be ahead of the market.
For whatever that's worth and again, we've added capacity as well to support that continued growth. So that growth comes with new product launches. It comes with innovation. It comes with growing customer relationships. So we're having a lot of success in that market. Because we are doing what silicon does we are standing in delivering on our commitments.
Speaker Change: And winning with innovation in that market.
Speaker Change: Great good to see and thank you all again for the time.
Speaker Change: Thank you.
Speaker Change: Well now take a question from Gabe <unk> with Wells Fargo.
Gabe: Good morning, everyone. Thanks for the detail.
I had a question about I guess, Adam as we as we looked at the guidance and.
Adam J. Greenlee: These actions will position the company to continue to meet the unique needs of our customers and compete and win in the markets we serve with an even lower cost operating footprint. Volume trends in 2023 were mixed among the end markets we serve and the products we produce. Our strategic growth products for dispensing and pet food continue to see success and performance outpace broader market trends, and products that had experienced post-pandemic destocking in 2022 delivered strong recovery and growth in 2023. While consumer demand for our essential food and beverage products remains resilient, midway through the year, it became apparent that our volumes would be adversely impacted across the segments by our customers' decisions to focus on destocking initiatives in the food, beverage, and pet food markets as a result of the impact of inflation throughout the supply chain.
Gabe: Positioning for the business and in the 'twenty four.
Gabe: Forward, we're having this conversation you talked about closing five facilities as part of the $50 million.
Gabe: Cost out initiatives.
Gabe: I know, it's sensitive to talk about it in a format like this but are.
Gabe: Or are there other plant consolidation efforts that you have to execute against and maybe what are the biggest risks.
Gabe: Again, it's kind of getting to that $20 million run rate number where do you all feel like that that's.
Gabe: Pretty well in the bag and then maybe upside from there.
Speaker Change: Sure and they are tough decisions gave and what I would say is the five that we've announced to date go a long way to supporting the $50 million in total.
Unfortunately, it doesn't get us all the way there. So there will be some additional activity followed over the course of the next 12 months that will be engaging in.
Adam J. Greenlee: At the segment level, our dispensing, especially closure segment, delivered another year of strong organic growth and new business wins for our high-value dispensing products, particularly in the high-end fragrance market. This growth drove margin improvement and a more favorable mix that partially offset the impact of lower volumes in food and beverage products from customer destockage. We successfully recovered our costs in the marketplace and mitigated the impact of a unique situation at one of our U.S. operating facilities that presented discrete labor challenges and drove incremental costs in the operating system during the year. In metal containers, we reported our sixth consecutive year of record-adjusted EBIT.
Speaker Change: Those are fluid plans and we're continuing to evaluate and.
Speaker Change: From my perspective, Gabe this is nothing new for silicone. Unfortunately.
Speaker Change: We've had such a it's not unfortunately, unfortunately, we've had such a focus on driving cost out of our operations over time that this is just kind of the next page in the playbook and.
Speaker Change: We're responding as we said we were going to right size, our capacity to market demand and we've done that we're doing that.
Speaker Change: And we're continuing to reevaluate where additional opportunities to drive cost out of the system.
Speaker Change: <unk> take place so.
Speaker Change: You should assume that there will be some more activity in the course of 2024 to get us to the total $50 million by the end of 'twenty five.
Adam J. Greenlee: Our long-term contractual arrangements and disciplined pass-through mechanisms helped our business to offset lower volumes and the impact of our own inventory management program in the prior year to grow adjusted earnings. In custom containers, our volumes fell short of the prior year due to continued customer destocking, primarily in the second half of the year, and the delay of commercializing new business wins into 2024. As we now turn our focus to 2024, we believe the business is positioned to deliver volume growth, and with the benefit of our cost savings initiatives beginning to impact profitability, we expect to meet or exceed our prior record for adjusted EBITDA. We have seen early signs of recovery in certain end markets for the customer destocking activities that we experienced in 2023 and expect these favorable trends to continue to improve through the first half of 2024.
Speaker Change: Thank you.
Speaker Change: Maybe Bob one for you it.
Robert B. Lewis: It seems like some of the top webs or getting cleared out of.
On the M&A markets. We've seen is a couple of things rather loose here.
You know that's been a pretty big value driver for Sylvian historically speaking.
Robert B. Lewis: Again to the extent you can comment I know you guys are always trying to be busy there but.
Robert B. Lewis: Anything that you are getting excited about or.
Robert B. Lewis:
Robert B. Lewis: So we can be talking about maybe in 'twenty four.
Robert B. Lewis: And our uses of cash if that doesn't come to fruition.
Robert B. Lewis: Balance sheet closer to three times leverage.
Robert B. Lewis: Do you see the stock is attractive at current levels.
Speaker Change: Yeah look I think you hit on on the strategic priority right I mean and it.
It Hasnt changed quite honestly, we continue to be active even when the market is inactive in terms of building relationships and making sure we understand what could come to market and when that may be.
Adam J. Greenlee: We are expecting dispensing and specialty closures volumes to grow by a mid-single-digit rate, driven by another year of high single-digit growth in our dispensing products and low single-digit growth in our closures products, resulting in an improved mix for the sector. Metal containers volumes are expected to grow by a low single-digit percentage, driven primarily by mid-single-digit growth in PEP. Custom container volumes are expected to be comparable to prior year levels, with more pronounced destocking in the first quarter offset by growth driven by new business wins in the subsequent quarters of the year.
Speaker Change: We probably are aligned with you were thinking that that.
Speaker Change: It is starting to work itself out.
Speaker Change: In terms of.
Folks thinking that 2024 as a point in time, where they will bring properties to market I think given what's going on with the credit markets right now that probably facilitates some of that we do think that were continued to be advantaged in that in those opportunities.
Adam J. Greenlee: As we enter 2024, we continue to make progress and execute our strategic priorities. We have taken strong actions to effectively manage the factors within our control and believe the company is positioned for earnings and free cash flow growth in 2024 and beyond. Our customer partnerships remain strong, and we continue to compete and win in the markets we serve. Our strategic growth initiatives continue to shape the company's future, and our disciplined capital deployment model continues to create significant value for shareholders. With that, I'll turn it to Kim, who will take you through the financials for the quarter and our estimates for the first quarter and full year of 2024. Thank you, Adam.
None of that ensures that the deal will happen of course, but but we're excited about.
Speaker Change: Getting back to the activity that we view as a strategic priority and that's the way we would choose to want to grow the business.
Speaker Change: Likewise if.
Speaker Change: Nothing does happen.
Then we will pull other levers to make sure that we create good returns for the shareholder and as you said that could be in debt reduction mode to preserve capacity.
Speaker Change: Or it could be and continued share repurchases and we will we will look at that as to where we believe the best return for the shareholder is going to be.
Kimberly Irene Ulmer: As Adam highlighted, our business continued to deliver strong financial results despite several headwinds in 2023, as we achieved our second-highest adjusted EPS in the history of the company and once again showed that our business performs well despite challenging economic circumstances. We continue to convert our profits into strong cash generation in 2023 and use our cash to return over $250 million to shareholders, including $175 million through share repurchase. We used our remaining cash to de-leverage near the midpoint of our target leverage range, and our balance sheet remained strong as we entered 2024.
Speaker Change: Okay. One quick follow up do you feel like maybe just from conversations that seller expectations have been adjusted or are starting to adjust in the right direction.
Speaker Change: Comedy or compensate for the rising cost of capital.
Speaker Change: Yeah, I don't I don't know if you ever get entirely reconciled from a buyer and a seller perspective, but I do think given that a lot of the friction that's happened around some of the deals and market more recently I think there's a there's a realization that maybe peak levels are going gone anyway. So I think theres negotiations.
Kimberly Irene Ulmer: Turning to the fourth quarter 2023 results, net sales of approximately $1.3 billion declined 8% from the prior year period, driven primarily by lower volumes in each of our segments. Total adjusted EBIT for the quarter of $135.9 million decreased by 9% on a year-over-year basis, with record adjusted EBIT in dispensing and specialty closures and higher adjusted EBIT in custom containers offset by expected lower adjusted EBIT in metal containers. Adjusted net income per diluted share declined $0.22 from the record achieved in the fourth quarter of 2022, with lower volumes and higher interest expense of $0.06 driving the year-over-year decline. Turning to our segment sales, sales in our dispensing and specialty closure segment declined 3% versus the prior year, primarily as a result of a lower volume mix of 5%.
To be had and that's typically where we where we do well.
Speaker Change: Great. Thank you.
Speaker Change: Well take our next question from Ghansham Panjabi with Baird.
Ghansham Panjabi: Thank you good morning, everybody.
Hey, Adam going back to some of the comments you made earlier you know it.
Ghansham Panjabi: Still very early in the fourth quarter earnings season, but some of your customers on the retailers I mean, there definitely seems to be a new tone towards a different tone I should say towards promotional spending and also product innovation and so on and so forth.
Ghansham Panjabi: <unk> volume velocity.
So that seems pretty clear on the human food side, if you will.
Ghansham Panjabi: How does that how does that sort of manifest on the pet food side, because pet food is quite large for you relative to years past.
Kimberly Irene Ulmer: The decline in volume was driven primarily by customer destocking activities in domestic food and beverage markets and double-digit declines for higher-volume metal closures for international food and beverage markets. Record fourth quarter 2023 dispensing and specialty closures adjusted EBIT increased $12.4 million versus the record achieved in the prior year period as a result of strong cost recovery and lower manufacturing costs, which are partially offset by the impact of lower volume. In our metal container segment, sales declined 10% versus the prior year, excluding a 2% impact from Russia's sales in 2022. Lower volume in several product categories drove a 7% decrease as customer destocking priorities continued to weigh on order patterns throughout the quarter, but showed improved trends relative to the year-over-year declines in the third quarter of 2023.
Ghansham Panjabi: Just curious as to anything you could highlight in terms of conversations with customers apart from just the obvious of going through a bit more destocking in that category.
Speaker Change: Sure and I think.
Speaker Change: Youre spot on Ghansham with the broader food market in that promotional activity and maybe just.
Speaker Change: Add a comment to what you had said.
Speaker Change: The price recovery was was really the focus for our customers certainly in 2023, and I think that that conversation has shifted now more to a volume recovery in 2024, and youre seeing the again, the promotional activity advertising et cetera in support of that.
Speaker Change: And what I would tell you about the pet food market is I think theres, a small lag to the pet food market. Following some of those similar patterns as they think about promotional activity. They were a little later to pass through the price too.
Kimberly Irene Ulmer: Price mixed was negative 4% in the quarter, which was partially offset by a 1% improvement in foreign currency translation. As expected, Metal Containers Adjusted EBIT was below the record level in the prior year quarter primarily due to the prior year benefit of inventory management, which did not repeat in 2023, and lower volumes as a result of customer de-stocking. In custom containers, sales declined 5% compared to the prior year quarter, driven by a 2% decline in volumes, the pass-through of lower resin costs, and a less favorable mix of products sold. However, custom containers adjusted EBIT increased $1.8 million as compared to the fourth quarter of 2022, primarily due to improved cost management, which more than offset the impact of lower volume. Looking ahead to 2024, we are estimating adjusted net income for diluted shares in the range of $3.55 to $3.75, a 7% increase at the midpoint of the range as compared to $3.40 in 2023.
Speaker Change: Consumers are.
Speaker Change: As we were working through inflationary items.
Speaker Change: And I think they'll just be a little later to look to recover that volume as with promotional activity et cetera. So.
Speaker Change: I think that's all factored into our guidance, we're having those conversations with our customers and there are promotional activity plans for 2024, they're just starting a little bit later than what we've seen in other categories.
Speaker Change: Okay, perfect that makes sense and then on dispensing closures.
Speaker Change: I apologize if I missed this but the higher margin categories, such as fragrances et cetera.
Speaker Change: Now you're starting to cycle through some more difficult comparisons and so on and so forth just given the extraordinary growth in those segments.
Speaker Change: How do you see those evolving in 2024.
Well look I mean, we're competing and winning in that space All day long so.
Speaker Change: We've invested fairly heavily to support the growth as well. So yeah. We have a really good degree of confidence that those new business wins that we probably haven't talked as much about and dispensing and specialty closures will deliver the growth that we're seeing in that space. So yes, we have done a very nice job not only getting the new wins, but putting that.
Speaker Change: Capacity in commercializing that capacity to support the growth.
Speaker Change: And just to just to clarify on that so the categories themselves seem to be relatively intact from a overall standpoint is that right.
Speaker Change: Yeah, I think I'd go back to the comment I just made a few minutes ago that.
Speaker Change: We're seeing some slight moderation from the kind of significant double digit kind of growth to the maybe low double digit kind of growth in the category now.
Speaker Change: Alright, thank you.
Speaker Change: Sure.
Speaker Change: Well take our next question is from Anthony Pettinari with Citi.
Anthony Pettinari: Hi, good morning.
Anthony Pettinari: The EPS guidance, it seems to point to kind of stronger year over year growth as the year progresses and I was just wondering if there's any detail on how the $20 million of cost saves could ramp throughout the year and if there's any other kind of cost items, you know resin are afraid or in terms of recovery how those assumptions.
Anthony Pettinari: Kind of impact the trajectory or cadence of year over year growth is as we can.
Anthony Pettinari: Go through the four quarters of the year.
Speaker Change: Yes. Good question, Anthony and I think there are really two items that probably really think about the timing and rollout of the savings associated with the $50 million program again, we'll get $20 million of savings by the end of 'twenty, four and really think about it we just announced it on the last earnings call. So those.
Speaker Change: We do need to roll out through the course of the year. So certainly you know you'll have greater savings in the back half than you what youre going to see in the first half of the year, but we have a good degree of confidence we're going to be able to deliver those again, it's sort of what we do it so get in focusing driving cost out of the organization I think the other big item to think about as it related to.
Speaker Change: Our European businesses.
And that kind of year over year as Kim alluded to in her comments earlier, we've got this rollout of high cost inventory.
Speaker Change: Our European metals business, both on dispensing and specialty closures and in metal containers, there will be a negative in the early part of the year, mostly in the first quarter and between the two segments, it's something like $10 million of negative impact to the P&L and again, it's just it's that higher cost inventory rolling out.
Through the P&L and again there'll probably be some lingering into the early part of Q2, but most of that should impact the first quarter.
Speaker Change: Yeah.
Speaker Change: Okay. That's very helpful. And then maybe just following up on Europe. I mean can you talk about from an underlying demand perspective, what you're seeing in may be assuming for the year for your European exposure I guess, the lion's share of that is in dispensing closures, maybe up kind of a mix of more discretionary more kind of.
Speaker Change: Staples he kinds of products I'm just.
Speaker Change: How do you how do you see the European consumer holding up and if that differs from North America.
Speaker Change: Yeah, so maybe it.
Speaker Change: Tail of two cities as far as we think about the businesses that we have so maybe I'll start with the European consumer again as we've talked previously we we think it's been a tough environment for the European consumer between inflation and food products inflation in fuel and light and power. So there is a lot of inflation.
Speaker Change: Consumers taken on and they have adjusted their spending habits. So we've seen that in more discretionary items frankly, we've seen it in our in our metal closures business, particularly in Europe, where we are on more of a premium package with a a glass package with a metal closure on the top of it.
So for the food and beverage business I think we're seeing soft demand we saw soft demand for the most part and in 2023 that continues for the most part.
Speaker Change: We think there should be some improvement in the second half we've taken a conservative approach to that at this point and then you think about the balance of our dispensing products actually demand has remained quite resilient in the European economy for those products and again, we've got some health care business. We've got some fragrance are high value dispensers continue to.
Speaker Change: Well, almost regardless of the geography, and where we compete.
Speaker Change: Okay. That's very helpful I'll turn it over.
Speaker Change: Well take our next question from Mike <unk> with the Truest Securities.
Mike: Thank you Adam Bob Kevin Alex for taking my questions and congrats.
For finishing the year strongly.
Yeah.
Mike: But the first question that I have is just on the.
Adam your comment on dispensing, especially closures on the slight moderation that youre seeing in the growth rate, it's at the higher end.
Mike: Growing now low double digits, maybe high single digits instead of mid double digits.
Mike: What's changed from your perspective, what has changed now youre growing it at a lower rate than you had been.
Adam J. Greenlee: Fundamentally nothing has changed.
Ken.
Speaker Change: We see a lot of the same type of opportunities for continued growth going forward. The base has obviously grown quite a bit so that the absolute dollar value of growth that we're talking about year over year, you're just climbing over a larger base every time you keep growing by.
Speaker Change: Nice double digit kind of growth rate so.
Nothing really beyond that Mike.
Speaker Change: You know as a strong market for us in the high value dispensers, and we're going to continue to see really nice growth.
Speaker Change: Got it okay. So just to basically the base itself in larger cities.
Speaker Change: Affecting the year over year changes on a go forward basis, but there is nobody looking Jeff in terms of demand.
Jeff: That's the right way to think about it from our perspective.
Speaker Change: Got it okay. Thank you for that Adam and then just quickly on the cadence of dispensing, especially.
Speaker Change: The closures volumes in 2024, if I heard you guys correctly, you're expecting volumes to be up mid single digits in 'twenty four you still calling out a persistent weakness in domestic food and beverage and metal closures in Europe.
Speaker Change: Thank you for bid now so I mean is it fair to say that volumes would be weaker <unk> slowly getting better in <unk> and then it could be up more prominently in the back half of the year.
Speaker Change: Yes, I think you've got the cadence exactly right and again the destocking as it relates to dispensing, especially closures really is.
Speaker Change: The kind of the ending of the food and beverage destocking activities that we've been talking about so we anticipate that to be mostly a first quarter item and what we should see that inflection point call. It late in Q2.
Speaker Change: Got it if I could sneak in one more just real quick just on the you mentioned promotional activity.
Speaker Change: Just trying to improve if we can be a little bit later, but where are you seeing what end categories. What markets are showing increasing promotional activity from your path from your vantage point.
Speaker Change: We speak today.
Speaker Change: Yeah, and it's it's.
Is an interesting question because for the most part we see it across almost all of our categories.
Speaker Change: Yeah, we've been having a lot of conversations with our customers about their promotional activity.
Speaker Change: And most of those comments back relate to the consumer has really been trained to byproduct on promotion right now and it's an interesting concept and you kind of fast forward that to all of our categories. We certainly see it in so we do see it in beverage we see it in home care, we're seeing it in la.
Speaker Change: Lawn care and advance of lawn and garden season, I, just think it's applying just about everywhere with different degrees of promotional activity, but there is promotional activity across most of our segments right now I would say all exclude high end fragrance and beauty, because there's really no need for promotional activity there.
Speaker Change: A different consumer set and a different value proposition.
Speaker Change: Got it thanks, very much and good luck in 'twenty four.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Daniel Rizzo with Jefferies.
Daniel Rizzo: Good morning, Thank you for taking my question.
Daniel Rizzo: Given the customer wins, you had in what Youre seeing right now can you hit the high end of your guidance for 2024 without restocking or does that assume a little bit of a restock cycle, maybe in the back half of the year.
Speaker Change: Yes, good question obviously.
Speaker Change: We think about the guidance that we gave it it does factor in a range of outcomes. So for the most part we don't need a full recovery of the markets to get to the high end of our range, but what.
Speaker Change: What it would take some volume growth in our in each of our segments to get there.
Speaker Change: And.
Speaker Change: I guess, just the converse of that to hit the bottom and.
Speaker Change: That assumes that things just don't get better or this is some sort of demand decline or something or just correction.
Speaker Change: Yeah I think.
Speaker Change: Again, we're anticipating some nice recovery and growth in certain categories for 24. So you know if that does not happen and there is some other geopolitical item.
Speaker Change: You know that that would force demand.
Speaker Change: Retract a bit that's that's how you get to the lower end of our guidance.
Speaker Change: Okay, and then final question.
Speaker Change: You mentioned a lot of new contract wins, some coming in the middle of the year I was just wondering historically speaking is there sometimes timing issues, where customers delayed commercialization or things get pushed out or does that I mean, there's always generally what you see what kind of happens following.
Yeah, I do you know what I would tell you Dan is that the large contract commercializing in the first quarter was originally identified to commercialize in 'twenty three and while that's disappointing.
Speaker Change: One of the great things about <unk> disciplined approach to these customer arrangement as the contract doesn't start until its commercialized so while it's let's call. It six months later than we anticipated we do get the full term of the agreement.
Speaker Change: You know that we had negotiated and agreed upon with the customer the second item. That's commercializing midyear was also supposed to be a twenty-three item. So unfortunately, they both got delayed but the good news as I said the one in the first quarter. You know we are fully qualified or and are commercializing literally as we speak so are we.
Speaker Change: You are right on track with commercializing both of those new business wins as we sit here today.
Speaker Change: Alright, Thank you very much.
Speaker Change: Yeah.
Speaker Change: Well now take a follow up from Gabe <unk> with Wells Fargo.
Speaker Change: Yeah.
Gabe: Thank you just hopefully one fairly quick Adam My antenna went up when you talked about.
Gabe: I think low double digit decline in tin plate steel and that may be impacting order patterns.
Gabe: On the food can side I'm, just curious if its isolated to that or if there's any if there has been any other material movements.
Gabe: May have influenced customer order patterns buying patterns.
Gabe: And then I guess Relatedly if in fact that is the case operating rates maybe in your metal containers business were a bit below what you were expecting in the fourth quarter and so we need to be mindful that in Q1 and Q4 of 2024.
Speaker Change: Interesting question Gabe let me.
Gabe: I'll start and we'll probably just work around the horn here as we try to put out an answer for you.
Speaker Change: First of all I think you know.
Speaker Change: With that kind of still change we didn't really see a lot of customers delaying purchases from Q4 into Q1, So I'll, just I'll say that upfront.
Speaker Change: We're going to get more visibility of that as we now cycled through the rest of Q1, but we just don't think that really happened in Europe and so.
Speaker Change: I don't think there's a whole lot that we're gonna have to think about for Q4, either you know I think we should have that conversation at the end of our Q1 call because we'll have a lot more visibility.
And then I just think the cadence for the year Theres, just not much else to think about for Europe.
Speaker Change: Get through some of the other recovery of inflation items that the consumers had and we are we see a pathway to better volumes later in the year for the European business, but as we sit here today, we're just taking a cautious approach.
Speaker Change: Okay. Thank you.
Speaker Change: As a final reminder, that is star one if you would like to ask a question and well pause for just a moment.
Speaker Change: And it appears there are no further telephone questions I'd like to turn the conference back over to our presenters for any additional or closing comments.
Speaker Change: Great. Thank you and thanks, everyone for your interest in Silicon and we look forward to reviewing our first quarter results after the first quarter.
Speaker Change: And once again that does conclude today's conference. We thank you all for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: No.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Uh huh.
Speaker Change: [music].
Speaker Change:
Speaker Change: Yeah.