Q4 2024 Silgan Holdings Inc Earnings Call
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Thanks for watching!
Speaker Change: Please stand by. Good day and welcome to the Silken Holdings fourth quarter 2024 earnings call. Today's conference is being recorded. At this time I'd like to turn the conference over to Alex Hutter. Please go ahead.
Speaker Change: 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.
Speaker Change: Before we begin the call today, we would like to make it clear that certain statements made on this conference call may be forward-looking statements.
Speaker Change: 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 2023 and other filings with the Securities and Exchange Commission.
Speaker Change: 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.
Speaker Change: 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 net income per diluted share or adjusted EPS.
Speaker Change: A reconciliation of these metrics which should not be considered substitutes for similar gap metrics can be found in today's press release and under the non-gap financial information portion of the investor relations section of our website at sylganholdings.com
With that, let me turn it over to Adam.
Adam Greenlee: Thank you, Alex, and we'd like to welcome everyone to Silligan's fourth quarter and full year 2024 earnings call.
Adam Greenlee: Our team delivered another year of strong performance in 2024 as the success of our winning strategy, the power of our portfolio, the strength of our team, and our disciplined approach to capital deployment continue to set us apart from our competition and drive value for our shareholders.
normalizing in-market conditions in most of our businesses.
Adam Greenlee: showcased the organic growth potential of our strategic initiatives, and we delivered mid-single-digit organic adjusted EPS growth and double-digit free cash flow growth in 2024, despite customer destocking activities that impacted the first half of the year.
Adam Greenlee: We made significant progress towards achieving our multi-year $50 million cost savings initiative.
Adam Greenlee: while continuing to invest organically in our businesses to drive growth into the future. Our disciplined capital deployment model continued to create value for our shareholders as we announced and closed the acquisition of VaynerPackaging during the year.
Adam Greenlee: We are pleased to add another high-margin, strong organic growth business to the Silgin portfolio and believe this to be a logical next step in the evolution of our capabilities in the attractive dispensing markets as we continue to evolve our portfolio.
Adam Greenlee: Its advanced product and manufacturing technologies and strong innovation pipeline will bolster the organic growth and enhance the profile mix of the company for years to come.
Adam Greenlee: At the segment level, our dispensing and specialty closure segment continued to perform exceptionally well in 2024 and delivered three consecutive quarters of double-digit organic growth in dispensing products to close out the year.
Adam Greenlee: Our Adjusted Evita margins and the segment expanded almost 75 basis points during the year and reached new record levels as the margin enhancing mix and higher growth rate of our dispensing products continues to deliver meaningful upside to our bottom line.
Adam Greenlee: We drove operational improvement in the segment and continue to make progress against our multi-year cost savings initiative.
Adam Greenlee: In metal containers, our pet food markets, which represents a strategic growth category and approximately half of our segment volume, showed improving trends throughout the year, with high single-digit growth in the second half of the year and double-digit growth in the fourth quarter as volumes normalized.
Adam Greenlee: We once again validated our leadership in the market and the strength of our customer relationships by extending our decades-long supply partnership with our largest customer.
Adam Greenlee: Our team navigated dynamic volume conditions in the fruit and vegetable market with the impact of a large customer reducing their inventories to drive working capital during the year compounded by severe weather that drove the worst fruit and vegetable pack in many years.
Adam Greenlee: In Custom Containers, our business delivered strong operating performance and experienced continued success in the marketplace.
Adam Greenlee: as the commercialization of new contractual business wins and more normalized market conditions drove mid-single-digit volume growth and over 200 basis points of adjusted EBIT margin improvement.
Adam Greenlee: As we now turn our focus to 2025, with our strategic initiatives yielding strong organic growth, the contribution of the Vayner acquisition and first-year synergies,
Adam Greenlee: the full benefit of our cost savings program and a partial recovery in the fruit and vegetable market. Our business exits 2024 with strong momentum and is positioned to deliver record performance in 2025 with double-digit increases to both earnings and free cash flow.
Adam Greenlee: At the segment level, we are expecting dispensing and specialty closures organic volumes to grow by a mid-single-digit rate in 2025, driven by another year of high single-digit growth in our dispensing products and low single-digit growth in our closure products resulting in an improved mix.
Adam Greenlee: Metal containers volumes are expected to grow by a mid-single-digit percentage, driven primarily by mid-single-digit growth in pet food and a partial recovery in the fruit and vegetable volumes.
Adam Greenlee: Custom containers volumes are expected to grow by a mid-single-digit percentage driven by the annualization of the new business wins that ramped up in 2024 as well as additional new business awards in 2025.
Adam Greenlee: As we enter 2025, we are excited about the opportunities that lay ahead for the company and our ability to execute upon them.
Our customer partnerships remain strong and our teams remain focused.
on meeting the unique needs of our customers.
Adam Greenlee: 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-to-deployment model continues to create significant value for shareholders.
Speaker Change: Before I turn it over to Kim, I'd also like to highlight that earlier this week we announced that Philippe Chevrier will join our team as Executive Vice President and Chief Operating Officer as part of our executive office in Stanford.
Speaker Change: We look forward to fully participating in the collaborative management process that has proven to be so successful since the founding of our company.
Speaker Change: He brings additional strong leadership capabilities to our team, a broad operational skill set, significant international experience, and a deep understanding of the importance of commercial relationships, all of which will help him be successful at Silgon.
Speaker Change: With that, Kim will take you through the financials for the quarter and our estimates for the first quarter and full year 2025.
Thank you Adam
Speaker Change: As Adam highlighted, our business continued to deliver strong financial results and converted our profits into double-digit free cash flow growth in 2024.
Speaker Change: We closed on the Vayner acquisition in October, which we financed using cash on hand, our revolver, and a new 700 million euro term loan, and we successfully amended and extended our credit agreement during the fourth quarter.
Speaker Change: Our balance sheet and access to capital markets remains very strong and after completing the Vayner transaction We ended the year at 3.3 times pro forma net debt to EBITDA, which is within our target leverage range
Speaker Change: Turning to the fourth quarter 2024 results, net sales of approximately 1.4 billion dollars increased 5% from the prior year period, driven primarily by the addition of the Vayner business, which closed on October 15th.
Speaker Change: which was partially offset by less favorable mix in the metal container segment as expected.
Speaker Change: Total adjusted EBIT for the quarter of $151.7 million increased by 12% on a year-over-year basis with record adjusted EBIT in dispensing and specialty closures and higher adjusted EBIT in the metal containers and custom containers segments.
Speaker Change: Record adjusted EPS of $0.85 increased $0.22 or 35% from the prior year.
Speaker Change: Turning to our segments, fourth quarter sales in our dispensing and specialty closure segment increased 22% versus the prior year, primarily as a result of the contribution from the Vayner packaging acquisition, which added approximately a hundred million dollars or 19% during the quarter and higher volume mix of 5%.
Speaker Change: Improvement in volume mix is driven primarily by a double-digit increase in organic volume of dispensing products during the quarter.
Speaker Change: Record fourth quarter 2024 dispensing and specialty closures adjusted EBIT increased 13 million dollars or 15% versus the record achieved in the prior year period as a result of the contribution from the Vayner packaging acquisition which added approximately 11.1 million dollars and favorable volume mix.
Speaker Change: Late in the quarter, as a result of the announced restructuring program, we had the opportunity to further reduce inventories to more optimal levels, which cost us approximately $10 million in adjusted EBIT relative to our expectations entering the quarter as we sold through some higher cost inventory.
Speaker Change: This inventory reduction contributed to the reduction in working capital for the company, which was the primary driver of free cash flow exceeding our prior estimate for the year.
Speaker Change: In our metal container segment, sales declined 8% versus the prior year as a result of the lower price mix due to less favorable mix driven by a double-digit increase in smaller cans for pet food and lower volumes for larger cans for the fruit and vegetable markets.
Speaker Change: Total volumes in the quarter were comparable to the prior year period.
Speaker Change: Metal containers adjusted EBIT increased 3% primarily as a result of favorable price cost and mix including SG&A cost management.
Speaker Change: In custom containers, sales increased 6% compared to the prior year quarter, driven by a 4% increase in volumes as a result of the commercialization of new business awards and more favorable price mix.
Speaker Change: Hustle Containers Adjusted EBIT increased 40% as compared to the fourth quarter of 2023, primarily due to an improved mix of product sold and higher volumes.
Speaker Change: Looking ahead to 2025, we are estimating adjusted EPS in the range of $4 to $4.20, a 13% increase at the midpoint of the range as compared to $3.62 in 2024.
Speaker Change: This estimate includes interest expense of approximately 185 million dollars, a tax rate of approximately 24 percent, corporate expense of approximately 40 million dollars, and a weighted average share count of approximately 107 million shares.
Speaker Change: Depreciation is expected to increase $40 million to $50 million on a year-over-year basis and be in the range of $265 million to $275 million.
Speaker Change: At the midpoint of our 2025 adjusted EPS range, we will exceed the prior record levels of adjusted EBIT, adjusted EBITDA, and adjusted EPS achieved in 2022.
Speaker Change: From a segment perspective, mid-team percentage total adjusted EBIT growth in 2025 is expected to be driven primarily by a greater than 20% increase in dispensing and specialty closures adjusted EBIT.
Speaker Change: Custom container segment adjusted EBIT is expected to grow by a mid-teen percentage and in the metal container segment we expect to recover approximately half of the 40 million dollar decline in adjusted EBIT that we experienced in 2024.
Speaker Change: Based on our current earnings outlook for 2025, we are providing an estimate of free cash flow of approximately $450 million, a 15% increase from the prior year, as earnings growth will be partly offset by higher interest and tax, with capex of approximately $300 million.
Speaker Change: This estimate also includes approximately $20 million of cash costs to support our cost reduction program.
Speaker Change: Turning to our outlook for the first quarter of 2025, we are providing an estimate of adjuster earnings in the range of 74 cents to 84 cents per diluted share, a 14% increase as compared to adjusted EPS of 69 cents in the prior year period.
Speaker Change: The year-over-year improvement in adjusted earnings in the first quarter is driven primarily by the inclusion of VaynerPackaging, higher volumes in each segment, and operational improvements, including the benefits from our cost savings program, partially offset by higher interest and corporate expense.
Speaker Change: First quarter volume at adjusted EBIT is expected to be above prior year levels in all three segments. That concludes our prepared comments and we'll open the call for questions. Justin, would you kindly provide the directions for the question and answer session?
Speaker Change: Thank you. If you would like to signal with questions, please press star 1.
Speaker Change: on your touch tone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. If you would like to withdraw...
Speaker Change: Please press star 2. Again, if you would like to withdraw your questions, you may press star 2. Once again, please press star 1 if you would like to signal with questions.
Speaker Change: And our first question today will come from George Staphos with Bank of America.
George Staphos: Hi, everyone. Good morning. Thanks for the details. Hope you're doing well.
George Staphos: Two quick ones from me and then a follow-on. Can you talk a little bit about what the learnings with Vayner have been so far? What did you learn since you've owned it that are additive or, for that matter, maybe a little bit more challenging than you expected as you were closing the deal and relative to the deal model?
George Staphos: Second question, can you talk about, within the guidance for this year, what is discrete cost reduction and or sort of built-in earnings gains, not that anything is ever guaranteed, relative to your initiatives from the last couple of years? And then, as I said, I had a quick follow-on.
Sure. Good morning, George. You know, look, the Vayner...
George Staphos: addition to our portfolio, it's gone really well. You know, we closed in mid-October. To your point, there are always learnings as you bring two organizations together. And I think that process has been very good.
George Staphos: One that I would tell you initially is that they probably had more commercial opportunities in the business than maybe what we had given them credit for through our diligence process and
George Staphos: It's a similar conversation that we've had in some other acquisitions that we've done that we actually did.
George Staphos: take the opportunity to approve some capital prior to the close of the acquisition for future growth. And you know, this is contractual business.
George Staphos: In fairness, these are primarily with customers that you can think about as both Silgen customers and Vayner customers, but the capital opportunity was there and we took advantage of it. So I think, you know, one learning is we're gaining confidence and even more confidence in the combined entity's ability to deliver the growth profile that we've projected.
George Staphos: Feeling really good about it. I think outside of that again
George Staphos: We anticipated a strong team coming over, a talented team, and that's exactly what we've got. So, we're excited about the future. I think the teams are working well together and delivering on really the synergies and all the other integration activities as we get kind of into the process now with a full quarter.
George Staphos: And then secondly, on the cost reduction side of the portfolio, our second year of the $50 million cost reduction program, year one we did deliver the $20 million of cost savings in 24, so I feel really good about that. Teams did an excellent job executing against the programs that we established.
George Staphos: And then for 25, it's really the second portion of the EBIT improvement, which will be about $30 million of improvement to round out the $50 million cost reduction program.
Okay. Adam, just on Vayner, just a quick follow-on.
George Staphos: So, there's always going to be things that don't go as well, you know, what have those been so far? And then, where have the commercial opportunities been, where you've been maybe able to invest a little bit ahead of the curve? And then, just the tax rate was a little bit lower than we were expecting. What drove that? Thanks, and I'll turn it over.
Sure, just back to Vayner.
George Staphos: Right, clearly not everything is, you know, seashells and balloons, George. So, you know, there's a lot of good stuff, there's a lot of stuff when you're bringing two organizations together that you have to work through. And I think it's just communication, but, you know, I tell you also this is our 41st acquisition that we've done as a company. And I think it's just as you integrate an organization of this size, we'll call it 6,000 employees, you know, communication is really important and just making sure you're
through the organization. So, that's it, and you know, just...
George Staphos: Sometimes that's easier than not, and I'll just say it was pretty standard for us, but we've got a lot of experience.
George Staphos: and working through those issues. I'll let Kim answer the tax rate question. Sure. So for the tax rate for the fourth quarter, it was about 8.8%, and that was a benefit from tax restructuring we did in foreign operations. We do not expect that to repeat in 2025, so we'll be back to our 24% average rate as we go through the year next year.
George Staphos: Yeah, George, I'll turn it over. Thank you guys. This is Bob.
All right.
George Staphos: back around to the question you asked in terms of where the where the investments were ethics you know in in typical markets that that they they have been operating in very similar markets to to where our dispensing business plays as well so nothing far afield from what
George Staphos: The two organizations combined are very capable at doing. They are a growthy market, so we think there's good opportunity with those customers.
George Staphos: to not only launch these product lines but to continue to grow with them on a go-forward basis. And as is typical with us, George, you can just assume that those are kind of mid- to longer-term contracts that support the capital investment.
Thank you very much.
Speaker Change: And the next question will come from Gansham Panjabi with Baird.
Speaker Change: Thank you, operator. Good morning, everybody. Adam, just, you know, sort of looking at our model, you know, from a volumetric standpoint,
Speaker Change: 23 as well and up a little bit in 24 and just based on you know your characterization of 25
Speaker Change: It sounds like you're expecting sort of a mid-single-digit increase in terms of volume, so can you help us bridge, you know, the differential as relates to your confidence being able to achieve that?
Speaker Change: and, you know, just in context of many of your customers that have reported so far, especially the off-cycle reporters that seem much more muted on the Outlook for Volumes.
Yeah, sure it's
Speaker Change: You highlighted some challenging years with a lot of moving parts between 22 and 24 there. But what I would tell you, Gantrim, as we came into those years there was a lot of noise around the market of what was going on with consumers and what was going on with with our customer base.
Speaker Change: And, you know, I think what you see at the back half to certainly the fourth quarter of 24 is just a much more normal.
Speaker Change: business environment that we're dealing with with our customers. We're sort of through all the de-stocking activities. And we're seeing in many cases, our volumes,
Speaker Change: are more indicative of what consumer demand is for our products. So, we feel like as we turn the page now to 25, there's just a lot less noise around what's going on with our customers and what's going on with consumers. And I'll continue to say through that window of time that you outlined, Gancham,
Speaker Change: Consumer demand for our products remained fairly strong through that entire process. And really, the disruption was more with our customers and what they were doing with their inventory, what they were doing with their commercial activities, and pricing and promotional activities in the market.
Speaker Change: So, you know, as we sit here today, I think, you know, we've got a really good degree of confidence that the strategic initiatives that we've outlined that we're executing against them, they're delivering the value and creating value for our shareholders that we had outlined. And I think 25 is going to be a much more normal year than what we've seen the last several years.
Speaker Change: Okay understood and then can you help us also bridge the earnings between you know the 362 you generated in 2024 in the midpoint of your guidance how much of it is from the acquisition and what sort of operating leverage are you assuming on the legacy silicon businesses excluding Wayner?
Speaker Change: Yeah, very good question. So, a couple things. One, you know, just some of the big numbers right out of the gate. I'm just going to give you some adjusted EBIT numbers.
Speaker Change: Call it $50 million from the Boehner acquisition of additional adjustity, but...
Speaker Change: I mentioned the $30 million of the cost savings program for year two, and then you've really got organic growth.
Speaker Change: that's driving the remainder of the improvement year over year. And then we're cycling over things, you know, some of the headwinds that we see. We've got some additional incremental interest expense. You've got some FX changes that have been taking place.
Speaker Change: gets us to double-digit, adjusted EBIT, adjusted EPS growth, and as Tim said earlier, double-digit, adjusted free cash flow growth as well.
Terrific, thank you so much.
Thank you.
Matt Roberts: And the next question comes from Matt Roberts with Raymond James.
Matt Roberts: Hey, Adam, Kim, Alex. Good morning, everybody. I appreciate the bridge you just gave there on the total EBIT expectations, but maybe you could provide any additional color on how you're thinking about that by segment. I mean, DSC seems like high value continues to drive growth there.
Matt Roberts: In metal, any impacts you're expecting as pet food continues to be a higher mix or steals a pass-through, but any margin considerations there as we look into 2025?
Matt Roberts: Yeah, good question. I mean maybe just going through the segments quickly for you. So DSC obviously with double-digit first quarter growth and dispensing volumes again our fourth straight quarter with expected double-digit growth in dispensing products
Matt Roberts: kind of high single digit for the year, you know, that's a very mix-enhancing portfolio growth.
Matt Roberts: not only for the company, but for the segment as well. So really that's the driver for us in DSC. We'll see kind of low single digit growth for our specialty closures business, non-dispensing closures.
and then you go over to metal containers.
Matt Roberts: It's really the story that we've been talking about, right? You've got mid-single-digit pet food growth through the course of the year in 2025.
Matt Roberts: partial recovery of fruit and vegetable and all of that is driving kind of low to mid single-digit growth for the segment in 2025.
Matt Roberts: And then lastly, you get the custom container. You know, we continue to win in that market. We're looking at kind of mid-single-digit growth.
Speaker Change: in 25 off of a really good year in 24. And I think, you know, maybe back to Gautam's question, this is...
Matt Roberts: This is probably the market that's most clearly the one that normalized as we came through 24, and I think we've got really good momentum heading into 25 that's driving the confidence behind the volume growth expectations.
Episode 2
Speaker Change: Secondly, if I think of your M&A strategy, so recently undertook Vayner Acquisition, now going through Sunbee Leveraging, but as you look into 2025, I mean...
Speaker Change: Seems like there's some talk for a potential competitor to sell parts of their portfolio, but specifically for Sylgen, are there any certain end markets or areas of technology that you'd still be interested following Vayner integration in 2025? And it's so kind of, you know, what size or timeline are you all comfortable with? And relatedly on the cash, I don't know if I missed this somewhere, but I believe you still have the Eurobonds due in March. Any considerations in addressing those? Thank you.
Speaker Change: Yeah, Matt, this is Bob. I'll take the first part of that question.
identifying and capturing the synergies there.
Speaker Change: So we are actively looking at what's out there in the market from an M&A perspective. Our balance sheet would certainly support that. As Kim talked about, we're kind of right within our range.
Speaker Change: with the free cash flow profile looking forward into 25 will be to the low end of that range by the time we're there, so there's nothing sort of getting in our way from an M&A perspective.
Speaker Change: We think that there's a good pipeline of potential opportunities out there and very specifically
Speaker Change: things that we think would be actionable in the near term and that would fit exactly where our investment thesis has been of late. So we're optimistic and hard at work at trying to identify and get those next opportunities out in front of us.
Speaker Change: And on the three and a quarter notes, so we'll be opportunistic in the markets around those as well But we do have capacity under our revolver. So we're not feeling like we're constrained or forced to do something
Thank you all again.
Thank you.
Speaker Change: And the next question will come from Anthony Pettinari with Citi.
Brian Bergmayer: Good morning, this is actually Brian Bergmayer sitting in for Anthony. Thank you for taking the question.
Brian Bergmayer: You know, first one, just kind of on dispensing, you called up the $10 million impact from
Brian Bergmayer: inventory reduction in December. Was that within, you know, beverage caps or trigger sprayers or within beauty? Any detail on that? And then just kind of broadly, maybe how much line of sight does Silken usually have to these types of customer inventory actions?
Brian Bergmayer: Hey Brian, a couple things. Maybe first off just, you know, in our dispensing and specialty closure segment, so this was actually a part of a restructuring program that we had initiated.
in our flat cap kind of specialty closures business.
What we had done is...
Brian Bergmayer: really streamlined the operations and moved volume to more efficient facilities, to more efficient manufacturing lines.
Brian Bergmayer: And as we got through that process, in fairness, we got to it earlier than anticipated in Q4. And it allowed us to make a conscious decision that we actually drove down our inventory. So in fairness, this didn't really have anything to do with our customers. This was us saying,
Brian Bergmayer: Jeej, we have improved the operational footprint that we've been working on, and our optimal inventory levels can be much lower than what we anticipated. So we took the opportunity to go ahead and do that. Obviously, there was a benefit of free cash flow. That really wasn't why we did this.
Brian Bergmayer: This was an opportunity to optimize our inventory management, realize the full benefits of the restructuring programs that we had initiated, and move forward from there. It was part of our flat cap closures business, really as a result of...
the restructuring programs that we'd already initiated.
Speaker Change: Got it, got it. Thanks for that detail. That makes a lot of sense. And then just on the guidance for high single-digit volume growth for your dispensing products this year, are there more kind of new business wins being layered in in 2025? Or is there maybe a benefit from new business wins in 2024 that you haven't lapped yet? You know, just kind of following up on Matt's question, I'm just thinking about sort of the growth that Silicon is seeing versus sort of the underlying market growth. Thanks.
and I'll turn it over.
Speaker Change: Great, good question. We are continuing to have a lot of success, particularly with the dispensing products.
Speaker Change: portion of our portfolio in the dispensing and specialty closure segment.
Speaker Change: many new wins in 2024, some of which we've talked about, many more new wins in 2025, and really, you know, as we've talked previously, the thesis here is
Speaker Change: were competitively advantaged in this marketplace. You know, our innovation, our design teams are meeting very unique needs from a variety of customers and markets in this space.
Speaker Change: and we're continuing to have tremendous success. So, yes, we'll have additional new wins in 25.
Speaker Change: and that's a broad base across many, many markets that we serve.
Speaker Change: And then, interestingly enough, we'll be preparing, we've recently had a significant business award in our specialty closure segment that is more focused on 2026, but we'll be ramping up.
Speaker Change: ideas in the market let's say that and we're driving growth through many many of our markets
Speaker Change: And the next question will come from Gabe Hady with Wells Fargo Securities.
Gabe Hady: Adam, Kim, Bob, Alice, good morning. I'm going to use a saying I learned today, give a mouse a cookie, they'll ask for some milk.
Gabe Hady: If I start with a billion-twenty of EBITDA sort of at the midpoint.
Speaker Change: What the baseline should look like and and then maybe what that enables you all to do on the M&A side
Gabe Hady: Yeah, it's an interesting question, Gabe. I mean, I think, you know, some of the things that we're talking about that are working against free cash flow in 2025, again, we talked about kind of higher interest expense, higher cash tax.
Gabe Hady: You know, I think you had most of the other components correct, so I think you're on the right line of thought, and I don't know if there was anything else that we can provide there that...
that you didn't already have.
some benefits from our revitalization programs.
So we have lower cash year-over-year on the rationalization programs.
Um... And hire CAP OK Right...
Gabe Hady: Yeah, I've got the $300 million in there. I was really kind of walking from $1.2 billion of EBITDA to $450 million, and I had the $185 million of interest, etc., and that's where, like I said, there was a little bit of a...
It looks like there's a working capital benefit this year.
Gabe Hady: And there will be, maybe not quite as big as we had in 2024, but there will be a working capital benefit in 2025.
Speaker Change: Got it. Okay. And then the other one, Adam, you guys have talked a little bit, and I feel like I missed part of what you answered to Anthony in the last question, being capacity constrained in parts of DSC, and I'm thinking it's the high value add dispensing systems, that you're adding some capacity this year.
Speaker Change: explains the higher cap backs, but would you be incurring any sort of startup expenses or personal costs in the back half of this year to ramp for 2026?
or how should we think about that?
Speaker Change: Yeah, so I mean we have been adding capacity, you know, literally every year since we've been, you know, working through the dispensing.
Gabe Hady: systems business in our DSC segment. So I would say it's nothing really outside of the norm. So you're right, Gabe. I mean, we always have startup costs with these projects and programs.
Gabe Hady: We really don't talk about them a whole lot in this segment because they are much more on the incremental Capacity addition side so you know we absorb those costs and and we commercialize those products and and spend more time talking about the Commercialization of the product and the startup cost so
Gabe Hady: Really, it's more of the same and you know, I would just tell you in the market We're having success and we're having success implementing the
Gabe Hady: The program and kind of strategy that we've laid out over the last several years and it's driving significant value for us.
Thank you.
And moving on to Mike Roxland.
with Truer Securities.
Thank you for joining us. Thank you. Thank you.
Speaker Change: First question I had was, you know, obviously the company has done a tremendous job over the last decade transforming the portfolio, focusing on growth in DSC, you know, high-end dispensing, perfumes, fragrances, and the like, obviously more recently with Vader and health care. Can you help us understand how you're seeing this business evolve, let's say, over the next five years? You know, currently DSC represents, I think, 52 to 53 percent of EBITDA, roughly, you know, where do you see that headed?
Thank you. Thank you. Thank you.
Hey, Mike. Thank you.
Speaker Change: Yeah, I mean, maybe let's just look back quickly. I mean, if you go back, I think we talked about this maybe on the last call, if you go back, call it 10 years ago, you know, the DFC segment today, pro forma with Vayner is bigger than the entirety of Silgon.
Speaker Change: just 10 years ago. So you're right, we talk about this evolution that has sort of taken place.
Speaker Change: as we've moved and invested heavily in our dispensing and specialty closures growth segment.
Speaker Change: opportunities to deploy that capital and you know I think as we also talked you know our health care business now is a 200 million dollar business.
Speaker Change: It's growing. It's growing faster than our other segments. And I think there's a lot of opportunity to grow both organically and through acquisition in the healthcare segment.
Speaker Change: Got it. Adam, would it be fair to say that is your primary focus as you look to grow in DSC?
Speaker Change: Yeah, Mike, this is Bob. Look, what I would say is it's obviously our highest margin, fastest growing business.
Speaker Change: So we will continue to allocate capital toward that business as
Speaker Change: as we continue to develop what are already pretty strong relationships with our customers.
Speaker Change: And we will look to grow with our customers, which is exactly what we've done in some of our other segments as well.
Speaker Change: That doesn't mean that we're necessarily going to starve the remainder of the business. We continue to have good access to capital to grow those businesses as well.
Speaker Change: the growth profile of those businesses just by their very nature tend to be slightly less.
Speaker Change: than the dispensing business. So that is the priority for capital, for sure. And the other thing I would add to that is on the organic investment side of the business, you know, we do have opportunities with existing customers in healthcare where we are investing, where we have long-term partnerships.
Speaker Change: with those same customers. And we're excited about what the future holds for us, and we have been investing with those customers over time. And we'll probably have more to talk about here as we go forward, sharing some of those successes throughout the course of the year.
Speaker Change: Perfect. And then just one quick follow-up. Can you just comment on the competitive landscape in metal cans? Obviously it's been somewhat fluid the last two years both here and in Europe. Do you have conditions, have you seen market conditions become more challenging? Maybe if some new players try to gain share? Any concerns over pet food and you know maybe more some more, particularly if some companies try to mix up? Just want to get a sense of what you're seeing on the metal can side of things.
Speaker Change: Yeah and you know I mean we've talked about this one over time as well you know just as a reminder Mike you know about 90% of our business is covered under long-term
Contracts in the metal containers business so
made over time, those long-term contracts.
Speaker Change: that support our pet food volumes and investments have paid off for our customers, our shareholders, and for Silgen. So, you know, look, we don't see a whole lot of difference in the market activity at this point in metal containers and frankly we're a little bit outside of the normal fray anyway.
Speaker Change: Got it. Thanks very much and good luck in 25. Thank you.
Arun Viswanathan: And the next question will come from Arun Viswanathan with RBC Capital Markets.
Arun Viswanathan: Great, thanks for taking my question. Congrats on a strong year and a good outlook here.
Arun Viswanathan: First off, maybe you can just help us understand what you're hearing from your customers. I know it's maybe a seasonally, you know, less strong part of the year, but how are they feeling as you go into the new year as far as promotional activity and potentially, you know, have they seen any inflection point on demand trends, maybe just especially for metal container and DSC? Thanks.
Arun Viswanathan: Sure, maybe we'll start with metal containers and just, you know, I think it's one of the real successes, a couple of real successes in the promotional activity. And, you know, we've talked about that.
Arun Viswanathan: really the targeted promotional activity that we've seen in the wet pet food segment, particularly for CAP for our business.
Arun Viswanathan: has been very successful and, you know, we talked about double-digit organic growth in Q4. Yes, we were cycling over a bit of destocking that happened in Q4 of 24, but really the demand level was very strong, and we think that targeted investment by our customers and promotional activity drove volume in the quarter, and the good news for us is that will continue into 25. And, you know, so we spent a lot of time understanding that with that specific customer.
Arun Viswanathan: another market in food cans I would tell you that we saw success in promotional activity was in the soup market and really it was very early in the process so you know really as we were cycling over
Arun Viswanathan: some easier comps earlier in the year because promotional activity did take hold late in 23 and through 24 in the soup market. So, you know, we feel good that our customers understand in the food can markets where promotional activity has worked, maybe where it could be more targeted. And then on the dispensing and specialty closure side,
Arun Viswanathan: of products have had very targeted and very successful promotional activity. I think the one that we have talked about...
Arun Viswanathan: that wasn't quite as effective as on kind of the isotonic beverage products. And, you know, we've spent a lot of time with our customers as we now are putting, you know, forward our 2025.
Arun Viswanathan: programs and objectives together, a more targeted and focused promotional activity is what our customers are planning to drive volume growth in 2025. So I think, you know, almost back to George's first question, there were definitely learnings that we had as far as working with our customers on their promotional activities, what was successful, what was challenged, and maybe what modifications could be made to ensure success in 2025.
Speaker Change: Do you expect to kind of continue to grow free cash flow at a much greater rate than say your EBITDA? Is there an increase in free cash flow conversion that's driving that or maybe you can just address those two issues?
Speaker Change: Sure, so on the corporate side we called out about 40 million dollars for this year and that increase year-over-year is primarily related to corporate development activities so as we continue to see our leverage ratio come down and see opportunities in the market we can be opportunistic around that.
Speaker Change: And then on the free cash flow, we have, as you mentioned, really good improvement year over year from strong earnings.
Speaker Change: as well as offset by a bit of a working capital benefit. We see those improvements in the earnings to continue and we would expect that at some point we'll be at a half a billion dollars of free cash flow as we go through the years.
Great, thanks a lot.
And moving on to Jeff Sikoskis with J.P. Morgan.
Thanks very much.
Speaker Change: Well, hey Jeff, it's part of our $50 million multi-year cost savings program, so in fairness we are putting that...
Speaker Change: cash and capital back to work in the broader Silgin portfolio. So as we look at continuing to invest and we talk about $300 million of CapEx in the year supporting, you know, primarily growth initiatives, you know, that it's.
Speaker Change: Custom Containers is one portion of that conversation. So in particular, in Custom Containers, we did close two plants in 2024, or announced the closure of two plants. And really, that's what's driving the cost profile. The benefits will be accrued across all of Silgon.
Speaker Change: Okay, in terms of Wiener, when you look at it on a pro forma basis, how did the business perform in the fourth quarter?
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as well in the growth profile that we've created.
Speaker Change: entirely due to the fact that we had some investment opportunities.
Speaker Change: come to us right at the outset of closing and in one particular case even prior to closing that we were able to approve. So, you know, I think all of that leads to a very positive fundamental outlook for the business going forward.
Thanks very much.
And we'll take a question from Daniel Rizzo with Jeffries.
Daniel Rizzo: Hey guys, thank you for squeezing me in. So you mentioned the commercial opportunities with Vayner. I was just wondering if you were specifically referring to revenue synergies, I mean cross-selling, and also kind of flip side of that, if you will have to kind of give up some sales because of too much overlap with a particular customer, or that's not a problem at all?
Speaker Change: Hey Dan, so no, I mean in fairness we did not model any revenue synergies between the businesses and that really is not something that Silgon really does. Clearly there are opportunities that we can cross sell amongst our groups that are out in the field so we are seeing opportunities come up between the businesses but that wasn't part of our acquisition model.
Okay, and then, I think you mentioned ...
Speaker Change: within the metal business, metal containers, that you expect to get half of the fruit and vegetable business back that was lost in 2024, if I'm wrong just correct me there, but also in addition I was wondering if soup is still kind of doing better than historically speaking and what the outlook is for there and if it's even meaningful at this point.
Speaker Change: It's very meaningful. It's an important market for us. So the good news, again, I'll kind of repeat what I said earlier, through the variety of challenges that we've had over the course of
Speaker Change: of working with our customers and volumes in the last two years.
Speaker Change: What I would tell you, underlying demand for soup continued to be strong, so it has remained strong. We had a good quarter in Q4. We're expecting kind of normalized soup volumes for 2025, and it still is an important part of the business and what we do.
Speaker Change: over to the fruit and vegetable markets, what I tell you very quickly, Dan, is that
Speaker Change: We're still working with our customers on finalizing their PAC plans. So, we have a little less clarity at this point than what we would like, but we'll certainly have a lot more information as we come back together to discuss.
Speaker Change: first quarter results in April. And, you know, I think what I would say, I just want to clarify the comment, when we say recovering half, it's really the financial impact that the metal containers business...
Speaker Change: saw year-over-year, so about a 40 million dollar change in 24, and we're anticipating getting half of that back as we move to 25.
Okay, all right, thank you very much.
Thanks.
Speaker Change: And we'll take a question from George Staphos with Bank of America.
Speaker Change: Hi, everyone. A couple of quick ones. So, Philippe Chevrier, you mentioned that he brings strong leadership, strong operating skillset, international experience.
George Staphos: Should we read into that that maybe as you're having these additional opportunities in corporate development that maybe some of this is going to be outside of the states to a larger degree than in the past? Or are we overthinking it at this juncture?
George Staphos: Well, and it's not a bad thought, George. I think that...
George Staphos: You know, I mean, we like mature markets and we've never been shy about saying that. So, you know, I think if you look at where
George Staphos: The last several acquisitions have been there's been a definitely an international flair Particularly a European flair to those acquisitions as well. So
Speaker Change: I wouldn't read too much into it. For me, this is all about our executive office. We're sitting in our founder's room right now with Phil and Greg staring at us.
from their portraits on the wall, and it's...
Speaker Change: It's that model that they generated with our collaborative office here that has been so successful for so long. So we're just excited that we're adding additional talent and thought leadership to our team here and excited to bring his experience to our skill set here in our Stanford office.
Speaker Change: Understood. And then just on pet food, and it comes up periodically and just want an update, as it's become an increasingly large piece of metal over time.
Speaker Change: Has it changed, you know, perhaps the growth profile we know, but maybe does it bring any risks or supply chain factors that you've got to manage differently?
Speaker Change: than used to be the case. I'm guessing certainly there's, you know, maybe some
Speaker Change: you know, great reliance on aluminum to some degree. So anything you could share with us there. Yes, it's been helpful. Yes, it's grown. Sure. It's got a lower mix but has it changed how you manage the business and maybe bring in some additional risks down the road. Thanks guys and good luck in the quarter.
Speaker Change: Yeah, it's a good question, George. I mean, look, the aluminum side of our business has grown significantly over time as you just sort of outlined. And, you know, now pet food is, call it over half of our volume in 2025 from a unit volume perspective.
Speaker Change: The vast majority of that is in aluminum. So we're buying significantly more aluminum from a raw material standpoint than we have in the past. And we have elected to, so it's a proactive statement I'm about to make,
Speaker Change: diversify the supply chain that we have for aluminum to make sure that we can continue to do what we do, which is support our customers on a requirements base.
contractual arrangements.
Speaker Change: for the long term. So, you know, you can think about our supply chain.
Speaker Change: being diverse. You can think about it being kind of covered under long-term contracts.
Speaker Change: and supporting the growth that we not only have delivered, but we continue to anticipate going forward as we continue to really invest along with our customers in the pet food market for growth.
Speaker Change: Do we reach a point in 2085, sorry guys, quick one here, where comps almost necessarily have to turn flat given that you're growing at high single digits and double digits right now?
Speaker Change: or you don't see that at all during the four quarters during 2025. Thank you again.
Speaker Change: Yep, George, I think we're still going to deliver growth for the course of the year.
Speaker Change: The comp I would maybe highlight right now is the one that we just delivered in Q4. So as you think of Q4 and 25, that'll be a tough comp for us. But knowing what our customers have invested in from their capacity standpoint, knowing what our capabilities are, and the growth rates that we collectively are expecting for pet food in 25,
Speaker Change: horizon, that is the kind of road that we've continued to drive through this marketplace.
Thanks, Adam.
Thank you. Thank you.
Thank you.
Speaker Change: And that does conclude the question and answer session. I'll now turn the call back over to Adam Greenlee for any additional or closing remarks.
Adam Greenlee: Thank you, Justin. I appreciate your support today, and thanks, everyone, for your interest in SILGON. Look forward to catching up again in April to review our first quarter results.
Adam Greenlee: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
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