Silgan Holdings Second Quarter 2026 Earnings Webcast

Good day and welcome to the Silgen Holdings Second Quarter 2026 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Alex Hunter, Senior Vice President, Strategy Investor Relations. Please go ahead.

Thank you and good morning. Joining me on the call today are Adam Greenlee, Calif Chevrier, EVP and COO, and Sean Fabry, EVP and CFO. 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. These forward-looking statements are made based on 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 from the company's annual report on Form 10-K for 2025 and other filings of the security. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied. 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 for diluted share, or adjusted EPS. A reconciliation of these metrics, which should not be considered substitutes for a similar GAAP metric on our website at SilginHoldings.com. With that, let me turn it over to Adam.

Thank you, Alex, and we'd like to welcome everyone to Silgin's second quarter earnings call. We're pleased to have delivered another quarter of solid financial results in the second quarter as our teams continue to execute our plan for the year and position our company for continued success well into the future. Our businesses performed well in the second quarter and successfully overcame some significant challenges, including a dynamic geopolitical and operating backdrop. And our team successfully managed significant cost inflation, normalizing order patterns, and developing market conditions to deliver results that were above the midpoint of our expected range. Our results in dispensing and specialty closures were consistent with our expectations, and we delivered another quarter of strong growth in products for the fine fragrance market. Our teams continue to compete and win in this high-value market as our customer partnership model, differentiated technology, and market-leading innovation continue to set us apart from our competition. While overall market conditions remain mixed and were softer than expected in Brazil in the second quarter, our business continues to outperform the trends in our end markets. Additionally, the value we provide for these critical dispensing products was once again validated in the market as we successfully implemented commercial actions during the quarter to recover cost increases we have seen during the year as a result of raw material and other inflation. Our metal container segment reported another quarter of strong organic volume growth and products for wet pet food, which grew 7% year-over-year despite facing more challenging comps from the prior year. Our team successfully executed a new long-term supply agreement in the vegetable market, and we are eager to have a conclusion to the multi-year disruption created by this unique customer situation and looking forward to continuing our long-term partnership with the new owners of this business. Overall, volumes in the metal container segment were flat year over year as the growth in pet food products was offset by the anticipated normalization in order pattern timing in the vegetable and soup market. In custom containers, our team delivered another quarter of solid results despite significant raw material volatility associated with higher crude oil prices, with volumes comparable to prior levels after accounting for business exited as part of our cost reduction program. Our second quarter results continue to layer teams focus on executing our plan in 2026 and we are pleased to have delivered another strong quarter of financial results as we move into the second half of 2026 and past some of the challenges that we planned for in our first half results we are confident in our ability to deliver organic growth in the third and fourth quarters despite the incremental challenges that have developed since we last reported as always our unique portfolio consumer staple products and and markets, our long-term partnerships with our customers, our market-leading innovation, our unique capital deployment model, and our low-cost global manufacturing footprint continue to differentiate Silgin in the market and position us to outperform through various macroeconomic and geopolitical backdrops. Turning now to our outlook, we are confirming our estimates for 2026 earnings and free cash flow, and our volume expectations for the remainder of the year remain largely unchanged we continue to expect dispensing especially closures organic volume mix to grow by a low to mid single digit rate in 2026 driven by a low to mid single digit growth in our dispensing products our metal containers volumes are on track to grow by a low single digit percentage driven by mid single digit growth in pet food and stable volumes for human foods We continue to expect our custom containers volumes to be comparable to prior year levels after accounting for volumes exited related to our restructuring plan, with second half volumes higher than the prior year on a comparable basis as we commercialize new business. We remain laser-focused on executing our plans for the year and delivering on our longer-term strategic growth initiatives and are confident in our ability to deliver on both. With that, Sean will take you to the financials for the quarter and our estimates for the third quarter and full year of 2026.

Thank you, Adam. As Adam highlighted, we reported another quarter of strong results in the second quarter of 2026, with adjusted EPS coming in above the midpoint of our expected range due to strong operational event performance and favorable interest expense, which was partially offset by higher corporate expense. Net sales of approximately $1.6 billion increased 7% from the prior year period as a result of the pass-through of higher raw material and other costs, mostly in our metal containers for the quarter of $185 million was 4% below the prior year, with higher adjusted EBIT in our custom container segment offset mostly by higher corporate expense and lower EBIT in the metal container segment. Adjusted EPS of $0.98 decreased $0.03 from the prior year period due to lower adjusted EBIT, which was partially offset by lower interest expense. Turning to our segments, second quarter sales in our dispensing and specialty closures segment increased 2% versus the prior year, primarily as a result of the past year of higher raw material and other costs and foreign currency translation, which was partially offset by lower volume and less favorable mix. They were impacted by softer market conditions in Brazil, which contributed to a 1% decline in segment unit volumes and also caused an adverse impact on the mix of products sold. As expected, second quarter dispensing and specialty closures adjusted EBIT was comparable to the prior year levels, with favorable price over cost offset by lower volumes and less favorable mix. The combination of lower volumes in Brazil and less favorable mix impacted the second quarter by approximately $5 million. Sales increased 13% versus the prior year quarter as a result of the contractual pass-through of higher raw material and other manufacturing costs to steel and aluminum and volumes are comparable to prior year levels. As Adam mentioned, higher volumes for wet pet food products were offset by the anticipated normalization of order patterns for products in the fruit and vegetable market, a result of the change of ownership in one of our previous customers in this market. Metal containers adjusted EBIT was below prior year levels, as higher year volumes of smaller containers for pet food markets and lower volumes of larger containers for fruit and vegetable markets resulted in a less favorable mix of products sold. Custom containers, our results were largely consistent with our expectations as sales increased 3% compared to the prior year quarter due to favorable price which was partially offset by a 4% decline in volumes. As expected, volumes were below prior year levels due to the continued impact of the exit of lower margin business associated with the planned footprint optimization. The container's adjusted EBIT was above prior year levels as a result of favorable price-over-cost, including MIX, which includes the cost savings associated with the footprint optimization that drove lower volumes. In our outlook for the third quarter of 2026, we are providing an estimate of adjusted earnings in the range of $1.21 to $1.31 per diluted share, as compared to the adjusted EPS of $1.22 in the prior year period. At the midpoint, this estimate assumes higher year-over-year adjusted EBIT of approximately $10 million, interest expense of $50 to $55 million, and a tax rate of approximately 25 to 26%. Volumes are expected to be above prior year levels in all segments on a comparable basis. For the full year of 2026, as Adam discussed, we are confirming our estimate of adjusted EPS in the range of $3.73 to $3.93 as compared to $3.72 in 2025. This estimate continues to include low to mid single digit percentage total adjusted EBIT growth, corporate expense of approximately $50 million, interest expense of approximately $200 million, and an expected tax rate of 25 to 26%. You need to expect low to mid single digit volume growth in dispensing and specialty closures, low single-digit volume growth in metal containers, and low single-digit comparable volume growth in custom containers. Based on our current earnings outlook for 2026, we are confirming our estimated free cash flow of approximately $450 million, which includes CapEx of approximately $310 million. Call for questions. I have directions for the question and answer session.

Thank you. If you would like to ask a question, you may signal by pressing star one on your telephone keypad if you're using a speakerphone please make sure your mute function is turned off to allow your signal to reach our equipment once again star one for questions we'll go first to matt roberts with raymond james hey adam sean alex good morning uh maybe first on brazil maybe you could speak to the you know how big this is within dsc where exactly that weakness was.

Sean, I believe you said it was a one-point headwind to volume mix in 2Q. Please correct me if I'm wrong, but maybe if that is correct, ex-Brazil, what were the drivers of the volume mix declines in that segment? And how does that influence your thinking for second half or what gives confidence that there can be an acceleration in second half given some volatility in brazil um seems like the volumes were low single digit to mid single digit now for 2026 is that all brazil or anything else to be mindful of hey matt it's that i think you've got that right brazil volume declined significant change for us i'd remind you that you know we had planned

for quite a few unknown activities this year in our overall guidance so we're pleased to continue to be able to absorb that and deliver the results that we had guided to so you're right that overall that's about a one percent decline for us we we talked about volume mixed in the segment being down three percent um really that's one percent volume two percent mix just for for some additional clarity there and so outside of that you know the balance of the business uh essentially was flat and you know we feel really good about the performance and it was right in line with the expectations that we have for the full year so nothing's changed from that perspective I think as we look at Q3 what's included in our guidance is a similar impact from Brazil with a recovery starting in Q4 and to be fully recovered as we head into 2027 and maybe just to provide a little context you know, as we go around the world, you know, Europe was very strong for dispensing especially closures. We talked about our performance and fine fragrance. It is largely a European market for us, although we do those products also in Brazil and North America as well. America, the North American region, continues to be a little bit of a mixed bag. It's a tougher market for us uh i think with the k-shaped economy we're seeing a variety of of performance by segment you know our higher end segments continue to do very well i think the low end we're we're seeing a good pull through it's the middle part of the market that uh i think with all of the volatility that occurred in q2 uh that was a little choppy for us in in the second quarter super helpful appreciate all that color um maybe one on on metal i believe in the prepared remarks you noted a more seasonal order patterns for fruit and veggie pack how did human food perform in 2q and and given that you

did reach that long-term supply agreement what type of visibility does that give you into 3q in second half volumes in metal and any comments on how the pack season is shaping up at present Thank you again for taking the questions.

Yeah, sure. The human view was down, that was previously, you know, the large customer in the market, you know, those assets came. And as part of that, you know, the prior owner of those assets once upon a time had made cans all year long and essentially sold cans to themselves, I would say. We acquired that business. We maintained that business model. As we now move to a new agreement with the new owners, those cans are going to be sold much closer to the time that they're filled. And therefore, you know, Q3 will be a higher volume quarter for us for that particular customer going forward. You know, from a visibility standpoint, as we look at the fruit and veg pack, particularly in North America, growing conditions have been good thus far. The high heat actually has been beneficial to the crop. I think our expectations are up just a little bit for the VEGPAC in particular, which will bring into a little more volume later into the pack season, which will drop into Q4 for But good visibility, field forecasts for the pack season and our ability to deliver.

Well, Zoe, thanks again.

Thank you. We'll take our next question from Mike Roxland with Truist Securities.

Thank you, Adam, Sean, Alex, excuse me for taking my questions. The first one I had, you know, last quarter, Adam, you mentioned commercializing 2027 product launches and developing 2029 product launches at that point in time. How much of your fragrance and beauty business is already locked in for 2027? And relatedly, at that point in time, you mentioned already working with some of the largest perfume houses and the like, are there any incremental opportunities to work with potential customers that you're not currently aligned with?

Because to me, I feel really good about that. We are a big player in the fine fragrance or the premium segment, and there's always more opportunity to work with existing customers and others in the space. And I think what has really set us apart now for several years is the differentiated technology that we bring to bear, this customer partnership model that we continue to talk about that we think is very valuable to our customers and particularly this market where the utility of the product that we provide is so critical to the overall package for the fragrance houses. So, you know, it continues to be a really good story. We think we've got pretty good clear site to continue growth and kind of the high single digit rate for fragrance products around the world and feel really good about our position in that market.

Got it. Thanks for that. And then just one quick one on healthcare. I believe you've mentioned the $250 million business targeting nasal and ophthalmic applications. Your goal being to double that business organically over the next three to five years, that implies a CAGR of about 15% to 20% plus per year. So can you help us frame how you intend to drive that type of internal growth? Obviously, you know, you've had some help recently from Vayner and tapping into existing commercial relationships domestically, but just wondering how you intend to drive that growth organically over the next two to four years.

Yeah, I think it was, again, over the course of the next couple of years, and we continue to have additional opportunities that come to us in our specific areas of nasal and ophthalmic. And, you know, I think we've got a competitively advantaged product, and we've got some design and innovation capabilities that we're bringing to bear that are of terrific interest. And I think as we think about potential growth beyond where we are in nasal and ophthalmic, it's taking our technology and applying that to different applications for drug delivery. So I feel really good at that. And that is part of the low to mid single digit this year as well as we've got some healthcare that is ramping up. It was planned to ramp up for the second half of the year all along and I would say it's probably a little heavier in the fourth quarter as we think now about the second half of the year.

Thank you. We'll take our next question from Keaton Memtura with BMO Capital Markets.

Good morning, and thanks for taking my question. Perhaps to start with on that, the resin lag that you talked about, the impact of $10 million, is that still sort of consistent with how you are thinking right now?

Yeah. Well, number one, welcome to the space. It's great to have another analyst in the coverage group. So welcome to the coverage. As far as that $10 million, that was a Q2 item that we talked about, and that's kind of the net unrecovered inflation, primarily resin in all fairness, but the net uncovered inflation that we experienced, and it's laid out essentially exactly as we thought. But there's a tremendous amount of volatility, as everybody knows, still in those markets. And, you know, that'll be unrecovered until such time as resin declines in the future and we just don't have clear visibility as to when that's going to happen. So it played out pretty much as we expected. It's behind us now. And as resin falls in the future, that will be a benefit back to Silgin at that point.

Got it. Now that's helpful. And then just switching to capital allocation, I'm curious how you guys are thinking about M&A opportunities, how is the pipeline looking at the moment, and what is the bias between share repurchases and M&A at current valuation levels?

Thank you, Don. This is Sean. I'll jump in and then turn it over to Alex to answer the M&A side of the question. Really, nothing's changed with respect to how we view capital deployment. We have a returns-based decision model that we've been using for many, many years. Everything is benchmarked against share buyback as a hurdle under that model that we consider. And we make the decisions that we feel are best for our shareholders and create the most shareholder value. I think we look at kind of where we're going to land at the end of the year, and we believe we'll be below the midpoint of our target range, so somewhere below that three times leverage. So we're right where we would like to be with respect to having all options available to us. inclusive of M&A.

And on the pipeline, it remains an active environment on the M&A side, a fairly full pipeline, but it's been that way for some time. I think, as you know, what you'll see from us, as Sean mentioned, is the continued discipline on capital deployment. So that whole rate moves around on capital deployment.

Perfect.

Thanks very much.

Good luck in the back half.

Thank you. We'll take our next question from Aaron Vishwanathan with RBC Capital Markets.

Thanks for taking my question. I hope you guys are well. Just kind of get your thoughts on maybe some of your customer behavior. Do you still see continued promotional activity across some of the major verticals? I guess what could you share on that side? And to the effect that could translate into what your outlook on volumes would be, I guess we'd be interested in that as well. Thanks.

And cost being what they have been through the second quarter. So our CPGs are continuing to pass that inflation on to the consumer. And I think what we've seen, the change in 2026 versus maybe prior year is, I think in the prior year coming out of the post-COVID era, our CPG customers, for the most part, were willing to trade price and margin versus volume. And I think there's a much greater focus on volume right now throughout CPGs and with many of our customers. So they are using and they're viewing promotional activity as just a tool in the toolkit to move volume. And I think with that focus on volume, what we continue to see is where the target promotional activity is being used in the marketplace, it is actually working. And it is driving volume in certain segments. And we've continued to point out in our wet pet food segment, particularly in cat, there's been targeted promotional activity for some time. We do think that is driving volume. So it is successful when it's applied in a targeted manner right now for the consumer who continues to seek out value. And, you know, we think our customers are aligned to focus more on volume in 2026 than what had been done in the prior years.

Okay, thanks for that. And then, also, maybe if you can just describe some of the bolt-on M&A opportunities. Do you see that more so in the closures area at this point? Thanks.

Yeah, I'm rooted to Alex.

They're all for form of dealing with business segments. You know, I look at the margin profile and the operating leverage that we have. So, we feel really good about all three of our business segments at this point.

Thank you. We'll take our next question from Anoesha Shah with UBS.

Good morning. I wanted to go back to Brazil a little bit. Can you give a little more detail on was it market or end consumer driven or was there a share shift or something like that? And I think you mentioned recovery in Q4. What's driving that?

So Brazil, you know, look, it's an inflationary market, and it's taken significant inflation in Brazil for many years now. And so we've done a really good job of passing that through to our customers who obviously pass that through onto the market. So this is all about the market. We've not lost any share. We've got a terrific position in the Brazilian market for our high-value dispensers. I think the thing that maybe we haven't said yet is those high-value dispensers, the volume reduction in Brazil also generated quite a bit of the mix impact that we had in the quarter, too. So really for us, you know, it's a temporary action, I think, with our customers in the market in Brazil. They're expecting some recovery starting late in Q3. We think that'll bleed into Q4 from a seasonality standpoint. And really, it's the same holiday season kind of discussion that we've had about Brazilian activity as well, that our two largest customers in Brazil, a good portion of their revenue comes through the holiday events in the Brazilian region. So we feel pretty comfortable that we'll begin that recovery in Q4 and be fully recovered as we head into 2027.

Great. Thank you for that. And I just was wondering if we could put a finer point on your volume expectations from metals in the third quarter. I think you said low single digit for the full year, but I know in the third quarter you have that customer timing issue, which should be a help. But then how do you balance that against a pretty tough comp?

Sure. I mean, that's good about veg is going to be up year over year with the timing issue coming out of Q2 that we talked about. So I think we're looking kind of low to mid-single-digit volume growth for metal containers in Q3.

Yes, and those are the only other thing I'd point out is remember.

Right. Yeah, I got that. Thank you so much. It's helpful to turn it over.

Thank you. We'll take our next question from Daniel Rizzo with Jeffries.

Hi, everyone. Thanks for taking my questions. You mentioned your contracts in healthcare and the new contract in metal coatings.

I was wondering if these contracts have, like, clauses like minimum purchase requirements or how they're kind of structured in that in that regard yeah we don't really talk about any individual contracts and maybe I'll just take it up to one level and talk about children you know particularly in the metal container side of the business you know that business has long focused on requirements based contracts so you can think of our long-term contract that were 100% supplies for their requirements and and typically those never had a minimum purchase requirement so they take the risk essentially on the volume side but also gets the full upside of any volume gain I think in other parts of our business we've got a variety of contractual language I think health care to your point probably has a little more provision around kind of the risk of volume and some minimum requirements because of the capital that's required that goes into those types of investments.

That's very helpful. And then just my second question is, I think you mentioned that corporate expenses were a little elevated in the quarter. And I was wondering if this is kind of how we should think about it going forward, or if there's something now with just a lot of the moving pieces that is going to kind of fade away as we move through the end of the year and in 2027 and beyond.

Sure, I'll take that one. As we mentioned, you know, we're constantly looking at everything rigid packaging so this this particular category versus spend category can be lumpy over the years uh in terms of any single quarter and and overall we feel pretty confident with the 50 million guidance that we're giving for the full year and that includes the increase that we experienced in h2 thank you very much as a reminder star one if you would like to ask a question and with no additional questions in queue that will conclude our question and answer

session. I'd like to turn the call back over to Adam Greenlee for any additional or closing remarks.

Great. Thank you very much, Katie. Thank you all for your interest in Silgin. We're pleased that we've delivered a first half that's slightly ahead of our original expectations as we came into the year and confident in our delivery of our second-half performance. Thank you.

Thank you. That will conclude today's call. We appreciate your participation.