Silgan Holdings, Inc. (NYSE:SLGN) is the largest manufacturer of metal food containers in North America, in terms of volume. Although most of its operations are in the US, Silgan runs major plastic container operations in Canada and Europe that make up almost 19% of its consolidated net sales.
Silgan manufactures most of its products in the United States and Europe. As competition from foreign-based companies that use cheaper, outsourced labor from emerging markets grows, the company will face mounting pricing pressures. In response to these pressures, Silgan has begun acquiring smaller competitors to expand its market share, investing in new technologies to increase manufacturing and production efficiency and perhaps most importantly, better controlling its raw materials costs through future contracts.
Silgan Holdings, Inc. operates in four main market segments: metal food containers, plastic containers, and vacuum closures.
Aluminum and Steel were responsible for 29% and 31% of the company's direct production costs in 2006. These materials are purchased in highly competitive, price-sensitive markets which are often unpredictable. In 2006, the average market price for steel used in packaging increased approximately 6% and the average price of aluminum ingot on the London Metal Exchange increased approximately 35% during 2006.
The food packaging business is seasonal with the first quarter as the slowest period since the autumn packing period in the Northern Hemisphere ends and new crops are not yet planted. The food packaging industry enters its busiest period in the third quarter when the majority of fruits and vegetables are harvested. Weather represents a substantial uncertainty in the yield of food products and is a major factor in determining the demand for food cans in any given year. A fierce winter storm in Brazil in 2003 led to heavy damage to coffee trees and the coffee bean production. This subsequently led to a drop in SLGN's sales of specialty containers to South America that year.
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Silgan competes with other packaging manufacturers as well as with food processors and packers who manufacture containers for their own use. Silgan's biggest competitors include Amcor (AMCR), Ball (BLL), Rexam (REXMY), and Crown Cork & Seal Company (CCK).
|Company||Total Sales ($ mm)||Net Income($ mm)||Cost of Goods ($ mm)||Gross Margin|
|Silgan Holdings (SLGN)||$2,835||$104.2||$2,305||3.68%|
|Crown Cork & Seal Company (CCK)||$6,982||$205.0||$5,863||2.94%|