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Silgan Holdings (SLGN) |
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WIKI ANALYSIS
Silgan Holdings, Inc. (NYSE:SLGN) is the largest manufacturer of metal food containers in North America, in terms of volume.[1] 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.
Business Overview
Silgan Holdings, Inc. operates in four main market segments: metal food containers, plastic containers, and vacuum closures.
- Metal Food Containers: Silgan is the largest manufacturer of metal food containers in North America and holds about 50% of the U.S. market share. Their major customers are Campbell Soup Company (CPB), Del Monte Foods Company (DLM), General Mills (GIS), and Hormel Foods (HRL). Metal container manufacturing is capital intensive, requiring significant investment in tools and machinery. Metal food container sales amounted to 61% of Silgan's consolidated net sales in 2006.[3].
- Plastic Containers: Silgan manufactures a variety of plastic containers and sells them to food and personal care product marketers including Kraft Foods (KFT),Procter & Gamble Company (PG), Avon Products (AVP), L'oreal (LRLCY), and JOHNSON & JOHNSON (JNJ). The plastic container business amounted to 22% of Silgan's annual sales in 2006.[4].
- Vacuum Closures: Silgan manufactures metal, composite and plastic vacuum closures for manufacturers of food and beverage products including Coca-Cola Company (KO), Pepsico (PEP), Cadbury Schweppes (CSG), and H.J. Heinz Company (HNZ). Vacuum closure sales amounted to about 17% of Silgan's 2006 annual sales.[5]
Key Trends and Forces
Aluminum, steel critical factors in determining profitability
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[7].
Weather affects amount of food to be packaged
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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Competition
Silgan competes with other packaging manufacturers as well as with food processors and packers who manufacture containers for their own use. Crown's biggest competitors include Amcor (AMCR), Ball (BLL), Rexam (REXMY), and Crown Cork & Seal Company (CCK).
- Amcor (AMCR)-an Australian based packaging company that specializes in Polyethylene Terephthalate, plastic film, metals, and paper products packaging manufacture and sales. [8]
- Ball (BLL)-an American manufacturer of metal and plastic packaging, primarily for beverages, foods and household products, and a supplier of aerospace and other technologies and services to government and commercial customers.[9]
- Rexam (REXMY)-a British packaging company who specializes in metal, glass and plastic beverage packaging as well as plastic packaging solutions for beauty, pharmaceutical and food industries.[10]
- Crown Cork & Seal Company (CCK) - an American manufacturer of steel and aluminum food and beverage containers containers, custom designed plastic containers, aerosol cans, and tubes and closures for a variety of consumer uses.[11]
| Company | Total Sales ($ mm) | Net Income($ mm) | Cost of Goods ($ mm) | Gross Margin |
|---|---|---|---|---|
| Silgan Holdings (SLGN) | $2,835 | $104.2 | $2,305 | 3.68% |
| Amcor (AMCR) | $8,240 | $379.2 | $6,870 | 4.60% |
| Ball (BLL) | $7,141 | $329.6 | $5,540 | 4.61% |
| Rexam (REXMY) | $7,476 | $223.0 | $5,854 | 2.98% |
| Crown Cork & Seal Company (CCK) | $6,982 | $205.0 | $5,863 | 2.94% |
References
- ↑ SLGN 2007 10k, Pg 1
- ↑ SLGN 2006 10k, Pg 6-7
- ↑ SLGN 2006 10k, Pg 6
- ↑ SLGN 2006 10k, Pg 7
- ↑ SLGN 2006 10k, Pg 7
- ↑ , SLGN 2006 10k p 27
- ↑ SLGN 2006 10k p 14
- ↑ AMCRY 2006 20f
- ↑ BLL 2006 10k
- ↑ REX 2006 20f
- ↑ CCK 2006 10k
- ↑ [All Data from respective annual reports (10k, 20f, or 40f) filed with the SEC]
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