Silgan Earnings Call: Strong Operations, Interest Headwinds

Silgan ((SLGN)) has held its Q4 earnings call. Read on for the main highlights of the call.

Silgan’s Earnings Call Balances Strong Operations With Financial Headwinds

Silgan’s latest earnings call painted a picture of a company executing well operationally while navigating clear financial headwinds. Management emphasized record or near-record performance in key segments, especially Dispensing & Specialty Closures and Custom Containers, alongside strong volumes in Metal Containers, particularly pet food. Strategic initiatives, including the successful integration of Vayner and completion of a multiyear cost-savings program, are driving structural improvements. However, higher interest expense, tax items that weighed on fourth-quarter EPS, and some customer destocking, together with ongoing uncertainty around a major customer bankruptcy, tempered the otherwise positive tone.

Revenue Growth Driven by Pass-Throughs and FX

Silgan reported fourth-quarter net sales of approximately $1.5 billion, up about 4% year-over-year. The growth was primarily driven by contractual pass-through of higher raw material costs and favorable foreign currency translation, rather than broad-based volume expansion. This means headline revenue growth was more a function of pricing mechanics in contracts and currency than underlying demand, but it still underscores Silgan’s ability to protect top line and cash flows in a volatile input-cost environment.

DSC Becomes Core Earnings Engine

The Dispensing & Specialty Closures (DSC) segment is now the company’s key earnings engine, accounting for more than half of adjusted EBITDA. DSC delivered record sales, adjusted EBIT and adjusted EBITDA, with continued margin expansion and robust free cash flow generation. Management expects organic DSC volumes to grow in the low- to mid-single-digit range in 2026, propelled by mid-single-digit growth in dispensing products. This mix shift toward higher-value, higher-margin dispensing solutions is central to Silgan’s strategy and should support earnings resilience even in choppier macro conditions.

Metal Containers Rebounds on Pet Food Strength

Metal Containers showed a notable turnaround in volume and earnings. Full-quarter volumes increased about 4% and fourth-quarter volumes were up 4%, with pet food volumes climbing a strong 7%. Fourth-quarter sales in Metal Containers rose 11% year-over-year, largely reflecting raw material pass-through, while segment adjusted EBIT advanced roughly 5%, supported by disciplined cost management and a greater contribution from higher-margin pet food. With pet food now a growth anchor within the segment, Silgan is leveraging more stable, recurring demand from this category to offset volatility elsewhere.

Custom Containers Delivers Record Profitability

Custom Containers delivered a record year in profitability, even as volumes were not a major driver. Adjusted EBIT and EBITDA margins expanded by about 150 basis points versus the prior year, reflecting portfolio pruning and operational efficiencies. Fourth-quarter sales were down 8% year-over-year, in part because Silgan intentionally exited lower-margin business and faced some carryover destocking. Nonetheless, the margin gains position the business for accelerated earnings growth once volumes normalize, signaling that Silgan is prioritizing quality of revenue over pure volume.

Vayner Integration and Cost Program Fuel Structural Gains

Management highlighted a clean execution on M&A and efficiency initiatives. The Vayner acquisition is now fully integrated, with run-rate synergies achieved as planned. Silgan also completed its multiyear cost savings program on schedule. Together, the integration and cost actions are contributing to an enhanced innovation pipeline, generating new contractual wins and commercial synergies across the dispensing platforms. This reinforces the strategic rationale for the deal and suggests that incremental benefits could continue beyond the initial synergy targets.

Improved Balance Sheet and Shareholder Returns

Silgan’s capital allocation in the year underscored a more balanced playbook. The company returned about $150 million to shareholders in 2025 while bringing leverage back within its target range just over a year after the Vayner acquisition. Looking ahead, management expects free cash flow of roughly $450 million in 2026 at the midpoint of its outlook, with planned capital expenditures of around $310 million to support growth in dispensing and pet food. The combination of restored balance-sheet flexibility and healthy free cash flow gives Silgan room to continue investing while maintaining shareholder returns.

Operational Resilience and New Business Wins

Beyond the headline numbers, Silgan stressed its competitive differentiation in innovation and customer partnerships. The company cited roughly 27–28 new product launches and incremental contractual wins driven by its combined capabilities, particularly within dispensing and specialty closures. These wins indicate that Silgan is capturing an outsized share of new projects with key customers, which should translate into stable, recurring volumes and better pricing power over time.

Q4 EPS Hit by Interest and Tax Items

Despite solid operating performance, fourth-quarter adjusted EPS came in at $0.67, down $0.18 from the prior year. The decline was driven largely by higher interest expense and a higher tax rate. Management noted that the fourth-quarter tax rate was negatively affected by non-recurring, non-cash tax items that reduced EPS by an estimated 3% in the quarter and about 0.5% for the full year. This dynamic underscores a key theme of the call: operational metrics are improving, but the translation into EPS is being constrained by external financial factors.

Rising Interest Expense Weighs on 2026 Earnings

Looking forward, interest expense remains a significant headwind. Silgan guided 2026 interest expense to roughly $205 million, with first-quarter interest around $45 million. The increase is primarily tied to the maturity of low-coupon 1.4% senior secured notes in April, which will be replaced at higher market rates. This elevated interest burden will weigh on both EPS and free cash flow, partially offsetting the benefits of higher operating earnings and limiting the pace of EPS growth.

Customer Destocking and Volume Pressures

Silgan continued to work through customer destocking in several parts of the business. In DSC, personal and home care customers reduced inventories in the fourth quarter, although management believes destocking in this segment is now largely complete. Custom Containers, however, is seeing destocking carry over into the first quarter of 2026, contributing to the 8% year-over-year sales decline in Q4 alongside the exit of lower-margin business. While these volume pressures appear temporary, they are creating a softer near-term backdrop, particularly in early 2026.

Raw Material and Tariff Volatility Distort Comparisons

Volatile raw material costs, especially in steel, aluminum and tinplate, along with tariffs, have introduced noise into Silgan’s top line and margins. Contractual pass-through mechanisms are increasing reported sales when input costs rise, but they also create “margin math” effects that can compress percentage margins even when dollar profits are stable. Management reported limited evidence of pre-buying ahead of potential price changes, but acknowledged that these pass-through effects will influence 2026 year-over-year comparisons and margin optics, making it important for investors to focus on absolute earnings and cash generation.

Ongoing Uncertainty Around a Major Customer Bankruptcy

The company addressed a challenging situation involving a long-term Metal Containers customer undergoing bankruptcy and an auction process. Silgan took protective actions to shield itself from the fallout and indicated that these actions nearly offset secondary impacts to the business. Management believes ongoing supply relationships with related parties mitigate the risk of additional near-term disruption. However, they also noted that the final outcome of the process remains subject to procedural resolution, leaving a degree of residual uncertainty for that portion of the portfolio.

Soft Start to 2026 Expected in Q1

For the first quarter of 2026, Silgan guided adjusted EPS of $0.70–$0.80 versus $0.82 in the prior year, pointing to a modestly weaker start to the year. Segment EBIT is expected to face headwinds in DSC due to inventory dynamics and product mix, and in Custom Containers due to carryover destocking. Elevated interest expense and a 25–26% tax rate will further pressure Q1 earnings. Management framed these issues as near-term and tactical, with underlying business momentum remaining positive as the year progresses.

Forward Guidance Signals Modest EPS Growth and Strong Cash Flow

Silgan’s 2026 guidance calls for adjusted EPS of $3.70–$3.90, compared with $3.72 in 2025, implying only modest EPS growth at the midpoint. Under the hood, the company expects total adjusted EBIT and adjusted EBITDA to grow in the low- to mid-single-digit range. DSC is projected to post low- to mid-single-digit EBIT growth on low- to mid-single-digit organic volume gains, with dispensing products up mid-single-digits. Metal Containers EBIT is expected to increase in the low-single-digits, with volumes up low-single-digits and pet food volumes rising mid-single-digits and now representing more than half of segment volume. Custom Containers EBIT is anticipated to be comparable year-over-year, with volumes roughly flat and Q1 slightly lower due to lingering destocking. Interest expense of about $205 million and a 25–26% tax rate will cap EPS expansion, but free cash flow is forecast at around $450 million, supported by approximately $310 million of capital spending focused on dispensing and pet food growth initiatives.

Silgan’s earnings call ultimately portrayed a company with solid strategic momentum and strengthened segment-level fundamentals, offset by macro and financial headwinds that are largely external to its core operations. Investors heard a clear story of operational improvement—record performance in DSC and Custom Containers, rebounding Metal Containers underpinned by pet food, and a fully integrated Vayner—against a backdrop of rising interest costs, tax noise, destocking and a major customer bankruptcy process. If management can sustain volume growth in higher-value dispensing and pet food, while navigating interest and raw material volatility, Silgan appears positioned to deliver steady, if not spectacular, EPS progress with strong cash generation in 2026.