Silgan Holdings Q3 2025 Earnings Call: Contradictions in Sports Drinks, Volume Growth, Tariffs, and Metal Containers

Date of Call: October 29, 2025

Financials Results

• Revenue: $2.0B, up 15% year-over-year
• EPS: Adjusted EPS $1.22, slightly above prior-year quarter
• Operating Margin: Adjusted EBIT margin expanded 180 basis points year-over-year

Guidance:

• Q4 adjusted EPS expected $0.62 to $0.72.
• Dispensing & Specialty Closures and Custom Containers volumes expected to decline mid-single-digit in Q4.
• Metal Containers volumes expected to grow mid-single-digit in Q4 and for the full year (driven by pet food and fruit & vegetable).
• Q4 headwind of ~$25M from lower volumes, extended downtime and inventory reductions versus prior estimates.
• 2025 free cash flow maintained at ~ $430M; capital expenditures ~ $300M.

Business Commentary:

* Dispensing and Specialty Closures Performance: - The Dispensing and Specialty Closures segment reported a 19% increase in adjusted EBIT compared to the previous year, driven by a 39% growth in dispensing product sales. - This growth was attributed to strong demand for high-value dispensing products, particularly in the fragrance market, and successful integration of the Weener acquisition.

• Metal Containers Volume and Market Dynamics:
• The Metal Containers segment achieved a 4% volume growth for the quarter, driven by a 10% increase in products for pet food markets.

• The growth was offset slightly by a decline in soup market orders, and the segment faced challenges due to the bankruptcy of a large fruit and vegetable customer.

• Financial and Market Challenges:

• Silgan revised its earnings outlook for Q4, anticipating a $25 million headwind due to reduced volumes and extended downtime in North American personal care and home care markets.

• This adjustment was due to a bifurcation of consumer trends, with high-end products performing well and lower-end products facing slower demand.

• Custom Containers and Cost Reduction Initiatives:

• Custom Containers adjusted EBIT increased by 15%, largely due to favorable price/cost initiatives and inventory optimization.
• The company is on track to achieve cost reduction goals and is well-positioned to support growth in 2026, particularly in the differentiated aluminum products for the pet food segment.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted "another quarter of strong financial performance" and record adjusted EBIT in Dispensing, but also said they are "adjusting our outlook to reflect higher interest expense and a higher tax rate and lower volumes" in Q4. They maintained free cash flow guidance of ~$430M while warning of a ~$25M Q4 headwind from lower volumes and inventory actions.

Q&A:

• Question from Ghansham Panjabi (Robert W. Baird & Co. Incorporated, Research Division): How does this destocking/volume decline compare to the 2022–2023 episode and what caused the current decline?
  Response: Management: This episode differs — 2023 was broad post-pandemic destocking; 2025 is driven by discrete events (a large customer bankruptcy and adverse weather hitting sports drinks) plus a bifurcated consumer where high-end products keep growing and lower-income consumers are stretching purchases.

• Question from Ghansham Panjabi (Robert W. Baird & Co. Incorporated, Research Division): Could the weakness broaden to pet food?
  Response: Management: No — pet food is performing well (10% growth in Q3) and is expected to show high single-digit growth in Q4; Metal Containers overall on track for mid-single-digit volume growth.

• Question from George Staphos (BofA Securities, Research Division): Why did DSC miss the earlier mid- to high-20s revenue growth expectation?
  Response: Management: Softening in Personal Care and Home Care volumes emerged in late September and crystallized in early October customer forecasts, reducing DSC growth to ~22–23% instead of mid/high-20s.

• Question from George Staphos (BofA Securities, Research Division): Why wasn't a pre-announcement made given late-September signs?
  Response: Management: Q3 results matched expectations; customer forecasts weren't finalized until early October, so there wasn't sufficient confirmed visibility to preannounce prior to this call.

• Question from George Staphos (BofA Securities, Research Division): How does the $25M headwind split by segment and cause (absorption vs. volume)?
  Response: Management: Roughly $20M of the $25M relates to DSC and $5M to Custom Containers; about half reflects volume impact and half reflects inventory reductions/extended downtime (one-time inventory-related hit).

• Question from Matthew Roberts (Raymond James & Associates, Inc., Research Division): Can you quantify the personal/home care exposure in DSC, explain fragrance's 15% growth, and healthcare/pharma expectation for 2026?
  Response: Management: Q4 moved from expected mid-single-digit growth to a mid-single-digit decline in those categories; fragrance growth is driven by winning new product launches and premium positioning (double-digit expected in Q4); healthcare/pharma contributions will be detailed with 2026 guidance but contractual wins position it to be meaningful.

• Question from Matthew Roberts (Raymond James & Associates, Inc., Research Division): Update on Weener contributions and synergies?
  Response: Management: Weener is nearly fully integrated; product performance is in line or slightly ahead of expectations; ~$20M of ~$25M synergies delivered with remaining synergies to be realized over the next ~6 months.

• Question from Gabe Hajde (Wells Fargo Securities, LLC, Research Division): How can free cash flow rise in 2026 versus 2025 given earnings/cash dynamics?
  Response: Management: Primary levers are further working-capital improvements and specific WC initiatives planned for 2026 to drive incremental cash conversion despite EBITDA/production dynamics.

• Question from Gabe Hajde (Wells Fargo Securities, LLC, Research Division): Any update on capital redeployment / buybacks?
  Response: Management: Opportunistic — repurchased ~$60M in Q3; as leverage returns toward midpoint, M&A and buybacks remain on the table but no specific commitments announced.

• Question from Michael Roxland (Truist Securities, Inc., Research Division): Why stay in North American hot-fill beverage given recent volatility?
  Response: Management: The category is differentiated and technologically complex; Silgan has strong positions with major customers and views the market as stable long-term; recent disruption was weather-driven and appears contained.

• Question from Michael Roxland (Truist Securities, Inc., Research Division): Status of Metal Containers customer bankruptcy and the $10M potential EBIT impact?
  Response: Management: Expect clarity around year-end; volumes in Q3 matched expectations; if volumes remain at current lower levels, anticipate at least ~$10M of cost reductions in 2026; a new owner could restore volume.

• Question from Jeffrey Zekauskas (JPMorgan Chase & Co, Research Division): Why is free cash flow guidance unchanged despite lower earnings outlook?
  Response: Management: Proactive inventory reductions and downtime improved working capital, offsetting the Q4 earnings headwind and preserving ~ $430M FCF guidance for 2025.

• Question from Jeffrey Zekauskas (JPMorgan Chase & Co, Research Division): Do lower resin (propylene/polypropylene) prices affect Dispensing inventories?
  Response: Management: Yes — Dispensing is most exposed due to pass-through lags; recent resin declines provided upside (a couple hundred thousand included in the forecast); Custom Containers and food/beverage closures have tighter pass-throughs and less impact.

• Question from Arun Viswanathan (RBC Capital Markets, Research Division): Did you consider preannouncing these discrete items?
  Response: Management: Discussed internally, but customer forecasts only firmed in early October; Q3 was on plan, so timing and dynamic forecasts limited ability to preannounce.

• Question from Arun Viswanathan (RBC Capital Markets, Research Division): Can you bucket DSC into more cyclical vs. structural growth parts?
  Response: Management: DSC is largely consumer staples and not cyclical; recent weakness is category-specific/one-off (weather, bankruptcy) and reflects a bifurcated consumer rather than structural cyclicality; core long-term growth story unchanged.

• Question from Arun Viswanathan (RBC Capital Markets, Research Division): Will the inventory reductions be confined to Q4 and could you pursue more buybacks?
  Response: Management: Inventory reductions are expected to be limited to Q4 and help deliver the ~$430M FCF; capital allocation is flexible — buybacks and M&A remain options as leverage improves.

• Question from Anthony Pettinari (Citigroup Inc., Research Division): What are customers saying about Personal Care/Home Care outlook — speed bump or longer adjustment?
  Response: Management: Customers view it as an adjustment — moving from mid/high-single-digit expectations to low/mid-single-digit growth; they expect growth to resume in 2026.

• Question from Anthony Pettinari (Citigroup Inc., Research Division): Any customer pushouts in Metal Containers related to metal costs or tariffs?
  Response: Management: No Q3->Q4 pushouts observed; metal costs are a daily topic and customers may prebuy ahead of expected 2026 steel inflation; tariff outcomes could affect activity depending on court rulings.

• Question from Daniel Rizzo (Jefferies LLC, Research Division): How did similar downturns (e.g., 2008–2009) play out and how quickly would consumer recovery flow through?
  Response: Management: Metal cans historically held up or gained in recessions; if consumer stress eases, purchase patterns tend to normalize quickly and the flow-through to Silgan is relatively fast as these are staples.

• Question from George Staphos (BofA Securities, Research Division): As you look to 2026, what are the biggest risks to achieving growth next year?
  Response: Management: Primary near-term headwinds are higher interest expense from recent Eurobond issuance and a higher effective tax rate due to greater non-U.S. earnings, but the company does not expect 2025 discrete issues to repeat and still sees growth potential.

Contradiction Point 1

Volume and Market Dynamics in Sports Drinks

It highlights differing perspectives on the market conditions and volume trends in the sports drinks segment, which could impact revenue expectations and competitive positioning.

How do you attribute the current volume changes to previous cycles, and how does it compare to the 2022-2023 cycle? - Ghansham Panjabi(Robert W. Baird & Co. Incorporated)

2025Q3: The current situation is different from the 2022-2023 cycle as it is more specific to certain products like sports drinks and a customer bankruptcy. - Adam Greenlee(CEO)

Can you clarify the organic legacy growth in dispensing products and the impact of hot fill beverage volume on this growth? - George Leon Staphos(Bank of America)

2025Q2: Our legacy dispensing products are growing mid- to high-single digits, consistent with expectations. Hot fill beverage volumes are down due to weather, impacting consumer promotional spending. - Adam Greenlee(CEO)

Contradiction Point 2

Volume Growth Expectations

It involves changes in company growth forecasts, especially concerning volume growth expectations, which directly impact revenue projections and investor expectations.

How do you link the current volume changes to prior cycles, and how do they compare to the 2022-2023 cycle? - Ghansham Panjabi (Robert W. Baird & Co. Incorporated)

2025Q3: The current situation is different from the 2022-2023 cycle as it is more specific to certain products like sports drinks and a customer bankruptcy. Unlike the broader post-pandemic cycle, consumer activity is more bifurcated, with the high-value consumer continuing to perform well, and lower-income consumers struggling due to inflation and muted wage growth. - Adam Greenlee(CEO)

Can you explain the gap between your confidence in achieving mid-single-digit volume growth and the weaker volume outlooks from customers who have already reported, especially off-cycle reporters? - Ghansham Panjabi (Baird)

2024Q4: We have a lot of confidence in achieving mid-single-digit volume growth because the strategic initiatives that we're executing are delivering value and creating shareholder value. Consumers' demand for our products remains strong, and the disruption was more with our customers and their inventory and commercial activities. We believe 2025 will be a much more normal year than what we've seen in the last several years. - Adam Greenlee(CEO)

Contradiction Point 3

Impact of Tariffs and Trade Uncertainty

It involves the impact of tariffs and trade uncertainties, which are crucial for understanding the company's exposure to international trade tensions and potential disruptions in their supply chain.

Could the issues expand to pet food or other segments? - Ghansham Panjabi(Robert W. Baird & Co. Incorporated)

2025Q3: We haven't seen unusual buying activity, and consumers are largely making non-discretionary purchases. - Adam Greenlee(CEO)

Have customer new product activities changed, and what is the DSC segment's tariff exposure? - Ghansham Panjabi(Baird)

2025Q1: In DSC, there's limited exposure to tariffs due to our manufacturing philosophy of buying, making, and selling regionally. - Adam Greenlee(CEO)

Contradiction Point 4

Customer Bankruptcy Impact and Recovery

It involves differing expectations regarding the financial impact and potential recovery from a customer bankruptcy, which could affect revenue projections and strategic planning.

Has there been any update on the impact of customer bankruptcies on Metal Containers? - Michael Andrew Roxland(Truist Securities, Inc., Research Division)

2025Q3: Metal Containers performed as expected in Q3. Resolution for the customer bankruptcy is expected by year-end, potentially impacting capacity utilization positively if a new owner grows the business. - Adam Greenlee(CEO)

Will the customer bankruptcy result in an additional $10 million impact in 2025? - Jeffrey John Zekauskas(JPMorgan Chase & Co)

2025Q2: The $10 million impact is for the back half of 2025, with potential for some volume recovery in 2026. The base case is that the situation remains as is. The remaining assets and volumes depend on the acquiring company's intentions. - Adam Greenlee(CEO)

Contradiction Point 5

Metal Containers Market Dynamics

It involves the market dynamics of the Metal Containers segment, which is critical for understanding the company's competitive positioning and growth potential in this key business segment.

Any update on Metal Containers and the customer bankruptcy impact? - Michael Roxland(Truist Securities, Inc., Research Division)

2025Q3: Metal Containers performed as expected in Q3. Resolution for the customer bankruptcy is expected by year-end, potentially impacting capacity utilization positively if a new owner grows the business. - Adam Greenlee(CEO)

Can you explain the flat volume guidance for Metal Containers in 2Q and describe the promotional environment in the pet food sector? - Matt Roberts(Raymond James & Associates, Inc., Research Division)

2025Q1: Metal Containers Q2 volume is expected to be flat, but this is due to a potential pull-forward of pet food volumes into Q1. - Adam Greenlee(CEO)