Silgan Holdings Inc: Form 10-Q for the period ended Jun 30, 2026

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and Securities Exchange Act of 1934, as amended. Such forward-looking statements are made based upon management’s expectations and beliefs concerning future events impacting us and therefore involve a number of uncertainties and risks, including, but not limited to, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 and in our other filings with the Securities and Exchange Commission. As a result, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements.

General

We are a leading manufacturer and supplier of sustainable rigid packaging solutions for the world's essential consumer goods products. We currently produce dispensing and specialty closures for the fragrance and beauty, food, beverage, personal and health care, home care and lawn and garden markets; steel and aluminum containers for pet and human food and general line products; and custom designed plastic containers for the pet and human food, consumer health and pharmaceutical, personal care, home care, lawn and garden and automotive markets. We are a leading worldwide manufacturer of dispensing and specialty closures, a leading manufacturer of metal containers in North America and Europe, and a leading manufacturer of custom containers in North America for a variety of markets.

Our objective is to increase shareholder value by efficiently deploying capital and management resources to grow our business, reduce operating costs and build sustainable competitive positions, or franchises, and to complete acquisitions that generate attractive cash returns. We have grown our net sales and income from operations largely through acquisitions but also through internal growth, and we continue to evaluate acquisition opportunities in the consumer goods packaging market. If acquisition opportunities are not identified over a longer period of time, we may use our cash flow to repay debt, repurchase shares of our common stock or increase dividends to our stockholders or for other permitted purposes.

RESULTS OF OPERATIONS

The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the periods presented:

Summary unaudited results of operations for the periods presented are provided below.

(dollars in millions)

Net Sales. In the second quarter of 2026, consolidated net sales were $1.6 billion, an increase of $104.1 million, or 6.8 percent, as compared to the second quarter of 2025 primarily due to the contractual pass through of higher raw material and other manufacturing costs, the impact from favorable foreign currency translation of approximately $16.0 million and a more favorable mix of products sold in the custom containers segment, partially offset by a less favorable mix of products sold in the dispensing and specialty closures and metal containers segments and lower volumes in the dispensing and specialty closures and custom containers segments.

In the first six months of 2026, consolidated net sales were $3.2 billion, an increase of $198.7 million, or 6.6 percent, as compared to the first six months of 2025 primarily due to the contractual pass through of higher raw material and other manufacturing costs, the impact from favorable foreign currency translation of approximately $62.0 million, higher unit volumes in the metal containers segment and a more favorable mix of products sold in the custom containers segment, partially offset by a less favorable mix of products sold in the dispensing and specialty closures and metal containers segments and lower volumes in the dispensing and specialty closures and custom containers segments.

Gross Profit. Gross profit margin decreased 1.5 percentage points to 17.9 percent in the second quarter of 2026 as compared to the same period in 2025 and decreased 1.4 percentage points to 17.5 percent in the first six months of 2026 as compared to the same periods in 2025 primarily for the reasons discussed below in "Income before Interest and Income Taxes".

Selling, General and Administrative Expenses. In the second quarter of 2026, selling, general and administrative expenses as a percentage of consolidated net sales decreased to 7.7 percent as compared to 7.9 percent in the second quarter of 2025. For the second quarter of 2026, selling, general and administrative expenses increased $5.0 million to $126.8 million as compared to the second quarter of 2025. In the first six months of 2026, selling, general and administrative expenses as a percentage of consolidated net sales decreased to 8.1 percent as compared to 8.3 percent in the first six months of 2025. In the first six months of 2026, selling, general and administrative expenses increased $7.1 million to $258.0 million as compared to the first six months of 2025. The increase in selling, general and administrative expenses for each of the second quarter and the first six months of 2026 was primarily due to the impact of higher foreign currency exchange rates and higher expenses for corporate development activities.

Income before Interest and Income Taxes. In the second quarter of 2026, income before interest and income taxes decreased by $16.5 million to $151.0 million as compared to $167.5 million in the second quarter of 2025, and margins decreased to 9.2 percent from 10.9 percent over the same periods. The decrease in income before interest and income taxes was primarily the result of a less favorable mix of products sold in the dispensing and specialty closures and metal containers segments, higher rationalization charges, higher expenses for corporate development activities and lower volumes in the dispensing and specialty closures and custom containers segments, partially offset by the favorable impact of foreign currency and a more favorable mix of products sold in the custom containers segment. Rationalization charges were $18.2 million and $9.9 million in the second quarters of 2026 and 2025, respectively.

In the first six months of 2026, income before interest and income taxes decreased by $20.5 million to $277.6 million as compared to $298.1 million in the first six months of 2025, and margins decreased to 8.7 percent from 9.9 percent over the same periods. The decrease in income before interest and income taxes was primarily the result of a less favorable mix of products sold in the dispensing and specialty closures and metal containers segments, lower volumes in the dispensing and specialty closures and custom containers segments, higher rationalization charges, higher expenses for corporate development activities, and the benefit in the prior year period from the sell through of lower cost inventory and the adverse impact in the current year period from the sell through of higher cost inventory in our European metal closures operations, partially offset by the favorable impact of foreign currency, higher unit volumes in the metal containers segment and a more favorable mix of products sold in the custom containers segment. Rationalization charges were $27.2 million and $20.8 million in the first six month of 2026 and 2025, respectively.

Interest and Other Debt Expense. In the second quarter of 2026, interest and other debt expense decreased $1.6 million to $47.1 million as compared to $48.7 million in the second quarter of 2025. In the first six months of 2026, interest and other debt expense before the loss on early extinguishment of debt decreased $3.1 million to $88.5 million as compared to $91.6 million in the first six months of 2025. The decrease in the second quarter of 2026 was primarily due to lower average outstanding debt borrowings in the current year period as compared to the prior year period. The decrease in the first six months of 2026 was primarily due to lower weighted average interest rates during the current year period as compared to the prior year period.

Provision for Income Taxes. For the second quarters of 2026 and 2025, the effective tax rates were 28.1 percent and 25.6 percent, respectively. For the first six months of 2026 and 2025, the effective tax rates were 27.4 percent and 24.8 percent, respectively. The increase in the effective tax rates in the second quarter and first six months of 2026 was primarily due to changes in the geographic mix of profit in the current year periods as compared to the prior year periods.

Non-GAAP Measures

Generally accepted accounting principles in the United States are commonly referred to as GAAP. A non-GAAP financial measure is generally defined as a financial measure that purports to measure financial performance, financial position or liquidity but excludes or includes amounts that could not be so adjusted in the most comparable GAAP measure. Adjusted EBIT and adjusted EBIT margin are unaudited supplemental measures of financial performance that the Company uses, which are not required by, or presented in accordance with, GAAP and therefore are non-GAAP financial measures. These non-GAAP financial measures should not be considered as alternatives to income before interest and income taxes or any other measures derived in accordance with GAAP. Such non-GAAP financial measures should not be considered in isolation or as a substitute for any financial data prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies. The Company uses such non-GAAP financial measures because it considers them to be important and useful supplemental measures of its and its segments’ financial performance which provide a more complete understanding of the Company and its segments than could be obtained absent such non-GAAP financial measures. The Company believes that it is important and useful to present these non-GAAP financial measures because they allow for a better period-over-period comparison of results by removing the impact of items that, in management’s view, do not reflect the Company’s or its segments’ core operating performance. Management uses these non-GAAP financial measures to review and analyze the operating performance of the Company and its segments. Investors and others are urged to review and consider carefully the adjustments made by management to the most comparable GAAP financial measure to arrive at these non-GAAP financial measures.

Adjusted EBIT, a non-GAAP financial measure, means income before interest and income taxes excluding, as applicable, acquired intangible asset amortization expense, other pension (income) expense for U.S. pension plans and closed facilities, rationalization charges and costs attributed to announced acquisitions and including, as applicable, equity in earnings of affiliates, net of tax. Adjusted EBIT margin, a non-GAAP financial measure, means adjusted EBIT divided by segment net sales.

Acquired intangible asset amortization expense is a non-cash expense related to acquired operations that management believes is not indicative of the on-going performance of the acquired operations. Since the Company’s U.S. pension plans are significantly over funded and have no required cash contributions for the foreseeable future based on current regulations, management views other pension (income) expense from the Company’s U.S. pension plans, which excludes service costs, as not reflective of the operational performance of the Company or its segments. Additionally, other pension expense for closed facilities relate to former operations and former employees of the Company and are not indicative of the operational performance of the Company or its segments. While rationalization costs are incurred on a regular basis, management views these costs more as an investment to generate savings rather than period costs. Costs attributed to announced acquisitions consist of third party fees and expenses that are viewed by management as part of the acquisition and not indicative of the on-going cost structure of the Company. The Company's management views the operating performance of its affiliates which are joint ventures as part of the Company's operating performance and therefore believes that the Company's share of the net operating results of its affiliates which are joint ventures should be included in the Company's adjusted EBIT.

A reconciliation of such non-GAAP financial measures for the periods presented is provided below:

(Dollars in millions)

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Dispensing and Specialty Closures Segment

(Dollars in millions)

In the second quarter of 2026, net sales for the dispensing and specialty closures segment increased $11.7 million, or 1.7 percent, as compared to the second quarter of 2025. This increase was primarily the result of the pass through of higher raw material and other costs and the impact of favorable foreign currency translation of approximately $14.0 million, partially offset by a less favorable mix of products sold and lower unit volumes of approximately one percent predominantly in Brazil.

In the first six months of 2026, net sales for the dispensing and specialty closures segment increased $25.9 million, or 1.9 percent, as compared to the first six months of 2025. This increase was primarily the result of favorable foreign currency translation of approximately $50.0 million and the pass through of higher raw material and other costs, partially offset by lower unit volumes of approximately two percent and a less favorable mix of products sold predominantly in Brazil and as a result of production impacts due to severe weather in the first quarter of 2026.

In the second quarter of 2026, adjusted EBIT of the dispensing and specialty closures segment decreased $0.3 million as compared to the second quarter of 2025, and adjusted EBIT margin decreased to 15.1 percent from 15.4 percent over the same periods. The decrease in adjusted EBIT was primarily due to a less favorable mix of products sold and lower unit volumes, partially offset by the favorable impact of foreign currency.

In the first six months of 2026, adjusted EBIT of the dispensing and specialty closures segment decreased $3.4 million as compared to the first six months of 2025, and adjusted EBIT margin decreased to 14.6 percent from 15.1 percent over the same periods. The decrease in adjusted EBIT was primarily due to a less favorable mix of products sold, lower unit volumes, and the benefit in the prior year period from the sell through of lower cost inventory and the adverse impact in the current year period from the sell through of higher cost inventory in our European metal closures operations, partially offset by the favorable impact of foreign currency.

Metal Containers Segment

(Dollars in millions)

In the second quarter of 2026, net sales for the metal containers segment increased $87.8 million, or 13.0 percent, as compared to the second quarter of 2025. This increase was primarily the result of the contractual pass through of higher raw material and other manufacturing costs and the impact of favorable foreign currency translation of approximately $2.0 million, partially offset by a less favorable mix of products sold. Unit volumes were comparable to the prior year period with higher volumes for pet food markets offset by lower volumes for fruit and vegetable markets as a result of more normal seasonal order patterns and soup markets.

In the first six months of 2026, net sales for the metal containers segment increased $184.3 million, or 14.1 percent, as compared to the first six months of 2025. This increase was primarily the result of the contractual pass through of higher raw material and other manufacturing costs, the impact of favorable foreign currency translation of approximately $11.0 million, and higher unit volumes of approximately one percent, partially offset by a less favorable mix of products sold.

In the second quarter of 2026, adjusted EBIT of the metal containers segment decreased $4.9 million as compared to the second quarter of 2025, and adjusted EBIT margin decreased to 8.6 percent from 10.5 percent for the same periods. The decrease in adjusted EBIT was primarily due to a less favorable mix of products sold due to higher unit volumes for pet food markets and lower unit volumes for fruit and vegetable markets and soup markets. Adjusted EBIT margin was negatively impacted by the mathematical consequence of passing through higher raw material costs during the second quarter of 2026.

In the first six months of 2026, adjusted EBIT of the metal containers segment decreased $4.6 million as compared to the first six months of 2025, and adjusted EBIT margin decreased to 7.8 percent from 9.2 percent for the same periods. The decrease in adjusted EBIT was primarily due to a less favorable mix of products sold, partially offset by higher unit volumes. Adjusted EBIT margin was negatively impacted by the mathematical consequence of passing through higher raw material costs during the first six months of 2026.

Custom Containers Segment

(Dollars in millions)

In the second quarter of 2026, net sales for the custom containers segment increased $4.6 million, or 2.9 percent, as compared to the second quarter of 2025. This increase was principally due to the pass through of higher raw material and other manufacturing costs and a more favorable mix of products sold, partially offset by lower volumes of approximately four percent primarily from the exit of lower margin business in late 2025 as a result of footprint optimization plans to achieve previously announced cost reduction goals.

In the first six months of 2026, net sales for the custom containers segment decreased $11.5 million, or 3.5 percent, as compared to the first six months of 2025. This decrease was principally due to lower volumes of approximately seven percent primarily from the exit of lower margin business in late 2025 as a result of footprint optimization plans to achieve previously announced cost reduction goals, partially offset by the pass through of higher raw material and other manufacturing costs, a more favorable mix of products sold and the impact of favorable foreign currency translation of approximately $1.0 million.

In the second quarter of 2026, adjusted EBIT of the custom containers segment increased $2.3 million as compared to the second quarter of 2025, and adjusted EBIT margin increased to 16.4 percent from 15.5 percent over the same periods. The increase in adjusted EBIT was primarily attributable a more favorable mix of products sold including as a result of the benefit of previously announced cost reductions in the current year quarter, partially offset by lower volumes.

In the first six months of 2026, adjusted EBIT of the custom containers segment decreased $0.6 million as compared to the first six months of 2025, while adjusted EBIT margin increased to 15.5 percent from 15.1 percent over the same periods. The decrease in adjusted EBIT was primarily attributable to lower volumes, partially offset by a more favorable mix of products sold including as a result of the benefit of previously announced cost reductions in the current year period.

CAPITAL RESOURCES AND LIQUIDITY

Our principal sources of liquidity have been net cash from operating activities and borrowings under our debt instruments, including our senior secured credit facility. Our liquidity requirements arise from our obligations under the indebtedness incurred in connection with our acquisitions and the refinancing of that indebtedness, capital investment in new and existing equipment, the funding of our seasonal working capital needs and other general corporate uses.

On February 3, 2026, we prepaid $42.5 million principal amount of outstanding U.S. term loans under the Credit Agreement with cash on hand.

On March 6, 2026, we entered into the Sixth Amendment, with the lenders party to the Credit Agreement and Wells Fargo Bank, National Association, as administrative agent. The Sixth Amendment amended the Credit Agreement to improve the interest rate margin grid for term loans and eliminate the credit spread adjustments effective March 6, 2026 for Term SOFR Loans, Daily Simple RFR Loans and Term CORRA Loans (each as defined in the Credit Agreement). In accordance with the Credit Agreement, the applicable margin for term loans is reset quarterly using the interest rate margin grid for term loans based on our Total Net Leverage Ratio (as defined in the Credit Agreement), and the range for the applicable margin for term loans is 0.00 percent to 0.50 percent for Base Rate Loans and 1.00 percent to 1.50 percent for Eurocurrency Rate Loans and RFR Loans (each as defined in the Credit Agreement).

On March 31, 2026, we repaid all $500.0 million aggregate principal amount of our outstanding 1.4% Notes at 100 percent of their principal amount plus accrued and unpaid interest to the repayment date. We funded this repayment with revolving loan borrowings under the Credit Agreement and cash on hand. As a result of such redemption and satisfaction and discharge of the indenture for the 1.4% Notes (including the discharge of the guarantees therein of the 1.4% Notes by our U.S. subsidiaries that also guarantee our obligations under the Credit Agreement), the guarantees of the 4⅛% Senior Notes, the 2¼% Senior Notes and the 4¼% Senior Notes by our U.S. subsidiaries that also guarantee our obligations under the Credit Agreement were automatically released and discharged on March 31, 2026.

For the six months ended June 30, 2026, we used net borrowings of revolving loans of $1.1 billion, cash and cash equivalents of $729.1 million and the positive effect of exchange rate changes on cash and cash equivalents of $0.7 million to fund cash used in operations of $993.9 million, the repayment of long-term debt of $542.5 million, net capital expenditures and other investing activities of $141.7 million, decreases in outstanding checks of $97.4 million, dividends paid on our common stock of $45.1 million, repurchases of our common stock of $7.8 million, the repayment of principal amounts under finance leases of $1.9 million and debt issuance costs of $1.4 million.

For the six months ended June 30, 2025, we used net borrowings of revolving loans of $1.4 billion, cash and cash equivalents of $505.4 million and the positive effect of exchange rate changes on cash and cash equivalents of $31.4 million to fund cash used in operations of $904.9 million, the repayment of long-term debt of $706.3 million, net capital expenditures and other investing activities of $145.8 million, decreases in outstanding checks of $85.0 million, dividends paid on our common stock of $43.4 million, repurchases of our common stock of $6.9 million and the repayment of principal amounts under finance leases of $2.4 million.

At June 30, 2026, we had $1.1 billion of revolving loans outstanding under the Credit Agreement. After taking into account outstanding letters of credit of $21.7 million, the available portion of revolving loans under the Credit Agreement at June 30, 2026 was $402.4 million.

Because we sell metal containers and closures used in fruit and vegetable pack processing, we have seasonal sales. As is common in the industry, we must utilize working capital to build inventory and then carry accounts receivable for some customers beyond the end of the packing season. Due to our seasonal requirements, which generally peak sometime in the summer or early fall, we may incur short-term indebtedness to finance our working capital requirements. Our peak seasonal working capital requirements have historically averaged approximately $600 million. We fund seasonal working capital requirements through revolving loans under the Credit Agreement, other foreign bank loans and cash on hand. We may use the available portion of revolving loans under the Credit Agreement, after taking into account our seasonal needs and outstanding letters of credit, for other general corporate purposes including acquisitions, capital expenditures, dividends, stock repurchases and to refinance or repurchase other debt.

We believe that cash generated from operations and funds from borrowings available under the Credit Agreement and other foreign bank loans will be sufficient to meet our expected operating needs, planned capital expenditures, debt service, tax obligations, pension benefit plan contributions, share repurchases and common stock dividends for the foreseeable future. We continue to evaluate acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness, including indebtedness under the Credit Agreement, to finance any such acquisition.

We are in compliance with all financial and operating covenants contained in our financing agreements and believe that we will continue to be in compliance during 2026 with all of these covenants.

Supply Chain Finance Program

For our suppliers, we believe that we negotiate the best terms possible, including payment terms. In connection therewith, we initiated a SCF program with a major global financial institution. Under this SCF program, a qualifying supplier may elect, but is not obligated, to sell its receivables from us to such financial institution. A participating supplier negotiates its receivables sale arrangements directly with the financial institution under this SCF program. While we are not party to, and do not participate in the negotiation of, such arrangements, such financial institution allows a participating supplier to utilize our creditworthiness in establishing a credit spread in respect of the sale of its receivables from us as well as other applicable terms. This may provide a supplier with more favorable terms than it would be able to secure on its own. We have no economic interest in a supplier’s decision to sell a receivable. Once a qualifying supplier elects to participate in this SCF program and reaches an agreement with the financial institution, the supplier independently elects which individual invoices to us that they sell to the financial institution. All of our payments to a participating supplier are paid to the financial institution on the invoice due date under our agreement with such supplier, regardless of whether the individual invoice was sold by the supplier to the financial institution. The financial institution then pays the supplier on the invoice due date under our agreement with such supplier for any invoices not previously sold by the supplier to the financial institution. Amounts due to a supplier that elects to participate in this SCF program are included in accounts payable in our Condensed Consolidated Balance Sheet, and the associated payments are reflected in net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows. Separate from this SCF program, we and suppliers who participate in this SCF program generally maintain the contractual right to require the other party to negotiate in good faith the existing payment terms as a result of changes in market conditions, including changes in interest rates and general market liquidity, or in some cases for any reason. Outstanding trade accounts payables subject to this SCF program were approximately $370.4 million, $248.4 million and $438.5 million at June 30, 2026 and 2025 and December 31, 2025, respectively.

Rationalization Charges

We continually evaluate cost reduction opportunities across each of our segments, including rationalizations of our existing facilities through plant closings and downsizings. We use a disciplined approach to identify opportunities that generate attractive cash returns. Under our rationalization plans, we made cash payments of $20.8 million and $8.0 million for the six months ended June 30, 2026 and 2025, respectively. Excluding the impact of our withdrawal from the Central States Pension Plan in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $14.1 million and $32.6 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $0.7 million per year and be recognized annually through 2040, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $2.6 million annually through 2040.

You should also read Note 3 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2026 included elsewhere in this Quarterly Report.

Market risks relating to our operations result primarily from changes in interest rates and, with respect to our international operations, in foreign currency exchange rates. In the normal course of business, we also have risk related to commodity price changes for items such as natural gas. We employ established policies and procedures to manage our exposure to these risks. Interest rate, foreign currency and commodity pricing transactions are used only to the extent considered necessary to meet our objectives. We do not utilize derivative financial instruments for trading or other speculative purposes.

Information regarding our interest rate risk, foreign currency exchange rate risk and commodity pricing risk has been disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Since such filing, other than the changes discussed in Notes 6 and 7 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2026 included elsewhere in this Quarterly Report, there has not been a material change to our interest rate risk, foreign currency exchange rate risk or commodity pricing risk or to our policies and procedures to manage our exposure to these risks.

As required by Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal controls over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, these internal controls.