Silgan Holdings Inc. (NYSE:SLGN), a leading supplier of rigid packaging for consumer goods products, reported a mixed third-quarter performance in 2024 during its earnings call. CEO Adam Greenlee announced the successful integration of Weener Packaging (NYSE:PKG), which is expected to enhance the company's dispensing solutions.
Despite a 3% decline in net sales to about $1.8 million, primarily due to lower raw material costs and softer pack volumes in the Metal Containers segment, the company experienced a 4% increase in adjusted net income per diluted share to $1.21. Looking forward, Silgan anticipates significant earnings growth in 2025, with double-digit EPS growth and improved pack volumes.
Key Takeaways
- Successful acquisition of Weener Packaging, adding 4,000 team members.
- Record third-quarter adjusted EBIT in Dispensing and Specialty Closures.
- Net sales declined by 3%, but adjusted net income per diluted share increased by 4%.
- Q4 2024 earnings per share forecasted between $0.70 and $0.88.
- Full-year adjusted net income per diluted share estimated between $3.55 and $3.65.
- Significant earnings growth expected in 2025, with double-digit EPS growth.
Company Outlook
- Silgan expects growth in Dispensing and Specialty Closures, with mid-single-digit growth projected for 2025.
- Custom Containers segment to see low single-digit growth, supported by new business wins.
- Anticipated decline in Metal Containers pack volumes due to adverse weather and customer adjustments.
- Free cash flow estimate of approximately $375 million for 2024, with capital expenditures around $255 million.
- Positive consumer sentiment and potential growth in 2025 as in-home consumption recovers.
Bearish Highlights
- Lower raw material costs and softer pack volumes led to a 3% decline in net sales.
- Metal Containers segment to face volume declines due to adverse weather and customer adjustments.
- Inflation impacted anticipated growth in the isotonic segment, despite high promotional activity.
Bullish Highlights
- Record adjusted EBIT in Dispensing and Specialty Closures for the third quarter.
- Strong momentum in dispensing products, with double-digit growth expected in Q4 and into 2025.
- Renewed long-term contract with the largest metal container customer, supporting the growing pet food business.
- Healthcare segment expected to grow through innovation and strategic M&A.
Misses
- The isotonic segment did not achieve expected growth despite record-high promotional activity.
Q&A Highlights
- CEO Adam Greenlee emphasized the strong performance in the high-end beauty segment and ongoing wins in custom containers.
- Integration of Weener Packaging is a priority, with full benefits expected in 18 months.
- The company remains confident in its free cash flow guidance of $375 million for 2024.
In conclusion, Silgan Holdings Inc. is navigating a complex market landscape with resilience, as evidenced by its stable financial performance and strategic acquisitions. The company's focus on innovation, cost management, and strategic growth initiatives positions it for a robust outlook in the coming year. Investors and stakeholders are likely to watch closely as Silgan prepares for its next earnings discussion in January, which will provide further insights into the company's performance and future prospects.
InvestingPro Insights
Silgan Holdings Inc. (SLGN) continues to demonstrate resilience in a challenging market, as reflected in both its recent earnings report and key financial metrics. According to InvestingPro data, the company's market capitalization stands at $5.42 billion, underscoring its significant presence in the rigid packaging industry.
One of the most notable InvestingPro Tips highlights that Silgan has raised its dividend for 20 consecutive years, a testament to the company's financial stability and commitment to shareholder returns. This aligns well with the company's positive outlook and expected earnings growth for 2025. Additionally, the tip indicating that management has been aggressively buying back shares further supports the company's confidence in its future performance and dedication to enhancing shareholder value.
The company's P/E ratio of 18.26 suggests a relatively moderate valuation compared to its peers, which could be attractive to investors considering the anticipated double-digit EPS growth in 2025. This growth expectation is particularly significant given that Silgan is trading near its 52-week high, as noted in another InvestingPro Tip.
Silgan's revenue for the last twelve months as of Q2 2024 was $5.84 billion, with a gross profit margin of 16.84%. While these figures reflect the challenges mentioned in the earnings call, such as lower raw material costs and softer pack volumes, they also demonstrate the company's ability to maintain profitability in a tough environment.
The dividend yield of 1.45% and a dividend growth rate of 5.56% over the last twelve months further illustrate Silgan's commitment to returning value to shareholders, complementing its growth strategies and successful acquisitions like Weener Packaging.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights. In fact, there are 11 more InvestingPro Tips available for Silgan Holdings, providing a deeper understanding of the company's financial health and market position.
Full transcript - Silgan Holdings Inc (SLGN) Q3 2024:
Operator: Good day, and welcome to the Silgan Holdings Third Quarter 2024 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Alex Hutter. Please go ahead.
Alex Hutter: Thank you, and good morning. Joining me on the call today are Adam Greenlee, President and CEO; and Bob Lewis, EVP, Corporate Development and Administration; and Kim Ulmer, SVP and CFO. Before we begin the call today, we would like to make it clear that certain statements made on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company and, therefore, involve a number of uncertainties and risks, including, but not limited to, those described in the Company's annual report on Form 10-K for 2023 and other filings with the Securities and Exchange Commission. Therefore, the actual results of operations or financial condition of the Company could differ materially from those expressed or implied in the forward-looking statements. In addition, commentary on today's call may contain references to certain non-GAAP metrics, including adjusted EBIT, free cash flow and adjusted net income per diluted share. A reconciliation of these metrics which should not be considered substitutes for similar GAAP metrics can be found in today's press release and under the non-GAAP Financial Information portion of the Investor Relations section of our website at silgonholdings.com. With that, let me turn it over to Adam.
Adam Greenlee: Thank you, Alex, and we'd like to welcome everyone to Silgan's third quarter 2024 earnings call. I'd like to begin today's call by welcoming the approximately 4,000 new Silgan team members who recently joined our company through our acquisition of Weener Packaging. We're excited to have you join the Silgan team for what we can accomplish together as we continue to build momentum as the leading global dispensing solutions partner for the world's most iconic brands. The Weener acquisition brings advanced product and manufacturing technologies that will help bolster our innovation pipeline and represents a clear and logical extension of Silgan's existing capabilities in the dispensing market. We believe the acquisition will drive organic growth, margin expansion and financial accretion for our shareholders and create significant value as we integrate the business, create efficiencies and generate cash to deleverage back to our target range by the end of next year. Turning now to our results. The third quarter continued to showcase the success of our long-term strategic growth initiatives with some fantastic operational and commercial successes in our businesses in another quarter of resilient financial performance. We continue to see strong volume trends in each segment and overall margin improvement driven by growth in our dispensing products and the benefit of our cost reduction programs. In our segments, Dispensing and Specialty Closures delivered record third quarter adjusted EBIT with record volume and double-digit growth in our global dispensing products. Our commitment to innovation, customer service and operational excellence continues to drive our success as our teams capitalized on this winning business strategy. As a result, we continue to gain traction with new and existing customers in our core high-end fragrance and beauty and home care markets. And we are seeing incremental opportunities now in health care and pharma markets as well. Our dispensing momentum remains strong into year-end as we execute on our near- and long-term priorities in this rapidly growing high-value portion of our business. In the Food and Beverage portion of the segment, Consumer demand for our products remains strong, and our European closures volume grew by a mid-single-digit percentage in the quarter. However, promotional activity particularly for isotonic beverages in North America was less impactful than our customers had anticipated, and as a result, the recovery in these volumes will be more prolonged than initially anticipated. While consumers are managing their purchases more closely as a result of inflation, it remains clear that consumer preferences have not changed when it comes to these products, and our customers remain focused on driving sales volume back to more normal levels. While volumes are below our expectations in these specific products, the financial impact of the shortfall is more-than-offset by the favorable mix impact of our dispensing products. With the seasonal peak for hot-filled products now behind us, this headwind should be less meaningful to our results as we move into the fourth quarter and behind us as we enter 2025. In Metal Containers, our teams once again validated our leadership position in the market by successfully extending our decade-long exclusive supply relationship with our largest customer through a long-term contract extension. This customer who was also Silgan's very first customer represents a significant portion of our growing pet food business. During the quarter, pet food, which represents approximately half of our volumes in our Metal Containers business continued to show accelerating volume trends and grew by a high single-digit percentage, and we continue to see market growth for these products. Demand in the soup category also remained strong as volumes recover from the prior year destocking impacts, but volumes for fruit and vegetable markets fell below prior year levels and below our expectations when we entered the quarter. While we are expecting lower pack volumes in the quarter as a result of a large pack customer reducing their pack plan in 2024 to manage their working capital. Adverse weather disruptions negatively impacted harvest yields and cause the pack season to come to an early conclusion this year. As a result, our pack volumes in 2024 were at historically low levels. While these weather events have impacted our segment results in the second half of 2024, we believe that the fruit and vegetable market is positioned for a strong recovery in 2025. Our Custom Container segment delivered another quarter of strong results in the third quarter, with 5% volume growth, primarily as a result of the commercialization of new business awards. In addition, our teams continue to validate our competitive advantage in this business with additional wins in the market that will benefit the segment in 2025 and beyond. As we now move into the fourth quarter, we continue to believe the Company is positioned to deliver volume and profit growth for the year, but have narrowed the range of our EPS estimates primarily to reflect the impact of lower pack volumes in 2024. For the fourth quarter, we expect Dispensing and Specialty Closures volume mix to grow by a low to mid-single-digit rate with high single-digit growth in dispensing products, driving better profitability for the segment through improved mix. In Metal Containers, we continue to expect mid-single-digit growth in pet food, which represents approximately half of our volume but with the impact of severe weather on pack volumes, we now expect full year volume to be comparable to 2023 levels. Custom Containers volumes are expected to grow by a low to mid-single-digit percentage in 2024 as market demand continues to recover and new business wins provide incremental volume and profit contribution throughout the remainder of the year. The market has continued to evolve in 2024 and has presented our company with both exciting opportunities and new challenges, and we believe our winning business strategy, our focus, the excellence of our teams and our unwavering commitment to our founding principles have uniquely positioned the Company to drive significant growth in the near term and for many more years into the future. As we move close to year-end and begin shifting our focus to 2025, with the Weener acquisition now complete, the continuing success of our long-term strategic initiatives and the full benefits of our cost savings programs flowing to the bottom line, we are well positioned to deliver significant earnings growth in 2025. In addition, pack volumes in our Metal Container segment should improve in 2025 from historically low levels in 2024. But given that our customers are still in the very early stages of planning for the 2025 pack, it's too early to know how much of a recovery the industry will experience. Nonetheless, even without factoring in an improvement in pack volumes in 2025, we believe we are well positioned to deliver double-digit EPS growth in 2025 and meet or exceed our prior record for adjusted EPS of $4.01. With that, Kim will take you through the financials for the quarter and our estimates for the fourth quarter and full year 2024.
Kim Ulmer: Thank you, Adam. As Adam discussed, we delivered strong growth in the third quarter as a result of the success of our strategic initiatives, but our adjusted EPS results fell below the midpoint of our expected range, mostly due to the impact of softer pack volumes in Metal Containers. Net sales of approximately $1.8 million declined 3% from the prior year period driven primarily by the pass-through of lower raw material costs, mostly in our Metal Container business. Total adjusted EBIT for the third quarter of $206 million decreased by 4% on a year-over-year basis due to the impact of lower pack volumes in our Metal Container segment, which offset higher adjusted EBIT in the Dispensing and Specialty Closures and Custom Container segments. Adjusted net income per diluted share was $1.21, a 4% increase from $1.16 in the prior year quarter with higher adjusted EBIT in Dispensing and Specialty Closures and Custom Containers, lower interest costs, a lower tax rate, partially offset by lower adjusted EBIT in Metal Containers. Turning to our segments. Sales in our Dispensing and Specialty Closures segment increased 1% versus the prior year quarter primarily as a result of higher volume mix of 2%, which was partially offset by the pass-through of lower raw material costs. The increase in volume mix is primarily due to double-digit volume growth in dispensing products, which resulted in favorable mix. Third quarter Dispensing and Specialty Closures adjusted EBIT increased $1.4 million versus the prior year period with favorable price cost and mix, partially offset by the unfavorable impact of foreign currency. The positive volume and mix impact of double-digit growth in our dispensing products was partially offset by the limited success of our customers' promotional activity in the hot-filled beverage volumes in North America, particularly in isotonic beverages which cost us approximately $5 million versus the prior year period. In our Metal Container segment, sales declined 7% versus the prior year quarter, primarily due to the pass-through of lower raw material costs and less favorable mix which was partially offset by higher volumes of 2%. Products for pet food markets grew by a high single-digit percentage and products for soup recovered to more normal levels following the destocking trends in the third quarter of 2023. Volumes for fruit and vegetable pack products, many of which were high-value large cans for products like tomatoes declined by a low teen presented and significantly impacted our mix of products sold in the quarter. Metal Container adjusted EBIT with below the prior year quarter due largely to the previously discussed impact of volume and mix associated with the reduction in pack volumes in the third quarter of 2024. Relative to our expectations entering into the quarter, the shortfall in pack volumes and the associated negative mix cost us approximately $10 million in the quarter. In Custom Containers, sales increased 6% compared to the prior year quarter, driven by a 5% increase in volumes, primarily as a result of the commercialization of new business awards during the quarter. Custom Containers adjusted EBIT increased $8.2 million as compared to the third quarter of 2023, driven by more favorable price cost, including mix and higher volumes. Looking ahead to the fourth quarter of 2024, we are providing an estimate of adjusted earnings in the range of $0.70 to $0.88 per diluted share as compared to $0.63 in the prior year period. The 32% year-over-year improvement in adjusted earnings for the fourth quarter at the midpoint of the range is driven primarily by improvement in the Dispensing and Specialty Closures segment as well as cost reductions, strong operating performance and a small benefit from the inclusion of Weener Packaging. Fourth quarter adjusted EBIT is expected to be approximately $25 million above prior year levels in Dispensing and Specialty Closures, with improved volume mix and price cost and the inclusion of Weener Packaging in the segment. Fourth quarter Metal Containers volumes are expected to be below the prior year level with high single-digit growth in pet food more than offset by the early end of the pack compared to a strong late pack in 2023. Metals Containers adjusted EBIT is expected to be comparable to the prior year period as a result of improved price/cost as the segment continues to benefit from cost reduction programs. Fourth quarter adjusted EBIT in the Custom Container segment is expected to be above prior year levels as a result of low single-digit volume growth primarily from the continued benefit from new business wins. Due to the shortfall in third quarter earnings as a result of lower volumes from the early end of the pack and the resulting negative mix implications, we are narrowing our estimate of adjusted net income per diluted share for the full year to a range of $3.55 to $3.65, a 6% increase at the midpoint of the range as compared to $2.40 in 2023. This estimate includes the Weener acquisition as of the closing date, corporate expense of approximately $30 million, interest expense of approximately $170 million, an adjusted tax rate of 23% to 24% and a weighted average share count of approximately 107 million shares. From a segment perspective, adjusted EBIT is expected to grow by low single-digit percentage in 2024, driven by a double-digit percentage increase in Dispensing and Specialty Closures and growth in the Custom Container segment. Adjusted EBIT in the Metal Container segment is expected to be below the prior year record level by approximately $35 million to $40 million, primarily due to a double-digit decline in pack volumes in 2024, which negatively impacts volume mix and costs. Based on our current earnings outlook for 2024, we are confirming our estimate of free cash flow of approximately $375 million with CapEx of approximately $255 million in 2024. That concludes our prepared comments, and we'll open up the call for questions. Jennifer, would you please kindly provide the directions for the question-and-answer session.
Operator: Thank you. [Operator Instructions] And we'll go first to George Staphos with Bank of America (NYSE:BAC).
Unidentified Analyst: This is actually [indiscernible] for George. I appreciate the commentary on metal and recognize it may be too early to give a view on that through 2025. But for customer and dispensing, I guess, what are your customers telling you for next year at this point? And is it possible to discuss at all what you would expect in terms of volume trends?
Adam Greenlee: Sure. I think we'll start with -- really, nothing's changed about the longer-term trends that we've seen both in dispensing and in Custom Containers. I mean we're early in our own budget process for 2025. So, we've taken some of the early indications that we've seen. But our customers are returning to volume and focus on volume, particularly in the food and beverage side of Dispensing and Specialty Closures, as we look forward to 2025. So, I think it's right in line with our longer-term expectations. And you can think about DSC probably growing somewhere in the mid-single-digit range with Custom Containers at more in the low single-digit range. We've been buoyed in Custom Containers certainly with new wins and new business awards that we've been talking about, and we're continuing to have success both in that market and in Dispensing and Specialty Closures as well.
Unidentified Analyst: Got it. Okay. And congrats on closing banner. And I guess now that you've had have that business and perhaps got your arms around it. I guess, what base needs to be done in terms of integrating that? And then also as we sit here today and think about your capital priorities, I guess, what will be kind of a focus from here?
Adam Greenlee: Sure. I mean, I'll jump in and then Bob can finish up. But just we did close on the Weener acquisition 15 days ago. So, we are hard at work getting the integration activities kicked off and underway. And as just as a reminder, we did say the synergies and the full integration will be more on the 18-month time line. So, as we sort of close out 2025, we should be getting the full benefit, near the full benefits of the acquisition.
Bob Lewis: Yes, Kash. And I'll jump in on the what's next, if you will, in terms of capital allocation. Obviously, Adam is right, our focus is on an efficient integration here. But given the experience of our team and I think the quality of the team that came along with the Weener acquisition, we feel really good that, that will go smoothly and that we'll get to that pretty quickly. The business will generate a fair bit of free cash flow on a go-forward basis, which will allow us to delever pretty quickly, not that this is an overly leveraging transaction anyway. But with the deleverage, that puts us right back in the spot where we can be thinking about how we strategically allocate capital to continue down the path of M&A. I think I've said this before, and I still believe it, that I think we remain competitively advantaged in that market. And I think that there will certainly be opportunities for us to be thinking about in the next 12 to 18 months. And that we would find attractive. And I think given our leverage profile, our access to and our cost of funds as well as our ability to act swiftly and close a deal quickly and bring synergy opportunities to the table are really in our advantage. So, I think our first and foremost priority is to get this fully integrated and operate the business effectively but pretty quickly turn the barrel towards what's next from that perspective.
Adam Greenlee: And then as we think about impact in 2025 for Weener. On the Weener acquisition announcement call, we talked about 10% accretion post synergy. And once we are back with our cash generation to our kind of our targeted leverage ratios, we should get just over half of the accretion in 2025, and then we'll have full accretion beyond that.
Operator: Next to Anthony Pettinari with Citi.
Unidentified Analyst: This is Gregory on for Anthony. My first question is just on -- just on metal inventories. So, you mentioned a large produce packer destocked, given the early end of the pack season this year. I'm wondering if you can put some context around how poor this pack season was relative to what you've seen historically? I know you mentioned it was kind of pushing historical low, but maybe just some numbers there would be really helpful. And then how long we should expect the destock to impact volumes in that end market?
Adam Greenlee: Sure. And maybe just a reminder, as we came into the pack this year, one of our large pack customers reduced their pack plan by 30%. So, I think that's the specific destocking Gregory that you're talking about. And that has worked itself through the market, we believe, through this pack season. And they'll be -- they should be back next year with a more normal pack. We're early in that process. So, we don't have a pack plan, but indications from consumer preference, consumer demand still is really good for these products. In fact, we saw, I think, scanner data indicating increase in canned vegetable consumption by consumers as we kind of came into the second half of the year. And so, to put that’s the beginning point of what happened with our pack this year. And then just as a remainder, during the pack on the on the West Coast for really tomatoes and food products rain early then led to delayed packs and as we were working through the pack, you had excessive heat kind of during the summer months that really impacted the quality of the pack and also yields, very similar situation for core-veg up in our Midwest products early rains led to delayed pack and then really dry weather through the middle of the growing season, just reduced yields. And at the end of the day, our customers decided that with poor quality and poor yields to shut down the pack earlier than expected. So, kind of in the month of September, and then I'll just say, we've all been here kind of a long time. I'm looking at a bunch of 20-year folks, including myself, and say it was by far the worst pack that I've seen since I've been at Silgan. So, I think that's a full picture of how the pack played out. It had a negative impact in Q3. And then remember, last year, the pack did just the opposite. It went very late into Q4, and we got the benefit of that in Q4 last year. It will not repeat in 2024.
Operator: We'll go next to Ghansham Panjabi with Baird.
Ghansham Panjabi: Adam, I just kind of want to go back to your comment about the promotional activity, I think, was specific to the closures. But what are you trying to get across that the customers were basically not seeing the level of uptake that would have assumed with the promotional activity picking up? Or did I mishear that?
Adam Greenlee: No, I think you've got that right. And I think the message I want to send Ghansham is -- it was -- the results are more mixed. So actually, I'll start with the favorable one first. In pet food, we're seeing significant promotional activity. It is absolutely being successful in driving volume in pet food. So, where we were anticipating volume growth and utilization of promotional activity to drive volume growth, it's happening in pet food. Unfortunately, it's a little bit of a different conversation when you get to isotonics and the hot-fill beverage segment. I think the good news, Ghansham, is about 67% percent of products in Q3 were sold on promotion. That is an all-time record high for the isotonic segment for our customers. Unfortunately, it did not drive the growth that our customers had anticipated as we came in Q3. And really, the reality is with all the inflation that's been passed through to consumers over the last couple of years, the absolute price point and therefore, the total value of the promotional activity did not drive the growth that they had anticipated. So successful in pet food, a little less successful driving the volume in the isotonic segment that we were looking for.
Ghansham Panjabi: Got you. And then as it relates to your comments about 2025, I think you said dispensing closure volumes up mid-single digits, custom up low. Is that -- are you assuming that there's more of an uptick associated with promotional activity and then if you could just give us a bit more of the variances. I know you're done with your planning period, et cetera, but as it relates to your comments about EPS, double-digit growth and pretty close to high watermark?
Adam Greenlee: Sure. And maybe just back to kind of the comments on custom and dispensing both. That's just our longer-term thesis for those two businesses. There's nothing about that that's changed. And in fairness, I think we've over delivered in 2024. So, we've got really good momentum there. And we're just in the planning process now. So, there's nothing really has changed from that perspective. And you think about the dispensing products, we've got another quarter in Q3 of double-digit growth. We're projecting kind of high single digits in Q4 for dispensing products. We're going to see good growth in dispensing products next year as well. And then in custom container, obviously, the annualization of the larger business wins that we commercialized early in the year and then the success we've had also in the market. So, I just -- we've got a lot of good momentum in those two businesses in particular, and it gives us confidence as we look at 2025. And then kind of turning the quarter to 2025, Weener is a big part of the addition. We've got the incremental impact of our cost savings program for next year as well. So double-digit dispensing products growth, organic growth and dispensing specialty closures in total and organic growth at custom containers. And that is before we really opine on what's going to happen with the pack next year.
Operator: We'll go next to Jeff Zekauskas with JPMorgan (NYSE:JPM).
Jeff Zekauskas: You said you renewed your long-term contracts with your largest metal container customer. Were there any changes in contractual terms? That is, was it neutral or positive or negative relative to your previous contract? Or how is the contract different if it was different?
Adam Greenlee: And what I'd say, we won't get into the details of any of our specific contracts. What I'll tell you about this one, it is our largest customer for the entire company. It's also the largest customer for the Metal Container segment. It is also a customer we've been doing business with since day one at Silgan. So, this is another in a long series of renewals that we've had. So, the contract is going to be very consistent with prior contracts. Again, primarily focused on our growing pet food business. So really think about this one, Jeff, in terms of us continuing to invest to support their growth. And so, by doing so, we need to secure the volume over a long period of time. So, very typical with our prior extensions, think of long term in the metal container side of the business between 7 and 10 years, think about exclusive supply relationships. And I would just say economics will be very similar to what we have in the current agreement.
Jeff Zekauskas: And secondly, if you didn't have the reversal of tax reserves in the quarter, what would your tax rate would have been?
Kim Ulmer: It would have been in the normal 25% range.
Operator: We'll go next to Matt Roberts with Raymond James.
Matt Roberts: Looking at the DSC segment, could you maybe give a little color on how Prestige fragrance volumes are tracking and your outlook on that product in particular in 4Q and 2025? I know you've seen good growth there. I would think comps get tougher as that becomes a greater mix of the segment, but really just wondering what you're seeing there or if there are any pockets of lower demand? Or is that still proving out to be relatively inelastic?
Adam Greenlee: Yes, still really pleased with the performance, particularly of that high-end segment for our fragrance and beauty products. And as we said, demand continues to be very strong for those products. Again, another quarter of double-digit kind of growth in Q3 for our dispensing products and expecting more not only for Q4, but more into 2025. So, I think we've got an advantage position in that market, really focused on innovation, meeting our unique needs of the customers in that segment, frankly, better than anybody else and being rewarded with new product launches as well as the staples that we have in the high-end fragrance and beauty market that just continue to perform year after year. So, we're anticipating continued good growth. We have invested to support growth in that market and feel really good about it. And again, this is one that is very much focused on innovation and adding further enhancements to the consumer experience, which, as you can probably imagine, does indeed start with our sprayer on the high-end fragrance and beauty products.
Matt Roberts: Got it. I appreciate that very much, Adam. And then longer term, as I think about health care, I know post Weener, you noted, I think it was combined $200 million in revenue. And while still small, health care is a growing part of the portfolio. So maybe aside from higher end market growth, are there certain products or technologies that you could -- that could help you gain share in health care? Or are there specific health care markets that you think Silgan really has a right to win in?
Adam Greenlee: Yes. I think it's a really good question. And really, it's back to everything I just said really around fragrance and beauty and other high-end dispensing markets. It's -- we've got an innovation pipeline that is helping our customers grow their business and address the consumer demands on these applications. So, you're right, we said it was about a $200 million business for us in revenue, good position in the Americas, good position in Europe. I think we have the ability to continue to grow. We will continue to grow this part of the business. We'll have organic growth opportunities, investment opportunities. We really focus on kind of ophthalmic and nasal today. And I think as we think about innovation and service model to support that market, it's very applicable to other areas where we can take our existing knowledge base and know-how and technology platform and serve other areas of the health care and pharma markets. So, we're excited about the potential growth opportunities.
Bob Lewis: Yes, Matt, I would jump in here too and say, look, the growth of the health care business for us as it is has come in a very structured way around our M&A strategy. So, it's not that we're necessarily out there, elephant hunting in that side. We found businesses that bring niche businesses to us in the health care market, and that's something that we would continue to focus on over the longer term. Very similar to the way the whole Dispensing and Specialty Closures business has grown out of line. So, a disciplined way, paying reasonable multiples on a relative basis for those types of businesses until we can get to some kind of scale.
Operator: Next to Gabe Hajde with Wells Fargo (NYSE:WFC).
Unidentified Analyst: This is Alex on for Gabe. I was wondering if you could maybe walk through or just talk about the consumer health across your different geographies and maybe kind of talking about more promos or where you're seeing more promos across the different end markets for those geographies and what your expectations are in '25 as it relates to what you've been hearing from your customers?
Adam Greenlee: Sure. As we think about Europe, in particular, we'll start in that geography, really, food and beverage is a large part of our Dispensing and Specialty Closures segment, dispensing products as well. And we've seen nice growth in the European segment. As far as promotional activity in Europe, we're not seeing a whole lot of promotional activity. What we're seeing is as a bit of a trade to private label and private label continuing to expand and grow in those markets. If you think about the U.S. market and specifically for Dispensing and Specialty Closures, you've got a much broader array of markets. Certainly, our traditional food and beverage market plus a bit of fragrance, personal care, home care products, et cetera and really delivering good growth with the exception of isotonics, call it, in Q3. The promotional activity, we talked about isotonics not working as well as we would have liked. We're seeing nice success in promotional activity in other home care and personal care and lawn care products. So, I think as we then rotate into 2025 and thinking about how our customers are going to go to market. We do believe our customers continue to focus on volume growth and have specific initiatives for volume growth that will include promotional activity. So again, I think it will be more targeted in the U.S. with specific products. And I'll say more dollars behind the promotional activity to really garner the interest of the consumer. And I think that's all built into our general thinking for 2025 as well.
Unidentified Analyst: And another question on just simply pricing outlook into 2025? How are you guys thinking about that?
Adam Greenlee: Yes. It's still early. We're definitely in the middle of negotiations. Obviously, we're a large buyer globally, particularly U.S. and Europe. I would say we were anticipating deflation in the U.S. market. U.S. market is the highest cost template market in the world. So, there was a little bit of catch-up there that we were thinking was going to take place. Maybe that deflation has lessened just a bit. We're still thinking flat to down in the U.S. And for Europe, we're thinking stable prices at this point for the European market in template.
Unidentified Analyst: Got it. And if I could just squeeze one last question here, and I'll turn it over. I think you guys raised CapEx a little bit and you're guiding to slightly lower earnings maybe -- but you guys reiterated the free cash flow number. So, can you just walk us through what the offset is for those?
Kim Ulmer: Sure. So, we did maintain our $375 million free cash flow. We obviously reduced our guidance to more of the higher end of the range to the midpoint of the range. So, we do have benefits in working capital that we expect to offset that additional [indiscernible] that will be coming on. And those benefits are primarily in inventory as we look at the inventory levels that will be needed primarily for the container business.
Adam Greenlee: And then in the CapEx piece of that, we did include the Weener CapEx as we now roll forward our guidance for the remainder of the year.
Operator: We'll go next to Arun Viswanathan with RBC (TSX:RY) Capital Markets.
Arun Viswanathan: I guess congrats on the progress. So maybe I could just ask a little bit on DSC. So, it's just a little bit surprising that we've continued to see that strength in beauty. I mean, it's just a little bit different than what we've seen on the scanner data. So, is it a function of maybe your customer mix and your -- again, that high end doing really well? Or maybe you can just kind of clarify how you're performing versus general industry trends within closures.
Adam Greenlee: Yes. Arun, I think you've got it exactly right. It is that high end part of the market where we play. Again, for our business, it's really at the prestige high-end level of the market. we don't play a whole lot in the mass market that might be experiencing different performance. So, it's a part of the market that does indeed reward innovation and the service levels that we provide to our customers, and that is a winning strategy for us and continues to deliver very positive results, both on the bottom line and through the volume as well.
Arun Viswanathan: Okay. And then obviously, you guys and a lot of folks went through significant destocking last year and earlier this year, it sounds like that has kind of run its course. But now, we're seeing some deflation and maybe a little bit of a return to at-home consumption. Is that correct? And are your customers telling you that you sound -- that they sound pretty positive about potentially increased consumer volumes? Are they continuing to promote more? And you answered the question on the long term -- or the large customer within metal. Are they also communicating maybe a little bit of renewed optimism on more at home consumption? And do you see that as potential upside for yourselves in '25?
Adam Greenlee: Yes. So, I think, Arun, what I would say is destocking for our business did indeed end. So, we've now seen two quarters with the positive volume and inflection that we were anticipating. So, I think we have moved past that for all intents and purposes. As far as increased at-home consumption, et cetera, I think we're still a little early in that process. We have scanner data that shows in-home consumption is actually up a little bit as we came in through the third quarter. And then our largest customer that you mentioned, that's one where the consumer demand has continued to be really strong. That food products, right? The destocking happened at the beginning of the year, a little bit into 2Q, but it's done. And all through that destocking activity, consumer demand, the consumer preference remained very strong for our products and their products. So, as we sit here, we think we're looking at continued positive consumer sentiment and demand for our products that really the underlying levels were always good through destocking as well. So, feeling pretty good about it. We'll see how the rest of the year plays out. But our customers are noticing that underlying demand has remained strong through that entire process.
Operator: Next to Michael Roxland with Truist Securities.
Niccolo Piccini: This is Niccolo Piccini on for Mike Roxland. I guess, first off, it sounded like you had maybe some additional [indiscernible] containers this quarter. Just curious, if you can provide maybe a cadence of when those might commercialize or any other color you can give on that?
Adam Greenlee: Sure. Obviously, the two we talked about earlier in the year were large kind of contractual items. What I'd tell you about the ongoing wins a little bit smaller in scale, much more kind of in the day-to-day combat of the business. That is just kind of normal ebb and flow of the business. But I would tell you that we are winning business and custom containers at a rate that is eclipsing the market growth that we see elsewhere in the category. So, those will have positive contributions in 2025. But I'll just say they were smaller in scale than the two large business work that we commercialized earlier in 2024.
Niccolo Piccini: Got it. And then just I appreciate the color on CapEx. Maybe going forward past 24 and has grown with customers as we focus and maybe later on growing in health care plus Weener. How do you see CapEx evolving?
Adam Greenlee: Well, again, we're in the process of rolling up. I don't think there's anything fundamentally that's changed obviously, with Weener we're going to add their CapEx requirements to our portfolio and support their ongoing growth. They've been growing at a good clip, and we'll continue to support that. I think as we talk about opportunities and dispensing and specialty and what health care brings, we'll address those as they come, but there's nothing specific that we're thinking about. And I think maybe just in a broader scope, just four or three segments, you probably should think about kind of DSC and CapEx, something like 5% to 6% of revenue, maybe Custom Containers around that 5% of revenue perspective. and Metal Containers in the 3% to 4% of revenue.
Operator: And at this time, there are no further questions.
Adam Greenlee: Great. Thank you, Jennifer. I appreciate everyone's interest in our third quarter results, and we look forward to discussing the fourth quarter and full year results later in January.
Operator: This does conclude today's conference. We thank you for your participation.
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