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spk07: Good day and welcome to the Selga Holdings 4th Quarter 2023 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Alex Hutter, Vice President of Investor Relations. Please go ahead, sir.
spk10: Thank you and good morning. Joining me on the call today are Adam Greenlee, President and CEO, Bob Lewis, EVP, Corporate Development and Administration, and Kim Ulmer, SVP and CFO. Hello. Before we begin the call today, we'd like to make it clear that certain statements made on this call may be forward-looking statements. These forward-looking statements are 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 10-10-K for 2022 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 financial metrics, including adjusted EBIT, adjusted EBITDA, 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
spk09: and under non-gap financial information available in the investor relations section of our website at silganholdings.com with that let me turn it over to adam thank you alex and we'd like to welcome everyone to silgan's fourth quarter and full year 2023 earnings call our team delivered another year of strong performance in 2023 amid an unprecedented and rapidly changing market backdrop proving once again that our businesses and our company are resilient regardless of the broader economic circumstances. We delivered our second highest adjusted EPS and adjusted EBIT in the history of the company, and our robust free cash flow and strong balance sheet allowed us to return over $250 million to our shareholders through buybacks and dividends. Our disciplined approach to everything we do, including our customer partnerships, our contractual arrangements, and our capital deployment, has positioned the company to continue to perform for years to come. During the year, we embarked upon a multi-year $50 million cost improvement program, which is the largest in our company's history, to strengthen our already market-leading cost positions across each of our businesses. To achieve these savings, we made several difficult decisions beginning in late 2023 and have announced the consolidation of five of our manufacturing facilities to date. These actions will position the company to continue to meet the unique needs of our customers and compete and win in the markets we serve, with an even lower cost operating footprint. Volume trends in 2023 were mixed among the end markets we serve and the products we produce. Our strategic growth products for dispensing and pet food continue to see success and performance outpace broader market trends, and products that had experienced post-pandemic destocking in 2022 delivered strong recovery and growth in 2023. While consumer demand for our essential food and beverage products remains resilient, Midway through the year, it became apparent that our volumes would be adversely impacted across the segments by our customers' decisions to focus on destocking initiatives in the food, beverage, and pet food markets as a result of the impact of inflation throughout the supply chain. At the segment level, our dispensing and specialty closure segment delivered another year of strong organic growth and new business wins for our high-value dispensing products, particularly in the high-end fragrance markets. This growth drove margin improvement and a more favorable mix that partially offset the impact of lower volumes in food and beverage products from customer destocking. We successfully recovered our cost in the marketplace and mitigated the impact of a unique situation at one of our U.S. operating facilities that presented discrete labor challenges and drove incremental costs in the operating system during the year. In metal containers, we reported our sixth consecutive year of record-adjusted EBIT. Our long-term contractual arrangements and disciplined pass-through mechanisms helped our business to offset lower volumes and the impact of our own inventory management program in the prior year to grow adjusted earnings. In custom containers, our volumes fell short of the prior year due to continued customer destocking primarily in the second half of the year, and the delay of commercializing new business wins into 2024. As we now turn our focus to 2024, we believe the business is positioned to deliver volume growth, and with the benefit of our cost savings initiatives beginning to impact profitability, we expect to meet or exceed our prior record for adjusted EBITDA. We have seen early signs of recovery in certain end markets for the customer destocking activities that we experienced in 2023, and expect these favorable trends to continue to improve through the first half of 2024. We are expecting dispensing and specialty closures volumes to grow by a mid single digit rate, driven by another year of high single digit growth in our dispensing products and low single digit growth in our closures products, resulting in an improved mix for the segment. Metal containers volumes are expected to grow by a low single digit percentage, driven primarily by mid single digit growth in pet food. Custom container volumes are expected to be comparable to prior year levels with more pronounced stocking in the first quarter, offset by growth driven by new business wins in the subsequent quarters of the year. As we enter 2024, we continue to make progress and execute our strategic priorities. We have taken strong actions to effectively manage the factors within our control and believe the company is positioned for earnings and free cash flow growth in 24 and beyond. Our customer partnerships remain strong. We continue to compete and win in the markets we serve. Our strategic growth initiatives continue to shape the company's future, and our disciplined capital deployment model continues to create significant value for shareholders. With that, I'll turn it to Kim, who will take you through the financials for the quarter and our estimates for the first quarter and full year of 2024. Thank you, Adam.
spk05: As Adam highlighted, our business continues to deliver strong financial results despite several headwinds in 2023 as we achieved our second highest adjusted EPS in the history of the company and once again showed that our business performs well despite challenging economic circumstances. We continue to convert our profits into strong cash generation in 2023 and use our cash to return over $250 million to shareholders, including $175 million through share repurchases. We used our remaining cash to deleverage near the midpoint of our target leverage range, and our balance sheet remains strong as we enter 2024. Turning to the fourth quarter 2023 results, net sales of approximately $1.3 billion declined 8% from the prior year period, driven primarily by lower volumes in each of our segments. Total adjusted EBIT for the quarter of $135.9 million decreased by 9% on a year-over-year basis. with record adjusted EBIT in dispensing and specialty closures and higher adjusted EBIT in custom containers offset by expected lower adjusted EBIT in the metal container segment. Adjusted net income for diluted share declined $0.22 from the record achieved in the fourth quarter of 2022, with lower volumes and higher interest expense of $0.06 driving the year-over-year decline. Turning to our segment sales, sales in our dispensing and specialty closure segment declined 3% versus the prior year, primarily as a result of lower volume mix of 5%. The decline in volume was driven primarily by customer destocking activities in domestic food and beverage markets and double-digit declines for higher volume metal closures for international food and beverage markets. Record fourth quarter 2023 dispensing and specialty closures adjusted EBIT increased $12.4 million versus the record achieved in the prior year period as a result of strong cost recovery and lower manufacturing costs, which are partially offset by the impact of lower volume. In our metal container segment, sales declined 10% versus the prior year, excluding a 2% impact from Russia sales in 2022. Lower volume in several product categories drove a 7% decrease as customer destocking priorities continued to weigh on order patterns throughout the quarter, but showed improved trends relative to the year-over-year declines in the third quarter of 2023. Price mixed with negative 4% in the quarter, which was partially offset by a 1% improvement in foreign currency translation. As expected, metal containers adjusted EBIT was below the record level in the prior year quarter, primarily due to the prior year benefit of inventory management, which did not repeat in 2023, and lower volumes as a result of customer destocking. In custom containers, sales declined 5% compared to the prior year quarter, driven by a 2% decline in volumes, the pass-through of lower resin costs, and a less favorable mix of products sold. Custom containers adjusted EBIT increased $1.8 million as compared to the fourth quarter of 2022, primarily due to improved cost management, which more than offset the impact of lower volume. Looking ahead to 2024, we are estimating adjusted net income for diluted share in the range of $3.55 to $3.75, a 7% increase at the midpoint of the range as compared to $3.40 in 2023. This estimate includes corporate expense of approximately $25 million, interest expense of approximately $170 million, a tax rate of 24% to 25%, and a weighted average share count of approximately 107 million shares. Appreciation is expected to increase $15 to $20 million on a year-over-year basis and be in the range of $225 to $230 million. At the midpoint of our 2024 adjusted EPS range, we expect to meet or exceed the record levels of adjusted EBITDA achieved in 2022. From a segment perspective, a mid-single digit percentage total adjusted EBIT growth in 2024 is expected to be driven primarily by the dispensing and specialty closures segment, with slightly higher adjusted EBIT in the metal containers and custom container segments relative to 2023 levels, due to the impact of anticipated customer destocking in the first half of 2024. Based on our current earnings outlook for 2024, we are providing an estimate of free cash flow of approximately $375 million, a 5% increase from 2023, as earnings growth in 2024 will be partly offset by higher CapEx, which we expect to be approximately $240 million, and by approximately $30 million of cash costs to support our cost reduction program, including additional working capital to facilitate the program. Turning to our outlook for the first quarter of 2024, we are providing an estimate of adjusted earnings in the range of $0.60 to $0.70 per diluted share as compared to adjusted net income per diluted share of $0.78 in the prior year period. The year-over-year decline in adjusted earnings in the first quarter is driven primarily by lower volumes, the impact of the sell-through of higher-cost inventory from the prior year in our European metal operations, and higher interest expense. First quarter 2024 adjusted EBIT is expected to be above prior year levels in dispensing and specialty closures, with a low single-digit decline in volumes driven by customer destocking more than offset by improved profitability and stronger mix. First quarter 2024 metal containers adjusted EBIT is expected to be slightly higher on a sequential basis from the fourth quarter of 2023, but down approximately 10 million year-over-year, due to a low single-digit percentage decrease in volumes as a result of continued destocking and the sell-through of higher-cost inventory from the prior year due to a double-digit percentage decline in steel costs in Europe in 2024. Adjusted EBIT in the custom container segment is expected to be stable on a sequential basis but below prior year levels due to continued destocking trends as sequential volumes remain stable but year-over-year comparisons become more difficult in the first quarter. Volumes in the custom container segment are expected to improve throughout the year as new business winds ramp up and destocking is expected to abate. That concludes our prepared comments, and we'll open up the call for questions. Ana, would you kindly provide the directions for the question and answer session?
spk07: Yes, ma'am. Thank you. And if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Also, you may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 if you would like to ask a question. And we'll take our first question from George Staffos with Bank of America.
spk04: Hi, everyone. Good morning. Thanks for the details. And congratulations on the progress in the year. I guess the question I had first on destocking, I think you said you expected to continue through the first half of the year. Destocking has been going on for a long time now. How should we think about, if I heard that correctly, how that will vary across the segments? What gives you confidence after what's been an extended period of destocking that we're getting close to the end of it? And then a related volume question, what are you seeing in soup for metal? We've heard that things have seen some pick up there. If you had some thoughts around that, that'd be great. One other follow-on.
spk09: Sure, thanks, George. So de-stocking, I know we talked about it a little bit on the last call, but let's just try to put de-stocking in a few buckets. So the COVID items that saw a significant surge during the COVID pandemic period created a de-stocking item as we came out of the pandemic. And those are things like lawn and garden, some of our hard surface cleaners, you know, health products and hand sanitizers, those types of products. Those, you know, went through a destocking phase post-pandemic, and essentially those products have now fully recovered as we exit 2023. So some of the early signs of recovery that we're going to talk about, I'm sure at some point on the call, are the, you know, items like our trigger sprayers. We did see sustained double-digit recovery later in 2023 and are expecting that growth to continue in 2024 as well. So that's the first part of destocking. Then we ran into a bit of food and beverage destocking, some challenges in Europe with inflation, et cetera. So it expanded to other categories once we got through the pandemic. I think for the most part, we're seeing those now dwindle. And really, it's just a few dribs and drabs that are carrying into 2024. The last item I would call de-stocking, George, is the pet food item that we talked about on the last call. And it occurred later in the cycle. Really, the fourth quarter played out almost exactly like we thought it was going to with pet food. And as we look forward into 2024, we'll have some continued de-stocking in pet food for sure. Some other categories, again, the trends are improving. And what I would say about pet food is, Um, you know, we're going to see nice growth in the full year of 2024. When the stocking ends for pet food is, is somewhere between that, you know, end of first quarter into the second quarter. So we're, we're saying through the first half of the year, and we should be beyond the stocking at that point. So I think is, you know, to answer your question, how should you think about it? I think it's dwindling in, in Q1. You've got the impact of pet food that we've talked about. And as we cycle out of the second quarter. we think we'll be beyond the destocking activities.
spk04: And so the related question I had was just, what are you seeing in soup? And then my follow-on, and I'll turn it over. So as we think about 2024 and the discrete items, the things that are relatively in your control, however you want to define it in terms of earnings gains, you have the cost-out program, you have some new wins. What should we bake in for this year, not that it's ever easy, relative to 23. And I'll turn it over there.
spk09: Okay. Good question on soup. Sorry I missed that on the first round there. You know, we had talked on the last call that we were not only anticipating but seeing some further promotional activity in our food markets, particularly in soup. Soup did have a good quarter in the fourth quarter, CMI data. showed nice recovery and growth in soup. And I think from our perspective, George, soup sort of played out exactly like we thought it was going to for the course of the year. We knew that or we anticipated that soup was going to have a more normal soup filling season than maybe what we had seen in 2022. And that's really what happened. So, you know, for the year-on-year comps, it was difficult through the summer when soup isn't typically filled. but as we now get into, call it Q4, we're seeing a normal soup season. We're also seeing, I think, the positive impact of some of the promotional activity that our customers have done, and it seems to be resonating with consumers. So, you know, part of that is what also gives us confidence back to your original question in 24. You know, there are actions that our customers have taken from a promotional standpoint to begin to refocus on returning value to consumers and potentially driving volume. And we're seeing some green shoots as we sit here today. And maybe the last question, George, you know, just how you should think about all the items that come together. Obviously, they're all encompassed in our guidance as we think about 2024. And, you know, you go across the segments. Sure, we have the one plant in the U.S. dispensing and especially closure segment. That's fully recovered. Those costs as we expected were going to be reduced as we got through the end of the year and each quarter we made progress and really those costs have now been driven out of the system as we sit here for 2024. Maybe the last one and I can move on, but the new wins in the custom container business. You know, we talked about the first one coming on sometime in Q1. We're right on track. That'll be commercialized. We are fully qualified. just in the final stages of commercializing right now. And the second large item is kind of a mid-year qualification and commercialization. So we're feeling very good that those are on track and on time. And then finally, the first piece of our $50 million two-year program, those savings are expected to hit in 24. And as we said on the last call, the savings will be about 40% of the total. We think we'll be at a run rate of call it $20 million of savings as we exit 24 and heading into 25.
spk04: Okay, thanks. I'll turn it over.
spk07: We'll now take our next question from Matt Roberts with Raymond James.
spk12: Hey, good morning, everybody. Thanks for taking the questions here. Adam, if you could just please expand on in regard to George's question earlier on pet food. I believe I heard 2024 you're expecting mid single digit growth rate in that. Correct me if I'm wrong, please. But that was going to be dampened in first key maybe into two key from destocking. So if you could provide any additional color into how inventory levels were exiting 2023 and what indications are there that potentially more supply is coming online or I'm just trying to reconcile getting to mid-single-digit growth there after destocking the first half.
spk09: Sure. And you're right. So there is some continued destocking in the first quarter. I think we're being a little cautious, Matt, because, you know, as we've seen in other categories, that destocking does sort of linger on just a little bit longer. So, you know, we're working closely with our customers. And as you well know, we're near-site or on-site with many of those customers in this category. So we've got really good – visibility into what their filling plans are for 2024. They've added some additional capacity as well, so that's helpful. So, you know, as we think about it for the year, you've got some destocking activity that'll cause a difficult comp for us in the first quarter, and we will see growth the remainder of the year in PEP food. And on a full year basis, again, remember, you know, our first quarter and fourth quarter are two seasonally smallest quarters in the metal containers business. So, you know, we anticipate nice growth for the full year as we sit here in wet pet food.
spk12: Okay, that's very helpful. Thank you. And then on high value or beauty and fragrance, and I might have missed this in the prepared remarks as well, but I believe in the release, you said further growth in 2024. How does that compare to the growth rates you saw in that category in 2023? And what factors are driving that for either higher or lower than 2023? Is it new products or new customers or just any additional color on that high value? It would be great there. Thank you.
spk09: Sure. You know, it's a highlight for us. It's an area where we've been, you know, winning in that market for sure. We've seen really nice growth and I I would say we're still expecting significant growth in that particular sector sector. It's just it's moderating just a little bit. So, you know, instead of, you know, very consistent kind of, you know, mid double digit levels will be kind of low double digits, high single digits as we look forward into those products. And that's that's still going to volume. So I think we're going to be ahead of the market for whatever that's worth. And again, we've added capacity as well to support that continued growth. So That growth comes with new product launches. It comes with innovation. It comes with growing customer relationships. So, you know, we're having a lot of success in that market because we are doing what Silicon does. We are standing and delivering on our commitments and, you know, winning with innovation in that market.
spk12: Great. Good to see you. And thank you all again for the time.
spk09: Thank you.
spk07: We'll now take a question from Gabe Hoddish with Wells Fargo.
spk02: Good morning, everyone. Thanks for the detail. I had a question about, I guess, Adam, as we look at the guidance and positioning for the business in the 24. Fast forward, we're having this conversation. You talked about closing five facilities as part of the $15 million cost-out initiatives. I know it's sensitive to talk about it in a format like this, but... there other plant consolidation efforts that you have to execute against and maybe what are the biggest risks um against kind of getting to that 20 million dollar run rate number or do you all feel like that's that's pretty well in the bag and and then maybe upside from there thank you sure and they are tough decisions gabe and and what i would say is the five that we've announced to date go
spk09: a long way to supporting the $50 million in total. Unfortunately, it doesn't get us all the way there, so there will be some additional activity, you know, followed over the course of the next 12 months that we'll be engaging in. You know, those are fluid plans, and we're continuing to evaluate. And, you know, from my perspective, Gabe, this is nothing new for SILGEN, unfortunately. You know, we've had such a – it's not unfortunate. Fortunately, we've had such a focus on driving cost out of our operations over time, that this is just kind of, you know, the next page in the playbook. And, you know, we're responding, as we said, we're going to right-size our capacities to market demand, and we've done that. We're doing that. And we're continuing to evaluate where additional opportunities to drive cost out of the system can take place. So you should assume that there will be some more activity in the course of 2024 to get us to the total $50 million by the end of 2025.
spk02: Thank you. Maybe, Bob, one for you. It seems like some of the cobwebs are getting cleared out of the M&A markets. We've seen a couple things rattle loose here. You know, that's been a pretty big value driver for Sylvan, historically speaking. Again, to the extent you can comment, I know you guys are always trying to be busy there, but anything that you're getting excited about or... that we could be talking about maybe in 24 and or uses of cash if that doesn't come into fruition, balance sheet closer to three times leverage. Do you see the stock as attractive at current levels?
spk11: Yeah, look, I think you hit on the strategic priority, right? I mean, and it hasn't changed, quite honestly. You know, we continue to be active even when the market isn't active in terms of building relationships and making sure we understand what could come to market and when that may be. We probably are aligned with your thinking that it is starting to work itself out in terms of folks thinking that 2024 is a point in time where they will bring properties to market. I think given what's going on with the credit markets right now, that probably facilitates some of that. We do think that we're continue to be advantaged in those opportunities. None of that ensures that a deal will happen, of course, but we're excited about getting back to the activity that we view as a strategic priority, and that's the way we would choose to want to grow the business. Likewise, if nothing does happen, then we'll pull other levers to make sure that we create good returns for the shareholder. As you said, that could be in a debt reduction mode to preserve capacity, or it could be in continued share of purchases. And we will look at that as to where we believe the best return for the shareholder is going to be.
spk02: Okay. One quick follow-up. Do you feel like maybe just from conversations that seller expectations have been adjusted or starting to adjust in the right directions, to accommodate or compensate for the rising cost of capital?
spk11: Yeah, I don't know if you ever get entirely reconciled from a buyer and a seller perspective, but I do think given a lot of the friction that's happened around some of the deals in the market more recently, I think there's a realization that maybe peak levels are gone anyway. So I think there's negotiations to be had, and that's typically where we do well.
spk02: Great. Thank you.
spk07: We'll take our next questions from Gunshan Banshavi with Baird.
spk00: Thank you. Good morning, everybody. Hey, Adam, going back to some of the comments you made earlier, you know, it's still very early in the fourth quarter earnings season, but some of your customers and the retailers, I mean, there definitely seems to be a new tone towards a different tone, I should say, towards promotional spending and also, you know, product innovation and so on and so forth. to increase volume velocity. And so that seems pretty clear on the human food side, if you will. How does that sort of manifest on the pet food side? Because pet food is quite large for you relative to years past. Just curious as to anything you can highlight in terms of conversations with customers, apart from just the obvious of going through a bit more destocking in that category.
spk09: Sure, and I think you're spot on, Ghanshyam, with the broader food market and that promotional activity. And maybe just to add a comment to what you said, I think the price recovery was really the focus for our customers, certainly in 2023. And I think that conversation has shifted now more to a volume recovery in 2024. And you're seeing, again, the promotional activity advertising, et cetera, in support of that. And what I would tell you about the pet food market is I think there's a small lag to the pet food market following some of those similar patterns as they think about promotional activity. They were a little later to pass through the price to consumers as we were working through inflationary items. And I think they'll just be a little later to look to recover that volume as, you know, with promotional activity, etc. So, you know, I think that's all factored into our guidance. We're having those conversations with our customers. And, you know, there are promotional activity plans for 2024. They're just starting a little bit later than what we've seen in other categories.
spk00: Okay, perfect. That makes sense. And then on dispensing closures, you know, I apologize if I missed this, but the higher margin categories such as fragrances, etc., you know, you're starting to cycle through some more difficult comparisons and so on and so forth, just given the extraordinary growth in those segments. How do you see those evolving in 2024?
spk09: Well, look, I mean, we're competing and winning in that space all day long. So we've invested fairly heavily to support the growth as well. So, you know, we have a really good degree of confidence that those new business wins that we probably haven't talked as much about in dispensing and specialty closures will deliver the growth that we're seeing in that space. So, you know, we have done a very nice job not only getting the new wins, but putting the capacity and commercializing that capacity to support the growth.
spk00: Just to clarify on that, so the categories themselves seem to be relatively intact from an overall standpoint, is that right?
spk09: Yeah, I think I go back to the comment I just made a few minutes ago that, you know, We're seeing some slight moderation from the kind of significant double-digit kind of growth to the maybe low double-digit kind of growth in the category now.
spk12: All right. Thank you.
spk07: We'll take our next questions from Anthony Petanari with Citi.
spk03: Good morning. Um, the EPS guidance, uh, seems to point to kind of stronger year over year growth as the year progresses. And I was just wondering if there's any detail on how the 20 million in cost saves could ramp throughout the year. And if there's any other kind of cost items, you know, resin or freight or in terms of recovery, how those assumptions could kind of impact the trajectory or cadence of year over year growth as, as we go through the four quarters of the year.
spk09: Good question, Anthony, and I think there are really two items to probably really think about. The timing and rollout of the savings associated with the $50 million program. Again, we'll get $20 million of savings by the end of 2024. And really, think about it. We just announced it on the last earnings call. So those programs do need to roll out through the course of the year. So certainly, you'll have greater savings in the back half than what you're going to see in the first half of the year. We have a good degree of confidence we're going to be able to deliver those. Again, it's sort of what we do at Silgan in focusing driving costs out of the organization. I think the other big item to think about is related to our European businesses. And, you know, kind of year over year, as Kim alluded to in her comments earlier, we've got this rollout of high-cost inventory in our European metals business, both in dispensing and specialty closures and in metal containers. There will be a negative in the early part of the year, mostly in the first quarter. And between the two segments, it's something like $10 million of negative impact to the P&L. And again, it's that higher cost inventory rolling out through the P&L. And again, there'll probably be some lingering into the early part of Q2, but most of that should impact the first quarter.
spk03: Okay, that's very helpful. And then maybe just following up on Europe, I mean, can you talk about from an underlying demand perspective what you're seeing and maybe assuming for the year for your European exposure? I guess the lion's share of that is in dispensing enclosures, and maybe you have kind of a mix of more discretionary, more kind of staples-y kinds of products. How do you see the European consumer holding up and if that differs from North America?
spk09: Yeah, so maybe it's a tale of two cities as far as we think about the businesses that we have. So maybe I'll start with the European consumer. You know, again, as we've talked previously, we think it's been a tough environment for the European consumer between inflation and food products, inflation and fuel and light and power. You know, there's a lot of inflation the consumer's taken on. And they have adjusted their spending habits. So, you know, we've seen that in more discretionary items, frankly, we've seen it in our, in our, uh, metal closures business, particularly in Europe, where we are on more of a premium package with a, a glass package with a metal closure on the top of it. Um, so, you know, for the food and beverage business, I think we're seeing, you know, soft demand. We, we saw a soft demand for the most part. And in 2023, that continues for the most part. We think there should be some improvement in the second half. We've taken a conservative approach to that at this point. And then you think about the balance of our dispensing products. Actually, demand has remained quite resilient in the European economy for those products. And again, we've got some healthcare business. We've got some fragrance. Our high-value dispensers continue to do well almost regardless of the geography and where we compete.
spk06: Okay. That's very helpful. I'll turn it over.
spk07: We'll take our next question from Mike Roxland with Truist Securities.
spk08: Thank you, Adam, Bob, Kim, and Alex for taking my questions, and congrats for finishing the year strongly. First question I have is just on the, Adam, your comment on dispensing specialty closures and the slight moderation that you're seeing in the growth rate at the higher end, you know, growing now low double digits, maybe high single digits instead of mid double digits. What's changed from your perspective? What has changed that now you're growing at a lower rate than you had been?
spk09: Fundamentally, nothing's changed. Again, we see a lot of the same type of opportunities for continued growth going forward. The base has obviously grown quite a bit, so the the absolute dollar value of growth that we're talking about year over year, you know, you're just climbing over a larger base every time you keep growing by, you know, a nice double-digit kind of growth rate. So nothing really beyond that, Mike. It's, you know, a strong market for us in the high-value dispensers, and, you know, we're going to continue to see really nice growth.
spk08: Got it. Okay, so just the base itself is larger, so it's affecting the year-over-year changes on a go-forward basis. But there's no shift in terms of demand.
spk09: That's the right way to think about it from our perspective.
spk08: Got it. Okay. Thank you for that, Adam. And then just quickly on the cadence of dispensing, especially closures volumes in 2024. If I heard you guys correctly, you're expecting volumes to be up mid-single digits in 2024. You still are calling out persistent weakness in domestic food and beverage and metal closures in Europe. That's something that's played to you for a bit now. So, I mean, is it fair to say that, you know, volumes will be, you know, weaker 1Q, slowly getting better in 2Q, and then could be up more prominently in the back half of the year?
spk09: Yeah, I think you've got the cadence exactly right. And, again, the destocking as it relates to dispensing and specialty closures really is, you know, the kind of the ending of the food and beverage, you know, destocking activities that we've been talking about. So we anticipate that to be mostly a first quarter item. And we should see that inflection point, call it, you know, late in Q2. Got it.
spk08: If I could sneak in one more, just real quick. You mentioned promotional activity starting to improve, and pet food's going to be a little bit later. But where are you seeing, what end categories, what markets are showing increasing promotional activity from your vantage point as we speak today?
spk09: Yeah, and it's an interesting question because, for the most part, we see it across almost all of our categories. You know, we've been having a lot of conversations with our customers about their promotional activity. And, you know, most of those comments back relate to the consumer has really been trained to buy product on promotion right now. And it's an interesting concept. And, you know, you kind of fast forward that to all of our categories. We certainly see it in food. We do see it in beverage. We see it at home care. We're seeing it in lawn care, you know, in advance of lawn and garden season. I just think it's applying just about everywhere with different degrees of promotional activity, but there is promotional activity across most of our segments right now. I would say I'll exclude high-end fragrance and beauty because there's really no need for promotional activity there. That's a different consumer set and a different value proposition.
spk08: Got it. Thanks very much, and good luck in 24. Thank you.
spk07: Our next question will come from Daniel Rizzo with Jefferies.
spk01: Good morning. Thank you for taking my question. Given the customer wins you had and what you're seeing right now, can you hit the high end of your guidance for 2024 without restocking, or does that assume a little bit of a restock cycle maybe in the back half of the year?
spk09: Yeah, good question. Obviously, as we think about the guidance that we give, it does factor in a range of outcomes. know for the most part we don't need a full recovery of of the markets to get to the high end of our range but you know it would it would take some volume growth in our in each of our segments to get there and i guess just to converse with that to hit the bottom end that assumes that things just don't get better or that there's some sort of demand decline or something or just corrections Yeah, I think, you know, again, we're anticipating some nice, you know, recovery and growth in certain categories for 24. So, you know, if that does not happen and there is some other geopolitical item, you know, that would force demand to retract a bit, that's how you get to the lower end of our guidance.
spk01: Okay, and then final question, you know, you mentioned a lot of new contract wins, some coming in the middle of the year. I was just wondering, historically speaking, is there sometimes timing issues where customers delay commercialization or things get pushed out, or does that, I mean, or is generally what you see what kind of happens if you follow?
spk09: Yeah, I do. You know, what I would say, Dan, is that, you know, the large contract commercializing in the first quarter is was originally identified to commercialize in 23. And while that's disappointing, what's one of the great things about, you know, Silgan's disciplined, you know, approach to these customer arrangements is the contract doesn't start until it's commercialized. So while it's, let's call it six months later than we anticipated, we do get the full term of the agreement, you know, that we had negotiated and agreed upon with the customer. The second item that's commercializing mid-year was also supposed to be a 23 item. So, unfortunately, they both got delayed. But the good news, as I said, the one in the first quarter, you know, we are fully qualified and are commercializing literally as we speak. So, you know, we are right on track with commercializing both of those new business wins as we sit here today.
spk01: All right. Thank you very much.
spk07: We'll now take a follow-up from Gabe Hutch with Wells Fargo.
spk02: Thank you. Just hopefully one fairly quick, Adam. My antenna went up when you talked about, I think, low double-digit decline in tinplate steel, and that may be impacting order patterns on the food can side. I'm just curious if it's isolated to that or if there has been any other material movements that may have influenced customer order patterns, buying patterns, and then, I guess, Relatedly, if in fact that is the case, operating rates maybe in our metal containers business were a bit below what you were expecting in the fourth quarter, and so we need to be mindful of that in Q1 and Q4 of 2024.
spk09: Interesting question, Gabe. I'll start, and we'll probably just work around the horn here as we try to put an answer for you. First of all, I think with that kind of steel change, We didn't really see a lot of customers delaying purchases from Q4 into Q1. So I'll say that up front. We're going to get more visibility of that as we now cycle through the rest of Q1, but we just don't think that really happened in Europe. And so I don't think there's a whole lot that we're going to have to think about for Q4 either. I think we should have that conversation at the end of our Q1 call because we'll have a lot more visibility. And then I just think, you know, the cadence for the year, there's just not much else to think about for Europe. You know, we're going to get through some of the other recovery of inflation items that the consumers had. And, you know, we see a pathway to, you know, better volumes later in the year for the European business. But, you know, as we sit here today, we're just taking a cautious approach.
spk06: Okay. Thank you.
spk07: And as a final reminder, that is star 1 if you would like to ask a question. And we'll pause for just a moment.
spk06: And it appears there are no further telephone questions.
spk07: I'd like to turn the conference back over to our presenters for any additional or closing comments.
spk09: Great. Thank you, Anna. Thanks, everyone, for your interest in CILGN. And we look forward to reviewing our first quarter results after the first quarter.
spk07: And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.
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