Silgan Holdings Inc.

and welcome to the Silgan Holdings Second Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Alex Hutter, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning.

Joining me on the call today are Adam Greenlee, President and CEO, Philippe Chevrier, EVP and COO, Bob Lewis, EVP Corporate Development and Administration, and 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 2024 and other filings of 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 for diluted share, or adjusted EPS. 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 silganholdings.com. With that, let me turn it over to Adam.

Thank you, Alex, and we'd like to welcome everyone to Silgan's second quarter earnings call. Our second quarter results showcase the structural changes that have been taking shape in our business over the past decade as our teams continue to build upon the momentum in our business and delivered 15% adjusted EPS growth and a record adjusted EBIT driven by the success of our strategic initiatives, the strong operational execution of our teams, and the benefit of our capital deployment model. Our second quarter and first half results have shown significant organic growth in dispensing and pet food markets, the integration of the Vayner acquisition, and the success of our cost reduction initiatives that have resulted in first half adjusted EPS that is 17% above the prior year period. record first half adjusted EBIT, and record first half adjusted EBITDOT. Our dispensing and specialty closure segment showed significant year-over-year growth and delivered another quarter of record adjusted EBIT, with over 40% growth in dispensing products and continued success in the markets we serve. Our market-leading innovation and design capabilities, the strength of our long-term customer relationships, and the execution and focus of our teams continue to set us apart in the market and drive organic growth that outpaces our peers and the end markets we serve. We have made meaningful progress in the integration of the Vayner acquisition from a cultural, synergy, and product portfolio perspective. And we have been very pleased with the incremental opportunities our teams are continuing to uncover to leverage both our global commercial presence and our expanded product offering to drive accelerated growth well into the future as a result of this combination. We continue to have success with new and existing customers in our core high-end fragrance and beauty, personal care, and home care markets, and are seeing incremental opportunities in healthcare and pharma markets as well. Our dispensing momentum remains strong into the second half of the year as we execute on our near and long-term priorities in this rapidly growing high-value portion of our business. Volumes for our North American beverage specialty closure products, particularly in the hot-fill markets, fell short of our expectations entering the quarter due mostly to cool, wet weather experienced in much of the country during the second quarter. Additionally, with weather impacting consumption patterns in the first half, our customers have adjusted their promotional spending plans to reflect the lower consumption patterns during this period, which further impacted our volumes. While weather conditions have improved as we enter the third quarter, our expectation is that the missed consumption occasions for these beverages in the first half of the year will not be recovered in the balance of the year as our customers work through the inventory they built for the peak season. In metal containers, we continue to see strong demand for our pet food products, which grew by a mid-single digit percentage in the second quarter, driven by our strong presence in the fastest growing portions of the pet food market. As expected, our total volumes in the second quarter were comparable to prior year levels, mostly as a result of the timing of orders for containers for soup markets in the first half. Our adjusted EBIT performance in metal containers during the second quarter was 21% above the prior year period, driven by a more normalized production environment relative to the prior year. In custom containers, our business delivered strong operating performance and experienced continued success in the marketplace, comparable volumes grew 2% after adjusting for the impact of lower margin business exited as a result of our cost savings initiatives. As expected, our adjusted EBIT margins expanded 190 basis points as a result of our cost reduction activities. With our strong start to the year, we remain confident in our ability to deliver on our strategic objectives and achieve significant earnings growth in 2025. and our expectations for continued growth in dispensing and pet food products remain unchanged. We continue to expect dispensing organic volume to deliver another year of high single-digit growth, but we now expect the adverse weather impact on our hot-filled beverage specialty closures volumes in North America in the second and third quarters to impact segment-adjusted EBIT by approximately $10 million for the year. Our metal containers volumes are on track to grow by a mid-single-digit percentage, driven primarily by mid to high single-digit growth in pet food and a partial recovery in fruit and vegetable pack volumes. Unfortunately, a recent customer bankruptcy in North America that has resulted in that customer exiting certain markets is expected to impact metal containers adjusted EBIT by approximately $10 million in the second half of 2025. In custom containers, with the annualization of the new business that ramped up in 2024, as well as additional new business awards in 2025, we continue to expect comparable volumes to grow by a mid-single digit percentage this year. We remain focused on the opportunities that lay ahead for the company and are confident in our ability to execute in our plan as the structural changes and evolution in our portfolio have positioned us to drive significant growth in our business in the near term and long term. Our financial performance remains strong, And we are pleased that we are positioned to achieve a 9% increase in adjusted EPS and exceed $1 billion in adjusted EBITDA at the midpoint of our estimated adjusted EPS range in 2025. With that, Kim, we'll take you through the financials for the quarter and our estimates for the third quarter and the full year of 2025.

Thank you, Adam. As Adam highlighted, we reported another quarter of strong financial results in the second quarter. driven by the continued success of our dispensing business, more normalized production of metal containers, and the execution of our cost reduction plan. Net sales of approximately $1.5 billion increased 11% from the prior year period, driven primarily by growth in dispensing products, including the addition of the Vayner business, and the pass-through of higher raw material and other manufacturing costs in metal containers. Record total adjusted EBIT for the quarter of $193 million increased by 17% on a year-over-year basis, driven by strong growth in dispensing products, including from the acquisition of Vayner, improved price cost in metal containers, and the benefits of our cost reduction efforts resulting in higher adjusted EBIT in all segments and record adjusted EBIT in the dispensing and specialty closure segments. Adjusted EPS of $1.01 increased 13 cents or 15% from the prior year quarter. Turning to our segments, second quarter sales in our dispensing and specialty closure segment increased 24% versus the prior year period, primarily as a result of the inclusion of the sales from Vayner and higher organic volumes of dispensing products. Due to the rapid integration of Vayner and the overlapping customers and products, organic volume mix calculations have become less meaningful for the segment and for dispensing products in particular. Volume for food and beverage specialty closures declined 3% during the quarter, driven by a mid-single-digit decline in North American beverage products, predominantly in hot sale markets. The decline in North American beverage volume was a result of cool, wet weather in the second quarter, which drove lower overall consumption of these products, and as a result, lower promotional activity. Record second quarter 2025 dispensing and specialty closures adjusted EBIT increased $15 million, or 16%, versus the prior year period as a result of the contribution from Vayner and higher organic volumes of dispensing products. The previously discussed decrease in North American beverage volumes resulted in an approximately $5 million year-over-year headwind to adjusted EBIT in the second quarter. In our metal containers segment, Sales increased 4% versus the prior year period as a result of failable price mix due to the contractual pass-through of higher raw material and other costs, and a 1% benefit from foreign currency translation. As expected, unit volumes during the quarter were comparable due to mid-single-digit volume growth in pet food and higher volume for fruit and vegetable markets, partially offset by lower volumes for soup markets, primarily related to the timing of orders during the first half of the year. Metal containers adjusted EBIT increased 21%, primarily as a result of favorable price costs due to a more normalized production schedule and better fixed cost absorption relative to the prior year quarter, which was impacted by a customer's reduction of their fruit and vegetable pack plans mid-year. In custom containers, sales decreased 3% compared to the prior year quarter. driven by a 2% decrease in volumes due to the exit of lower margin business as a result of a planned footprint reduction to achieve the previously announced cost reduction goals. Excluding the lower margin business exited to achieve cost reduction plans, volumes increased 2%. Custom containers adjusted EBIT increased 11% as compared to the second quarter of 2024, primarily due to favorable price costs, including mix, as a result of cost savings initiatives. Looking ahead to the full year of 2025, we are revising our estimate of adjusted EPS from a range of $4 to $4.20 to a range of $3.85 to $4.05, a 9% increase at the midpoint of the range as compared to $3.62 in 2024. The revision in our estimate of adjusted EPS is the result of lower volume expectations for specialty closures in the North American beverage market, And the impact associated with certain changes in the market due to a customer bankruptcy in metal containers, which is also expected to impact the second half and full year by approximately $10 million. This estimate includes interest expense of approximately $185 million, a tax rate of approximately 24%, corporate expense of approximately $45 million, and a weighted average share count of approximately 107 million shares. At the midpoint of our estimated 2025 adjusted EPS range, we will exceed the prior record levels of adjusted EBIT and adjusted EBITDA and exceed $1 billion of adjusted EBITDA for the first time in the company's history. From a segment perspective, we now expect a low teen percentage increase in total adjusted EBIT in 2025, driven primarily by an approximately 20% increase in dispensing especially closures adjusted EBIT, a mid-teen percentage increase in custom container segment adjusted EBIT, and a mid-single-digit percentage increase in metal containers adjusted EBIT. Based on our current earnings outlook for 2025, we are revising our estimate of free cash flow from approximately $450 million to approximately $430 million, a 10% increase from the prior year, as earnings growth will be partly offset by higher cash interest and capex of approximately $300 million. This estimate also includes approximately $20 million of cash costs to support our cost reduction program. Turning to our outlook for the third quarter of 2025, we are providing an estimate of adjusted earnings in the range of $1.18 to $1.28 per diluted share. Third quarter earnings are expected to benefit from the inclusion of Vayner, higher organic volumes of dispensing products, and the ongoing benefits of our cost reduction program. These benefits are expected to be partially offset by the reduction in specialty closures volumes in the North American beverage markets and the impact of a recent customer bankruptcy in metal containers. Dispensing and specialty closures third quarter net sales are expected to grow by a mid to high 20 percentage rate driven by strong volumes for dispensing products including the results of Zaner. Metal containers and custom containers third quarter volume is expected to increase by a mid single digit percentage. Third quarter closures and custom container segments are expected to be above prior year levels. Metal container third quarter adjusted EBIT is expected to be slightly below prior year levels as a result of a $5 to $10 million impact related to the previously discussed recent customer bankruptcy. That concludes our prepared comments and we'll open the call for questions. Rachel, would you kindly provide the directions for the question and answer session?

Thank you. If you are dialed in via the telephone and 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. Again, please press star 1 to ask a question. To remove yourself from the queue, please press star 2. We will pause for just a moment to allow everyone an opportunity to signal for questions. And we will take our first question from Matt Roberts with Raymond James.

Hey, good morning, everyone. Thank you for taking the question. First, on metal, maybe you could help me understand that customer. I believe they used to be 3% of revenue. They cut 30% last year, so call it about 2% of revenue now, if my math is right there. How much of a hit to volume was that in 25, and what categories did that expand to versus 24? Or maybe longer term, thinking out to 26. What's a worst-case scenario? 2% revenue goes away. How much would EBIT be down in 26? Are there any assets or facilities that are co-located or dedicated to this customer? What is a more likely scenario for 26? Any additional clarity would be great there. Thank you.

Sure. Thanks, Matt. You know, obviously it was a recent filing that one of our large customers went into bankruptcy proceeding. So we've been dealing with that for a little bit of time now. And one thing I would say, just to be really clear, our company and our teams did a great job of protecting to any downside financial risk related to that filing. So our teams worked very hard and diligently to make sure there was no financial impact of the filing itself. Now as we pivot and move forward to the ongoing operations, there's a couple things to think about. One, you know, you're right, it's a large customer. You can probably figure out for yourself who that might be. We've got near-site, on-site locations that are competitively advantaged to any other potential supply scenario that that particular customer could consider. We continue to operate under our contract as normal. And we are working really hard to help them have a successful 2025 PAC. And as they ramped into the bankruptcy proceeding, they've been operating under an asset light strategy. So by that, I guess I would say they've been sort of shedding some of their operating facilities and moving some of their volume to co-pac. And that's where really the impact is where we're feeling it this year. They've closed a couple of facilities. And I won't give you the specific market that they closed those facilities for. They've moved most of that volume. They've lost some share. They've moved most of the remaining volume to COPAC locations. And in some instances, we are the supplier of that COPAC location. In some instances, we are not. So where we are not is where we would have a potential problem. shortfall in volume that we've now included in our forecast for the remainder of the year. The bankruptcy proceeding should conclude sometime probably in the first quarter of next year. So we'll, like I said, work really hard to help them have a successful 2025 PAC season. Anything beyond that would be speculation, but I'll just reiterate what I started with is we have competitively advantaged facilities onsite or near site to the filling locations. And that's proven for about 38 years to be a very effective business model.

Thank you.

I really appreciate all that. Sorry, maybe just one last thing. You know, look, if the volume doesn't come back or the volume doesn't stay, you know, we have a long track record of right-sizing our capacity to the demand levels of our customers, and we'll absolutely do that here. I think we're premature in saying that at this point because we don't know what the final outcome is. is going to be, but clearly that's a core part of our strategy. We do right-size our capacity to the demands of our customers, and we'll continue to do that. We'll have cost-out opportunities if we need them.

Okay. Certainly. Really appreciate all the color there, Adam. Maybe if I might ask another one on the dispensing side. Anyone can take it, but I know, Kim, I believe you said mid-teens, 25 EBIT increase, where I think last quarter you were expecting 20%. So my math says that's about a 20 million shortfall, and beverage was 10 of that. Am I missing anything there, or maybe my math is wrong? And on the dispensing side, I think you still said you expect high single-digit volume and mix, but hard to parse that out with Vayner now. So is that high signal-digit volume mix inclusive of Vayner, or could you discuss how Vayner is done versus 24 and your legacy dispensing volumes in 25 and just any color on end markets and dispensing, how that's performing amid tariffs or whether it's fragrance, beauty, and the likes? Any additional color there would be great. Thanks again for taking the question. Sure.

No problem.

And I think maybe you were a little high on your increase – Yeah, Matt, think about, you know, mid- to high-teens percentage increase. The impact from, as Adam said, from the hot-bill beverage is about 10 million, so no reduction to the balance of the business.

And that's the important point. The only thing we're dealing with here in this conversation are the two discrete items that we outlined in the comments earlier. The balance of the prospects and forecasts for the business remain. And then I think, Matt, you know, you think about dispensing volume. Yes, we're seeing significant growth. I mean, it's really interesting. We've acquired 42 companies in our history at Silgan, and we've done a pretty good job of integrating all of those businesses. And it should be no surprise to anyone that Boehner is already not fully integrated, but we've made significant progress. So the synergies are right on track where we expect it. What's really interesting is some of the growth opportunities when you think about the global footprint, you think about the broadening of our basket of products we take to our customers, we're finding more opportunities than what we had initially identified. And as a reminder, we don't include those commercial synergies in our estimates when we set our synergy estimates at the beginning or the announcement of the acquisition. So we're feeling really good about it. It gets harder and harder to parse out our legacy volume from Vayner because we are making investments into Vayner facilities. And one thing I would say is, remember, those facilities are very well capitalized and carry with them a slightly higher depreciation. So if you think of EBIT margin, maybe the incremental EBIT margin didn't appear to be as robust as you would have thought. But when you get to the EBITDA margin level, we're delivering exactly what we would have expected from the Vayner acquisition. And then the last point I'd make in DSC is you've got this powerhouse in fragrance and beauty for our products that continues to perform. And what we've seen a good indicator of future market needs is our sampler platform. I'll just say we continue to essentially be sold out in samplers and volume has been very, very strong. our fragrance and beauty volumes are accelerating in the second half of the year. So we're expecting significant growth in the back half of the year with new product launches. And I think many of our customers in the prestige and high end of this market segment have been talking about new product launches on their public calls and talking about how these products continue to perform versus some of the other portfolio products they have in their in their company, and we feel really good about high-end fragrance and beauty, and our customers do too. They continue to invest, and we're right there with them to support them for their growth.

Adam, thank you again for all the detail there and correcting my user error. Back to math class I go.

Thanks, Matt.

Thank you. And we will take our next question from George Staffos with Bank of America.

Hi, everyone. Good morning. I hope you're doing well. Thanks for the details. Hey, Adam, I know you've already said you don't really want to get into the organic legacy growth question on dispensing, but I want to give it one more shot if you can answer the question this way. I mean, clearly, you know the number of parts, you know the number of units you're shipping, and you probably knew what Vayner was doing at the time you acquired it. If we sort of stopped the clock at that point with Vayner's units being what they were and you measured all the other incremental growth from here as growth and legacy, what kind of growth would that show? X beverage? Is there any way you can talk to that?

Sure. And George, you're exactly right. I think we can do that. We obviously have done that. but there's a little bit of mathematics that it takes to get there and you're making some assumptions too. So maybe let me be really clear. Our legacy dispensing products are in the mid to high single digit growth rate in the quarter, which is right in line with our expectations. So the business continues to perform. There are no issues whatsoever. You mentioned hot fill beverage. Unfortunately with the wet, cool weather that we talked about, you know, our, our, customers did pull back a bit on their promotional spending in the second quarter as they saw really limited opportunity for consumers to be out about enjoying their sports drinks, as an example, given that it was raining just about everywhere. I think one of the anecdotal comments from a customer was that they didn't put in their forecast for the year 25 consecutive weekends of rain in a particular market that they served. Those are the kind of issues we're dealing with. It is really, I mean, we mentioned food and beverage in the press release, but this is really a North American hot fill. You can call them isotonic, sports drinks, on the go, whatever you want. It's those products that people typically enjoy when they're not in their home and out doing activity.

Sure. And at the end of the day, the customer is the customer. You're not going to dictate to them. They're going to ask you to help them in the market. But with that being said, you knew there was a but coming. All right. So it's not going to rain 52 weeks out of the year. Presumably they are going to need to defend share in the third quarter and even into the fourth quarter and football season. What are they doing in terms of promotional activity? Why have they Why haven't they at least dialed it back up to capture that portion of the market, again, to the extent that you can comment, and what might it mean for your business for the rest of the year? Last question for me, and I'll turn it over after this and come back. So soup was down. You mentioned it was timing. What is the outlook for third and fourth quarter, and how is that factored in? And then, yeah, I'll turn it over there, and I'll come back. Thank you.

Okay, thanks, George. Back to the hot fill segment for just a second. So it's a great question, one that obviously we're working really hard to understand with our customers, too. So there's a couple things. The preseason filling for hot fill beverages, sports drinks, et cetera, really starts in February and March. So they're building inventory to support the demand of the season, you know, call it late in the first quarter through the second quarter and through the summer. The reality is with the lower consumer demand that we've seen, they've actually built a little bit of inventory, nothing to be worried about, but they're going to burn off their inventory. And then the reality of that market is, you know, there's a summer season for sports drinks and the shoulders is just less demand. There is less demand. So, you know, there is going to be a recovery. It's highly unlikely that's in 25. It will be in 26. And again, we're not going to try to, forecast weather for 26 at this point, but there's nothing about the underlying demand and our customers' position. They are very focused on maintaining or growing their market share, and usually that plays out pretty well for the packaging suppliers. So we feel good that there's a recovery. It's just unfortunate that it's going to be beyond the current calendar year. And then when you think about soup, you know, look, soup's very stable in the second half. We just had a little bit of timing issue in the first half, There was a little bit of pull into Q1, and then we had a really strong Q2 last year. So outside of that, soup volumes are really consistent. I've got super close relationships with those customers in those markets and understand what their programs are for the back half and feel like we're in a very good spot. And soup continues to perform well. Again, underlying demand at the consumer level seems to be very consistent, and our customers are confident in their second half forecasts.

Adam, just a point of clarification. You said you expect stable second half of the year on suit? Did I hear that right?

Yes, sir.

Yes, you got it. Thank you. Okay, thank you. Thank you very much.

Thank you. We will take our next question from Gancham Punjabi with Baird.

Thank you, operator. Good morning, guys. I guess, you know, as you step back a bit, you know, Adam, coming into the year, I think your initial view was that volumes would be up mid-single digits across the three operating segments. if I remember that correctly. And, you know, so is the adjustment for EPS for 2025 specific as of this morning, is that specific to the weakness and specialty closures in North American beverage and then the bankruptcy impact at the customer level, or is there anything else we should consider?

No, I think you've got it exactly right. I mean, I think it's two incredibly discrete items. The hot fill beverage item in North America and the customer bankruptcy in metal containers And everything else about our message and our story remains exactly the same as we came into the year. So, you know, I mean, we actually feel very confident that, A, we had it right with the exception of those two discrete items, and, B, our businesses continue to perform. And maybe the last item I tell you is our key strategic markets of dispensing and pet food. continue to accelerate in the second half of the year, and we will see that acceleration in both of those product categories.

And that statement's true even with the mixed consumer across the U.S. and Europe, just to be clear on some of your discretionary categories and so on, right?

Yeah, and fair enough. With literally 100% of our products being consumer staples, we feel like we fall under very much into the category that consumers use and need the products that we manufacture.

Got it. And just as a clarification, so the weakness in specialty closures in North American beverage, when did you start seeing that during the quarter relative to when you reported last and you had visibility in the first month into the quarter at that time?

Yeah, it was shortly thereafter, really kind of the mid part of the quarter that they We saw the weather. We kept asking the questions. Our customers did not pull back their forecast until mid to later in the quarter, unfortunately.

Got it. Thank you.

Thank you. We will take our next question from Jeff Sikoskis with J.P. Morgan.

Thanks very much. For 2026, Should we think as a base case of the effect of the food can bankruptcy as an additional $10 million versus 2025?

So I think, Jeff, number one, again, we haven't concluded all the way through the process of the bankruptcy filing. I think what we have in there right now is a $10 million impact and the back half of $25 million. I think that there is some element of that where that customer has exited the market in certain areas and that volume has gone to co-packers that we don't supply. There is a chance some of that comes back next year, to be clear. I think the base case is that it stays right where it is in the second half of the year. As far as the remaining assets and remaining volumes, it'll largely depend on on who actually acquires the business out of bankruptcy and what their intention of running the assets are.

Okay. And then what you did is you you talked about these two 10 million pre-tax items, and you lowered your free cash flow by 20 million. And, you know, I would think currencies would be a help to you in the second half. Does the free cash flow generation reduction contain something more than these two items?

No, it's primarily the few items that we talked about on the EBITDA line.

And there's a lot of moving parts on currency, foreign currency, too. We've got some favorability with the euro. We've got some unfavorable in other jurisdictions. So all of that is factored in and really came out in the wash of the net zero. And the $20 million impact is directly attributed to the two discrete items that we're talking about. So from an earnings, from a free cash flow perspective, those are the only things that have changed as far as our outlook for the year.

Great. Thank you so much.

Thank you. We will take our next question from Gabe Hady with Wells Fargo Securities.

Morning, team. I guess with the stock reacting the way it is, I'll try to take one more stab at the question. I mean, Jeff asked about, you know, if there's an incremental 10 million in the next year, but But maybe as it sits today, you mentioned you're assuming kind of the business that's transitioned to co-packers for the bankrupt customer sits where it is for the remainder of the year. I kind of came up with the same revenue number that Matt did. So, you know, in a worst case scenario, which seems to be what's sort of implied in, like I said, today's stock move, would that total hit be in the notwithstanding cash costs that may you may have to put out to restructure the business. But would that, in EBITDA terms, be in that $20 to $25 million range? Is there anything else that we should be aware of or thinking about?

Boy, I think that's a very large number, one that's larger than what we're considering, to be honest with you, Gabe. So I really don't think there's anything else to consider. You know, the remaining facilities that we supply, we are on-site or near-site, and Yeah, it doesn't really matter who the owner of the filling asset is. We are going to be significantly competitively advantaged versus any other supply option they have. So the question I have, Gabe, and just full disclosure here is, is what is the new owner going to do with those assets? In fairness, again, under the asset-light strategy, they exited a couple facilities. They still own several facilities, and those facilities are some of the best in the world. And anybody who buys them I think it'll be a very interesting set of conversations as to whether they want to run them or not. I think they're advantaged versus others in the market, and we feel really good about our position right next door to them.

Understood. Clear. Okay. Maybe, Kim, one for you. It seems like every year that goes by, the working capital swing gets bigger, and Adam talked about the team being proactive in terms of protecting Silicon Valley. again, from any sort of AR or inventory exposure to this other customer. So I think the outflow, including changes in outstanding check balances, was an outflow of $1.325 billion. Is there anything that you all are doing different operationally or maybe with Vayner or some addition of assets that the working capital outflow is so large at this point? And then anything that gives you consternation that, I mean, I know you talked about 430, a free cash flow, that it won't come back in the second half?

Hey, Gabe, it's Adam. I'm just going to jump in before Kim goes. And really, the biggest change in working capital was the ability that we were able to execute to secure additional raw materials in advance of the tariffs being implemented. And really, I think, as you understand, it really has no impact on a full year basis for Silgan. So we don't benefit from that. The cash that went out the door will come in by the end of the year and the receivable. But what it does do, it helps us mitigate the cost increase that gets passed on to our customers in 2025. So this was great execution by our team. Yes, in a certain quarter, it's going to look like maybe working capital was a little out of whack. We're incredibly confident, as we are every year, that that all comes back and is cleansed by the end of the year. So I just, I wanted to say that really the biggest difference is that we took advantage of that opportunity to provide even more value to our customers in the metal containers market.

Right. And Adam has it right. It's just timing. So as we move through the year, that will go back to our normalized level and we're still expecting to be at our regular pre-cash flow levels.

And I know you're probably tired of me saying it, Gabe, but everything else remains exactly as it was before. So The Vayner acquisition working capital is exactly what we expected. The balance of the businesses are exactly what we expected. It was this one item that will have no impact on the full year.

Sounds like you guys sleep better at night than I do.

All right. Thank you.

Thank you. We will take our next question from Anthony Petanari with Citi.

Good morning. Regarding tariffs on steel and aluminum, I think a few weeks ago, one large can buyer talked about maybe potentially repositioning the food can in their portfolio. And I'm just wondering if there's sort of any finer point you can put in terms of how tariffs are impacting your customers or just the competitive environment. I guess we also had a recent trade deal with Europe. So just maybe how that's evolved or the impact that you're seeing or not seeing.

Yeah, I think, you know, we've talked a lot about the impact of tariffs, and I'll say again that the company, Sylvan, will not have any impact from tariffs on our financial exposure of acquiring, in this case, dealing a little bit at higher cost and passing those through to our customers. The contractual pass-throughs of our long-term agreements allow for the pass-through of all of those costs. And that's what's going to happen, which makes the last conversation really interesting because we're helping mitigate some of those costs for our customers within the year. So, you know, we think that, you know, the purpose of the food can is many things. It's the lowest cost means of getting nutrition to consumers that need it. And for the most part, you know, our customers, what's in a can today, our customers actually cook their product in our can. It's an integral part of their filling operation and how they take nutrition to the market. So it's not easy to replace. It's not easy to replicate. And we think those barriers to entry still remain. And what's in a food can today pretty much has to be in a food can from a preparation and a process standpoint. I think with the 232 tariffs maintaining it, call it 50% on steel, I think the impact on the food can itself is about something like five cents per food can on kind of an average food can. When you get to the largest part of our business, which is our wet pet food category, those are primarily aluminum cans. And again, we've talked a lot about the idea that we like to source raw materials in the markets where we manufacture and the markets in which we sell. Most, the vast, vast majority of our aluminum products are sourced in the U.S. and not subject to tariffs. And so there is a little bit of price change with some of the pricing components. The Midwest premium has increased, and we're obviously passing that through. And I tell you, it's something like a penny per can on the wet pet food side. So the reason why I wanted to walk you through that, Anthony, is I think it's important. We don't think either of those values cause the consumer to make a different decision at the purchase point when they're securing product for their families themselves or their pets. So, you know, we think, you know, we've got a really good mechanism to pass those costs through. We think our customers understand how to deal with it. And we think consumers are paying a little bit higher price. But as I said, it's not a material change to the cost of the finished goods.

Okay, that's very helpful. And then just maybe two quick follow-ups on hot fill closures. The $10 million hit as customers work down inventories, is it your view that it's highly unlikely that that headwind could persist into 26? I don't want to put words into your mouth, but that's kind of what it sounded like, but maybe not. And then the second question, in closures, I mean, there's some scanner data that shows that, you know, PET maybe in some cases has, you know, lagged Bev cans in the first half of the year. And obviously, you know, sports drinks and juices are not, you know, one for one, you know, what goes into a beverage can. But I'm just wondering if you think about substrate, you know, share shift or maybe, you know, certain containers doing better than others. Do you think any of that could have crept into the weaker volumes that you saw in the first half?

They're a great question. And maybe let me just, I'll touch the second point first. And, you know, I'm just on the substrate, a couple of things. I mean, really the best can is not a substitute for kind of our sports strength package or on the go packages. They're not only reclosable, they're resealable. And so we think that's a differentiated product and there's been no discussion with our customers about a potential shift. And I, I think when you think about, I'll just say more of the niche, isotonic markets that we support versus the incredibly high volume, high output carbonated soft drink and maybe canned water market. They're just fundamentally different. And the good news is our customers are focused on maintaining their market share in the hot pill segment. And we think that'll be what drives recovery in 2026. I think if you, you know, the inventory levels that we understand our customers have will meet the needs for what remains of the peak season of sports drinks in 2025. They cannot go into the 2026 summer season with no inventory. So we're pretty confident that it's going to normalize. And I think we've got a pretty good line of sight into their inventory levels and to their projections for next year and feel comfortable that You know, the recovery is going to happen next year. We're disappointed it's not this year, but all of the data points would align to say, yes, there will be a recovery to a normalized level next year in 26.

Got it. That's very helpful. I'll turn it over.

Thank you. We'll take our next question from Mike Roxland with Truist Securities.

Yeah, thank you, Adam, Bob, Kim, Philippe, and Alex for taking my questions. Just one quick one on metal containers. Are you aware of any other customers who may be facing similar headwinds in their fruit can businesses? Or this particular customer that you mentioned in terms of bankruptcy, the only one that you're aware of that has these issues?

Well, it's a very discreet item to one customer that did file for bankruptcy that has been a requirement customer for us since we acquired their assets 25 or 30 years ago. So it really... But it is very simply, we are the only one dealing with this in the canning industry because we're a requirement supplier and we continue to operate under that contract. And the balance of our pack business is actually doing pretty well. No one's asked about the weather for the pack yet, but for the most part, the pack, we're expecting a normal season. And thus far, you know, so far the reports from the fields have been pretty good. So the balance of our act business is right in line with our expectations for the year.

Got it. And, you know, given that you're so close to your customers, I mean, is there any way you could have preempted this a little bit? I mean, given that you're situated so closely, is there anything you could have done in advance? Like, when did you find out, and is there anything you could have done earlier maybe to preempt it?

Well, it's a good question, and I actually, I'll pivot right off of your question into the answer because we were ready for this. We didn't talk about it publicly, but we've been preparing for this day. We've been concerned for quite a while, for I'd say several years. And, you know, again, I actually speak with great pride that we had no financial exposure as their single largest supplier. We had no financial exposure or loss related to this bankruptcy filing. And that is a real testament to being incredibly close with that customer, understanding all of the items they were dealing with and anticipating eventual outcomes. And there were a whole bunch of outcomes that we were ready for. And when this happened, we were ready for it. And again, we continue to operate under our contract and, you know, we're going to try to help them have as good a pack season as they can have in 2025. Got it.

And one last question, Adam, I'd like to show the color just, Is this something that's structural, meaning that if, let's say, the company goes through with the bankruptcy, they close more plants, is mail containers now at a lower base in terms of both revenue and EVA, or is there a way for you to maybe attract other customers, bring in other customers that could get you back to where you were with this customer?

Sure. I think it's an interesting question. I think our You know, in the markets that we serve and our deep customer relationships, I think what I would tell you, Mike, I mean, the first thing we would look at is making sure we understand the landscape. And if there are the right opportunities that fit with the profile of operations that we have, we would obviously consider taking on additional volume. Outside of that, we absolutely have cost-out measures that we would implement in a worst-case scenario, sort of what you're describing. You know, I don't think it's a rebasing of the EBITDA of the business because we'll either fill those assets because they're incredibly low cost or we will exit facilities and take out higher cost operations.

Got it. Thank you very much.

Thank you. We will take our next question from Arun Viswanathan with RBC Capital.

Great. Thanks for taking my question. Sorry to belabor the point here, but I guess this is maybe the second or third time we've seen this in the last few years, not necessarily bankruptcies, but some major customer disruptions on the metal container side. Maybe you can just talk about if there's further impacts on the inventory side that you expect from this, and then related to that, just wondering if it's really I'm sure you guys have these discussions, but is it more indicative of some structural concerns about the food can market in general and maybe some shifting consumer tastes? What would you attribute some of these disruptions to, I guess, if anything?

Sure. It's a good question, Arun. A couple of things. You're right, last year we had a customer call down their pack volume by about 30% right at the beginning of the pack last year. Unfortunately, it's the same customer we're talking about. So, again, we keep calling these things discrete. It is discrete to the same customer. They have been, you know, as we talked about, we were preparing for a variety of potential outcomes over a longer period of time. So, unfortunately, you know, I would just say it revolves around a very similar conversation. The good news of that is there's absolutely nothing about the structural components of the food can market, the fruit and vegetable market, anything about what we do with the balance of the business. Pet food is a wonderful growing product category for us. Soup is stable. The balance of our fruit and vegetable pack business is very good this year. Even in spite of this discrete item, we're on track to deliver mid-single-digit growth in the metal container segment this year. and feel pretty good about that. So unfortunately, it was the same customer. We go great about food cans. It's a fantastic part of our portfolio. And with our product portfolio, a mix of markets that we serve, I think we are well-advantaged for the future. And wet pet food, again, is growing at a very nice rate. It will accelerate for the second half of the year. I'll just say it'll be something around 50% of our total volume, and that's part of our thesis, right? That's one of the key strategic growth areas for our entire company is driving growth and continued growth in wet pet food, and we're doing just that.

Okay, appreciate that. And then I did have a related question, which is you mentioned redirecting some of these volumes, which are very low-cost assets, So, it sounds like you may have a strategy to offset some of this loss. You know, is that a fair characterization? And then, I guess, similar question for closures. You know, given the weakness that we've seen in isotonics now for quite a while, does that also appear to be structural? Are there any customer concerns there that we should be aware of? And, you know, if something like that happens, can you redirect your volumes elsewhere? And could you potentially even do that in an anticipatory fashion, you know, just given the last few quarters of weakness? Thanks.

Sure. So, a couple of things. One, on the metal container side, you know, first of all, we're continuing to operate under a requirements contract. So, you know, there's no shifting of volume anywhere else at this point. what I'd like to give our team a lot of credit for is, again, planning for a whole series of potential outcomes and not being surprised by any of them. So as this bankruptcy proceeding continues on and hopefully gets to conclusion sometime in the maybe first quarter, early second quarter of next year, we'll be prepared for any of those eventual outcomes. I can't tell you which one will be the actual outcome. We'll be ready for a whole variety of them with specific actions to take and And we'll talk about probably more on this call at that point once the future of those assets is a little more clear. And then actually, I do feel differently on the closures volume. So yeah, it's that segment in hot fill that is a challenge for us right now. It was a little challenge last year, but it goes with the territory of being kind of the leader in the market. We had a disruptor brand that we supplied a requirements contract to. that provided significant volume growth in that particular market through 23, and that disruptor brand all but went away in 24. So we were the only ones that experienced that volume lift and the volume decline because of our presence in that market and our market share. I think the good news, Arun, is that there continue to be disruptor brands, and we're actively engaged with many at this point that we hope will become billion-unit franchises, but we'll see what happens. So nothing structural about the business, and we think the underlying hostile market continues to grow, and with our low-cost, long-term customer relationship and leading market share in that business, we think we're positioned for success on the long term and certainly in 26 moving forward.

Great, thanks. And if I may, just one quick one. So given that you're reducing guidance only by, what, 4% at the midpoint here, and then, you know, your stock is off quite a bit, more than that, maybe triple. So can you pivot and change your strategy maybe to focus more on share buyback and be opportunistic here rather than deleveraging? Or maybe you can just comment on on how you view that. Thanks.

Yeah, so you're right. I think we view this guide as something like a 4% change for two specific items on the full year basis with the entirety of the rest of the thesis intact. So there is no change to strategy. There's no change to really anything else in the business outside of these two items. And I think Bob can talk about, you know, capital deployment and how we think about share repurchases in the grand scheme of what else we do here.

Sure, yeah, Arun, I think we've been pretty clear over the years that that's kind of the third leg of the school, if you will, in terms of capital allocation. Obviously, we would target M&A activity where we can find it and it earns the kind of returns that we're accustomed to and that shareholders are accustomed to. In the near term, we would de-lever. But, you know, as in the past, we have done share repurchases when the market has gotten and stayed dislocated. So I don't think there's anything that's changed about that strategy, and we will continue to kind of focus on what opportunities we have in the M&A market. Thanks.

Thank you.

We will take our next question from Daniel Rizzo with Jeff Reyes.

Good morning. Thanks for fitting me in. So with the bankruptcy by the customer, does your – with everything that's going on, is your contract now more liberal, whereas it gives you a lot more flexibility as this becomes resolved where you don't have the same commitments that you've had since you bought the asset, as you mentioned?

The contract continues on in the bankruptcy filing, so – You know, so we are operating, they are operating, and we are operating under the same requirements contract that we have been operating under for many, many years that has been renewed multiple times since we originally acquired those assets. So, again, no flexibility beyond that. We'll honor the contract as they are as well.

Okay. And then, I mean, the weather issue was, I guess, a little bit unique with the wet spring we had, at least here in the Northeast, but I was wondering if if weather has ever been kind of an issue before or something that, I mean, just with global warming, it's the kind of more extreme weather patterns, if it's something that could crop up from time to time as we move forward.

So I think, you know, I've been here for 20 years. Bob's a little bit ahead of me on that. It's the first time that we've seen cold and wet weather affect a sports drink kind of product and market. for a specific period of time for, you know, call it the peak part of their season. It just, it was a different experience this year than anything that I've seen. So I don't anticipate it returning going forward. And, you know, we're planning on normalization for 2026. Our customers are talking about that and planning for it. So we'll see what happens then. And, you know, I think if I were trying to predict the weather, I would not be very good at that.

No, I get that. I guess what I was also thinking was like if something like with global warming, if like warm weather could affect soup going forward, I mean, from time to time.

I think, I mean, who knows? What I tell you again is I think the food can and soup included is probably the lowest cost of means or lowest cost of getting nutrition to consumers that need it. And I just feel very comfortable saying that I think the food can

will always have a real value for consumers at the end of the day regardless of what the other circumstances may be all right thank you very much thank you we will take our next question from george staffos with bank of america hi everyone uh it's late in the call i'll try to ask these quickly um just for posterity uh you know for the next couple quarters What should we expect is your volume outlook for the segments for 2025 after 2Q? So I think you already said metal is still mid-single digits. Correct me if I'm wrong on that. Is custom still mid-single digits even with – Okay. And DSC, ex-beverage, legacy, mid-to-high – mid-single digits are better. Would that be all correct? Yeah, you've got it exactly right, George. Okay. Okay. Number two, on the working capital and the work that you did for your customers to mitigate their cost increase, is there any way that you can get paid for that extra working capital effort that you're putting out for them? Or no, it's just part of being a great supplier in the market. How can you get paid for that, if at all? or it's normal, or it's table stakes?

Yeah, so it's an interesting question, George. So my first answer is we do get paid for that, and we do get paid for that throughout the system as we have our contractual pass-throughs, all of the costs associated with procuring that raw material, whether it's freight, whether it is carry costs, whatever it may be, we ultimately get paid for that. And and our customers and we lock, we're arm in arm in that conversation. And it was a good thing for them and they understand that those costs will be passed through and we felt it was a great opportunity to help them be advantaged versus their competition in the marketplace.

Okay. Appreciate that, Adam. And then the last question came up a couple times before. So let's assume the customer in question here is acquired or has some of those operations acquired, how does the contract work at that stage? Are you still covered? Are you still the supplier, number one? Number two, and you've mentioned, and certainly we've known this, we've covered Sullivan for a very long time, that your operations are going to be lower cost, you're well located logistically, and so on. But since some of the volume has now moved to COPAC operations, do you have Do your operations have the same status, being the best logistically placed, the lowest cost, because now that volume isn't necessarily running at where it used to run? How would you answer those questions? Thanks, and good luck the rest of the year.

Sure. Thanks, George. So we won't go into specific details of any of our contracts, but I would just say, broadly speaking, our long-term agreements and metal containers provide – for a follow the liquid provision. And so that's how we think about metal containers, volumes, anytime there's a change of control being considered. So there's that component. The second component is you're right, we support these filling assets with the lowest cost, again, near-site, on-site production model available in the market. I tell you that even if we bring in a disadvantaged freight component, this site, these sites that we're talking about are probably still advantaged at the end of the day in the can making market in North America. So we feel good about that position. And then the final point, George, I think that, you know, I mean, we'll have the cost take out opportunities if we need them. And whether it's these assets or other higher cost assets in our system, We'll have the ability to respond to really anything that happens from a market perspective with the assets and whether a new owner wants to run them or not. Maybe the last point for you, George, is those co-pack locations. It's not that we can't supply them. It's just that we're not supplying them today. I mean, typically, we focus on our brands and helping them be successful in the marketplace. And that's where a lot of our effort and energy is. If we need to pivot there, certainly we could do that with our very low-cost footprint as well.

Okay. Thanks so much, Adam. Thanks, George.

Thank you. This does conclude today's question and answer session. I would now like to turn the call back for any additional or closing remarks.

Great. Thanks, Rachel, and thanks, everyone, for their interest in SILGIN.

We look forward to sharing our third quarter results later in the year.

Thank you.

This does conclude today's call. Thank you for your participation. You may now disconnect.