Greif Reports Second Quarter 2017 Results

Press Release (PDF 211 KB)

DELAWARE, Ohio–(BUSINESS WIRE)– Greif, Inc. (NYSE: GEF, GEF.B), a world leader in industrial packaging products and services, announced second quarter 2017 results.

Second Quarter Highlights (all results compared to the second quarter 2016 results unless otherwise noted):

• Net sales increased by $47.8 million to $887.4 million from $839.6 million.
• Gross profit increased by $8.2 million to $181.9 million from $173.7 million.
• Operating profit decreased by $2.4 million to $80.4 million and operating profit before special items¹ increased by $5.6 million to $84.9 million.
• Net income of $36.0 million or $0.61 per diluted Class A share compared to net income of $31.4 million or $0.53 per diluted Class A share.
• Net income, excluding the impact of special items, of $39.3 million or $0.67 per diluted Class A share compared to net income, excluding the impact of special items, of $27.8 million or $0.47 per diluted Class A share.
• Interest expense decreased by $5.6 million to $14.3 million from $19.9 million due primarily to the repayment of Senior Notes with borrowings under the Company’s Credit Agreement.
• Cash provided by operating activities decreased by $24.3 million to $59.6 million from $83.9 million due partially to raw material price increases and to accelerated inventory purchases made in advance of those increases.
• Free cash flow² decreased by $27.7 million, due to the same factors impacting cash provided by operating activities, and a $3.4 million increase in cash paid for properties, plants, and equipment.
• Narrowed the range for fiscal year 2017 Class A earnings per share before special items guidance³ to $2.84 – $3.02. Narrowed fiscal year 2017 free cash flow guidanceto $180.0 million to $200.0 million as a result of capital expansion projects recently approved due to confidence in cash flow.

“We generated strong financial results this quarter through improved customer service and disciplined commercial and operation execution,” said Greif’s President and Chief Executive Officer, Pete Watson. “Greif’s operating profit before special items and our Class A earnings per share before special items both significantly improved compared to the prior year quarter. Greif’s improved financial and operational stability underpins our strategy to generate greater value for our customers and shareholders.”

Note: A reconciliation of the differences between all non-GAAP financial measures used in this release with the most directly comparable GAAP financial measures is included in the financial schedules that are a part of this release. These non-GAAP financial measures are intended to supplement and should be read together with our financial results. They should not be considered an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of this financial information should not place undue reliance on these non-GAAP financial measures.

Notable Business Highlights

Our three strategic priorities are:

1. Invest in our people and teams to foster a strong culture of employee engagement and accountability.
2. Deliver industry leading customer service excellence to achieve superior customer satisfaction and loyalty.
3. Continually transform our portfolio to drive growth, margin expansion and free cash flow generation.

In general, we delivered a strong second quarter 2017. Starting with customer service, our consolidated customer satisfaction index (CSI) improved by 4 percent year-over-year, with all business segments demonstrating improved performance. We also completed our latest Net Promoter Score survey and recognized a 12 percent improvement versus the previous survey conducted late last fall.

From an operational standpoint, the business performed well during the quarter. The Rigid Industrial Packaging & Services segment – our largest business segment by revenue and operating profit contribution – improved its margins and delivered strong plastic drum and intermediate bulk container (IBC) growth year-over-year, with particularly strong performance in the U.S. gulf region and Eastern Europe. The Paper Packaging & Services segment – which consists of two paper mills and one of the newest corrugator networks in the containerboard industry – delivered strong volumes, helping to offset increased costs for old corrugated containers, and is growing its specialty products portfolio. The Flexible Products & Services segment – the world’s largest producer of industrial flexible intermediate bulk containers (FIBCs) – is on track with its improvement plan and delivered its sixth consecutive quarter of margin expansion.

Looking forward, we are narrowing our fiscal year 2017 Class A earnings per share before special items guidance range to $2.84 – $3.02 based largely on improved business performance. We are also narrowing our fiscal year 2017 free cash flow guidance to $180.0 million to $200.0 million due to recently approved organic growth expansions in our Rigid Industrial Packaging & Services and Paper Packaging & Services segments.

While pleased with the Company’s overall performance during the quarter, we were not satisfied with working capital management. Although our working capital days improved year-over-year, working capital dollars are worse primarily due to the adverse effect of raw material price increases. Inventories were driven higher by safety stocks purchased in advance of planned maintenance events at our mills and anticipated raw material price increases throughout the quarter. Seasonality factors also impacted inventories as we prepared for the agriculture season that commences during the second half of the fiscal year.

As a reminder, employee incentives are impacted by working capital management. This alignment of incentives, combined with a planned reduction in safety stocks; a reduction in inventory purchases; and a sharper focus on cash collection are expected to improve working capital throughout the remainder of the year.

Segment Results

Net sales are impacted primarily by the volume of primary products⁴ sold, selling prices, product mix and the impact of changes in foreign currencies against the U.S. Dollar. The tables below show the percentage impact of each of these items on net sales for our primary products, both including and excluding the impact of divestitures, for the second quarter of 2017 as compared to the second quarter of 2016 for the business segments with manufacturing operations:

⁽⁴⁾ Primary products are manufactured steel, plastic and fibre drums; intermediate bulk containers; linerboard, medium, corrugated sheets and corrugated containers; and 1&2 loop and 4 loop flexible intermediate bulk containers.

Rigid Industrial Packaging & Services (all results compared to the second quarter of 2016 unless otherwise noted):

Net sales increased by $34.7 million to $624.3 million. Divestitures (all involving non-primary products) and foreign currency translation both negatively impacted net sales by $27.1 million and $9.9 million, respectively. Net sales excluding divestitures and foreign currency translation increased by $71.7 million due primarily to a 16.1 percent increase in selling prices on our primary products stemming from strategic pricing decisions and increases in index prices.

Gross profit increased by $10.0 million to $133.9 million (21.4 percent) due to the same factors that impacted net sales, improvements in manufacturing expenses and divestiture of select non-core and underperforming assets during 2016.

Operating profit declined by $3.7 million to $55.5 million. Operating profit before special items increased by $6.0 million to $60.3 million, due primarily to the same factors that impacted gross profit, partially offset by an increase in corporate allocated costs.

Paper Packaging & Services

Net sales increased by $21.5 million to $188.7 million. The increase was due primarily to an increase in volumes in our mills and corrugator facilities and increased sales of specialty products.

Gross profit declined by $4.5 million to $32.9 million (17.4 percent). The decrease in gross profit margin was due primarily to increased input costs, partially offset by volume increases.

Operating profit declined by $4.4 million to $19.8 million. Operating profit before special items decreased by $3.5 million to $20.6 million, due primarily to the same factors that impacted gross profit.

Flexible Products & Services

Net sales decreased by $9.6 million to $66.6 million. A divestiture and foreign currency translation both negatively impacted net sales by $2.7 million and $4.0 million, respectively.

Gross profit increased by $2.7 million to $12.3 million (18.5 percent). Margin improvement was due to reduced labor and fixed production costs.

Operating profit increased by $4.7 million to $1.8 million. Operating profit before special items increased by $3.2 million to $2.1 million. The improvement in operating profit before special items was due primarily to the same factors that impacted gross profit.

Land Management

Net sales increased by $1.2 million to $7.8 million due primarily to an increase in timber sales and consulting revenues.

Operating profit increased by $1.0 million to $3.3 million due to the same factors that impacted net sales.

Dividend Summary

On June 6, 2017, the Board of Directors declared quarterly cash dividends of $0.42 per share of Class A Common Stock and $0.63 per share of Class B Common Stock. Dividends are payable on July 1, 2017, to stockholders of record at the close of business on June 19, 2017.

⁽⁵⁾Operating working capital is defined as trade accounts receivable plus inventories less accounts payable.

Conference Call

The Company will host a conference call to discuss the second quarter of 2017 results on June 8, 2017, at 8:30 a.m. Eastern Time (ET). To participate, domestic callers should call 877-201-0168. The Greif ID is 21958082. The number for international callers is +1-647-788-4901. Phone lines will open at 8:00 a.m. ET. The conference call will also be available through a live webcast, including slides, which can be accessed at http://investor.greif.com by clicking on the Events and Presentations tab and searching under the events calendar. A replay of the conference call will be available on the Company’s website approximately two hours following the call.

About Greif

Greif is a global leader in industrial packaging products and services and is pursuing its vision to become the world’s best performing customer service company in industrial packaging. The Company produces steel, plastic, fibre, flexible, corrugated, and reconditioned containers, intermediate bulk containers, containerboard and packaging accessories, and provides filling, packaging and industrial packaging reconditioning services for a wide range of industries. Greif also manages timber properties in the southeastern United States. The Company is strategically positioned with production facilities in over 40 countries to serve global as well as regional customers. Additional information is on the Company’s website at www.greif.com.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “aspiration,” “objective,” “project,” “believe,” “continue,” “on track” or “target” or the negative thereof and similar expressions, among others, identify forward-looking statements. All forward-looking statements are based on assumptions, expectations and other information currently available to management. Such forward-looking statements are subject to certain risks and uncertainties that could cause the Company’s actual results to differ materially from those forecasted, projected or anticipated, whether expressed or implied. The most significant of these risks and uncertainties are described in Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016. The Company undertakes no obligation to update or revise any forward-looking statements.

Although the Company believes that the expectations reflected in forward-looking statements have a reasonable basis, the Company can give no assurance that these expectations will prove to be correct. Forward-looking statements are subject to risks and uncertainties that could cause the Company’s actual results to differ materially from those forecasted, projected or anticipated, whether expressed in or implied by the statements. Such risks and uncertainties that might cause a difference include, but are not limited to, the following: (i) historically, our business has been sensitive to changes in general economic or business conditions, (ii) we may not successfully implement our business strategies, including achieving our transformation and growth objectives, (iii) our operations subject us to currency exchange and political risks that could adversely affect our results of operations, (iv) the current and future challenging global economy and disruption and volatility of the financial and credit markets may adversely affect our business, (v) the continuing consolidation of our customer base and suppliers may intensify pricing pressure, (vi) we operate in highly competitive industries, (vii) our business is sensitive to changes in industry demands, (viii) raw material and energy price fluctuations and shortages may adversely impact our manufacturing operations and costs, (ix) geopolitical conditions, including direct or indirect acts of war or terrorism, could have a material adverse effect on our operations and financial results, (x) we may encounter difficulties arising from acquisitions, (xi) in connection with acquisitions or divestitures, we may become subject to liabilities, (xii) we may incur additional restructuring costs and there is no guarantee that our efforts to reduce costs will be successful, (xiii) tax legislation initiatives or challenges to our tax positions may adversely impact our results or condition, (xiv) full realization of our deferred tax assets may be affected by a number of factors, (xv) several operations are conducted by joint ventures that we cannot operate solely for our benefit, (xvi) certain of the agreements that govern our joint ventures provide our partners with put or call options, (xvii) our ability to attract, develop and retain talented and qualified employees, managers and executives is critical to our success, (xviii) our business may be adversely impacted by work stoppages and other labor relations matters, (xix) we may not successfully identify illegal immigrants in our workforce, (xx) our pension and postretirement plans are underfunded and will require future cash contributions and our required future cash contributions could be higher than we expect, each of which could have a material adverse effect on our financial condition and liquidity, (xxi) we may be subject to losses that might not be covered in whole or in part by existing insurance reserves or insurance coverage, (xxii) our business depends on the uninterrupted operations of our facilities, systems and business functions, including our information technology (IT) and other business systems, (xxiii) a security breach of customer, employee, supplier or Company information may have a material adverse effect on our business, financial condition and results of operations, (xxiv) legislation/regulation related to environmental and health and safety matters and corporate social responsibility could negatively impact our operations and financial performance, (xxv) product liability claims and other legal proceedings could adversely affect our operations and financial performance, (xxvi) we may incur fines or penalties, damage to our reputation or other adverse consequences if our employees, agents or business partners violate, or are alleged to have violated, anti-bribery, competition or other laws, (xxvii) changing climate, climate change regulations and greenhouse gas effects may adversely affect our operations and financial performance, (xxviii) the frequency and volume of our timber and timberland sales will impact our financial performance, (xxix) changes in U.S. generally accepted accounting principles (U.S. GAAP) and SEC rules and regulations could materially impact our reported results, (xxx) if the Company fails to maintain an effective system of internal control, the Company may not be able to accurately report financial results or prevent fraud, and (xxxi) the Company has a significant amount of goodwill and long-lived assets which, if impaired in the future, would adversely impact our results of operations. The risks described above are not all-inclusive, and given these and other possible risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. For a detailed discussion of the most significant risks and uncertainties that could cause our actual results to differ materially from those forecasted, projected or anticipated, see “Risk Factors” in Part I, Item 1A of our most recently filed Form 10-K and our other filings with the Securities and Exchange Commission. All forward-looking statements made in this news release are expressly qualified in their entirety by reference to such risk factors. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

⁽⁶⁾EBITDA is defined as net income, plus interest expense, net, plus income tax expense, plus depreciation, depletion and amortization. However, because the Company does not calculate net income by segment, this table calculates EBITDA by segment with reference to operating profit (loss) by segment, which, as demonstrated in the table of Consolidated EBITDA, is another method to achieve the same result. See the reconciliations in the table of Segment EBITDA.

⁽⁷⁾ EBITDA is defined as net income, plus interest expense, net, plus income tax expense, plus depreciation, depletion and amortization. As demonstrated in this table, EBITDA can also be calculated with reference to operating profit.

⁽⁸⁾EBITDA is defined as net income, plus interest expense, net, plus income tax expense, plus depreciation, depletion and amortization. However, because the Company does not calculate net income by segment, this table calculates EBITDA by segment with reference to operating profit (loss) by segment, which, as demonstrated in the table of Consolidated EBITDA, is another method to achieve the same result.

⁽⁹⁾Free Cash Flow is defined as net cash provided by operating activities less cash paid for purchases of properties, plants and equipment.

⁽¹⁰⁾Operating profit (loss) before special items is defined as operating profit (loss), plus restructuring charges, plus acquisition-related costs, plus non-cash pension settlement charge, plus non-cash impairment charges, less (gain) on disposal of properties, plants, equipment, net.

The impact of income tax expense and non-controlling interest on each special item is calculated based on tax rates and ownership percentages specific to each applicable entity. Included in the six months ended April 30, 2017 restructuring charges special item is a $4.4 million income tax charge due to a change in assertions related to unremitted foreign earnings as a result of the restructuring of our intercompany debt portfolio. The tax rate excluding the impact of special items for the second quarter of 2017 was 35.9 percent.

⁽¹¹⁾See table contained herein entitled GAAP to Non-GAAP Reconciliation Segment Operating Profit (Loss) Before Special Items for a reconciliation of each segment’s operating profit (loss) before special items.

⁽¹¹⁾See table contained herein entitled GAAP to Non-GAAP Reconciliation Segment Operating Profit (Loss) Before Special Items for a reconciliation of each segment’s operating profit (loss) before special items.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170607006359/en/

Source: Greif, Inc.

Greif, Inc.

Matt Eichmann, 740-549-6067

matt.eichmann@greif.com