Will Greif be Able to Hedge Foreign Currency Volatility?
On Dec 15, 2015, we issued an updated research report on Greif, Inc. GEF. Performance of this industrial packaging product manufacturer is riddled with headwinds like foreign currency volatility and weaker global demand. Additionally, an increase in expenses and restructuring charges will likely hurt the company’s earnings.
Greif’s revenues declined 17% year over year in the fourth quarter of fiscal 2015, impacted primarily by low volumes, selling prices, product mix and impact of foreign currency movements with respect to the U.S. Dollar.
Greif anticipates currency volatility to impact its results in fiscal 2016 as well. A strengthening U.S. dollar continues to challenge the bottom line. U.S. industrial production remains anemic, excluding the automotive sector, and faces persistent pressure from weaker global demand led by the stronger U.S. dollar. In addition, China's manufacturing activity has been suffering, having recently decreased to its lowest level since 2012. These factors will continue to act as headwinds for the company in the near future.
Notably, Greif’s fiscal 2015 results had benefited from the implemented tax strategies, which will not be carried over into fiscal 2016. Further, the mix of broad geographic footprints will lead to an increase in tax expense, thereby effectively eliminating the benefits reaped on earnings per share in fiscal 2015.
Although Greif’s strategic transformation plans will benefit it in the future, the same have resulted in significant impairment and restructuring charges in fiscal 2015. The company expects to incur restructuring costs in a range of $15–$25 million in fiscal 2016.
This Zacks Rank #4 (Sell) stock has also witnessed downward estimate revisions over the last 30 days. The Zacks Consensus Estimate decreased roughly 6.3% to $2.22 per share and 10% to $2.54 per share for 2016 and 2017, respectively.
Stocks that Warrant a Look
Stocks that can be considered at the moment include Albany International Corp. AIN, Brady Corp. BRC and Codexis, Inc. CDXS. All three stocks sport a Zacks Rank #1 (Strong Buy).
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