It has been about a month since the last earnings report for Greif (GEF). Shares have added about 1.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Greif due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Greif's Q4 Earnings Trump, Sales Lag Estimates, Up Y/Y
Greif reported adjusted earnings per share of $1.24 for fourth-quarter fiscal 2019 (ended Oct 31, 2019), beating the Zacks Consensus Estimate of $1.11. The figure also improved 14.8% year over year. The company registered year-over-year improvement in earnings despite a weakening industrial economy.
Including one-time items, earnings per share increased to $1.09 per share from the year-ago quarter’s 67 cents per share.
Sales climbed 24.7% year over year to $1,232.1 million. However, the reported figure lagged the Zacks Consensus Estimate of $1,277 million.
Cost of sales went up 24.2% year over year to $973.1 million. Gross profit came in at $259 million, recording an improvement of 26.3% from the prior-year quarter. Gross margin came in at 21.0% compared with the year-ago quarter’s 20.7%.
Selling, general and administrative (SG&A) expenses flared up 42.5% year over year to $130.4 million. Operating profit jumped 12% year over year to $115.7 million. Operating margin was 9.4% in the reported quarter compared with the 10.4% recorded in the quarter last year. Adjusted EBITDA increased 31.6% year over year to $186.8 million in the reported quarter.
Sales in the Rigid Industrial Packaging & Services declined 6.6% year over year to roughly $619 million. The segment’s adjusted EBITDA dropped to $69.5 million from the year-ago quarter’s $71.0 million.
The Paper Packaging segment sales soared 118.5%, year over year, to $535.1 million. This upside was driven by the $322.6-million contribution from the Caraustar acquisition. This was partly offset by lower published containerboard prices, 12,000 tons of containerboard economic downtime and 6,500 tons of containerboard maintenance downtime. The segment’s adjusted EBITDA increased to $108.7 million from the $62.1 million reported in the comparable period last year.
Sales in the Flexible Products & Services segment declined 8.4% year over year to $70.9 million. The segment reported adjusted EBITDA of $5.8 million compared with the $5.3 million recorded in the year-earlier quarter.
The Land Management segment’s sales dipped 5.3% year over year to $7.1 million and adjusted EBITDA dropped 9.6% year over year to $2.8 million.
Greif ended fiscal 2019 with cash and cash equivalents of $77.3 million compared with the $94.2 million recorded as of the end of fiscal 2018. Cash flow from operating activities came in at $389.5 million during fiscal 2019 compared with the $253 million reported in the last fiscal year.
On Dec 3, Greif’s board of directors announced a quarterly cash dividend of 44 cents per share of Class A Common Stock and 65 cents per share of Class B Common Stock. The dividend payout will be made on Jan 1, 2020, to stockholders of record at the close of business on Dec 18, 2019.
Fiscal 2019 Performance
Adjusted earnings for fiscal 2019 came in at $3.96, up 12.2% year over year. The reported figure also beat the Zacks Consensus Estimate of $3.82. Including one-time items, the company reported earnings of $2.89 per share, lower than the $3.55 per share recorded in the prior fiscal year. Revenues increased 18.6% year over year to $4.59 billion. However, the revenue figure missed the Zacks Consensus Estimate of $4.65 billion.
Greif has issued its adjusted earnings per share guidance for fiscal 2020 at $3.63-$4.13. Adjusted free cash flow is predicted between $245 million and $285 million for the fiscal year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -27.32% due to these changes.
At this time, Greif has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Greif has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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