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Greif (GEF) Up 4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Greif (GEF). Shares have added about 4% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Greif's Earnings Beat, Sales Lag Estimates in Q3, Up Y/Y

Greif reported adjusted earnings per share of $1.26 for third-quarter fiscal 2019, beating the Zacks Consensus Estimate of $1.18. The figure also improved 5% year over year.

The company delivered year-over-year improvement in earnings despite market softness and a weakening industrial economy. Dismal market demand in containerboard operations and in certain segments of Rigid Industrial Packaging business affected the company.

Including one-time items, earnings per share dipped to $1.06 per share from the year-ago quarter’s $1.15.

Operational Update

Sales climbed 23.7% year over year to $1,252.6 million. However, the reported figure lagged the Zacks Consensus Estimate of $1,342 million.

Cost of sales increased 22.4% year over year to $973.2 million. Gross profit came in at $279.4 million, recording an improvement of 28.6% from the prior-year quarter. Gross margin improved to 22.3% from 21.5% in the year-ago quarter.

Selling, general and administrative (SG&A) expenses flared up 39.7% year over year to $139 million. Operating profit increased 10.2% year over year to $125.6 million. Operating margin was 10% in the reported quarter compared with 11% recorded in the prior-year quarter. Adjusted EBITDA increased 39.3% year over year to $203.8 million in the reported quarter.

Segmental Performance

Sales in the Rigid Industrial Packaging & Services declined 6.6% year over year to roughly $642 million. The segment’s adjusted EBITDA was in line with the year-ago quarter’s $82.8 million.

The Paper Packaging segment sales soared 124.5%, year over year, to $530 million. This upside was driven by the $320.4-million contribution from the Caraustar acquisition. This was partly offset by lower published containerboard prices and decreased volumes in legacy operations. The segment’s adjusted EBITDA more than doubled to $111 million from $53.1 million reported in the comparable period last year.

Sales at the Flexible Products & Services segment declined 9.8% year over year to $74.5 million. The segment reported adjusted EBITDA of $7.2 million compared with $7.8 million in the year-earlier quarter.

The Land Management segment’s sales inched up 1.7% year over year to $6 million and adjusted EBITDA increased 7.7% year over year to $2.8 million.

Financials

Greif reported cash and cash equivalents of $75.8 million as of Jul 31, 2019, compared with $94.2 million as of Oct 31, 2018. Cash flow from operating activities came in at $141.5 million in the reported quarter compared with $51.3 million reported in the prior-year period.

On Aug 27, Greif’s board of directors announced quarterly cash dividend of 44 cents per share of Class A Common Stock and 66 cents per share of Class B Common Stock. The dividend payout will be made on Oct 1, 2019, to stockholders of record at the close of business on Sep 17.

Outlook

Considering continuous market demand challenges for the remainder of the fiscal year, Greif reaffirmed its adjusted earnings per share guidance for fiscal 2019 at $3.70-$4.00.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Greif has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions 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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