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Greif (GEF) Earnings Beat, Sales Fall Shy Of Estimates in Q1

Zacks Equity Research

Greif, Inc. GEF reported adjusted earnings per share of 65 cents for first-quarter fiscal 2019 (ended Jan 31, 2019), beating the Zacks Consensus Estimate of 64 cents. The figure improved 32.6% year over year.

Including one-time items, earnings per share declined to 51 cents from 96 cents in the year-ago quarter.

Operational Update

Sales dropped 0.9% year over year from $906 million to $897 million, lagging the Zacks Consensus Estimate of $919.7 million.

Cost of sales fell 1.3% year over year to $724.2 million. Gross profit inched up 0.6% to $172.8 million from $171.7 million a year ago. Gross margin improved to 19.3% year over year from 19.0%.

Selling, general and administrative (SG&A) expenses contracted 5.4% year over year to $98 million. Operating profit increased 2.6% year over year to $67.2 million. Operating margin improved to 7.5% in the reported quarter from 7.2% in the prior-year quarter.

Segmental Performance

Sales in the Rigid Industrial Packaging & Services declined 2.8% year over year to roughly $598 million. The segment’s operating profit declined 25.3% year over year to $23.3 million.
 
The Paper Packaging segment sales grew 6.6% year over year to $217 million. The segment’s operating profit rose 26% to $35.3 million.

Sales at the Flexible Products & Services segment declined 6.3% year over year to $75 million. The segment reported operating profit of $6 million, showing an improvement from $3.2 million in the year-earlier quarter.

The Land Management segment’s sales improved 3% year over year to $6.7 million while operating profit declined to $2.6 million from $3.2 million.

Acquisition

On Dec 20, 2018, Greif announced an agreement to acquire Caraustar Industries, Inc. On Feb 11, the company completed the buyout for $1.8 billion. This deal will strengthen its leadership in industrial packaging and significantly boost margins, free cash flow and profitability.
 
Financial Position

Greif reported cash and cash equivalents of $84.5 million as of Jan 31, 2019, compared with $94.3 million as of Oct 31, 2018. Cash used in operating activities came in at $9.6 million in first quarter of fiscal 2019, compared with $53.7 million in the prior year quarter.

On Feb 26, Greif’s board of directors declared 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 Apr 1, 2019, to stockholders of record at the close of business on Mar 18, 2019.

Outlook

Greif updated the adjusted earnings per share guidance for fiscal 2019 at $3.60-$4.00. Adjusted free cash flow is expected between $215 million and $245 million. Note that the outlook has been updated to include the impact of the acquired Caraustar business. The results will be reported under Greif's Paper Packaging and Services segment.

Zacks Rank & Stocks to Consider

Greif currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Industrial Products sector are Mueller Industries, Inc. MLI, Alarm.com Holdings, Inc. ALRM and Albany International Corp. AIN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mueller Industries has an expected earnings growth rate of 2.2% for 2019.

Alarm.com has an expected earnings growth rate of 7.8% for 2019.

Albany International has an expected earnings growth rate of 44.7% for 2019.

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