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Greif (GEF) Exits Flexible Packaging JV, Wraps Up 50% Stake Sale

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·4 min read
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Greif, Inc. GEF completed the sale of its 50% ownership in the Flexible Packaging (FPS) joint venture (JV) to Gulf Refined Packaging (“GRP”) for cash proceeds of $123 million. The amount will be utilized for repayment of debt. In January 2022, GEF entered into this agreement.

The divestment supports the company’s focus on expanding its Build to Last Strategy. Greif and Al-Dabbagh Group formed a 50/50 JV under the name of Flexible Packaging in 2010. During first-quarter 2021, Greif combined the Rigid Industrial Packaging & Services segment and the FPS segment into a single segment — Global Industrial Packaging.

To deleverage its balance sheet and optimize capital allocation, Greif divested its consumer packaging group business to Graphic Packaging Holding Company GPK in April 2020. The sale included seven folding carton facilities. The sale enabled the company to focus on its core industrial franchise and strategic growth priorities in Intermediate Bulk Container (IBC) production and containerboard integration.

Last month, Greif reported impressive first-quarter fiscal 2022 results. Adjusted earnings per share (EPS) of $1.28 surpassed the Zacks Consensus Estimate of $1.20 and surged 109.8% year on year. Revenues of $1,564 million beat the Zacks Consensus Estimate of $1,495 million and increased 36% year over year. In fiscal first-quarter’s earnings call, Greif raised fiscal 2022 adjusted EPS guidance to $6.30 and $6.90, from the prior estimate of $5.85 and $6.45. The company reported an adjusted EPS of $5.60 in fiscal 2021. The impact of the divestiture has been included in this increased guidance.

Greif is witnessing broad-based improvement in several of its key end markets. The company’s Global Industrial Packaging segment is gaining from strong key end markets. It has been witnessing year-over-year higher volume growth for global large plastic drums and Intermediate Bulk Container (“IBC”), backed by the strategic growth investments in the United States and EMEA, and ongoing recovery in the industrial end markets.

The company’s Paper Packaging segment is benefiting from strong volumes in converting operations and higher selling prices due to increases in published containerboard and boxboard prices. Robust demand and pricing increases are likely to negate the impact of cost inflation and contribute to the company’s earnings.

Greif is poised to benefit from operational execution, capital discipline, and a solid and diverse product portfolio. The company will continue to focus on its restructuring activities, which include optimizing and integrating operations in the Paper Packaging & Services segment, rationalizing operations and closing underperforming assets in the Global Industrial Packaging segment. The company’s constant efforts to lower debt levels will aid growth. It reduced total debt by $269 million in the fiscal first quarter to $2,539 million. GEF continues to de-lever its balance sheet and maintains a compliance leverage ratio between 2.0-2.5x.

Price Performance

Greif’s shares have appreciated 9.5% in the past year compared with the industry’s growth of 4.8%.

Zacks Investment Research
Zacks Investment Research

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Zacks Rank & Other Stocks to Consider

Greif currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the Industrial Products sector are AGCO Corporation AGCO and Packaging Corporation of America PKG. While AGCO flaunts a Zacks Rank #1 (Strong Buy), PKG carries a Zacks Rank #2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO Corp has an estimated earnings growth rate of around 12% for 2022. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 10.6%.

AGCO pulled off a trailing four-quarter earnings surprise of 56.6%, on average. In the past six months, the company’s shares have gained 13.7%.

Packaging Corp has an expected earnings growth rate of 12.6% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 0.9% in the past 60 days.

PKG has a trailing four-quarter earnings surprise of 22.7%, on average. Packaging Corp's shares have gained 9.9% in the past six months.

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Greif, Inc. (GEF) : Free Stock Analysis Report

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