On Dec 13, we issued an updated research report on Greif, Inc. GEF. The company is likely to benefit from its transformation initiative. In addition, its segments will gain from higher specialty sales and strategic pricing decisions. However, the company’s results are expected to be marred by elevated professional fees and charges of pending tax reform changes.
Transformation Initiative to Boost Top Line
Notably, Greif expects its adjusted earnings per share for fiscal 2018 to be in the range of $3.25-$3.55, reflecting an improvement of 15% at the mid-point over fiscal 2017. The company anticipates that its transformation initiative will drive growth in fiscal 2018. While the three-year transformation may have officially concluded in fiscal 2017, optimization activities identified during the initiative will continue into fiscal 2018.
Segment Growth Drivers
Further, the company’s Rigid Industrial Packaging & Services segment, which accounted for 69% of sales in fiscal 2017 recorded 8.5% year over year sales growth for the fiscal. Greif expects that the segment’s gross margin will improve sequentially in first-quarter fiscal 2018 led by strategic pricing decisions.
In fiscal 2018, Greif’s Paper Packaging segment will benefit from realized containerboard price increases implemented over the course of fiscal 2017 and higher anticipated specialty sales. Further, the Flexible Products & Services segment will gain from third-party manufacturing initiatives and a more optimized SG&A footprint.
Elevated Costs to Mar Income
Greif expects to spend $5 million of incremental professional fees in fiscal 2018 to further its strategy as well as to address pending tax-reform changes. Particularly, tax rate volatility due to foreign earnings repatriation provisions under the proposed lower U.S. corporate tax rates may lead to additional charges.
Share Price Performance
Shares of the company have outperformed the industry over the past year. The stock has gained 17.7%, while the industry registered 13.3% growth during the same time frame.
Zacks Rank & Key Picks
Greif carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industrial product space are Caterpillar Inc. CAT, Deere & Company DE and H&E Equipment Services, Inc. HEES, all sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Caterpillar has a long-term earnings growth rate of 10.3%. Its shares have surged 60.2%, year to date.
Deere has a long-term earnings growth rate of 8.2%. So far this year, its shares have rallied 47.5%.
H&E Equipment has a long-term earnings growth rate of 15.6%. The stock has appreciated 65.6% during the same time frame.
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