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Greif (GEF) Provides Guidance for FY22 on Investor Day

Zacks Equity Research

Greif, Inc. GEF provided a strategic update at its recently-held Investor Day. It provided an update on the Caraustar integration and synergies, highlighted its capital-allocation priorities and issued long-term financial guidance.

Caraustar Buyout: A Strategic Fit

This February, Greif completed the acquisition of Caraustar Industries, Inc., for $1.8 billion, and is currently integrating its operations. The integration process is expected to complete in second-quarter fiscal 2020. The buyout has strengthened the company’s leadership in industrial packaging as well as significantly bolstered its margins, free cash flow and profitability.
 
Caraustar is vertically integrated in recycled paperboard manufacturing, which will enhance and balance Greif's portfolio as well as expand its paper franchise. In fact, Greif generates around half of its revenues from the United States. Furthermore, the percentage of the company’s sales from paper packaging will expand to approximately half of total consolidated revenues.

Notably, the company has increased run-rate synergies related to the acquisition and expects to achieve at least $60 million from the original estimate of $45 million over the next 36 months from the deal’s closure.
 
To include the impact of the acquired business, Greif had updated the adjusted earnings per share guidance for fiscal 2019 to $3.70-$4.00 from the prior estimate of $3.60-$4.00. The company will also benefit from its focus on operational execution, capital discipline, and a strong and diverse product portfolio.

Financial Commitment for FY22

As part of its strategic update, Greif anticipates adjusted EBITDA of $820-$900 million for fiscal 2022. For fiscal 2018, the company achieved an adjusted EBITDA of $503.2 million. Hence, a higher EBITDA signifies the company’s future potential for stock price appreciation. The company also continues to pursue marginal gains across its business segments to enhance profitability.  Adjusted free cash flow is estimated between $410 million and $450 million for fiscal 2022. Greif’s compelling dividend yield, higher free cash flows and prudent capital-allocation approach position it well to meet its long-term financial commitments.
 
The company expects net sales to be around $5.5 billion in fiscal 2022, driven by strategic growth of capital expenditure, the Caraustar inclusion and organic growth. The company projects capital expenditure between $160 million and $180 million for the fiscal year.

In order to support its deleveraging plan, investing in existing businesses through maintenance projects and organic growth opportunities remains Greif’s priority. Moreover, the company expects to achieve a targeted leverage ratio of 2-2.5x net debt to EBITDA by early 2022, in order to repay its debt following the Caraustar acquisition.

Rising Demand Aids Paper Packaging Business
 
Greif announced the exploration of strategic alternatives, which includes a potential sale for the consumer packaging business and related mill assets. In fiscal 2018, revenues worth $330 million were generated from the consumer packaging business.

Greif, Inc. Price and Consensus

Greif, Inc. Price and Consensus

Greif, Inc. price-consensus-chart | Greif, Inc. Quote

Zacks Rank & Stocks to Consider

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

A few better-ranked stocks in the Industrial Products sector are The Timken Company TKR, CIRCOR International, Inc. CIR and Harsco Corporation HSC, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Timken Company has an estimated earnings growth rate of 26.5% for the ongoing year. The company’s shares have gained 15.5%, in the past year.

CIRCOR International has an expected earnings growth rate of 4.3% for the current year. The stock has appreciated 23.1% in a year’s time.

Harsco has a projected earnings growth rate of 9.1% for 2019. The company’s shares have rallied 13.4%, over the past year.

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