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Greif's 4Q Results Lag Y/Y

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Greif, Inc. (GEF) reported fourth quarter 2012 (ended Oct 31, 2012) results, with adjusted earnings of 63 cents per share, down 3% from 65 cents earned in the year-ago quarter. However, earnings per share comfortably surpassed the Zacks Consensus Estimate of 52 cents.

Weaker-than-expected volumes in Europe, particularly in the Rigid Industrial Packaging & Services and Flexible Products & Services segments, were somewhat offset by solid results for Land Management and relatively stable conditions in North America. Including special items, earnings per share in the quarter stood at 45 cents compared with 36 cents in the year-ago quarter. 


Operational Update 


Sales dipped 5% year over year to $1,075.6 million, falling short of the Zacks Consensus Estimate of $1,092 million. Sales volumes increased 1% but were more than offset by a negative 4% impact from foreign currency translation and a 2% setback from lower selling prices. 


Cost of sales improved 5% year over year to $881 million in the reported quarter. Selling, general and administrative expenses remained flat year over year at $120.8 million. Adjusted operating profit decreased 16% year over year to $78.2 million in the quarter, as weak results in Rigid Industrial Packaging & Services and Flexible Products & Services offset solid performance of Paper Packaging and Land Management. 


Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $110.3 million compared with $130.2 million in the year-ago quarter. 


Segmental Performance


Rigid Industrial Packaging & Services: Sales declined 6% year over year to $764 million in the reported quarter, dragged down by negative impact of 4% from foreign currency translation, 1% lower sales volume, and 1% due to lower selling prices. Adjusted operating income decreased 22% to $47.6 million.


Flexible Products & Services: The segment reported sales of $114.9 million, down 14% year over year. A 1% increase in volumes was not enough to mitigate the negative impact of 11% from lower selling prices, 4% negative impact from foreign currency translation. Adjusted operating income plunged 83% to $1.8 million; hurt by lower volumes, higher production costs and startup costs mainly related to the fabric hub in Saudi Arabia. 


Paper Packaging: Sales increased 6% year over year to $189.6 million in the quarter, helped by a 7% increase in volumes, which offset a negative impact of 1% from lower selling prices. The segment reported an operating profit of $25.2 million, up 37% from $18.4 million in the prior-year quarter. The increase was driven by higher volumes and gross profit margin improvement mainly on the back of lower raw material costs.


Land Management: Sales increased 13% year over year to $7.1 million in the quarter, driven by favorable weather conditions and customer demand. Operating income increased 24% to $3.6 million. 


Fiscal 2012 Performance


Adjusted earnings stood at $2.66 in fiscal 2012, a penny ahead of the Zacks Consensus Estimate, but down 29% from $3.77 earned in the previous year. Including one-time items, fiscal 2012 earnings were $2.17 per share compared with $3.04 in fiscal 2011. Total revenue increased 1% to $4.27 billion from $4.25 billion in the prior fiscal.


Financial Position 


Greif ended fiscal 2012 with cash and cash equivalents of $91.7 million, down from $127.4 million at the end of the previous fiscal. Cash flow from operating activities during the year improved substantially to $473.5 million from $172.3 million in the prior year. During the year, free cash flow was an impressive $303.8 million compared with $6.5 million in fiscal 2011.


Long-term debt declined to $1,175 million as of fiscal 2012 end from $1,371.4 million at the end of the fiscal 2011. Debt-to-capitalization ratio improved to 49% as of fiscal 2012 end from 53% as of the end of fiscal 2011.




The company estimates EBITDA to be in the range of $450 million - $500 million in fiscal 2013. Interest expense is expected to be lower compared with fiscal 2012, due to lower debt levels. Capital expenditures are expected to range between $140 million and $150 million. 


Contributions from contingency actions implemented during 2012, acquisition integration, and full realization of the $50 per ton containerboard price increase during the fourth quarter will benefit results in the next fiscal. For fiscal 2013, volumes are expected to show improvement and margins will expand on the back of stable raw material costs, along with improved operating performance and full realization of the containerboard price increase.


Delaware, Ohio-based Greif manufactures and sells industrial packaging products, bulk containers, and containerboard and corrugated products worldwide. The company provides services such as blending, filling, packaging and recycling of industrial containers for a wide range of industries.


Greif also manages timber properties in North America and provides land management consulting services. Greif competes with International Paper Company ( IP). The stock retains a quantitative Zacks #4 Rank (short-term Sell rating) over the near term.

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