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Greif's (GEF) Caraustar Buyout to Boost Portfolio & Margins

Zacks Equity Research

Greif, Inc. GEF has completed the previously announced acquisition of Caraustar Industries, Inc. for $1.8 billion. This deal will strengthen its leadership in industrial packaging and significantly boost margins, free cash flow and profitability.

 

Based in Austell, GA, Caraustar is a recycled paperboard and packaging products maker. Caraustar produces uncoated recycled paperboard (“URB”) and coated recycled paperboard (“CRB”). It has more than 80 plants, warehouses and recycling centers in the United States.

 

Caraustar Buyout: A Strategic Fit

 

Caraustar is vertically integrated in recycled paperboard manufacturing which will also fortify, and balance Greif's portfolio and expand its paper franchise. Caraustar's financial results will be reported within Greif's Paper Packaging and Services segment going forward. The segment generated 23% of the company’s revenues in fiscal 2018. Following the acquisition, the percentage of sales from paper packaging will expand to approximately half of total consolidated revenues.

 

The buyout will be immediately accretive to Greif's earnings, and will result in more than $45 million in annual savings within three years through consolidation, transportation and procurement improvements and other initiatives. The deal is expected to increase Greif's portion of sales from the United States to roughly two third of total consolidated sales. Notably, Greif generates approximately half of its revenues from the United States.

Greif financed the acquisition from the proceeds of the issuance of $500 million of new senior unsecured notes and from refinancing its secured credit facilities and new term loans in the principal amount of $1,675 million. As part of the transaction, Greif will redeem its $250 million of 7.75% senior unsecured notes due August 2019.

 

Share Price Performance

 

 

 

Over the past year, shares of Greif have lost around 28% compared with the industry’s decline of 5%.

 

Zacks Rank

 

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

 

Some better-ranked stocks in the Industrial Products sector are Axon Enterprise, Inc AAXN, Alarm.com Holdings, Inc. ALRM and Mueller Industries, Inc. MLI. These three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Axon has expected earnings growth rate of 14.5% for 2019. The company’s shares have rallied 98% in the past year.

 

Alarm.com has expected earnings growth rate of 7.8% for 2019.  The stock has climbed 74% in a year’s time.

 

Mueller Industries has expected earnings growth rate of 2.2% for 2019. Its shares have gained 21% in the past year.

 

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