Greif, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended October 31, 2023. The filing provides annual results; it does not provide a clear standalone fourth-quarter financial summary. All amounts are U.S. dollars unless noted.
Business context
Greif is a global industrial packaging and paper-products company operating in more than 35 countries, with three reportable segments: Global Industrial Packaging, Paper Packaging & Services, and Land Management. It also manages approximately 175,000 acres of timberland in the southeastern United States.
Financial performance
| Metric ($ millions, except per-share data) | FY2023 | FY2022 |
|---|---|---|
| Net sales | $5,218.6 | $6,349.5 |
| Gross profit | $1,146.1 | $1,285.4 |
| Gross margin | 22.0% | 20.2% |
| Operating profit | $605.5 | $621.2 |
| Net income | $379.1 | $394.0 |
| Net income attributable to Greif | $359.2 | $376.7 |
| Adjusted EBITDA | $818.8 | $917.5 |
| Operating cash flow | $649.5 | $657.5 |
| Capital expenditures | $213.6 | $176.3 |
| Cash and cash equivalents at year-end | $180.9 | $147.1 |
| Long-term debt, net | $2,121.4 | $1,839.3 |
Class A diluted EPS was $6.15 versus $6.30; Class B diluted EPS was $9.32 versus $9.53. FY2023 dividends were $2.02 per Class A share and $3.02 per Class B share.
Operating cash flow was nearly level year over year. Investing activities used $670.2 million, primarily reflecting $542.4 million of net acquisition spending and capital expenditures; financing activities provided $69.7 million. Total debt before deferred financing costs was $2,218.4 million. Greif reported $722.7 million of available capacity on its $800 million revolving facility and compliance with credit agreement covenants at year-end.
Changes versus FY2022
- Sales fell $1,130.9 million, principally from lower volumes and selling prices in both major packaging segments and the absence of sales following the 2022 Flexible Products & Services divestiture.
- Gross profit declined $139.3 million, but gross margin improved 1.8 percentage points, reflecting lower raw-material, transportation and manufacturing costs.
- Operating profit decreased $15.7 million and net income decreased $14.9 million. Adjusted EBITDA declined $98.7 million.
- Global Industrial Packaging sales decreased to $2,936.8 million; operating profit increased to $334.3 million, while Adjusted EBITDA decreased to $423.7 million.
- Paper Packaging & Services sales decreased to $2,260.5 million; operating profit fell to $264.1 million and Adjusted EBITDA to $386.2 million. A $54.6 million gain on the Tama Paperboard divestiture partly offset operating pressures.
- Debt increased, reflecting acquisition activity and financing. Interest expense rose to $96.3 million from $61.2 million.
Outlook, significant events and risks
- Management expected the lower customer-demand pattern experienced in FY2023 to continue overall into FY2024. It described recent U.S. containerboard demand improvement as not yet an inflection point and expected key raw-material, transportation, labor and utility prices to remain relatively stable. No quantitative FY2024 earnings guidance is provided in the supplied filing text.
- On November 17, 2023, Greif agreed to acquire Ipackchem for approximately $538 million, subject to adjustments and regulatory and other conditions. Greif planned to use existing credit facilities; financing is not a condition to closing. The transaction was not included in FY2023 results.
- FY2023 acquisitions included Lee Container, Centurion, ColePak and Reliance; net cash paid for business acquisitions was $542.4 million. Greif also completed the Tama divestiture for approximately $100 million in net cash proceeds.
- Greif recorded $20.3 million of non-cash asset impairment charges and $18.7 million of restructuring charges. Nine plants were closed or divested and 456 employees were severed during FY2023; $12.0 million of additional restructuring costs remained expected.
- Key exposures include economic and industrial-demand cyclicality, pricing competition, raw-material and energy cost volatility, foreign exchange, geopolitical disruptions, acquisitions and integration, labor, cybersecurity, environmental compliance and climate-related requirements. Russia represented approximately 4% of sales, 9% of operating profit and 2% of assets at year-end; management said those operations were not material to the company overall.
- Environmental reserves were $17.3 million at year-end. Greif reported no material pending legal proceedings; its reconditioning joint venture paid approximately $1.6 million in civil penalties under an approved environmental consent decree.
- The filing cover indicates that the financial statements reflect correction of an error to previously issued financial statements, but the supplied text does not clearly identify the correction or its financial effect. The auditor issued an unqualified opinion; the critical audit matter concerned goodwill valuation for the Asia Pacific industrial-packaging reporting unit.
Investor verification priorities
- Determine the nature, affected periods and financial impact of the error correction indicated on the filing cover.
- Assess the assumptions, regulatory approvals, funding and integration risks for the proposed Ipackchem acquisition, including its effect on leverage and returns.
- Review demand, pricing and margin trends in the two principal packaging segments, and distinguish recurring performance from divestiture gains, impairments and restructuring items.
- Confirm refinancing plans for receivables facilities maturing in 2024 and monitor debt service, variable-rate exposure and covenant headroom.
- Track goodwill and acquisition valuation assumptions, particularly given $1,693.0 million of goodwill and the auditor’s critical audit matter.