Greif, Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended October 31, 2020. This is an annual report, not a standalone Q4 filing; unaudited quarterly data show Q4 net sales of $1,161.3 million and net income attributable to Greif of $44.4 million. Greif is a global industrial-packaging and paper-packaging company operating in more than 40 countries.
Key financial results
Amounts in millions of dollars, except per-share data and percentages.
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $4,515.0 | $4,595.0 |
| Gross profit / margin | $914.7 / 20.3% | $959.9 / 20.9% |
| Operating profit | $304.9 | $399.1 |
| Net income | $124.3 | $194.2 |
| Net income attributable to Greif | $108.8 | $171.0 |
| Diluted EPS, Class A / Class B | $1.83 / $2.74 | $2.89 / $4.33 |
| Operating cash flow | $454.7 | $389.5 |
| Capital expenditures | $131.4 | $156.9 |
| Cash and cash equivalents | $105.9 | $77.3 |
| Total debt, including current portion | $2,469.7 | $2,756.3 |
| Adjusted EBITDA (non-GAAP) | $642.6 | $658.9 |
Operating cash flow less capital expenditures was approximately $323.3 million. Greif paid $104.3 million in dividends to its shareholders; annual dividends per share remained $1.76 for Class A and $2.63 for Class B. No shares were repurchased.
At year-end, current assets were $1,302.8 million and current liabilities were $1,000.1 million. Greif reported $538.1 million of available capacity under its $800 million revolving credit facility, subject to the facility’s leverage-based borrowing limit. The company said available liquidity sources were expected to meet needs for at least 12 months and reported compliance with debt covenants. The actual covenant leverage ratio is not provided in the filing text.
Material changes versus FY2019
- Sales declined $80.0 million (about 1.7%), reflecting lower volumes and selling prices, foreign-currency effects and the CPG divestiture, partly offset by a full year of Caraustar results. FY2019 included Caraustar only from its February 2019 acquisition date.
- Operating profit fell $94.2 million and Greif-attributable net income fell $62.2 million. Adjusted EBITDA decreased $16.3 million.
- Paper Packaging & Services operating profit declined to $71.0 million from $184.3 million; lower gross profit, higher old-corrugated-container input costs, the CPG sale loss and increased allocated corporate costs contributed. Segment Adjusted EBITDA was $306.4 million versus $348.3 million.
- Rigid Industrial Packaging & Services operating profit increased to $209.9 million from $179.6 million, helped by lower raw-material costs and cost management; Flexible Products & Services and Land Management operating profit decreased.
- Interest expense increased to $115.8 million from $112.5 million. FY2019 included $22.0 million of debt-extinguishment charges, while FY2020 included a $38.8 million net loss on disposal of businesses, primarily related to CPG.
- Greif sold CPG on April 1, 2020 for $85.0 million before final adjustments, receiving net cash proceeds of $79.6 million. The divestiture was not classified as discontinued operations.
- Debt decreased by $286.6 million. Operating cash flow increased, while capital spending declined. FY2019 investing cash flow included $1.86 billion of net cash paid for Caraustar.
Outlook, risks and unusual items
- Management anticipated industrial-manufacturing demand growth but continued global economic uncertainty into early 2021. It expected old corrugated container prices to rise and steel, resin and recycled paperboard prices to remain relatively stable after Q1 2021; higher transportation and insurance costs and incentive accruals were expected to pressure costs. No quantified FY2021 earnings or revenue guidance is provided.
- COVID-19 remained a significant uncertainty. Greif’s operations were generally allowed to continue as essential businesses, but management warned that renewed restrictions, weaker customer demand, supply-chain disruption, employee absences and safety costs could materially affect results, cash flow or financial position.
- FY2020 restructuring charges were $38.7 million, up from $26.1 million. The company closed 16 plants and severed 658 employees during the year; $22.8 million of costs remained expected under open or planned restructuring activity as of the filing.
- Goodwill was $1.52 billion, with no impairment recorded. The Paper Packaging & Services reporting unit’s estimated fair value exceeded carrying value by 27%; the auditor identified this valuation as a critical audit matter because it depends on sensitive forecasts and assumptions.
- Environmental and legal exposures include a $11.1 million reserve for the Lower Passaic River/Diamond Alkali Superfund matter. The EPA estimated the selected cleanup remedy for the lower eight miles of the river at $1.38 billion; Greif’s allocated share remained unresolved. Separate Milwaukee-area reconditioning-facility investigations and a related class-action lawsuit had uncertain outcomes and potential sanctions or losses could not be estimated clearly.
- Subsequent events: Greif arranged a $225 million incremental term-loan commitment, intended to fund repayment of the 7.375% Senior Notes due 2021. A post-year-end annuity purchase transferred certain U.S. pension obligations and is expected to result in an $8.4 million settlement charge in Q1 2021.
- Other ongoing risks include raw-material and freight-price volatility, foreign-exchange exposure, customer and supplier consolidation, debt and refinancing needs, pension funding, cybersecurity, and regulatory and environmental compliance. Environmental reserves totaled $20.2 million at year-end.
Most important facts for investors to verify
- Whether demand, pricing and margins recover in FY2021, particularly in Paper Packaging & Services, and how higher recycled-fiber, transportation and insurance costs affect profitability.
- Progress and final terms for refinancing the Senior Notes due 2021 and renewing or replacing receivables facilities that mature in 2021; monitor revolving availability and covenant headroom.
- The realized financial effects of the CPG divestiture, remaining restructuring costs and expected benefits from plant closures and integration.
- Developments in the Lower Passaic River allocation process, Milwaukee environmental proceedings and related litigation, including any changes to reserves or potential company exposure.
- Whether Paper Packaging & Services meets the assumptions underlying its 27% goodwill valuation cushion, and the cash and earnings effects of pension funding and the subsequent annuity settlement.