Greif, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended January 31, 2013; comparisons are with the three months ended January 31, 2012 unless otherwise noted. Greif operates in rigid industrial packaging and services, flexible products and services, paper packaging, and land management.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net sales | $1,008.6 million | $992.8 million |
| Gross profit / margin | $187.3 million / 18.6% | $177.4 million / 17.9% |
| Operating profit | $64.6 million | $56.5 million |
| Net income attributable to Greif | $24.9 million | $21.7 million |
| Diluted EPS, Class A / Class B | $0.43 / $0.63 | $0.38 / $0.55 |
| EBITDA (non-GAAP) | $101.0 million | $95.4 million |
| Operating cash flow | $(68.8) million | $14.0 million |
| Capital expenditures | $28.5 million | $46.9 million |
Sales rose 2%, with reported volume growth of 3% partly offset by 1% lower selling prices; currency effects were immaterial overall. Gross profit improved on lower raw-material costs and operating efficiencies. SG&A increased to $122.6 million from $113.1 million, including higher employee-related and IT expenses. Restructuring charges declined to $1.3 million from $8.9 million. Interest expense fell to $21.6 million from $22.9 million, while a $1.3 million debt-extinguishment charge and $3.1 million of other expense (versus $0.2 million of other income) affected results.
Segments and material changes
| Segment | Sales, 2013 vs. 2012 | Operating profit, 2013 vs. 2012 |
|---|---|---|
| Rigid Industrial Packaging & Services | $704.4m vs. $703.4m | $32.1m vs. $31.0m |
| Flexible Products & Services | $111.4m vs. $114.8m | $0.6m vs. $2.3m |
| Paper Packaging | $184.2m vs. $168.1m | $27.7m vs. $20.2m |
| Land Management | $8.6m vs. $6.5m | $4.2m vs. $3.0m |
Paper Packaging led the improvement, benefiting from higher containerboard prices, more volume, and lower raw-material costs. Flexible Products weakened amid lower polywoven volumes, product/customer mix, consolidation costs, and Saudi fabric-hub start-up costs. Rigid Packaging had higher volumes but lower prices and foreign-exchange effects; its operating profit benefited from lower restructuring and acquisition-related costs.
Cash, debt, and liquidity
Cash was $91.6 million at January 31, 2013, compared with $91.7 million at October 31, 2012. Operating cash outflow of $68.8 million reflected working-capital movements, including a $78.9 million use from accounts payable, a $32.6 million use from deferred purchase price on sold receivables, and a $33.2 million use in other items. Financing provided $95.1 million, including $464.9 million of long-term debt proceeds and $350.8 million of repayments.
At January 31, reported long-term debt was $1,305.2 million, current long-term debt was $10.0 million, and short-term borrowings were $102.9 million. The company amended and restated its credit agreement in December 2012: an $800 million revolving multicurrency facility and a $200 million term loan, both maturing in December 2017. Revolver availability was $626.1 million after letters of credit. Greif reported compliance with its leverage and interest-coverage covenants. The company expects operating cash flow and available borrowing and receivables-sale facilities to cover anticipated liquidity needs for at least 12 months.
Management expects 2013 capital expenditures, excluding timberland purchases and acquisitions, of approximately $140 million. The filing reports no formal earnings-per-share or revenue guidance.
Outlook, risks, and unusual items
- Management said markets were gradually improving, while noting continued concern about Western Europe. Excluding Western Europe, it anticipated higher 2013 volumes than the prior year, citing modest global growth, relatively stable raw-material costs, and improved operating performance.
- The European receivables program had a maximum financing amount of €145 million (reported as $195.1 million at January 31, 2013); $168.0 million of receivables were held by third-party institutions at that date. The deferred purchase-price balance was $40.2 million.
- Environmental reserves were $27.6 million. Estimated remediation payments were $8.7 million in 2013, with additional payments projected in later years. Management said individual-site exposure was not expected to be material, but adverse developments could affect results.
- Management reported two unresolved material weaknesses in internal control over financial reporting: the Brazil unit’s close and oversight process, and accounting for non-routine or complex transactions. Disclosure controls and procedures were therefore deemed ineffective at quarter-end.
- Unrecognized tax benefits could decrease by an estimated $0 to $48.5 million over the next 12 months; actual results may differ. Management did not believe pending litigation would materially adversely affect the consolidated financial statements.
- Other risks cited include economic and customer-demand conditions, competition and pricing pressure, raw-material and energy costs, currency and political exposure, restructuring and acquisition execution, labor, environmental and regulatory matters, and timber-sale variability.
Important facts for investors to verify
- Whether the negative operating cash flow is seasonal or reflects sustained working-capital pressure, particularly payables, receivables-sale timing, and other current items.
- Debt levels, upcoming maturities, revolver availability, and continued compliance with credit-agreement covenants.
- Whether Paper Packaging’s price and margin gains persist, and whether Flexible Products’ volumes and Saudi facility costs improve.
- Progress in remediating both material weaknesses and the related effect on reporting reliability and disclosure controls.
- Execution of the approximately $140 million capital-spending plan, the 2013 volume outlook, and environmental and tax exposures.