Business Context and Reporting Period
Company: GREIF, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 30, 2010 (Second Quarter of Fiscal Year 2010)
Business Overview: Greif is a global provider of rigid industrial packaging (steel, fiber, plastic drums), flexible products (intermediate bulk containers), paper packaging, and land management services. The company operates in four segments: Rigid Industrial Packaging and Services, Flexible Products and Services, Paper Packaging, and Land Management.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Three Months Ended Apr 30, 2010 |
Three Months Ended Apr 30, 2009 |
Six Months Ended Apr 30, 2010 |
Six Months Ended Apr 30, 2009 |
|---|---|---|---|---|
| Net Sales | $836,580 | $647,897 | $1,546,262 | $1,314,157 |
| Gross Profit | $168,516 | $96,860 | $306,228 | $191,661 |
| Operating Profit | $72,759 | $13,107 | $123,420 | $24,615 |
| Net Income (Attributable to Greif) | $42,634 | $1,553 | $67,453 | $(719) |
| Diluted EPS (Class A) | $0.73 | $0.03 | $1.16 | $(0.01) |
| Cash and Equivalents | $85,033 | $111,896 (Oct 2009) | N/A | |
| Total Debt (Long-term + Current) | $974,983 | $738,608 (Oct 2009) | N/A |
Operating Cash Flow (Six Months): Net cash used in operating activities was $(70,051) for the six months ended April 30, 2010, compared to $(52,918) in the prior year period. This usage was driven by increases in receivables and inventories.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 29% in the quarter and 18% year-to-date. Growth was driven by higher sales volumes (33% in Q2), foreign currency translation (5%), and acquisitions, partially offset by lower selling prices (9%) due to pass-through of lower input costs.
- Profitability Surge: Operating profit increased from $13.1 million to $72.8 million in Q2. Adjusted operating profit (excluding restructuring and acquisition costs) rose from $40.9 million to $82.2 million.
- Restructuring Costs: Restructuring charges decreased significantly to $4.8 million in Q2 2010 from $20.3 million in Q2 2009. Year-to-date charges were $10.8 million compared to $47.5 million in the prior year.
- Acquisitions: The company acquired Storsack Holding GmbH (Flexible Products) and a European rigid packaging company in the first half of 2010. Acquisition-related costs of $14.6 million were expensed in the first half of 2010 due to the adoption of SFAS 141(R).
- Accounting Change: The company changed its inventory accounting method from a combination of LIFO and FIFO to FIFO for all businesses effective November 1, 2009. Prior period data has been adjusted retrospectively.
Guidance, Outlook, and Risks
- Capital Expenditures: The company expects capital expenditures (excluding timberland) to be approximately $130 million for fiscal year 2010.
- Liquidity: Management anticipates that operating cash flows, credit facilities, and senior notes will be sufficient to fund working capital, debt repayment, and potential acquisitions for at least 12 months.
- Debt Covenants: The company is in compliance with financial covenants under its $700 million Credit Agreement and Senior Notes indentures.
- Risks and Contingencies:
- Environmental Liabilities: Recorded liabilities for environmental remediation costs were $31.4 million as of April 30, 2010.
- Market Risks: Exposure to raw material costs (steel, resin, containerboard), energy prices, and foreign currency fluctuations. The company uses derivatives to hedge interest rate, currency, and energy risks.
- Legal: Various lawsuits and claims exist, but management believes reserves are reasonable and outcomes are not likely to be materially adverse.
Investor Verification Checklist
- Inventory Accounting Impact: Verify the retrospective adjustments made to prior periods due to the LIFO-to-FIFO conversion and its effect on cost of goods sold and gross margins.
- Acquisition Integration: Assess the financial performance of the newly acquired Storsack Holding GmbH and the European rigid packaging company, noting the $14.6 million in acquisition-related costs expensed in the current period.
- Cash Flow Dynamics: Review the significant use of cash in operating activities ($70 million) driven by working capital increases (receivables and inventory) despite strong net income.
- Debt Structure: Confirm the details of the $700 million Credit Agreement and the $550 million in Senior Notes, including interest rate exposure and covenant compliance.
- Restructuring Reserves: Monitor the remaining restructuring reserve of $15.9 million and the expected future cash outflows for employee separations and facility closures.