Greif, Inc. — FY2017 Form 10-K Summary
Business context and reporting period
Greif manufactures industrial packaging and related services, paper packaging, flexible intermediate bulk containers, and manages timberland. It operates in more than 40 countries through four reportable segments: Rigid Industrial Packaging & Services, Paper Packaging & Services, Flexible Products & Services, and Land Management. The fiscal year ended October 31, 2017; quarterly figures below identify the fourth quarter ended that date. Dollar amounts are in millions unless stated otherwise.
Key financial metrics
| Metric | FY2017 | FY2016 | Change / context |
|---|---|---|---|
| Net sales | $3,638.2 | $3,323.6 | Up 9.5% |
| Gross profit / margin | $714.7 / 19.6% | $684.9 / 20.6% | Profit up; margin down 1.0 percentage point |
| Operating profit | $272.4 | $225.6 | Up $46.8 |
| Net income attributable to Greif | $118.6 | $74.9 | Up $43.7; diluted EPS was $2.02 for Class A and $3.02 for Class B |
| EBITDA (non-GAAP) | $382.9 | $345.1 | Up $37.8 |
| Net cash from operating activities | $305.0 | $301.0 | Up $4.0 |
| Capital expenditures | $100.1 | $101.1 | Excludes timber-property purchases and investments of $9.5 in FY2017 |
| Cash and cash equivalents | $142.3 | $103.7 | At fiscal year-end |
| Long-term debt, including current portion | $952.8 | $974.6 | Down $21.8; short-term borrowings were a further $14.5 |
Fourth-quarter FY2017 net sales were $968.1, gross profit $182.4, net income attributable to Greif $33.3, and EPS $0.57 for Class A and $0.85 for Class B.
Material changes versus FY2016
- Higher sales reflected strategic pricing and raw-material index increases in rigid packaging, along with higher volumes and prices in paper packaging. Sales also benefited from comparison with prior-year divestitures.
- Rigid Industrial Packaging & Services operating profit rose to $173.4 from $143.9. Flexible Products & Services returned to operating profit of $5.7 from a loss of $15.5, supported by lower labor and fixed production costs and pricing and volume actions.
- Paper Packaging & Services operating profit declined to $83.3 from $89.1. Higher old corrugated container costs and pension settlement charges outweighed sales and volume gains.
- Reported operating profit benefited from lower non-cash asset impairment and restructuring charges and lower losses on business disposals. These benefits were partly offset by $27.1 of pension settlement charges and reduced gains on property disposals.
- Net interest expense fell to $60.1 from $75.4, primarily reflecting refinancing of the 2017-maturity notes at a lower borrowing cost and lower year-over-year debt balances. The effective tax rate was 33.58%, versus 47.10% in FY2016.
Outlook, commentary, risks and unusual items
- Management anticipated stronger FY2018 demand in key end markets, including bulk and specialty chemicals, citing improving global conditions, better credit access, and U.S. infrastructure and chemical expansion projects. It expected paper packaging to benefit as announced containerboard price increases were realized, while old corrugated container costs could remain volatile.
- Management expected FY2018 capital expenditures, excluding timber-property investments, of $100–$120. It expected the full-year benefit of FY2017 initiatives in FY2018. FY2017 restructuring charges were $12.7; initiatives were expected to produce approximately $9.9 of annual run-rate savings, with current programs anticipated to conclude by early 2018.
- Liquidity: Greif reported $753.1 of availability under its revolving credit facility at year-end, after letters of credit, and stated that expected operating cash flows and available borrowing sources should fund anticipated needs for at least 12 months. The receivables facility had $150 outstanding and was scheduled to mature in September 2018.
- FY2017 included a $13.0 goodwill impairment for the Rigid Industrial Packaging & Services Latin America reporting unit and $7.8 of non-cash asset impairments. Pension settlements produced a $27.1 charge. These items affect comparability with FY2016.
- Environmental proceedings involving three Milwaukee-area reconditioning facilities included federal and state notices alleging environmental violations. No fines had been assessed as of the filing date; possible sanctions and remedial-action costs could not be estimated. A putative class action concerning odors from one facility was also filed in November 2017; the company said it could not estimate possible losses.
- Other notable exposures include underfunded pension and postretirement plans (reported aggregate underfunding of $161.8), raw-material and energy price volatility, foreign currency and economic risks, debt covenant requirements, tax uncertainty, and execution risks from restructuring and IT-system implementation. Greif reported effective internal controls and received unqualified audit opinions on its financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether FY2018 demand, pricing, and paper-segment price-cost expectations materialized, and whether the anticipated restructuring savings were achieved.
- Debt maturities, revolver availability, covenant headroom, and refinancing plans, particularly the 2019 senior notes and receivables facility maturity.
- Developments, potential penalties, remediation costs, and litigation exposure related to the Milwaukee-area facilities.
- Cash generation after working-capital needs and capital expenditures, and the level and timing of required pension contributions.
- The sustainability of reported earnings after separating recurring operating performance from impairment, pension settlement, restructuring, disposal, and tax-related items.