Greif, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Three and six months ended April 30, 2024; Greif’s fiscal year ends October 31. Filed June 6, 2024. Greif makes industrial and paper packaging products and manages timber properties.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $1,371.0m | $1,308.9m | $2,576.8m | $2,579.9m |
| Gross profit | $270.1m | $311.8m | $491.7m | $563.4m |
| Gross margin | 19.7% | 23.8% | 19.1% | 21.8% |
| Operating profit | $98.1m | $181.1m | $167.0m | $337.5m |
| Net income | $52.0m | $116.0m | $126.3m | $209.1m |
| Net income attributable to Greif | $44.4m | $111.2m | $111.6m | $201.1m |
| Adjusted EBITDA (non-GAAP) | $169.9m | $228.6m | $297.9m | $393.1m |
| Class A / Class B diluted EPS | $0.77 / $1.15 | $1.90 / $2.88 | $1.94 / $2.90 | $3.44 / $5.19 |
Q2 sales rose 4.7%, but operating profit fell 45.8% and Greif-attributable net income fell 60.1%. For the six-month period, sales were essentially flat while operating profit and attributable net income declined materially. Higher raw-material, transportation and manufacturing costs pressured gross profit; increased compensation, strategic investment costs and acquisition-related amortization raised SG&A. Q2 SG&A was $167.2m, or 12.2% of sales, versus $137.2m, or 10.5%, a year earlier.
Segment results
- Global Industrial Packaging: Q2 sales increased to $804.8m from $748.2m; operating profit declined to $83.4m from $111.3m, while Adjusted EBITDA was $118.3m versus $121.2m. Higher sales prices, volumes and acquisitions supported sales; higher expenses and the prior-year $9.8m Centurion remeasurement gain affected profit comparisons.
- Paper Packaging & Services: Q2 sales rose to $560.8m from $554.8m, but operating profit fell to $12.6m from $67.6m and Adjusted EBITDA to $49.0m from $104.9m. Higher input, transportation and manufacturing costs and lower selling prices weighed on results.
- Land Management: Q2 sales were $5.4m versus $5.9m; operating profit was $2.1m versus $2.2m.
Cash flow, debt and liquidity
- Six-month operating cash flow was $92.0m, down from $243.7m. Working-capital movements included $65.9m of cash use from receivables and $37.5m from inventories, partly offset by $49.1m from accounts payable.
- Investing cash use was $662.6m, including $567.6m for business acquisitions, primarily Ipackchem, and $96.6m of capital expenditures. Financing provided $584.9m; cash ended the period at $196.0m. Operating cash flow less capital expenditures was negative $4.6m, a simple calculated measure.
- Total debt before deferred financing costs was $2,887.1m at April 30, versus $2,218.4m at October 31, 2023; cash was $196.0m. The filing reports $2,782.9m of long-term debt net of financing costs, plus $95.8m current debt.
- Greif drew a $300m incremental term loan to help finance Ipackchem. Revolving-credit availability was $307.8m. The weighted-average rate on 2022 and 2023 Credit Agreement borrowings was 6.36% for the six months; the rate at April 30 was 6.81%. The company reported compliance with debt covenants.
- Management expects operating cash flow, credit facilities and receivables-facility proceeds to cover anticipated needs for at least 12 months. The U.S. and European receivables facilities were extended to May 16, 2025 and April 22, 2025, respectively.
Material changes and unusual items
- Greif acquired Ipackchem on March 26, 2024, for $582.1m. The acquisition added $22.6m of reported Q2 sales. Preliminary purchase accounting recorded $231.7m of acquired intangibles and $275.8m of goodwill; valuation remains subject to finalization.
- Six-month income tax was a $21.2m benefit, versus $76.8m expense in the prior year. A $48.1m one-time discrete benefit arose from recognizing deferred tax assets following the onshoring of certain non-U.S. intangible property.
- The prior-year comparison included a $54.6m gain from the Tama Paperboard divestiture and the $9.8m Centurion gain. These gains make reported year-over-year profit comparisons less representative of recurring operations.
- Q2 restructuring included a $9.0m release of a prior-period severance accrual; restructuring charges were a net credit of $6.8m. Remaining expected restructuring costs were $13.7m.
- Dividends declared were $0.52 per Class A share and $0.78 per Class B share for Q2, up from $0.50 and $0.75, respectively.
Outlook, commentary and risks
Management expects the slight sequential improvement in customer demand seen in Q2 to continue through year-end, but cautions that some customers and markets remain uncertain and demand may be uneven by region. Steel and resin prices, along with old corrugated containers, transportation, labor and utilities, were generally expected to remain relatively stable, subject to possible modest increases in some areas. The supplied filing text contains a blank in its reference to the June 5 old-corrugated-container price change, so it does not provide a clear value.
The filing gives qualitative trends rather than quantified earnings or sales guidance. It identifies risks including economic weakness, pricing pressure and competition, customer and supplier concentration, raw-material and supply-chain volatility, energy and transport costs, acquisition integration, foreign-exchange exposure, debt and interest costs, cyber and operational disruption, taxes, environmental obligations, climate-related requirements, litigation and labor matters. Management said there were no material changes to the risk factors disclosed in its 2023 Form 10-K. Environmental reserves were $18.3m; the company noted that adverse developments could require additional charges, although individual-site exposure is not expected to be material.
Investor verification points
- Assess whether Q2 margin and profit pressure—particularly in Paper Packaging & Services—eases as input costs and demand evolve.
- Track Ipackchem integration, expected contribution, acquisition synergies, financing costs and final purchase-price allocation.
- Review debt levels, floating-rate exposure, covenant headroom and refinancing of receivables facilities; the filing does not state an actual leverage ratio.
- Separate the $48.1m tax benefit and prior-year divestiture and remeasurement gains from ongoing earnings comparisons.
- Check working-capital conversion and cash generation after acquisition spending and capital expenditures.