Greif, Inc. — Form 10-Q Summary
Business context and reporting period
Greif reported fiscal second-quarter and first-half results for the periods ended April 30, 2021. Its businesses are Global Industrial Packaging, Paper Packaging & Services, and Land Management. In fiscal 2021, Greif combined its rigid industrial packaging and flexible products reporting segments into Global Industrial Packaging; prior-period segment figures were recast.
Key financial metrics
| Metric | Three months ended April 30 | Six months ended April 30 |
|---|---|---|
| Net sales | $1,340.6 million (2020: $1,158.3 million) | $2,487.1 million (2020: $2,270.7 million) |
| Gross profit / margin | $265.9 million / 19.8% (2020: $240.7 million / 20.8%) | $478.1 million / 19.2% (2020: $463.3 million / 20.4%) |
| Operating profit | $200.6 million (2020: $72.0 million) | $270.6 million (2020: $151.2 million) |
| Net income attributable to Greif | $149.8 million (2020: $11.4 million) | $173.2 million (2020: $43.7 million) |
| Adjusted EBITDA | $176.6 million (2020: $181.3 million) | $315.1 million (2020: $328.7 million) |
| Operating cash flow | Not separately provided in the filing excerpt | $163.8 million (2020: $119.3 million) |
| Capital expenditures | Not separately provided | $57.7 million, excluding $2.5 million for timber properties |
Quarterly diluted EPS was $2.51 for Class A and $3.77 for Class B, versus $0.19 and $0.29, respectively, a year earlier. Greif declared dividends of $0.44 per Class A share and $0.66 per Class B share for the quarter.
At April 30, 2021, cash was $110.4 million. Current assets were $1,382.7 million and current liabilities were $1,109.9 million. Reported debt was $2,280.3 million before $11.6 million of deferred financing costs; short-term borrowings were a further $44.7 million. Long-term debt, net, was $2,154.6 million. Greif reported $746.1 million of available capacity under its $800 million revolving credit facility and compliance with its debt covenants.
Material changes versus prior comparable periods
- Second-quarter sales rose $182.3 million, primarily from higher volumes and average selling prices across segments; favorable currency effects also helped Global Industrial Packaging. First-half sales increased $216.4 million.
- Reported operating profit and net income benefited substantially from a $95.7 million timberland sale gain. Greif sold approximately 69,200 acres in southwest Alabama for $145.1 million net of closing costs and applied proceeds to debt repayment. Excluding adjustments, second-quarter Adjusted EBITDA declined $4.7 million and first-half Adjusted EBITDA declined $13.6 million year over year.
- Gross margin narrowed by 1.0 percentage point in the quarter and 1.2 points year to date. Management cited higher input and transportation costs, particularly in Paper Packaging & Services. SG&A increased in the quarter, principally due to higher incentive accruals.
- Global Industrial Packaging second-quarter sales rose to $798.0 million and Adjusted EBITDA to $106.2 million from $99.1 million. Paper Packaging & Services sales increased to $537.0 million, but Adjusted EBITDA fell to $68.3 million from $79.1 million. The prior-year comparison included the Consumer Packaging Group divestiture loss and its sales.
- Six-month operating cash flow increased to $163.8 million. Working-capital movements included higher receivables and inventories, partly offset by an increase in accounts payable. Cash provided by investing activities was $118.3 million, including timberland-sale proceeds; financing activities used $287.4 million, including debt repayments.
Outlook, risks, contingencies, and unusual items
- Management expected second-quarter demand trends to continue into the third quarter. It anticipated tight steel markets through the second half of the year and continued near-term increases in steel and resin prices, higher paper raw-material costs through the third quarter, and higher transportation and insurance costs versus the prior year. No numerical earnings or sales guidance was provided in the filing text.
- Greif planned to draw a $225 million incremental term loan by July 15, 2021, to repay the Senior Notes due 2021 at maturity. The U.S. receivables facility was amended after quarter-end, increasing its limit to $275 million and extending maturity to May 26, 2022. The European receivables facility was scheduled to mature July 26, 2021; Greif stated it intended and was able to refinance it on a long-term basis.
- Restructuring charges were $12.0 million for the quarter and $15.1 million for the first half; $19.4 million of costs remained expected under open or developing plans. A non-cash pension settlement charge of $8.6 million was recorded for the first half after pension obligations were transferred to an annuity and lump-sum payments were made.
- Environmental investigations involving two Milwaukee-area reconditioning facilities and a related odor class action remained unresolved. Greif could not estimate potential sanctions, remediation costs, or lawsuit losses. Environmental reserves were $19.5 million, including $11.1 million for the Diamond Alkali Superfund Site.
- Management cited exposure to economic conditions, COVID-19 effects, foreign exchange, raw-material and freight price increases or shortages, customer and supplier concentration, debt, pension funding, environmental matters, and execution of restructuring and business strategies. Greif stated there were no material changes to the risk factors in its latest Form 10-K.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring operations versus the $95.7 million timberland gain and other adjustments; review GAAP results alongside the company’s non-GAAP reconciliations.
- Whether selling-price increases can offset rising steel, resin, paper inputs, transportation, and insurance costs without further margin erosion.
- Progress and final terms for repayment of the 2021 notes and refinancing or renewal of the European receivables facility, as well as leverage and covenant headroom.
- Whether working-capital investment and cash conversion remain manageable as receivables and inventories rise, and whether expected restructuring costs are realized.
- Developments in the Milwaukee environmental proceedings and class action, for which potential losses were not estimable in the filing.