Greif, Inc. — Fiscal 2023 First-Quarter 10-Q
Reporting period: Three months ended January 31, 2023; comparisons are with the three months ended January 31, 2022. Greif operates in Global Industrial Packaging, Paper Packaging & Services, and Land Management.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $1,271.0 million | $1,564.3 million |
| Gross profit | $251.6 million | $289.7 million |
| Gross margin | 19.8% | 18.5% |
| Operating profit | $156.4 million | $72.0 million |
| Net income | $93.1 million | $18.6 million |
| Net income attributable to Greif | $89.9 million | $10.3 million |
| Adjusted EBITDA (non-GAAP) | $164.5 million | $196.8 million |
| Net cash from operating activities | $32.9 million | $22.4 million |
Sales declined $293.3 million, primarily on lower prices and volumes in Global Industrial Packaging, lower Paper Packaging & Services volumes, and the prior-year-period comparison with businesses subsequently divested. Gross profit fell, but margin improved, reflecting lower raw-material and transportation costs. SG&A decreased to $139.4 million from $151.6 million, mainly due to lower incentive compensation expense.
Reported operating profit and net income benefited from the $54.6 million gain on the Tama Paperboard divestiture. The prior-year quarter included a $62.4 million non-cash impairment associated with the Flexible Products & Services divestiture. Adjusted EBITDA, which excludes specified items including these gains and impairments, declined $32.3 million year over year.
Segments and significant transactions
- Global Industrial Packaging: Sales were $705.8 million versus $949.1 million; operating profit was $45.9 million versus $31.0 million. Adjusted EBITDA fell to $71.8 million from $114.2 million, primarily due to lower volumes and selling prices, foreign currency effects, and the divestiture comparison.
- Paper Packaging & Services: Sales were $560.2 million versus $610.0 million; operating profit was $109.1 million versus $38.3 million. Adjusted EBITDA increased to $90.7 million from $80.5 million, supported by higher published containerboard and boxboard prices and lower input costs.
- Land Management: Sales were $5.0 million versus $5.2 million; operating profit was $1.4 million versus $2.7 million.
- Greif acquired Lee Container on December 15, 2022, for $302.8 million net of cash acquired; it contributed $18.0 million in sales after acquisition. Purchase accounting remains preliminary.
- Greif completed the Tama Paperboard divestiture for $100.2 million in net cash proceeds, recognizing the $54.6 million gain. The divestiture was not reported as discontinued operations.
- After quarter-end, Greif agreed to acquire an additional interest in Centurion Container for $145.0 million in cash, subject to customary closing conditions; management anticipated completion in Q2 fiscal 2023.
Cash, debt, and liquidity
Cash and cash equivalents were $161.0 million at January 31, 2023, compared with $147.1 million at October 31, 2022. Operating activities provided $32.9 million. Investing activities used $269.1 million, including $301.9 million for business acquisitions, partly offset by $105.6 million of proceeds from business sales. Financing activities provided $239.5 million.
Total debt before deferred financing costs was $2,232.4 million, up from $1,918.7 million at October 31, 2022; long-term debt, net, was $2,143.9 million. The revolving credit facility had $448.0 million of available capacity. Borrowings under the 2022 Credit Agreement had a 5.58% actual interest rate at quarter-end. Greif reported compliance with its credit covenants and stated it expects available operating cash flows and borrowing capacity to meet anticipated needs for at least 12 months.
Receivables facilities had $247.1 million outstanding in the U.S. and $78.7 million in Europe. Their stated maturities were May 17, 2023 and April 24, 2023, respectively. Greif classified these balances as long-term based on its stated intent and ability to refinance them.
Outlook, risks, and unusual items
- Management expected lower customer demand experienced in Q1 to continue through Q2, subject to normal seasonal improvement. It expected steel and resin prices could begin rising from lows, but did not expect material inflationary trends to return in Q2; old corrugated container price weakness was expected to continue. Transportation, labor, and utility costs were expected to remain relatively stable.
- The filing provides no specific full-year earnings or revenue guidance.
- Key disclosed risks include economic and demand weakness, pricing and competitive pressure, raw-material and supply-chain volatility, energy and transportation costs, foreign exchange, acquisition and divestiture execution, interest rates, cybersecurity, environmental and regulatory matters, and pension funding.
- Environmental reserves were $19.2 million. Greif stated it did not believe pending litigation would materially adversely affect the interim financial statements, while noting that environmental developments could require future charges.
- Restructuring charges were $2.4 million in the quarter, with $7.7 million of expected costs remaining under open or developing plans. No material change to reported risk factors was identified.
Most important facts for investors to verify
- Whether demand and volumes stabilized or continued weakening after Q1, particularly in Global Industrial Packaging and Paper Packaging & Services.
- How much operating profit and net income depended on the Tama gain, and how underlying results compare using Adjusted EBITDA and segment trends.
- Completion and financing of the Centurion transaction, and final Lee Container purchase-price allocation and integration outcomes.
- Refinancing of the U.S. and European receivables facilities as their April and May 2023 maturities approached.
- Debt, interest expense, covenant headroom, and cash generation following the acquisition-related borrowing.
- Actual restructuring costs and any material developments in environmental reserves or other contingencies.