Business Context and Reporting Period
Company: GREIF, INC.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and nine months ended July 31, 2008
Business Overview: Greif operates in three segments: Industrial Packaging (steel, fiber, plastic drums, IBCs), Paper Packaging (containerboard, corrugated containers), and Timber (management and sale of timber properties). The company is a global provider of packaging solutions and services.
Key Financial Metrics
| Metric (Dollars in thousands) | 3 Months Ended July 31, 2008 | 3 Months Ended July 31, 2007 | 9 Months Ended July 31, 2008 | 9 Months Ended July 31, 2007 |
|---|---|---|---|---|
| Net Sales | $1,034,081 | $874,237 | $2,798,392 | $2,440,039 |
| Gross Profit | $192,860 | $162,289 | $500,352 | $434,906 |
| Operating Profit | $101,286 | $79,908 | $276,958 | $202,427 |
| Net Income | $64,590 | $48,781 | $173,931 | $101,384 |
| Diluted EPS (Class A) | $1.10 | $0.82 | $2.95 | $1.72 |
| Diluted EPS (Class B) | $1.67 | $1.26 | $4.48 | $2.62 |
| Cash & Equivalents (Balance Sheet) | $99,310 (as of July 31, 2008) | |||
| Long-Term Debt (Balance Sheet) | $708,214 (as of July 31, 2008) | |||
| Operating Cash Flow (9 Months) | $19,061 | $165,623 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 18% in the third quarter and 15% year-to-date (YTD) compared to the prior year. Growth was driven by strong organic sales in Industrial Packaging and higher selling prices offsetting raw material costs.
- Profitability: Operating profit rose 27% in the quarter and 37% YTD. Operating profit before restructuring and timberland disposals increased 25% in the quarter and 40% YTD.
- Restructuring Charges: Charges increased to $6.6 million in the quarter (from $6.1 million) and $24.4 million YTD (from $12.1 million), primarily due to integration of recent acquisitions and the Greif Business System implementation.
- Divestitures: The company recorded a significant gain of $52.7 million YTD on the disposal of properties, plants, and equipment, including the sale of Australian drum operations and a North American paper packaging facility.
- Cash Flow: Operating cash flow decreased significantly YTD to $19.1 million from $165.6 million, largely due to increases in trade accounts receivable ($103.6 million) and inventories ($74.8 million) driven by acquisitions and rising costs.
Guidance, Outlook, and Risks
- Capital Expenditures: The company expects capital expenditures (excluding timberland) to be approximately $135 million for fiscal 2008, supporting growth in emerging markets.
- Outlook: Management anticipates that operating cash flows and existing credit facilities will be sufficient to fund working capital, debt repayment, and other liquidity needs.
- Risks and Contingencies:
- Raw Material Costs: Profitability is sensitive to fluctuations in steel, resin, containerboard, and energy prices.
- Environmental Liabilities: Reserves for environmental cleanup costs totaled $39.4 million as of July 31, 2008, with actual costs potentially varying from estimates.
- Debt Covenants: The company is in compliance with leverage and interest coverage ratios under its Credit Agreement and Senior Notes indentures.
- Foreign Currency: Significant exposure to foreign currency translation, which impacted comprehensive income by a loss of $27.5 million YTD.
Investor Verification Checklist
- Acquisition Integration: Verify the realization of synergies from the five acquisitions completed in the first nine months of 2008 ($73.7 million aggregate purchase price).
- Working Capital Trends: Monitor the continued build-up of receivables and inventories and its impact on operating cash flow.
- Restructuring Progress: Track the execution of the remaining $5.3 million in anticipated restructuring costs for the remainder of fiscal 2008.
- Divestiture Proceeds: Confirm the deployment of the $36.5 million in proceeds from recent divestitures.
- Debt Maturities: Review the schedule of long-term debt maturities, with $402.4 million due in 2010.