Greif, Inc. — Q1 Fiscal 2021 Form 10-Q
Reporting period: Three months ended January 31, 2021; comparisons are with the three months ended January 31, 2020. Greif’s fiscal year begins November 1. Amounts are in millions except per-share data.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $1,146.5 | $1,112.4 | +3.1% |
| Gross profit | $212.2 | $222.6 | −4.7% |
| Gross margin | 18.5% | 20.0% | −1.5 percentage points |
| Operating profit | $70.0 | $79.2 | −11.6% |
| Net income | $30.9 | $36.1 | −14.4% |
| Net income attributable to Greif | $23.4 | $32.3 | −27.6% |
| Diluted EPS, Class A / Class B | $0.40 / $0.59 | $0.55 / $0.81 | Lower for both classes |
| Adjusted EBITDA | $138.5 | $147.4 | −6.0% |
| Net cash from operations | $11.5 | $19.5 | −$8.0 |
| Capital expenditures | $27.4 | $24.7 | Excludes timber property purchases |
Interest expense declined to $25.2 from $30.7, primarily reflecting lower debt balances and variable interest rates. SG&A was $134.3, compared with $135.4, and fell to 11.7% of sales from 12.2%.
Balance sheet and liquidity
- At January 31, 2021, cash was $101.4; total debt before deferred financing costs was $2,505.3, versus $2,469.7 at October 31, 2020. Long-term debt, net, was $2,359.6; current debt was $133.6 and short-term borrowings were $46.2.
- Operating cash flow of $11.5 did not cover capital expenditures of $27.4. Cash and cash equivalents decreased $4.5 during the quarter to $101.4.
- Available borrowing capacity under the $800 million revolving credit facility was $420.9, subject to borrowing limits and leverage requirements. The company reported compliance with its credit agreement and senior note covenants.
- Management said operating cash flows and available borrowing facilities should fund anticipated needs for at least 12 months.
Material changes and segment results
- Sales increased $34.1, driven mainly by higher volumes and average selling prices. However, Q1 2020 sales included $53.0 from Consumer Packaging Group, divested in April 2020; reported year-over-year sales therefore include a significant portfolio-comparison effect.
- Global Industrial Packaging: Sales were $659.3, up from $631.7; operating profit was $54.0, up from $44.8; Adjusted EBITDA was $79.5, up from $66.6. Higher volume and pricing supported results, partly offset by transportation costs.
- Paper Packaging & Services: Sales were $480.9, up from $473.7, while operating profit declined to $14.3 from $32.5 and Adjusted EBITDA to $56.1 from $77.9. Higher old-corrugated-container input costs and transportation expenses pressured gross profit. The prior-year segment included the divested Consumer Packaging Group sales.
- Land Management: Sales were $6.3, compared with $7.0; Adjusted EBITDA was $2.9 in both periods.
- Greif combined its former Rigid Industrial Packaging & Services and Flexible Products & Services segments into Global Industrial Packaging, citing cross-selling and operating effectiveness.
Outlook, risks and unusual items
- Management expected demand trends from Q1 to continue into Q2. It also anticipated tight steel markets in the Americas and EMEA through Q2 and Q3, near-term resin price increases, higher paper-making raw material costs in Q2, and higher transportation and insurance costs than the prior year.
- COVID-19 continued to cause market disruption and volatility. The company said it could not predict the pandemic’s future effect, which could be material.
- On February 24, 2021, Greif agreed to sell approximately 69,200 acres of southwest Alabama timberland for approximately $149 million cash, with proceeds intended for debt repayment. Closing was expected in Q2 2021, subject to customary conditions; the assets’ approximate net book value was $47.5 million.
- The company recorded an $8.5 million non-cash pension settlement charge after transferring certain U.S. pension obligations to an annuity and making lump-sum payments. It also reported $3.1 million of restructuring charges and $1.3 million of non-cash asset impairment charges.
- Restructuring plans had $22.5 million of expected costs remaining at January 31, 2021, mainly for Global Industrial Packaging rationalization and Paper Packaging integration and optimization.
- Environmental investigations involving two Milwaukee-area joint-venture facilities and a related odor class-action lawsuit remained unresolved; Greif said it could not estimate possible losses. Environmental reserves totaled $19.7 million. The filing also notes potential exposure to raw-material and freight cost increases, foreign-exchange movements, indebtedness, pension funding needs, and litigation and regulatory matters.
Most important facts for investors to verify
- Whether pricing and volume gains can offset rising steel, resin, recycled-fiber, transportation, and insurance costs, particularly in Paper Packaging & Services.
- Whether the Alabama timberland sale closes as expected and whether proceeds are applied to debt repayment.
- Execution and financing of the planned repayment of the 7.375% Senior Notes due July 2021 using the $225 million incremental term loan facility.
- Cash generation, leverage, covenant headroom, and refinancing of the U.S. and European receivables facilities.
- Potential costs and outcomes of the Milwaukee environmental proceedings and class-action litigation, as well as the remaining restructuring commitments.