Business Context and Reporting Period
Company: GREIF, INC.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended January 31, 2010 (Fiscal Q1 2010)
Business Overview: Greif operates in three segments: Industrial Packaging (global), Paper Packaging (North America), and Land Management (timber properties). The company manufactures industrial packaging products (drums, IBCs), corrugated containers, and manages timberlands.
Key Financial Metrics
| Metric (in thousands) | Q1 2010 | Q1 2009 (Adjusted) |
|---|---|---|
| Net Sales | $709,682 | $666,260 |
| Gross Profit | $137,712 | $94,801 |
| Gross Margin | 19.4% | 14.2% |
| Operating Profit | $50,661 | $11,508 |
| Net Income (Attributable to Greif) | $24,819 | $(2,272) |
| Diluted EPS (Class A) | $0.43 | $(0.03) |
| Diluted EPS (Class B) | $0.63 | $(0.06) |
| Cash and Equivalents | $89,409 | $55,776 |
| Total Debt (Long-term + Current) | $919,430 | $738,608 |
| Net Cash Used in Operating Activities | $(95,767) | $(116,352) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 6.5% to $709.7 million, driven by a 16% increase in sales volumes and favorable foreign currency translation, partially offset by a 14% decrease in selling prices due to lower input costs.
- Profitability Turnaround: The company returned to profitability with $24.8 million in net income, compared to a $2.3 million loss in Q1 2009. Operating profit surged to $50.7 million from $11.5 million.
- Restructuring Costs: Restructuring charges dropped significantly to $6.0 million in Q1 2010 from $27.2 million in Q1 2009, reflecting the completion of major cost-cutting initiatives initiated during the 2009 economic downturn.
- Acquisition Costs: SG&A expenses increased to $82.4 million (from $58.4 million) primarily due to the adoption of SFAS 141(R), which required expensing $10.1 million in acquisition-related costs in the current quarter.
- Segment Performance:
- Industrial Packaging: Sales up 7% to $564.8 million; Operating profit improved to $41.4 million from a loss of $8.3 million.
- Paper Packaging: Sales up 7% to $139.5 million; Operating profit declined to $6.3 million from $16.8 million due to higher raw material costs and lower selling prices.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects capital expenditures (excluding timberland) to be approximately $125 million for fiscal year 2010.
- Acquisitions: The company completed a European industrial packaging acquisition in Q1 2010 and a subsequent acquisition of a flexible intermediate bulk container manufacturer on February 15, 2010.
- Liquidity: The company maintains a $700 million credit agreement and $135 million trade receivable facility. Management believes current sources of liquidity are sufficient for at least 12 months.
- Accounting Changes: The company adopted the FIFO inventory method globally (previously LIFO for some US locations) and SFAS 141(R) for business combinations, impacting comparability of prior periods.
- Risks: Key risks include fluctuations in raw material costs (steel, resin, containerboard), foreign currency exchange rates, and the outcome of environmental litigation and claims.
Investor Verification Checklist
- Inventory Accounting Impact: Verify the retrospective adjustments made to Q1 2009 figures due to the switch from LIFO to FIFO to ensure accurate year-over-year comparisons.
- Acquisition Integration: Assess the financial impact of the $10.1 million in acquisition-related costs expensed in Q1 2010 and the integration progress of recent European and global acquisitions.
- Debt Covenants: Confirm continued compliance with leverage and fixed charge coverage ratios under the $700 million Credit Agreement and Senior Notes.
- Operating Cash Flow: Analyze the $95.8 million net cash used in operating activities, driven largely by a $147.6 million decrease in accounts payable and a $20.4 million increase in inventory.
- Restructuring Reserves: Monitor the remaining $16.1 million in restructuring reserves and the expected timing of future cash outflows for employee separations and facility closures.