Business Context and Reporting Period
Company: GREIF, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 30, 2008 (Second Quarter of Fiscal Year 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 industrial packaging products and services.
Key Financial Metrics
| Metric (Dollars in thousands) | Three Months Ended Apr 30, 2008 |
Three Months Ended Apr 30, 2007 |
Six Months Ended Apr 30, 2008 |
Six Months Ended Apr 30, 2007 |
|---|---|---|---|---|
| Net Sales | $918,019 | $815,043 | $1,764,311 | $1,565,802 |
| Gross Profit | $159,168 | $142,531 | $307,492 | $272,617 |
| Operating Profit | $81,471 | $63,878 | $175,672 | $122,519 |
| Net Income | $48,654 | $18,624 | $109,341 | $52,603 |
| Diluted EPS (Class A) | $0.82 | $0.32 | $1.85 | $0.89 |
| Diluted EPS (Class B) | $1.25 | $0.48 | $2.81 | $1.36 |
Liquidity and Debt
- Cash and Cash Equivalents: $96,978 (April 30, 2008) vs. $123,699 (October 31, 2007).
- Long-Term Debt: $722,492 (April 30, 2008) vs. $622,685 (October 31, 2007).
- Short-Term Borrowings: $47,679 (April 30, 2008) vs. $15,848 (October 31, 2007).
- Operating Cash Flow (Six Months): Negative $50,781 (2008) vs. Positive $81,707 (2007). The decline was driven by increases in receivables and inventories.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 13% year-over-year for the quarter and 13% for the six-month period. Organic growth was driven by higher volumes and selling prices, particularly in the Industrial Packaging segment.
- Profitability: Operating profit increased 28% for the quarter and 43% for the six-month period. This was significantly aided by a $29.9 million pre-tax gain on the divestiture of Australian and Zimbabwean operations included in the six-month results.
- Restructuring Charges: Charges increased to $7.3 million for the quarter (vs. $4.0 million prior year) and $17.8 million for the six months (vs. $6.1 million prior year), primarily due to integration of recent acquisitions and asset impairments.
- Acquisitions: Completed three acquisitions in the first half of 2008 for an aggregate purchase price of $66.6 million, adding $31.6 million in goodwill.
- Divestitures: Sold Australian drum operations and a 51% interest in Zimbabwean operations, resulting in a net gain of $29.9 million.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects capital expenditures (excluding timberland) to be approximately $125 million for fiscal year 2008, including expansion in emerging markets.
- Outlook: The company 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, and old corrugated containers (OCC) prices.
- Environmental Liabilities: Reserves for environmental cleanup totaled $40.9 million as of April 30, 2008.
- 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.
Investor Verification Checklist
- Divestiture Gains: Verify the sustainability of earnings given the $29.9 million one-time gain from the sale of Australian and Zimbabwean operations.
- Cash Flow Reversal: Investigate the shift from positive to negative operating cash flow ($81.7M to -$50.8M) driven by working capital increases (receivables and inventory).
- Debt Levels: Monitor the increase in total debt (up ~$132M) and the impact of rising interest rates on net interest expense.
- Restructuring Costs: Track the remaining $12.8 million in anticipated restructuring charges for the remainder of fiscal 2008.
- Acquisition Integration: Assess the performance of the three new acquisitions completed in the first half of 2008 and their contribution to future margins.