Greif, Inc. — Fiscal 2022 Third-Quarter 10-Q
Reporting period: Three and nine months ended July 31, 2022; comparisons are with the corresponding 2021 periods. Greif operates in Global Industrial Packaging, Paper Packaging & Services, and Land Management.
Financial performance
Amounts are in millions, except per-share data and percentages.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $1,622.1 | $1,490.8 | $4,853.7 | $3,977.9 |
| Gross profit | $346.9 | $318.8 | $975.3 | $796.9 |
| Gross margin | 21.4% | 21.4% | 20.1% | 20.0% |
| Operating profit | $205.7 | $173.1 | $467.8 | $443.7 |
| Net income attributable to Greif | $141.8 | $113.0 | $277.2 | $286.2 |
| Adjusted EBITDA (non-GAAP) | $251.0 | $237.8 | $698.8 | $552.9 |
| Diluted EPS, Class A / Class B | $2.36 / $3.58 | $1.89 / $2.85 | $4.63 / $6.98 | $4.80 / $7.21 |
- Quarterly comparison: Sales rose 8.8% and Greif-attributable net income increased. Higher selling prices and published paperboard prices drove revenue growth; higher raw material, transport, labor and utility costs partly offset gross-profit gains.
- Year-to-date comparison: Sales increased 22.0% and Adjusted EBITDA increased, while attributable net income declined. The 2021 period included $95.7 million of timberland gains; 2022 included a $63.1 million non-cash impairment charge and higher income tax expense.
- Segment mix: Q3 Paper Packaging & Services operating profit rose to $96.7 million from $47.5 million, while Global Industrial Packaging declined to $107.2 million from $122.0 million. Land Management operating profit was $1.8 million versus $3.6 million. YTD Paper Packaging & Services operating profit increased to $215.1 million; Global Industrial Packaging was $246.2 million versus $252.4 million.
- Cash flow: Nine-month operating cash flow was $370.9 million, compared with $258.7 million. Investing activities provided $34.7 million; financing activities used $343.8 million. Capital expenditures were $112.2 million. Cash ended at $127.5 million, up from $124.6 million at October 31, 2021.
- Debt and liquidity: Debt before deferred financing costs was $2,045.8 million; reported long-term debt, net of current portion and financing costs, was $1,986.1 million. Cash was $127.5 million. The company reported $721.6 million available under its $800 million revolving facility and compliance with its debt covenants. Q3 net interest expense was $14.0 million, down from $23.9 million.
- Dividends and repurchases: Nine-month dividends paid to Greif shareholders were $82.0 million. A $75 million accelerated repurchase agreement delivered 1,021,451 Class A shares initially; the final share count remained subject to the agreement. A further $75 million of planned open-market repurchases had not begun by July 31.
Outlook, commentary and risks
- Management described the fourth-quarter macroeconomic environment as mixed, noted softer customer demand in July continuing into August, and expected softness to continue through Q4. The filing provides no specific numerical earnings or revenue guidance.
- Management expected global steel, resin and old corrugated container prices to decline, while transportation, labor and utility costs were expected to remain inflationary through the year.
- Russia operations represented approximately 3% of sales and 2% of assets at July 31. The company said it would continue monitoring the effects of the Russia-Ukraine war.
- The FPS business divestiture was completed in Q2. The filing reports a $62.4 million impairment related to the divestiture and a $58.6 million book expense on the FPS and other business dispositions for which no tax benefit was expected. The reported nine-month tax expense was $105.4 million versus $56.5 million.
- Greif identified exposure to economic conditions, inflation and supply-chain disruption, foreign exchange, customer demand, labor, energy and transport costs, divestitures, environmental matters, taxes, pensions, cybersecurity and other risks. Environmental reserves were $20.3 million. Management said pending litigation was not expected to have a material adverse effect, while noting environmental developments could require future charges.
- The company reported no material change in risk factors from its 2021 Form 10-K and concluded disclosure controls were effective.
Key investor verification points
- Track whether the expected Q4 demand softness materializes and how price reductions and cost inflation affect segment margins.
- Assess the sustainability of Paper Packaging & Services’ profit improvement and the pressure on Global Industrial Packaging profitability.
- Review the cash and tax effects of the FPS divestiture, including the impairment and disposition-related book expense.
- Monitor variable-rate debt, refinancing plans for the receivables facilities maturing in 2023, available revolver capacity and covenant headroom.
- Confirm the final share delivery under the accelerated repurchase and whether the discretionary open-market repurchases proceed.