GREIF, INC quarterly report, Q3 FY2023

Business context and reporting period

Greif, Inc. filed this unaudited Form 10-Q for its fiscal third quarter and nine months ended July 31, 2023. Its reportable segments are Global Industrial Packaging, Paper Packaging & Services, and Land Management.

Financial performance and liquidity

• Q3 net sales fell about 18%, primarily from lower selling prices and volumes in Global Industrial Packaging and Paper Packaging & Services. Gross margin improved, but operating profit, net income, and Adjusted EBITDA declined.
• Nine-month sales fell about 19%. Operating profit and attributable net income increased year over year, while Adjusted EBITDA declined. Results included significant divestiture-related gains and prior-year impairment charges.
• Nine-month operating cash flow was $446.0 million, versus $370.9 million a year earlier. Investing cash outflow was $496.7 million, including $447.5 million for business acquisitions; capital expenditures were $136.4 million. Cash at July 31 was $157.7 million.
• Gross debt was $2,179.1 million at July 31, compared with $1,918.7 million at October 31, 2022. The company reported $727.9 million available under its $800 million revolving facility and said it was in compliance with debt covenants. Interest expense, net, rose to $25.3 million in Q3 from $14.0 million.

Material changes, outlook, and risks

• Lower demand, prices, and volumes weighed on sales. Management said it expects lower customer demand patterns to continue through the fiscal year, subject to normal seasonality; steel, resin, recovered fiber, transportation, labor, and utility costs were expected to remain relatively stable.
• Management expects operating cash flows and available credit facilities to fund anticipated needs for at least 12 months. The filing provides no specific full-year earnings or revenue guidance.
• Acquisitions: Greif acquired Lee Container for $302.8 million and obtained 80% control of Centurion, with $144.5 million cash consideration, during the period. It acquired 51% of ColePak for $75.0 million on August 23, after quarter-end. Purchase-price allocations for Lee Container and Centurion remained subject to finalization.
• Divestitures and unusual items: the Tama Paperboard sale generated a $54.3 million gain and $100.0 million net cash proceeds. A $9.8 million gain resulted from revaluing Greif’s previously held Centurion interest. Nine-month Adjusted EBITDA included gains on disposals; its reconciliation excludes these gains. The prior-year period included a $62.4 million impairment associated with the FPS divestiture.
• Risks highlighted include economic and customer-demand weakness, pricing pressure, raw-material and energy cost volatility, foreign exchange, acquisition and integration execution, debt and interest-rate exposure, environmental matters, and potential asset impairments. Environmental reserves were $19.2 million; management said future adverse developments could require material charges, though exposure at any individual site was not expected to be material.

Important facts for investors to verify

• Whether volume, pricing, and demand stabilize, and whether improved gross margins can persist.
• Debt levels, floating-rate exposure, covenant headroom, and refinancing of receivables facilities maturing in 2024; $1.3 billion of interest-rate swaps hedged borrowings at a weighted average fixed rate of 2.62% plus spread.
• How acquisitions contribute to results and cash generation, and the final purchase-price allocations and integration costs.
• The sustainability of earnings after adjusting for divestiture gains, acquisition-related costs, restructuring charges, and prior-period impairments.
• Progress and costs under restructuring plans, with $9.3 million of expected costs remaining at July 31, 2023.