Greif, Inc. — Q3 FY2021 Form 10-Q
Reporting period: Three and nine months ended July 31, 2021. Greif manufactures industrial packaging and paper packaging products and manages timberland. Amounts below are in U.S. dollars; financial-statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1,490.8 | $1,083.0 | $3,977.9 | $3,353.7 |
| Gross profit | $318.8 | $219.7 | $796.9 | $683.0 |
| Gross margin | 21.4% | 20.3% | 20.0% | 20.4% |
| Operating profit | $173.1 | $61.9 | $443.7 | $213.1 |
| Net income attributable to Greif | $113.0 | $20.7 | $286.2 | $64.4 |
| Adjusted EBITDA | $237.8 | $159.4 | $552.9 | $488.1 |
| Interest expense, net | $23.9 | $29.8 | $75.8 | $89.8 |
Class A diluted EPS was $1.89 for Q3 and $4.80 year to date; Class B diluted EPS was $2.85 and $7.21, respectively. Q3 SG&A was $142.6 million, or 9.6% of sales, versus $120.4 million, or 11.1%, a year earlier. The nine-month SG&A ratio improved to 10.7% from 11.2%.
- Cash flow: Nine-month operating cash flow was $258.7 million versus $254.3 million. Investing activities provided $86.2 million, including $145.1 million from timberland sales; financing activities used $354.1 million. Cash ended at $99.8 million, down from $105.9 million at October 31, 2020.
- Debt and liquidity: Debt before deferred financing costs was $2,220.9 million, down from $2,469.7 million at October 31, 2020. Long-term debt, net, was $2,089.7 million; short-term borrowings were $57.6 million. Greif reported $738.5 million of available capacity on its $800 million revolving facility and said it was compliant with debt covenants.
- Capital spending and dividends: Property, plant and equipment purchases were $94.2 million during the first nine months. Dividends paid to Greif shareholders were $78.4 million; declared per-share dividends were unchanged from the comparable period.
Material changes and drivers
- Q3 sales increased $407.8 million year over year, mainly from higher volumes and average selling prices in Global Industrial Packaging and Paper Packaging & Services. The filing also cites favorable currency effects for Global Industrial Packaging.
- Q3 gross margin improved, though higher raw-material, labor and transportation costs offset part of the benefit of price and volume gains. Management described steel, resin and recycled-fiber supply markets as tight.
- Nine-month operating profit included a $95.7 million gain on the sale of approximately 69,200 Alabama timberland acres. The sale generated approximately $145.1 million net cash proceeds, applied to debt repayment. Adjusted EBITDA excludes the timberland gain.
- Paper Packaging & Services’ nine-month Adjusted EBITDA declined to $214.3 million from $229.0 million; higher input and transportation costs and SG&A weighed on results. Comparisons also reflect the 2020 divestiture of the Consumer Packaging Group business.
- Greif combined its former rigid and flexible industrial packaging reporting segments into Global Industrial Packaging beginning in FY2021; prior-period segment information was recast.
Outlook, risks and unusual items
- Management expected Q3 customer-demand trends to continue in Q4. It anticipated tight steel supply and prices stable or slightly higher; resin supply tight with prices expected flat absent weather disruptions; and continued increases in old corrugated container prices. No specific full-year earnings or revenue guidance is provided in the supplied filing text.
- Management cited raw-material, energy and freight cost and availability; economic and customer-demand changes; currency and political exposure; COVID-19; competition and pricing pressure; debt; restructuring execution; pension funding; and environmental, legal and climate matters among risks. It stated there had been no material changes to previously disclosed risk factors.
- Q3 results included a one-time Brazilian tax recovery contributing to Global Industrial Packaging Adjusted EBITDA. Year-to-date results also included $9.0 million of non-cash pension settlement charges and $18.8 million of restructuring charges.
- Environmental reserves were $19.4 million. A Milwaukee odor class-action settlement had preliminary court approval, with a $0.8 million cash fund and up to $0.5 million of facility improvements; final approval was pending. Separate environmental enforcement proceedings remained unresolved, and Greif said it could not estimate potential sanctions or remediation costs.
- Greif said operating cash flows and available borrowing sources were expected to cover anticipated liquidity needs for at least 12 months. The receivables facilities had near-term stated maturities, and Greif classified their outstanding balances as long-term based on its intent and ability to refinance.
Important facts for investors to verify
- How much of reported profit growth is attributable to recurring operations versus the timberland gain and the Brazilian tax recovery.
- Whether pricing and volume gains can continue to offset inflation and tight availability of steel, resin, recycled fiber, labor and transportation.
- Working-capital absorption: receivables and inventory rose materially from October 2020, while accounts payable also increased; assess the effect on cash conversion.
- Refinancing and maturity terms for the U.S. and European receivables facilities, covenant headroom, and progress in reducing debt.
- Final outcome and financial exposure from the Milwaukee settlement and environmental enforcement matters, along with future restructuring and pension cash requirements.