Business context and reporting period
Greif, Inc. filed this unaudited Form 10-Q for its fiscal first quarter, the three months ended January 31, 2024. Greif produces industrial packaging, paper packaging and related products and manages timberland. Comparisons are with the three months ended January 31, 2023, unless otherwise noted.
Financial performance and position
- Revenue: Net sales were $1,205.8 million, down $65.2 million, or 5.1%. Management attributed the decline mainly to lower volumes and average selling prices in Global Industrial Packaging and Paper Packaging & Services, partly offset by contributions from acquisitions.
- Profitability: Gross profit was $221.6 million versus $251.6 million; gross margin was 18.4% versus 19.8%. Operating profit was $68.9 million versus $156.4 million. Net income was $74.3 million versus $93.1 million, and net income attributable to Greif was $67.2 million versus $89.9 million. Adjusted EBITDA, a non-GAAP measure, was $128.0 million versus $164.5 million.
- Per-share results and dividends: Basic EPS was $1.17 for Class A and $1.75 for Class B, compared with $1.55 and $2.31. Dividends declared were $0.52 per Class A share and $0.77 per Class B share, up from $0.50 and $0.74.
- Segment results: Global Industrial Packaging sales declined to $686.6 million, while operating profit rose to $50.9 million; lower raw-material costs helped. Paper Packaging & Services sales declined to $514.6 million and operating profit to $16.8 million. Land Management sales were $4.6 million and operating profit was $1.2 million.
- Cash flow and investment: Operating cash flow was $4.5 million, versus $32.9 million. Capital expenditures were $55.6 million. Investing cash outflow was $53.6 million, and financing cash inflow was $36.1 million. Cash decreased $1.6 million to $179.3 million.
- Debt and liquidity: Debt before deferred financing costs was $2,281.6 million, compared with $2,218.4 million at October 31, 2023; cash was $179.3 million. The company reported $591.1 million of available capacity on its $800 million revolving facility and said expected liquidity sources should cover needs for at least 12 months. The U.S. and European receivables facilities had $230.8 million and $73.8 million outstanding, respectively, and mature May 17 and April 23, 2024.
- Balance sheet: Total assets were $5,969.1 million and shareholders’ equity was $2,036.4 million as of January 31, 2024. Inventory increased $29.9 million from October 31, 2023, while receivables decreased $20.2 million.
Material changes versus the prior period
- Sales and gross profit fell amid lower pricing and volumes. Gross margin contracted 1.4 percentage points.
- The year-over-year fall in operating profit was amplified by the prior-year $54.6 million gain on the Tama Paperboard divestiture. Paper Packaging & Services operating profit also declined due to weaker sales and gross profit.
- Income tax shifted from $37.7 million expense to a $38.2 million benefit. This included a one-time $48.1 million benefit from recognizing deferred tax assets following the onshoring of certain non-U.S. intangible property. The tax benefit supported reported net income and is not necessarily indicative of recurring results.
- Restructuring charges increased to $5.7 million from $2.4 million; $13.8 million of costs remained expected under open or planned restructuring actions.
- Long-term debt rose from October 31, 2023, while cash was broadly stable. The filing reports $109.9 million of net long-term borrowing during the quarter.
Outlook, risks and unusual items
- Management reported some sequential improvement in certain regions and businesses but said customer demand had not shown an overall inflection. It expected old corrugated container prices to rise slightly through the rest of the fiscal year; steel prices to decrease slightly overall; and resin, other direct materials, transportation, labor and utility prices to remain relatively stable. The filing provides no quantified earnings or revenue guidance.
- Management said operating cash flow, credit facilities and receivables financing should fund anticipated needs for at least 12 months. Refinancing the U.S. and European receivables facilities is important given their 2024 maturities; they are presented as long-term debt because Greif intends and believes it has the ability to refinance them long term.
- Interest-bearing debt is exposed to variable rates. Greif reported $1.6 billion notional of interest-rate swaps, with a weighted average fixed rate of 2.9%, and described foreign-exchange and cross-currency hedges.
- Risks highlighted include economic and customer-demand sensitivity, pricing and competition, raw-material and energy cost changes, supply-chain disruption, currency and geopolitical exposures, acquisition and restructuring execution, cyber and operational disruptions, taxes, climate and environmental regulation, and litigation. The company reported compliance with credit agreement covenants at January 31, 2024 and no material changes to previously disclosed risk factors.
- Environmental reserves were $18.3 million, including $9.8 million related to the Diamond Alkali Superfund Site. Greif said pending litigation was not expected to have a material adverse effect, while noting that environmental developments could result in future charges.
Investor verification priorities
- Assess underlying demand, volume and pricing trends by segment, particularly whether Paper Packaging & Services stabilizes.
- Separate recurring performance from the prior-year Tama divestiture gain and the current-quarter $48.1 million discrete tax benefit; review the reconciliation of non-GAAP Adjusted EBITDA.
- Monitor refinancing of the U.S. and European receivables facilities ahead of their April and May 2024 maturities, along with debt, interest costs and covenant headroom.
- Track cash conversion, inventory levels, capital spending and delivery of the remaining restructuring savings relative to the $13.8 million of expected costs.
- Review subsequent disclosures on environmental reserves, tax audits and the effects of commodity, currency and customer-demand changes.