Business context and reporting period
Greif, Inc. filed this unaudited Form 10-Q for the fiscal quarter ended April 30, 2022. Greif operates Global Industrial Packaging, Paper Packaging & Services, and Land Management. Comparisons below are with the three and six months ended April 30, 2021, respectively.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $1,667.3 million | $1,340.6 million | $3,231.6 million | $2,487.1 million |
| Gross profit | $338.7 million | $265.9 million | $628.4 million | $478.1 million |
| Gross margin | 20.3% | 19.8% | 19.4% | 19.2% |
| Operating profit | $190.1 million | $200.6 million | $262.1 million | $270.6 million |
| Net income | $126.7 million | $154.0 million | $145.3 million | $184.9 million |
| Net income attributable to Greif | $125.1 million | $149.8 million | $135.4 million | $173.2 million |
| Adjusted EBITDA | $251.0 million | $176.6 million | $447.8 million | $315.1 million |
Q2 diluted EPS was $2.09 for Class A and $3.15 for Class B, versus $2.51 and $3.77, respectively, a year earlier. Six-month diluted EPS was $2.27 for Class A and $3.40 for Class B, compared with $2.91 and $4.36.
Cash flow, debt and liquidity
Six-month operating cash flow was $161.6 million, versus $163.8 million. Investing activities provided $62.7 million, including proceeds from business sales, while financing activities used $197.1 million. Capital expenditures were $75.0 million, up from $57.7 million. Cash ended the period at $108.7 million, down from $124.6 million at October 31, 2021.
At April 30, 2022, total debt before deferred financing costs was $2,081.3 million, compared with $2,185.4 million at October 31, 2021. The company reported $1,991.3 million of long-term debt, net, and $80.8 million of current debt. Its new $800 million secured revolving facility had $714.7 million of available capacity. Greif stated it was in compliance with credit covenants and expected operating cash flow and available borrowing sources to meet anticipated needs for at least 12 months.
Material changes versus the prior period
- Quarterly sales increased $326.7 million, primarily from higher selling prices and product mix; six-month sales rose $744.5 million, reflecting higher volumes and prices across the packaging segments.
- Q2 operating profit and net income fell despite higher sales and gross profit. A $95.7 million timberland gain benefited the prior-year quarter; Q2 2022 also included $25.4 million of debt extinguishment charges. Adjusted EBITDA, which excludes specified items, increased to $251.0 million.
- Paper Packaging & Services drove much of the operating improvement: Q2 operating profit increased to $80.1 million from $27.3 million, and six-month profit to $118.4 million from $41.6 million. Higher prices and volumes were partly offset by higher input, transportation, labor and utility costs.
- Global Industrial Packaging Q2 operating profit increased to $108.0 million from $76.4 million, while its gross margin declined to 19.1% from 21.3%, reflecting higher raw-material costs. Six-month operating profit was $139.0 million versus $130.4 million, including a $62.4 million impairment related to the FPS divestiture.
- Land Management operating profit was substantially lower than in 2021 because the prior-year period included the $95.7 million timberland-sale gain. Adjusted EBITDA was broadly stable.
- Six-month income tax expense rose to $65.5 million from $23.4 million. The filing cites jurisdictional earnings mix and timing, among other factors, and a $60.4 million book expense associated with the FPS divestiture and other businesses for which no tax benefit was expected.
Outlook, management commentary, risks and unusual items
Greif did not provide quantified earnings guidance in the supplied filing text. Management expected overall customer demand to remain stable, but noted potential negative effects from inflation, supply-chain disruption, labor shortages, rising interest rates and COVID-19-related matters. Steel prices were expected to decline moderately; resin and recovered-fiber prices were expected to remain stable for the rest of the year, with recovered-fiber prices potentially increasing in the fourth quarter. The company expected continued inflationary pressure in other materials, transportation, labor and energy. Management also highlighted uncertainty from Russia’s invasion of Ukraine; Russian operations represented approximately 3% of sales and 1% of assets.
On April 1, 2022, Greif completed the divestiture of its approximately 50% interest in Flexible Products & Services (FPS). The sale triggered a $62.4 million impairment in the first quarter. Greif reported net cash proceeds of $131.6 million, including $24.4 million of cash and cash equivalents deconsolidated, and noted that sale amounts remained subject to final adjustments. The transaction also released $113.1 million of foreign-currency translation adjustment from accumulated other comprehensive income.
On March 1, 2022, Greif refinanced its prior credit agreement and redeemed its 6.50% Senior Notes due 2027. The redemption included a $16.3 million call premium; total Q2 debt extinguishment charges were $25.4 million. Environmental reserves were $20.3 million; Greif said individual-site exposure was not expected to be material, but a series of adverse developments could materially affect future results. Other risks identified include economic and geopolitical conditions, input and energy costs, supply chains, foreign exchange, customer and supplier concentration, pension funding, environmental matters and potential impairment of goodwill or long-lived assets. The company reported no material change in risk factors from its latest 10-K.
Important facts for investors to verify
- How pricing, volume and product mix evolve, and whether price increases continue to offset raw-material, labor, energy and freight inflation.
- The FPS divestiture’s final closing adjustments, tax consequences and the ongoing effects of the transaction on segment performance and reported earnings.
- Debt levels, variable-rate exposure, refinancing of receivables-facility borrowings, covenant headroom and the effect of rising interest rates.
- Cash conversion and working-capital needs, particularly receivables and inventory, alongside planned capital expenditures and dividend payments.
- Progress and remaining costs of restructuring, and the adequacy of environmental and other contingency reserves.
- Whether demand and cost assumptions in management’s outlook hold, particularly given geopolitical, supply-chain and economic uncertainty.