(GEF - Analyst Report
) reported third quarter results ended July 31, 2012, with adjusted earnings of 75 cents per share, down 40% from $1.26 earned in the year-ago quarter. Weaker-than-expected volumes and negative foreign currency translation in the Rigid Industrial Packaging & Services and Flexible Products & Services segments dragged down the results. However, earnings per share comfortably surpassed the Zacks Consensus Estimate of 71 cents. Including special items, earnings per share in the quarter stood at 70 cents compared with $1.14 in the year-ago quarter.
Sales dipped 2% year over year to $1,102.8 million, which marginally missed the Zacks Consensus Estimate of $1,115 million. Sales volumes, including acquisitions, increased 5% but were more than offset by a negative 6% impact from foreign currency translation. Selling prices remained flat year over year. Overall, volumes on a same-structure basis declined 1% from the prior-year quarter, mainly due to market conditions in the Rigid Industrial Packaging & Services and Flexible Products & Services segments, which partially offset stronger volumes in the Paper Packaging segment.
Cost of sales fell 1% year over year to $900 million in the reported quarter. Selling, general and administrative expenses increased 6% year over year to $116 million. Adjusted operating profit decreased 22% year over year to $91.6 million in the quarter as weak results in Rigid Industrial Packaging & Services, Land Management and Flexible Products & Services offset solid performance of Paper Packaging. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $131.3 million compared with $147.1 million in the year-ago quarter.
Rigid Industrial Packaging & Services: Sales inched up 0.15% year over year to $805 million in the reported quarter. On a same-structure basis, sales volumes dipped 2% due to weak economic and market conditions. Positive impact from acquisitions and increase in prices were mitigated by a negative 7% impact from foreign currency translation. Adjusted operating income declined 13% to $67 million from $77 million, due to lower volumes in global markets and negative effect of foreign currency translation.
Flexible Products & Services: The segment reported sales of $109.7 million, down 22% year over year. Results were affected by a 7% decrease in volumes due to weak market conditions in Europe, supply chain issues resulting from network consolidation and market conditions for multiwall bags in the U.S. Decline in prices by 4% and a negative 9% impact from foreign currency translation further exacerbated the decline. Operating income plunged 84% to $1.9 million, hurt by lower volumes, higher production costs and startup costs mainly related to the fabric hub in Saudi Arabia.
Paper Packaging: Sales increased 6% year over year to $182.7 million in the quarter helped by an 8% increase in volumes, which offset a 2% decline in process due to product mix. The segment reported an operating profit of $21 million, up 25% from $16.8 million in the prior-year quarter. Benefits from higher volumes and lower old corrugated container costs were partially offset by slightly lower selling prices and expenses related to annual mill maintenance shutdowns at both mills during third quarter 2012.
Land Management: Sales increased 33% year over year to $5.3 million in the quarter, driven by the timing of timber sales. Operating income, however, declined 85% to $1.6 million.
Greif ended the quarter with cash and cash equivalents of $91.7 million, down from $104.9 million at the end of the second quarter. Cash flow from operating activities during the quarter improved to $151.7 million from $35 million in the year-ago quarter. Free cash flow was $112.9 million compared with negative $11.2 million for the third quarter of 2011. Long-term debt declined to $1,198.2 million in the quarter from $1,286 million at the end of the second quarter.
The company estimates EBITDA to be in the range of $445 million - $465 million. Greif had earlier revised its fiscal 2012 guidance citing weaker volumes and a slower-than-anticipated recovery in the European market.
The Rigid Industrial Packaging & Services and Flexible Products & Services segments are expected to bear the brunt of lower volumes for the balance of the year. The negative effect of foreign currency translation and the higher annual book tax rate are also expected to impact fourth quarter 2012 results. On a positive note, the Paper Packaging and Land Management segments are expected to perform well. Contributions from contingency actions, acquisition integration and ongoing Greif Business System initiatives implemented during 2012 are to benefit fourth quarter 2012 results. EBITDA is anticipated to be $445 million to $465 million for fiscal 2012.
Delaware, Ohio-based Greif manufactures and sells industrial packaging products, bulk containers, and containerboard and corrugated products worldwide. The company provides services such as blending, filling, packaging and recycling of industrial containers for a wide range of industries.
Greif also manages timber properties in North America and provides land management consulting services. Greif competes with Longview Fibre Company, RockTenn CP, LLC and Temple-Inland Inc. The stock retains a quantitative Zacks #5 Rank (short-term Strong Sell rating) over the near term.