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Greif (GEF) Down 2.2% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Greif (GEF - Free Report) . Shares have lost about 2.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Greif due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Greif's Q3 Earnings & Sales Miss Estimates, Down Y/Y

Greif reported adjusted earnings per share of 85 cents for third-quarter fiscal 2020, missing the Zacks Consensus Estimate of 86 cents. The bottom-line figure also plunged 32.5% year on year. Results were impacted by soft industrial conditions across its global portfolio, as well as the pressure of price and cost on the paper business.

Including one-time items, earnings per share declined to 35 cents per share from the year-ago quarter’s $1.06 per share.

Operational Update

Sales were down 13.6% year over year to $1,083 million. The reported figure also lagged the Zacks Consensus Estimate of $1,126 million.

Cost of sales went down 11.3% year over year to $863 million. Gross profit came in at $220 million, reflecting a 21.1% decline from the prior-year quarter. Gross margin came in at 20.3% compared with the year-ago quarter’s 22.3%.

Selling, general and administrative (SG&A) expenses slid 13.7% year over year to $120 million. Operating profit plummeted 50.7% year over year to $62 million. Operating margin was 5.7% in the reported quarter compared with the 10% recorded in the year-earlier period. Adjusted EBITDA declined 22% year over year to $159.4 million in the fiscal third quarter.

Segmental Performance

Sales in the Rigid Industrial Packaging & Services declined 14.5% year over year to roughly $549 million. The segment’s adjusted EBITDA decreased to $78 million from the year-ago quarter’s $83 million.

The Paper Packaging segment sales fell 13.4%, year over year, to $459 million in the fiscal third quarter on lower published containerboard and boxboard prices as well as the divestment of the Consumer Packaging Business. The company took approximately 10,000 tons of containerboard economic downtime during this period. The segment’s adjusted EBITDA dropped to $72 million from prior-year quarter’s $111 million.

Sales in the Flexible Products & Services segment declined 8% year over year to $69 million. The segment reported adjusted EBITDA of $7 million compared with the $7.2 million recorded in the year-earlier quarter.

The Land Management segment’s sales came in at $6 million, flat year over year. Adjusted EBITDA came in at $2.9 million compared with the prior-year quarter’s $2.8 million.

Financials

Greif reported cash and cash equivalents of $98.5 million as of Jul 31, 2020, compared with the $77.3 million as of Oct 31, 2019. Cash flow from operating activities came in at $135 million in the reported quarter compared with the $142 million witnessed in the year-earlier quarter. Long-term debt came in at $2,535 million as of Jul 31, 2020 compared with the $2,659 million as of Oct 31, 2019. The company had availability of $523.3 million borrowing capacity under its revolving credit facility of $800 million.

On Aug 25, Greif’s board announced a quarterly cash dividend of 44 cents per share of Class A Common Stock and 66 cents per share of Class B Common Stock. The dividend payout will be made on Oct 1, to shareholders of record at the close of business on Sep 17, 2020.

Outlook

Given the company’s cost-reduction efforts and operating efficiencies, Greif has reinitiated financial guidance for the current fiscal year. It now expects adjusted earnings per share for fiscal 2020 at $3-$3.20. Adjusted free cash flow is projected between $260 million and $290 million for the fiscal year. However, Greif expects the coronavirus mayhem to create uncertainty in its end markets.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -30.26% due to these changes.

VGM Scores

Currently, Greif has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Greif has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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