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Greif (GEF) Benefits From Growth Initiatives Amid Cost Woes
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Greif, Inc. (GEF - Free Report) is gaining from its focus on operational execution and cost-reduction activities. This is impressive amid headwinds from elevated costs and persisting supply-chain issues.
Its strong and diverse product portfolio, and recent acquisitions will also aid growth.
Shares of this Zacks Rank #2 (Buy) company have gained 15.1% in a year compared with the industry’s growth of 1.1%.
Image Source: Zacks Investment Research
Acquisitions to Boost Performance
Greif has been active on the acquisition front over the past few years. In February 2019, the company completed the acquisition of Caraustar Industries, Inc. The buyout strengthened Greif’s leadership in industrial packaging and significantly bolstered its margins, free cash flow and profitability.
In 2022, Greif completed the acquisition of Lee Container Corporation, Inc. for $300 million. The acquisition provided Greif with immediate scale in jerry cans and small plastic bottles in North America. Lee Container's end market will enable Greif's transition to less cyclical end-market exposures.
In April 2023, the company increased its ownership in Centurion Container from 10% to 80% in an all-cash transaction for $145 million. The Centurion business will enhance Greif’s resin-based offering and Intermediate Bulk Containers (IBC) business in North America, and boost margins for the Global Industrial Packaging segment.
The company’s M&A pipeline remains solid and it plans to continue to deploy capital toward value-accretive targets in the coming quarters.
Solid Q2 Performance
Greif has been implementing cost rationalization measures within its system, leading to the highest-ever second-quarter free cash flow in the company's history in the second quarter of fiscal 2023.
Net cash provided by operating activities increased $71.6 million year over year to $210.8 million. The free cash flow was $169 million in the second quarter of fiscal 2023 compared with $109 million in the year-ago quarter. The adjusted free cash flow was $185.5 million compared with $114.8 million in the year-ago quarter.
The cash conversion ratio was more than 80%, which was well above the long-term target of greater than 50%. Adjusted EBITDA in the quarter was $228.6 million, the second-highest EBITDA on record in a second quarter.
Strategic Actions Bode Well
Greif will continue to benefit from its focus on operational execution, capital discipline, and a strong and diverse product portfolio.
The company will also keep focusing on its restructuring activities, including optimizing and integrating operations in the Paper Packaging & Services segment, rationalizing operations, and closing underperforming assets in the Global Industrial Packaging segment.
In April 2020, Greif divested its consumer packaging group business to Graphic Packaging for cash proceeds of $85 million. The sale included seven folding carton facilities.
The divestiture enabled Greif to deleverage its balance sheet and optimize capital allocation priorities. The divestiture also helped GEF focus on core industrial franchise and strategic growth priorities in IBC production and containerboard integration.
Supply-Chain Issues & Elevated Costs Act as Headwinds
Greif had been witnessing a decline in demand, the impacts of elevated costs and persisting supply-chain issues.
In the second quarter of 2023, sales were down 21.5% year over year due to the lower volume of primary products sold, selling prices, product mix and the impacts of changes in foreign currencies against the U.S. Dollar.
While customers are reporting solid order backlogs and strong underlying demand, they continue to face external supply-chain disruptions. Increasing energy, chemical costs and transportation costs are expected to weigh on the company’s margins in the near term.
Hubbell has an average trailing four-quarter earnings surprise of 21%. The Zacks Consensus Estimate for HUBB’s fiscal 2023 earnings is pegged at $13.81 per share. The consensus estimate for 2023 earnings has moved north by 22.5% in the past 60 days. Its shares gained 86.3% in the last year.
Manitowoc has an average trailing four-quarter earnings surprise of 38.8%. The Zacks Consensus Estimate for MTW’s 2023 earnings is pegged at 85 cents per share. The consensus estimate for 2023 earnings has moved 63.5% north in the past 60 days. MTW’s shares gained 71.5% in the last year.
The Zacks Consensus Estimate for Grainger’s 2023 earnings per share is pegged at $35.83, up 7.6% in the past 60 days. It has a trailing four-quarter average earnings surprise of 9.1%. GWW gained 65% in the last year.
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Greif (GEF) Benefits From Growth Initiatives Amid Cost Woes
Greif, Inc. (GEF - Free Report) is gaining from its focus on operational execution and cost-reduction activities. This is impressive amid headwinds from elevated costs and persisting supply-chain issues.
Its strong and diverse product portfolio, and recent acquisitions will also aid growth.
Shares of this Zacks Rank #2 (Buy) company have gained 15.1% in a year compared with the industry’s growth of 1.1%.
Image Source: Zacks Investment Research
Acquisitions to Boost Performance
Greif has been active on the acquisition front over the past few years. In February 2019, the company completed the acquisition of Caraustar Industries, Inc. The buyout strengthened Greif’s leadership in industrial packaging and significantly bolstered its margins, free cash flow and profitability.
In 2022, Greif completed the acquisition of Lee Container Corporation, Inc. for $300 million. The acquisition provided Greif with immediate scale in jerry cans and small plastic bottles in North America. Lee Container's end market will enable Greif's transition to less cyclical end-market exposures.
In April 2023, the company increased its ownership in Centurion Container from 10% to 80% in an all-cash transaction for $145 million. The Centurion business will enhance Greif’s resin-based offering and Intermediate Bulk Containers (IBC) business in North America, and boost margins for the Global Industrial Packaging segment.
The company’s M&A pipeline remains solid and it plans to continue to deploy capital toward value-accretive targets in the coming quarters.
Solid Q2 Performance
Greif has been implementing cost rationalization measures within its system, leading to the highest-ever second-quarter free cash flow in the company's history in the second quarter of fiscal 2023.
Net cash provided by operating activities increased $71.6 million year over year to $210.8 million. The free cash flow was $169 million in the second quarter of fiscal 2023 compared with $109 million in the year-ago quarter. The adjusted free cash flow was $185.5 million compared with $114.8 million in the year-ago quarter.
The cash conversion ratio was more than 80%, which was well above the long-term target of greater than 50%. Adjusted EBITDA in the quarter was $228.6 million, the second-highest EBITDA on record in a second quarter.
Strategic Actions Bode Well
Greif will continue to benefit from its focus on operational execution, capital discipline, and a strong and diverse product portfolio.
The company will also keep focusing on its restructuring activities, including optimizing and integrating operations in the Paper Packaging & Services segment, rationalizing operations, and closing underperforming assets in the Global Industrial Packaging segment.
In April 2020, Greif divested its consumer packaging group business to Graphic Packaging for cash proceeds of $85 million. The sale included seven folding carton facilities.
The divestiture enabled Greif to deleverage its balance sheet and optimize capital allocation priorities. The divestiture also helped GEF focus on core industrial franchise and strategic growth priorities in IBC production and containerboard integration.
Supply-Chain Issues & Elevated Costs Act as Headwinds
Greif had been witnessing a decline in demand, the impacts of elevated costs and persisting supply-chain issues.
In the second quarter of 2023, sales were down 21.5% year over year due to the lower volume of primary products sold, selling prices, product mix and the impacts of changes in foreign currencies against the U.S. Dollar.
While customers are reporting solid order backlogs and strong underlying demand, they continue to face external supply-chain disruptions. Increasing energy, chemical costs and transportation costs are expected to weigh on the company’s margins in the near term.
Other Stocks to Consider
Some other top-ranked stocks from the Industrial Products sector are Hubbell Incorporated (HUBB - Free Report) , The Manitowoc Company, Inc. (MTW - Free Report) and W.W. Grainger, Inc. (GWW - Free Report) . HUBB and MTW flaunt a Zacks Rank #1 (Strong Buy) at present, and GWW has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hubbell has an average trailing four-quarter earnings surprise of 21%. The Zacks Consensus Estimate for HUBB’s fiscal 2023 earnings is pegged at $13.81 per share. The consensus estimate for 2023 earnings has moved north by 22.5% in the past 60 days. Its shares gained 86.3% in the last year.
Manitowoc has an average trailing four-quarter earnings surprise of 38.8%. The Zacks Consensus Estimate for MTW’s 2023 earnings is pegged at 85 cents per share. The consensus estimate for 2023 earnings has moved 63.5% north in the past 60 days. MTW’s shares gained 71.5% in the last year.
The Zacks Consensus Estimate for Grainger’s 2023 earnings per share is pegged at $35.83, up 7.6% in the past 60 days. It has a trailing four-quarter average earnings surprise of 9.1%. GWW gained 65% in the last year.