Back to top

Image: Bigstock

Greif (GEF) Q4 Earnings Lag Estimates, Maintains FY18 View

Read MoreHide Full Article
Greif, Inc. (GEF - Free Report) delivered adjusted earnings of 49 cents per share for first-quarter fiscal 2018 (ended Jan 31, 2018) which improved 9% year over year. However, earnings fell short of the Zacks Consensus Estimate of 66 cents by a margin of 26%.
 
Even though sales, adjusted operating profit and earnings all increased from the prior-year quarter, these metrics were negatively impacted by weaker-than-anticipated Rigid Industrial Packaging & Services volumes in December caused by a temporary winter slowdown. Moreover, raw material costs inflation outpaced price adjustment mechanisms in the segment. The company also suffered increased transportation costs across its global network.
 
Including one-time items, the company posted earnings of 96 cents per share compared with 10 cents per share recorded in the year-ago quarter.
 
Greif, Inc. Price, Consensus and EPS Surprise
 
Revenues increased 10% year over year to $906 million from $821 million generated in the prior-year quarter. Moreover, revenues surpassed the Zacks Consensus Estimate of $867 million.
 
Cost of sales increased 11.6% year over year to $734 million. Gross profit improved 5% to $172 million from $163 million reported in the year-ago quarter. Gross margin contracted 90 basis points (bps) to 19% in the quarter.
Selling, general and administrative (SG&A) expenses increased 7% year over year to $104 million. Adjusted operating profit inched up 2% year over year to $68.1 million. Adjusted operating margin descended 60 bps to 7.5% in the reported quarter.
 
Segmental Performance
 
Rigid Industrial Packaging & Services: The segment reported sales of $615 million, up 9.6% from $561.5 million recorded in the comparable quarter last fiscal. Net sales increased primarily due to a 7.5% increase in selling prices on its primary products as a result of strategic pricing decisions and increases in index prices. Adjusted operating profit dropped 20% year over year to $34.7 million from $43.4 million due to raw material cost inflation, the timing of contractual pass through arrangements, a temporary winter slowdown and an increase in transportation costs.
 
Paper Packaging: Sales for the segment were up 11% year over year to $204 million, driven by increase in selling prices owing to improvement in published containerboard pricing and increased sales of specialty products. The segment reported operating profit of $27.9 million, up 40% year over year aided by higher containerboard prices and lower old corrugated container input costs, partially offset by an increase in transportation costs.
 
Flexible Products & Services: Sales from this segment rose 15% year over year to $80 million primarily due to strategic pricing decisions, product mix and higher volumes. The segment reported adjusted operating profit of $35 million, a substantial improvement from $1.6 million witnessed in the year-earlier quarter.
 
Land Management: The segment’s sales declined 4% to $6.5 million from $6.8 million recorded in the prior-year quarter affected by unusually severe winter weather in parts of the southeastern United States. Adjusted operating income improved 11% year over year to $2 million.
 
Financial Position
 
Greif ended the fiscal first quarter 2018 with cash and cash equivalents of $94.3 million compared with $142.3 million as of Oct 31, 2016. Cash used in operating activities was $53.7 million in the quarter, as compared with $44.1 million in the year-ago quarter. Long-term debt was $1011 million as of Jan 31, 2018, compared with $938 million as of Oct 31, 2016.
 
Guidance
 
Despite weakness in the fiscal first quarter, the company noted that Rigid Industrial Packaging & Services volumes have rebounded. Greif maintained adjusted earnings per share guidance for fiscal 2018 in the range of $3.25-$3.55. The company guides its free cash flow for fiscal 2018 to lie between $200 million and $220 million.
 
Share Price Performance
 
 
Over the past year, Greif has underperformed its industry with respect to price performance. The stock has dipped 6.1%, while the industry has recorded growth of 4.5%.
 
Zacks Rank & Key Picks
 
Greif currently carries a Zacks Rank #3 (Hold).
 
Some better-ranked stocks in the same space are AptarGroup, Inc. (ATR - Free Report) Graphic Packaging Holding Company (GPK - Free Report) and Packaging Corporation of America (PKG - Free Report) . All three stocks carry a Zacks Rank of #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
AptarGroup has a long-term earnings growth rate of 8.5%. Its shares have been up 17.4% in the past year.
 
Graphic Packaging has a long-term earnings growth rate of 5%. Over a year’s time, shares of the company have gained 13%.
 
Packaging Corporation of America has a long-term earnings growth rate of 8.3%. The company’s shares have rallied 27% in a year’s time.
 
Don’t Even Think About Buying Bitcoin Until You Read This
 
The most popular cryptocurrency skyrocketed last year, giving some investors the chance to bank 20X returns or even more. Those gains, however, came with serious volatility and risk. Bitcoin sank 25% or more 3 times in 2017.
 
Zacks’ has just released a new Special Report to help readers capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.