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Why Is Greif (GEF) Down 4.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Greif (GEF - Free Report) . Shares have lost about 4.7% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Greif Beats on Q3 Earnings, Misses Revenue Estimates

Greif delivered adjusted earnings of $1.20 per share for third-quarter fiscal 2018 (ended Jul 31, 2018), which surged 41% year over year. Earnings also beat the Zacks Consensus Estimate of $1.08 by a margin of 11%.

Including one-time items, the company posted earnings of $1.15 per share, higher than 74 cents per share recorded in the year-ago quarter.

Operational Update

Revenues increased 5% year over year to $1,012 million from $962 million generated in the prior-year quarter. However, the figure missed the Zacks Consensus Estimate of $1,048 million.

Cost of sales rose 2.6% year over year to $795 million. Gross profit improved 16% to $217 million from $187 million reported in the year-ago quarter. Gross margin expanded 200 basis points (bps) to 21.5% in the quarter.

Selling, general and administrative (SG&A) expenses flared up 8% year over year to $100 million. Adjusted operating profit increased 25% year over year to $118 million. Adjusted operating margin improved 180 bps year over year to 11.6% in the reported quarter.

Segmental Performance

Sales in the Rigid Industrial Packaging & Services went up 2% year over year to roughly $688 million, primarily driven by rise in selling prices as a result of strategic pricing decisions and contractual price changes. However, adjusted operating profit dropped 6% year over year to around $66 million.

The Paper Packaging segment’s sales grew 14% year over year to $236 million, driven by increase in selling prices owing to improvement in published containerboard pricing, higher volumes and stronger specialty sales. The segment’s adjusted operating profit surged to around $44 million from $20 million in the year-ago quarter.

Sales of the Flexible Products & Services segment rose 11.8% year over year to roughly $83 million, primarily backed by the company’s strategic pricing decisions, product mix and higher volumes. The segment reported adjusted operating profit of around $6 million, an improvement from $3 million witnessed in the year-earlier quarter.

The Land Management segment’s sales declined 18% year over year to $5.9 million. Adjusted operating income plunged 33% year over year to $1.4 million.

Financial Position

Greif ended the fiscal third quarter with cash and cash equivalents of $101 million compared with $142 million as of Oct 31, 2016. Cash flow from operations came in at around $56 million during the nine-month period ended Jul 31, 2018, compared with $105 million reported in the comparable period last year.

On Aug 28, Greif’s board of directors hiked quarterly cash dividends by 4.8% to 44 cents per share of Class A Common Stock and 66 cents per share of Class B Common Stock. Dividends are payable on Oct 1, to stockholders of record at the close of business as of Sep 17, 2018.

Guidance

Greif revised its adjusted earnings per share guidance for fiscal 2018 to $3.53-$3.69 from the earlier view of $3.45-$3.70, on the back of improved price/cost balance in containerboard and improving performance in Flexible Products & Services segment. The company, however, maintained its capital expenditure outlook of $120-$140 million. It also retained free cash flow guidance of $200-$220 million for fiscal 2018.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Greif has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second 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. Notably, Greif has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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