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Greif (GEF) Earnings Beat Estimates in Q2, Guidance Up

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Greif, Inc. (GEF - Free Report) reported adjusted earnings per share of 81 cents for second-quarter fiscal 2019 (ended Apr 30, 2019), beating the Zacks Consensus Estimate of 79 cents. The figure also improved 7% year over year.

The company delivered year-over-year improvement in earnings despite the continuation of trade-related market softness in parts of its global Rigid Packaging segment and a more challenging demand environment in the Paper Packaging segment in the United States.

Including one-time items, earnings per share plunged to 23 cents from 77 cents in the year-ago quarter.

Greif, Inc. Price, Consensus and EPS Surprise

Operational Update

Sales rose 25% year over year from $1,213 million to $968 million, lagging the Zacks Consensus Estimate of $1,234 million.

Cost of sales increased 25% year over year to $965 million. Gross profit was at $249 million, recording an improvement of 25% from the prior-year quarter. Gross margin improved to 20.5% from 20.2% in the year-ago quarter.

Selling, general and administrative (SG&A) expenses increased 36% year over year to $140 million. Adjusted operating profit increased 17% year over year to $108.7 million. Operating margin was 9.0% in the reported quarter compared with 9.6% in the prior-year quarter. Adjusted EBITDA increased 31% year over year to $162 million in the reported quarter.

Segmental Performance

Sales in the Rigid Industrial Packaging & Services declined 4.7% year over year to roughly $632 million. The segment’s adjusted EBITDA operating profit declined 4% year over year to $68.9 million.
 
The Paper Packaging segment sales improved a substantial 132.6% year over year to $497.6 million. The segment’s adjusted EBITDA doubled to $82 million from the prior-year quarter.

Sales at the Flexible Products & Services segment declined 8.4% year over year to $77 million. The segment reported adjusted EBITDA of $7.7 million compared with $7.4 million in the year-earlier quarter.

The Land Management segment’s sales declined 7% year over year to $7.1 million while adjusted EBITDA increased 3% year over year to $3.3 million.

Acquisition

Greif completed the acquisition of Caraustar Industries on Feb 11, 2019 and is currently integrating its operations. This deal will reinforce its dominant status in industrial packaging and significantly boost margins, free cash flow and profitability. Greif has identified $15 million of new estimated run-rate synergies related to the acquisition and estimates that it will be able to achieve at least $60 million of run rate synergies over the 36 months from the closure of the deal.
Financial Position

Greif reported cash and cash equivalents of $89.8 million as of Apr 30, 2019, compared with $94.2 million as of Oct 31, 2018. Cash flow from operating activities came in at $52.6 million in first half of fiscal 2019, compared with $4.5 million in the prior year comparable period.

On Jun 4, Greif’s board of directors declared 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 Jul 1, 2019, to stockholders of record at the close of business on Jun 18, 2019.

Outlook

Despite anticipating continued market demand challenges for the remainder of the fiscal year Greif updated the adjusted earnings per share guidance for fiscal 2019 at $3.70-$4.00 from its previously provided guided $3.60-$4.00. Adjusted free cash flow is expected between $230 million and $250 million, up from the prior guided $215-$245 million.

Price Performance


 

Over the past year, Greif’s shares declined 32.1% against the industry’s growth of 0.4%.

Zacks Rank & Stocks to Consider

Greif currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are DMC Global Inc. (BOOM - Free Report) , Lawson Products, Inc. (LAWS - Free Report) and The ExOne Company (XONE - Free Report) , each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

DMC Global has an estimated earnings growth rate of 83.5% for the ongoing year. The company’s shares have surged 67% in the past year.

Lawson Products has an expected earnings growth rate of 24.5% for the current year. The stock has appreciated 47% in a year’s time.

The ExOne Company has a projected earnings growth rate of 70.5% for 2019. The company’s shares have gained 15% over the past year.

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