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Greif (GEF) Stock Down 15% YTD: Will It Make a Comeback?

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Shares of Greif, Inc. (GEF - Free Report) has fallen 15% so far this year against the industry’s growth of 16.3%. This can be attributed to the multiple headwinds plaguing the company.

Factors Plaguing Greif

Greif’s share price has plunged 18.9% since it reported second-quarter fiscal 2019 (ended Apr 30, 2019) results on Jun 5. The company reported earnings per share of 81 cents in the quarter, reflecting year-over-year improvement of 7%. This can be attributed to the Caraustar acquisition which was completed in February. However, lower volumes in all of its segments hurt results in the reported quarter.

Containerboard demand is expected to remain soft in the United States and the rest of the world during the remainder of the fiscal year. This is expected to continue to be a drag on the Paper Packaging segment’s results, (which accounts for around 41% of the company’s revenues). Further, in the Rigid Industrial Packaging & Services business segment, persistent softness in Western and Central Europe, China and the U.S. Gulf region will impact the segment’s results.
 

Raw material prices for steel, resin and old corrugated containers are predicted to remain volatile which will impact the company’s margins in the balance of fiscal 2019. Currency exchange rates are anticipated to remain volatile.

Will the Stock Rebound?

In fiscal 2019, Greif’s restructuring activities will focus on optimizing and integrating operations in the Paper, Packaging and Services segment related to the Caraustar acquisition and continue to rationalize operations and close underperforming assets in the Rigid Industrial Packaging & Services and Flexible Products & Services segments.  Though this will lead to restructuring costs in the coming quarters, it will benefit margins in the long run.

Greif will also benefit from its focus on operational execution, capital discipline, and a strong and diverse product portfolio. The Caraustar buyout strengthened Greif’s leadership in industrial packaging and significantly bolstered margins, free cash flow and profitability. The company has identified $15 million of new estimated run-rate synergies related to this acquisition and projects achieving at least $60 million of run-rate synergies during the next 36 months from the closure of the deal.

The Caraustar acquisition is a strategic fit for Greif. Caraustar is vertically integrated in recycled paperboard manufacturing, which will also fortify and balance Greif's portfolio and expand its paper franchise. Notably, the company generates approximately half of its revenues from the United States. Furthermore, the percentage of Greif's sales from paper packaging will expand to approximately half of total consolidated revenues.

The company’s restructuring actions and benefits from the Caraustar acquisition are likely to drive improved share price performance for the company eventually.

Stocks to Consider

A few better-ranked stocks in the Industrial Products sector are The Timken Company (TKR - Free Report) , Casella Waste Systems, Inc. (CWST - Free Report) and Harsco Corporation (HSC - 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.

Timken Company has an estimated earnings growth rate of 26.6% for the ongoing year. The company’s shares have gained 34.7% so far this year.

Casella Waste Systems has an expected earnings growth rate of 31.97% for the current year. The stock has appreciated 39.6% in a year’s time.

Harsco has a projected earnings growth rate of 9.1% for 2019. The company’s shares have rallied 33.6% year to date.

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