Graphic Packaging Holding Company GPK announced yesterday that its operating company in the U.S., Graphic Packaging International, LLC, signed an agreement to acquire Greif, Inc.’s GEF Consumer Packaging Group business. The transaction value was fixed at $85 million.
The to-be-acquired business manufactures set-up boxes and folding cartons, and provides various packaging services. It belongs to Greif’s Paper Packaging & Services segment.
Inside the Headlines
As noted, Graphic Packaging will take control of seven U.S.-based converting facilities of Greif’s Consumer Packaging Group business as part of the buyout transaction. The facilities generate over $200 million in revenues annually.
The addition of Greif’s business to the portfolio will help Graphic Packaging to better serve mid-sized consumers in the consumer goods and services market. Diversification of end-markets through the buyout will be a boon too.
The company believes that the acquired assets, on completion of the transaction, will likely generate annualized earnings before interest, tax, depreciation and amortization (EBITDA) of $20 million in two years.
Subject to the fulfillment of closing conditions, the acquisition is anticipated to be completed in the first quarter of 2020.
It is worth noting here that Graphic Packaging maintained its adjusted EBITDA projection of $1,050-$1,100 million. Also, cash flow is estimated to be $200-$275 million. An update in projections might be expected after the completion of the aforementioned buyout.
Graphic Packaging’s Inorganic Initiatives
The above-mentioned transaction is consistent with Graphic Packaging’s policy of acquiring meaningful businesses to gain access to improve its product lines and market exposure.
In 2019, the company acquired Artistic Carton Company. The transaction value was $53 million. Through the buyout, Graphic Packaging took control of Artistic Carton’s one CRB mill and two converting facilities.
So far in 2020, the company acquired International Paper Company’s IP stake in Graphic Packaging International Partners, LLC. The transaction, worth $250 million, enhanced Graphic Packaging’s stake in Graphic Packaging International Partners to 81.7%. Also, the company acquired Quad/Graphics, Inc.’s QUAD folding carton facility. The transaction value was $40 million.
Zacks Rank, Price Performance and Earnings Estimates
With a market capitalization of nearly $4 billion, Graphic Packaging currently carries a Zacks Rank #3 (Hold). Strengthening footholds in the paperboard packaging market and synergistic gains from acquired assets might prove beneficial in the quarters ahead. However, unfavorable movements in foreign currencies, inflation worries and other headwinds might be dragging.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past three months, Graphic Packaging’s shares have dipped 16.8% versus the industry’s decline of 14.4%.
Also, the Zacks Consensus Estimate for earnings per share is pegged at 99 cents for 2020 and $1.08 for 2021, marking declines of 2% and 0.9% from the respective 30-day-ago figures. Also, estimates represent year-over-year growth of 13.8% for 2020 and 9.8% for 2021.
Graphic Packaging Holding Company Price and Consensus