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Greif (GEF) Divests CPG Business Unit to Graphic Packaging

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Greif, Inc. (GEF - Free Report) has entered into an agreement to divest its Consumer Packaging Group ("CPG") unit to Graphic Packaging Holding Company (GPK - Free Report) for cash proceeds of $85 million. Greif will be utilizing the fund for repayment of debt. The deal is likely to close by Mar 31, 2020 subject to customary closing conditions.

A part of Greif’s Paper Packaging division, the CPG business contains seven converting facilities across the United States that manufacture folding cartons for consumer packaged goods and produce annual revenues of more than $200 million.

The divesture enables Greif to deleverage its balance sheet and optimize capital allocation priorities, while focusing on core industrial franchise and strategic growth priorities in Intermediate Bulk Container production and containerboard integration.

The divesture is unlikely to impact the company’s fiscal 2020 outlook. Greif continues to expect $70 million synergies over the next 36 months from the closure of the Caraustar acquisition.

Recently, the company reported mixed first-quarter fiscal 2020 results, wherein earnings surpassed the Zacks Consensus Estimate, while sales missed the same. While the top line increased year over year, the bottom-line figure registered a decline.

In February 2019, the company completed the acquisition of Caraustar Industries, Inc. and is currently integrating its operations. The buyout has reinforced the company’s leadership in industrial packaging and significantly bolstered its margins, free cash flow and profitability.

Greif will keep benefiting from focus on operational execution, capital discipline, and a strong and diverse product portfolio. The company continues to execute cost-reduction activities across its portfolio to counter softer market demand.

The Paper Packaging segment sales soared 118%, year on year, to $473.7 million in the recently-reported quarter. This upside was driven by the $288.2-million contribution from the Caraustar acquisition. The segment is likely to benefit from the Caraustar buyout as well as various other new capital growth projects.

However, the company continues to experience challenging industrial markets across its portfolio and the overall demand environment remains soft.

Thus, Greif has issued its adjusted earnings per share guidance for fiscal 2020 at $3.55-$3.91, down from the prior estimate of $3.63-$4.13. The guidance reflects continued macroeconomic uncertainty and impact of the Coronavirus outbreak in China. In fact, China accounts for roughly 3% of Greif’s overall annual and consolidated revenues. Consequently, the outbreak might impact the company’s global operations.
Price Performance

Over the past year, Greif’s shares have lost 15.3% compared with the industry’s decline of 38.4%.

Zacks Rank & Key Picks

Greif currently carries a Zacks Rank #4 (Sell)

A few better-ranked stocks in the Industrial Products sector include Northwest Pipe Company (NWPX - Free Report) and Graco Inc. (GGG - Free Report) . Both of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

Northwest Pipe has an expected earnings growth rate of 19.5% for the current year. The stock has appreciated 34% over the past year.

Graco has a projected earnings growth rate of 4.3% for 2020. The company’s shares have rallied 19% over the past year.

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