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Greif Cuts 2012 EBITDA Outlook

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Greif, Inc. (GEF - Free Report) has revised its fiscal 2012 (ending October 31, 2012) guidance citing weaker volumes and a slower-than-anticipated recovery in the European market during the third quarter. The company now estimates EBITDA (earnings before interest, taxes, depreciation and amortization) to be in the range of $445 million - $465 million, down from the previous guidance of $500 million - $525 million.

The company had reported EBITDA (before special items) of $526.6 million in fiscal 2011. Including special items, EBITDA stood at $467.2 million last year.

In the second quarter of fiscal 2012, Greif reported adjusted earnings per share of 77 cents, down 26% from $1.04 in the year-ago quarter. Revenues increased 4% to $1.09 billion in the quarter. 

In the Rigid Industrial Packaging & Services, net sales increased 8% to $802.9 million for the second quarter 2012, benefiting from a 12% increment from acquisitions that helped offset a 5% decline in sales volumes owing to economic conditions and market pressure, mainly in Europe. In the Flexible Products & Services segment, sales declined 16% to $113.9 million due to lower sales volumes, hurt by weak market conditions in Europe.

Ahead of its third quarter 2012 earnings release slated for August 29, 2012, Greif cautions that volume performance for the rigid industrial packaging and flexible products businesses was disappointing due to softer-than-anticipated market conditions. Even though there have been some indications of the market firming stabilizing in Europe, it is happening at a slower-than-anticipated pace.

It seems that rigid packaging markets in other regions across the globe are being impacted. The company notes that the geographic mix of earnings will lead to a higher book tax rate for third quarter 2012 compared to its previous expectation.

The economic conditions are also expected to have an impact on the fourth quarter 2012 results, leading to reduction of the fiscal 2012 guidance. The company, however, remains optimistic that it will continue to generate sufficient operating cash flow to support quarterly cash dividends as well as other growth opportunities.

The Zacks Consensus Estimate for Greif is currently pegged at 86 cents for the third quarter, 96 cents for the fourth quarter and $3.16 for fiscal 2012.

Delaware, Ohio-based Greif manufactures and sells industrial packaging products, bulk containers, and containerboard and corrugated products worldwide.  The company provides services such as blending, filling, packaging and recycling of industrial containers for a wide range of industries.

Greif also manages timber properties in North America and provides land management consulting services. Greif competes with Longview Fibre Company, RockTenn CP, LLC and Temple-Inland Inc. The stock retains a quantitative Zacks #5 Rank (short term Strong Sell rating) over the near term.

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