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Greif (GEF) Tops Q2 Earnings Estimates, Scraps FY20 Guidance

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Greif, Inc. (GEF - Free Report) reported adjusted earnings per share of 95 cents for second-quarter fiscal 2020 (ended Apr 30, 2020), beating the Zacks Consensus Estimate of 81 cents. The bottom-line figure also increased 17.3% year on year.

Including one-time items, earnings per share declined to 19 cents per share from the year-ago quarter’s 23 cents per share.

Operational Update

Sales were down 4.5% year over year to $1,158 million. The top line was hurt by the dismal volume of primary products sold, product mix and unfavorable currency-translation impact. In addition, the reported figure lagged the Zacks Consensus Estimate of $1,188 million.

Cost of sales went down 4.8% year over year to $918 million. Gross profit came in at $241 million, suggesting a 3.2% decline from the prior-year quarter. Gross margin came in at 20.8% compared with the year-ago quarter’s 20.5%.

Selling, general and administrative (SG&A) expenses slid 13.6% year over year to $121 million. Operating profit fell 20.8% year over year to $72 million. Operating margin was 6.2% in the reported quarter compared with the 7.5% recorded in the year-earlier period. Adjusted EBITDA climbed 12% year over year to $181.3 million in the fiscal second quarter. 

Segmental Performance

Sales in the Rigid Industrial Packaging & Services declined 4.5% year over year to roughly $603 million. The segment’s adjusted EBITDA increased to $92 million from the year-ago quarter’s $69 million.

The Paper Packaging segment sales fell 3.2%, year over year, to $482 million in the fiscal second quarter on lower published containerboard and boxboard prices as well as the divestment of the Consumer Packaging Business. These were offset by the company’s 11-day additional ownership period of Caraustar in the fiscal second quarter. The company took 24,000 tons of containerboard economic downtime during this period. The segment’s adjusted EBITDA dropped to $79 million from the $82 million reported in the comparable period last year.

Sales in the Flexible Products & Services segment declined 11.7% year over year to $68 million. The segment reported adjusted EBITDA of $7 million compared with the $8 million recorded in the year-earlier quarter.

The Land Management segment’s sales came in at $6.7 million, slightly down from the year-ago quarter’s $7.1 million. Adjusted EBITDA came in at $3.1 million compared with the prior-year quarter’s $3.3 million.

Financials

Greif reported cash and cash equivalents of $72.4 million as of Apr 30, 2020, compared with the $77.3 million as of Oct 31, 2019. Cash flow from operating activities came in at $99.8 million in the reported quarter compared with the $62.2 million witnessed in the prior-year quarter. Long-term debt came in at $2,595 million as of Apr 30, 2020 compared with the $2,659 million as of Oct 31, 2019. The company had availability of $690.3 million borrowing capacity under its revolving credit facility of $800 million.

On Jun 2, Greif’s board of directors announced a 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, to stockholders of record at the close of business on Jun 18, 2020.

Strategic Actions

Greif divested the Consumer Packaging Business to Graphic Packaging Holding Company (GPK - Free Report) for cash proceeds of $85 million in the fiscal second quarter. The company has permanently closed Mobile, Alabama Uncoated Recycled Board Mill (URB) to support its commitment in a bid to optimize the URB mill network. Moreover, Greif registered record intermediate bulk container (IBC) volume during the quarter and acquired a minority stake in Centurion Container LLC to further expand its IBC reconditioning network in North America.

Outlook

Greif has withdrawn the adjusted earnings and free cash flow guidance for fiscal 2020 due to end-market uncertainty due to concerns over the duration and impact of the coronavirus pandemic on its business for the remainder of the fiscal year.

Price Performance

Over the past year, Greif’s shares have lost 7.5% compared with the industry’s decline of 35.4%.



Zacks Rank & Key Picks

Greif currently carries a Zacks Rank #3 (Hold)

Some better-ranked stocks in the Industrial Products sector are Broadwind Energy, Inc. (BWEN - Free Report) and Axon Enterprise, Inc. , both carrying a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Broadwind Energy has an expected earnings growth rate of 174% for 2020. The stock has appreciated 6% over the past three months.

Axon has an estimated earnings growth rate of 14.4% for the ongoing year. The company’s shares have rallied 21.3% in three months’ time.

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