Greif, Inc. (GEF) reported first-quarter fiscal 2014 (ended Jan 31, 2014) results with adjusted earnings of 49 cents per share, up 11.4% from 44 cents in the year-ago quarter. However, results came short of the Zacks Consensus Estimate of 53 cents.
Including special items, earnings per share in the quarter were 51 cents compared with 41 cents in the year-ago quarter.
Operational Updates
Revenues improved 2.6% year over year to $1,034 million from $1,008.6 million. The top line missed the Zacks Consensus Estimate of $1,035 million. The year-over-year growth in net sales was primarily attributable to increase in selling prices, along with solid performance of the Paper Packaging segment.
Cost of sales increased 3% year over year to $847.8 million. Gross profit remained flat at $186 million compared with the year-ago quarter.
Selling, general and administrative expenses (SG&A) fell 1% year over year to $121.5 million. Adjusted operating profit increased 1% year over year to $66.4 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 1.3% to $100.9 million from $102 million in the year-ago quarter.
Segmental Performance
Rigid Industrial Packaging & Services: This segment reported sales of $712 million, up 1.1% from $704 million in the year-ago quarter. The growth was driven by 3.7% increase in selling prices primarily as a result of pass-through of higher resin costs, changes in product mix and volume improvement in Europe. These were adversely affected by unfavorable foreign currency translation. Adjusted operating income went down to $29.5 million from $31.5 million in the year-ago quarter.
Flexible Products & Services: Sales from this segment rose 1.6% year over year to $113 million. Higher selling prices and volume increases in polywoven products were partially offset by lower multiwall volumes. The segment reported an operating profit of $0.8 million, up from $0.6 million a year ago.
Paper Packaging: Sales increased 10% year over year to $202.7 million, aided by a 3.1% rise in volumes and a benefit of 6.9% from higher selling prices. The segment reported a record adjusted operating profit of $30 million, up 8.3% from $27.7 million in the year-ago period. The increase was driven by higher selling prices and improved volumes partially offset by higher energy and input costs.
Land Management: This segment’s sales decreased 27.9% year over year to $6.2 million driven by lower planned sales of timber. Operating income improved nearly three fold to $11.7 million on gain on the disposal of timberland.
Financial Position
Greif ended the quarter with cash and cash equivalents of $82 million, as against $78 million at the end of the year-ago comparable period. Cash from operations during the quarter was $62.8 million versus $68.8 million in the prior-year quarter.
Long-term debt was $1.3 billion as of Jan 31, 2014, up from $1.2 billion as of Oct 31, 2013. The debt-to-capitalization ratio expanded 320 bps to 49.5% as of Jan 31, 2014, from 46.3% as of Oct 31, 2013. Capital expenditures were $34.5 million in the reported quarter versus $28.5 million the prior-year comparable period.
Outlook
For fiscal 2014, Greif reiterated EBITDA in the range of $490 million to $540 million. Excluding timberland gains of around $20 million or 20 cents per share, earnings was reaffirmed in the band of approximately $2.60 to $3.15 per share. Capital expenditure is expected to be less than $150 million for 2014.
Greif anticipates a gradual global economic recovery during fiscal 2014, which should result in moderate sales and volume improvement, along with slightly higher raw material costs. In addition, Greif is planning to implement additional restructuring activities for select geographies and assets.
The company will continue to benefit from the integration of acquisitions and geographic expansion. In the first quarter, Greif acquired a leading drum manufacturer and reconditioner and consolidated its North American network. In addition to strengthening its Midwest footprint with acquisitions, the company continues to expand certain product lines across North America to deal with anticipated demand from the North American energy and manufacturing renaissance.
The company is expected to reduce SG&A expenses during the remainder of fiscal 2014 to align its cost structure with identified market opportunities. However, foreign exchange volatility as well as social and political unrest remain headwinds.
Delaware, OH-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 offers land management consulting services.
Greif currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same sector include Ball Corp. (BLL) and Packaging Corporation of America (PKG). Both of these have a Zacks Rank #2 (Buy).
Peer Performance
Another company in the sector, Sealed Air Corp. (SEE), reported fourth-quarter 2013 adjusted net earnings from continuing operations at 34 cents per share, up 6% from 32 cents earned in the prior-year quarter. The results, however, fell short of the Zacks Consensus Estimate of 37 cents per share.
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