Greif, Inc.’s GEF shares dipped 10% since the company trimmed its fiscal 2015 earnings per share guidance to a new range of $1.65—$1.75 on May 28, citing recent results, expectations of lower volumes and gross margins for the company’s North American businesses, and the continuing impact of unfavorable foreign exchange rates. Compared to adjusted earnings of $2.36 in fiscal 2014, the current guidance reflects a drop of 26% to 30%.
During its first quarter earnings release, the company had reaffirmed its prior earnings guidance, in the band of $2.25 to $2.35, based on the expectation that relatively positive economic conditions in the United States would be offset by the negative trends in other regions, particularly in Europe and Latin America. Along with the guidance cut, the company stated that positive demand and gross margin trends in international operations have emerged during the second quarter and the company’s transformation actions have started to be realized. As a result, the company expects annual earnings to be lower.
Greif, however, expects adjusted earnings (excluding gains and losses on the sales of businesses, timberland and property, plant and equipment, and acquisition related costs, as well as restructuring and impairment charges) for the second quarter to be in line with the company’s expectations.
Greif reported a 35% year-over-year drop in its first-quarter fiscal 2015 adjusted earnings to 30 cents per share. Earnings also fell short of the Zacks Consensus Estimate of 37 cents. Results were impacted by reduced sales along with product and geographic mix issues that led to lower gross profit, higher effective tax rate and poor performance of the Flexible Packaging business.
Grief continues to aggressively execute its transformation initiatives through portfolio optimization. In line with this, the company has taken actions to sell the non-core assets and operations that are no longer in line with its business portfolio. Since the beginning of first-quarter 2015, Grief has announced the closure of four plants located primarily in North America, APAC and Europe and divested three businesses. These initiatives will be accretive to earnings in the back half of this year. The company also continues to increase capacity.
However, foreign currency volatility remains challenging for the company, as strengthening of the U.S. dollar against other currencies will continue to impact both top and bottom lines. Moreover, an expected, approximately two-week, shutdown of the company’s Riverville mill during the third quarter for the installation of upgrades will negatively impact its 2015 net income. The strategic transformation plans will also result in significant impairment and restructuring charges in the rest of 2015. The underperforming Flexible business is also a concern
Delaware, OH-based Greif makes 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 Rexam plc REXMY, Fibria Celulose SA FBR and Sappi Limited SPPJY. While Rexam sports a Zacks Rank #1 (Strong Buy), Fibria Celulose and Sappi Limited carry a Zacks Rank #2 (Buy).
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