Shares of Greif, Inc. GEF gained over 5% after the company reported its fourth-quarter fiscal 2015 results (ended Oct 31, 2015) yesterday. Adjusted earnings improved roughly 27% year over year to 76 cents per share and surpassed the Zacks Consensus Estimate of 49 cents by a wide margin of 55%. Reductions in SG&A expenses and full year tax expense prompted the earnings upside.
Including one-time items, the company posted earnings of 21 cents per share, up from 15 cents in the year-ago quarter.
Operational Update
Revenues declined 17% year over year to $869 million from $1,048 million in the year-ago quarter. The top line lagged the Zacks Consensus Estimate of $897 million. Excluding the effect of divestitures and currency fluctuations, sales were 2% lower than the prior-year quarter.
The top line was mainly impacted by lower volumes and decrease in steel costs, partly offset by the impact of discrete strategic pricing actions.
Cost of sales decreased 17% year over year to $700.5 million. Gross profit also reduced 17% year over year to $168 million. Selling, general and administrative expenses (SG&A) decreased 15.5% year over year to $96 million. Adjusted operating profit declined 19.7% year over year to $72 million.
Segmental Performance
Rigid Industrial Packaging & Services: This segment reported sales of $601 million, down 20% from $752.7 million in the year-ago quarter. Excluding the impact of divestitures, net sales declined 16.9%. Adjusted operating income slumped 27.8% to $42.3 million from $58.6 million in the year-ago quarter.
Paper Packaging: Sales decreased 3.6% year over year to $179.8 million. Excluding the impact of divestitures, net sales declined to $179.8 million in the fourth quarter of fiscal 2015 compared with $181 million in the prior-year period due to annual maintenance shutdown at the Massillon, OH mill. The segment reported operating profit of $32.6 million, down 21% from the year-ago quarter. The decrease was primarily due to price decreases driven by a reduction in the published index prices for medium containerboard and a reduction in gain on sale of businesses.
Flexible Products & Services: Sales from this segment went down 26.7% year over year to $73.3 million. Excluding the impact of divestitures, net sales dropped 17.9% year over year to $73.3 million. The segment reported adjusted operating loss of $5.3 million, narrower than the prior-year operating loss of $6.4 million. The improvement was due to lower SG&A expenses and production costs.
Land Management: This segment’s sales improved 62.5% year over year to $14.3 million driven by the sale of 5,200 acres of development properties in Canada. Operating income was $1.4 million compared with $5.6 million in the prior-year quarter.
Financial Position
At the end of fiscal 2015, Greif had cash and cash equivalents of $106 million versus $85 million at the end of fiscal 2014. The company generated $206 million in cash from operating activities in fiscal 2015, compared with $261.8 million in fiscal 2014. Long-term debt was $1.12 billion as of Oct 31, 2015, compared with $1.09 billion as of Oct 31, 2014.
Fiscal 2015 Performance
Greif posted adjusted earnings of $2.18 per share in fiscal 2015, which increased 2.2% year over year. Earnings also outpaced the Zacks Consensus Estimate of $1.92. Including one-time items, the company posted earnings of $1.23 per share, compared to $1.56 in the year-ago quarter.
Revenues for the fiscal 2015 decreased 14.7% to $3.62 billion from $4.24 billion in fiscal 2014. The top line however missed the Zacks Consensus Estimate of $3.65 billion.
Guidance
Going forward, Greif expects fiscal 2016 results to benefit from further execution of transformation efforts. However, sluggish industrial economy and continued strengthening of the U.S. dollar will likely remain as headwinds for the company in the near term. Based on this, the company estimates adjusted earnings per share in the range of $2.05 – $2.35 for fiscal 2016.
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.
Zacks Rank
Greif currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same sector are AGCO Corporation AGCO, Belden Inc. BDC and CUI Global, Inc. CUI. All these stocks carry a Zacks Rank #2 (Buy).
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