Shares of Grief Inc. GEF touched a 52-week low of $35.65 on Jul 2, before closing trade a notch higher at $35.69. Year to date, shares of this leading global producer of industrial packaging products and services have delivered a negative return of roughly 32%.
Grief’s share price has been trending downward since reporting second-quarter fiscal 2015 results on Jun 9. The company’s second-quarter earnings dipped 9% year over year to 53 cents per share due to weakness in the North American business and unfavorable foreign currency translation. Prior to the results, Greif lowered its fiscal 2015 earnings per share guidance from the previous range of $2.25—$2.35 to a new range of $1.65—$1.75.
In the second quarter conference call, the company maintained this guidance given weak first-half results, expectations of lower volumes and gross margins for the company’s North American businesses, and the continuing impact of unfavorable foreign exchange rates.
Moreover, an expected, approximately two-week shutdown of the company’s Riverville mill during the third quarter for installation of upgrades will affect its 2015 net income. Falling oil prices directly impacted demand for industrial packaging in the energy sector as a number of energy producers cut exploration and production activities in response to lower prices.
Lower oil prices have also started to impact the cost of Greif’s raw materials including polyethylene and polypropylene. Rapid drop in energy and raw material cost has disrupted the overall supply chain, causing some customers throughout the value chain to destock their inventories and delay ordering to benefit from the anticipated drop in cost.
Geographically, the company continues to face headwinds in Latin America and Europe. In Latin America, regional political and economic issues are affecting volumes. In the EMEA region, while the Middle East, Africa and Eastern Europe are performing well, there is considerable volatility in Russia, particularly related to currency and supply chain issues. Western Europe continues to be challenged by competitive pressures particularly in the markets of Germany and Scandinavia.
To add to the company’s woes, the Flexible Products & Services segment continues to underperform. Management’s previous goal of boosting EBITDA margins to 12% by the fourth quarter on a run-rate basis for Flexible Products & Services is unlikely to be realized given the deteriorating labor market for the segment. Moreover, the SG&A target of 10% appears unachievable.
The Zacks Consensus Estimate for Greif has moved south over the past 30 days, declining 23% to $1.74 for fiscal 2015 and 12% to $2.31 for fiscal 2016.
Greif currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the same sector include Mobile Mini, Inc. MINI, Rexam plc REXMY and Fibria Celulose SA FBR. While Mobile Mini and Rexam sport a Zacks Rank #1 (Strong Buy), Fibria Celulose carries a Zacks Rank #2 (Buy).
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