Greif (GEF) Beats Q3 Earnings, Misses Revenue Estimates

Greif, Inc. GEF delivered adjusted earnings of $1.20 per share for third-quarter fiscal 2018 (ended Jul 31, 2018), which surged 41% year over year. Earnings also beat the Zacks Consensus Estimate of $1.08 by a margin of 11%.

Including one-time items, the company posted earnings of $1.15 per share, higher than 74 cents per share recorded in the year-ago quarter.

Operational Update

Revenues increased 5% year over year to $1,012 million from $962 million generated in the prior-year quarter. However, the figure missed the Zacks Consensus Estimate of $1,048 million.

Cost of sales rose 2.6% year over year to $795 million. Gross profit improved 16% to $217 million from $187 million reported in the year-ago quarter. Gross margin expanded 200 basis points (bps) to 21.5% in the quarter.

Selling, general and administrative (SG&A) expenses flared up 8% year over year to $100 million. Adjusted operating profit increased 25% year over year to $118 million. Adjusted operating margin improved 180 bps year over year to 11.6% in the reported quarter.

Segmental Performance

Sales in the Rigid Industrial Packaging & Services went up 2% year over year to roughly $688 million, primarily driven by rise in selling prices as a result of strategic pricing decisions and contractual price changes. However, adjusted operating profit dropped 6% year over year to around $66 million.

The Paper Packaging segment’s sales grew 14% year over year to $236 million, driven by increase in selling prices owing to improvement in published containerboard pricing, higher volumes and stronger specialty sales. The segment’s adjusted operating profit surged to around $44 million from $20 million in the year-ago quarter.

Sales of the Flexible Products & Services segment rose 11.8% year over year to roughly $83 million, primarily backed by the company’s strategic pricing decisions, product mix and higher volumes. The segment reported adjusted operating profit of around $6 million, an improvement from $3 million witnessed in the year-earlier quarter.

The Land Management segment’s sales declined 18% year over year to $5.9 million. Adjusted operating income plunged 33% year over year to $1.4 million.

Financial Position

Greif ended the fiscal third quarter with cash and cash equivalents of $101 million compared with $142 million as of Oct 31, 2016. Cash flow from operations came in at around $56 million during the nine-month period ended Jul 31, 2018, compared with $105 million reported in the comparable period last year.

On Aug 28, Greif’s board of directors hiked quarterly cash dividends by 4.8% to 44 cents per share of Class A Common Stock and 66 cents per share of Class B Common Stock. Dividends are payable on Oct 1, to stockholders of record at the close of business as of Sep 17, 2018.

Guidance

Greif revised its adjusted earnings per share guidance for fiscal 2018 to $3.53-$3.69 from earlier view of $3.45-$3.70, on the back of improved price/cost balance in containerboard and improving performance in Flexible Products & Services segment. The company, however, maintained its capital expenditure outlook of $120-$140 million. It also retained free cash flow guidance of $200-$220 million for fiscal 2018.

Share Price Performance

Over the past year, Greif has underperformed its industry with respect to price performance. The stock has lost around 8%, while the industry has recorded growth of 3%.

Zacks Rank & Key Picks

Greif currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the same sector include W.W. Grainger, Inc. GWW, iRobot Corporation IRBT and Atkore International Group Inc. ATKR. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Grainger has a long-term earnings growth rate of 12.5%. Its shares have appreciated a whopping 123%, over the past year.

iRobot has a long-term earnings growth rate of 19.5%. The company’s shares have gained 22% in a year’s time.

Atkore International has a long-term earnings growth rate of 10%. The stock has rallied 66% in a year’s time.

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