Greif Reports Third Quarter 2020 Results
Greif, Inc. (“Greif” or the “Company”) a global leader in industrial packaging products and services, announced third quarter 2020 results. The Company also reintroduced guidance for the fiscal year ending October 31, 2020.
Third Quarter Highlights include (all results compared to the third quarter of 2019 unless otherwise noted):
– Net income of $20.7 million or $0.35 per diluted Class A share decreased compared to net income of $62.7 million or $1.06 per diluted Class A share. Net income, excluding the impact of adjustments(1), of $50.1 million or $0.85 per diluted Class A share decreased compared to net income, excluding the impact of adjustments, of $74.7 million or $1.26 per diluted Class A share. Adjusted EBITDA(2) decreased by $44.4 million to $159.4 million.
– Net cash provided by operating activities decreased by $6.5 million to $135.0 million. Adjusted free cash flow(3) decreased by $0.5 million to $106.6 million.
– Total debt decreased by $240.9 million to $2,637.6 million. Net debt(4) decreased by $263.6 million to $2,539.1 million and decreased $70.8 million sequentially from the second quarter of 2020.
Pete Watson, Greif’s President and Chief Executive Officer, commented:
“Our global Greif team executed well during the fiscal third quarter in the face of a challenging operating environment. Financial results were weaker as expected, dragged down by soft industrial conditions around much of our global portfolio and by a significant price/cost squeeze in our paper business. Despite these external challenges to profit, we generated free cash flow essentially flat to the prior year and paid down debt through stronger operating discipline and better working capital performance. Given our strong execution driving cost reduction and operating efficiencies, combined with increased near term visibility of the COVID-19 pandemic volume impacts to the remainder of the fiscal year, we are reintroducing financial guidance ranges.”
COVID-19 Business Continuity
Greif is considered an essential business because we safely package and protect essential goods and materials that serve the greater needs of communities around the world. As a result of that status, all of our global manufacturing facilities continue to operate and we have not experienced any significant production challenges or raw material or supply disruptions.
The health and safety of our Greif colleagues remains our first priority. To protect our colleagues, as well as our customers, suppliers and communities, we continue to follow guidelines, protocols and policies issued by the U.S. Centers for Disease Control and Prevention, the World Health Organization and local authorities in response to the global COVID-19 pandemic. In addition, we continue to utilize a variety of enhanced safety measures in response to COVID-19, including: conducting temperature screenings for personnel entering our operations; routinely cleaning high-touch surfaces; following social distancing protocols; staggering production teams where needed; prohibiting all non-critical business travel; implementing visitor protocols; and encouraging all colleagues to work from home when possible.
The Company’s consolidated CSI(5) score was 92.8 during the fiscal third quarter 2020 and reached a record high of 92.4 on a trailing four quarter basis. Our long term objective is for each business segment to achieve a CSI score of 95.0 or greater.
CSI for the Rigid Industrial Packaging & Services segment was 94.6, which was approximately 5 percent higher compared to the prior year quarter. CSI for the Flexible Products & Services segment was 84.2, which was approximately 10 percent lower compared to the prior year quarter as a result of COVID-19 related delays to product shipments. CSI for the Paper Packaging & Services segment was 92.2, which was approximately 4 percent higher compared to the prior year quarter.
Liquidity and Balance Sheet
As of July 31, 2020, the Company had $523.3 million of available borrowing capacity(6) under its $800.0 million revolving credit facility. The Company’s Euro €200 million notes are due in July of 2021, but otherwise the Company has no other sizable debt maturities due until 2024.
Segment Results (all results compared to the third quarter of 2019 unless otherwise noted)
Net sales are impacted mainly by the volume of primary products(7) sold, selling prices, product mix and the impact of changes in foreign currencies against the U.S. Dollar. The table below shows the percentage impact of each of these items on net sales for our primary products for the third quarter of 2020 as compared to the prior year quarter for the business segments with manufacturing operations.
Rigid Industrial Packaging & Services
Net sales decreased by $93.6 million to $548.5 million. Net sales excluding foreign currency translation decreased by $79.1 million primarily due to demand softness and lower average sale prices primarily due to contractual price adjustment mechanisms related to raw material price decreases.
Gross profit decreased by $12.1 million to $114.4 million. The decrease in gross profit was primarily due to the same factors that impacted net sales, partially offset by favorably priced raw materials due to opportunistic sourcing and lower manufacturing costs.
Operating profit decreased by $11.8 million to $42.5 million. Adjusted EBITDA decreased by $5.3 million to $77.5 million primarily due to the same factors that impacted gross profit, partially offset by a reduction in the segment’s SG&A expense as well as the segment receiving a smaller portion of allocated corporate costs.
Paper Packaging & Services
Net sales decreased by $70.7 million to $459.3 million primarily due to approximately $54.0 million of prior year net sales attributable to the divested Consumer Packaging Group business, lower published containerboard and boxboard prices, and lower volumes. During the quarter, the Company took approximately 10,000 tons of economic downtime across its containerboard operations, down 14,000 tons sequentially from the 24,000 tons taken in the second quarter 2020.
Gross profit decreased by $45.8 million to $88.9 million. The decrease in gross profit was primarily due to the same factors that impacted net sales, higher old corrugated container input costs, and product mix, partially offset by lower manufacturing costs.
Operating profit decreased by $49.8 million to $13.3 million. Adjusted EBITDA decreased by $39.0 million to $72.0 million primarily due to the same factors that impacted gross profit and the segment receiving a greater portion of allocated corporate costs, partially offset by a reduction in the segment’s SG&A expense.
Flexible Products & Services
Net sales decreased by $5.2 million to $69.3 million. Net sales excluding foreign currency translation decreased by $3.8 million primarily due to continued demand softness and lower average sale prices primarily due to contractual price adjustment mechanisms related to raw material price decreases.
Gross profit decreased by $1.7 million to $14.3 million. The decrease in gross profit was primarily due to the same factors that impacted net sales, partially offset by favorably priced raw materials due to opportunistic sourcing.
Operating profit decreased by $0.9 million to $4.1 million. Adjusted EBITDA decreased $0.2 million to $7.0 million primarily due to the same factors that impacted gross profit, partially offset by a reduction in the segment’s SG&A expense.
Net sales decreased by $0.1 million to $5.9 million.
Operating profit decreased by $1.2 million to $2.0 million. Adjusted EBITDA increased by $0.1 million to $2.9 million.
During the third quarter, the Company recorded an income tax rate of 22.3 percent. The Company’s tax rate excluding the impact of adjustments was 22.6 percent. The application of FIN 18 frequently causes fluctuations in our quarterly effective tax rates. For fiscal 2020, the Company expects its tax rate to range between 34.0 and 37.0 percent and its tax rate excluding adjustments to range between 26.0 and 29.0 percent.
On August 25, 2020, the Board of Directors declared quarterly cash dividends of $0.44 per share of Class A Common Stock and $0.66 per share of Class B Common Stock. Dividends are payable on October 1, 2020, to stockholders of record at the close of business on September 17, 2020.
The Company expects the COVID-19 pandemic will continue to create uncertainty in its end markets. The magnitude of the impact will depend on the depth and duration of the crisis, as well as the timing of the recovery in the markets served by the Company.
For the full third quarter results, click here.
Note: 2020 Class A earnings per share and tax rate guidance on a GAAP basis are not provided in this release due to the potential for one or more of the following, the timing and magnitude of which we are unable to reliably forecast: gains or losses on the disposal of businesses, timberland or properties, plants and equipment, net; non-cash asset impairment charges due to unanticipated changes in the business; restructuring-related activities; non-cash incremental COVID-19 costs, net; non-cash pension settlement (income) charges; or acquisition and integration costs, and the income tax effects of these items and other income tax-related events. No reconciliation of the fiscal year 2020 Class A earnings per share before adjustments guidance or tax rate excluding the impact of adjustments guidance, both non-GAAP financial measures which exclude gains and losses on the disposal of businesses, timberland and properties, plants and equipment, non-cash pension settlement (income) charges, acquisition and integration costs, incremental COVID-19 costs, net, restructuring and impairment charges, is included in this release because, due to the high variability and difficulty in making accurate forecasts and projections of some of the excluded information, together with some of the excluded information not being ascertainable or accessible, we are unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measure without unreasonable efforts. A reconciliation of 2020 adjusted free cash flow guidance to forecasted net cash provided by operating activities, the most directly comparable GAAP financial measure, is included in this release.
(1) Adjustments that are excluded from net income before adjustments and from earnings per diluted Class A share before adjustments are gain or loss on disposal of properties, plants, equipment and business, net, restructuring charges, acquisition and integration related costs, non-cash asset impairment charges, incremental COVID-19 costs, net, debt extinguishment charges, non-cash pension settlement income and tax net expense (benefit)resulting from the Tax Cuts and Jobs Act (“Tax Reform Act”).
(2) Adjusted EBITDA is defined as net income, plus interest expense, net, plus debt extinguishment charges, plus income tax expense, plus depreciation, depletion and amortization expense, plus restructuring charges, plus acquisition and integration related costs, plus non-cash asset impairment charges, plus incremental COVID-19 costs, net, plus non-cash pension settlement (income) charges, less (gain) loss on disposal of properties, plants, equipment and businesses, net.
(3) Adjusted free cash flow is defined as net cash provided by (used in) operating activities, less cash paid for purchases of properties, plants and equipment, plus cash paid for acquisition and integration related costs, plus cash paid for debt issuance costs, plus cash paid for incremental COVID-19 costs, net, plus cash paid for acquisition and integration related Enterprise Resource Planning (“ERP”) systems.
(4) Net debt is defined as total debt less cash and cash equivalents.
(5) Customer satisfaction index (“CSI”) tracks a variety of internal metrics designed to enhance the customer experience in dealing with Greif.
(6) Available borrowing capacity is determined by the lesser of the available capacity on the Company’s secured revolving credit facility or the amount which could be borrowed without causing the Company’s leverage ratio to exceed 4.5.
(7) Primary products are manufactured steel, plastic and fibre drums; new and reconditioned intermediate bulk containers; linerboard, containerboard, corrugated sheets and corrugated containers, boxboard and tube and core products; and 1&2 loop and 4 loop flexible intermediate bulk containers.
Note: A reconciliation of the differences between all non-GAAP financial measures used in this release with the most directly comparable GAAP financial measures is included in the financial schedules that are a part of this release. These non-GAAP financial measures are intended to supplement and should be read together with our financial results. They should not be considered an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of this financial information should not place undue reliance on these non-GAAP financial measures.
Greif is a global leader in industrial packaging products and services and is pursuing its vision: in industrial packaging, be the best performing customer service company in the world. The Company produces steel, plastic and fibre drums, intermediate bulk containers, reconditioned containers, flexible products, containerboard, uncoated recycled paperboard, coated recycled paperboard, tubes and cores and a diverse mix of specialty products. The Company also manufactures packaging accessories and provides filling, packaging and other services for a wide range of industries. In addition, Greif manages timber properties in the southeastern United States. The Company is strategically positioned in over 40 countries to serve global as well as regional customers. Additional information is on the Company’s website at www.greif.com.
Matt Eichmann – Investor Relations – email@example.com – (740) 549-6067
Source: Greif, Inc