Greif Reports Strong Second Quarter 2021 Results; Reintroduces Fiscal 2021 Earnings Guidance
Greif, Inc., a global leader in industrial packaging products and services, announced second quarter 2021 results. Second Quarter Financial Highlights include (all results compared to the second quarter of 2020 unless otherwise noted)(1):
–Net income of $149.8 million or $2.51 per diluted Class A share increased compared to net income of $11.4 million or $0.19 per diluted Class A share. Net income, excluding the impact of adjustments(2), of $67.3 million or $1.13 per diluted Class A share increased compared to net income, excluding the impact of adjustments, of $56.5 million or $0.95 per diluted Class A share. Adjusted EBITDA(3) decreased by $4.7 million to $176.6 million.
–Net cash provided by operating activities increased by $52.5 million to a source of $152.3 million. Adjusted free cash flow(4) increased by $47.7 million to a source of $126.7 million.
–Total debt decreased by $368.9 million to $2,313.4 million. Net debt(5) decreased by $406.9 million to $2,203.0 million and decreased by $235.0 million sequentially from the first quarter of 2021. The Company’s leverage ratio(6) decreased to 3.2x compared to 3.6x.
Strategic Actions and Announcements
–Completed the sale of approximately 69,200 acres of timberlands in southwest Alabama to Weyerhaeuser Company (NYSE: WY) for approximately $149.0 million in cash.
–Achieved record Intermediate Bulk Container (IBC) volume, reflecting strong market demand.
–Reintroduced annual guidance given better visibility into the remainder of the fiscal year and continued confidence in the improving fundamentals of our business.
–Published Greif’s 12th consecutive sustainability report highlighting the Company’s commitments to environmental, social and governance (ESG) principles and key metrics. Also announced a new science-aligned goal to reduce the Company’s Scope 1 and 2 greenhouse gas emissions by 28% by 2030, versus a 2019 baseline.
“Greif delivered a strong second quarter, with solid results across the company and meaningful progress against our strategy,” said Pete Watson, Greif’s President and Chief Executive Officer. “In addition to strong underlying business performance that drove improved earnings and free cash flow, we enhanced colleague engagement and customer service levels, advanced our commitment to sustainability and achieved a notable reduction in our leverage. With improved visibility into customer demand patterns, we are reintroducing annual guidance for fiscal 2021 and are well positioned to benefit from a growing global economy.”
(1)As previously reported, during the first quarter of 2021, the former Rigid Industrial Packaging & Services and Flexible Products & Services segments were combined into a single reportable segment now known as the Global Industrial Packaging segment. On February 24, 2021 the Company filed a Current Report on Form 8-K with the SEC to furnish certain historical GAAP and non-GAAP financial information in a revised presentation aligned with the Company’s new reportable segment structure.
(2)Adjustments that are excluded from net income before adjustments and from earnings per diluted Class A share before adjustments are restructuring charges, acquisition and integration related costs, non-cash asset impairment charges, non-cash pension settlement charges (income), incremental COVID-19 costs, net, loss (gain) on disposal of properties, plants, equipment and businesses, net and timberland gains, net.
(3)Adjusted EBITDA is defined as net income, plus interest expense, net, 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 non-cash pension settlement charges (income), plus incremental COVID-19 costs, net, plus loss (gain) on disposal of properties, plants, equipment and businesses, net, plus timberland gains, net.
(4)Adjusted free cash flow is defined as net cash provided by 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 incremental COVID-19 costs, net, plus cash paid for acquisition and integration related Enterprise Resource Planning (ERP) systems.
(5)Net debt is defined as total debt less cash and cash equivalents.
(6)Leverage ratio is defined as trailing twelve month EBITDA divided by net debt, each as calculated under the terms of the Company’s Amended and Restated Credit Agreement dated as of February 11, 2019, filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for its fiscal year ended October 31, 2020 (the “2019 Credit Agreement”).
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.
Customer Service, Sustainability and Colleague Engagement
The Company’s consolidated CSI(7) score was 93.4 during the fiscal second quarter and 92.8 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 Global Industrial Packaging segment was 94.8, which was 2.5% higher than the prior year quarter. CSI for the Paper Packaging & Services segment was 91.5, which was roughly flat to the prior year quarter.
During the quarter, the Company completed its 12th annual sustainability report. The report is prepared in full accordance with the GRI Standards: Core option and the Sustainability Accounting Standards Board (SASB) Application Guidance and fulfills the United Nations Global Compact annual Communication on Progress. This is also our first report that begins aligning our climate-related disclosures with recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). The sustainability report is available for review at https://sustainability.greif.com. Report highlights include:
–Discussion of the drivers to Greif’s sustainability strategy: delivering superior customer service; reducing our footprint; addressing risk; valuing our people; advancing the circular economy; financial performance; and profitable growth
–An overview of Greif’s value chain, key findings from the Company’s second materiality assessment and actions being taken in response to the assessment
–In depth review of Greif’s current sustainability goals, performance and highlight stories
Finally, the Company believes that a team of highly engaged colleagues is critical to providing industry leading customer service that helps generate enhanced financial results. In order to improve and track the Company’s engagement levels, an annual survey is administered to colleagues by Gallup. Based on feedback received in Greif’s most recent survey just completed, the Company’s engagement rating was in the 90th percentile of all Gallup manufacturing clients.
Segment Results (all results compared to the second quarter of 2020 unless otherwise noted)
Net sales are impacted mainly by the volume of primary products sold, selling prices, product mix and the impact of changes in foreign currencies against the U.S. Dollar.
Global Industrial Packaging
Net sales increased by $128.0 million to $798.0 million. Net sales excluding foreign currency translation increased by $97.4 million primarily due to higher volumes and higher average sale prices.
Gross profit increased by $26.9 million to $170.1 million. The increase in gross profit was primarily due to the same factors that impacted net sales.
Operating profit increased by $1.3 million to $76.4 million. Adjusted EBITDA increased by $7.1 million to $106.2 million primarily due to the same factors that impacted gross profit, partially offset by higher SG&A expense that was mainly attributable to higher incentive accruals.
Paper Packaging & Services
Net sales increased by $55.4 million to $537.0 million. Net sales excluding foreign currency translation increased by $54.6 million primarily due to higher published containerboard and boxboard prices and higher volumes. Net sales for the second quarter 2020 included $35.4 million of net sales attributable to the divested Consumer Packaging Group business, which was sold on April 1, 2020.
Gross profit decreased by $1.0 million to $93.9 million. The decrease in gross profit was primarily due to higher old corrugated container and other raw material input costs and higher transportation expenses, mostly offset by higher net sales.
Operating profit increased by $32.8 million to $27.3 million due to the prior year quarter loss of $38.6 million on divestment of the Consumer Packaging Business, which was primarily related to the allocation of goodwill to the transaction. Adjusted EBITDA decreased by $10.8 million to $68.3 million primarily due to the same factors that impacted gross profit combined with the impact of higher SG&A costs as a result of higher corporate allocations resulting from higher incentive accruals at the corporate level.
Net sales decreased by $1.1 million to $5.6 million.
Operating profit increased by $94.5 million to $96.9 million primarily due to the $95.7 million gain on sale of 69,200 acres of timberlands in the quarter. Adjusted EBITDA decreased by $1.0 million. Given the completion of the timberland sale, the Company owns approximately 175,000 acres of timber properties in the southeastern United States as of April 30, 2021.
During the second quarter, the Company recorded an income tax rate of 10.1 percent. The Company’s tax rate excluding the impact of adjustments was 20.0 percent. Both tax rates reflect second quarter benefits of $4.0 million from return to provision adjustments and reserve releases due to audit settlements and statute of limitations expirations. In addition, the application of FIN 18 frequently causes fluctuations in our quarterly effective tax rates. For fiscal 2021, the Company expects its tax rate to range between 17.0 and 21.0 percent and its tax rate excluding adjustments to range between 22.0 and 26.0 percent.
On June 8, 2021, 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 July 1, 2021, to stockholders of record at the close of business on June 21, 2021.
Company Outlook (in millions, except per share amounts)
Fiscal 2021 Outlook Reported at Q2
Class A earnings per share before adjustments
$4.55 – $4.85
Adjusted free cash flow
$285 – $325
Note: Fiscal 2021 Class A earnings per share guidance on a GAAP basis is 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 2021 Class A earnings per share before adjustments guidance, a non-GAAP financial measure which excludes restructuring charges, acquisition and integration costs, non-cash asset impairment charges, non-cash pension settlement (income) charges, incremental COVID-19 costs, net, loss (gain) on the disposal of properties, plants, equipment and businesses, net and timberland gains, net, 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 2021 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.
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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.