Greif (GEF) Q4 Earnings Lag Estimates, Maintains FY18 View

By Zacks Investment ResearchStock MarketsMar 01, 2018 09:03PM ET

www.investing.com/analysis/greif-gef-q4-earnings-lag-estimates-maintains-fy18-view-200295581

Greif (GEF) Q4 Earnings Lag Estimates, Maintains FY18 View

By Zacks Investment Research | Mar 01, 2018 09:03PM ET

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Greif, Inc. (NYSE:GEF) delivered adjusted earnings of 49 cents per share for first-quarter fiscal 2018 (ended Jan 31, 2018) which improved 9% year over year. However, earnings fell short of the Zacks Consensus Estimate of 66 cents by a margin of 26%.

Even though sales, adjusted operating profit and earnings all increased from the prior-year quarter, these metrics were negatively impacted by weaker-than-anticipated Rigid Industrial Packaging & Services volumes in December caused by a temporary winter slowdown. Moreover, raw material costs inflation outpaced price adjustment mechanisms in the segment. The company also suffered increased transportation costs across its global network.

Including one-time items, the company posted earnings of 96 cents per share compared with 10 cents per share recorded in the year-ago quarter.

Greif, Inc. Price, Consensus and EPS Surprise

Greif, Inc. Price, Consensus and EPS Surprise

Greif, Inc. price-consensus-eps-surprise-chart | Greif, Inc. Quote

Operational Update

Revenues increased 10% year over year to $906 million from $821 million generated in the prior-year quarter. Moreover, revenues surpassed the Zacks Consensus Estimate of $867 million.

Cost of sales increased 11.6% year over year to $734 million. Gross profit improved 5% to $172 million from $163 million reported in the year-ago quarter. Gross margin contracted 90 basis points (bps) to 19% in the quarter.

Selling, general and administrative (SG&A) expenses increased 7% year over year to $104 million. Adjusted operating profit inched up 2% year over year to $68.1 million. Adjusted operating margin descended 60 bps to 7.5% in the reported quarter.

Segmental Performance

Rigid Industrial Packaging & Services: The segment reported sales of $615 million, up 9.6% from $561.5 million recorded in the comparable quarter last fiscal. Net sales increased primarily due to a 7.5% increase in selling prices on its primary products as a result of strategic pricing decisions and increases in index prices. Adjusted operating profit dropped 20% year over year to $34.7 million from $43.4 million due to raw material cost inflation, the timing of contractual pass through arrangements, a temporary winter slowdown and an increase in transportation costs.

Paper Packaging: Sales for the segment were up 11% year over year to $204 million, driven by increase in selling prices owing to improvement in published containerboard pricing and increased sales of specialty products. The segment reported operating profit of $27.9 million, up 40% year over year aided by higher containerboard prices and lower old corrugated container input costs, partially offset by an increase in transportation costs.

Flexible Products & Services: Sales from this segment rose 15% year over year to $80 million primarily due to strategic pricing decisions, product mix and higher volumes. The segment reported adjusted operating profit of $35 million, a substantial improvement from $1.6 million witnessed in the year-earlier quarter.

Land Management: The segment’s sales declined 4% to $6.5 million from $6.8 million recorded in the prior-year quarter affected by unusually severe winter weather in parts of the southeastern United States. Adjusted operating income improved 11% year over year to $2 million.

Financial Position

Greif ended the fiscal first quarter 2018 with cash and cash equivalents of $94.3 million compared with $142.3 million as of Oct 31, 2016. Cash used in operating activities was $53.7 million in the quarter, as compared with $44.1 million in the year-ago quarter. Long-term debt was $1011 million as of Jan 31, 2018, compared with $938 million as of Oct 31, 2016.

Guidance

Despite weakness in the fiscal first quarter, the company noted that Rigid Industrial Packaging & Services volumes have rebounded. Greif maintained adjusted earnings per share guidance for fiscal 2018 in the range of $3.25-$3.55. The company guides its free cash flow for fiscal 2018 to lie between $200 million and $220 million.

Share Price Performance

Over the past year, Greif has underperformed its industry with respect to price performance. The stock has dipped 6.1%, while the industry has recorded growth of 4.5%.

Zacks Rank & Key Picks

Greif currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space are AptarGroup, Inc. (NYSE:ATR) Graphic Packaging Holding Company (NYSE:GPK) and Packaging Corporation of America (NYSE:PKG) . All three stocks carry a Zacks Rank of #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AptarGroup has a long-term earnings growth rate of 8.5%. Its shares have been up 17.4% in the past year.

Graphic Packaging has a long-term earnings growth rate of 5%. Over a year’s time, shares of the company have gained 13%.

Packaging Corporation of America has a long-term earnings growth rate of 8.3%. The company’s shares have rallied 27% in a year’s time.

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Greif, Inc. (GEF): Free Stock Analysis Report

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Greif (GEF) Q4 Earnings Lag Estimates, Maintains FY18 View

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