Why Is Greif (GEF) Down 9% Since Last Earnings Report?

It has been about a month since the last earnings report for Greif (GEF). Shares have lost about 9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Greif due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Greif's Earnings Surpass, Sales Miss Estimates in Q1

Greif reported adjusted earnings per share of 64 cents for first-quarter fiscal 2020 (ended Jan 31, 2020), beating the Zacks Consensus Estimate of 52 cents. The figure, however, declined 1.5%, year on year.

Including one-time items, earnings per share increased to 55 cents per share from the year-ago quarter’s 51 cents per share.

Operational Update

Sales climbed 24% year over year to $1,112.4 million. However, the reported figure lagged the Zacks Consensus Estimate of $1,168 million.

Cost of sales went up 22.8% year over year to $889.8 million. Gross profit came in at $222.6 million, recording an improvement of 28.8% from the prior-year quarter. Gross margin came in at 20% compared with the year-ago quarter’s 19%.

Selling, general and administrative (SG&A) expenses flared up 38% year over year to $135.4 million. Adjusted operating profit jumped 17% year over year to $87.2 million. Operating margin was 7.8% in the reported quarter compared with the 8.3% recorded in the comparable period last year. Adjusted EBITDA increased 39%, year over year, to $147.4 million in the reported quarter on solid performance in Rigid Industrial Packaging & Services segment, as well as the Caraustar acquisition.

Segmental Performance

Sales in the Rigid Industrial Packaging & Services declined 5% year over year to roughly $568.7 million. The segment’s adjusted EBITDA increased to $62.5 million from the year-ago quarter’s $48.7 million.

The Paper Packaging segment sales soared 118%, year over year, to $473.7 million in the fiscal first quarter. This upside was driven by the $288.2-million contribution from the Caraustar acquisition. This was partly offset by soft demand and lower published containerboard prices. The company took 21,000 tons of containerboard economic downtime during the quarter. The segment’s adjusted EBITDA moved up to $77.9 million from the $46.5 million reported in the comparable period last year.

Sales in the Flexible Products & Services segment declined 16% year over year to $63 million. The segment reported adjusted EBITDA of $4.1 million compared with the $7.9 million recorded in the year-earlier quarter.

The Land Management segment’s sales came in at $7 million, flat compared with the year-ago quarter. Adjusted EBITDA dropped 9.3% year over year to $2.9 million.

Financials

Greif reported cash and cash equivalents of $90.8 million as of Jan 31, 2020, compared with the $84.5 million witnessed in the comparable period last year. Cash flow from operating activities came in at $19.5 million in the reported quarter compared with cash usage of $9.6 million in the prior-year quarter.

On Feb 25, Greif’s board of directors announced a quarterly cash dividend of 44 cents per share of Class A Common Stock and 66 cents per share of Class B Common Stock. The dividend payout will be made on Apr 1, to stockholders of record at the close of business on Mar 18, 2020.

Outlook

Greif has issued its adjusted earnings per share guidance for fiscal 2020 at $3.55-$3.91, down from the prior estimate of $3.63-$4.13. Adjusted free cash flow is predicted between $265 million and $305 million for the fiscal year.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -9.5% due to these changes.

VGM Scores

Currently, Greif has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Greif has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.