Greif (GEF) Tops Q3 Earnings, Lags Revenues; EPS View Up

The provider of industrial packaging products and services, Greif, Inc. (NYSE:GEF) reported adjusted earnings of 91 cents per share in the third quarter of fiscal 2016 (ended Jul 31, 2016) which improved roughly 52% year over year. Earnings also beat the Zacks Consensus Estimate of 72 cents.

Including one-time items, the company posted earnings of 78 cents per share, which increased significantly from 15 cents per share recorded in the year-ago quarter.

Operational Update

Revenues fell 9% year over year to $845 million from $930 million in the year-ago quarter. The top line was negatively impacted by weakness in agricultural markets in Europe and North America. The figure also missed the Zacks Consensus Estimate of $903 million. Excluding the effect of divestitures and currency fluctuations, sales were flat with the prior-year quarter.

Cost of sales decreased 12% year over year to $668.5 million. Gross profit grew 5.8% year over year to $176.5 million. Selling, general and administrative (SG&A) expenses decreased 4.4% year over year to $92.6 million. Adjusted operating profit increased 5.8% year over year to $83.9 million.

Segmental Performance

Rigid Industrial Packaging & Services: This segment reported sales of $596.8 million, down 10.8% from $669 million in the year-ago quarter. Excluding the effect of divestitures, net sales declined by $50.7 million due to unfavorable foreign currency. Adjusted operating income, however, increased 5.5% to $63.5 million from $60.2 million in the year-ago quarter.

Paper Packaging: Sales declined 2.4% year over year to $172.5 million. The decrease was primarily due to reductions in the published containerboard index prices that occurred during the three quarters. The segment reported an operating profit of $19.1 million, down 11.2% from the year-ago quarter.

Flexible Products & Services: Sales from this segment went down 11.7% year over year to $69.9 million. Excluding the impact of divestitures, sales decreased by $8.1 million mainly due to reduced volumes as a result of weak demand in the U.S. market and the negative impact of currency translation. The segment reported an operating loss of $1.1 million, narrower than the prior-year operating loss of $4.5 million.

Land Management: This segment’s sales rose 13.7% year over year to $5.8 million. Adjusted operating income remained flat year over year at $1.5 million.

Financial Position

At the end of third-quarter fiscal 2016, Greif had cash and cash equivalents of $94.3 million compared with $106.2 million as of Oct 31, 2015. The company reported cash from operations of $100.3 million in the three-month period ended Jul 31, 2016, compared with $99.9 million in the comparable year-ago period. Long-term debt was $758.6 million as of Jul 31, 2016, compared with $1,116 million as of Oct 31, 2015.

On Aug 30, 2016, Greif declared a quarterly dividend of 42 cents per share of Class A Common Stock and 63 cents per share of Class B Common Stock. Dividends are payable on Oct 1, 2016, to stockholders of record at the close of business as of Sep 19, 2016.

Guidance

Greif raised its earnings per share guidance for fiscal 2016 to the range of $2.36−$2.56, from the prior band of $2.20−$2.46. This excludes gains and losses on the sale of businesses, timberland and property, plant and equipment, acquisition costs and restructuring and impairment charges.

The company expects fiscal 2016 results to benefit from continuous focus on customer service excellence and fundamental operational improvements. However, a continued sluggish global industrial economy, weaker containerboard prices for the remainder of the year and weaker-than-expected seasonal agricultural sales will remain headwinds.

Delaware, OH-based Greif makes and sells industrial packaging products, bulk containers, and containerboard and corrugated products worldwide. The company provides services such as blending, filling, packaging and recycling of industrial containers for a wide range of industries. Greif also manages timber properties in North America and offers land management consulting services.

Zacks Rank

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

Some better-ranked stocks in the same sector are Astec Industries, Inc. (NASDAQ:ASTE) , Berry Plastics Group, Inc. (NYSE:BERY) and DXP Enterprises, Inc. (NASDAQ:DXPE) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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