Is It The Right Time To Add Greif (GEF) To Your Portfolio?

On Sep 13, we issued an updated research report on leading global producer of industrial packaging products, Greif, Inc. (NYSE:GEF) . The company will benefit from fundamental operational improvements, sale of non-core assets, consolidation of facilities, cost cuts and share repurchases.

Greif recently reported its third-quarter fiscal 2016 results, wherein its adjusted earnings of 91 cents per share improved 52% year over year despite a 9% drop in revenues. The top line was negatively impacted by weakness in agricultural markets in Europe and North America.

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. The company expects fiscal 2016 results to gain from continuous focus on customer service excellence and fundamental operational improvements despite persistently sluggish global industrial economy, lower containerboard prices for the remainder of the year and weaker-than-expected seasonal agricultural sales.

Greif also raised its fiscal 2016 free cash flow guidance range to $160−$190 million from $130−$160 million. The increased guidance displays continued solid execution on its Transformation plan, a lower cash tax obligation and a source of cash from operating working capital. The company is displaying financial discipline and achieving solid volume growth that will help it achieve the high end of its free cash flow range.

Greif has announced a $50 a ton price increase on all containerboard grades, effective Oct 1 to combat inflationary costs. This will have a positive impact on the next quarter’s results. Further, Greif’s plans to expand gross margins are gaining traction. The company is executing process improvements in all commercial sourcing supply chain and operations. Greif also continues to rationalize operations, accelerate headcount reductions, and slash entertainment and travel budget by increasing video conferencing usage along with eliminating all non-sales related travel. These actions will be accretive to earnings.

Greif has been successful in fixing underperforming businesses and divested non-core assets and closed facilities which will drive long-term performance. The company completed four divestitures in a period of nine months ending Jul 31, 2016 and the gain on the disposal of businesses was $4.1 million in the period. As of Jul 31, 2016, there was one asset group within the Rigid Industrial Packaging & Services segment and one asset group in the Flexible Products & Services segment classified as assets held for sale. The company plans to sell these assets within the next twelve months.

Greif’s board of directors has authorized the purchase of up to four million shares of Class A Common Stock or Class B Common Stock. In Apr 2016, the Stock Repurchase Committee sanctioned the company to repurchase 110,241 shares of Class B Common Stock as part of the program and those shares were repurchased during the second quarter. There have been no other share repurchases under this program from Nov 1, 2014 through Jul 31, 2016. As of Jul 31, 2016, the company had repurchased 3,294,513 shares, including 1,425,452 shares of Class A common Stock and 1,869,061 shares of Class B common stock. Further, share repurchases will be accretive to earnings.

Based on these positives, the earnings estimates for fiscal fourth quarter and fiscal 2016 for Greif have gone up in the past seven days. Grief currently sports a Zacks Rank #1 (Strong Buy).

Other Stocks to Consider

Other favorable stocks in the packaging space worth considering are Berry Plastics Group, Inc. (NYSE:BERY) , Packaging Corporation of America (NYSE:PKG) and DXP Enterprises, Inc. (NASDAQ:DXPE) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>

GREIF INC (GEF): Free Stock Analysis Report

PACKAGING CORP (PKG): Free Stock Analysis Report

DXP ENTERPRISES (DXPE): Free Stock Analysis Report

BERRY PLASTICS (BERY): Free Stock Analysis Report

Original post

Zacks Investment Research