Greif Reports Second Quarter 2020 Results

DELAWARE, Ohio, June 3, 2020 /PRNewswire/ -- Greif, Inc. (NYSE: GEF, GEF.B), a world leader in industrial packaging products and services, today announced second quarter 2020 results.

Second Quarter Highlights include (all results compared to the second quarter of 2019 unless otherwise noted):

• Net income of $11.4 million or $0.19 per diluted Class A share decreased compared to net income of $13.6 million or $0.23 per diluted Class A share. Net income, excluding the impact of adjustments⁽¹⁾, of $56.5 million or $0.95 per diluted Class A share increased compared to net income, excluding the impact of adjustments, of $47.6 million or $0.81 per diluted Class A share. Adjusted EBITDA⁽²⁾ increased by $19.3 million to $181.3 million.
• Net cash provided by operating activities increased by $37.6 million to $99.8 million.  Adjusted free cash flow⁽³⁾ increased by $32.9 million to $79.0 million.
• Total debt decreased by $260.2 million to $2,682.3 million. Net debt⁽⁴⁾ decreased $242.8 million to $2,609.9 million and decreased $107.4 million sequentially from the first quarter of 2020.

Strategic Actions and Announcements

• Completed the divestiture of the Consumer Packaging Business to Graphic Packaging Holding Company for $85.0 million in cash, subject to closing adjustments.
• Announced the permanent closure of the Mobile, Alabama Uncoated Recycled Board Mill (URB) as part of the Company's commitment to optimize the URB mill network. The closure of the #1 machine in October 2019 (approximately 65,000 tons) combined with the closure of the #2 machine (approximately 75,000 tons) removes approximately 140,000 tons of URB capacity from Greif's network. The Company will transfer existing customer business to other mills in its system.
• Achieved record intermediate bulk container (IBC) volume during the quarter. Also acquired a minority stake in Centurion Container LLC to further expand the Company's IBC reconditioning network in North America.
• Withdrawing fiscal 2020 adjusted Class A earnings per share and adjusted free cash flow guidance. Due to end market uncertainty, the Company is unable to reasonably quantify the impacts to its business for the remainder of its fiscal year. The Company plans to reinstate guidance in the future when there is better clarity into the duration and impact of the COVID-19 pandemic.

Pete Watson, Greif's President and Chief Executive Officer, commented:

"At Greif, we safely package and protect essential goods and materials that serve the greater needs of communities around the world. That is our purpose as a Company and a serious responsibility in which we take pride. While we are operating in a highly unprecedented time, we continue to draw strength from our 16,000 global colleagues, and I commend them for their efforts this past quarter. I would like to especially thank our front line production colleagues for their dedication during this pandemic and for their outstanding service to our customers.

We are responding to COVID-19 from a position of strength, taking proactive steps to prioritize the safety and well-being of our colleagues, customers and suppliers while adapting to new methods to further serve customer needs. We are also advancing our strategic priorities, and during the quarter took steps to enhance our U.S. IBC reconditioning capability and published our 11^th annual sustainability report.

From a financial perspective, the business generated solid second quarter results. Adjusted EBITDA rose by 12 percent to $181.3 million, while Adjusted Free Cash Flow increased by more than 71 percent to $79.0 million. Although pleased with this performance, the current operating environment is dynamic and remains difficult to read. While economies have begun to reopen for business, the pace at which they do so varies and uncertainty persists."

COVID-19 Pandemic Response

The health and safety of our Greif colleagues is our first priority. The global COVID-19 pandemic remains an evolving situation and our global and regional pandemic task forces meet multiple times per week to monitor the latest updates and take action to further safeguard the health of our colleagues, customers and suppliers.

The Company has implemented a variety of safety measures in response to COVID-19, including: conducting temperature screenings for personnel entering our operations; routinely cleaning high-touch surfaces; following social distancing protocols; staggering production teams where needed; prohibiting all non-critical business travel; implementing visitor protocols; and encouraging all colleagues to work from home when possible. Additionally, Greif has launched a dedicated COVID-19 micro site internally for colleagues to access Company and health authority information, guidelines, protocols and polices, including those issued by the World Health Organization and the U.S. Centers for Disease Control and Prevention.

Greif's business continuity plans are designed to ensure its operations are fully capable of performing in adverse conditions in support of our customers' needs. The Company maintains a diverse supply chain and has not experienced significant production challenges or raw material or supply disruptions. The Company is also conducting frequent customer outreach and updates in the form of letters, audio and visual calls, and virtual customer webinars to maximize communication and further enhance transparency during this global crisis.

Customer Service, Sustainability and Colleague Engagement

The Company's consolidated CSI⁽⁵⁾ score was 92.3 during the fiscal second quarter 2020. Our long term objective is for each business to achieve a CSI score of 95.0 or greater. On a trailing four quarter basis, the total Company recorded an all-time best CSI score of 91.7.

CSI for the Rigid Industrial Packaging & Services segment was 93.9, or roughly 5 percent higher than the prior year quarter. CSI for the Flexible Products & Services segment was 84.7, which was roughly 8 percent lower compared to the prior year quarter as a result of COVID-19 related delays to product shipments. CSI for the Paper Packaging & Services segment was 91.3, which was approximately 3 percent higher compared to the prior year quarter. 

During the quarter, the Company also completed its 11^th annual sustainability report, which was prepared in accordance with the GRI Standards: Core option, SASB Application Guidance and fulfills the United Nations Global Compact annual Communication on Progress. The sustainability report is available for review at https://sustainability.greif.com. Notable Company accomplishments highlighted in this year's report include:

• Diverting 85 percent of total waste from landfills in 2019 from the legacy Greif businesses
• Achieving an 11 percent reduction in greenhouse gas emissions per unit of production relative to our fiscal 2014 baseline

The Company recently completed its third annual colleague engagement survey administered by Gallup. Based on feedback received, Greif's engagement rating was in the 89th percentile of all Gallup manufacturing clients. The Company is a proponent of the Service Profit Chain concept which states that a team of highly engaged colleagues is critical to providing industry leading customer service that helps generate enhanced financial results.

Liquidity and Balance Sheet

In addition to $72.4 million in cash balances as of April 30, 2020, the Company had $690.3 million of available borrowing capacity under its $800.0 million revolving credit facility. The Company's Euro €200 million notes are due in July of 2021, but otherwise the Company has no other sizable debt maturities due until 2024.

Despite its solid position, the Company is taking further steps to improve liquidity and is reducing 2020 capital spending by delaying certain growth projects; closely managing its working capital; and reducing operating costs and selling, general and administrative expenses across the portfolio.

Segment Results (all results compared to the second quarter of 2019 unless otherwise noted)

Net sales are impacted mainly by the volume of primary products⁽⁶⁾ sold, selling prices, product mix and the impact of changes in foreign currencies against the U.S. Dollar. The table below shows the percentage impact of each of these items on net sales for our primary products for the second quarter of 2020 as compared to the prior year quarter for the business segments with manufacturing operations. Net sales from Caraustar's primary products are included in the Paper Packaging & Services segment below for the second quarter of 2020 and for the second quarter of 2019 from Greif's ownership period which began on February 11, 2019. The inclusion of Caraustar's primary products for the full second quarter of 2020 resulted in the Paper Packaging & Services segment volumes within the table below to increase by approximately 5 percent.

Rigid Industrial Packaging & Services

Net sales decreased by $29.0 million to $602.6 million. Net sales excluding foreign currency translation decreased by $9.3 million primarily due to lower average sale prices as a result of raw material price decreases and corresponding contractual price adjustment mechanisms, partially offset by strategic pricing actions and stronger volumes in certain regions.

Gross profit increased by $8.3 million to $129.3 million. The increase in gross profit was primarily due to lower priced raw materials in part due to opportunistic sourcing, the timing of contractual pass through arrangements, strategic pricing actions, and product mix shifts.

Operating profit increased by $23.5 million to $70.5 million. Adjusted EBITDA increased by $23.3 million to $92.2 million primarily due to the same factors that impacted gross profit and a reduction in the segment's SG&A expense due to a decrease in performance based compensation, cost reduction activities, and the segment receiving a smaller portion of allocated corporate costs.

Paper Packaging & Services

Net sales decreased by $16.0 million to $481.6 million. Net sales excluding foreign currency translation decreased by $15.8 million primarily due to lower published containerboard and boxboard prices and the divestment of the Consumer Packaging Business, partially offset by Greif's eleven day additional ownership period of Caraustar in the 2020 second quarter. The Company took approximately 24,000 tons of economic downtime across its containerboard operations during the quarter.

Gross profit decreased by $13.4 million to $94.9 million. The decrease in gross profit was primarily due to the same factors that impacted net sales.

Operating profit decreased by $35.7 million to a loss of $5.5 million due to the loss on divestment of the Consumer Packaging Business, which was primarily related to the allocation of goodwill to the transaction. Adjusted EBITDA decreased by $3.0 million to $79.1 million primarily due to the same factors that impacted net sales and the segment receiving a greater portion of allocated corporate costs, partially offset by a reduction in the segment's SG&A expense due to a decrease in performance based compensation and cost reduction activities.

Flexible Products & Services

Net sales decreased by $9.6 million to $67.4 million. Net sales excluding foreign currency translation decreased by $7.2 million primarily due to continued demand softness and lower average sale prices primarily as a result of raw material price decreases and corresponding contractual price adjustment mechanisms.

Gross profit decreased by $2.7 million to $13.9 million. The decrease in gross profit was primarily due to the same factors that impacted net sales, partially offset by the timing of contractual pass through arrangements for raw material price decreases.

Operating profit decreased by $6.6 million to $4.6 million. Adjusted EBITDA decreased by $0.8 million to $6.9 million primarily due to the same factors that impacted gross profit, partially offset by a reduction in the segment's SG&A expense due to a decrease in performance based compensation and cost reduction activities.

Land Management

Net sales decreased by $0.4 million to $6.7 million.

Operating profit increased by $0.2 million to $2.4 million. Adjusted EBITDA decreased by $0.2 million to $3.1 million.

Tax Summary 

During the second quarter, the Company recorded an income tax rate of 63.7 percent, which was negatively impacted by a non-cash goodwill charge related to the divestiture of the Consumer Packaging Business with no associated tax benefit. The Company's tax rate excluding the impact of adjustments was 32.6 percent. The application of FIN 18 frequently causes fluctuations in our quarterly effective tax rates. For fiscal 2020, the Company expects its tax rate to range between 31.0 and 35.0 percent and its tax rate excluding adjustments to range between 27.0 and 31.0 percent.

Dividend Summary

On June 2, 2020, 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, 2020, to stockholders of record at the close of business on June 18, 2020.

Conference Call

The Company will host a conference call to discuss the second quarter of 2020 results on June 4, 2020, at 8:30 a.m. Eastern Time (ET). To participate, domestic callers should call 833-921-1617. The Greif ID is 2278767. The number for international callers is +1-236-714-2102. Phone lines will open at 8:00 a.m. ET. The conference call will also be available through a live webcast, including slides, which can be accessed at http://investor.greif.com by clicking on the Events and Presentations tab and searching under the events calendar. A replay of the conference call will be available on the Company's website approximately two hours following the call.

About Greif

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.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "may," "will," "expect," "intend," "estimate," "anticipate," "aspiration," "objective," "project," "believe," "continue," "on track" or "target" or the negative thereof and similar expressions, among others, identify forward-looking statements. All forward-looking statements are based on assumptions, expectations and other information currently available to management. Such forward-looking statements are subject to certain risks and uncertainties that could cause the Company's actual results to differ materially from those forecasted, projected or anticipated, whether expressed or implied. The most significant of these risks and uncertainties are described in Part I of the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2019. The Company undertakes no obligation to update or revise any forward-looking statements.

Although the Company believes that the expectations reflected in forward-looking statements have a reasonable basis, the Company can give no assurance that these expectations will prove to be correct. Forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from those forecasted, projected or anticipated, whether expressed in or implied by the statements. Such risks and uncertainties that might cause a difference include, but are not limited to, the following: (i) historically, our business has been sensitive to changes in general economic or business conditions, (ii) we may not successfully implement our business strategies, including achieving our growth objectives, (iii) our level of indebtedness could adversely affect our liquidity, limit our flexibility in responding to business opportunities, and increase our vulnerability to adverse changes in economic and industry conditions, (iv) our operations subject us to currency exchange and political risks that could adversely affect our results of operations, (v) the current and future challenging global economy and disruption and volatility of the financial and credit markets may adversely affect our business, (vi) the continuing consolidation of our customer base and suppliers may intensify pricing pressure, (vii) we operate in highly competitive industries, (viii) our business is sensitive to changes in industry demands, (ix) raw material and energy price fluctuations and shortages may adversely impact our manufacturing operations and costs, (x) changes in U.S. trade policies could impact the cost of imported goods into the U.S., which may materially impact our revenues or increase our operating costs, (xi) the results of the United Kingdom's referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business, (xii) geopolitical conditions, including direct or indirect acts of war or terrorism, could have a material adverse effect on our operations and financial results, (xiii) we may encounter difficulties arising from acquisitions, (xiv) in connection with acquisitions or divestitures, we may become subject to liabilities, (xv) the acquisition of Caraustar Industries, Inc. and its subsidiaries subjects us to various risks and uncertainties, (xvi) we may incur additional restructuring costs and there is no guarantee that our efforts to reduce costs will be successful, (xvii) we could be subject to changes to our tax rates, the adoption of new U.S. or foreign tax legislation or exposure to additional tax liabilities, (xviii) full realization of our deferred tax assets may be affected by a number of factors, (xix) several operations are conducted by joint ventures that we cannot operate solely for our benefit, (xx) certain of the agreements that govern our joint ventures provide our partners with put or call options, (xxi) our ability to attract, develop and retain talented and qualified employees, managers and executives is critical to our success, (xxii) our business may be adversely impacted by work stoppages and other labor relations matters, (xxiii) we may not successfully identify illegal immigrants in our workforce, (xxiv) our pension and postretirement plans are underfunded and will require future cash contributions and our required future cash contributions could be higher than we expect, each of which could have a material adverse effect on our financial condition and liquidity, (xxv) we may be subject to losses that might not be covered in whole or in part by existing insurance reserves or insurance coverage, (xxvi) our business depends on the uninterrupted operations of our facilities, systems and business functions, including our information technology and other business systems, (xxvii) a security breach of customer, employee, supplier or Company information may have a material adverse effect on our business, financial condition and results of operations, (xxviii) legislation/regulation related to environmental and health and safety matters and corporate social responsibility could negatively impact our operations and financial performance, (xxix) product liability claims and other legal proceedings could adversely affect our operations and financial performance, (xxx) we may incur fines or penalties, damage to our reputation or other adverse consequences if our employees, agents or business partners violate, or are alleged to have violated, anti-bribery, competition or other laws, (xxxi) the current COVID-19 pandemic could have a material adverse effect on our business, financial condition, results of operations and cash flows, (xxxii) changing climate, climate change regulations and greenhouse gas effects may adversely affect our operations and financial performance, (xxxiii) the frequency and volume of our timber and timberland sales will impact our financial performance, (xxxiv) changes in U.S. generally accepted accounting principles (GAAP) and SEC rules and regulations could materially impact our reported results, (xxxv) if we fail to maintain an effective system of internal control, we may not be able to accurately report financial results or prevent fraud, and (xxxvi) we have a significant amount of goodwill and long-lived assets which, if impaired in the future, would adversely impact our results of operations. The risks described above are not all-inclusive, and given these and other possible risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. For a detailed discussion of the most significant risks and uncertainties that could cause our actual results to differ materially from those forecasted, projected or anticipated, see "Risk Factors" in Part I, Item 1A of our most recently filed Form 10-K and our other filings with the Securities and Exchange Commission. All forward-looking statements made in this news release are expressly qualified in their entirety by reference to such risk factors. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact:    

Matt Eichmann

740-549-6067

matt.eichmann@greif.com