Greif Reports Third Quarter 2023 Results

31 August 2023

Greif, Inc.a global leader in industrial packaging products and services, today announced third quarter 2023 results.

Third Quarter Financial Highlights include (all results compared to the third quarter of 2022 unless otherwise noted):

  • Net income of $90.3 million or $1.55 per diluted Class A share decreased compared to net income of $141.8 million or $2.36 per diluted Class A share. Net income, excluding the impact of adjustments(1), of $102.1 million or $1.75 per diluted Class A share decreased compared to net income, excluding the impact of adjustments, of $141.7 million or $2.35 per diluted Class A share.
  • Gross profit decreased only $39.9 million compared to a net sales decrease of $291.8 million due to the continued cost management actions implemented.
  • Adjusted EBITDA(2) of $226.5 million decreased by $24.5 million compared to Adjusted EBITDA of $251.0 million.
  • Net cash provided by operating activities decreased by $7.0 million to $202.3 million. Adjusted free cash flow(3) decreased by $8.7 million to a source of $167.1 million.
  • Total debt of $2,171.5 million increased by $112.8 million. Net debt(4) increased by $82.6 million to $2,013.8 million. Our leverage ratio(5) decreased to 2.17x from 2.25x sequentially, which is within our targeted leverage ratio range of 2.0x - 2.5x, and increased from 1.99x in the prior year quarter.

Strategic Actions and Announcements

  • Acquisition of a 51% ownership interest in ColePak, LLC on August 23, 2023. ColePak is a manufacturer of bulk and specialty partitions made from both containerboard and uncoated recycled board serving a broad range of applications in food, beverage, and other markets. This business provides a unique and margin-accretive converting capability to Greif's Paper Packaging & Services business segment and offers incremental integration benefits to our containerboard and uncoated recycled board mills.
  • Announced increase of our quarterly dividend per share by $0.02 and $0.03 for Class A and Class B shares, respectively. This quarterly dividend increase is aligned with our broader capital allocation strategy and is a testament to the growth and continued strength of our free cash flow generation.

CEO Commentary

"Our team has once again demonstrated exceptional performance in delivering strong earnings, margin, and free cash flow performance despite continued volume challenges and ongoing uncertainty in end-markets worldwide," commented Ole Rosgaard, President and Chief Executive Office of Greif. "Our Build to Last strategy is clearly delivering value as we execute on our cost-management playbook and gain new business, with mix and margin benefits, underpinned by a continuous improvement focus throughout the enterprise. Collectively, these efforts drove EBITDA performance above our expectations and resulted in an impressive free cash flow conversion of nearly 75% in the quarter, truly a commendable outcome considering an average volume decline of 13% across our global product portfolio. While the macroeconomic picture continues to be unclear, we remain focused on executing consistently and serving our customers with excellence and superior customer service. I sincerely thank the entire Greif team for their dedication and hard work through a challenging quarter."

Build to Last Mission Progress

Customer satisfaction is a key component of our mission to deliver Legendary Customer Service. Our consolidated CSI(6) score was 94.2 at the end of the third quarter 2023. Paper Packaging & Services CSI score was 93.6, and Global Industrial Packaging CSI score was 94.9. We thank our customers for their continued feedback which is critical to helping us achieve our vision to be the best performing customer service company in the world, and we are proud to continue to earn positive feedback from our customers throughout a difficult global operating environment.

In addition to delivering Legendary Customer Service, a key element of our Build to Last Strategy is Creating Thriving Communities for our colleagues. Building upon the successes to-date, this quarter we launched our first-ever Colleague Stock Purchase Plan to all colleagues in the United States. This plan enables our colleagues to acquire Greif stock at a discount to market prices and to enjoy the financial benefits of owning shares. We also believe further aligning colleague interests with the rest of our shareholders will drive incremental performance and accountability benefits, as well as accelerate idea generation to improve our operations. We are excited to launch this program and welcome a growing number of our colleagues to our investor community.

(1)Adjustments that are excluded from net income before adjustments and from earnings per diluted Class A share before adjustments are restructuring charges, acquisition and integration related costs, non-cash asset impairment charges, (gain) loss on disposal of properties, plants, equipment and businesses, net.

(2)Adjusted EBITDA is defined as net income, plus interest expense, net, plus income tax expense, plus depreciation, depletion and amortization expense, plus restructuring charges, plus acquisition and integration related costs, plus non-cash asset impairment charges, plus (gain) loss on disposal of properties, plants, equipment and businesses, net.

(3)Adjusted free cash flow is defined as net cash provided by operating activities, less cash paid for purchases of properties, plants and equipment, plus cash paid for acquisition and integration related costs, plus cash paid for integration related Enterprise Resource Planning (ERP) systems and equipment, plus cash paid for taxes related to Tama, Iowa mill divestment.

(4)Net debt is defined as total debt less cash and cash equivalents.

(5)Leverage ratio for the periods indicated is defined as net debt divided by trailing twelve month EBITDA, each as calculated under the terms of the Company's Second Amended and Restated Credit Agreement dated as of March 1, 2022, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2022 (the "2022 Credit Agreement").

(6)Customer satisfaction index (CSI) tracks a variety of internal metrics designed to enhance the customer experience in dealing with Greif.

Note: A reconciliation of the differences between all non-GAAP financial measures used in this release with the most directly comparable GAAP financial measures is included in the financial schedules that are a part of this release. These non-GAAP financial measures are intended to supplement and should be read together with our financial results. They should not be considered an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of this financial information should not place undue reliance on these non-GAAP financial measures.

Segment Results (all results compared to the third quarter of 2022 unless otherwise noted)

Net sales are impacted mainly by the volume of primary products(7) 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 third quarter of 2023 as compared to the prior year quarter for the business segments with manufacturing operations. Net sales from Lee Container and Centurion Container's primary products are not included in the table below, but will be included in the Global Industrial Packaging segment starting in the first quarter and second quarter of fiscal 2024 respectively.