Greif Reports Third Quarter 2018 Results
DELAWARE, Ohio--(BUSINESS WIRE)--Aug 29, 2018--Greif, Inc. (NYSE: GEF, GEF.B), a world leader in industrial packaging products and services, today announced third quarter 2018 results.
Third Quarter Highlights include (all results compared to the third quarter of 2017 unless otherwise noted):Net sales increased by $50.3 million to $1,012.1 million. Gross profit increased by $30.0 million to $217.1 million. Operating profit increased by $23.5 million to $114.0 million and operating profit before special items 1 increased by $23.2 million to $117.7 million. Net income of $67.7 million or $1.15 per diluted Class A share increased compared to net income of $43.9 million or $0.74 per diluted Class A share. Net income, excluding the impact of special items, of $70.9 million or $1.20 per diluted Class A share increased compared to net income, excluding the impact of special items, of $49.7 million or $0.85 per diluted Class A share. Net cash provided by operating activities decreased by $38.3 million to $51.3 million. The $38.3 million decrease included a one-time $65.0 million U.S pension contribution. Free cash flow excluding the additional U.S. pension contribution 2 increased by $16.4 million to $80.6 million. Increased quarterly cash dividends to $0.44 per share on Class A Common Stock and $0.66 per share on Class B Common Stock, an increase of 4.8 percent from dividends paid in the second quarter of 2018.
“Greif delivered solid third quarter results, with stronger year over year operating profit before special items, earnings and free cash flow,” said Greif’s President and Chief Executive Officer, Pete Watson. “Our Paper Packaging and Flexible Products segments continue to demonstrate strong results. Our Rigid Packaging segment experienced strong demand across much of the portfolio, but was impacted by the continuation of rising raw material costs and unique headwinds in certain regions of our global business. At the same time, the improved overall performance of our diversified portfolio leads us to increase our Fiscal 2018 Class A EPS before special items guidance range to $3.53 - $3.69. In addition, we are pleased that earlier this week our Board of Directors approved an increased quarterly dividend, which reflects our ongoing commitment to shareholder returns and the confidence we have in our global business.”
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.
The Company’s consolidated CSI 3 score for the third quarter of 2018 improved to 87.4, with the largest improvement again recorded in FPS, which generated a 12 percent improvement versus the prior year quarter. Our objective is that each business segment delivers a CSI score of 95 or better. Our Paper Packaging & Services segment is above that threshold.
We are currently making plans to conduct our next NPS 4 survey and anticipate launching it late in our fiscal 2018 fourth quarter or at the beginning of fiscal 2019. Our aspiration is to consistently achieve an NPS score of 55. We continue to leverage the increased customer interactions that accompany each survey into additional enhancements for our customers and better strategic insight into their business needs.
Segment Results (all results compared to the third quarter of 2017 unless otherwise noted)
Net sales are impacted mainly by the volume of primary products 5 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 2018 as compared to the prior year quarter for the business segments with manufacturing operations:
Rigid Industrial Packaging & Services
Net sales increased by $13.2 million to $687.6 million. Net sales excluding foreign currency translation increased by $17.6 million due primarily to a 3.7 percent increase in selling prices on our primary products as a result of strategic pricing decisions and contractual price changes, partially offset by significantly weaker demand from European agricultural customers due to weather, impacts from events in Brazil and continued value over volume decisions in China.
Gross profit increased by $1.8 million to $138.8 million. The increase in gross profit included a $4.6 million freight expense adjustment and improved manufacturing efficiencies, partially offset by the continuation of rising raw material costs and the timing of contractual pass through arrangements. The $4.6 million freight expense adjustment included the reversal of $2.4 million of fiscal 2018 freight expenses and $2.2 million of freight expenses related to prior periods.
Operating profit decreased by $3.3 million to $62.0 million. Operating profit before special items decreased by $4.1 million to $66.1 million, due to an increase in the segment’s selling, general & administrative (“SG&A”) expense. The prior year third quarter results included a value-added tax refund of $2.9 million related to the resolution of a Brazilian tax issue originating in 1991.
Paper Packaging & Services
Net sales increased by $29.7 million to $236.0 million. The increase was due to higher selling prices resulting from increases in published containerboard pricing, higher volumes and stronger specialty sales.
Gross profit increased by $25.8 million to $59.5 million. The increase in gross profit was primarily due to higher containerboard prices and lower old corrugated container input costs, partially offset by an increase in transportation costs.
Operating profit increased by $24.7 million to $44.1 million. Operating profit before special items increased by $24.8 million to $44.4 million due to the same factors that impacted gross profit, partially offset by an increase in the segment’s SG&A expense.
Flexible Products & Services
Net sales increased by $8.7 million to $82.6 million. Net sales excluding foreign currency translation increased by $7.1 million due to strategic pricing decisions, product mix and higher volumes.
Gross profit increased by $3.0 million to $16.7 million due primarily due to the same factors that impacted net sales and improved manufacturing efficiencies.
Operating profit increased by $2.7 million to $5.8 million. Operating profit before special items increased by $3.2 million to $5.8 million. The improvement in operating profit before special items was due primarily to the same factors that impacted gross profit and foreign currency translation.
Net sales decreased by $1.3 million to $5.9 million.
Operating profit decreased by $0.6 million to $2.1 million. Operating profit before special items decreased by $0.7 million to $1.4 million.
On August 28, 2018, 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 October 1, 2018, to stockholders of record at the close of business on September 17, 2018.
During the third quarter, the Company recorded an income tax rate of 26.6 percent and a tax rate excluding the impact of special items of 26.4 percent. The Company continues to expect its tax rate excluding the impact of special items to range between 28.0 and 32.0 percent for fiscal 2018.
As of July 31, 2018, the Company’s accounting for the Tax Reform Act is provisional and work is progressing. For example, as it relates to transition tax, the Company continues to analyze the earnings and profits and tax pools of its foreign subsidiaries. The Company has recorded as of that date a provisional estimate for the following items: a provisional tax benefit related to the revaluation of deferred tax assets and liabilities of $69.3 million; and a provisional tax expense as a result of the accrual for the transition tax liability of $35.9 million. Adjustments to the provisional estimates will be recorded and disclosed prospectively during the measurement period and may differ materially from these provisional amounts, due to, among other items, additional analyses, changes in interpretations and assumptions previously made by the Company, new or additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act.
Note: Full year 2018 Class A earnings per share and tax rate guidance on a GAAP basis are not provided in this release due to the potential for one or more of the following, the timing and magnitude of which we are unable to reliably forecast: gains or losses on the disposal of businesses, timberland or properties, plants and equipment, net, non-cash asset impairment charges due to unanticipated changes in the business, restructuring-related activities, non-cash pension settlement charges or acquisition costs, and the income tax effects of these items and other income tax-related events. No reconciliation of the fiscal year 2018 Class A earnings per share before special items guidance or tax rate excluding the impact of special items guidance, both non-GAAP financial measures which exclude gains and losses on the disposal of businesses, timberland and properties, plants and equipment, non-cash pension settlement charges, acquisition costs, restructuring and impairment charges and provisional tax net benefits resulting from the Tax Reform Act, is included in this release because, due to the high variability and difficulty in making accurate forecasts and projections of some of the excluded information, together with some of the excluded information not being ascertainable or accessible, we are unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measure without unreasonable efforts. A reconciliation of 2018 free cash flow guidance excluding the additional pension contribution to forecasted net cash provided by operating activities, the most directly comparable GAAP financial measure, is included in this release.
The Company will host a conference call to discuss the third quarter of 2018 results on August 30, 2018, at 8:30 a.m. Eastern Time (ET). To participate, domestic callers should call 833-231-8265. The Greif ID is 4580819. The number for international callers is +1-647-689-4110. 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.
Greif is a global leader in industrial packaging products and services and is pursuing its vision to become the world’s best performing customer service company in industrial packaging. The Company produces steel, plastic, fibre, flexible, corrugated, and reconditioned containers, intermediate bulk containers, containerboard and packaging accessories, and provides filling, packaging and industrial packaging reconditioning services for a wide range of industries. Greif also manages timber properties in the southeastern United States. The Company is strategically positioned with production facilities in over 40 countries to serve global as well as regional customers. Additional information is on the Company’s website at www.greif.com.
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, 2017. The Company undertakes no obligation to update or revise any forward-looking statements.
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