Greif(GEF) - 2024 Q1 - Quarterly Results

First Quarter 2024 Performance Overview This section provides an overview of the company's financial performance and strategic initiatives for the first quarter of 2024 Financial Highlights In the first quarter of 2024, Greif reported a decrease in GAAP net income, Adjusted EBITDA, and net cash from operating activities compared to the same period in 2023, though net income excluding adjustments saw an increase, and the company's total debt and leverage ratio also rose during the quarter Q1 2024 Key Financial Metrics (in millions, except EPS and Leverage Ratio) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $67.2M | $89.9M | -$22.7M | | Diluted Class A EPS | $1.17 | $1.54 | -$0.37 | | Net Income (excl. adjustments) | $72.8M | $61.9M | +$10.9M | | Diluted Class A EPS (excl. adjustments) | $1.27 | $1.06 | +$0.21 | | Adjusted EBITDA | $128.0M | $164.5M | -$36.5M | | Net Cash from Operating Activities | $4.5M | $32.9M | -$28.4M | | Adjusted Free Cash Flow | ($48.2M) | ($7.6M) | -$40.6M | | Leverage Ratio | 2.53x | 2.11x | +0.42x | CEO Commentary and Strategic Progress The CEO highlighted solid financial results despite a challenging, slow-demand environment, emphasizing the company's focus on its Build to Last Strategy, with key strategic advancements including the launch of a new customer digital portal and a partnership for innovative, recyclable barrier technology - CEO Ole Rosgaard stated that Greif produced "solid financial results in a challenging operating environment" and continues to make structural improvements under the Build to Last Strategy[4] - The consolidated Customer Satisfaction Index (CSI) score was 93.3 at the end of Q1 2024, with a long-term goal of exceeding 95.0[5] - The company launched a new customer digital portal to streamline the order interface and enhance customer experience[5] - A new partnership was announced with Ionkraft to explore a unique, chemically inert, and fully recyclable barrier technology for plastic containers, targeting the Agrochemical industry[6] Segment Performance Analysis This section analyzes the financial performance of the company's key business segments, including net sales and profitability drivers Overview of Segment Net Sales Net sales for primary products declined across both major segments in Q1 2024 compared to the prior year, with the Global Industrial Packaging segment seeing an 11.0% decrease and the Paper Packaging & Services segment experiencing a 12.8% drop, both driven primarily by lower volumes and unfavorable selling prices Q1 2024 Net Sales Impact on Primary Products (in percentage) | Net Sales Impact | Global Industrial Packaging | Paper Packaging & Services | | :--- | :--- | :--- | | Currency Translation | (2.1)% | — % | | Volume | (6.4)% | (3.3)% | | Selling Prices and Product Mix | (2.5)% | (9.5)% | | Total Impact | (11.0)% | (12.8)% | Global Industrial Packaging The Global Industrial Packaging segment's net sales decreased by $19.2 million due to lower volumes and prices, though gross profit and operating profit increased by $10.0 million and $5.0 million, respectively, benefiting from lower raw material costs, while Adjusted EBITDA remained relatively stable, decreasing by only $0.9 million Global Industrial Packaging Q1 2024 Performance (in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $686.6M | $705.8M | -$19.2M | | Gross Profit | $135.3M | $125.3M | +$10.0M | | Operating Profit | $50.9M | $45.9M | +$5.0M | | Adjusted EBITDA | $70.9M | $71.8M | -$0.9M | - The increase in gross profit was primarily driven by lower raw material costs, which offset the negative impact of lower sales and higher labor costs[11] Paper Packaging & Services The Paper Packaging & Services segment experienced a significant downturn, with net sales falling by $45.6 million due to lower volumes and prices, severely impacting profitability, as gross profit decreased by $39.8 million and operating profit plummeted by $92.3 million, exacerbated by a $54.6 million gain from a prior-year divestiture, and Adjusted EBITDA also fell sharply by $35.2 million Paper Packaging & Services Q1 2024 Performance (in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $514.6M | $560.2M | -$45.6M | | Gross Profit | $84.4M | $124.2M | -$39.8M | | Operating Profit | $16.8M | $109.1M | -$92.3M | | Adjusted EBITDA | $55.5M | $90.7M | -$35.2M | - The significant decrease in operating profit was partly due to a $54.6 million gain from the divestiture of Tama Paperboard, LLC during Q1 2023, which was not repeated this quarter[14] Financial Outlook and Shareholder Returns This section provides an overview of the company's financial outlook and shareholder return strategies Tax Summary The company reported an anomalous negative income tax rate of -107.3% for the first quarter, driven by a one-time discrete tax benefit of $48.1 million related to the onshoring of certain intangible property, while for the full fiscal year 2024, Greif anticipates a more normalized tax rate ranging between 8.0% and 12.0% on an adjusted basis - Q1 2024 recorded an income tax rate of -107.3% due to a one-time discrete tax benefit of $48.1 million[15] - The expected tax rate for fiscal 2024 is projected to be between 6.0% to 10.0% (8.0% to 12.0% excluding adjustments)[15] Dividend Summary The Board of Directors has declared quarterly cash dividends for both Class A and Class B Common Stock, payable on April 1, 2024, to shareholders of record as of March 18, 2024 Declared Quarterly Dividends (in dollars per share) | Stock Class | Dividend per Share | | :--- | :--- | | Class A Common Stock | $0.52 | | Class B Common Stock | $0.78 | Fiscal 2024 Guidance Citing significant uncertainty in the macroeconomic environment and product demand, Greif has issued only a low-end guidance estimate for fiscal 2024, projecting Adjusted EBITDA of $610 million and adjusted free cash flow of $200 million, based on the continuation of recent demand trends and excluding any potential impact from the proposed acquisition of Ipackchem - Due to the deterioration of product demand and macroeconomic uncertainty, the company is only providing a low-end guidance estimate[17] Fiscal 2024 Low-End Guidance Estimate (in millions) | Metric | Guidance (in millions) | | :--- | :--- | | Adjusted EBITDA | $610 | | Adjusted free cash flow | $200 | - The guidance does not factor in any contribution from the proposed acquisition of Ipackchem[17] Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including income statements, balance sheets, and cash flow statements Condensed Consolidated Statements of Income For the first quarter ended January 31, 2024, Greif's net sales declined to $1,205.8 million from $1,271.0 million in the prior-year period, leading to a decrease in gross profit and operating profit, with net income attributable to Greif falling to $67.2 million, or $1.17 per diluted Class A share, compared to $89.9 million, or $1.54 per share, in Q1 2023 Q1 Income Statement Highlights (in millions, except per share) | Account | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $1,205.8 | $1,271.0 | | Gross profit | $221.6 | $251.6 | | Operating profit | $68.9 | $156.4 | | Net income attributable to Greif, Inc. | $67.2 | $89.9 | | Diluted EPS (Class A) | $1.17 | $1.54 | Condensed Consolidated Balance Sheets As of January 31, 2024, Greif's total assets stood at $5,969.1 million, a slight increase from the end of the previous fiscal year, with long-term debt increasing to $2,185.3 million from $2,121.4 million, while total Greif, Inc. equity rose to $1,992.5 million Balance Sheet Summary (in millions) | Account | Jan 31, 2024 | Oct 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $1,389.3 | $1,369.1 | | Total Assets | $5,969.1 | $5,960.8 | | Long-term Debt | $2,185.3 | $2,121.4 | | Total Liabilities | $3,807.8 | $3,849.2 | | Total Greif, Inc. Equity | $1,992.5 | $1,947.9 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities for Q1 2024 was $4.5 million, a significant decrease from $32.9 million in the prior-year quarter, with the company using $53.6 million in investing activities, primarily for property, plant, and equipment purchases, and generating $36.1 million from financing activities, mainly through net proceeds on long-term debt Q1 Statement of Cash Flows (in millions) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4.5 | $32.9 | | Net cash used in investing activities | ($53.6) | ($269.1) | | Net cash provided by financing activities | $36.1 | $239.5 | | Net (decrease) increase in cash | ($1.6) | $13.9 | GAAP to Non-GAAP Reconciliations This section provides reconciliations of GAAP financial measures to non-GAAP adjusted metrics, including EBITDA, free cash flow, net income, and debt Adjusted EBITDA Reconciliation This section reconciles GAAP net income to the non-GAAP measure of Adjusted EBITDA, showing Consolidated Adjusted EBITDA at $128.0 million for Q1 2024, down from $164.5 million in Q1 2023, with adjustments for interest, taxes, D&A, restructuring charges, and acquisition-related costs, and a further breakdown by business segment Consolidated Adjusted EBITDA Reconciliation (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income | $74.3 | $93.1 | | Plus: Interest, Taxes, D&A, etc. | $46.4 | $115.6 | | EBITDA | $120.7 | $208.7 | | Plus: Adjustments | $7.3 | ($44.2) | | Adjusted EBITDA | $128.0 | $164.5 | Adjusted EBITDA by Segment (in millions) | Segment | Q1 2024 | Q1 2023 | | :--- | :--- | | Global Industrial Packaging | $70.9 | $71.8 | | Paper Packaging & Services | $55.5 | $90.7 | | Land Management | $1.6 | $2.0 | Adjusted Free Cash Flow Reconciliation Adjusted free cash flow for Q1 2024 was a use of $48.2 million, compared to a use of $7.6 million in the prior-year quarter, calculated by starting with net cash from operating activities, subtracting capital expenditures, and adding back cash paid for acquisition and integration-related costs Adjusted Free Cash Flow Reconciliation (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4.5 | $32.9 | | Less: Purchases of properties, plants and equipment | ($55.6) | ($49.3) | | Plus: Acquisition & integration related costs | $2.9 | $8.8 | | Adjusted free cash flow | ($48.2) | ($7.6) | Adjusted Net Income and EPS Reconciliation After excluding special items such as restructuring charges and acquisition costs, adjusted net income attributable to Greif was $72.8 million for Q1 2024, an increase from $61.9 million in Q1 2023, resulting in an adjusted diluted Class A EPS of $1.27, up from $1.06 in the prior-year quarter Net Income and EPS Before Adjustments (in millions, except EPS) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income Attributable to Greif, Inc. (GAAP) | $67.2M | $89.9M | | Net Income Attributable to Greif, Inc. (Adjusted) | $72.8M | $61.9M | | Diluted Class A EPS (GAAP) | $1.17 | $1.54 | | Diluted Class A EPS (Adjusted) | $1.27 | $1.06 | Net Debt and Leverage Ratio As of January 31, 2024, net debt stood at $2,112.5 million, an increase from both the previous quarter and the prior year, consequently raising the company's leverage ratio to 2.53x, compared to 2.20x at the end of fiscal 2023 and 2.11x at the end of Q1 2023 Net Debt Calculation (in millions) | Period Ended | Total Debt | Cash | Net Debt | | :--- | :--- | :--- | :--- | | Jan 31, 2024 | $2,291.8 | ($179.3) | $2,112.5 | | Oct 31, 2023 | $2,215.1 | ($180.9) | $2,034.2 | | Jan 31, 2023 | $2,229.3 | ($161.0) | $2,068.3 | - The leverage ratio increased to 2.53x as of January 31, 2024, up from 2.20x sequentially and 2.11x in the prior year quarter[43] Projected 2024 Guidance Reconciliation This table reconciles the company's fiscal 2024 low-end guidance for adjusted free cash flow of $200.0 million, with the projection starting from an estimated $346.8 million in net cash from operating activities, adjusted for capital expenditures and other specific cash costs FY2024 Low-End Adjusted Free Cash Flow Guidance Reconciliation (in millions) | Line Item | Amount | | :--- | :--- | | Net cash provided by operating activities | $346.8 | | Cash paid for purchases of properties, plants and equipment | ($169.0) | | Cash paid for acquisition and integration related costs | $17.0 | | Cash paid for integration related ERP systems and equipment | $4.0 | | Cash paid for fiscal year-end change costs | $1.2 | | Adjusted free cash flow | $200.0 | Forward-Looking Statements This section contains standard cautionary language advising investors that forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially, listing a wide range of potential risks from economic conditions to cybersecurity threats Risks and Uncertainties The company identifies numerous risks that could impact future performance, including sensitivity to general economic conditions, political and currency risks from global operations, intense industry competition, fluctuations in raw material and energy prices, potential difficulties from acquisitions or divestitures, cybersecurity threats, changes in tax legislation, and environmental regulations - The report cautions that all forward-looking statements are based on current assumptions and are not guarantees of future performance[21] - Key risks highlighted include: changes in general economic conditions, global political instability, intense competition, raw material price fluctuations, supply chain disruptions, and difficulties with acquisitions[22] - Investors are directed to the company's Form 10-K for a more detailed discussion of significant risks and uncertainties[23]