Greif(GEF) - 2024 Q2 - Quarterly Results

Executive Summary & Fiscal Second Quarter 2024 Highlights CEO Commentary & Strategic Overview Greif CEO Ole Rosgaard highlighted steady progress on the "Build to Last" strategy, including the Ipackchem acquisition, noting demand improvement but negative price/cost impact on paper due to delayed price realization - Completed the Ipackchem acquisition, a key milestone in developing a global leading platform for high-performance small plastic containers[4][6] - Demand improvement exceeded expectations, but the paper business experienced a significant negative price/cost impact due to delayed realization of announced price increases[4] Key Financial Highlights (Consolidated Statements) Greif's Q2 FY2024 saw significant year-over-year declines in net income and adjusted EBITDA, reduced operating and adjusted free cash flow, and increased total debt and leverage due to the Ipackchem acquisition Fiscal Second Quarter 2024 Consolidated Financial Highlights (Year-over-Year Change) | Metric | Q2 2024 (Millions) | Q2 2023 (Millions) | Change (%) | | :-------------------------------- | :----------------- | :----------------- | :--------- | | Net income | $44.4 | $111.2 | -60.1% | | Net income (excl. adjustments) | $47.9 | $103.8 | -53.9% | | Diluted Class A EPS | $0.77 | $1.90 | -59.5% | | Diluted Class A EPS (excl. adjustments) | $0.82 | $1.77 | -53.7% | | Adjusted EBITDA | $169.9 | $228.6 | -25.7% | | Net cash provided by operating activities | $87.5 | $210.8 | -58.5% | | Adjusted free cash flow | $59.0 | $185.5 | -68.2% | | Total debt | $2,916.1 | $2,289.2 | +27.4% | | Net debt | $2,720.1 | $2,130.7 | +27.7% | | Leverage ratio | 3.44x | 2.25x | +52.9% | “Build to Last” Mission Progress & Sustainability Greif achieved a 92.6 composite Customer Satisfaction Index, earned the 2024 Great Workplace Award with an 84 Gallup engagement score, and released its 15th annual sustainability report - Composite Customer Satisfaction Index (CSI) reached 92.6, with Paper Packaging & Services at 93.7 and Global Industrial Packaging at 91.4[5] - Achieved a score of 84 in the 2023 Gallup Employee Engagement Survey, placing in the top quartile of all manufacturing organizations, and received the 2024 Great Workplace Award[5] - Released the 15th annual Sustainability Report, detailing key milestones achieved in 2023 and updates on 2030 sustainability goals[7] Fiscal Second Quarter 2024 Segment Results Global Industrial Packaging Global Industrial Packaging net sales grew due to increased volume, higher average selling prices, and acquisitions, but operating profit and adjusted EBITDA declined from higher SG&A and amortization expenses Global Industrial Packaging - Q2 2024 vs Q2 2023 | Metric | Q2 2024 (Millions) | Q2 2023 (Millions) | Change | | :-------------------- | :----------------- | :----------------- | :----- | | Net sales | $804.8 | $748.2 | +$56.6M | | Gross profit | $181.5 | $177.9 | +$3.6M | | Operating profit | $83.4 | $111.3 | -$27.9M | | Adjusted EBITDA | $118.3 | $121.2 | -$2.9M | - Net sales growth was primarily driven by increased volumes, higher average selling prices, and contributions from recent acquisitions[10] - Operating profit decreased mainly due to increased SG&A expenses (including compensation, strategic investment costs, and amortization from recent acquisitions) and a $9.8 million gain recognized in Q2 2023 related to the Centurion minority interest[11] Paper Packaging & Services Paper Packaging & Services net sales slightly increased from higher volumes and acquisitions, offset by lower average selling prices, while gross profit, operating profit, and adjusted EBITDA significantly declined due to rising costs and increased SG&A Paper Packaging & Services - Q2 2024 vs Q2 2023 | Metric | Q2 2024 (Millions) | Q2 2023 (Millions) | Change | | :-------------------- | :----------------- | :----------------- | :----- | | Net sales | $560.8 | $554.8 | +$6.0M | | Gross profit | $86.0 | $131.4 | -$45.4M | | Operating profit | $12.6 | $67.6 | -$55.0M | | Adjusted EBITDA | $49.0 | $104.9 | -$55.9M | - Net sales growth was primarily due to increased volumes and contributions from recent acquisitions, partially offset by lower average selling prices[13] - Gross profit, operating profit, and adjusted EBITDA significantly decreased, mainly due to higher raw material, freight, and manufacturing costs, along with increased SG&A expenses from incentive compensation and strategic investment costs[13][14] Land Management Land Management reported a slight decrease in net sales, while gross profit and adjusted EBITDA remained relatively stable Land Management - Q2 2024 vs Q2 2023 | Metric | Q2 2024 (Millions) | Q2 2023 (Millions) | Change | | :-------------------- | :----------------- | :----------------- | :----- | | Net sales | $5.4 | $5.9 | -$0.5M | | Gross profit | $2.6 | $2.5 | +$0.1M | | Operating profit | $2.1 | $2.2 | -$0.1M | | Adjusted EBITDA | $2.6 | $2.5 | +$0.1M | Financial Details & Capital Structure Tax Summary The company reported an income tax rate of 24.9% for Q2 FY2024, with a full-year FY2024 tax rate projected between 8.0% and 12.0% Income Tax Rates | Period | Reported Tax Rate | Tax Rate (Excl. Adjustments) | | :-------------------------- | :---------------- | :--------------------------- | | Q2 2024 | 24.9% | 25.0% | | Fiscal 2024 Outlook | 8.0% - 12.0% | 10.0% - 14.0% | Dividend Summary The Board of Directors declared quarterly cash dividends of $0.52 per Class A common share and $0.78 per Class B common share on June 3, 2024 Declared Quarterly Cash Dividends (June 3, 2024) | Stock Class | Dividend Per Share | | :---------- | :----------------- | | Class A | $0.52 | | Class B | $0.78 | Debt & Leverage Total debt increased to $2.9161 billion and net debt to $2.7201 billion to fund the Ipackchem acquisition, raising the leverage ratio from 2.53x to 3.44x Debt and Leverage (Q2 2024 vs Q1 2024 vs Q2 2023) | Metric | April 30, 2024 (Millions) | January 31, 2024 (Millions) | April 30, 2023 (Millions) | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total debt | $2,916.1 | $2,291.8 | $2,289.2 | | Net debt | $2,720.1 | $2,112.5 | $2,130.7 | | Leverage ratio | 3.44x | 2.53x | 2.25x | - Total debt increased by $626.9 million, primarily to fund the Ipackchem acquisition[6] Company Outlook Company Outlook Greif provided its FY2024 outlook, projecting adjusted EBITDA between $675 million and $725 million, and adjusted free cash flow between $175 million and 225 million Fiscal Year 2024 Outlook | Metric | Reported at Q2 (Millions) | | :-------------------- | :------------------------ | | Adjusted EBITDA | $675 - $725 | | Adjusted free cash flow | $175 - $225 | - This press release does not provide GAAP net income guidance for fiscal year 2024 due to the highly variable and difficult-to-predict nature of certain excluded information[18] Corporate Information Conference Call & Investor Relations The company held a conference call for Q2 FY2024 results and plans an Investor Day event in New York City on December 11, 2024 - The fiscal second quarter 2024 earnings conference call was held on June 6, 2024, at 8:30 a.m. ET[19] - An Investor Day event will be held in New York City on December 11, 2024[6] - Investor Relations contact: Bill D'Onofrio, Vice President, Corporate Development & Investor Relations[20] About Greif Greif is a global leader in industrial packaging products and services, aiming to be the world's best customer service company, operating in over 35 countries and managing timberlands in the U.S. Southeast - Greif is a global leader in industrial packaging products and services, with a vision to be the world's best customer service company[20] - Products include steel drums, plastic drums, fiber drums, intermediate bulk containers, reconditioned containers, pails, other small plastic products, containerboard, uncoated recycled paperboard, coated recycled paperboard, tubes and cores, and various specialty products[20] - The company is strategically located in over 35 countries, serving global and regional customers, and manages timberlands in the U.S. Southeast[20] Forward-Looking Statements & Risk Factors This press release contains forward-looking statements whose results may differ materially from expectations due to various risks and uncertainties; investors should consult the "Risk Factors" section in the company's latest Form 10-K - All forward-looking statements in this press release are based on management's current assumptions and expectations, but actual results may differ materially due to specific risks and uncertainties[21] - Key risks include changes in economic conditions, global operational risks, market volatility, increased competition, fluctuations in raw material and energy prices, supply chain disruptions, difficulties with acquisitions and divestitures, cyberattacks, changes in tax rates, and climate change regulations[22] - Investors should not place undue reliance on forward-looking statements and should consult the "Risk Factors" section in the company's latest Form 10-K for a more detailed discussion of risks and uncertainties[23] Condensed Consolidated Financial Statements Condensed Consolidated Statements of Income This section presents Greif, Inc. and its subsidiaries' unaudited condensed consolidated statements of income for the three and six months ended April 30, 2024, compared to the prior year periods Condensed Consolidated Statements of Income (Three Months Ended April 30) | (in millions, except per share amounts) | 2024 | 2023 | | :-------------------------------------- | :--- | :--- | | Net sales | $1,371.0 | $1,308.9 | | Cost of products sold | 1,100.9 | 997.1 | | Gross profit | 270.1 | 311.8 | | Operating profit | 98.1 | 181.1 | | Net income attributable to Greif, Inc. | $44.4 | $111.2 | | Diluted Class A common stock EPS | $0.77 | $1.90 | Condensed Consolidated Statements of Income (Six Months Ended April 30) | (in millions, except per share amounts) | 2024 | 2023 | | :-------------------------------------- | :--- | :--- | | Net sales | $2,576.8 | $2,579.9 | | Cost of products sold | 2,085.1 | 2,016.5 | | Gross profit | 491.7 | 563.4 | | Operating profit | 167.0 | 337.5 | | Net income attributable to Greif, Inc. | $111.6 | $201.1 | | Diluted Class A common stock EPS | $1.94 | $3.44 | Condensed Consolidated Balance Sheets This section presents Greif, Inc. and its subsidiaries' unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity as of April 30, 2024, and October 31, 2023 Condensed Consolidated Balance Sheets (As of April 30, 2024 vs October 31, 2023) | (in millions) | April 30, 2024 | October 31, 2023 | | :-------------------------- | :------------- | :--------------- | | ASSETS | | | | Cash and cash equivalents | $196.0 | $180.9 | | Total current assets | 1,614.2 | 1,369.1 | | Goodwill | 1,968.3 | 1,693.0 | | Intangible assets | 980.1 | 792.2 | | Total assets | $6,828.8 | $5,960.8 | | LIABILITIES AND EQUITY | | | | Total current liabilities | $1,026.4 | $939.3 | | Long-term debt | 2,782.9 | 2,121.4 | | Total Greif, Inc. equity | 2,009.1 | 1,947.9 | | Total equity | 2,047.4 | 1,986.3 | Condensed Consolidated Statements of Cash Flows This section presents Greif, Inc. and its subsidiaries' unaudited condensed consolidated statements of cash flows for the three and six months ended April 30, 2024, compared to the prior year periods Condensed Consolidated Statements of Cash Flows (Three Months Ended April 30) | (in millions) | 2024 | 2023 | | :------------------------------------------ | :--- | :--- | | Net cash provided by operating activities | $87.5 | $210.8 | | Net cash used in investing activities | $(609.0) | $(181.9) | | Net cash provided by (used in) financing activities | $548.8 | $(23.9) | | Net increase (decrease) in cash and cash equivalents | $16.7 | $(2.5) | Condensed Consolidated Statements of Cash Flows (Six Months Ended April 30) | (in millions) | 2024 | 2023 | | :------------------------------------------ | :--- | :--- | | Net cash provided by operating activities | $92.0 | $243.7 | | Net cash used in investing activities | $(662.6) | $(451.0) | | Net cash provided by (used in) financing activities | $584.9 | $215.6 | | Net increase (decrease) in cash and cash equivalents | $15.1 | $11.4 | - Acquisitions of companies (net of cash acquired) resulted in cash outflows of $567.6 million for both the three and six months ended April 30, 2024[30] Financial Highlights by Segment (Detailed Tables) Financial Highlights by Segment This section provides detailed financial highlights by business segment, including net sales, gross profit, operating profit, EBITDA, and adjusted EBITDA for Global Industrial Packaging, Paper Packaging & Services, and Land Management for the three and six months ended April 30, 2024, and 2023 Segment Net Sales (Three Months Ended April 30) | (in millions) | 2024 | 2023 | | :-------------------------- | :--- | :--- | | Global Industrial Packaging | $804.8 | $748.2 | | Paper Packaging & Services | 560.8 | 554.8 | | Land Management | 5.4 | 5.9 | | Total net sales | $1,371.0 | $1,308.9 | Segment Operating Profit (Three Months Ended April 30) | (in millions) | 2024 | 2023 | | :-------------------------- | :--- | :--- | | Global Industrial Packaging | $83.4 | $111.3 | | Paper Packaging & Services | 12.6 | $67.6 | | Land Management | 2.1 | $2.2 | | Total operating profit | $98.1 | $181.1 | Segment Adjusted EBITDA (Three Months Ended April 30) | (in millions) | 2024 | 2023 | | :-------------------------- | :--- | :--- | | Global Industrial Packaging | $118.3 | $121.2 | | Paper Packaging & Services | 49.0 | $104.9 | | Land Management | 2.6 | $2.5 | | Total adjusted EBITDA | $169.9 | $228.6 | GAAP to Non-GAAP Reconciliation Consolidated Adjusted EBITDA Reconciliation This section provides a reconciliation of consolidated adjusted EBITDA to net income, detailing interest expense, income taxes, depreciation, amortization, and various adjustments like acquisition and integration costs or restructuring charges Consolidated Adjusted EBITDA Reconciliation (Three Months Ended April 30) | (in millions) | 2024 | 2023 | | :------------------------------------------ | :--- | :--- | | Net income | $52.0 | $116.0 | | Plus: Interest expense, net | 30.2 | 23.4 | | Plus: Income tax (benefit) expense | 17.0 | 39.1 | | Plus: Depreciation, depletion and amortization expense | 65.9 | 56.6 | | EBITDA | $165.1 | $235.1 | | Plus: Acquisition and integration related costs | 11.5 | 4.6 | | Plus: Restructuring charges | (6.8) | 2.4 | | Plus: Non-cash asset impairment charges | 0.4 | 1.3 | | Plus: (Gain) loss on disposal of properties, plants and equipment, net | (0.3) | (5.0) | | Plus: (Gain) loss on disposal of businesses, net | — | (9.8) | | Adjusted EBITDA | $169.9 | $228.6 | Segment Adjusted EBITDA Reconciliation This section provides a reconciliation of adjusted EBITDA to operating profit for each business segment (Global Industrial Packaging, Paper Packaging & Services), detailing depreciation, amortization, and various adjustment items Global Industrial Packaging Adjusted EBITDA Reconciliation (Three Months Ended April 30) | (in millions) | 2024 | 2023 | | :------------------------------------------ | :--- | :--- | | Operating profit | $83.4 | $111.3 | | Plus: Depreciation and amortization expense | 31.1 | 23.2 | | EBITDA | $115.2 | $131.5 | | Plus: Acquisition and integration related costs | 11.5 | 2.5 | | Plus: Restructuring charges | (8.6) | 0.8 | | Adjusted EBITDA | $118.3 | $121.2 | Paper Packaging & Services Adjusted EBITDA Reconciliation (Three Months Ended April 30) | (in millions) | 2024 | 2023 | | :------------------------------------------ | :--- | :--- | | Operating profit | $12.6 | $67.6 | | Plus: Depreciation and amortization expense | 34.1 | 32.8 | | EBITDA | $47.1 | $100.8 | | Plus: Restructuring charges | 1.8 | 1.6 | | Adjusted EBITDA | $49.0 | $104.9 | Adjusted Free Cash Flow Reconciliation This section provides a reconciliation of adjusted free cash flow to net cash provided by operating activities, including capital expenditures, acquisition and integration-related costs, and other adjustments Adjusted Free Cash Flow Reconciliation (Three Months Ended April 30) | (in millions) | 2024 | 2023 | | :------------------------------------------ | :--- | :--- | | Net cash provided by operating activities | $87.5 | $210.8 | | Cash paid for purchases of properties, plants and equipment | (41.0) | (41.8) | | Free cash flow | $46.5 | $169.0 | | Cash paid for acquisition and integration related costs | 11.5 | 4.6 | | Cash paid for integration related ERP systems and equipment | 0.6 | 1.0 | | Cash paid for taxes related to Tama, Iowa mill divestment | — | 10.9 | | Cash paid for fiscal year-end change costs | 0.4 | — | | Adjusted free cash flow | $59.0 | $185.5 | Net Income, Class A Earnings Per Share and Tax Rate Before Adjustments Reconciliation This section provides a reconciliation of net income, Class A earnings per share, and tax rate before and after various adjustments, such as acquisition and integration costs or restructuring charges Net Income, Class A Earnings Per Share and Tax Rate Before Adjustments (Three Months Ended April 30, 2024) | (in millions, except per share amounts) | Reported | Adjustments | Excluding Adjustments | | :-------------------------------------- | :------- | :---------- | :-------------------- | | Net income attributable to Greif, Inc. | $44.4 | +$3.5 | $47.9 | | Diluted Class A Earnings Per Share | $0.77 | +$0.05 | $0.82 | | Tax Rate | 24.9% | | 25.0% | Net Income, Class A Earnings Per Share and Tax Rate Before Adjustments (Three Months Ended April 30, 2023) | (in millions, except per share amounts) | Reported | Adjustments | Excluding Adjustments | | :-------------------------------------- | :------- | :---------- | :-------------------- | | Net income attributable to Greif, Inc. | $111.2 | -$7.4 | $103.8 | | Diluted Class A Earnings Per Share | $1.90 | -$0.13 | $1.77 | | Tax Rate | 25.3% | | 27.0% | Net Debt Reconciliation This section provides a reconciliation of net debt, calculated as total debt minus cash and cash equivalents Net Debt Reconciliation (As of April 30, 2024) | (in millions) | April 30, 2024 | January 31, 2024 | April 30, 2023 | | :------------------------ | :------------- | :--------------- | :------------- | | Total debt | $2,916.1 | $2,291.8 | $2,289.2 | | Less: Cash and cash equivalents | (196.0) | (179.3) | (158.5) | | Net debt | $2,720.1 | $2,112.5 | $2,130.7 | Leverage Ratio Reconciliation This section provides the calculation and reconciliation of the leverage ratio, defined as net debt divided by credit agreement EBITDA for the trailing twelve months Leverage Ratio Calculation (Trailing Twelve Months Ended April 30, 2024) | (in millions) | Ended 4/30/2024 | Ended 1/31/2024 | Ended 4/30/2023 | | :------------------------------------------ | :-------------- | :-------------- | :-------------- | | Credit agreement EBITDA | $761.8 | $787.3 | $881.8 | | Adjusted net debt | $2,623.1 | $1,989.9 | $1,985.0 | | Leverage ratio | 3.44x | 2.53x | 2.25x | Projected Fiscal Year 2024 Guidance Reconciliation Projected Fiscal Year 2024 Adjusted Free Cash Flow Guidance Reconciliation This section provides a reconciliation of the FY2024 adjusted free cash flow outlook to net cash provided by operating activities, detailing adjustments for capital expenditures and acquisition/integration-related costs Fiscal Year 2024 Outlook Reconciliation - Adjusted Free Cash Flow | (in millions) | Scenario 1 | Scenario 2 | | :------------------------------------------ | :--------- | :--------- | | Net cash provided by operating activities | $322.0 | $388.0 | | Cash paid for purchases of properties, plants and equipment | (178.0) | (200.0) | | Free cash flow | $144.0 | $188.0 | | Cash paid for acquisition and integration related costs | 26.8 | 30.8 | | Cash paid for integration related ERP systems and equipment | 3.0 | 5.0 | | Cash paid for fiscal year-end change costs | 1.2 | 1.2 | | Adjusted free cash flow | $175.0 | $225.0 |