Greif(GEF) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Greif reported a record year in 2022, with strong EBITDA and earnings performance compared to a historically strong 2021 [10][32] - The final Q4 EPS was $1.83, resulting in a full year non-GAAP EPS of $7.87, which was $0.03 below the low end of the reaffirmed range [29][30] - Adjusted EBITDA for Q4 decreased by approximately $25 million year-over-year, with a notable decline in steel costs impacting profitability [22][20] Business Line Data and Key Metrics Changes - The Global Industrial Packaging (GIP) business faced headwinds with volumes falling across most geographies, particularly in EMEA due to energy inflation and the war in Ukraine [17][18] - Paper Packaging's fourth quarter sales rose by approximately $44 million year-over-year, driven by favorable price-cost dynamics despite volume erosion [23][25] - The GIP business experienced a year-over-year decline in adjusted EBITDA, while the Paper Packaging segment saw an increase in adjusted EBITDA despite declining demand [22][25] Market Data and Key Metrics Changes - North America experienced a sequential demand weakness, while Latin America showed strong performance with mid-single-digit growth [19] - APAC demand remained sporadic due to strict lockdowns in China, impacting supply chains and industrial production [18] - Steel prices in North America declined over 43% from June to November, negatively impacting profitability due to lagging price adjustments [20] Company Strategy and Development Direction - Greif's long-term strategic objectives include the "Build to Last" strategy, focusing on diversity, equity, and inclusion, as well as sustainability targets for 2030 [11][12] - The planned acquisition of Lee Container is aimed at expanding Greif's presence in less cyclical end markets and enhancing growth through organic and inorganic investments [15][16] - The company remains committed to disciplined capital allocation, including increasing dividends and pursuing acquisitions to enhance its portfolio [39][40] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in 2023 but expressed confidence in the team's ability to navigate market environments [10][43] - The guidance for fiscal 2023 anticipates adjusted EBITDA between $820 million and $906 million, reflecting a wider range due to macroeconomic uncertainties [37][38] - Management emphasized the importance of working capital management and the potential for further improvements in cash generation [82] Other Important Information - Greif's sustainability leadership was recognized with various awards, including an AA MSCI rating and a Gold EcoVadis rating [13] - The company plans to release its 2030 sustainability targets by the end of the calendar year [12] Q&A Session Summary Question: Dynamics of PPS and GIP segments for fiscal year '23 - Management indicated that GIP is expected to be weak in the first half of the year due to significant demand deterioration and steel cost decreases [49][50] Question: EBITDA bridge for '23 versus '22 - Management discussed various operational factors impacting EBITDA, including a potential decrease of $12 million to $98 million compared to the previous year [51][53] Question: Volume assumptions and pricing in PPS - Management refrained from providing specific pricing assumptions but indicated that the worst-case scenario for EBITDA is still above previous consensus estimates [58][59] Question: Impact of Lee Container acquisition - Management estimated a contribution of $25 to $30 million from Lee Container to EBITDA for the year, with expectations for future growth [68] Question: Volume trends and exit rates - Management noted that demand softness has continued into November but is stabilizing, with some destocking observed [72][73] Question: FX impact on guidance - Management estimated a headwind of $160 million to $170 million from currency for the upcoming year, factoring in hedging strategies [79] Question: Working capital improvements - Management believes there are further opportunities for working capital improvements, projecting a benefit of $50 million to $90 million in the coming year [83]