Greif(US:GEF)2020-12-10 18:59Financial Data and Key Metrics Changes - Fourth quarter net sales, excluding foreign exchange impact, fell by approximately 6% year-over-year due to demand softness in Rigid Industrial Packaging & Services (RIPS), divestiture of the Consumer Packaging Group, and lower containerboard and boxboard pricing [26] - Fourth quarter adjusted EBITDA decreased by roughly 17% compared to the prior year quarter primarily due to lower sales and a significant price cost squeeze in the paper business [27] - Adjusted Class A earnings per share for the fourth quarter fell to $0.78 from $1.24 in the prior year quarter, while fiscal year 2020 adjusted Class A earnings per share were $3.22, slightly above the guidance range provided in the third quarter [29][30] Business Segment Data and Key Metrics Changes - RIPS business saw global steel drum volumes decline by about 1% year-over-year, but on a per day basis, volumes rose by 1% [13][14] - Flexible Products & Services segment's fourth quarter sales were roughly flat year-over-year on a currency neutral basis, with adjusted EBITDA rising by $3 million due to higher gross profit [19] - Paper Packaging's fourth quarter sales fell by approximately $33 million year-over-year due to lower containerboard and boxboard prices, with adjusted EBITDA decreasing by about $31 million [20][21] Market Data and Key Metrics Changes - Demand for steel drums was strongest in China, with volumes rising by approximately 21%, while U.S. steel drum volumes fell nearly 12% due to weak demand for bulk and specialty chemicals [14][15] - The Americas region experienced the weakest conditions, contrasting with stronger demand in other global markets [15][62] - Food demand was lower year-over-year due to unfavorable harvesting conditions in southern Europe [18] Company Strategy and Development Direction - The company is focused on customer service excellence, operational execution, and safety, with improvements in Customer Satisfaction Index scores and Net Promoter Score [9] - Integration of Caraustar is on track, with approximately $63 million in identified synergies captured since the acquisition announcement, expecting at least $70 million in synergies over 36 months [10] - The company aims to maintain strong sustainability practices and was recognized for sustainability leadership with a gold rating from EcoVadis [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the improving demand environment as the world emerges from the COVID-19 pandemic, positioning the company well for future growth [47] - The company anticipates challenges in the first quarter due to seasonality and COVID-related uncertainties, but expects to benefit from industrial recovery in fiscal 2021 [33][79] - Management highlighted the importance of managing working capital and inventory levels tightly in response to current market conditions [78] Other Important Information - The company expects higher year-over-year freight costs and insurance premiums, which will impact cost of goods sold and SG&A [35] - Anticipated capital investments for the first quarter are expected to be in the range of $30 million to $40 million [44] - The company has a strong balance sheet with approximately $538 million of available borrowing capacity [43] Q&A Session Summary Question: Can you talk about the year-end incentive accrual and the expected $8 million drag in the upcoming quarter? - Management explained that the year-end incentive adjustment was an $8 million item that impacted the fourth quarter due to strong cash performance and health management during COVID [50] - The $8 million drag is a year-over-year item related to intercompany profit that will not build back up due to improved working capital management [51] Question: Why continue to provide fiscal '22 guidance despite reducing it? - Management believes investors want to understand the company's potential post-COVID and expects economic recovery by late '21 or early '22 [55] Question: What is the outlook for the RIPS business in North America? - Management noted that the RIPS business faced challenges due to end-use segment declines and trade tariffs, impacting steel drum production [62] Question: Can you clarify the impact of the price cost squeeze in the paper business? - Management detailed that the price cost squeeze was significant, with various factors contributing to the year-over-year decline in the paper business [66] Question: What are the expectations for volumes in fiscal Q1? - Management forecasts 1% to 2% growth in RIPS steel drum volumes globally and high single-digit growth in IBCs, while paper business is expected to maintain high backlogs and operating capacities [79]