Why Is Greif (GEF) Down 8.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Greif (GEF). Shares have lost about 8.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Greif due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Greif Tops Q2 Earnings Estimates, Scraps FY20 Guidance
    
Greif reported adjusted earnings per share of 95 cents for second-quarter fiscal 2020, beating the Zacks Consensus Estimate of 81 cents. The bottom-line figure also increased 17.3% year on year.

Including one-time items, earnings per share declined to 19 cents per share from the year-ago quarter’s 23 cents per share.

Operational Update

Sales were down 4.5% year over year to $1,158 million. The top line was hurt by the dismal volume of primary products sold, product mix and unfavorable currency-translation impact. In addition, the reported figure lagged the Zacks Consensus Estimate of $1,188 million.

Cost of sales went down 4.8% year over year to $918 million. Gross profit came in at $241 million, suggesting a 3.2% decline from the prior-year quarter. Gross margin came in at 20.8% compared with the year-ago quarter’s 20.5%.

Selling, general and administrative (SG&A) expenses slid 13.6% year over year to $121 million. Operating profit fell 20.8% year over year to $72 million. Operating margin was 6.2% in the reported quarter compared with the 7.5% recorded in the year-earlier period. Adjusted EBITDA climbed 12% year over year to $181.3 million in the fiscal second quarter.

Segmental Performance

Sales in the Rigid Industrial Packaging & Services declined 4.5% year over year to roughly $603 million. The segment’s adjusted EBITDA increased to $92 million from the year-ago quarter’s $69 million.

The Paper Packaging segment sales fell 3.2%, year over year, to $482 million in the fiscal second quarter on lower published containerboard and boxboard prices as well as the divestment of the Consumer Packaging Business. These were offset by the company’s 11-day additional ownership period of Caraustar in the fiscal second quarter. The company took 24,000 tons of containerboard economic downtime during this period. The segment’s adjusted EBITDA dropped to $79 million from the $82 million reported in the comparable period last year.

Sales in the Flexible Products & Services segment declined 11.7% year over year to $68 million. The segment reported adjusted EBITDA of $7 million compared with the $8 million recorded in the year-earlier quarter.

The Land Management segment’s sales came in at $6.7 million, slightly down from the year-ago quarter’s $7.1 million. Adjusted EBITDA came in at $3.1 million compared with the prior-year quarter’s $3.3 million.

Financials

Greif reported cash and cash equivalents of $72.4 million as of Apr 30, 2020, compared with the $77.3 million as of Oct 31, 2019. Cash flow from operating activities came in at $99.8 million in the reported quarter compared with the $62.2 million witnessed in the prior-year quarter. Long-term debt came in at $2,595 million as of Apr 30, 2020 compared with the $2,659 million as of Oct 31, 2019. The company had availability of $690.3 million borrowing capacity under its revolving credit facility of $800 million.

On Jun 2, Greif’s board of directors announced a quarterly cash dividend of 44 cents per share of Class A Common Stock and 66 cents per share of Class B Common Stock. The dividend payout will be made on Jul 1, to stockholders of record at the close of business on Jun 18, 2020.

Strategic Actions

Greif divested the Consumer Packaging Business to Graphic Packaging Holding Company for cash proceeds of $85 million in the fiscal second quarter. The company has permanently closed Mobile, Alabama Uncoated Recycled Board Mill (URB) to support its commitment in a bid to optimize the URB mill network. Moreover, Greif registered record intermediate bulk container (IBC) volume during the quarter and acquired a minority stake in Centurion Container LLC to further expand its IBC reconditioning network in North America.

Outlook

Greif has withdrawn the adjusted earnings and free cash flow guidance for fiscal 2020 due to end-market uncertainty due to concerns over the duration and impact of the coronavirus pandemic on its business for the remainder of the fiscal year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -14.62% due to these changes.

VGM Scores

At this time, Greif has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Greif has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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