Greif Reports Second Quarter 2018 Results
DELAWARE, Ohio--(BUSINESS WIRE)--Jun 6, 2018--Greif, Inc. (NYSE: GEF, GEF.B), a world leader in industrial packaging products and services, today announced second quarter 2018 results.
Second Quarter Highlights include (all results compared to the second quarter of 2017 unless otherwise noted):Net sales increased by $80.9 million to $968.3 million. Gross profit increased by $13.4 million to $195.3 million, despite being adversely impacted by an increase in transportation costs of $7.0 million. Operating profit increased by $6.2 million to $87.7 million and operating profit before special items 1 increased by $7.7 million to $92.6 million. Net income of $45.1 million or $0.77 per diluted Class A share increased compared to net income of $36.0 million or $0.61 per diluted Class A share. Net income, excluding the impact of special items, of $44.7 million or $0.76 per diluted Class A share increased compared to net income, excluding the impact of special items, of $39.3 million or $0.67 per diluted Class A share. Cash provided by operating activities decreased by $1.4 million to $58.2 million. Free cash flow 2 decreased by $11.3 million to $29.9 million.
“Greif delivered solid second quarter results,” said Greif’s President and Chief Executive Officer, Pete Watson. “Sales, operating profit before special items and earnings each increased versus the prior year quarter, with particularly strong performance seen in our Paper Packaging and Flexible Products segments relative to the prior year quarter. Our Rigid Packaging segment was impacted by customer operational interruptions, weather issues and rising raw material costs. We continue to pass raw material costs along via price adjustment mechanisms and expect an improved second half performance from this segment. Looking ahead, the performance and outlook for our diversified product portfolio leads us to increase our Fiscal 2018 Class A EPS before special items guidance range to $3.45 - $3.70 per share from $3.25 - $3.55 previously.”
Note: A reconciliation of the differences between all non-GAAP financial measures used in this release with the most directly comparable GAAP financial measures is included in the financial schedules that are a part of this release. These non-GAAP financial measures are intended to supplement and should be read together with our financial results. They should not be considered an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of this financial information should not place undue reliance on these non-GAAP financial measures.
The Company’s consolidated CSI 3 score for the second quarter of 2018 improved to 87.2, with the largest improvement recorded in FPS, which generated a 27 percent improvement versus the prior year quarter. Our expectation is that each business segment delivers a CSI score at 95 or better.
We finalized our sixth NPS 4 survey during the second quarter of 2018 and received a consolidated Greif score of 46, which was down slightly compared to the previous survey result. Our aspiration is to achieve a score of 55 over time. We continue to leverage the increased customer interactions that accompany each survey as they lead to additional actions with our customers and ultimately better strategic insight into their businesses.
Segment Results (all results compared to the second quarter of 2017 unless otherwise noted)
Net sales are impacted mainly by the volume of primary products 5 sold, selling prices, product mix and the impact of changes in foreign currencies against the U.S. Dollar. The table below shows the percentage impact of each of these items on net sales for our primary products for the second quarter of 2018 as compared to the prior year quarter for the business segments with manufacturing operations:
Rigid Industrial Packaging & Services
Net sales increased by $38.4 million to $662.7 million. Net sales excluding foreign currency translation increased by $5.8 million due primarily to a 4.5 percent increase in selling prices on our primary products as a result of strategic pricing decisions and increases in index prices, partially offset by customer operational interruptions, weather and our value over volume decisions.
Gross profit decreased by $9.0 million to $124.9 million. The decrease in gross profit was primarily due to the continuation of rising raw material costs, the timing of contractual pass through arrangements and an increase in manufacturing and transportation costs.
Operating profit decreased by $8.9 million to $47.2 million. Operating profit before special items decreased by $7.8 million to $52.5 million, due primarily to the same factors that impacted gross profit, partially offset by a decrease in the segment’s selling, general & administrative (“SG&A”) expense.
Paper Packaging & Services
Net sales increased by $25.2 million to $213.9 million. The increase was due to higher selling prices due to increases in published containerboard pricing and higher volumes.
Gross profit increased by $17.0 million to $49.9 million. The increase in gross profit was primarily due to higher containerboard prices and lower old corrugated container input costs, partially offset by an increase in transportation costs.
Operating profit increased by $12.7 million to $33.0 million. Operating profit before special items increased by $12.4 million to $33.0 million due to the same factors that impacted gross profit, partially offset by an increase in the segment’s SG&A expense.
Flexible Products & Services
Net sales increased by $17.5 million to $84.1 million. Net sales excluding foreign currency translation increased by $9.2 million due to strategic pricing decisions, product mix and higher volumes.
Gross profit increased by $5.3 million to $17.6 million due primarily due to the same factors that impacted net sales in addition to improved transportation and manufacturing efficiencies.
Operating profit increased by $3.2 million to $5.0 million. Operating profit before special items increased by $2.9 million to $5.0 million. The improvement in operating profit before special items was due primarily to the same factors that impacted gross profit, partially offset by an increase in the segment’s SG&A expense.
Net sales decreased by $0.2 million to $7.6 million.
Operating profit decreased by $0.8 million to $2.5 million. Operating profit before special items increased by $0.2 million to $2.1 million.
On June 5, 2018, the Board of Directors declared quarterly cash dividends of $0.42 per share of Class A Common Stock and $0.63 per share of Class B Common Stock. Dividends are payable on July 1, 2018, to stockholders of record at the close of business on June 18, 2018.
Our second quarter tax rate was 29.2 percent. Our second quarter tax rate excluding the impact of special items was 34.2 percent, which was above our previously reported fiscal 2018 guidance range of 28 - 32 percent, due to additional reserves for uncertain tax positions and out of period adjustments that added approximately $3.0 million to our second quarter tax expense.
We expect our full year tax rate excluding the impact of special items to range between 28 - 32 percent, as we expect the discrete expenses that impacted our second quarter results to be offset by tax benefits booked ratably later in this fiscal year. We also continue to assess our provisional estimate for the Tax Cuts and Jobs Act. During the second quarter, we booked a $4.3 million increase to the provisional net tax benefit that was recorded during our first quarter and that was also treated as a special item. Looking ahead, there will likely be refinements to our provisional estimate which would be booked later this fiscal year.
Note: 2018 Class A earnings per share and tax rate guidance are not provided in this release due to the potential for one or more of the following, the timing and magnitude of which we are unable to reliably forecast: gains or losses on the disposal of businesses, timberland or properties, plants and equipment, net, non-cash asset impairment charges due to unanticipated changes in the business, restructuring-related activities, non-cash pension settlement charges or acquisition costs, and the income tax effects of these items and other income tax-related events. No reconciliation of the fiscal year 2018 Class A earnings per share before special items guidance or tax rate excluding the impact of special items guidance, both non-GAAP financial measures which exclude gains and losses on the disposal of businesses, timberland and properties, plants and equipment, non-cash pension settlement charges, acquisition costs, restructuring and impairment charges and provisional tax net benefits resulting from the Tax Reform Act is included in this release because, due to the high variability and difficulty in making accurate forecasts and projections of some of the excluded information, together with some of the excluded information not being ascertainable or accessible, we are unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measure without unreasonable efforts. A reconciliation of 2018 free cash flow guidance to forecasted net cash provided by operating activities, the most directly comparable GAAP financial measure, is included in this release.
The Company will host a conference call to discuss the second quarter of 2018 results on June 7, 2018, at 8:30 a.m. Eastern Time (ET). To participate, domestic callers should call 833-231-8265. The Greif ID is 9545489. The number for international callers is +1-647-689-4110. Phone lines will open at 8:00 a.m. ET. The conference call will also be available through a live webcast, including slides, which can be accessed at http://investor.greif.com by clicking on the Events and Presentations tab and searching under the events calendar. A replay of the conference call will be available on the Company’s website approximately two hours following the call.
Greif is a global leader in industrial packaging products and services and is pursuing its vision to become the world’s best performing customer service company in industrial packaging. The Company produces steel, plastic, fibre, flexible, corrugated, and reconditioned containers, intermediate bulk containers, containerboard and packaging accessories, and provides filling, packaging and industrial packaging reconditioning services for a wide range of industries. Greif also manages timber properties in the southeastern United States. The Company is strategically positioned with production facilities in over 40 countries to serve global as well as regional customers. Additional information is on the Company’s website at www.greif.com.
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “aspiration,” “objective,” “project,” “believe,” “continue,” “on track” or “target” or the negative thereof and similar expressions, among others, identify forward-looking statements. All forward-looking statements are based on assumptions, expectations and other information currently available to management. Such forward-looking statements are subject to certain risks and uncertainties that could cause the Company’s actual results to differ materially from those forecasted, projected or anticipated, whether expressed or implied. The most significant of these risks and uncertainties are described in Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017. The Company undertakes no obligation to update or revise any forward-looking statements.
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