Greif, Inc.’s GEF shares soared 14.7% and closed at $32.93 yesterday after the company reported third-quarter fiscal 2015 (ended Jul 31, 2015) results. Adjusted earnings per share increased 3% year over year to 60 cents, beating the Zacks Consensus Estimate of 41 cents by a wide margin, a positive earnings surprise of 46.34%. On a reported basis, earnings per share in the quarter were 15 cents compared with 58 cents in the year-ago quarter.

Greif Inc. - Earnings Surprise | FindTheBest

Operational Update

Revenues declined 17% year over year to $930 million from $1,124 million in the year-ago quarter. The top line missed the Zacks Consensus Estimate of $961 million. Excluding the effect of divestitures and currency fluctuations, sales were 2.7% lower than the prior-year quarter.

Cost of sales decreased 16% year over year to $763 million. Gross profit also reduced 23% year over year to $167 million. Selling, general and administrative expenses (SG&A) decreased 25% year over year to $97 million. Adjusted operating profit declined 11% year over year to $79 million.

Segmental Performance

Rigid Industrial Packaging & Services: This segment reported sales of $669 million, down 19% from $828 million in the year-ago quarter. Excluding the impact of divestitures, net sales declined 14% to $668 million. Sales mainly declined due to negative foreign currency translation of 10.8% and price decreases of 3.7% due to the impact of reduced raw material costs. Adjusted operating income dipped 4% to $60 million from $63 million in the year-ago quarter.

Paper Packaging: Sales decreased 2% year over year to $177 million. Excluding the impact of divestitures, net sales were the same at $177 million in the third quarter of fiscal 2015 compared with $175.7 million in the prior-year quarter due to slightly higher volumes in Greif’s sheet business. The segment reported operating profit of $22 million, down 19% from the year-ago quarter. The decrease was primarily due to the planned shut-down of the Riverville facility for a longer period of time in the third quarter of 2015 compared with the third quarter of 2014, as well as lower margins in containerboard and sheet feeder operations due to pricing pressure from new market entrants.

Flexible Products & Services: Sales from this segment went down 26% year over year to $79 million. Excluding the impact of divestitures, net sales dropped 13.5% year over year to $79 million due to the negative impact of foreign currency translation, and decreased volumes, which was somewhat offset by an 11.1% increase in prices. The segment reported adjusted operating loss of $4.4 million, narrower than the prior-year operating loss of $4.6 million. The improvement was due to lower personnel, security and alternative supply costs compared to the prior-year period, as well as reductions in SG&A and production costs because of transformation efforts in the segment, partially offset by higher costs of the move to an in-house labor force, resulting from changes in the local regulatory environment.

Land Management: This segment’s sales decreased 39% year over year to $5.1 million due to lower timber sales.  Operating income was $1.5 million compared with $3.2 million in the prior-year quarter.

Financial Position

Greif ended the quarter with cash and cash equivalents of around $102 million as of Jul 31 2015, as against $85 million as of Oct 31, 2014. Cash used in operations during the third quarter of fiscal 2015 was $100 million versus $75 million in the prior-year quarter. Long-term debt was roughly $1.15 billion as of Jul 31, 2015, compared with $1.09 billion as of Oct 31, 2014.

Guidance

Greif expects fiscal 2015 revenues to be lower year over year due to persistent currency volatility, weak global manufacturing environment, continued deflationary raw material costs as well as a stronger dollar. However, Greif increased its adjusted earnings per share guidance for fiscal 2015 to the band of $1.85 to $1.95 from the previous range of $1.65 to $1.75 due to expected benefits from the execution of its transformation initiatives, including SG&A cost reduction actions.

In the fourth quarter, however, expected accrual of professional fees related to the SG&A reduction efforts and increased medical expense related to experience trends throughout the year will offset the benefits from these cost reduction actions.

Delaware, OH-based Greif makes and sells industrial packaging products, bulk containers, and containerboard and corrugated products worldwide. The company provides services such as blending, filling, packaging and recycling of industrial containers for a wide range of industries. Greif also manages timber properties in North America and offers land management consulting services.

Greif currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector include Sealed Air Corporation SEE, AptarGroup Inc. ATR and UFP Technologies, Inc. UFPT. While Sealed Air and AptarGroup sport a Zacks Rank #1 (Strong Buy), UFP Technologies carries a Zacks Rank #2 (Buy).

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