Business News

Greif, Inc. Reports Record Results for Fiscal 2008; Accelerates Greif Business System Initiatives

Friday 12. December 2008 - Net sales increased 14 percent (10 percent excluding the impact of foreign currency translation) to a record $3,777 million in fiscal 2008 from $3,322 million in fiscal 2007.

– Net income before special items, as defined below, increased 40 percent to $267 million ($4.54 per diluted Class A share) in fiscal 2008 compared to $190 million ($3.22 per diluted Class A share) in fiscal 2007. GAAP net income was $234 million ($3.99 per diluted Class A share) and $156 million ($2.65 per diluted Class A share) in fiscal 2008 and 2007, respectively.

Greif, Inc. (NYSE:GEF)(NYSE: GEF.B), a global leader in industrial packaging products and services, today announced results for its fiscal year ended Oct. 31, 2008, and specific plans to accelerate Greif Business System initiatives.

Michael J. Gasser, chairman and chief executive officer, said, “We are pleased with our record results for the fourth quarter and fiscal year, which benefited from the Greif Business System and our geographic and product diversity.

“With the economic downturn that began in our fourth quarter, we methodically and aggressively accelerated execution of the Greif Business System. As a result of our controlled response, we will remain well positioned to deal with the global economic challenges and fast-changing business environment.”

Special Items and GAAP to Non-GAAP Reconciliation

Special items are as follows: (i) for fiscal 2008, restructuring charges of $43 million ($33 million net of tax) and timberland disposals, net of $0.4 million gain ($0.3 million gain net of tax); (ii) for fiscal 2007, restructuring charges of $21 million ($16 million net of tax) and timberland disposals, net of $0.6 million loss ($0.5 million loss net of tax); (iii) for the fourth quarter of 2008, restructuring charges of $19 million ($14 million net of tax); and (iv) for the fourth quarter of 2007, restructuring charges of $9 million ($7 million net of tax) and timberland disposals, net of $0.4 million loss ($0.3 million loss net of tax). 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.

Consolidated Results

Fiscal 2008


Net sales increased 14 percent (10 percent excluding the impact of foreign currency translation) to $3,777 million in fiscal 2008 compared to $3,322 million in fiscal 2007. The $455 million increase was attributable to higher sales in all segments, which include Industrial Packaging ($408 million), Paper Packaging ($43 million) and Timber ($4 million). Strong organic sales growth for industrial packaging products and higher selling prices, principally in response to higher raw material costs, drove the 10 percent constant-currency increase.

Operating profit before special items increased 33 percent to a record $413 million in fiscal 2008 compared to $311 million in fiscal 2007. The $102 million increase was attributable to higher operating profit in Industrial Packaging ($86 million), Paper Packaging ($10 million) and Timber ($6 million). GAAP operating profit was $370 million and $290 million in fiscal 2008 and 2007, respectively.

Net income before special items increased 40 percent to $267 million in fiscal 2008 compared to $190 million in fiscal 2007. Diluted earnings per share before special items were $4.54 compared to $3.22 per Class A share and $6.89 compared to $4.91 per Class B share for fiscal 2008 and 2007, respectively. The Company had GAAP net income of $234 million, or $3.99 per diluted Class A share and $6.04 per diluted Class B share, in fiscal 2008 compared to GAAP net income of $156 million, or $2.65 per diluted Class A share and $4.04 per diluted Class B share, in fiscal 2007.

Operating profit before special items, GAAP operating profit, net income before special items and GAAP net income for fiscal 2008 included a one-time $30 million pre-tax gain ($21 million after-tax net gain or $0.35 per Class A share and $0.53 per Class B share) related to the divestiture of business units in Australia and Zimbabwe.

Fourth Quarter of 2008

Net sales increased 11 percent with no impact from foreign currency translation to $978 million in the fourth quarter of 2008 compared to $882 million in the fourth quarter of 2007. The $96 million increase was primarily attributable to higher sales in Industrial Packaging.

Operating profit before special items increased 16 percent to $112 million in the fourth quarter of 2008 compared to $97 million in the fourth quarter of 2007. The $15 million increase was attributable to higher operating profit in Industrial Packaging ($11 million) and Paper Packaging ($4 million). GAAP operating profit was $93 million and $87 million in the fourth quarter of 2008 and 2007, respectively.

Net income before special items increased 20 percent to $75 million in the fourth quarter of 2008 compared to $62 million in the fourth quarter of 2007. Diluted earnings per share before special items were $1.27 compared to $1.05 per Class A share and $1.93 compared to $1.60 per Class B share for the fourth quarter of 2008 and 2007, respectively. The Company had GAAP net income of $60 million, or $1.03 per diluted Class A share and $1.56 per diluted Class B share, in the fourth quarter of 2008 compared to GAAP net income of $55 million, or $0.93 per diluted Class A share and $1.42 per diluted Class B share, in the fourth quarter of 2007.

Business Group Results

Industrial Packaging net sales were up 15 percent (10 percent excluding the impact of foreign currency translation) to $3,061 million in fiscal 2008 from $2,654 million in fiscal 2007. Higher sales volumes across all regions, with particular strength in emerging markets, continued to drive the segment’s organic growth. Operating profit before special items rose to $315 million (including the one-time $30 million pre-tax gain on the disposition of business units noted above) in fiscal 2008 from $229 million in fiscal 2007. This increase was primarily due to improvement in sales volumes, higher selling prices and contributions from the Greif Business System, which were partially offset by higher input costs. GAAP operating profit was $281 million in fiscal 2008 compared to $213 million in fiscal 2007.

Paper Packaging net sales were $697 million in fiscal 2008 compared to $654 million in fiscal 2007. This increase was principally due to higher selling prices, including a containerboard increase implemented in the fourth quarter of 2007 and partial realization of an increase implemented in the fourth quarter of 2008. The remaining amount of that increase is expected to be realized in the first quarter of 2009. Operating profit before special items increased to $78 million in fiscal 2008 from $68 million in fiscal 2007. This increase was primarily due to higher selling prices from the containerboard increases noted above, partially offset by higher input costs, including energy ($11 million) and transportation ($3 million). GAAP operating profit was $68 million and $63 million in fiscal 2008 and 2007, respectively.

Timber net sales were $19 million and $15 million in fiscal 2008 and 2007, respectively. Operating profit before special items was $21 million in fiscal 2008 compared to $14 million in fiscal 2007. Included in these amounts were gains from asset disposals, net, from the sale of special use properties (surplus, higher and better use, and development properties) of $17 million in fiscal 2008 and $10 million in fiscal 2007. GAAP operating profit was $21 million and $14 million in fiscal 2008 and 2007, respectively.

Other Cash Flow Information

Capital expenditures were $143 million, excluding timberland purchases of $3 million, in fiscal 2008 compared to $113 million, excluding timberland purchases of $2 million, in fiscal 2007. During fiscal 2008, an increase in capital commitments supported the Company’s productivity improvements, acquisition integration and expansion. Depreciation expense was $93 million and $90 million for fiscal 2008 and 2007, respectively.

On Dec. 9, 2008, the Board of Directors declared quarterly cash dividends of $0.38 per share of Class A Common Stock and $0.56 per share of Class B Common Stock. These dividends are payable on Jan. 1, 2009, to stockholders of record at close of business on Dec. 22, 2008.

Company Outlook and Greif Business System Initiatives

During the fourth quarter of fiscal 2008, significant issues impacted global credit markets, key raw material costs declined sharply (some from record levels), and demand, especially in Industrial Packaging, quickly declined. The combined severity and speed with which these events occurred is unprecedented. Management is aggressively responding to the current challenging economic and business environment through the following targeted initiatives:

— Greif Business System (GBS) and Accelerated Initiatives

GBS has resulted in significant cost savings and efficiencies since it was launched in fiscal 2003. It is a comprehensive and integrated business system that identifies ongoing opportunities across the Company’s global footprint. Specifically, during fiscal 2009 approximately $50 million of additional savings are expected to be achieved through the Company’s Operational Excellence and Global Sourcing initiatives.

Accelerated GBS initiatives are being implemented in response to the current business environment. These initiatives include continuation of active portfolio management (e.g., 15 announced facility closings in fiscal 2008), further administrative excellence activities, a hiring and salary freeze, and curtailed discretionary spending. These actions are expected to result in an additional $50 million of savings during fiscal 2009.

The GBS and accelerated GBS initiatives are anticipated to result in a combined impact of approximately $100 million on operating profit during fiscal 2009.

— Working Capital Improvements

Working capital management is an integral part of GBS and is particularly important during periods of rapidly changing conditions. In order to minimize the Company’s working capital requirements and enhance cash flows, risk management strategies, including credit policies and tight inventory controls, continue to be a key focus throughout the Company. These actions, coupled with the expected reversal of higher raw material costs that increased working capital requirements during fiscal 2008, are expected to improve cash flows by at least $100 million in fiscal 2009.

— Capital Expenditure Reductions

As noted above, capital expenditures were $143 million in fiscal 2008. This increase over the prior year supported the Company’s productivity improvements, acquisition integration and expansion. For fiscal 2009, capital expenditures are expected to be in line with annual depreciation expense. This reduction in capital expenditures compared to fiscal 2008 is anticipated to contribute an additional $50 million to cash flows in fiscal 2009.

The Company anticipates the factors currently affecting the global business environment will continue throughout fiscal 2009. The Company anticipates an estimated adverse impact from foreign currency translation ($0.24 per Class A share) and higher effective tax rate due to a change in earnings mix ($0.24 per class A share) compared to fiscal 2008, which factors are also incorporated into the fiscal 2009 guidance.

The Company expects that earnings per Class A share, before special items, will be in the range of $3.25 to $3.75 per share for fiscal 2009.