Packaging

Greif Reports Record First Quarter Revenue

Thursday 03. March 2011 - Greif, Inc. (NYSE: GEF, GEF.B), a global leader in industrial packaging products and services, today announced results for its first fiscal quarter, which ended Jan. 31, 2011.

The company reported record first quarter net sales of $943.8 million, first quarter net income of $41.4 million, or $0.71 per diluted Class A share, and first quarter net income before special items(1) of $50.1 million, or $0.86 per diluted Class A share.
(Dollars in millions, except per share amounts)
Quarter ended Quarter ended
Jan. 31, 2011 Jan. 31, 2010
————- ————-
Net sales $943.8 $709.7
Selling general and administrative expense 106.5 82.4
Operating profit 68.7 50.7
Operating profit before special items(1) 80.2 66.7
Net income 41.4 24.8
Net income before special items(1) 50.1 37.6
Diluted Class A earnings per share 0.71 0.43
Diluted Class A earnings per share before
special items(1) 0.86 0.65

Jan. 31, 2011 Jan. 31, 2010
Working capital $499.3 $378.6
Net working capital(1) 381.6 289.2
Long-term debt 1,065.6 879.4
Net debt(1) 1,048.0 852.2
(1) Non-GAAP financial measures – (a) Special items are as follows:
(i) for the first quarter of 2011, restructuring charges of $3.0
million ($2.3 million net of tax) and acquisition-related costs of
$8.5 million ($6.4 million net of tax); (ii) for the fourth quarter of
2010, restructuring charges of $6.2 million ($5.7 million net of tax)
and acquisition-related costs of $7.1 million ($6.5 million net of
tax); and (iii) for the first quarter of 2010, restructuring charges
of $5.9 million ($4.8 million net of tax) and acquisition-related
costs of $10.1 million ($8.0 million net of tax). (b) Net working
capital represents working capital (current assets less current
liabilities) less cash and cash equivalents. (c) Net debt represents
long-term debt plus the current portion of long-term debt plus
short-term borrowings less cash and cash equivalents. 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.
Michael J. Gasser, chairman and chief executive officer, said, “Our strong first quarter operating results were driven by improved sales volumes, which benefited from the continuing global economic recovery in our rigid industrial packaging business, improved fundamentals in our paper packaging business, last year’s acquisitions, and disciplined execution of the Greif Business System. Cost pass-through mechanisms in our sales contracts helped to mitigate the impact of inflation in raw materials. During the first quarter, we continued to focus on integrating the businesses we acquired during 2010, including rapidly implementing the Greif Business System.”
Consolidated Results
Net sales were $943.8 million for the first quarter of 2011 compared with $709.7 million for the first quarter of 2010. The 33 percent increase was due to higher sales volumes (25 percent or 7 percent excluding acquisitions) and higher selling prices (9 percent) due to the pass-through of higher raw material costs, partially offset by foreign currency translation (1 percent). The higher sales volumes were primarily due to the Flexible Products & Services and Rigid Industrial Packaging & Services segments.
Gross profit increased to $176.1 million for the first quarter of 2011 compared with $137.7 million for the first quarter of 2010 due primarily to the higher sales volumes. Gross profit margin decreased to 18.7 percent from 19.4 percent for the first quarter of 2011 and 2010, respectively. This reduction was primarily due to a shift in product mix and higher raw material costs, especially steel and old corrugated containers, partially offset by the company’s cost pass-through mechanisms.
Selling, general and administrative (SG&A) expenses increased to $106.5 million for the first quarter of 2011 from $82.4 million for the first quarter of 2010. The $24.1 million increase was primarily due to $13.1 million of SG&A expenses from acquired companies and higher compensation expense due to performance-based incentive accruals. Acquisition-related costs of $8.5 million and $10.1 million were included in SG&A expenses for the first quarter of 2011 and 2010, respectively. SG&A expenses, as a percentage of net sales, were 11.3 percent for the first quarter of 2011 compared to 11.6 percent for the same quarter of last year.
Operating profit before special items was up 20 percent to $80.2 million for the first quarter of 2011 compared to $66.7 million for the first quarter of 2010. The $13.5 million increase was due to Paper Packaging, Flexible Products & Services and Land Management, partially offset by Rigid Industrial Packaging & Services. GAAP operating profit was $68.7 million and $50.7 million for the first quarter of 2011 and 2010, respectively.
Interest expense, net, was $16.8 million for the first quarter of 2011 compared to $14.9 million for the same period last year. The increase was primarily due to the higher level of debt resulting from the 2010 acquisitions.
The company’s book tax rate was 24.6 percent for the first quarter of 2011 compared to 20.2 percent for the first quarter of 2010. The increase was primarily due to a change in the global business mix and the alternative fuel tax credit recorded in fiscal 2010.
Net income before special items was $50.1 million for the first quarter of 2011 compared with $37.6 million for the first quarter of 2010. Diluted earnings per share before special items was $0.86 compared with $0.65 per Class A share and $1.28 compared with $0.96 per Class B share for the first quarter of 2011 and 2010, respectively. The company’s GAAP net income was $41.4 million, or $0.71 per diluted Class A share and $1.06 per diluted Class B share, and $24.8 million, or $0.43 per diluted Class A share and $0.63 per diluted Class B share, for the first quarter of 2011 and 2010, respectively.
Segment Results
Rigid Industrial Packaging & Services net sales were $653.9 million for the first quarter of 2011 compared with $564.8 million for the first quarter of 2010. The 16 percent increase in net sales was due to higher sales volumes (10 percent or 6 percent excluding acquisitions) and higher selling prices (7 percent) due to the pass-through of higher input costs, partially offset by foreign currency translation (1 percent). Operating profit before special items decreased to $49.8 million for the first quarter of 2011 from $57.4 million for the first quarter of 2010. The $7.6 million decrease was primarily due to the lag in the pass-through of higher steel costs in the first quarter of 2011 and higher performance-based incentive accruals, partially offset by higher sales volumes. GAAP operating profit was $46.1 million and $50.0 million for the first quarter of 2011 and 2010, respectively.
Flexible Products & Services net sales were $128.0 million for the first quarter of 2011 compared with $11.3 million for the first quarter of 2010. The increase was primarily due to the acquisitions of four flexible intermediate bulk container companies during fiscal 2010. Both periods include the company’s multiwall bag operations, which were previously included in the Paper Packaging segment and reclassified to conform to the current year’s presentation. Operating profit before special items increased to $8.5 million, primarily as a result of the 2010 acquisitions, for the first quarter of 2011 from $2.5 million for the first quarter of 2010 attributable to the multiwall bag operations. GAAP operating profit was $1.4 million for the first quarter of 2011 compared with a GAAP operating loss of $6.1 million for the first quarter of 2010. The GAAP results were impacted by acquisition-related costs of $7.0 million and $8.6 million for the first quarter of 2011 and 2010, respectively.
Paper Packaging net sales were $156.8 million for the first quarter of 2011 compared with $128.2 million for the first quarter of 2010. The 22 percent increase in net sales was due to higher sales volumes and higher selling prices for all of the segment’s products. In fiscal 2010, the company announced containerboard price increases of $50 per ton in January and $60 per ton in April, which were fully implemented. Operating profit before special items increased to $18.8 million for the first quarter of 2011 from $3.8 million for the first quarter of 2010. This increase was primarily due to higher sales, partially offset by higher raw material costs, especially for old corrugated containers. GAAP operating profit was $18.1 million and $3.8 million for the first quarter of 2011 and 2010, respectively.
Land Management net sales were $5.1 million and $5.4 million for the first quarter of 2011 and 2010, respectively. Operating profit was $3.1 million for the first quarter of 2011 compared to $3.0 million for the first quarter of 2010. Included in these amounts were profits from the sale of special use properties (surplus, higher and better use, and development properties) of $1.6 million for the first quarter of 2011 and $0.3 million for the first quarter of 2010.
Other Cash Flow Information
During the first quarter of 2011, the company’s net debt increased $195.8 million to $1,048.0 million at quarter-end primarily due to normal seasonal working capital increases, including raw material cost inflation, capital expenditures and typical year-end cash payments, such as performance-based incentives.
Capital expenditures were $40.5 million for the first quarter of 2011, excluding timberland purchases of $0.4 million, compared with capital expenditures of $33.7 million, excluding timberland purchases of $0.1 million, for the first quarter of 2010. Capital expenditures are expected to be approximately $140 million, excluding timberland purchases and acquisitions, for fiscal 2011.
On Feb. 28, 2011, 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. These dividends are payable on April 1, 2011 to stockholders of record at close of business on March 21, 2011.
Company Outlook
The company anticipates that sales volumes will gradually improve in 2011 compared to 2010 as the global economy continues to recover. Positive contributions are also expected to be realized from acquisitions and further cost-savings and productivity gains from the Greif Business System. Recent cost increases in key raw materials, especially cold rolled steel and high density polyethylene, are expected to be mitigated during 2011 primarily through contractual cost pass-through mechanisms. Selling, general and administrative expense, as previously disclosed, and the company’s book tax rate are anticipated to be higher this year compared to 2010. The company has adjusted its fiscal 2011 earnings guidance to $4.50-$4.75 per diluted Class A share to reflect the expected increase in the company’s book tax rate.