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Category: Stock Market and Greif Inc
Date: 28 August 2019 Stock Price: $32.34 We take a look at the 3rd quarter earnings report of the 2019 fiscal year of industrial packaging group, Greif. The group produces steel, plastic and fibre drums.
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About Greif
Greif, Inc. (NYSE: GEF, GEF.B) 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 and fibre drums, intermediate bulk containers, reconditioned containers, flexible products, containerboard, uncoated recycled paperboard, coated recycled paperboard, tubes and cores and a diverse mix of specialty products. The company also manufactures packaging accessories and provides filling, packaging and other services for a wide range of industries. Greif also manages timber properties in the southeastern United States. The company is strategically positioned with 290 operating locations in 43 countries to serve global as well as regional customers.
Financial overview of Greif's latest earnings report
Numbers we are interested in: (for the quarter):
- Net sales: $1.252.6 billion (up from $1.012.1 billion for the same quarter of the previous year)
- Gross profit: $279.4million (up from $217.1 million for the same quarter of the previous year)
- Gross profit margin: 22,3% (up from 21.7% for the same quarter of the previous year)
- Operating profit: $125.6million (up from $114.0 million for the same quarter of the previous year)
- Net income attributable to Greif, Inc.: $62.7million (down from $67.7 million for the same quarter of the previous year)
- Class A common stock in issue: 26.3 million (up from 25.9 million for the same quarter of the previous year)
- Earnings per Class A common stock: $1.06 ($1.15 for the same quarter of the previous year)
- Cash and cash equivalents: $75.8million (down from $94.2 million for the same quarter of the previous year)
- Cash and equivalents per share: $2.88
- Cash and equivalents per share makes up 8.9% of the group's current stock price
- Trade accounts receivable: $720.3 million (up from $456.7 million for the same quarter of the previous year)
- Trade accounts receivable makes up 12.9% of the group's total assets (we see anything above 20% as worrying)
- Trade accounts receivables grew by 57.7% over the course of the last year
- Is the group's customers struggling to pay the money owed to Greif? It certainly looks like it considering the strong increase in receivables
- Inventories: $413.5million (up from $289.5 million for the same quarter of the previous year)
- Inventories makes up 7.4% of the group's total assets
- Inventories grew by 42.8% over the course of the last year
- Ballooning inventories could point to the group struggling
- Net cash provided by operating activities: $141.5million ($51.3 million for the same quarter of the previous year)
- Net cash provided by operating activities per share: $5.38 a share
- Dividend declared for the quarter: $0.44
- Dividend yield:5.5% (assuming the dividend paid this quarter is paid for each quarter of the fiscal year)
- Total Greif, Inc. equity: $1.120.6 billion
- Greif, Inc equity per share: $47.48 a share
Greif's management commentary on the results and earnings guidance
DELAWARE, Ohio, Aug. 28, 2019 /PRNewswire/ -- Greif, Inc. (NYSE: GEF, GEF.B), a world leader in industrial packaging products and services, today announced third quarter 2019 results.
"Greif produced solid third quarter 2019 results despite ongoing market softness and a weakening industrial economy," said Pete Watson, Greif's President and Chief Executive Officer. "Third quarter adjusted EBITDA rose by roughly 39.0 percent versus the prior year quarter, while Class A earnings per share, excluding the impact of adjustments, increased by 5.0 percent."
"Our newly acquired Caraustar operations performed better than our original assumptions. However, we faced weaker market demand in our containerboard operations and in certain segments of our Rigid Industrial Packaging business. In light of external headwinds, we are implementing additional optimization measures in parts of our portfolio to lower costs and better navigate challenging market conditions. We remain laser focused on those areas within our control to more profitability serve our customers. I remain highly confident in our long term plan to drive more sustainable free cash flow, delever our balance sheet, and grow our profits."
On August 27, 2019, the Board of Directors declared quarterly cash dividends of $0.44 per share of Class A Common Stock and $0.66 per share of Class B Common Stock. Dividends are payable on October 1, 2019, to stockholders of record at the close of business on September 17, 2019.
Company Outlook
"Greif produced solid third quarter 2019 results despite ongoing market softness and a weakening industrial economy," said Pete Watson, Greif's President and Chief Executive Officer. "Third quarter adjusted EBITDA rose by roughly 39.0 percent versus the prior year quarter, while Class A earnings per share, excluding the impact of adjustments, increased by 5.0 percent."
"Our newly acquired Caraustar operations performed better than our original assumptions. However, we faced weaker market demand in our containerboard operations and in certain segments of our Rigid Industrial Packaging business. In light of external headwinds, we are implementing additional optimization measures in parts of our portfolio to lower costs and better navigate challenging market conditions. We remain laser focused on those areas within our control to more profitability serve our customers. I remain highly confident in our long term plan to drive more sustainable free cash flow, delever our balance sheet, and grow our profits."
On August 27, 2019, the Board of Directors declared quarterly cash dividends of $0.44 per share of Class A Common Stock and $0.66 per share of Class B Common Stock. Dividends are payable on October 1, 2019, to stockholders of record at the close of business on September 17, 2019.
Company Outlook
- Class A earnings per share before special items: $3.70 - $4.00
- Adjusted free cash flow: $230 - $250
Greif Inc Class A (NYSE: GEF) stock price history
The image below show Greif's stock price over the last 5 years. And while there were sustained periods of upwards momentum all the way towards the end of 2018, since then the group's stock price has declined close to levels last seen towards the end of 2015 and early 2016. At the end of 2015 it was trading at around $29 a share. Right now its trading at levels of $32.24 a share. So over the long term the group has provided little capital gains for investors. But over shorter period there has certainly been opportunities to benefit from Greif stock price movements.
Greif (NYSE: GEF) latest stock valuation
So based on the group's current earnings released and the earnings guidance provided what do we value Greif's stock at? Firstly we are a little concerned about the strong growth in their inventories and the trade receivables. We do believe that it is pointing to trouble for the group's future earnings considering the fact that money owed to the group (trade receivables) grew by almost 58% of the last year, this while the value of their inventory holdings grew by 42.8% over the last year.
But on the flip side the group has a strong balance sheet, strong cash generation and the fact that the equity per share is sitting at levels well above its current stock price it is not all bad news for the group. All things considered our valuation model values Greif stock at $61.70 a share. Our target price of $61.70 per Greif stock does not take into account the impact or potential impact the trade war between the USA and China will have on the group's earnings. It is currently trading at levels well below our target price and we believe it offers fundamental long term investors a good entry point into the stock
But on the flip side the group has a strong balance sheet, strong cash generation and the fact that the equity per share is sitting at levels well above its current stock price it is not all bad news for the group. All things considered our valuation model values Greif stock at $61.70 a share. Our target price of $61.70 per Greif stock does not take into account the impact or potential impact the trade war between the USA and China will have on the group's earnings. It is currently trading at levels well below our target price and we believe it offers fundamental long term investors a good entry point into the stock