Greif, Inc (GEF-B)

Greif, Inc. is a leading global producer of industrial packaging products and services with operations in over 35 countries. The company offers a comprehensive line of rigid industrial packaging products, such as steel, fibre and plastic drums, rigid intermediate bulk containers, jerrycans and other small plastics, closure systems, transit protection products, water bottles and remanufactured and reconditioned industrial containers, along with services such as container life cycle management, logistics, warehousing and other packaging services. Greif also produces and sells containerboard, corrugated sheets, corrugated containers and other corrugated products to customers in North America in industries such as packaging, automotive, food and building products, and produces and sells coated recycled paperboard and uncoated recycled paperboard, some of which are used to produce and sell industrial products (tubes and cores, construction products and protective packaging). The company produces and sells bulk and specialty partitions made from both containerboard and uncoated recycled paperboard, purchases and sells recycled fiber, and produces and sells adhesives used in its paperboard products. Greif sells timber to third parties from its timberland in the southeastern United States and also sells, from time to time, timberland and special use land. The markets in which Greif sells its products are highly competitive with many participants, and the industries are particularly sensitive to price fluctuations caused by shifts in industry capacity and other cyclical industry conditions. Other competitive factors include design, quality and service, with varying emphasis depending on product line.

Greif faces significant competitors in each of its businesses, including large vertically integrated companies as well as numerous smaller companies. In the global industrial packaging industry, Greif competes by offering a comprehensive line of products on a global basis. In the containerboard industry, the company competes by concentrating on providing value-added, higher-margin corrugated products to niche markets. In its other paper packaging businesses, Greif competes by offering a comprehensive range of uncoated and coated paperboard products and diverse tube, core, partitions and other specialty products. Over the past several years, Greif has closed higher cost facilities and otherwise restructured its operations, which it believes has significantly improved its cost competitiveness. The company's customers range from Fortune 500 companies to medium and small-sized companies in a cross section of industries, and due to the scope of its sales, no one customer is considered principal in its total operations.

Greif generates revenue through the manufacture and sale of a comprehensive line of rigid industrial packaging products, including steel, fibre and plastic drums, rigid intermediate bulk containers, jerrycans and other small plastics, closure systems, transit protection products, water bottles and remanufactured and reconditioned industrial containers, and services such as container life cycle management, logistics, warehousing and other packaging services. The company also generates revenue from the production and sale of containerboard, corrugated sheets, corrugated containers and other corrugated products, as well as coated recycled paperboard and uncoated recycled paperboard, some of which are used to produce and sell industrial products (tubes and cores, construction products and protective packaging). Additionally, Greif generates revenue from the sale of timber to third parties and, from time to time, the sale of timberland and special use land. The company's primary customer segments include industries such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agriculture, pharmaceutical, minerals, packaging, automotive, and building products. For the vast majority of revenues, contracts with customers are either a purchase order or the combination of a purchase order with a master supply agreement, and the company typically satisfies the performance obligation at a point in time when control is transferred to customers.

The Global Industrial Packaging reportable segment is a leading global producer of industrial packaging products, such as steel, fibre and plastic drums, rigid intermediate bulk containers, jerrycans and other small plastics, closure systems for industrial packaging products, transit protection products, water bottles and remanufactured and reconditioned industrial containers, and services, such as container life cycle management, logistics, warehousing and other packaging services. This segment sells its products on a global basis to customers in industries such as chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agriculture, pharmaceutical and minerals, among others. For fiscal year 2024, the Global Industrial Packaging segment reported net sales of $3,124.3 million ¹ and operating profit of $341.1 million ². The Paper Packaging & Services reportable segment produces and sells containerboard, corrugated sheets, corrugated containers and other corrugated products to customers in North America in industries such as packaging, automotive, food and building products. This segment also produces and sells coated recycled paperboard and uncoated recycled paperboard, some of which are used to produce and sell industrial products (tubes and cores, construction products and protective packaging), and produces and sells bulk and specialty partitions made from both containerboard and uncoated recycled board. For fiscal year 2024, the Paper Packaging & Services segment reported net sales of $2,303.5 million ³ and operating profit of $115.6 million ⁴. The Land Management reportable segment is focused on the active harvesting and regeneration of its United States timber properties to achieve sustainable long-term yields, and also sells, from time to time, timberland and special use land. As of October 31, 2024, this segment owned approximately 175,000 acres of timber properties in the southeastern United States ⁵. For fiscal year 2024, the Land Management segment reported net sales of $20.3 million ⁶ and operating profit of $7.9 million ⁷.

Beginning with the first fiscal quarter of 2025, Greif implemented changes to its reporting structure, moving to a material solution-based structure with four new reportable segments: Customized Polymer Solutions, which involves the production and sale of polymer based packaging products such as plastic drums, rigid intermediate bulk containers and small plastics; Durable Metal Solutions, which involves the production and sale of metal-based packaging products including a wide variety of steel drums; Sustainable Fiber Solutions, which involves the production and sale of fiber-based packaging products including fiber drums, containerboard, corrugated sheets, corrugated containers, tubes and cores and specialty partitions, as well as the management and sale of timber, timberland and special use properties in the southeastern United States; and Integrated Solutions, which involves the production and sale of complimentary packaging products such as paints, linings and closure systems for industrial packaging products and related services such as container life cycle management, as well as the purchase and sale of recycled fiber and the production and sale of adhesives used in its paperboard products.

On March 26, 2024, Greif acquired Ipackchem Group SAS for a total purchase price of $582.1 million ⁸, a global market leader in the production of high-performance plastic packaging, including premium barrier and non-barrier jerrycans and other small plastic containers. The company incurred transaction costs of $8.9 million ⁹ to complete this acquisition. During the third quarter of 2024, Greif completed the divestiture of Delta Petroleum Company, Inc. for net cash proceeds of $91.2 million ¹⁰, resulting in a $46.1 million ¹¹ gain on sale of business. During the first quarter of 2023, the company completed the divestiture of Tama Paperboard, LLC for current net cash proceeds of $100.0 million ¹², resulting in a $54.6 million ¹³ gain on sale of business. In fiscal 2024, Greif did not repurchase any shares of its Class A or Class B Common Stock ¹⁴. As of October 31, 2024, the remaining number of shares that could be repurchased under the Board-authorized stock repurchase program was 2,504,836 shares ¹⁵. During fiscal 2024, the company paid cash dividends to stockholders of $121.0 million ¹⁶ and paid dividends to noncontrolling interests of $25.7 million ¹⁷.

For fiscal year 2024, Greif reported total net sales of $5,448.1 million ¹⁸, compared to $5,218.6 million ¹⁹ in fiscal 2023. Net income attributable to Greif, Inc. was $268.8 million ²⁰ for fiscal 2024, compared to $359.2 million ²¹ in the prior year. Diluted earnings per share for Class A common stock was $4.64 ²² for fiscal 2024, compared to $6.15 ²³ in fiscal 2023. Gross profit was $1,070.8 million ²⁴ for fiscal 2024, compared to $1,146.1 million ²⁵ in fiscal 2023, with gross profit margin declining to 19.7 percent ²⁶ from 22.0 percent ²⁷. Operating profit was $464.6 million ²⁸ for fiscal 2024, compared to $605.5 million ²⁹ in fiscal 2023. Adjusted EBITDA was $694.3 million ³⁰ for fiscal 2024, compared to $822.2 million ³¹ in fiscal 2023. Net cash provided by operating activities was $356.0 million ³² for fiscal 2024, compared to $649.5 million ³³ in the prior year.

Greif anticipates that the multi-year period of industrial contraction will continue into the 2025 fiscal year. The company has not identified any compelling demand inflection on the horizon, although there has been increased demand for its containerboard products in the U.S. and some increased demand for industrial packaging in EMEA. Greif expects the prices for steel, old corrugated containers, resin and other direct materials, as well as prices for transportation, labor and utilities, to remain relatively stable through the year.

Greif is changing its fiscal year end, effective for the 2025 fiscal year. The 2025 fiscal year will begin on November 1, 2024 and end on September 30, 2025, and accordingly, will consist of eleven months. The fourth fiscal quarter of 2025 will be the two month period ending September 30, 2025. Thereafter, the fiscal year will begin on October 1 and end on September 30 of the following year. Beginning with the first fiscal quarter of 2025, Greif implemented changes to its reporting structure, moving to a material solution-based structure with four new reportable segments: Customized Polymer Solutions; Durable Metal Solutions; Sustainable Fiber Solutions; and Integrated Solutions. The company believes this structure will enable it to more efficiently utilize its robust scale and global network of facilities, align operations to capitalize on its deep subject matter expertise, enable further innovation and growth, and optimize cross-selling and margin expansion opportunities.

Greif expects the prices for steel, old corrugated containers, resin and other direct materials, as well as prices for transportation, labor and utilities, to remain relatively stable through the year. The company anticipates that the lower customer demand patterns that it experienced throughout fiscal years 2023 and 2024 will continue on an overall basis through 2025, which may cause competitors to reduce prices to maintain or increase their sales volumes, potentially impacting Greif's sales volumes and margins. For 2025, Greif has created a new strategic business unit structure based on its products rather than geography, and will continue to implement continuous improvement initiatives necessary or desirable to improve its business portfolio, address underperforming assets and generate additional cash.

Greif will continue to implement continuous improvement initiatives necessary or desirable to improve its business portfolio, address underperforming assets and generate additional cash. These initiatives may result in initial inefficiencies as employees and business operations adapt to the new structure, and may also result in reductions in selling, general and administrative costs throughout the company and have and will likely continue to result in the rationalization of manufacturing facilities. The rationalization of manufacturing facilities may result in temporary constraints upon the company's ability to manufacture the quantity of products necessary to fill orders and thereby complete sales in a timely manner. System upgrades at manufacturing facilities that impact ordering, production scheduling and other related manufacturing processes are complex, and could impact or delay production targets.

Greif intends to make a post-retirement benefit plan contribution of $6.6 million ³⁴ during 2025, which it anticipates will consist of $1.2 million ³⁵ of employer contributions and $5.4 million ³⁶ of benefits paid directly by the employer. The company expects to continue to fund its working capital needs, capital expenditures, cash dividends, debt repayment and acquisitions through operating cash flows, borrowings under its senior secured credit facilities and proceeds from its trade accounts receivable credit facilities. Greif currently expects that these sources will be sufficient to fund its anticipated working capital, capital expenditures, cash dividends, debt repayment and other liquidity needs for at least 12 months.

Greif's operations in Russia accounted for approximately 3% of its net sales ³⁷, approximately 9% of its operating profit ³⁸ and approximately 2% of its total assets ³⁹ as of October 31, 2024 and the fiscal year then ended. The company has been generally unable to transfer money out of Russia and does not expect that this will change in 2025. The ongoing military conflict in Ukraine and various conflicts in the Middle East, governmental unrest in South Korea, and tensions between China and Taiwan and North Korea and Japan are identified as geopolitical risks that could disrupt operations or force the company to incur unanticipated costs. The company also notes that the EU's Packaging & Packaging Waste Regulation that recently went into force will require post-consumer resin to be incorporated into plastic products sold in the EU, which may increase prices for PCR and potentially create a shortage of PCR supply necessary to meet regulatory requirements.

Greif faces the risk that the continuing consolidation of its customer base and suppliers may intensify pricing pressure. The company notes that many of its large industrial packaging, containerboard and coated and uncoated recycled boxboard and related products customers have acquired, or been acquired by, companies with similar or complementary product lines, and many of its suppliers of raw materials such as steel, resin and paper have undergone a similar process of consolidation. This consolidation has increased the concentration of its largest customers, resulting in some cases in increased pricing pressures from customers, and in other cases, a decreasing customer base due to customers becoming more vertically integrated. The consolidation of its largest suppliers has resulted in limited sources of supply and increased cost pressures from suppliers.

Management's message emphasizes the company's 'Build to Last' strategy, which provides a platform to support strategic growth and development under four key missions: creating thriving communities; delivering legendary customer service; protecting our future; and ensuring financial strength. The Greif Business System 2.0 is highlighted as a quantitative, systematic and disciplined business process that increases the company's ability to quickly scale and implement innovation, initiatives and best practices on a global basis, which is expected to facilitate improved productivity, efficiency and value creation. Management anticipates that the multi-year period of industrial contraction will continue into the 2025 fiscal year, and has not identified any compelling demand inflection on the horizon, although there has been increased demand for containerboard products in the U.S. and some increased demand for industrial packaging in EMEA. The company is changing its fiscal year end, effective for the 2025 fiscal year, which will consist of eleven months from November 1, 2024 to September 30, 2025, and thereafter the fiscal year will begin on October 1 and end on September 30 of the following year. Beginning with the first fiscal quarter of 2025, Greif implemented changes to its reporting structure, moving to a material solution-based structure with four new reportable segments, which management believes will enable more efficient utilization of its robust scale and global network of facilities, align operations to capitalize on deep subject matter expertise, enable further innovation and growth, and optimize cross-selling and margin expansion opportunities.

For fiscal year 2024, Greif reported total net sales of $5,448.1 million ⁴⁶, compared to $5,218.6 million ⁴⁷ in fiscal 2023. Net income attributable to Greif, Inc. was $268.8 million ⁴⁸ for fiscal 2024, compared to $359.2 million ⁴⁹ in the prior year. Diluted earnings per share for Class A common stock was $4.64 ⁵⁰ for fiscal 2024, compared to $6.15 ⁵¹ in fiscal 2023. Operating profit was $464.6 million ⁵² for fiscal 2024, compared to $605.5 million ⁵³ in fiscal 2023. Adjusted EBITDA was $694.3 million ⁵⁴ for fiscal 2024, compared to $822.2 million ⁵⁵ in fiscal 2023. Net cash provided by operating activities was $356.0 million ⁵⁶ for fiscal 2024, compared to $649.5 million ⁵⁷ in fiscal 2023. The company reported a gain on disposal of businesses, net of $46.0 million ⁵⁸ in fiscal 2024, primarily from the Delta Divestiture, compared to a gain of $64.0 million ⁵⁹ in fiscal 2023, primarily from the Tama Divestiture. Non-cash asset impairment charges were $2.6 million ⁶⁰ in fiscal 2024, compared to $20.3 million ⁶¹ in fiscal 2023. The Global Industrial Packaging segment reported net sales of $3,124.3 million ⁶² and operating profit of $341.1 million ⁶³ for fiscal 2024. The Paper Packaging & Services segment reported net sales of $2,303.5 million ⁶⁴ and operating profit of $115.6 million ⁶⁵ for fiscal 2024. The Land Management segment reported net sales of $20.3 million ⁶⁶ and operating profit of $7.9 million ⁶⁷ for fiscal 2024.

Greif's business is sensitive to changes in general economic or business conditions, as demand for its products has historically corresponded to changes in the economic conditions of the industries and countries in which it operates, and a prolonged economic downturn could have a material adverse effect. The company's global operations subject it to political risks and currency exchange volatility, with approximately 37% of fiscal 2024 sales derived from non-U.S. operations ⁴⁰, and its operations in Russia accounted for approximately 3% of net sales ⁴¹, approximately 9% of operating profit ⁴² and approximately 2% of total assets ⁴³ as of October 31, 2024. Raw material shortages, price fluctuations, global supply chain disruptions and high inflation may adversely impact results, as the principal raw materials of steel, resin, pulpwood, recycled pulp from OCC, recycled coated and uncoated boxboard and containerboard have historically exhibited price and demand cyclicality. The company has a significant amount of goodwill, with a carrying value of $1,953.7 million ⁴⁴ as of October 31, 2024, which could be impaired in the future if market conditions deteriorate or if actual results are not consistent with estimates and assumptions used to calculate fair value. Greif may be unable to achieve its greenhouse gas emission reduction target to reduce absolute Scope 1 and 2 emissions by 28 percent from a 2019 baseline by 2030 ⁴⁵, as achievement depends on the execution of operational strategies subject to risks and uncertainties, many of which are out of its control.