Greif posts record fiscal Q2 results with earnings up 19.4% to US$50.9M, sales up 25.6% to US$1.05B on improved profit margins for rigid industrial packaging, stronger operating results for flexible products, solid performance in paper packaging

DELAWARE, Ohio , June 9, 2011 (press release) – Greif, Inc. (NYSE:GEF - News), a global leader in industrial packaging products and services, today announced results for its second fiscal quarter, which ended April 30, 2011. The company reported record second quarter net sales of $1,050.7 million, record second quarter net income of $50.9 million, or $0.87 per diluted Class A share, record second quarter net income before special items(1) of $61.0 million, or $1.04 per diluted Class A share, and record second quarter EBITDA(1) before special items(1) of $131.6 million.

Michael J. Gasser, chairman and chief executive officer, said, "Our strong second quarter operating results were primarily driven by sequential improvement in profit margins for our rigid industrial packaging businesses as cost pass-through mechanisms took effect; continued improvement in operating results for our flexible products businesses; and solid performance in our paper packaging businesses. During the second quarter, we continued to make significant progress integrating the businesses we acquired during 2010, including rapidly implementing the Greif Business System.

"Overall, the entire first half of the year has put us in a good position for the second half, which has typically been stronger because of the agriculture business that generates higher sales volumes."

(1) Non-GAAP financial measures – (a) Special items are as follows: (i) for the three months ended April 30, 2011, restructuring charges of $5.0 million ($3.8 million net of tax) and acquisition-related costs of $8.0 million ($6.3 million net of tax); (ii) for the three months ended April 30, 2010, restructuring charges of $4.8 million ($4.0 million net of tax) and acquisition-related costs of $4.6 million ($3.8 million net of tax); (iii) for the six months ended April 30, 2011, restructuring charges of $8.0 million ($6.1 million net of tax) and acquisition-related costs of $16.5 million ($12.7 million net of tax); and (iv) for the six months ended April 30, 2010, restructuring charges of $10.8 million ($8.7 million net of tax) and acquisition-related costs of $14.6 million ($11.8 million net of tax). (b) EBITDA is defined as net income plus interest expense, net plus income tax expense less equity earnings (losses) of unconsolidated subsidiaries, net of tax plus depreciation, depletion and amortization. (c) Working capital represents current assets less current liabilities, whereas net working capital represents working capital less cash and cash equivalents. (d) 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.

Consolidated Results

Net sales were $1,050.7 million for the second quarter of 2011 compared with $836.6 million for the second quarter of 2010. The 25.6 percent increase was due to higher sales volumes, higher selling prices resulting from the pass-through of higher raw material costs, and the positive impact of foreign currency translation. The higher sales volumes were primarily due to acquisitions in the Flexible Products & Services segment and improving volumes in the Paper Packaging segment.

Gross profit increased to $207.3 million for the second quarter of 2011 compared with $168.5 million for the second quarter of 2010 primarily due to the higher sales volumes. Gross profit margin was 19.7 percent for the second quarter of 2011 compared with 18.7 percent for the first quarter of 2011 and 20.1 percent for the second quarter of 2010. The sequential improvement reflects the impact of the company's cost pass-through mechanisms.

Selling, general and administrative (SG&A) expenses were $113.9 million for the second quarter of 2011 compared with $91.6 million for the second quarter of 2010. The $22.3 million increase was primarily due to SG&A expenses from acquired companies and higher performance-based incentives. Acquisition-related costs of $8.0 million and $4.6 million were included in SG&A expenses for the second quarter of 2011 and 2010, respectively. SG&A expenses, as a percentage of net sales, were 10.8 percent for the second quarter of 2011 compared to 10.9 percent for the same quarter of last year.

Operating profit was $91.3 million and $72.8 million for the second quarter of 2011 and 2010, respectively. Operating profit before special items was up 26.9 percent to $104.3 million for the second quarter of 2011 compared with $82.2 million for the second quarter of 2010. The $22.1 million increase was due to Paper Packaging ($12.7 million increase), Flexible Products & Services ($6.5 million increase), Land Management ($1.7 million increase) and Rigid Industrial Packaging & Services ($1.2 million increase).

Interest expense, net, was $18.6 million for the second quarter of 2011 compared with $16.8 million for the same period last year. The increase was primarily due to the higher level of debt resulting from acquisitions and increased working capital requirements.

Net income was $50.9 million, or $0.87 per diluted Class A share and $1.31 per diluted Class B share, for the second quarter of 2011 and $42.6 million, or $0.73 per diluted Class A share and $1.10 per diluted Class B share, for the second quarter of 2010. Net income before special items was $61.0 million for the second quarter of 2011 compared with $50.4 million for the second quarter of 2010. Diluted earnings per share before special items was $1.04 compared with $0.86 per Class A share and $1.57 compared with $1.29 per Class B share for the second quarter of 2011 and 2010, respectively.

EBITDA, as defined in footnote 1, item (b), was $118.6 million and $99.6 million for the second quarter of 2011 and 2010, respectively. EBITDA before special items increased 20.7 percent to $131.6 million for the second quarter of 2011 compared with $109.0 million for the second quarter of 2010. The $22.6 million increase was primarily due to the improved operating profit before special items in the Paper Packaging and Flexible Products & Services segments.

Segment Results

Rigid Industrial Packaging & Services

Net sales were $743.9 million for the second quarter of 2011 compared with $636.5 million for the second quarter of 2010. The 16.9 percent increase in net sales was primarily due to higher selling prices resulting from the pass-through of higher input costs and the positive impact of foreign currency translation.

Gross profit margin was 19.5 percent for the second quarter of 2011 compared with 18.6 percent for the first quarter of 2011 and 21.7 percent for the second quarter of 2010. The year-over-year reduction was primarily due to a change in product mix and higher raw material costs, especially for steel and resin, partially offset by the company's cost pass-through mechanisms. The sequential improvement reflects the impact of the company's cost pass-through mechanisms.

Operating profit was $66.1 million and $64.4 million for the second quarter of 2011 and 2010, respectively. Operating profit before special items increased to $71.1 million for the second quarter of 2011 from $70.0 million for the second quarter of 2010. The $1.1 million increase was primarily due to higher selling prices due to the pass-through of higher input costs, efficiency improvements and gain on sale of an idle facility, partially offset by higher raw material costs.

EBITDA was $82.8 million and $83.3 million for the second quarter of 2011 and 2010, respectively. EBITDA before special items decreased to $87.8 million for the second quarter of 2011 from $88.9 million for the second quarter of 2010.

Flexible Products & Services

Net sales were $134.8 million for the second quarter of 2011 compared with $50.5 million for the second quarter of 2010. The increase was primarily due to the acquisitions of flexible intermediate bulk container companies during the second half of 2010.

Gross profit margin was 21.5 percent for the second quarter of 2011 compared with 19.1 percent for the first quarter of 2011 and 21.3 percent for the second quarter of 2010. The changes in gross profit margin were primarily due to product mix.

Operating profit was $2.0 million and $0.3 million for the second quarter of 2011 and 2010, respectively. Operating profit before special items increased to $10.5 million for the second quarter of 2011 from $4.0 million for the second quarter of 2010 primarily as a result of acquisitions during the second half of 2010.

EBITDA was $4.6 million and $1.2 million for the second quarter of 2011 and 2010, respectively. EBITDA was impacted by acquisition-related costs of $5.3 million and $3.7 million for the second quarter of 2011 and 2010, respectively. EBITDA before special items increased to $13.1 million for the second quarter of 2011 from $4.9 million for the second quarter of 2010 primarily as a result of acquisitions during the second half of 2010.

Paper Packaging

Net sales were $166.5 million for the second quarter of 2011 compared with $147.5 million for the second quarter of 2010. The 12.9 percent increase in net sales was primarily due to higher sales volumes and higher containerboard selling prices.

Gross profit margin increased to 18.8 percent for the second quarter of 2011 from 13.3 percent for the second quarter of 2010. This increase was primarily due to higher net sales and efficiency improvements, partially offset by higher raw material costs, especially old corrugated containers. For the first quarter of 2011, the gross profit margin was 18.1 percent for this segment.

Operating profit was $20.9 million and $7.6 million for the second quarter of 2011 and 2010, respectively. Operating profit before special items increased to $20.4 million for the second quarter of 2011 from $7.7 million for the second quarter of 2010. The $12.7 million increase was primarily due to higher net sales, improved gross profit margin and lower SG&A expenses.

EBITDA increased to $28.1 million for the second quarter of 2011 compared with $14.3 million in the second quarter of 2010. EBITDA before special items was $27.6 million for the second quarter of 2011 from $14.4 million for the second quarter of 2010 for the same reasons impacting the operating profit before special items.

Land Management

Net sales were $5.5 million and $2.1 million for the second quarter of 2011 and 2010, respectively.

Operating profit and operating profit before special items was $2.3 million for the second quarter of 2011 compared with $0.5 million for the second quarter of 2010. The results of this segment were in line with plan.

EBITDA and EBITDA before special items was $3.1 million for the second quarter of 2011 compared with $0.8 million for the second 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 $0.3 million for the second quarter of 2011 and $0.5 million for the second quarter of 2010.

Other Cash Flow Information

During the first half of 2011, the company's net debt increased $193.9 million to $1,113.4 million at quarter-end primarily due to funding acquisitions, capital expenditures and increased working capital needs.

Capital expenditures were $33.2 million, excluding timberland purchases of $0.5 million, for the second quarter of 2011 compared with capital expenditures of $30.9 million, excluding timberland purchases of $16.5 million, for the second quarter of 2010. Capital expenditures are expected to be approximately $150 million, excluding timberland purchases and acquisitions, for fiscal 2011.

On June 7, 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 July 1, 2011, to stockholders of record at close of business on June 20, 2011.

Company Outlook

The company anticipates further improvement in financial performance during the second half of fiscal 2011 primarily driven by Flexible Products & Services as benefits from integration efforts through the first half of fiscal 2011 are achieved, and by Rigid Industrial Packaging & Services as the full impact of cost pass-through mechanisms are realized. Historically, third and fourth quarter results have been the company's stronger quarters partly due to higher sales volumes for products used in the agricultural sector. The company reaffirms its fiscal 2011 earnings guidance.

Conference Call

The company will host a conference call to discuss the second quarter of 2011 results on June 9, 2011, at 10 a.m. Eastern Time (ET). To participate, domestic callers should call 877-485-3107 and ask for the Greif conference call. The number for international callers is +1 201-689-8427. Phone lines will open at 9:50 a.m. ET. The conference call will also be available through a live webcast, including slides, which can be accessed at www.greif.com in the Investor Center. A replay of the conference call will be available on the company's website approximately one hour following the call.

About Greif

Greif is a world leader in industrial packaging products and services. The company produces steel, plastic, fibre, flexible and corrugated containers, containerboard and packaging accessories, and provides reconditioning, blending, filling and packaging services for a wide range of industries. Greif also manages timber properties in North America. The company is strategically positioned in more than 50 countries to serve global as well as regional customers. Additional information is on the company's website at www.greif.com.

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