Greif's fiscal Q3 net income down 4.5% year-over-year to US$63M; sales up 21.8% to US$1.1B largely on higher sales volumes due to acquisitions in rigid packaging, flexible products, paper packaging segments, higher selling prices

DELAWARE, Ohio , August 31, 2011 (press release) – Greif, Inc. (NYSE:GEF - News), a global leader in industrial packaging products and services, today announced results for its third fiscal quarter, which ended July 31, 2011. The company reported record third quarter net sales of $1.1 billion, record third quarter operating profit of $108.0 million, third quarter net income of $63.0 million or $1.07 per diluted Class A share, third quarter net income before special items, net of tax of $69.7 million or $1.18 per diluted Class A share before special items, net of tax, and record third quarter EBITDA before special items of $147.5 million.

Michael J. Gasser, chairman and chief executive officer, said, "Our strong growth in net sales for the quarter benefited from acquisitions during the last 12 months, higher selling prices and the positive impact of foreign currency translation. Product demand for the Rigid Industrial Packaging & Services segment in North America and Western Europe was lower than anticipated during the final three weeks of the quarter. There has been some recovery in demand based on August orders and shipments, on a seasonally adjusted basis, but at a lower level than earlier in the year. We are implementing act fions to mitigate the financial impact of these developments.

"During the third quarter, we completed a euro 200 million senior note offering to facilitate growth and improve our liquidity. We also executed two rigid industrial packaging acquisitions with operations in EMEA and Latin America that extend our global footprint and capabilities. Immediately following the end of the third quarter, we completed an acquisition in the reconditioning market in Europe that complements our existing North America reconditioning business."

(1) EBITDA is defined as net income plus interest expense, net plus income tax expense less equity earnings of unconsolidated subsidiaries, net of tax plus depreciation, depletion and amortization.
(2) Working capital represents current assets less current liabilities. Net working capital represents working capital less cash and cash equivalents
(3) Net debt represents long-term debt plus the current potion of long-term debt plus short-term borrowings less cash and cash equivalents.

Consolidated Results

Net sales were $1.1 billion for the third quarter of 2011 compared with $921.3 million for the third quarter of 2010. The 21.8 percent increase was due to higher sales volumes, increased 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 Rigid Industrial Packaging & Services and Flexible Products & Services segments and higher volumes in the Paper Packaging segment.

Gross profit increased to $211.4 million for the third quarter of 2011 compared to $191.0 million for the third quarter of 2010 primarily due to higher sales volumes. Gross profit margin was 18.8 percent for the third quarter of 2011 compared with 20.7 percent for the third quarter of 2010. The quarter-over-quarter decline from the prior period was primarily due to reduced market demand, shift in product mix, inability to capture all cost increases in Rigid Industrial Packaging & Services and higher old corrugated container costs in the Paper Packaging segment.

Selling, general and administrative (SG&A) expenses were $109.1 million for the third quarter of 2011 compared with $90.4 million for the third quarter of 2010. The $18.7 million increase was primarily due to the inclusion of SG&A expenses for acquired companies. Acquisition-related costs of $2.7 million and $5.5 million were also included in SG&A expenses for the third quarters of 2011 and 2010, respectively. In addition, the company recorded a $3.0 million non-cash intangible asset impairment charge for the third quarter of 2011 related to trademarks used in the flexibles businesses acquired in 2010. SG&A expenses, as a percentage of net sales, were 9.7 percent for the third quarter of 2011 compared with 9.8 percent for the same quarter of last year.

Operating profit was $108.0 million and $95.7 million for the third quarters of 2011 and 2010, respectively. Operating profit before special items was $117.1 million for the third quarter of 2011 compared with $111.1 million for the third quarter of 2010. The $6.0 million increase was due to Land Management ($8.3 million increase) and Flexible Products & Services ($6.2 million increase), partially offset by Paper Packaging ($6.6 million decrease) and Rigid Industrial Packaging & Services ($1.9 million decrease).

Interest expense, net, was $18.4 million for the third quarter of 2011 compared with $16.0 million for the same period last year. The increase was primarily due to the higher level of debt resulting from acquisitions and related working capital requirements.

Income tax expense was $21.6 million and $14.4 million for the third quarters of 2011 and 2010, respectively. The company's book tax rate was 25.4 percent and 18.2 percent for the third quarters of 2011 and 2010, respectively.

Net income was $63.0 million, or $1.07 per diluted Class A share and $1.61 per diluted Class B share, for the third quarter of 2011 and $66.0 million, or $1.12 per diluted Class A share and $1.70 per diluted Class B share, for the third quarter of 2010. Net income before special items, net of tax was $69.7 million for the third quarter of 2011 compared with $78.6 million for the third quarter of 2010. Diluted earnings per share before special items, net of tax was $1.18 compared to $1.34 per Class A share and $1.79 compared to $2.02 per Class B share for the third quarters of 2011 and 2010, respectively.

EBITDA was $138.4 million and $122.7 million for the third quarters of 2011 and 2010, respectively. EBITDA before special items increased 6.8 percent to $147.5 million for the third quarter of 2011 compared with $138.1 million for the third quarter of 2010. The $9.4 million increase was primarily due to the improved operating profit before special items in the Flexible Products & Services and Land Management segments.

Segment Results

Rigid Industrial Packaging & Services

Net sales were $804.0 million for the third quarter of 2011 compared with $681.7 million for the third quarter of 2010. The 17.9 percent increase in net sales was primarily due to higher selling prices, the positive impact of foreign currency translation and acquisitions, partially offset by lower sales volumes due to decreased demand during the last three weeks of July in North America and Western Europe on a same-structure basis.

Gross profit margin was 18.7 percent for the third quarter of 2011 and 20.8 percent for the third quarter of 2010. The quarter-over-quarter reduction from the prior year was primarily due to reduced market demand, shift in product mix and inability to capture all cost increases.

Operating profit was $72.0 million and $71.5 million for the third quarters of 2011 and 2010, respectively. Operating profit before special items was $77.5 million for the third quarter of 2011 versus $79.4 million for the third quarter of 2010. The $1.9 million decrease was primarily due to the lower gross profit margin for this segment.

EBITDA was $91.5 million and $89.6 million for the third quarters of 2011 and 2010, respectively. EBITDA before special items was $97.0 million for the third quarter of 2011 compared with $97.5 million for the third quarter of 2010 for the same reasons impacting the operating profit before special items.

Flexible Products & Services

Net sales were $141.2 million for the third quarter of 2011 compared with $66.9 million for the third quarter of 2010. The increase was primarily due to sales attributable to flexible intermediate bulk container companies acquired during the second half of fiscal 2010.

Gross profit margin increased to 22.9 percent for the third quarter of 2011 from 21.2 percent for the third quarter of 2010. The change in gross profit margin was primarily due to improved pricing and increased operating efficiencies attributable to the Greif Business System.

Operating profit was $7.7 million and $2.8 million for the third quarters of 2011 and 2010, respectively. Operating profit before special items increased to $12.0 million for the third quarter of 2011 from $5.8 million for the third quarter of 2010 primarily as a result of acquisitions during the second half of fiscal 2010 and improved gross profit margins from the implementation of the Greif Business System.

EBITDA was $10.1 million and $3.3 million for the third quarters of 2011 and 2010, respectively. EBITDA was impacted by acquisition-related costs of $0.6 million and $2.9 million for the third quarters of 2011 and 2010, respectively. EBITDA before special items increased to $14.4 million for the third quarter of 2011 from $6.3 million for the third quarter of 2010 for the same reasons impacting the operating profit before special items.

Paper Packaging

Net sales were $172.8 million for the third quarter of 2011 compared with $168.8 million for the third quarter of 2010. The 2.4 percent increase in net sales was primarily due to higher sales volumes and higher containerboard selling prices attributable to final realization of the second of two containerboard price increases implemented in 2010.

Gross profit margin declined to 16.0 percent for the third quarter of 2011 from 19.8 percent for the third quarter of 2010. This decrease was primarily due to higher raw material costs, including a quarter-over-quarter increase of approximately 24 percent for old corrugated container costs, and higher transportation costs as a result of increasing sales volumes and fuel costs, partially offset by lower energy costs.

Operating profit was $17.5 million and $18.9 million for the third quarters of 2011 and 2010, respectively. Operating profit before special items was $16.8 million for the third quarter of 2011 compared to $23.4 million for the third quarter of 2010. The $6.6 million decrease was primarily due to the lower gross profit margin for the third quarter of 2011 and a $1.7 million gain on sale of a facility in the third quarter of 2010.

EBITDA decreased to $25.5 million for the third quarter of 2011 compared with $26.7 million in the third quarter of 2010. EBITDA before special items decreased to $24.8 million for the third quarter of 2011 from $31.2 million for the third quarter of 2010 for the same reasons impacting the operating profit before special items.

Land Management

Net sales were $4.0 million for the third quarter of 2011 compared with $3.9 million for the third quarter of 2010.

Operating profit and operating profit before special items was $10.8 million for the third quarter of 2011 compared to $2.5 million for the third quarter of 2010. The results of this segment reflect an increase in disposal of special-use properties (surplus, higher and better use and development properties) of $7.0 million for the third quarter of 2011 compared to $1.3 million for the third quarter of 2010. The third quarter of 2011 also included a $2.5 million purchase price adjustment related to the expropriation of surplus property from a prior period.

EBITDA and EBITDA before special items was $11.3 million for the third quarter of 2011 compared to $3.1 million for the third quarter of 2010. Included in these amounts were profits from the disposal of special-use properties and a purchase price adjustment in the third quarter of 2011.

Other Cash Flow Information

Cash flow from operations was $35.4 million for the company in the third quarter of 2011 compared to $74.0 million in the third quarter of 2010.

Capital expenditures were $44.1 million, excluding timberland purchases of $2.5 million, for the third quarter of 2011 compared with capital expenditures of $36.4 million, excluding timberland purchases of $2.9 million, for the third quarter of 2010. Capital expenditures are expected to be approximately $160 million, excluding timberland purchases and acquisitions, for fiscal 2011.

During the first nine months of 2011, the company's net debt increased $357.1 million primarily due to funding acquisitions, higher capital expenditures and increased working capital needs. Acquisitions, net of cash were $185.7 million for the nine months ended July 31, 2011, which included $157.3 million for the third quarter of 2011.

On July 15, 2011, one of the company's European subsidiaries issued euro 200 million of senior notes. These notes provide financing to support the company's growth initiatives while maintaining adequate liquidity, to maintain an appropriate relationship of fixed and variable rate debt and to extend maturities of the debt portfolio.

On Aug. 30, 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 Oct. 1, 2011, to stockholders of record at close of business on Sept. 20, 2011.

Company Outlook

Based on August orders and shipments, the company believes that there has been some recovery in demand from July levels on a seasonally adjusted basis, although not to the same level that existed earlier in the year. Based on year-to-date results, current tax rate expectations, current OCC costs and assuming that product demand remains at August levels, and adjusting for the company's mitigating actions, the company has adjusted its guidance for the year to $4.15 - $4.30 per fully diluted Class A share.

Conference Call

The company will host a conference call to discuss results for the third quarter of 2011 on Sept. 1, 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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