Greif's Q2 earnings up 4% year-over-year to US$40.9M as higher sales volumes offset by lower selling prices and negative impact of foreign currency translation

DELAWARE, Ohio , June 5, 2013 (press release) – Greif, Inc. (NYSE: GEF, GEF.B), a global leader in industrial packaging products and services, today announced results for its second quarter, which ended April 30, 2013. For the second quarter of 2013 compared with the second quarter of 2012:

  • Modestly higher sales volumes were offset by lower selling prices and the negative impact of foreign currency translation, resulting in a 1 percent decrease in net sales;
  • Operating profit increased 7 percent to $83.9 million; and
  • Diluted Class A earnings per share attributable to Greif, Inc. increased 4.5 percent to $0.70 per diluted Class A share.
David B. Fischer, president and chief executive officer, said, "Overall volumes were modestly higher compared with the same period last year while material costs and restructuring charges were both lower, which contributed to an increase in our consolidated results for the second quarter of 2013. Volume trends in our rigid industrial packaging business continue to vary by region. Our paper packaging business achieved record performance for the quarter. Plans continue to be implemented throughout the company across businesses and geographies to realize additional operating efficiencies. We look forward to achieving further progress during the second half of this year."

Consolidated Results

Net sales were $1,088.9 million for the second quarter of 2013 compared with $1,098.2 million for the second quarter of 2012. The decrease in net sales of less than 1 percent was primarily due to the impact of a 0.5 percent increase in volumes, offset by a 0.5 percent decline in selling prices and the negative impact of foreign currency translation. Higher selling prices for containerboard products were more than offset by lower selling prices for rigid industrial packaging products and polywoven products.

Gross profit decreased slightly to $202.6 million for the second quarter of 2013 compared with $205.5 million for the second quarter of 2012. Improvements in the Paper Packaging segment were more than offset by declines in the Rigid Industrial Packaging & Services and Flexible Products & Services segments. Gross profit was 18.6 percent of net sales for the second quarter of 2013 versus 18.7 percent of net sales for the second quarter of 2012.

SG&A expenses were $121.9 million for the second quarter of 2013 compared with $119.1 million for the second quarter of 2012. The increase was principally due to start-up costs related to the expansion of the rigid IBC business globally and higher information technology expenditures. There were $1.8 million of non-cash impairment charges related to surplus non-timber properties under contract or being marketed for sale in the second quarter of 2013 compared with $2.4 million in the second quarter of 2012. Included in SG&A expenses are acquisition-related costs, which were immaterial for the second quarter 2013 compared with $1.2 million for the second quarter 2012. SG&A expenses were 11.2 percent of net sales for the second quarter of 2013 compared with 10.9 percent of net sales for the second quarter of 2012.

Second quarter 2013 restructuring charges were immaterial. For the same period last year, restructuring charges of $10.1 million were primarily related to consolidation of operations in the Flexible Products & Services segment and rationalization of operations in the Rigid Industrial Packaging & Services segment in response to macroeconomic conditions.

Operating profit was $83.9 million for the second quarter of 2013 versus $78.3 million for the second quarter of 2012. The $5.6 million increase was primarily due to lower restructuring charges and improved results in the Paper Packaging segment. The increase consisted of Paper Packaging ($8.6 million increase); Flexible Products & Services ($2.7 million increase); Rigid Industrial Packaging & Services ($2.8 million decrease); and Land Management ($2.9 million decrease).

EBITDA was $122.0 million for the second quarter of 2013 compared with $115.3 million for the second quarter of 2012. The $6.7 million increase was primarily due to the same factors that impacted operating profit.

Cash provided by operating activities was $107.7 million for the second quarter of 2013 compared with cash provided by operating activities of $165.4 million for the same period in 2012. Free cash flow5 was $80.2 million for the second quarter of 2013 compared with free cash flow of $131.6 million for the second quarter of 2012.

Interest expense, net, was $21.4 million for the second quarter of 2013 compared with $23.3 million for the second quarter of 2012. The decrease was due to lower outstanding debt compared with the second quarter of 2012 and lower average interest rates.

The effective tax rate was 30.6 percent and 28.9 percent for the second quarters of 2013 and 2012, respectively. For the six months ended April 30, 2013 and April 30, 2012, the effective tax rate was 31.3 percent and 30.3 percent, respectively. Income tax expense was $18.9 million and $15.1 million for the second quarters of 2013 and 2012, respectively. The increase in tax expense was attributable to higher income and the increase in the tax rate was due to a greater proportion of income generated in higher tax jurisdictions. Cash tax payments for the second quarter of 2013 were $24.0 million.

Net income attributable to Greif, Inc. was $40.9 million, or $0.70 per diluted Class A share and $1.05 per diluted Class B share, for the second quarter of 2013 versus $39.4 million, or $0.67 per diluted Class A share and $1.01 per diluted Class B share, for the second quarter of 2012.

Segment Results

Rigid Industrial Packaging & Services

Net sales were $773.4 million for the second quarter of 2013 compared with $803.0 million for the second quarter of 2012. Sales volumes were slightly lower (0.3 percent) and selling prices declined by 2.4 percent primarily resulting from the pass-through of lower raw material costs and changes in product mix. The impact of foreign currency translation was a negative 1.0 percent. Economic conditions stabilized but remained challenging in Western Europe while changes in product mix accounted for most of the net sales decline in the Americas.

Gross profit was $136.7 million for the second quarter of 2013 compared with $146.6 million for the second quarter of 2012. Gross profit margin was 17.7 percent and 18.3 percent for the second quarters of 2013 and 2012, respectively. The decline was mostly due to changes in product mix in the Americas.

Operating profit decreased to $53.2 million for the second quarter of 2013 from $56.0 million for the second quarter of 2012. The $2.8 million decrease was primarily due to the same factors that impacted the decline in gross profit margin and $0.9 million in non-cash asset write-downs partially offset by lower restructuring charges and acquisition-related costs.
Restructuring charges for the second quarter of 2013 were immaterial compared with $5.5 million for the same period in 2012. There were $0.1 million and $0.8 million of acquisition-related costs for the second quarters of 2013 and 2012, respectively.

EBITDA was $80.9 million for the second quarter of 2013 compared with $82.1 million for the same period in 2012 due to the same factors that impacted the segment's operating profit. Depreciation, depletion and amortization expense was $26.6 million for the second quarter of 2013 compared with $27.3 million for the same period in 2012.

Flexible Products & Services

Net sales were $112.4 million for the second quarter of 2013 compared with $113.9 million for the second quarter of 2012. Volumes increased slightly (0.4 percent) due to higher polywoven volumes in Western Europe partially offset by lower polywoven volumes in Asia and Australia and lower multiwall volumes in the United States. Polywoven selling prices declined 0.7 percent while multiwall selling prices increased 0.4 percent, both principally due to changes in product mix. The impact of foreign currency translation was a negative 1.1 percent.

Gross profit was $20.6 million and $22.1 million for the second quarters of 2013 and 2012, respectively. Gross profit margin decreased to 18.3 percent for the second quarter of 2013 from 19.4 percent for the second quarter of 2012. The decrease in gross profit was primarily due to higher polywoven production costs related to the ongoing consolidation of operations and start-up costs related to new facilities, including the fabric hub in Saudi Arabia.

Operating profit was $0.8 million for the second quarter of 2013 compared with an operating loss of $1.9 million for the second quarter of 2012. The $2.7 million increase compared with the same period last year was due to lower restructuring charges and acquisition-related costs in the second quarter of 2013, partially offset by the same factors that impacted the decline in gross profit margin. There were also $1.3 million of additional bad debt expenses in the second quarter of 2013 compared with the same period a year ago.

Restructuring charges for the second quarter of 2013 were immaterial compared with $4.6 million for the same period last year. There were no acquisition-related costs for the second quarter of 2013 compared with $0.4 million in the second quarter of 2012.

EBITDA was $3.4 million and $0.5 million for the second quarters of 2013 and 2012, respectively. EBITDA for both periods was affected by the same factors that impacted the segment’s operating profit. Depreciation, depletion and amortization expense was $3.7 million and $3.8 million for the second quarters of 2013 and 2012, respectively.

Paper Packaging

Net sales were $194.5 million for the second quarter of 2013 compared with $173.4 million for the second quarter of 2012. This increase was due to higher selling prices (8.6 percent) and a 3.5 percent increase in volumes.

Gross profit was $41.1 million and $33.0 million for the second quarters of 2013 and 2012, respectively. Gross profit margin increased to 21.1 percent for the second quarter of 2013 from 19.0 percent for the second quarter of 2012. This increase was primarily due to higher selling prices coupled with lower raw material costs.

Operating profit increased 50 percent to a record $25.7 million for the second quarter of 2013 from $17.1 million for the second quarter of 2012, primarily due to higher selling prices, higher volumes and lower raw material costs. There were $1.6 million of non-cash impairment charges related to surplus non-timber properties under contract or being marketed for sale in the second quarter of 2013 compared with $2.4 million in the second quarter of 2012.

EBITDA increased to $32.3 million for the second quarter of 2013 compared with $24.8 million for the second quarter of 2012 due to the same factors that impacted the segment’s operating profit. Depreciation, depletion and amortization expense was $7.4 million and $7.8 million for the second quarters of 2013 and 2012, respectively.

Land Management

Net sales were $8.6 million for the second quarter of 2013 compared with $7.9 million for the second quarter of 2012. The increase was primarily due to opportunistic timber sales from wet-weather logging tracts.

Operating profit decreased to $4.2 million for the second quarter of 2013 from $7.1 million for the second quarter of 2012. The decrease was primarily due to fewer special use property disposals, which were $0.5 million for the second quarter of 2013 versus $3.9 million for the second quarter of 2012.

EBITDA was $5.4 million and $7.9 million for the second quarter of 2013 and 2012, respectively. This decrease was due to the same factors that impacted the segment’s operating profit. Depreciation, depletion and amortization expense was $1.2 million and $0.8 million for the second quarter of 2013 and 2012, respectively.

Other Financial Information

Long-term debt was $1,269.4 million at April 30, 2013 compared with $1,312.3 million on the same date in 2012 and $1,175.3 million at Oct. 31, 2012. During the second quarter of 2013, long-term debt decreased

$35.8 million from Jan. 31, 2013, primarily due to improvements in working capital.

Capital expenditures were $27.0 million for the second quarter of 2013 compared with capital expenditures of $33.8 million for the second quarter of fiscal 2012 and there were $0.5 million of timberland purchases for the second quarter 2013 compared with no timberland purchases for the second quarter of 2012. Depreciation, depletion and amortization expense was $38.9 million and $39.7 million for the second quarters of fiscal 2013 and 2012, respectively.

On June 4, 2013, 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, 2013, to stockholders of record at close of business on June 20, 2013.

Company Outlook

We anticipate modest sales growth benefiting from the agricultural sector and stable raw material costs across our business portfolio and continuation of favorable market conditions in our Paper Packaging business in the second half of 2013. Our outlook for fiscal 2013 EBITDA is between $475 million and $500 million.

IndustryIntel Editor's Note: In an omitted table, the company reported second quarter net income of US$1,088.9 million compared with net income of US$1,098.2 million a year ago.

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