Release Date: June 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Greif Inc (GEF, Financial) reported a strong net promoter score of 68, significantly above the manufacturing sector average of 49.
- The company received the 2024 Exceptional Workplace Award from Gallup, highlighting its strong people-first culture.
- Greif Inc (GEF) completed the acquisition of Ipackchem, solidifying its position in the high-performance small plastic containers market.
- The company has seen positive demand trends in EMEA, particularly in chemical and lubricant markets.
- Greif Inc (GEF) raised the low end of its fiscal year EBITDA guidance from $610 million to $675 million, reflecting confidence in future performance.
Negative Points
- The company experienced a significant price-cost squeeze in its paper business, impacting margins.
- APAC demand trends reversed in Q2, with lower levels of demand persisting into Q3.
- Earnings for fiscal year '24 will be impacted by a one-time expected $8.4 million inventory revaluation expense.
- The global ag chem market showed short-term softness, affecting the contribution from the Ipackchem acquisition.
- North American paper business continues to face slow but steady improvements, indicating ongoing challenges in this segment.
Q & A Highlights
Q: Can you provide some added detail on the volume cadence across both business segments during the quarter? And some early thoughts on how the third-fiscal quarter has kicked off?
A: Regionally, EMEA showed 8% growth, LatAm was flat, North America was down 5%, and APAC was down 11%. Substrate-wise, plastic was up low teens year-on-year, steel was flat but improving sequentially, and fiber was down low singles but also improving sequentially. Positive signals from global PMI and customer feedback make us optimistic for future demand.
Q: Can you provide an updated view on the absolute price-cost expectation for the year?
A: Year-over-year, we faced a price-cost squeeze of about $49 million in paper and a positive $17 million in GIP. Going from prior guidance to current, we see a price-cost benefit of about $39 million in GIP and $16 million in PPS. Volume trends are positive, but price-cost squeeze remains a challenge.
Q: Where are you right now in terms of the $22 million to $62 million volume pickup that informed your improvement in guidance?
A: We are right in the middle of that range. We built a range around what we thought was possible for the rest of the year, considering both customer nervousness and potential optimism.
Q: Can you give us a quick update on year-on-year trends in paper and steel volumes early in fiscal Q3?
A: Exit trends in May were generally positive. Steel and containerboard kept improving throughout Q2, while plastic and URB were more mixed. GIP in EMEA remained sequentially strongest, with North America and LatAm also improving. Containerboard continued to improve, and URB saw increased demand in construction and film.
Q: Can you talk about the pent-up operating leverage in the business that could be released once global volumes start to normalize?
A: As volume picks up, the predominant demand is raw material costs, but value-add is about 50%. Returning to '22 volume levels could add about $160 million of EBITDA. Combined with full run rate on acquisitions and price-cost improvements, we see a path to well over $900 million of EBITDA.
Q: How many of your facilities could be subject to operational reviews for improving plant-level profitability?
A: We have nearly 700 participants in our Six Sigma program across 250 plants. Continuous improvement initiatives have shown significant savings, and we see years of runway for these efforts. Aggregation of marginal gains across our locations results in substantial overall savings.
Q: What are the components that get you to the $900 million EBITDA target?
A: The largest component is returning to '22 volume levels, which alone could add $160 million of EBITDA. Additional drivers include price-cost improvements in our paper business, full run rate on acquisitions, and new projects like the Dallas sheetfeeder.
Q: Can you provide more detail on the recent URB price increases and their impact on guidance?
A: We expect full recognition of these price increases, though we remain cautious due to the Richey survey system. Our guidance assumes no recognition at the low end and a range of recognition at the high end. The timing of recognition will also impact the benefit seen in the P&L.
Q: Can you discuss the capital expenditures increase in the updated guidance?
A: The increase is primarily due to inflationary costs on the Dallas sheetfeeder project and pulling forward high-need safety and maintenance projects. Very little of the increase is related to Ipackchem.
Q: Can you talk about your appetite to grow in Southeast Asia or China, given the robust film activity?
A: We have a disciplined approach to deploying cash, with geopolitical aspects being a significant factor. While we have invested in maintenance and upgrades in China, our focus is more on surrounding regions like Malaysia. We apply higher hurdle rates for investments in regions with higher geopolitical risks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
