By the numbers
Q1 net income attributable to Greif: $111.2M
Down 11.1% year over year
- Economic outlook: Lower volumes contributed to Greif’s year-over-year sales decrease in Q2, executives said on a recent earnings call. However, they reiterated that the company posted banner numbers in Q2 2022, and this year’s Q2 earnings before interest, taxes, depreciation and amortization were the second-highest in company history. “These results are exceptional considering historic volume headwinds and are a testament to the resiliency of our business model,” said President and CEO Ole Rosgaard during the earnings call.
- The new normal: Packaging companies have been plagued the past few quarters by destocking woes that are a hangover from supply chain disruptions early in the pandemic. But Greif executives indicated that that trend appears to be ending. Instead, changes in customer buying habits are becoming a new normal, Rosgaard said. He explained that customers are taking their stock to significantly lower levels and are placing smaller, but more frequent, orders. “We see sort of urgent orders, panic orders and that sort of thing. And then our customers are paying us to respond to that accordingly,” Rosgaard said. “We don’t see any more destocking, per se.”
- Location-based trends: The challenging demand environment resulted in all of the global industrial packaging substrates and geographies showing softness in volumes compared with last year, Greif executives said. While Latin America had remained relatively stable in previous quarters, it is experiencing the same economic effects as some other regions and was down double digits in Q2. The North American markets were the weakest, mostly because of lower demand in the chemical and coding end markets. “Demand remains soft in most paper converting end markets throughout the second quarter and into May. We remain conservative in our outlook for [paper packaging and services] volumes in the second half but expect that our year-over-year declines will ease,” Rosgaard said.
- M&A: Executives said that Greif advanced its growth strategy by spending $447.5M in the last six months to acquire Lee Container and a larger stake in Centurion Container, and both are performing in line with expectations. The Centurion deal closed in March, and the business “is an excellent fit, as it enhances Greif’s resin-based offering and IBC business in North America, supports our circular economy goals and offers a margin-accretive organic growth story,” Rosgaard said. Despite short-term economic uncertainty, “our M&A pipeline remains robust, and we intend to continue to deploy capital towards value-accretive targets in the coming quarters.”
- Looking ahead: Greif raised its FY 2023 guidance based on the strong Q2 results, bumping up free cash flow expectations by $45 million. CFO Larry Hilsheimer noted a recent increase in OCC pricing and predicted a slight increase for the rest of the year, which could result in slight changes to recycled fiber supply and demand dynamics.
