Business News

Greif, Inc. Reports First Quarter 2008 Results

Friday 29. February 2008 - -- Net sales increased 13 percent (7 percent excluding the impact of foreign currency translation) to $846.3 million in the first quarter of 2008 from $750.8 million in the first quarter of 2007.

— Net income before special items, as defined below, was $68.6 million ($1.16 per diluted Class A share) in the first quarter of 2008 compared to $35.5 million ($0.60 per diluted Class A share) in the first quarter of 2007. GAAP net income was $60.7 million ($1.03 per diluted Class A share) and $34.0 million ($0.58 per diluted Class A share) in the first quarter of 2008 and 2007, respectively. During the first quarter of 2008, the Company recognized a net gain of $20.9 million ($0.35 per diluted Class A share) related to the divestiture of business units in Australia and Zimbabwe, which is included in both net income before special items and GAAP net income.

Greif, Inc. (NYSE:GEF)(NYSE:GEF.B), a global leader in industrial packaging with blending, filling and packaging services, an integrated containerboard and corrugated packaging business, and timber operations, today announced results for its first fiscal quarter, which ended Jan. 31, 2008.

Michael J. Gasser, chairman and chief executive officer, said, “The first quarter results demonstrate the benefits of geographic diversity, positive contributions from the Greif Business System and ongoing initiatives to unlock value within our businesses. We achieved solid organic sales growth, especially in Europe and the emerging markets for Industrial Packaging, and benefited from higher containerboard selling prices in Paper Packaging. The Greif Business System continues to improve our performance and helps mitigate the impact of higher costs.

“During the first quarter, we continued to execute our “GBS + Growth” strategy and actively manage our business portfolio. Consistent with this strategy, we have added seven plants since the end of fiscal 2007, including five in emerging markets. Additionally, five plants in Australia and Zimbabwe that were underperforming and no longer fit our business strategy were divested.”

Special Items and GAAP to Non-GAAP Reconciliation

Special items are as follows: (i) for the first quarter of 2008, restructuring charges of $10.5 million ($8.0 million net of tax) and timberland disposals, net of $0.1 million ($0.1 million net of tax); and (ii) for first quarter of 2007, restructuring charges of $2.0 million ($1.5 million net of tax). 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 increased 13 percent (7 percent excluding the impact of foreign currency translation) to $846.3 million in the first quarter of 2008 compared to $750.8 million in the first quarter of 2007. The $95.5 million increase is due to Industrial Packaging ($78.9 million), Paper Packaging ($14.6 million) and Timber ($2.0 million). Higher sales volumes primarily drove the 7 percent constant-currency increase.

Operating profit before special items was $104.6 million for the first quarter of 2008 compared to $60.6 million for the first quarter of 2007. The $44.0 million increase included a $29.9 million pre-tax net gain on the divestiture of business units in Australia and Zimbabwe. The remaining $14.1 million increase was principally due to higher operating profit in Industrial Packaging ($11.3 million) and Paper Packaging ($3.2 million). This increase was attributable to a modest improvement in gross profit margin and a reduction in the selling, general and administrative expenses to net sales ratio compared to the same period last year. GAAP operating profit was $94.2 million and $58.6 million in the first quarter of 2008 and 2007, respectively.

Net income before special items increased 93 percent to $68.6 million for the first quarter of 2008 compared to $35.5 million for the first quarter of 2007. Diluted earnings per share before special items were $1.16 compared to $0.60 per Class A share and $1.76 compared to $0.92 per Class B share for the first quarter of 2008 and 2007, respectively. The Company had GAAP net income of $60.7 million, or $1.03 per diluted Class A share and $1.56 per diluted Class B share, in the first quarter of 2008 compared to GAAP net income of $34.0 million, or $0.58 per diluted Class A share and $0.88 per diluted Class B share, in the first quarter of 2007. Included in both the first quarter 2008 net income before special items and GAAP net income is a $20.9 million after-tax net gain ($0.35 per diluted Class A share and $0.53 per diluted Class B share) related to the divestiture of business units in Australia and Zimbabwe.

Business Group Results

Industrial Packaging net sales were up 13 percent to $671.3 million in the first quarter of 2008 from $592.4 million in the first quarter of 2007 – an increase of 5 percent excluding the impact of foreign currency translation. Higher sales volumes in most regions, with particular strength in Europe and the emerging markets, drove the segment’s organic growth. Gross profit margin was 16.8 percent in the first quarter of 2008 versus 16.6 percent in the first quarter of 2007. Operating profit before special items increased to $78.1 million in the first quarter of 2008 from $36.9 million in the first quarter of 2007. The increase included a $29.9 million net gain on the divestiture of business units in Australia and Zimbabwe. The remaining increase was primarily due to improvement in net sales volumes and execution of the Greif Business System. GAAP operating profit was $68.6 million in the first quarter of 2008 compared to $35.7 million in the first quarter of 2007.

Paper Packaging net sales were $168.8 million in the first quarter of 2008 compared to $154.2 million in the first quarter of 2007. This was principally due to higher containerboard selling prices implemented during the fourth quarter of fiscal 2007. The Paper Packaging segment’s gross profit margin increased to 19.6 percent for the first quarter of 2008 from 19.4 percent for the first quarter of 2007. Operating profit before special items increased to $20.4 million in the first quarter of 2008 compared to $17.2 million in the first quarter of 2007. Higher raw material costs, especially old corrugated containers, were more than offset by higher selling prices and contributions from further execution of the Greif Business System. GAAP operating profit was $19.4 million and $16.4 million in the first quarter of 2008 and 2007, respectively.

Timber net sales were $6.2 million and $4.2 million in the first quarter of 2008 and 2007, respectively. Operating profit before special items was $6.1 million in the first quarter of 2008 compared to $6.5 million in the first quarter of 2007. Included in these amounts were profits from the sale of special use properties (surplus, higher and better use, and development properties) of $3.8 million in the first quarter of 2008 and $4.7 million in the first quarter of 2007. GAAP operating profit was $6.2 million and $6.5 million in the first quarter of 2008 and 2007, respectively.

Other Cash Flow Information

During the first quarter of 2008, the Company acquired two small packaging businesses located in the United States and Brazil. The outflow of funds related to the purchase price for these acquisitions was partially offset by the receipt of proceeds from the divestiture of business units in Australia and Zimbabwe.

Capital expenditures were $29.5 million, excluding timberland purchases of $0.5 million, for the first quarter of 2008 compared with capital expenditures of $18.6 million, excluding timberland purchases of $0.4 million, for the first quarter of 2007. Fiscal 2008 capital expenditures are expected to be approximately $125 million, excluding timberland purchases, which includes expansion capital to support the Company’s growth strategy in the emerging markets.

On Feb. 25, 2008, the Board of Directors declared quarterly cash dividends of $0.28 per share of Class A Common Stock and $0.42 per share of Class B Common Stock. These dividends, payable on April 1, 2008 to stockholders of record at close of business on March 17, 2008, are approximately 50 percent above the amount paid for the same period a year ago.

In addition to acquisitions, capital expenditures and dividends, the Company’s debt increased due to seasonal factors, acceleration of inventory purchases in response to rising raw material costs, and the payment of fiscal 2007 performance-based incentives during the first quarter of 2008.

Company Outlook

The Company is encouraged by its first quarter results and positive business momentum as it exited the quarter. Price increases were announced during the first quarter in response to rising raw material costs, particularly for steel and plastic products, and the Company is addressing transportation and energy costs through the Greif Business System.

The Company’s 2008 guidance is being reaffirmed and adjusted upward to $4.15 to $4.35 per Class A share to reflect the $0.35 impact from the net gain related to the divestiture of businesses. It is the Company’s expectation that the full-year results will be at the upper end of the adjusted range.