Business News

Greif, Inc. Reports First Quarter 2009 Results

Thursday 26. February 2009 - Net sales decreased 21 percent (15 percent excluding the impact of foreign currency translation) to $666.3 million in the first quarter of 2009 from $846.3 million in the first quarter of 2008.

— Net income before special items, as defined below, was $21.7 million ($0.38 per diluted Class A share) in the first quarter of 2009 compared to $68.6 million ($1.16 per diluted Class A share) in the first quarter of 2008. GAAP net income was $1.3 million ($0.03 per diluted Class A share) and $60.7 million ($1.03 per diluted Class A share) in the first quarter of 2009 and 2008, 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 was 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 products and services, today announced results for its first fiscal quarter, which ended Jan. 31, 2009.

Michael J. Gasser, chairman and chief executive officer, said, “Historically, our first quarter performance is adversely affected by seasonal factors. This was further compounded in 2009 by the global economic downturn that began to impact our company in the fourth quarter of 2008. We announced comprehensive plans last December to mitigate these challenges, including acceleration of the Greif Business System initiatives. We are aggressively implementing these plans and are on track to achieve the anticipated annual savings.”

Mr. Gasser continued, “Last week we announced the successful completion and closing of $700 million of senior secured credit facilities, which substantially increases our financial flexibility and enables us to continue executing our growth strategy in a disciplined manner.”

Special Items and GAAP to Non-GAAP Reconciliation

Special items are as follows: (i) for the first quarter of 2009, restructuring charges of $27.2 million ($19.1 million net of tax) and restructuring-related inventory charges of $1.8 million ($1.3 million net of tax); and (ii) for 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). 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 decreased 21 percent (15 percent excluding the impact of foreign currency translation) to $666.3 million in the first quarter of 2009 compared to $846.3 million in the first quarter of 2008. The $180.0 million decline was due to Industrial Packaging ($141.8 million) and Paper Packaging ($38.4 million). The 15 percent constant-currency decrease was due to lower sales volumes across all product lines, partially offset by generally higher selling prices compared to the same period last year.

Operating profit before special items was $46.3 million for the first quarter of 2009 compared to $104.6 million for the first quarter of 2008. The $58.3 million decrease was due to Industrial Packaging ($55.7 million) and Timber ($2.9 million), partially offset by an increase in Paper Packaging ($0.3 million). The $55.7 million decrease in Industrial Packaging was primarily due to a $29.9 million pretax net gain on the divestiture of business units in Australia and Zimbabwe, which was recognized in the first quarter of 2008, and lower net sales. GAAP operating profit was $17.3 million and $94.2 million in the first quarter of 2009 and 2008, respectively.

Net income before special items was $21.7 million for the first quarter of 2009 compared to $68.6 million for the first quarter of 2008. Diluted earnings per share before special items were $0.38 compared to $1.16 per Class A share and $0.56 compared to $1.76 per Class B share for the first quarter of 2009 and 2008, respectively. The Company had GAAP net income of $1.3 million, or $0.03 per diluted Class A share and $0.03 per diluted Class B share, in the first quarter of 2009 compared to 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. 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 decreased 21 percent (13 percent excluding the impact of foreign currency translation) to $529.5 million in the first quarter of 2009 from $671.3 million in the first quarter of 2008, despite generally higher selling prices compared to the same period in 2008. Operating profit before special items decreased to $22.4 million in the first quarter of 2009 from $78.1 million in the first quarter of 2008. The $55.7 million decrease was primarily due to a $29.9 million net gain on the divestiture of business units in Australia and Zimbabwe, which was realized in the first quarter of 2008, coupled with lower net sales and a $5.3 million lower-of-cost-or-market inventory adjustment in Asia in the first quarter of 2009. The segment is aggressively implementing incremental Greif Business System (GBS) and accelerated GBS initiatives to mitigate the impact of the lower activity levels. GAAP operating loss was $4.5 million in the first quarter of 2009 compared to operating profit of $68.6 million in the first quarter of 2008.

Paper Packaging net sales were $130.4 million in the first quarter of 2009 compared to $168.8 million in the first quarter of 2008, despite higher containerboard selling prices implemented in the fourth quarter of 2008. Operating profit before special items increased to $20.7 million in the first quarter of 2009 from $20.4 million in the first quarter of 2008. The increase was primarily due to lower raw material costs, especially old corrugated containers, labor and transportation costs, partially offset by lower net sales. In addition, the segment is aggressively implementing incremental GBS and accelerated GBS initiatives to mitigate the impact of the lower activity levels. GAAP operating profit was $18.8 million and $19.4 million in the first quarter of 2009 and 2008, respectively.

Timber net sales were $6.4 million and $6.2 million in the first quarter of 2009 and 2008, respectively. Operating profit before special items was $3.2 million in the first quarter of 2009 compared to $6.1 million in the first quarter of 2008. Included in these amounts were profits from the sale of special use properties (surplus, higher and better use, and development properties) of $0.3 million in the first quarter of 2009 and $3.8 million in the first quarter of 2008. GAAP operating profit was $3.0 million and $6.2 million in the first quarter of 2009 and 2008, respectively.

Other Cash Flow Information

Capital expenditures were $26.8 million, excluding timberland purchases of $0.4 million, for the first quarter of 2009 compared with capital expenditures of $29.5 million, excluding timberland purchases of $0.5 million, for the first quarter of 2008. Capital expenditures for 2009 are expected to be approximately $85 million, excluding timberland purchases, which is below anticipated annual depreciation expense for the year.

On Feb. 23, 2009, the Board of Directors declared quarterly cash dividends of $0.38 per share of Class A Common Stock and $0.57 per share of Class B Common Stock. These dividends are payable on April 1, 2009 to stockholders of record at close of business on March 17, 2009.

In the first quarter of 2009, the Company’s debt increased primarily due to seasonal factors. The amount was further impacted by the sharp decline in demand and key raw material costs at the end of 2008, capital expenditures, dividends, and the payment of 2008 performance-based incentives.

On Feb. 19, 2009, the Company closed on a new $700 million of senior secured credit facilities co-arranged by Banc of America Securities LLC and J.P. Morgan Securities Inc. The new facilities replaced an existing $450 million revolving credit facility that was scheduled to expire in March 2010. The new credit agreement provides for a revolving credit facility of $500 million and a $200 million term loan, both expiring February 2012, with the ability to increase the facilities by up to $200 million.

Greif Business System (GBS) and Accelerated Initiatives

In December 2008 the Company announced specific plans to address the adverse impact resulting from the sharp decline in business throughout the global economy beginning in the Company’s fourth quarter of 2008. Management is aggressively implementing those plans that include the following initiatives:

— During 2009 approximately $50 million of additional GBS savings are
expected to be achieved through the Company’s Operational Excellence
and Global Sourcing initiatives.

— Accelerated GBS initiatives are also being implemented that include
continuation of active portfolio management, further administrative
excellence activities, a hiring and salary freeze, and curtailed
discretionary spending. These actions are expected to result in an
additional $50 million of savings during 2009.



The GBS and accelerated GBS initiatives are on track to deliver the expected operating profit impact of approximately $100 million during 2009.

As a result of the GBS and accelerated GBS initiatives, the Company is expecting to record restructuring charges of approximately $50 million during fiscal 2009. During the first quarter of 2009, the Company recorded $27.2 million of restructuring charges, including $16.0 million of employee separation costs, $4.9 million of asset impairments and $6.3 million of other costs, and $1.8 million of restructuring-related inventory charges.

The restructuring and other cost reduction activities resulted in the closure of 10 facilities and the elimination of certain operating and administrative positions throughout the world. A total of approximately 1,375 positions were eliminated during the first quarter of 2009.

Company Outlook

The Greif Business System and accelerated GBS initiatives will significantly mitigate the impact of the global business and economic environment. Therefore, the Company reaffirms its earnings guidance before special items of $3.25 to $3.75 per Class A share for fiscal 2009.