Business News

Greif, Inc. Reports Second Quarter 2009 Results

Thursday 04. June 2009 - Net sales decreased 29 percent (20 percent excluding the impact of foreign currency translation) to $647.9 million in the second quarter of 2009 from $918.0 million in the second quarter of 2008.

– Net income before special items, as defined below, was $30.6 million ($0.53 per diluted Class A share) in the second quarter of 2009 compared to $54.3 million ($0.92 per diluted Class A share) in the second quarter of 2008. GAAP net income was $12.1 million ($0.21 per diluted Class A share) and $48.7 million ($0.82 per diluted Class A share) in the second quarter of 2009 and 2008, respectively.

Greif, Inc. (NYSE:GEF)(NYSE: GEF.B), a global leader in industrial packaging products and services, today announced results for its second fiscal quarter, which ended April 30, 2009.

Michael J. Gasser, chairman and chief executive officer, said, “The sharp global economic downturn that began last fall impacted our results for the second quarter of 2009. We continue to respond by aggressively implementing plans through the Greif Business System and specific contingency actions to offset a significant portion of the impact resulting from these weak market conditions. We anticipate that at least $100 million in annual savings will be realized from these actions in fiscal 2009. We are encouraged that there were increased signs of improvement in our markets as we exited the quarter.”

Mr. Gasser continued, “Consistent with our growth strategy, we are also pursuing opportunities to further strengthen our business through acquisitions, which included two small tuck-in industrial packaging acquisitions in the second quarter of 2009. We anticipate there will be additional opportunities to execute our disciplined growth strategy.”

Special Items and GAAP to Non-GAAP Reconciliations

Special items are as follows: (i) for the second quarter of 2009, restructuring charges of $20.3 million ($13.0 million net of tax), restructuring-related inventory charges of $7.5 million ($5.0 million net of tax) and debt extinguishment charges of $0.8 million ($0.5 million net of tax); and (ii) for second quarter of 2008, restructuring charges of $7.3 million ($5.7 million net of tax) and gain on timberland disposals, net of $0.1 million ($0.1 million net of tax). Reconciliations of the differences between all non-GAAP financial measures used in this release with the most directly comparable GAAP financial measures are included in the financial schedules that are a part of this release.

Consolidated Results

Net sales decreased 29 percent (20 percent excluding the impact of foreign currency translation) to $647.9 million in the second quarter of 2009 compared to $918.0 million in the second quarter of 2008. The $270.1 million decline was due to Industrial Packaging ($220.9 million), Paper Packaging ($45.3 million) and Timber ($3.9 million). The 20 percent constant-currency decrease was due to lower sales volumes across all product lines.

Operating profit before special items was $58.1 million for the second quarter of 2009 compared to $88.7 million for the second quarter of 2008. An increase in Paper Packaging ($0.9 million) was more than offset by lower results for Industrial Packaging ($23.5 million) and Timber ($8.0 million) compared to the same period last year. The Company continues to implement previously announced incremental Greif Business System (GBS) and accelerated GBS initiatives and specific contingency actions. GAAP operating profit was $30.3 million and $81.5 million in the second quarter of 2009 and 2008, respectively.

Net income before special items was $30.6 million for the second quarter of 2009 compared to $54.3 million for the second quarter of 2008. Diluted earnings per share before special items were $0.53 compared to $0.92 per Class A share and $0.79 compared to $1.40 per Class B share for the second quarter of 2009 and 2008, respectively. The Company had GAAP net income of $12.1 million, or $0.21 per diluted Class A share and $0.31 per diluted Class B share, in the second quarter of 2009 compared to GAAP net income of $48.7 million, or $0.82 per diluted Class A share and $1.25 per diluted Class B share, in the second quarter of 2008.

Business Group Results

Industrial Packaging net sales decreased 30 percent (19 percent excluding the impact of foreign currency translation) to $527.1 million in the second quarter of 2009 from $748.0 million in the second quarter of 2008, primarily due to lower activity levels compared to the same quarter of the previous year. Operating profit before special items decreased to $40.7 million in the second quarter of 2009 from $64.2 million in the second quarter of 2008. The $23.5 million decrease was due to lower net sales, significantly offset by lower raw material costs and related last-in, first-out (LIFO) benefits. In addition, this segment continues to benefit from GBS and specific contingency initiatives. GAAP operating profit was $13.6 million and $57.9 million in the second quarter of 2009 and 2008, respectively.

Paper Packaging net sales were $118.1 million in the second quarter of 2009 compared to $163.4 million in the second quarter of 2008. This decrease was primarily due to lower activity levels compared to the same quarter of the previous year, partially offset by higher containerboard selling prices implemented in the fourth quarter of 2008. Operating profit before special items increased to $15.0 million in the second quarter of 2009 from $14.1 million in the second quarter of 2008. The $0.9 million increase was primarily due to lower raw material costs, especially old corrugated containers, and related LIFO benefits. Also, labor, transportation and energy costs were lower as compared to the same quarter of the previous year. In addition, this segment continues to benefit from GBS and specific contingency initiatives. GAAP operating profit was $14.3 million and $13.2 million in the second quarter of 2009 and 2008, respectively.

Timber net sales were $2.7 million and $6.6 million in the second quarter of 2009 and 2008, respectively. Operating profit before special items was $2.4 million in the second quarter of 2009 compared to $10.4 million in the second quarter of 2008. Included in these amounts were profits from the sale of special use properties (e.g., surplus, higher and better use, and development properties) of $1.3 million in the second quarter of 2009 and $9.5 million in the second quarter of 2008, which included a single large land sale. GAAP operating profit was $2.4 million and $10.4 million in the second quarter of 2009 and 2008, respectively.

Other Financial Information

The Company’s effective tax rate was 32.9 percent during the second quarter of 2009 compared to 22.9 percent for the same period last year. The higher effective tax rate resulted from an increase in the proportion of earnings in the United States relative to outside the United States.

Capital expenditures were $26.7 million, excluding timberland purchases of $0.2 million, for the second quarter of 2009 compared with capital expenditures of $40.0 million, excluding timberland purchases of $0.8 million, for the second quarter of 2008. Fiscal 2009 capital expenditures, excluding timberland purchases, are expected to be approximately $85 million, which is approximately $25 million below anticipated depreciation, depletion and amortization expense for the year.

On June 2, 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 July 1, 2009 to stockholders of record at close of business on June 19, 2009.

Senior Secured Credit Facilities

In the second quarter of 2009, the Company closed on its $700 million 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 mature in March 2010. The new credit agreement provides for a $500 million revolving credit facility and a $200 million term loan, which both mature in February 2012.

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 its businesses due to the global economy, which began in the Company’s fourth quarter of 2008. Management is aggressively implementing those plans that include the following initiatives:

— During fiscal 2009, incremental GBS savings are expected to be
approximately $50 million primarily through the Company’s Operational
Excellence and Global Sourcing initiatives.


— Accelerated GBS and contingency 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 fiscal 2009.



The incremental GBS, accelerated GBS and contingency initiatives are ahead of schedule and are expected to capture at least $100 million in annual savings in fiscal 2009.

As a result of the incremental GBS, accelerated GBS and contingency initiatives, the Company is expecting to record restructuring charges of approximately $70 million during fiscal 2009. During the second quarter of 2009, the Company recorded $20.3 million of restructuring charges, including $11.2 million of employee separation costs, $6.7 million of asset impairments and $2.4 million of other costs, and $7.5 million of restructuring-related inventory charges.

The restructuring and other cost reduction activities resulted in the closure of 3 facilities in the second quarter of 2009 and 13 facilities for the year-to-date period, including the elimination of certain operating and administrative positions throughout the Company’s global operations. There were 678 positions eliminated in the second quarter of 2009, increasing the total number to 2,053 in fiscal 2009.

Company Outlook

The Company is encouraged by additional signs of improvement, which are consistent with expectations for its full fiscal year. As such, the Company reaffirms its earnings guidance before special items of $3.25 to $3.75 per Class A share for fiscal 2009.