Business News

Greif, Inc. Reports Third Quarter 2009 Results

Thursday 03. September 2009 - -- Net sales decreased 31 percent (24 percent excluding the impact of foreign currency translation) to $717.6 million in the third quarter of 2009 from $1,034.1 million in the third quarter of 2008.

— Net income before special items, as defined below, was $51.6 million
($0.88 per diluted Class A share) in the third quarter of 2009
compared to $69.5 million ($1.18 per diluted Class A share) in the
third quarter of 2008. GAAP net income was $39.7 million ($0.68 per
diluted Class A share) and $64.6 million ($1.10 per diluted Class A
share) in the third 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 third fiscal quarter, which ended July 31, 2009.

Michael J. Gasser, chairman and chief executive officer, said, “Our third quarter 2009 results benefited from significant permanent cost reduction actions and gradually improving volumes, especially during the final month of the quarter. We expect to achieve savings of at least $150 million in fiscal 2009 due to Greif Business System (GBS) and accelerated GBS initiatives and specific contingency actions. We believe these factors will benefit our fourth quarter results and position us for a stronger performance in fiscal 2010.”

Gasser continued, “We continue to execute our disciplined growth strategy. During the third quarter, we increased the Company’s financial capacity and flexibility through the issuance of new 10-year Senior Notes. Two small tuck-in acquisitions were completed during the quarter and additional opportunities are being pursued to further strengthen Greif’s product portfolio and global footprint.”

Special Items and GAAP to Non-GAAP Reconciliations

Special items are as follows: (i) for the third quarter of 2009, restructuring charges of $10.3 million ($10.7 million net of tax) and restructuring-related inventory charges of $0.8 million ($1.2 million net of tax); and (ii) for third quarter of 2008, restructuring charges of $6.6 million ($5.0 million net of tax) and gain on timberland disposals, net of $0.2 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 31 percent (24 percent excluding the impact of foreign currency translation) to $717.6 million in the third quarter of 2009 compared to a record $1,034.1 million in the third quarter of 2008. The $316.5 million decline was due to lower sales in Industrial Packaging ($258.2 million), Paper Packaging ($57.4 million) and Timber ($0.9 million). The 24 percent constant-currency decrease was due to lower sales volumes and lower selling prices due to the pass-through of lower raw material costs.

Operating profit before special items was $81.3 million for the third quarter of 2009 compared to $107.7 million for the third quarter of 2008. The lower operating results for Industrial Packaging ($23.6 million) and Paper Packaging ($5.1 million), as compared to the same period last year, were due to lower sales volumes and lower prices, significantly offset by cost reductions achieved under the previously announced incremental Greif Business System (GBS) and accelerated GBS initiatives and specific contingency actions. Timber operating profit improved by $2.3 million as a result of a single special use property sale in the third quarter of 2009. GAAP operating profit was $70.2 million and $101.3 million in the third quarter of 2009 and 2008, respectively.

Net income before special items was $51.6 million for the third quarter of 2009 compared to $69.5 million for the third quarter of 2008. Diluted earnings per share before special items were $0.88 compared to $1.18 per Class A share and $1.33 compared to $1.79 per Class B share for the third quarter of 2009 and 2008, respectively. The Company had GAAP net income of $39.7 million, or $0.68 per diluted Class A share and $1.03 per diluted Class B share, in the third quarter of 2009 compared to GAAP net income of $64.6 million, or $1.10 per diluted Class A share and $1.67 per diluted Class B share, in the third quarter of 2008.

Business Group Results

Industrial Packaging net sales decreased 30 percent (22 percent excluding the impact of foreign currency translation) to $594.2 million in the third quarter of 2009 from $852.4 million in the third quarter of 2008 primarily due to lower sales volumes and lower selling prices. Operating profit before special items decreased to $69.3 million in the third quarter of 2009 from $92.9 million in the third quarter of 2008. The $23.6 million decrease was due to lower net sales, partially offset by lower raw material costs. Labor, transportation and energy costs were also lower as compared to the same quarter last year. This segment continues to benefit from GBS and specific contingency initiatives. GAAP operating profit was $58.5 million and $88.1 million in the third quarter of 2009 and 2008, respectively.

Paper Packaging net sales were $120.2 million in the third quarter of 2009 compared to $177.6 million in the third quarter of 2008. This decrease was primarily due to lower sales volumes and lower containerboard selling prices compared to the same quarter of the previous year. Operating profit before special items decreased to $7.7 million in the third quarter of 2009 from $12.8 million in the third quarter of 2008. The $5.1 million decrease was due to lower net sales, partially offset by lower raw material costs, especially for old corrugated containers. In addition, labor, transportation and energy costs were lower as compared to the same quarter of the previous year. This segment continues to benefit from GBS and specific contingency initiatives. GAAP operating profit was $7.4 million and $11.0 million in the third quarter of 2009 and 2008, respectively.

Timber net sales were $3.2 million and $4.1 million in the third quarter of 2009 and 2008, respectively. Operating profit before special items was $4.3 million in the third quarter of 2009 compared to $2.0 million in the third quarter of 2008. Included in these amounts were operating profits from the sale of special use properties (e.g., surplus, higher and better use, and development properties) of $3.9 million, including $3.5 million from a property sale, in the third quarter of 2009 and $0.9 million in the third quarter of 2008. GAAP operating profit was $4.3 million and $2.2 million in the third quarter of 2009 and 2008, respectively.

Senior Notes

In the third quarter of 2009, the Company issued $250 million aggregate principal amount of 7-3/4 percent Senior Notes due 2019 in a Rule 144A and Regulation S offering. The net proceeds from the issuance of the new Senior Notes are to be used for general corporate purposes, including the repayment of amounts outstanding under its revolving credit facility, without any permanent reduction to the commitments.

Other Financial Information

The Company’s effective tax rate was 23.6 percent for the third quarter of 2009 compared to 23.3 percent for the same period last year. This was attributable to an increase in the proportion of earnings in the United States compared to earnings outside the United States, partially offset by alternative fuel credit benefits.

Capital expenditures were $27.9 million for the third quarter of 2009 compared with capital expenditures of $37.7 million, excluding timberland purchases of $0.2 million, for the third quarter of 2008. Fiscal 2009 capital expenditures, excluding timberland purchases, are expected to be in the range of $95 million to $100 million, which is below or in-line with anticipated depreciation, depletion and amortization expense for the year.

On Sept. 1, 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 Oct. 1, 2009 to stockholders of record at close of business on Sept. 18, 2009.

Greif Business System (GBS) and Accelerated Initiatives

In December 2008, the Company announced specific plans to address the adverse impact to its businesses resulting from the sharp decline of the global economy, which began in the Company’s fourth quarter of 2008. Management is aggressively implementing plans that include the following initiatives:

— Operational Excellence and Global Sourcing initiatives, which are
expected to produce savings of approximately $50 million during fiscal
2009.


— 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 $100
million of savings during fiscal 2009.



The incremental GBS, accelerated GBS and contingency initiatives are ahead of their implementation schedule and are expected to capture at least $150 million in annual savings in fiscal 2009.

As a result of these initiatives, the Company expects to record restructuring charges of approximately $78 million during fiscal 2009. During the third quarter of 2009, the Company recorded $10.3 million of restructuring charges. The year-to-date restructuring and other cost reduction activities included the closure of 16 facilities and the elimination of more than 2,000 operating and administrative positions.

Company Outlook

The Company has implemented significant cost reduction plans during fiscal 2009 to mitigate the impact of lower volumes attributable to the global economic recession. Positive contributions have been achieved during the first nine months of fiscal 2009 and substantial cost savings are expected to be realized during the fourth quarter. Further cyclical improvements in sales volumes are also expected to occur in the fourth quarter of 2009. Based on these factors, the Company’s fiscal 2009 earnings guidance is in the range of $3.25 to $3.50 per Class A share.