Packaging

Greif, Inc. Reports Fourth Quarter and Fiscal 2010 Results

Thursday 09. December 2010 - Net sales increased 31 percent to $993.9 million in the fourth quarter of 2010 compared to $760.5 million in the fourth quarter of 2009. This increase was due to higher sales volumes (21 percent or 5 percent excluding acquisitions) and higher selling prices (11 percent), partially offset by foreign currency translation (1 percent).

Net income before special items, as defined below, was $88.8 million ($1.51 per diluted Class A share) in the fourth quarter of 2010 compared to $81.4 million ($1.38 per diluted Class A share) in the fourth quarter of 2009. GAAP net income was $76.6 million ($1.30 per diluted Class A share) in the fourth quarter of 2010 and $73.6 million ($1.25 per diluted Class A share) in the fourth quarter of 2009.
Net sales increased 24 percent to $3.5 billion in fiscal 2010 compared to $2.8 billion in fiscal 2009, due to higher sales volumes (23 percent or 12 percent excluding acquisitions) and foreign currency translation (1 percent).
Net income before special items was $255.3 million ($4.35 per diluted Class A share) in fiscal 2010 compared to $175.1 million ($3.00 per diluted Class A share) in fiscal 2009. GAAP net income was $210.0 million ($3.58 per Class A share) and $110.6 million ($1.91 per Class A share) in fiscal 2010 and 2009, respectively.
Greif, Inc. (NYSE: GEF, GEF.B), a global leader in industrial packaging products and services, today announced results for its fourth quarter and fiscal year, which ended Oct. 31, 2010.
Michael J. Gasser, chairman and chief executive officer, said, “We are pleased with our strong fourth quarter and full-year 2010 results, which were primarily driven by improved sales volumes, the Greif Business System and permanent cost savings compared to last year. We enter fiscal 2011 with solid fundamentals.”
Gasser continued, “We accelerated implementation of our growth strategy during fiscal 2010 by further strengthening our market and product positions and introducing new growth platforms of flexible intermediate bulk containers and reconditioning services. During fiscal 2011, our efforts will be principally focused on integration activities and synergy capture. We look forward to further improvement in financial performance for fiscal 2011.”
Special Items and GAAP to Non-GAAP Reconciliations
Special items are as follows: (i) for the fourth quarter of 2010, restructuring charges of $6.2 million ($5.7 million net of tax) and acquisition-related costs of $7.1 million ($6.5 million net of tax); (ii) for the fourth quarter of 2009, restructuring charges of $8.8 million ($7.3 million net of tax) and restructuring-related inventory charges of $0.7 million ($0.5 million net of tax); (iii) for fiscal 2010, restructuring charges of $26.7 million ($22.4 million net of tax), restructuring-related inventory charges of $0.1 million ($0.1 million net of tax) and acquisition-related costs of $27.2 million ($22.8 million net of tax); and (iv) for fiscal 2009, restructuring charges of $66.6 million ($55.0 million net of tax), restructuring-related inventory charges of $10.8 million ($8.9 million net of tax) and debt extinguishment charges of $0.8 million ($0.6 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
Fourth Quarter of 2010
Net sales were $993.9 million in the fourth quarter of 2010 compared to $760.5 million in the fourth quarter of 2009. The 31 percent increase was due to higher sales volumes (21 percent or 5 percent excluding acquisitions) and higher selling prices (11 percent), partially offset by foreign currency translation (1 percent). The $233.4 million increase was attributable to Flexible Products & Services ($89.6 million increase), Rigid Industrial Packaging & Services ($88.7 million increase), and Paper Packaging ($58.4 million increase), partially offset by Land Management ($3.3 million decrease).
Selling, general and administrative (SG&A) expenses increased to $98.4 million in the fourth quarter of 2010 from $76.1 million for the same period last year. Lower SG&A expenses from existing operations were offset by the inclusion of $16.5 million of SG&A expenses from acquired companies and $7.1 million of acquisition-related costs recognized in accordance with ASC 280, “Business Combinations,” and acquisition integration costs.
Operating profit before special items increased to $119.6 million for the fourth quarter of 2010 from $117.8 million for the fourth quarter of 2009. Higher operating profit for Paper Packaging ($17.4 million increase) and Flexible Products & Services ($3.0 million increase) was partially offset by Land Management ($9.3 million decrease) and Rigid Industrial Packaging & Services ($9.3 million decrease). GAAP operating profit was $106.3 million and $108.3 million in the fourth quarter of 2010 and 2009, respectively.
Net income before special items increased to $88.8 million for the fourth quarter of 2010 from $81.4 million for the fourth quarter of 2009. Diluted earnings per share before special items were $1.51 compared to $1.38 per Class A share and $2.28 compared to $2.10 per Class B share for the fourth quarter of 2010 and 2009, respectively.
The Company had GAAP net income of $76.6 million, or $1.30 per diluted Class A share and $1.97 per diluted Class B share, in the fourth quarter of 2010 compared to $73.6 million, or $1.25 per diluted Class A share and $1.90 per diluted Class B share, in the fourth quarter of 2009.
Fiscal 2010
Net sales were $3.5 billion in fiscal 2010 compared to $2.8 billion in fiscal 2009. The 24 percent increase was due to higher sales volumes (23 percent or 12 percent excluding acquisitions) and foreign currency translation (1 percent). The $669.4 million increase was attributable to Rigid Industrial Packaging & Services ($321.0 million increase), Flexible Products & Services ($189.1 million increase) and Paper Packaging ($163.4 million increase), partially offset by Land Management ($4.1 million decrease).
Selling, general and administrative (SG&A) expenses increased to $363.0 million in fiscal 2010 from $267.6 million for the same period last year. This increase was primarily due to the inclusion of $37.9 million of SG&A expenses from acquired companies and $27.2 million of acquisition-related costs recognized in accordance with ASC 280, “Business Combinations,” and acquisition integration costs. In addition, there was a $4.6 million unfavorable impact from foreign currency translation. There were also higher employment-related costs in fiscal 2010 as compared to fiscal 2009, when normal salary increases and certain benefits were curtailed.
Operating profit before special items increased to $379.4 million for fiscal 2010 from $277.3 million for fiscal 2009. The $102.1 million increase was due to Rigid Industrial Packaging & Services ($80.1 million increase), Paper Packaging ($25.1 million increase) and Flexible Products & Services ($10.2 million increase), partially offset by Land Management ($13.3 million decrease). GAAP operating profit was $325.4 million and $199.9 million in fiscal 2010 and 2009, respectively.
Net income before special items increased to $255.3 million for fiscal 2010 from $175.1 million for fiscal 2009. Diluted earnings per share before special items were $4.35 compared to $3.00 per Class A share and $6.56 compared to $4.52 per Class B share for fiscal 2010 and 2009, respectively.
The Company had GAAP net income of $210.0 million, or $3.58 per diluted Class A share and $5.40 per diluted Class B share, in fiscal 2010 compared to $110.6 million, or $1.91 per diluted Class A share and $2.86 per diluted Class B share, in fiscal 2009.
Business Group Results
Fourth Quarter of 2010
For the fourth quarter of 2010, the Rigid Industrial Packaging & Services segment net sales increased 14 percent to $704.8 million from $616.1 million in the fourth quarter of 2009. This increase was due to higher selling prices (8 percent) and higher sales volumes (7 percent or 2 percent excluding acquisitions), partially offset by foreign currency translation (1 percent). Operating profit before special items was $84.2 million in the fourth quarter of 2010 compared to $93.5 million in the fourth quarter of 2009. The $9.3 million decrease was primarily attributable to the Europe, Middle East and Africa (EMEA) region, due mainly to the product mix in the agricultural sector, a negative impact from foreign currency translation compared to the fourth quarter of 2009 and lower net gains on asset disposals. GAAP operating profit was $77.8 million and $81.8 million in the fourth quarter of 2010 and 2009, respectively.
Flexible Products & Services segment net sales for the fourth quarter of 2010 were $104.4 million compared to $14.8 million in the fourth quarter of 2009. This increase was primarily due to the acquisitions of Storsack Holding GmbH and its subsidiaries (Storsack), Sunjut Sun’i Jut Sanayi ve Ticaret Anonim Sirketi and its subsidiaries (Sunjut), Unsa Ambalaj Sanayi ve Ticaret A.S. and its subsidiaries (Unsa) and Ligtermoet B.V. (Ligtermoet) during fiscal 2010. Operating profit before special items was $6.5 million in the fourth quarter of 2010 compared to $3.5 million in the fourth quarter of 2009, primarily due to the fiscal 2010 acquisitions. GAAP operating profit was $0.1 million and $3.5 million for the fourth quarter of 2010 and 2009, respectively, primarily due to $5.8 million of acquisition-related costs during the fourth quarter of 2010.
For the fourth quarter of 2010, the Paper Packaging segment net sales increased 48 percent to $179.6 million from $121.2 million in the fourth quarter of 2009. This increase was due to higher sales volumes (26 percent or 16 percent excluding acquisitions) and higher selling prices (22 percent). Operating profit before special items was $25.9 million in the fourth quarter of 2010 compared to $8.5 million in the fourth quarter of 2009. This was primarily due to higher sales volumes, improved selling prices and disciplined execution of the Greif Business System, partially offset by the higher cost of raw materials, especially old corrugated containers, at the paper mills. GAAP operating profit was $25.4 million and $10.7 million in the fourth quarter of 2010 and 2009, respectively.
Net sales for the Land Management segment for the fourth quarter of 2010 decreased to $5.1 million from $8.4 million in the fourth quarter of 2009. GAAP operating profit and operating profit before special items was $3.0 million in the fourth quarter of 2010 compared to $12.3 million in the fourth quarter of 2009.
Fiscal 2010
Rigid Industrial Packaging & Services net sales were $2.6 billion in fiscal 2010 compared to $2.3 billion in fiscal 2009. The 14 percent increase in net sales was due to higher sales volumes (14 percent or 10 percent excluding acquisitions) and foreign currency translation (2 percent), partially offset by lower selling prices (2 percent) reflecting lower average raw material costs. Operating profit before special items increased to $291.0 million in fiscal 2010 from $210.9 million in fiscal 2009. The $80.1 million increase was primarily due to higher sales volumes, disciplined execution of the Greif Business System and further benefits from the permanent cost savings achieved during fiscal 2009, partially offset by lower net gains on asset disposals. Operating profit for all geographic regions within this segment improved over fiscal 2009 operating results, with particular strength in the EMEA region driven by sales volume improvements and margin expansion. GAAP operating profit was $262.3 million and $134.4 million in fiscal 2010 and 2009, respectively.
Flexible Products & Services net sales were $233.1 million in fiscal 2010 compared to $44.0 million in fiscal 2009. The increase was primarily due to the acquisition of Storsack during the second quarter of 2010, and Sunjut, Unsa and Ligtermoet in the fourth quarter of 2010. Both periods include the Company’s multiwall bag operations, which were previously included in the Paper Packaging segment and reclassified to conform to the current year’s presentation. Operating profit before special items increased to $18.8 million in fiscal 2010, primarily as a result of the Storsack, Sunjut, Unsa and Ligtermoet acquisitions, from $8.6 million in fiscal 2009 attributable to the multiwall bag operations. GAAP operating loss was $1.4 million in fiscal 2010 and GAAP operating profit was $8.6 million in fiscal 2009, primarily due to $19.6 million of acquisition-related costs in fiscal 2010.
Paper Packaging net sales were $624.1 million in fiscal 2010 compared to $460.7 million in fiscal 2009. The 35 percent increase in net sales was due to higher sales volumes (32 percent or 20 percent excluding acquisitions) and higher selling prices (3 percent). For fiscal 2010, the Company benefited from the full realization of a $50 per ton containerboard price increase initiated in January 2010 and full realization of an additional $60 per ton containerboard price increase initiated in April 2010. Operating profit before special items increased to $60.6 million in fiscal 2010 from $35.5 million in fiscal 2009. This increase was due to the same factors that impacted the fourth quarter 2010 results compared to the same period in 2009. GAAP operating profit was $55.5 million and $34.8 million in fiscal 2010 and 2009, respectively.
Land Management net sales were $16.5 million and $20.6 million in fiscal 2010 and 2009, respectively. Operating profit before special items was $9.0 million in fiscal 2010 compared to $22.3 million in fiscal 2009. Included in these amounts were profits from the sale of special use properties (surplus, higher and better use, and development properties) of $3.3 million and $14.8 million in fiscal 2010 and 2009, respectively. GAAP operating profit was $ 9.0 million and $22.1 million in fiscal 2010 and 2009, respectively.
Financing Arrangements
On Oct. 29, 2010, the Company successfully closed $1 billion of senior secured credit facilities that replaced its existing $700 million senior secured credit facilities. The new agreement provides for a $750 million revolving credit facility and a $250 million term loan, which both mature on Oct. 29, 2015.
Other Cash Flow Information
In fiscal 2010, strong operating cash flows were principally applied to cash payments related to acquisitions, capital expenditures and dividends.
The Company paid $179.5 million and $90.8 million for acquisitions during fiscal 2010 and 2009, respectively.
Capital expenditures were $144.1 million, excluding timberland purchases of $21.0 million, for fiscal 2010 compared with capital expenditures of $124.7 million, excluding timberland purchases of $1.0 million, for fiscal 2009. Depreciation, depletion and amortization expense was $116.0 million and $102.6 million for fiscal 2010 and 2009, respectively.
On Dec. 7, 2010, the Board of Directors declared quarterly cash dividends of $0.42 per share of Class A Common Stock and $0.62 per share of Class B Common Stock. These dividends are payable on Jan. 1, 2011 to stockholders of record at close of business on Dec. 20, 2010.
Greif Business System (GBS) and Accelerated Initiatives
During fiscal 2009, the Company realized more than $150 million of annual cost savings from the implementation of specific plans to address the adverse impact to its businesses resulting from the global economic downturn, which began at the end of fiscal 2008. These plans included accelerated GBS initiatives, contingency actions and active portfolio management. In fiscal 2010, the Company retained more than the targeted $120 million of cost savings from those actions.
GBS savings in excess of $30 million were realized from operational excellence and sourcing initiatives during fiscal 2010.
Company Outlook
For fiscal 2011, the Company anticipates improvement in sales volumes, contributions from acquisitions and further productivity improvements from the Greif Business System. These positive factors are expected to be partially offset by lower gains on asset sales, elevated debt levels due to previous acquisitions and a higher effective tax rate. The Company believes that global economic uncertainties and currency fluctuations will continue to be challenges.
Based on the foregoing factors, the Company expects that Class A earnings per share, before special items, will be in the range of $4.75 to $5.00 for fiscal 2011.