Greif: Attractive Enough To Be Bullish About

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Greif, Inc.'s recent financial performance has been mixed, with rising revenue but declining profits and cash flows, yet shares remain attractively priced.Despite weak results and a 2.1% stock decline...

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Hispanolistic/E+ via Getty Images I don't know about you, but I have always been interested in the packaging industry. One of the firms in this space that I have liked for some time is Greif, Inc. (NYSE:GEF). This is a rather sizable player with a market capitalization of $3.10 billion as of this writing. Through significant investments, both in organic growth and toward acquisitions, the company has grown to generate a tremendous amount of revenue. From that, it has achieved some impressive bottom-line results. Recently, however, things have not been going for the best. As an example of this, we need only look at the firm's share price performance and its fundamental performance since I last wrote an article about it in December 2023. The company had just reported weak results for 2023 in its entirety, with revenue falling 17.8% year over year. Despite that, I believed that shares were attractively priced. At least, they were priced cheap enough to warrant a “buy” rating. However, since then, the stock is down 2.1% while the S&P 500 is up 21%. Some of this weakness is certainly because fundamental performance has continued to worsen this year. Revenue is up, but profits and cash flows are all down across the board. Even with that being the case, however, shares look cheap on an absolute basis and are mixed relative to comparable businesses. To me, this paints an interesting picture of a business that is not a home run candidate. But it is appealing enough to justify keeping the “buy” rating I had on it. A look at recent results The most recent figures that we have regarding Greif extend through the third quarter of the company's 2024 fiscal year. During this window of time, management was capable of generating revenue of $4.03 billion. This happens to be an increase of 3.1% compared to the $3.91 billion the company reported just one year earlier. At first glance, this is great to see. But to really understand what this means for the company and how we got here, we need to dig a bit deeper. I do believe this involves looking at the company segment by segment. But before we get there, it is necessary to talk about one major development that impacted sales. Author - SEC EDGAR Data Back in March of this year, management completed the acquisition of another player in this space by the name of Ipackchem. This cost shareholders $582.1 million, plus required another $8.9 million of transaction related expenses. Management provides a look at what revenue would have looked like to have this acquisition been completed on November 1st of 2022. This allows us to strip out the differences caused by the acquisition and to focus instead on the organic side of the business. Doing this, though, we do find out that revenue in the first nine months of this year would have been $4.12 billion. That's up 1.1% compared to the $4.08 billion reported one year earlier. That is considerably slower growth than what was exhibited on a GAAP basis. There have been other transactions recently. Back in December 2022, for instance, Greif acquired Lee Container Corporation for $303 million. Meanwhile, it has sold off some assets as well. In the third quarter of this year, management completed the divestiture of Delta Petroleum Company in exchange for $91.2 million. This followed the divestiture of Tama Paperboard in exchange for $100.2 million in the first quarter of 2023. The most important thing to take away from this is that the company is constantly in flux, and that does make it difficult to look at matters on a comparable basis. Now, when it comes to the segment data, we should start with the firm’s Global Industrial Packaging unit. During this nine month window, its revenue came in at $2.34 billion. That's 5.5% above the $2.22 billion the company reported just one year earlier. This increase of $121.6 million was mostly because of higher average selling prices, increased volumes, and the impact caused by mergers and acquisitions activities. However, management was not kind enough to provide an exact breakdown of the contribution from each of these categories. Similarly, the Paper Packaging & Services business also reported an increase in revenue. However, that increase was only by $0.1 million. The firm does have a segment called Land Management that reported a decline in revenue from $15.5 million last year to $14.6 million this year. But given how small all of that is, it's basically insignificant to shareholders. With revenue rising, you would expect profitability to be on the rise as well. Unfortunately, that has not been the case. Even though the Global Industrial Packaging segment saw an increase in operating profits from $259.2 million to $266.1 million, an increase that was driven by higher prices that were not quite offset by increased raw material costs, transportation expenses, and manufacturing costs, the Paper Packaging & Services segment took quite a hit. Operating profit for that unit plunged from $228.8 million to $66.9 million. Higher prices associated with raw materials, transportation, and manufacturing, all impacted the bottom line materially. The result here was a decline in net income from $291.4 million to $198.7 million. But that wasn't the only profitability metric to take a hit. Operating cash flow declined from $446 million to $168.8 million. If we adjust for changes in working capital, we get a fall from $448.4 million to $357.5 million. Meanwhile, even EBITDA took a hit, dropping from $619.6 million to $491.6 million. Author - SEC EDGAR Data When it comes to the 2024 fiscal year in its entirety, management has provided some guidance for investors. They expect, for instance, that EBITDA will be between $675 million and $725 million. Meanwhile, they are forecasting operating cash flow of between $322 million and $388 million. If we take the midpoint of those estimates, we can see in the chart above how shares are currently priced on a forward basis. That same chart also compares the data using results for the 2023 fiscal year. Even though the stock is pricier on a forward basis, I would still consider it to be in value territory at these multiples. Relative to similar firms, however, the picture is a bit more complicated. In the table below, I compared it with five such companies. On a price to operating cash flow basis, I found that four of the five firms ended up being cheaper than our candidate. But on an EV to EBITDA basis, Greif was tied with only one other business as being the cheapest of the group.   Company Price / Operating Cash Flow EV / EBITDA   Greif 8.7 8.6   O-I Glass (OI) 3.0 9.8   TriMas (TRS) 13.8 11.7   Myers Industries (MYE) 7.2 8.6   Silgan Holdings (SLGN) 7.2 10.9   Berry Global Group (BERY) 5.8 9.0   Click to enlarge Even though the recent financial track record of Greif has been mixed and even though the relative valuation of the company paints an unclear picture, I do think that shares are cheap enough to warrant a ‘buy’ rating. But that's not the only reason why I am bullish about the firm. I also love a company that will allocate significant capital toward growth opportunities. If it can be growth oriented while trading on the cheap, I consider that a great prospect in most cases. The fact of the matter is that, starting in the 2022 fiscal year and ending in the third quarter of this year, management has allocated about $2.7 billion toward various initiatives. About 50% of the cash that has been allocated has been growth oriented, most of which has been dedicated to mergers and acquisitions transactions. Greif The rest has been split between maintenance capital spending, debt reduction, cash dividends, and share buybacks. Management has not purchased any shares back this year. But last year, during the first nine months, they bought back $63.9 million worth. That was instrumental toward completing the $150 million share buyback program that the business had in place. Obviously, this latest acquisition was costly for the company. So I am not surprised to see an absence of share repurchases. However, I do think that additional ones could be on the table moving forward. And if so, that would make me even more bullish on the company. Takeaway  As things stand right now, I believe that Greif is doing quite well. Admittedly, the fundamental picture of the business is mixed currently, and the same can be said of how it's priced compared to similar firms. But on an absolute basis, the stock is cheap. Furthermore, management has invested a lot in growth recently and their willingness to buy back stock is also encouraging. All combined, this makes me feel confident that keeping a “buy” rating on the company makes sense right now.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2473967945"}