Greif (GEF) Completes Divestiture of CPG Business Unit

Greif, Inc. (GEF) recently divested its Consumer Packaging Group ("CPG") unit to Graphic Packaging Holding Company GPK for cash proceeds of $85 million. The company will be utilizing the fund for repayment of debt.

A part of Greif’s Paper Packaging division, the CPG business contains seven converting facilities across the United States that manufactures folding cartons for consumer packaged goods and produce annual revenues of more than $200 million. Greif had entered into the agreement to sell the unit in February.

The divesture enables Greif to deleverage balance sheet and optimize capital allocation priorities, while focusing on core industrial franchise and strategic growth priorities in Intermediate Bulk Container (IBC) production and containerboard integration.

In line with this, Greif also announced that it is expanding IBC reconditioning network in North America through a minority investment stake in Centurion Container LLC. Members of Centurion’s veteran management team were among the pioneers of the IBC reconditioning industry. This deal will provide customers with an enhanced sustainable packaging solution along with the economies inherent in reusable packaging.

Recently, the company reported mixed first-quarter fiscal 2020 results, wherein earnings surpassed the Zacks Consensus Estimate, while sales missed the same. While the top line improved 24% year over year, the bottom line declined 1.5%

In February 2019, the company completed the acquisition of Caraustar Industries, Inc. and is currently integrating its operations. The buyout has reinforced the company’s leadership in industrial packaging and significantly bolstered its margins, free cash flow and profitability. Greif continues to expect $70 million in synergies over the next 36 months from the closure of the Caraustar buyout.

The Paper Packaging segment sales soared 118%, year on year to $473.7 million in the recently-reported quarter. This upside was driven by contribution of $288.2 million from the Caraustar acquisition. The segment is likely to benefit from the Caraustar buyout and various other new capital growth projects.

However, the company continues to experience challenging industrial markets across its portfolio and the overall demand environment remains soft. Greif expects adjusted earnings per share for fiscal 2020 at $3.55-$3.91. The mid-point of the range reflects a decline of 4% thanks to the macroeconomic uncertainty and the impact of the coronavirus outbreak.

Nevertheless, Greif will keep benefiting from focus on operational execution, capital discipline, and a strong and diverse product portfolio. The company continues to execute cost-reduction activities across portfolio to counter softer market demand.

Price Performance

Greif, along with Graphic Packaging and Sonoco Products Company SON, fall under the Containers - Paper And Packaging industry. Over the past year, Greif’s shares have lost 30.8% compared with the industry’s decline of 49.1%.

Zacks Rank & a Key Pick

Greif currently carries a Zacks Rank #4 (Sell).

A better-ranked stock in the Industrial Products sector is Sharps Compliance Corp SMED which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Sharps Compliance has an estimated earnings growth rate of 800% for 2020. In a year’s time, the company’s shares have gained 118%.

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