Greif (GEF) Gains From Strategic Actions Despite Demand Decline

·4 min read

Greif, Inc. GEF has been bearing the brunt of declining demand across its product lines. Supply-chain issues and labor shortages add to the woes. However, the company continues implementing price increases and restructuring activities, comprising optimizing and integrating operations, and closing underperforming assets. These are likely to drive growth in the forthcoming quarters.

Greif’s shares have lost 4.1% in a year compared with the industry’s fall of 6.6%.


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Greif has been witnessing a decline in demand, the impact of elevated costs and persisting supply-chain issues. The company has been bearing the brunt of lower volumes in the Global Industrial Packaging segment.

EMEA also saw a slowdown due to energy inflation and challenges related to the war in Ukraine.

APAC demand has been impacted by the COVID-19 protocols in China, which impacted the supply chain and industrial production, resulting in softness in most end markets, excluding automotive.

Demand in North America has also weakened due to muted domestic spending amid inflationary pressures and higher interest rates. The slowdown in manufacturing activity has also negatively impacted demand.

The margin pressure is anticipated to continue in the upcoming quarters. The Paper Packaging segment’s results will likely be impacted by higher raw material, manufacturing and transportation costs.

Labor shortages and supply-chain disruption add to the headwinds. While customers are reporting solid order backlogs and strong underlying demand, they continue to face external supply-chain disruptions. Increasing energy, chemical costs and transportation costs are expected to weigh on the company’s margins in the near term.

The ongoing uncertainty in the macroeconomic environment has been unfavorable and is likely to persist. In the first quarter of 2023, sales were down 19% year over year due to the lower volume of primary products sold, selling prices, product mix and the impact of changes in foreign currencies against the U.S. Dollar. The bottom line decreased 17% year over year.

To reflect these headwinds, Greif has provided only the low end of the guidance range for fiscal 2023. The projected low-end figure for adjusted EBITDA is at $740 million and that for adjusted free cash flow is at $370 million.

However, Greif will likely benefit from the focus on operational execution, capital discipline, and a strong and diverse product portfolio. The company will continue to focus on its restructuring activities, which include optimizing and integrating operations in the Paper Packaging & Services segment, rationalizing operations and closing underperforming assets in the Global Industrial Packaging segment. This is expected to drive growth in the upcoming quarters.

In April 2020, Greif divested its consumer packaging group business to Graphic Packaging for cash proceeds of $85 million. The sale included seven folding carton facilities. The divesture enabled Greif to deleverage its balance sheet and optimize capital allocation priorities, while focusing on core industrial franchise and strategic growth priorities in IBC production and containerboard integration.

The company also acquired a minority stake in Centurion Container LLC to further its IBC reconditioning network in North America. It has an option of full ownership in the future. The company recently completed the divestment of a 50% ownership in the Flexible Products & Services joint venture for cash proceeds of $131.6 million, which was utilized to repay debt.

Zacks Rank & Stocks to Consider

Greif currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the Industrial Products sector are OI Glass OI, Encore Wire WIRE, and Illinois Tool Works ITW. OI and TS flaunt a Zacks Rank #1 (Strong Buy) at present, and ITW has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

OI Glass has an average trailing four-quarter earnings surprise of 16.4%. The Zacks Consensus Estimate for OI’s 2023 earnings is pegged at $2.57 per share. This indicates an 11.7% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved 16% north in the past 60 days. OI’s shares gained 70.2% in the last year.

Encore Wire has an average trailing four-quarter earnings surprise of 146.8%. The Zacks Consensus Estimate for WIRE’s 2023 earnings is pegged at $19.76 per share. The consensus estimate for 2023 earnings has moved north by 1.7% in the past 60 days. Its shares gained 52.1% in the last year.

The Zacks Consensus Estimate for Illinois Tool Works’ fiscal 2023 earnings per share is pegged at $9.61, suggesting an increase of 4.8% from that reported in the last year. The consensus estimate for fiscal 2023 earnings rose 4% in the last 60 days. ITW has a trailing four-quarter average earnings surprise of 0.9%. Its shares gained 9% in the last year.

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