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Reasons Why You Should Avoid Betting on Greif (GEF) Now

Greif GEF has failed to impress investors with its recent operational performance, which bore the brunt of weak demand owing to muted consumer spending in North America, energy inflation in EMEA and Covid-related shutdowns in China.

Its results have also been impacted by the rapid decline in steel costs, persistent supply-chain constraints, raw material cost inflation and foreign-currency headwinds. These factors are likely to impede its earnings in the quarters ahead.

This currently Zacks Rank #4 (Sell) player has a market capitalization of $3.2 billion. The company’s shares have declined 4.7% over the past month against the industry’s 0.6% growth.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Let’s discuss the factors that might continue taking a toll on the firm.

Greif reported adjusted earnings per share of $1.83 for fourth-quarter fiscal 2022, missing the Zacks Consensus Estimate of $1.97. The bottom line decreased 5.2% year on year. Sales were down 5.2% year over year to $1,496 million. The top line missed the Zacks Consensus Estimate of $1,585 million.

Greif provided adjusted EBITDA guidance between $820 million and $906 million for fiscal 2023. The midpoint of the guided range indicates a year-over-year decline of 6%. The muted outlook reflects the recent slowdown in demand in the company’s end markets as well as persisting cost inflation and supply-chain issues.

The Global Industrial Packaging segment, which contributed around 57.5% of fiscal 2022 revenues, has witnessed lower volumes lately. Global steel drum and plastics were down mid-single digits year over year in the fourth quarter of fiscal 2022. 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 protocols in China that impacted supply chain and industrial production, resulting in softness in most end markets excluding automotive.

Demand in North America has also weakened owing to muted domestic spending amid inflationary pressure and higher interest rates. The slowdown in manufacturing activity has also impacted demand. The segment’s results have also been impacted by the rapid decline in steel costs. This margin pressure is anticipated to continue in the first half of fiscal 2023. The Paper Packaging segment’s results will also be affected by higher raw material, manufacturing, and transportation costs.

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

Reflecting on these headwinds,  the Zacks Consensus Estimate for fiscal 2023 earnings has been revised 11% downward in the past 30 days.

Stocks to Consider

Some better-ranked stocks from the Industrial Products sector are KnowBe4 KNBE, Caterpillar Inc. CAT and OI Glass OI. KNBE, CAT and OI flaunt a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

KnowBe4’s earnings surprise in the last four quarters was 216.7%, on average. The Zacks Consensus Estimate for the company’s 2022 earnings is pegged at 24 cents per share, indicating an increase of 118.2% year over year. The estimates have gone up 20% in the past 60 days. KNBE’s shares have gained 0.4% in the past month.

The Zacks Consensus Estimate for Caterpillar’s current year earnings per share is pegged at $13.85, suggesting an increase of about 28% from last year. The estimates have moved up by 9% in the past 60 days.  It came up with a trailing four-quarter average earnings surprise of 14.7%. CAT’s shares have gained 16% in the past year.

OI Glass delivered an average trailing four-quarter earnings surprise of 14.9. The Zacks Consensus Estimate for OI’s current year earnings is pegged at $2.25 per share. This indicates a 23% increase from the prior year’s figure. The estimates have been revised 1% north in the past 60 days. Its shares have gained 43% in the past year.

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