UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 14, 2009 (December 9, 2009)
GREIF, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-00566 | 31-4388903 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
425 Winter Road, Delaware, Ohio |
43015 |
|
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (740) 549-6000
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Section 2 — Financial Information
Item 2.02. Results of Operations and Financial Condition.
On December 9, 2009, Greif, Inc. (the “Company”) issued a press release (the “Earnings Release”)
announcing the financial results for its fiscal year and fourth quarter ended October 31, 2009. The
full text of the Earnings Release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
The Earnings Release included the following non-GAAP financial measures (the “non-GAAP Measures”):
(i) income before restructuring charges, restructuring-related inventory charges, debt
extinguishment charges and timberland disposals, net on a consolidated basis; (ii) diluted
earnings per Class A share and per Class B share before restructuring charges,
restructuring-related inventory charges, debt extinguishment charges and timberland disposals, net
on a consolidated basis; (iii) operating profit before restructuring charges, restructuring-related
inventory charges and timberland disposals, net on a consolidated basis; (iv) operating profit
before restructuring charges with respect to the Company’s Paper Packaging segment; (v) operating
profit before restructuring charges and restructuring-related inventory charges with respect to the
Company’s Industrial Packaging segment and (vi) operating profit before restructuring charges and
timberland disposals, net with respect to the Company’s Land Management (formerly Timber) segment.
Net income before restructuring charges, restructuring-related inventory charges, debt
extinguishment charges and timberland disposals, net on a consolidated basis is equal to GAAP net
income plus restructuring charges, restructuring-related inventory charges and debt extinguishment
charges less timberland disposals, net, each item net of tax, on a consolidated basis. Diluted
earnings per Class A share and per Class B share before restructuring charges,
restructuring-related inventory charges, debt extinguishment charges and timberland disposals, net
on a consolidated basis is equal to GAAP diluted earnings per Class A share and per Class B share
plus restructuring charges, restructuring-related inventory charges and debt extinguishment charges
less timberland disposals, net, each item net of tax, on a consolidated basis. Operating profit
before restructuring charges, restructuring-related inventory charges and timberland disposals, net
on a consolidated basis is equal to GAAP operating profit plus restructuring charges and
restructuring-related inventory charges less timberland disposals, net on a consolidated basis.
Operating profit before restructuring charges with respect to the Company’s Paper Packaging segment
is equal to that segment’s GAAP operating profit plus that segment’s restructuring
charges. Operating profit before restructuring charges and restructuring-related inventory charges
with respect to the Company’s Industrial Packaging segment is equal to that segment’s GAAP
operating profit plus that segment’s restructuring charges and restructuring-related inventory
charges. Operating profit before restructuring charges and timberland disposals, net with respect
to the Company’s Land Management segment is equal to that segment’s GAAP operating profit plus that
segment’s restructuring charges less timberland disposals, net.
The Company discloses the non-GAAP Measures described in Items (i) through (vi), above, because
management believes that these non-GAAP Measures are a better indication of the Company’s
operational performance than GAAP net income, diluted earnings per Class A share and per Class B
share and operating profit since they exclude restructuring charges, restructuring-related
inventory charges and debt extinguishment charges, which are not representative of ongoing
operations, and timberland disposals, net, which are volatile from period to period. These non-GAAP
Measures provide a more stable platform on which to compare the historical performance of the
Company.
The full text of the Earnings Release is attached as Exhibit 99.1 to this Current Report on Form
8-K.
Section 7 — Regulation FD
Item 7.01. Regulation FD Disclosure.
On
December 10, 2009, management of the Company conducted a
conference call with interested investors and financial analysts to
review the Company’s financial
results for its fiscal year and fourth quarter ended October 31, 2009. The file transcript is
attached as Exhibit 99.2 to this Current Report on Form 8-K.
Section 9 — Financial Statements and Exhibits
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description | |||
| 99.1 | Press release issued by Greif, Inc. on December 9, 2009
announcing the financial results for its fiscal year and
fourth quarter ended October 31, 2009. |
|||
| 99.2 | File transcript of conference call by Greif, Inc. on
December 10, 2009. |
|||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
| GREIF, INC. |
||||
| Date: December 14, 2009 | By: | /s/ Donald S. Huml | ||
| Donald S. Huml, | ||||
| Executive Vice President and Chief Financial Officer | ||||
EXHIBIT INDEX
| Exhibit No. | Description | |||
| 99.1 | Press release issued by Greif, Inc. on December 9, 2009,
announcing the financial results for its fiscal year and
fourth quarter ended October 31, 2009. |
|||
| 99.2 | File transcript of conference call by Greif, Inc. on December 10, 2009. |
|||
EXHIBIT 99.1
Greif, Inc. Reports Fiscal and Fourth Quarter 2009 Results
| • | Net sales were $2.8 billion in fiscal 2009 compared to $3.8 billion in fiscal 2008. Net sales were $761 million in the fourth quarter of 2009, down from $982 million in the fourth quarter of 2008 and up sequentially from $718 million in the third quarter of 2009. |
| • | Net income before special items, as defined below, was $194 million ($3.32 per diluted Class A share) in fiscal 2009 compared to $267 million ($4.54 per diluted Class A share) in fiscal 2008. GAAP net income was $132 million ($2.28 per diluted Class A share) and $234 million ($3.99 per diluted Class A share) in fiscal 2009 and 2008, respectively. |
| • | Net income before special items was $90 million ($1.53 per diluted Class A share) in the fourth quarter of 2009 compared to $75 million ($1.27 per diluted Class A share) in the fourth quarter of 2008. GAAP net income was $79 million ($1.35 per diluted Class A share) and $60 million ($1.03 per diluted Class A share) in the fourth quarter of 2009 and 2008, respectively. |
DELAWARE, Ohio (Dec. 9, 2009) – Greif, Inc. (NYSE: GEF, GEF.B), a global leader in industrial
packaging products and services, today announced results for its fiscal year and fiscal fourth
quarter ended Oct. 31, 2009.
Michael J. Gasser, chairman and chief executive officer, said, “During 2009, we rapidly and
decisively adapted to difficult global market conditions and volatile raw material prices, achieved
over $150 million in contingency savings, and completed several tuck-in acquisitions. We expect to
realize further benefits in 2010 from actions taken during 2009.”
Gasser added, “We are encouraged by our operating results for the fourth quarter of 2009, which
were above the same period last year and significantly higher sequentially. Volumes continued to
gradually improve and further cost-savings were realized. We completed two acquisitions during the
quarter, bringing the total to six for the year, and we continue to pursue our pipeline of
consolidation and product line extension opportunities in 2010.”
Special Items and GAAP to Non-GAAP Reconciliations
Special items are as follows: (i) for fiscal 2009, restructuring charges of $67 million ($52
million net of tax), restructuring-related inventory charges of $11 million ($9 million net of tax)
and debt extinguishment charges of $0.8 million ($0.6 million net of tax); (ii) for fiscal 2008,
restructuring charges of $43 million ($33 million net of tax) and gain on timberland disposals, net
of $0.4 million ($0.3 million net of tax); (iii) for the fourth quarter of 2009, restructuring
charges of $9 million ($10 million net of tax) and restructuring-related inventory charges of $0.7
million ($1.0 million net of tax); and (iv) for the fourth quarter of 2008, restructuring charges
of $19 million ($14 million net of tax). Reconciliations of the differences between all non-GAAP
financial measures used in this release with the most directly comparable GAAP financial measures
are included in the financial schedules that are a part of this release.
Consolidated Results
Fiscal 2009
Net sales decreased 26 percent for fiscal 2009 compared to fiscal 2008 due to lower sales volumes
(16 percent), foreign currency translation (6 percent) and lower selling prices (4 percent). The
20 percent constant-currency decrease was primarily due to lower sales volumes resulting from the
sharp decline in the global economy and lower selling prices primarily resulting from the
pass-through of lower raw material costs. The net sales decrease of $1.0 billion to $2.8 billion
in fiscal 2009 from $3.8 billion in fiscal 2008 was due to lower net sales in the Industrial
Packaging ($0.8 billion) and Paper Packaging ($0.2 billion) segments.
Operating profit before special items was $313 million for fiscal 2009 compared to $413 million for
fiscal 2008. The lower operating profit before special items for the Industrial Packaging ($83
million) and Paper Packaging ($19 million) segments, as compared to fiscal 2008, was due to lower
net sales and lower net gains on asset disposals, significantly offset by cost reductions achieved
under the previously announced accelerated Greif Business System (GBS) initiatives and specific
contingency actions. The Land Management (formerly Timber) segment’s operating profit before
special items improved by $2 million. The Company’s GAAP operating profit was $235 million and
$370 million in fiscal 2009 and 2008, respectively.
Net income before special items was $194 million for fiscal 2009 compared to $267 million for
fiscal 2008. Diluted earnings per share before special items were $3.32 compared to $4.54 per
Class A share and $5.00 compared to $6.89 per Class B share for fiscal 2009 and 2008, respectively.
The Company had GAAP net income of $132 million, or $2.28 per diluted Class A share and $3.42 per
diluted Class B share, in fiscal 2009 compared to GAAP net income of $234 million, or $3.99 per
diluted Class A share and $6.04 per diluted Class B share, in fiscal 2008.
Fourth Quarter of 2009
Net sales decreased 23 percent for the fourth quarter of 2009 as compared to the fourth quarter of
2008 due to lower selling prices (12 percent), lower sales volumes (10 percent) and foreign
currency translation (1 percent). Net sales were $761 million in the fourth quarter of 2009
compared to $982 million in the fourth quarter of 2008. The $221 million decrease was attributable
to lower net sales in Industrial Packaging ($177 million) and Paper Packaging ($51 million),
partially offset by higher net sales in Land Management ($7 million). Net sales volumes were up 6
percent sequentially in the fourth quarter 2009 as compared to the third quarter of 2009.
Operating profit before special items increased 13 percent to $127 million in the fourth quarter of
2009 compared to $112 million in the fourth quarter of 2008. The $15 million increase was
attributable to higher operating profit before special items in Industrial Packaging ($19.4
million) and Land Management ($10.3 million), partially offset by lower operating profit before
special items in Paper Packaging ($14.7 million). GAAP operating profit was $118 million and $93
million in the fourth quarter of 2009 and 2008, respectively.
Net income before special items increased 20 percent to $90 million in the fourth quarter of 2009
compared to $75 million in the fourth quarter of 2008. Diluted earnings per share before special
items were $1.53 compared to $1.27 per Class A share and $2.32 compared to $1.93 per Class B share
for the fourth quarter of 2009 and 2008, respectively. The Company had GAAP net income of $79
million, or $1.35 per diluted Class A share and $2.05 per diluted Class B share, in the fourth
quarter of 2009 compared to GAAP net income of $60 million, or $1.03 per diluted Class A share and
$1.56 per diluted Class B share, in the fourth quarter of 2008.
Business Group Results
Industrial Packaging net sales decreased 26 percent to $2.3 billion in fiscal 2009 from $3.1
billion in fiscal 2008 due to lower sales volumes (16 percent), foreign currency translation (7
percent) and lower selling prices (3 percent). Operating profit before special items was $232
million in fiscal 2009 compared to $315 million in fiscal 2008. The $83 million decrease was
primarily due to lower net sales and lower net gains on asset disposals. These reductions were
partially offset by lower raw material costs and related last-in, first-out (LIFO) benefits. In
addition, labor, transportation and energy costs were lower in fiscal 2009 as compared to fiscal
2008. The gross profit margin for this segment was 18.8 percent in fiscal 2009 and 18.6 percent in
fiscal 2008. The Industrial Packaging segment’s cost of products sold and selling, general and
administrative expenses continue to benefit from GBS and specific contingency initiatives. GAAP
operating profit was $155 million and $281 million in fiscal 2009 and 2008, respectively.
For the fourth quarter of 2009, the Industrial Packaging segment net sales decreased 21 percent to
$616 million from $793 million in the fourth quarter of 2008. This decrease was due to lower
selling prices (11 percent), lower sales volumes (8 percent) and foreign currency translation (2
percent). Operating profit before special items was $99 million in the fourth quarter of 2009
compared to $80 million in the fourth quarter of 2008. The $19 million increase was primarily due
to lower raw material costs and related LIFO benefits and higher net gains on asset disposals.
GAAP operating profit was $88 million and $67 million in the fourth quarter of 2009 and 2008,
respectively.
Paper Packaging net sales decreased 28 percent to $505 million in fiscal 2009 from $697 million in
fiscal 2008. This $192 million decrease was primarily due to lower sales volumes (20 percent) and
lower selling prices (8 percent) in fiscal 2009 as compared to fiscal 2008. Operating profit before
special items was $59 million in fiscal 2009 compared to $78 million in fiscal 2008. The $19
million decrease was due to lower net sales, partially offset by lower raw material costs,
especially for old corrugated containers, and related LIFO benefits. In addition, labor,
transportation and energy costs were lower in fiscal 2009 as compared to fiscal 2008. The gross
profit margin for this segment was 19.5 percent in fiscal 2009 and 17.1 percent in fiscal 2008.
The Paper Packaging segment’s cost of products sold and selling, general and administrative
expenses continue to benefit from GBS and specific contingency initiatives. GAAP operating profit
was $58 million and $68 million in fiscal 2009 and 2008, respectively.
For the fourth quarter of 2009, the Paper Packaging segment net sales decreased 27 percent to $136
million from $187 million in the fourth quarter of 2008. This decrease was due to lower sales
volumes (16 percent) and lower selling prices (11 percent). Operating profit before special items
was $15 million in the fourth quarter of 2009 compared to $30 million in the fourth quarter of
2008, primarily due to the lower net sales. GAAP operating profit was $18 million and $24 million
in the fourth quarter of 2009 and 2008, respectively.
Net sales for the Land Management segment were $21 million and $19 million in fiscal 2009 and 2008,
respectively. Operating profit before special items was $22 million in fiscal 2009 compared to $21
million in fiscal 2008. Included in these amounts were operating profits from the sale of special
use properties (e.g., surplus, higher and better use, and development properties) of $15 million in
fiscal 2009 and $17 million in fiscal 2008. GAAP operating profit was $22 million and $21 million
in fiscal 2009 and 2008, respectively.
For the fourth quarter of 2009, net sales for the Land Management segment increased to $8.4 million
from $1.9 million in the fourth quarter of 2008. Operating profit before special items was $12.3
million in the fourth quarter of 2009 compared to $2.0 million in the fourth quarter of 2008. GAAP
operating profit was $12.3 million and $2.0 million in the fourth quarter of 2009 and 2008,
respectively.
Financing Arrangements
Senior Secured Credit Facilities
In the second quarter of 2009, the Company closed on its $700 million senior secured credit
facilities. The new facilities replaced an existing $450 million revolving credit facility that was
scheduled to mature in March 2010. The new credit agreement provides for a $500 million revolving
credit facility and a $200 million term loan, which both mature in February 2012.
Senior Notes
In the third quarter of 2009, the Company issued $250 million aggregate principal amount of its 7 3/4
percent Senior Notes due 2019. The net proceeds from the issuance of these Senior Notes are
available for general corporate purposes, including the repayment of amounts outstanding under its
revolving credit facility, without any permanent reduction to the commitments.
Other Financial Information
During fiscal 2009, the Company completed six acquisitions, including five Industrial Packaging
companies and one Paper Packaging company, for a total purchase price of $91 million. During
fiscal 2008, there were five acquisitions with a total purchase price of $90 million. In addition,
there were net gains from asset disposals of $34 million and $60 million in fiscal 2009 and 2008,
respectively.
Capital expenditures were $125 million, excluding timberland purchases of $1 million, for fiscal
2009 compared with capital expenditures of $143 million, excluding timberland purchases of $3
million, for fiscal 2008. Depreciation, depletion and amortization expense was $103 million and
$106 million for fiscal 2009 and 2008, respectively.
On Dec. 8, 2009, the Board of Directors declared quarterly cash dividends of $0.38 per share of
Class A Common Stock and $0.56 per share of Class B Common Stock. These dividends are payable on
Jan. 1, 2010 to stockholders of record at close of business on Dec. 21, 2009.
Greif Business System (GBS) and Accelerated Initiatives
In December 2008, the Company announced specific plans to address the adverse impact to its
businesses resulting from the sharp decline of the global economy, which began in the Company’s
fourth quarter of 2008. Management aggressively implemented plans that included the following
initiatives:
| • | Incremental GBS initiatives, including operational and commercial improvements and global sourcing initiatives, produced savings of approximately $50 million during fiscal 2009. |
| • | Accelerated GBS and contingency initiatives, including active portfolio management, administrative staffing reductions and curtailed discretionary spending, captured more than $150 million in annual savings in fiscal 2009. The permanent benefits ($120 million) from these initiatives are expected to be fully realized in fiscal 2010. |
As a result of these initiatives, the Company recorded restructuring charges of $67 million during
fiscal 2009. The restructuring and other cost reduction activities included the closure of 19
facilities and the elimination of more than 2,100 operating and administrative positions in fiscal
2009.
Company Outlook
For fiscal 2010, the Company’s management is cautiously optimistic due to its expectation of
continued gradual improvement in sales volumes and the full realization of fiscal 2009 permanent
cost reductions. As such, the Company expects that Class A earnings per share, before special
items, will be in the range of $4.00 to $4.25 per share for fiscal 2010.
Conference Call
The Company will host a conference call to discuss fiscal 2009 results on Dec. 10, 2009, at 10 a.m.
Eastern Time (ET). To participate, domestic callers should call 877-485-3107 and ask for the Greif
conference call. The number for international callers is +1 201-689-8427. Phone lines will open at
9:50 a.m. ET. The conference call will also be available through a live webcast, including slides,
which can be accessed at www.greif.com. A replay of the conference call will be available on the
Company’s website in the investor center approximately one hour following the call.
About Greif
Greif is a world leader in industrial packaging products and services. The Company produces steel,
plastic, fibre, corrugated and multiwall containers, packaging accessories and containerboard, and
provides blending and packaging services for a wide range of industries. Greif also manages timber
properties in North America. The Company is strategically positioned in more than 45 countries to
serve global as well as regional customers. Additional information is on the Company’s website at
www.greif.com.
Forward-Looking Statements
All statements other than statements of historical facts included in this news release, including,
without limitation, statements regarding the Company’s future financial position, business
strategy, budgets, projected costs, goals and plans and objectives of management for future
operations, are forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements generally can be identified by the use of
forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,”
“project,” “believe,” “continue,” “on track” or “target” or the negative thereof or variations
thereon or similar terminology. All forward-looking statements made in this news release are based
on information currently available to management. Although the Company believes that the
expectations reflected in forward-looking statements have a reasonable basis, the Company can give
no assurance that these expectations will prove to be correct. Forward-looking statements are
subject to risks and uncertainties that could cause actual events or results to differ materially
from those expressed in or implied by the statements. Such risks and uncertainties that might cause
a difference include, but are not limited to: general economic and business conditions, including a
prolonged or substantial economic downturn; the availability of the credit markets to our customers
and suppliers, as well as the Company; changing trends and demands in the industries in which the
Company competes, including industry over-capacity; industry competition; the continuing
consolidation of the Company’s customer base for its industrial packaging, containerboard and
corrugated products; political instability in those foreign countries where the Company
manufactures and sells its products; foreign currency fluctuations and devaluations; availability
and costs of raw materials for the manufacture of the Company’s products, particularly steel, resin
and old corrugated containers; price fluctuations in energy costs; costs associated with litigation
or claims against the Company pertaining to environmental, safety and health, product liability and
other matters; work stoppages and other labor relations matters; property loss resulting from wars,
acts of terrorism or natural
disasters; the Company’s ability to integrate its newly acquired operations effectively with its
existing business; the Company’s ability to achieve improved operating efficiencies and
capabilities; the Company’s ability to effectively embed and realize improvements from the Greif
Business System; the frequency and volume of sales of the Company’s timber, timberland and special
use timberland; and the deviation of actual results from the estimates and/or assumptions used by
the Company in the application of its significant accounting policies. These and other risks and
uncertainties that could materially affect the Company’s consolidated financial results are further
discussed in its filings with the Securities and Exchange Commission, including its Form 10-K for
the year ended Oct. 31, 2008. The Company assumes no obligation to update any forward-looking
statements.
GREIF, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars and shares in millions, except per share amounts)
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars and shares in millions, except per share amounts)
| Quarter ended | Year ended | |||||||||||||||
| October 31, | October 31, | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Net sales |
$ | 760.5 | $ | 981.8 | $ | 2,792.2 | $ | 3,790.5 | ||||||||
Cost of products sold |
582.6 | 789.4 | 2,257.1 | 3,097.7 | ||||||||||||
Gross profit |
177.9 | 192.4 | 535.1 | 692.8 | ||||||||||||
Selling, general and administrative expenses |
76.1 | 87.1 | 267.6 | 339.2 | ||||||||||||
Restructuring charges |
8.8 | 18.8 | 66.6 | 43.2 | ||||||||||||
Asset disposals, net |
24.6 | 6.8 | 34.4 | 59.9 | ||||||||||||
Operating profit |
117.6 | 93.3 | 235.3 | 370.3 | ||||||||||||
Interest expense, net |
15.9 | 11.4 | 53.6 | 49.6 | ||||||||||||
Debt extinguishment charges |
— | — | 0.8 | — | ||||||||||||
Other income (expense), net |
(3.1 | ) | 0.5 | (7.2 | ) | (8.8 | ) | |||||||||
Income before income tax expense and equity
earnings and minority interests |
98.6 | 82.4 | 173.7 | 311.9 | ||||||||||||
Income tax expense |
18.1 | 20.2 | 37.7 | 73.6 | ||||||||||||
Equity earnings and minority interests |
(1.2 | ) | (1.8 | ) | (3.6 | ) | (3.9 | ) | ||||||||
Net income |
$ | 79.3 | $ | 60.4 | $ | 132.4 | $ | 234.4 | ||||||||
Basic earnings per share: |
||||||||||||||||
Class A Common Stock |
$ | 1.36 | $ | 1.04 | $ | 2.29 | $ | 4.04 | ||||||||
Class B Common Stock |
$ | 2.05 | $ | 1.56 | $ | 3.42 | $ | 6.04 | ||||||||
Diluted earnings per share: |
||||||||||||||||
Class A Common Stock |
$ | 1.35 | $ | 1.03 | $ | 2.28 | $ | 3.99 | ||||||||
Class B Common Stock |
$ | 2.05 | $ | 1.56 | $ | 3.42 | $ | 6.04 | ||||||||
Earnings per share were calculated using the
following number of shares: |
||||||||||||||||
Basic earnings per share: |
||||||||||||||||
Class A Common Stock |
24.4 | 24.0 | 24.3 | 23.9 | ||||||||||||
Class B Common Stock |
22.5 | 22.6 | 22.5 | 22.8 | ||||||||||||
Diluted earnings per share: |
||||||||||||||||
Class A Common Stock |
24.8 | 24.5 | 24.6 | 24.4 | ||||||||||||
Class B Common Stock |
22.5 | 22.6 | 22.5 | 22.8 | ||||||||||||
GREIF, INC. AND SUBSIDIARY COMPANIES
GAAP TO NON-GAAP RECONCILIATION
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in millions, except per share amounts)
GAAP TO NON-GAAP RECONCILIATION
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in millions, except per share amounts)
| Quarter ended October 31, 2009 | Quarter ended October 31, 2008 | |||||||||||||||||||||||
| Diluted per share | Diluted per share | |||||||||||||||||||||||
| amounts | amounts | |||||||||||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||||||||||
GAAP — operating profit |
$ | 117.6 | $ | 93.3 | ||||||||||||||||||||
Restructuring charges |
8.8 | 18.8 | ||||||||||||||||||||||
Restructuring-related inventory
charges |
0.7 | — | ||||||||||||||||||||||
Timberland disposals, net |
— | — | ||||||||||||||||||||||
Non-GAAP — operating
profit before restructuring
charges, restructuring-related
inventory charges and timberland
disposals, net |
$ | 127.1 | $ | 112.1 | ||||||||||||||||||||
GAAP — net income |
$ | 79.3 | $ | 1.35 | $ | 2.05 | $ | 60.4 | $ | 1.03 | $ | 1.56 | ||||||||||||
Restructuring charges, net of tax |
9.5 | 0.16 | 0.25 | 14.3 | 0.24 | 0.37 | ||||||||||||||||||
Restructuring-related inventory
charges, net of tax |
1.0 | 0.02 | 0.02 | — | — | — | ||||||||||||||||||
Timberland disposals, net of tax |
— | — | — | — | — | — | ||||||||||||||||||
Non-GAAP — net income before
restructuring charges,
restructuring-related inventory
charges and timberland disposals,
net |
$ | 89.8 | $ | 1.53 | $ | 2.32 | $ | 74.7 | $ | 1.27 | $ | 1.93 | ||||||||||||
| Year ended October 31, 2009 | Year ended October 31, 2008 | |||||||||||||||||||||||
| Diluted per share | Diluted per share | |||||||||||||||||||||||
| amounts | amounts | |||||||||||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||||||||||
GAAP — operating profit |
$ | 235.3 | $ | 370.3 | ||||||||||||||||||||
Restructuring charges |
66.6 | 43.2 | ||||||||||||||||||||||
Restructuring-related inventory
charges |
10.8 | — | ||||||||||||||||||||||
Timberland disposals, net |
— | (0.4 | ) | |||||||||||||||||||||
Non-GAAP — operating
profit before restructuring charges,
restructuring-related inventory
charges and timberland disposals, net |
$ | 312.7 | $ | 413.1 | ||||||||||||||||||||
GAAP — net income |
$ | 132.4 | $ | 2.28 | $ | 3.42 | $ | 234.4 | $ | 3.99 | $ | 6.04 | ||||||||||||
Restructuring charges, net of tax |
52.1 | 0.89 | 1.34 | 33.0 | 0.55 | 0.86 | ||||||||||||||||||
Restructuring-related inventory
charges, net of tax |
8.5 | 0.14 | 0.22 | — | — | — | ||||||||||||||||||
Debt extinguishment charges, net of tax |
0.6 | 0.01 | 0.02 | — | — | — | ||||||||||||||||||
Timberland disposals, net of tax |
— | — | — | (0.3 | ) | — | (0.01 | ) | ||||||||||||||||
Non-GAAP — net income before
restructuring charges,
restructuring-related inventory
charges, debt extinguishment charges
and timberland disposals, net |
$ | 193.6 | $ | 3.32 | $ | 5.00 | $ | 267.1 | $ | 4.54 | $ | 6.89 | ||||||||||||
GREIF, INC. AND SUBSIDIARY COMPANIES
SEGMENT DATA
UNAUDITED
(Dollars in millions)
SEGMENT DATA
UNAUDITED
(Dollars in millions)
| Quarter ended | Year ended | |||||||||||||||
| October 31, | October 31, | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Net sales |
||||||||||||||||
Industrial Packaging |
$ | 616.1 | $ | 792.8 | $ | 2,266.9 | $ | 3,074.8 | ||||||||
Paper Packaging |
136.0 | 187.1 | 504.7 | 696.9 | ||||||||||||
Land Management |
8.4 | 1.9 | 20.6 | 18.8 | ||||||||||||
Total |
$ | 760.5 | $ | 981.8 | $ | 2,792.2 | $ | 3,790.5 | ||||||||
Operating profit |
||||||||||||||||
Operating profit before restructuring charges,
restructuring-related inventory charges and
timberland disposals, net: |
||||||||||||||||
Industrial Packaging |
$ | 99.4 | $ | 80.0 | $ | 231.7 | $ | 315.0 | ||||||||
Paper Packaging |
15.4 | 30.1 | 58.7 | 77.5 | ||||||||||||
Land Management |
12.3 | 2.0 | 22.3 | 20.6 | ||||||||||||
Operating profit before restructuring charges,
restructuring-related inventory charges and
timberland disposals, net |
127.1 | 112.1 | 312.7 | 413.1 | ||||||||||||
Restructuring charges: |
||||||||||||||||
Industrial Packaging |
11.0 | 13.0 | 65.7 | 34.0 | ||||||||||||
Paper Packaging |
(2.2 | ) | 5.8 | 0.7 | 9.1 | |||||||||||
Land Management |
— | — | 0.2 | 0.1 | ||||||||||||
Restructuring charges |
8.8 | 18.8 | 66.6 | 43.2 | ||||||||||||
Restructuring-related inventory charges: |
||||||||||||||||
Industrial Packaging |
0.7 | — | 10.8 | — | ||||||||||||
Timberland disposals, net: |
||||||||||||||||
Land Management |
— | — | — | 0.4 | ||||||||||||
Total |
$ | 117.6 | $ | 93.3 | $ | 235.3 | $ | 370.3 | ||||||||
Depreciation, depletion and amortization expense |
||||||||||||||||
Industrial Packaging |
$ | 20.2 | $ | 19.3 | $ | 73.2 | $ | 73.8 | ||||||||
Paper Packaging |
6.7 | 8.0 | 26.3 | 28.2 | ||||||||||||
Land Management |
1.2 | 0.1 | 3.1 | 4.4 | ||||||||||||
Total |
$ | 28.1 | $ | 27.4 | $ | 102.6 | $ | 106.4 | ||||||||
GREIF, INC. AND SUBSIDIARY COMPANIES
GEOGRAPHIC DATA
UNAUDITED
(Dollars in millions)
GEOGRAPHIC DATA
UNAUDITED
(Dollars in millions)
| Quarter ended | Year ended | |||||||||||||||
| October 31, | October 31, | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Net sales |
||||||||||||||||
North America |
$ | 400.4 | $ | 534.9 | $ | 1,530.4 | $ | 2,001.3 | ||||||||
Europe, Middle East and Africa |
226.9 | 306.1 | 835.1 | 1,278.4 | ||||||||||||
Other |
133.2 | 140.8 | 426.7 | 510.8 | ||||||||||||
Total |
$ | 760.5 | $ | 981.8 | $ | 2,792.2 | $ | 3,790.5 | ||||||||
Operating profit |
||||||||||||||||
Operating profit before restructuring charges,
restructuring-related inventory charges and
timberland disposals, net: |
||||||||||||||||
North America |
$ | 65.9 | $ | 67.4 | $ | 199.3 | $ | 195.6 | ||||||||
Europe, Middle East and Africa |
46.3 | 31.5 | 95.2 | 133.9 | ||||||||||||
Other |
14.9 | 13.2 | 18.2 | 83.6 | ||||||||||||
Operating profit before restructuring charges and
timberland disposals, net |
127.1 | 112.1 | 312.7 | 413.1 | ||||||||||||
Restructuring charges |
8.8 | 18.8 | 66.6 | 43.2 | ||||||||||||
Restructuring-related inventory charges |
0.7 | — | 10.8 | — | ||||||||||||
Timberland disposals, net |
— | — | — | 0.4 | ||||||||||||
Total |
$ | 117.6 | $ | 93.3 | $ | 235.3 | $ | 370.3 | ||||||||
GREIF, INC. AND SUBSIDIARY COMPANIES
GAAP TO NON-GAAP RECONCILIATION
SEGMENT DATA
UNAUDITED
(Dollars in millions)
GAAP TO NON-GAAP RECONCILIATION
SEGMENT DATA
UNAUDITED
(Dollars in millions)
| Quarter ended | Year ended | |||||||||||||||
| October 31, | October 31, | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Industrial Packaging |
||||||||||||||||
GAAP — operating profit |
$ | 87.7 | $ | 67.0 | $ | 155.2 | $ | 281.0 | ||||||||
Restructuring charges |
11.0 | 13.0 | 65.7 | 34.0 | ||||||||||||
Restructuring-related inventory charges |
0.7 | — | 10.8 | — | ||||||||||||
Non-GAAP — operating profit before restructuring
charges and restructuring-related inventory charges |
$ | 99.4 | $ | 80.0 | $ | 231.7 | $ | 315.0 | ||||||||
Paper Packaging |
||||||||||||||||
GAAP — operating profit |
$ | 17.6 | $ | 24.3 | $ | 58.0 | $ | 68.4 | ||||||||
Restructuring charges |
(2.2 | ) | 5.8 | 0.7 | 9.1 | |||||||||||
Non-GAAP — operating profit before restructuring
charges |
$ | 15.4 | $ | 30.1 | $ | 58.7 | $ | 77.5 | ||||||||
Land Management |
||||||||||||||||
GAAP — operating profit |
$ | 12.3 | $ | 2.0 | $ | 22.1 | $ | 20.9 | ||||||||
Restructuring charges |
— | — | 0.2 | 0.1 | ||||||||||||
Timberland disposals, net |
— | — | — | (0.4 | ) | |||||||||||
Non-GAAP — operating profit before restructuring
charges and timberland disposals, net |
$ | 12.3 | $ | 2.0 | $ | 22.3 | $ | 20.6 | ||||||||
GREIF, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(Dollars in millions)
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(Dollars in millions)
| October 31, 2009 | October 31, 2008 | |||||||
ASSETS |
||||||||
CURRENT ASSETS
|
||||||||
Cash and cash equivalents |
$ | 111.9 | $ | 77.6 | ||||
Trade accounts receivable |
337.0 | 392.5 | ||||||
Inventories |
227.4 | 304.0 | ||||||
Other current assets |
157.4 | 148.5 | ||||||
| 833.7 | 922.6 | |||||||
LONG-TERM ASSETS |
||||||||
Goodwill |
592.1 | 513.0 | ||||||
Intangible assets |
131.4 | 104.4 | ||||||
Assets held by special purpose entities |
50.9 | 50.9 | ||||||
Other long-term assets |
112.1 | 88.6 | ||||||
| 886.5 | 756.9 | |||||||
PROPERTIES, PLANTS AND EQUIPMENT |
1,092.3 | 1,066.4 | ||||||
| $ | 2,812.5 | $ | 2,745.9 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable |
$ | 335.8 | $ | 384.6 | ||||
Short-term borrowings |
19.6 | 44.3 | ||||||
Other current liabilities |
189.2 | 242.9 | ||||||
| 544.6 | 671.8 | |||||||
LONG-TERM LIABILITIES |
||||||||
Long-term debt |
738.6 | 673.2 | ||||||
Liabilities held by special purpose entities |
43.2 | 43.3 | ||||||
Other long-term liabilities |
386.5 | 298.1 | ||||||
| 1,168.3 | 1,014.6 | |||||||
MINORITY INTEREST |
7.0 | 3.7 | ||||||
SHAREHOLDERS’ EQUITY |
1,092.6 | 1,055.8 | ||||||
| $ | 2,812.5 | $ | 2,745.9 | |||||
EXHIBIT 99.2
Final Transcript
Conference Call Transcript
GEF — Q4 2009 Greif Earnings Conference Call
Event Date/Time: Dec 10, 2009 / 010:00PM EST
CORPORATE PARTICIPANTS
Deb Stohmaier
Greif — VP Communications
Greif — VP Communications
Mike Gasser
Greif — Chairman & CEO
Greif — Chairman & CEO
Don Huml
Greif — EVP & CFO
Greif — EVP & CFO
CONFERENCE CALL PARTICIPANTS
Chris Manuel
Keybanc Capital Market — Analyst
Keybanc Capital Market — Analyst
Jim Lucas
Janney Montgomery Scott — Analyst
Janney Montgomery Scott — Analyst
Christopher Chun
Deutsche Banc — Analyst
Deutsche Banc — Analyst
Steven Chercover
D.A. Davidson & Co. — Analyst
D.A. Davidson & Co. — Analyst
Scott Blumenthal
Emerald Advisers, Inc. — Analyst
Emerald Advisers, Inc. — Analyst
Gregory DiMarzio
Century Capital — Analyst
Century Capital — Analyst
PRESENTATION
Operator
Greetings and welcome to the conference call. At this time all participants are in a listen
only mode. A brief question and answer session will follow a formal presentation. (Operator
Instructions). As a reminder this conference is being recorded. It is now my pleasure to introduce
your host Deb Stohmaier of Greif Incorporated.
Deb Stohmaier — Greif — VP Communications
Good morning. As reminder you may follow this presentation on the web at Greif.com in the
investor center under conference calls. If you don’t have the earnings release it’s also available
on our website. We are on slide two.
The information provided during this morning’s call contains forward looking statements. Actual
results or outcomes may differ materially from those that may be expressed or implied. Some factors
that could cause the results or outcomes to differ are on slide two of this presentation, in the
Company’s 2008 Form 10-K and in other Company SEC filings as well as Company earnings news
releases.
As noted on slide three, this presentation uses certain non-GAAP financial measures including those
that exclude special items such as restructuring charges and Timberland disposal. Management
believes the non-GAAP measure provide better indication of operational performance and more stable
platform on which to compare the historical performance of the Company than the most nearly
equivalent GAAP data. All non-GAAP data in the presentation are indicated by foot notes. Tables
showing the reconciliation between GAAP and non-GAAP measures are available at the end of this
presentation and in the fourth quarter and fiscal year 2009 earnings release.
I will now turn the call over to Chairman and CEO, Mike Gasser.
Mike Gasser — Greif — Chairman & CEO
Thank you Deb. Good morning, everyone. Thank you for joining our conference call today. For
those following this presentation on the web, we are on slide four. I’m very happy to report that
our fiscal 2009 has ended. However, I believe our solid defensive measures mitigated much of the
unprecedented challenges while at the same time our reinforced offense allowed us to take advantage
of some unparalleled opportunities.
At the beginning of 2009 and throughout, I have said that our goal was to end this year better than
when we started it. Today, I can confidently say we did that. As difficult as 2009 was, Greif is a
better and stronger company for it. On defense, during fiscal 2009 we adapted to a difficult global
market conditions and bowed to raw material prices. Through the Greif Business System initiatives and other
contingency actions, we achieved over $150 million in cost saving, exceeding our target. From these
actions, we expect to fully realize permanent benefits of $120 million in fiscal 2010.
To fortify our offense, we closed on new senior secured credit facilities and issued senior notes
in 2009 improving our financial position meaningfully. Our strong cash flow and balance sheet give
us a financial flexibility to pursue profitable growth. Speaking of growth, we completed six
tuck-in acquisitions and continue to pursue our robust pipeline of consolidation and product line
extension opportunities in 2010.
Looking at the fourth quarter, we were encouraged by our operating results which were above the
same period last year and significantly higher sequentially. Volumes continue to gradually improve
and further cost savings were realized. Slide five outlines some of our key sustainability efforts.
Each of these actions is intended to benefit the greater good, while also yielding return on
investment to our business.
Two years ago, we challenged all Greif locations to reduce their energy usage by 10% by January
2010. We achieved this goal. And we will soon announce our new mid-term energy and carbon reduction
goals to be realized by the end of 2015 in our aspirational long term goals set for the end of
2020.
We changed name of our timber segment to land management which reflects the focus of this business
now. Where before we had been primarily concerned about responsible timber management and
harvesting, we have evolved to consciously take advantage of the full range of opportunities our
forest lands present, including wildlife stewardship, recreation and development.
Taking advantage of a product line extension, Greif is piloting rain water management system in two
cities, which we hope to eventually scale to other regions of the world. We are also partnering
with various organizations to create complementary water purification processes for communities
with a lack of access to safe water.
Executive Vice-President Chief Financial Officer, Don Huml will now provide you with an update of
our financial results.
Don Huml — Greif — EVP & CFO
Thank you, Mike. Good morning, everyone. Please go to slide six. Our net sales for the year
decreased 26% due to lower sales volumes of 16%, foreign currency translation of 6% and lower
selling prices of 4%. The lower sales volumes resulted from a dramatic decline in the global
economy. And lower selling prices were primarily due to the pass through of a lower raw material
cost. Importantly following a sharp drop in sales volumes in the first quarter, we achieved
sequential growth for the remainder of the year, and exited 2009 with positive volume comparisons.
Operating profits before special items was $313 million for 2009 compared to $413 million last
year. The decrease was primarily due to lower net sales. The cost reductions achieved under Greif
Business System initiatives and specific contingency actions significantly offset these
reductions. As these savings are annualized, they will provide further contributions in 2010.
Interest expense was $54 million for 2009, compared to $50 million the prior year. We expect an
incremental increase in borrowing costs during 2010 from the 2009 levels due to the 2009 financing
activities and further implementation of our growth strategy, partially offset by expected strong
operating cash flows.
The effective tax rate for 2009 was 21.7% versus 23.6% a year ago. Based on current expectations
and earnings mix projections, a realistic range for 2010 is 20% to 25%. Diluted earnings per share
before special items were $3.32 in 2009, compared to $4.54 per class A share last year.
Free cash flow is approximately $180 million for 2009 which improved sequentially throughout the
year. At year end, we were comfortably within our targeted debt to capital range as we strengthened
our balance sheet during the second half of the year.
On slide seven, industrial packaging net sales decreased 26% to $2.3 billion for the year,
primarily due to lower sales volumes in lower selling prices this year compared to last year.
Operating profit before special items was $232 million for the year. The $83 million decrease from
last year was primarily due to lower net sales, which was partially offset by lower raw material
costs as compared to the previous year. In addition, cost reduction actions significantly offset
the segment’s lower operating profit.
Now on slide eight, paper packaging net sales decreased 28% to $505 million on fiscal 2009. This
was primarily due to lower sales volumes in selling prices. Operating profit before special items
was $59 million for the year compared to $78 million last year due to lower net sales, partially
offset by lower raw material costs especially for OCC. Recent announcements in the industry
concerning a $50 to $70 per ton container board increase as early as next month, if realized would
help resolve the price cost squeeze we are currently experiencing.
As shown on slide nine, our land management business formally known as Timber continues to perform
as planned. The segment’s operating profit before special items was $21 million for the year, an
increase of $2 million over last year. This amount includes $15 million from the sale of special
use properties compared to $17 million last year.
Now on slide ten. Capital expenditures were $125 million for 2009, compared with $143 million last
year. We anticipate that our 2010 capital expenditures will be similar to 2009. For 2010, we were
cautiously optimistic due to our expectation of continued improvement in sales volumes and the full
realization of 2009 permanent cost reductions. Because of this, we expect the class A earning per
share before special items will be in the range of $4 to $4.25 for 2010.
That concludes my remarks. You should now go to slide 11. Mike and I will be pleased to answer your
questions.
QUESTION AND ANSWER
Operator
Thank you. (Operator Instructions). Our first question comes from Chris Manuel with Keybanc
Capital Market. Please state your question.
Chris Manuel — Keybanc Capital Market — Analyst
Good morning, gentlemen.
Mike Gasser — Greif — Chairman & CEO
Good morning.
Chris Manuel — Keybanc Capital Market — Analyst
Couple questions. First let’s start with if I can a couple of the special items through the
quarter, the asset disposals you had. Can you differentiate for us what was within I think you
have given some color within timber and then what was I’m assuming the balance in the industrial
business. Can you differentiate between those and then, B, what was the component that was in the
industrial business? Can we get some color there?
Don Huml — Greif — EVP & CFO
Yes, Chris. The asset disposition gains for the quarter were about $25 million. One-third of
that would have been the gain on the sale of special use properties. And two-thirds of that
represents the sale of facilities and you are likely to see that be a bit elevated as a result of
all of the rationalization activities. And so we would anticipate for next year we would see some
increase in asset disposition gains. So would really look to a range of $20 million to $30 million
perhaps being closer to the upper end of that range for next year.
Chris Manuel — Keybanc Capital Market — Analyst
And then for the full year, the $34 or so million, was it at a similar split?
Don Huml — Greif — EVP & CFO
About — yes, that would be a similar split.
Chris Manuel — Keybanc Capital Market — Analyst
And so just so I understand this correctly, and my second question is going to move on to the
bridge that you gave us for 2010 numbers, the $4 to $4.25, if we could walk through how we get from
2009 to 2010, some of the components. It sounds like you will have more in the way of asset
disposition gains and if I heard you correctly that’s something in the $20 million to $30 million
range.
Don Huml — Greif — EVP & CFO
Yes.
Chris Manuel — Keybanc Capital Market — Analyst
Total amount. So the incremental increase will be approximately what?
Don Huml — Greif — EVP & CFO
Well, why don’t we walk through the bridge in the various steps.
Chris Manuel — Keybanc Capital Market — Analyst
Yes.
Don Huml — Greif — EVP & CFO
So if we start with the operating profit of $313 million for 2009, the first step in the
bridge would be the higher volumes. And basically the assumption is they will improve by about 9%
at our — at the contribution margin that we have been experiencing. That would contribute about
$75 million.
Chris Manuel — Keybanc Capital Market — Analyst
So you just said 9% of volume increase?
Don Huml — Greif — EVP & CFO
Yes. Now, Chris, as you know, in the first half of the year for 2009 our volumes were down
20%. We have exited the year basically the fourth quarter was down 9%. And so we are definitely
going to — if you just assume a steady state and no further improvement, you’re basically going to
see about a 7.5% increase based on the volumes being down 20% during the first half of 2009. The
third quarter was down 18% and then the fourth quarter down 9%. So again, you basically have
assuming no change in the run rate about a 7.5% improvement. We are assuming a gradual recovery in
the global economy and that that would contribute organic growth of about 2% to 3% above that.
Chris Manuel — Keybanc Capital Market — Analyst
So we are starting at $313 million, 9% volume growth.
Don Huml — Greif — EVP & CFO
That’s right. The next step in the bridge would be a step down. We are taking a cautious
approach with respect to paper packaging and the price cost squeeze. As you know, China is a large
buyer of OCC. There is strong economic activity. There is some concern about a possible spike in
recycled fiber. We think it’s prudent to include a provision for that. So we are basically saying
OCC could increase $30 to $40 per ton. So we have a step down of $15 million. We have the
expectation of a carry over of cost savings basically the full year benefit of $60 million and we
are assuming a return of the nonpermanent items of $30 million. So that would be a $30 million
contribution.
Chris Manuel — Keybanc Capital Market — Analyst
Okay.
Don Huml — Greif — EVP & CFO
The pension expense will be increasing by about $10 million due to lower discount rate. And
then we are assuming that acquisitions and we basically completed one subsequent to the end of the
year that acquisitions would contribute $10 million.
Chris Manuel — Keybanc Capital Market — Analyst
Okay. That’s helpful.
Don Huml — Greif — EVP & CFO
And then below the operating profit line, just annualizing the increase in financing cost
related to the new note offering, that would be an increase in interest expense of about $15
million. That basically would get you to the guidance.
Chris Manuel — Keybanc Capital Market — Analyst
And that’s helpful. Then the last question and I will turn it over. Mike, could you — Don
started to do this. Maybe give us a sense of what the volume trajectory has looked like? I know
looking at it the quarter can be misleading because you had August that you were lapping difficult
and October you were starting to lap more easy. Maybe give us a sense what October or November
looked like in the industrial business in the drum side?
Mike Gasser — Greif — Chairman & CEO
Yes, Chris. What we did last quarter and I will give you a bunch of numbers I think because I
think it will put it in perspective how our volume has been gradually improving toward the tail end
of this year. And then I will get to your specific question right at the end. But if you can bear
with me here and I will compare the fourth quarter this year to the third quarter this year.
Sequential change. And I will give it to you by region, Chris. So Europe was down between flat to
5% down. And that really is because of the seasonality of the business, the third quarter is always
stronger than the fourth quarter in Europe. Asia was up 15% to 20%. North America was up 5% to 10%.
And Latin America was flat.
If we compare fourth quarter to fourth quarter and we are comparing a strong fourth quarter last
year to this fourth quarter. Europe was flat, Asia was up 25% to 30%, North America was down 5% to
10% so that was an improvement and Latin America was down 5% to 10%. If we look at just October to
October, in total, the business was up 6% over last year. And if we look at November to November,
just in total November this year to November of last year, we were up 9%. That shows you that
gradually throughout the year volumes have started to improve in the industrial segment.
Chris Manuel — Keybanc Capital Market — Analyst
Okay. That’s helpful. So the trajectory does — and supports your plus nine for the year as
exit rate from November to November.
Mike Gasser — Greif — Chairman & CEO
We are actually hitting that right now.
Chris Manuel — Keybanc Capital Market — Analyst
Thanks. I will jump back in the queue.
Operator
Our next question comes from Jim Lucas with Janney Montgomery Scott. Please state your
question.
Jim Lucas — Janney Montgomery Scott — Analyst
Thanks. Good morning.
Mike Gasser — Greif — Chairman & CEO
Good morning.
Jim Lucas — Janney Montgomery Scott — Analyst
Two questions here. Unrelated. First if we could — give us more color what you are seeing
within the acquisition environment? You said you had one more close subsequent and believe that you are
looking at the nine that you closed last year. You’ve talked about the pipeline in the past. Maybe
give us an update what you are seeing out there not only in terms of maybe the types of properties
as well as what you are seeing from a valuation standpoint. And secondly, at the beginning I
thought it was somewhat curious mentioning the rain water management systems and purifications.
Could you talk a little bit more about what exactly you are doing there and is this potentially a
new growth market for you?
Mike Gasser — Greif — Chairman & CEO
Yes, Jim. I will start with your first question, the acquisitions. Give you an update and where
we are at in the funnel and where we start where we left off last quarter. If you recall we
mentioned that we had eleven deals in the pipeline at the end of the third quarter. During the
fourth quarter we actually closed on two of those deals. And to put it in perspective the multiples
were from 4.1 to 6.2 so that gives you the range of the deal close for those two deals. The
purchase price combined purchase price between the two of them was less than $55 million so they
weren’t really large deals. And the sales were about 1.5 times. The sales about 1.5 times the
purchase price. Those were the two deals that closed in the fourth quarter.
As we mentioned in our opening remarks we did close six deals total in 2009. But generally they
were one plant small type acquisitions. Also during the fourth quarter, there were two deals in the
pipeline that actually got canceled because they didn’t meet our expectations from a profitability
standpoint. But quite honestly they were quite small deals anyways. And there was one new deal
added to the pipeline.
So right now as of the end of October, we have eight deals in the pipeline. And they are really
split 50/50 between being consolidations and new product extension. But product line extension. So
it’s 50/50 between those two. The deal range, Jim, is between five and seven times EBITDA so that
would be the multiple range to give you an idea. The cumulative purchase price if we would
consummate all eight of them would be a little south of $450 million. And corresponding sales that
would come with that would be a little bit less than two times the purchase price.
So that gives you an idea what’s in there. Still quite robust. I think activity is still quite good
out there for us. Some of these are further along than others and by the end of the second quarter
we would either expect to close these or not even — or get out of them entirely. We would expect
to close these within the next six months or exit them entirely.
As far as the comment of the rain water purification. That’s an indication. We have industrial
equipment that we are making rain barrels that are an ideal fit for our equipment. We have test in
place right now with a couple of cities. The preliminary results are very encouraging. We think
that this would be a great product line extension for that equipment. And quite frankly it’s a
great thing for the environment to be able to capture rain water to use, nonportable rain water to
be able to use to water plants. We are looking at that as a product line extension. If that takes
off we will be letting you know how that goes in subsequent quarters.
Jim Lucas — Janney Montgomery Scott — Analyst
Are you selling directly to the municipality here?
Mike Gasser — Greif — Chairman & CEO
We
will go through a variety of ways to sell this. And that hasn’t
been fully vetted out yet.
We will comment on that as we get closer.
Jim Lucas — Janney Montgomery Scott — Analyst
And in your prepared remarks after the rain water management, you made a reference to
purification.
Mike Gasser — Greif — Chairman & CEO
Right.
Jim Lucas — Janney Montgomery Scott — Analyst
Is that separate or —
Mike Gasser — Greif — Chairman & CEO
That is separate. That is in its preliminary stages. We are having a conversation with groups
of people who have interest in this and what we are looking at is our distribution network which is
quite phenomenal in 220 locations around the world our manufacturing equipment and is there a way
for us to develop products that can run on our machine and other people have filtration systems
that we could actually make a difference as far as a potable water for people who don’t have safe
drinking water. These are in preliminary stages. But we do have a commitment to sustainability in
water is one of the points of sustainability. And if we can make it a business that’s a profitable
business for our Company, it seems to be a win for everyone.
Jim Lucas — Janney Montgomery Scott — Analyst
Okay. Great. Thank you.
Operator
Our next question comes from Christopher Chun from Deutsche Banc. Please state your name.
Christopher Chun — Deutsche Banc — Analyst
Good morning, guys. First of all I want to ask about 4Q. The quarter benefited from higher
than expected earnings in the land segment. As well as fairly low tax rate. So you back those two
items out it looks to me like somewhat of a miss. I was wondering if there was anything that
developed in 4Q that was a negative surprise relative to what you anticipated back on the 3Q call?
Don Huml — Greif — EVP & CFO
Now that’s a very good question, Chris. Let me address the effective tax rate first. And then
the asset disposition gains and then also some of the head winds that were perhaps a bit stronger
than we had originally anticipated. As far as the effective tax rate, as you know on a full year
basis it is down 1.9 points. You can really point to the black liquor credit. We benefited very
modestly, but there was about $3.9 million that translated to about two points. You could say that
on a full year basis that contributed to the lower rate. But what I would quickly add is that we
are really quite confident that the rate is sustainable based on an expected shift in the earnings
mix that would be favorable based on the very strong improvement in profitability outside of the
US. So we gave a fairly broad range for effective tax rate for next year. But there is no step down
in our guidance bridge. It really implies that we should be able to sustain the rate for 2010. So
that was really the first point I wanted to make.
As far as the asset disposition gains, those are a recurring component of our earnings albeit a
lumpy one. But we would definitely don’t want that to mask what was a fundamentally strong
operating performance before asset disposition gains. The fourth quarter we achieved a record
operating profit before the disposition gains of 13.5% sequential earnings improvement of 35%. And
that was really notwithstanding the challenges within our paper packaging business that were a bit
greater than we had anticipated. The price cost squeeze is a result of lower container board
pricing and higher recycled fiber costs. So that was worse than expected. Fortunately there were
recent developments that are encouraging and could address that.
And then finally we did have some meaningful disruptions to our supply chain as a result of steel
availability issues. Really both in North America and Europe. The one thing we have been managing
about extreme volatility. And we just as we liquidated our high cost inventories, and had them at
low levels based on the lower activity, we had an uptick and unfortunately the steal industry was
severely curtailed and it took time to respond and as a result we experienced stockouts. We were
incurring additional costs to transfer steel to other facilities. We were using different gauges in
some cases. But we did incur some rather meaningful costs that really if you were to combine the
impact of the paper packaging price cost squeeze and the supply — steel supply chain disruptions,
it’s really an amount that would substantially offset that nontimber related component of the
disposition gains.
Christopher Chun — Deutsche Banc — Analyst
Thanks for all that color, Don. That’s very helpful. For the record, I would agree with you
that relative to your comps the quarter was still fine. It’s just that relative to what we expected
based on what you said it just seems weak once you back out the land and the tax that’s all.
Don Huml — Greif — EVP & CFO
I really appreciate you mentioning the comparison to comps. Because I don’t mean to throw our
paper packaging segment under the bus because there is a fairly comparable company that we highly
admire and that is a very strong performer. We were able to deliver an operating profit margin 2X
of that company. So I really do think that notwithstanding the challenges that it was a solid
performance.
Christopher Chun — Deutsche Banc — Analyst
Okay. And then I wanted to drill down a little more in terms of the — on the assumptions
underlying your 2010 guidance. On the paper packaging business, you mentioned that you were baking
in a negative $15 million on price costs squeeze. So does that mean that you are not an accounting
for any benefits from the $50 a ton price hike initiative that’s currently in the market container
board?
Don Huml — Greif — EVP & CFO
We basically had assumed as part of our budgeting process there would be an increase but that
it would occur at mid-year and really based on our fiscal year we would benefit perhaps by
one-quarter. There is definitely upside potential if the price
increase gets traction much earlier
than had been assumed in our budget.
Christopher Chun — Deutsche Banc — Analyst
Right. And then in terms of the bridge you described earlier, I don’t recall that you
mentioned any further benefits from any of these deals that Mike outlined?
Don Huml — Greif — EVP & CFO
Yes, we basically have $10 million for acquisitions. A conservative number I would also say
that the initial year that the company is acquired an integrated is really one where we are
embedding the Greif business system and we tend to shrink before we grow. So, yes, there will be
some accretion. I think there is some upside potential. But we are providing $10 million as our
assumption for the bridge.
Christopher Chun — Deutsche Banc — Analyst
Okay. Fair enough. And then maybe this is more appropriate in terms of looking out toward
2011. Mike mentioned that there were eight deals in the pipeline that might total $450 million. And
I understand there is still some some issues whether or not they all got completed. In trying to
think about what the order of magnitude impact might be, let’s say if two-thirds of those deals get
done, you know, what would be the impact on 2011?
Mike Gasser — Greif — Chairman & CEO
Chris, I’m going to go back to 2010. We haven’t factored much in for those eight deals. So we
will start with that. The $10 million is really the annualized deals we closed last year. Plus a
deal we closed the first quarter this year. And maybe a little bit at the end of this year. I think
as we get to 2011 we will wait until later until we close the deals and I think we will be in
better shape to speculate because I think right now to speculate until we close is probably a
little premature on that.
Christopher Chun — Deutsche Banc — Analyst
Okay. Fair enough. I will go ahead and turn it over. Thanks, guys.
Operator
Our next question comes from Steven Chercover from D.A. Davidson. Please state your question.
Steven Chercover — D.A. Davidson & Co. — Analyst
Good morning, everyone. Your color on the assumptions that you are baking in are very helpful.
Just a little bit more on the volume. You indicated that you have seen sequential growth. You get
7.5% by basically maintaining the status quo. There is anything that you seen around your
operations globally that give you pause, that make you fear perhaps is a double dip?
Don Huml — Greif — EVP & CFO
Steve, we haven’t seen that yet. I mean, we were cautious in that statement because everyone
is concerned that potentially that could happen. But we have not seen that yet. Customer attitudes
from with a we talked and what we read about them is fairly confident in light of what we all gone
through from 2009. So I think we have a cautious approach by the 9% volume increase. I think we
will continue to update everyone each quarter as we go forward as we look at volumes because that’s
an important part of our story and everyone’s story. The only thing we can report on is that over
the last four months we have seen sequential improvement and that gives us some comfort that the 9%
is at least a good number sitting here right now.
Steven Chercover — D.A. Davidson & Co. — Analyst
And volumes certainly in the first half of your fiscal year were impacted by I would assume
destocking throughout the economy in general. Do you believe there could be at some stage some
restocking that would actually boost volumes beyond kind of the general takeaway demand?
Mike Gasser — Greif — Chairman & CEO
Yes. That possibility exists. I think people, us included are probably much more cautious on
working capital. And inventory build. So because of the situation we all went through in 2009. Yes,
I think that possibility exists. We don’t see it yet. I think it
will see a much more of a cautious
approach before people actually build inventories if they are
anything like us because we
are more cautious than we had been in the past.
Steven Chercover — D.A. Davidson & Co. — Analyst
Two more quick ones if I could. First of all there are some residual benefits from the Greif
business initiatives that will trickle down into 2010. Are there any — there is a new round of
initiatives that you are contemplating? Have you basically cut to the bone within your existing
operations?
Mike Gasser — Greif — Chairman & CEO
I will start and then Don can jump in. We had talked last year before the crisis hit and we
went into a contingency plan mode. We really have a new round that we are starting which is our
best in class round which is really looking at the every operation and find out who does each
process the best and trying to implement that in each location. So that is a new round that we had
started last year. Really sort of got stopped a little bit as we went into the contingency plan
mode and quite frankly I think delivered quite admirably on that contingency plan. So I assume that
the economy is going to be better which we all assume. You will see us talking more and more about
the best in class mode which we think can be a significant contributor long term to the results of
Greif.
Steven Chercover — D.A. Davidson & Co. — Analyst
That was not explicitly mentioned in your bridge?
Mike Gasser — Greif — Chairman & CEO
It was
not. We had not factored that in or anything of value for that.
Steven Chercover — D.A. Davidson & Co. — Analyst
Final question. Just between your mix of kind of petrochemical, pharmaceutical and
agriculture, are there any trends within those sectors that are worth noting?
Mike Gasser — Greif — Chairman & CEO
No. I think we commented on those in the past and those have remained the same. The mix that
we have is about the same and so there is nothing to date that we would want to comment on.
Steven Chercover — D.A. Davidson & Co. — Analyst
Great. Happy holidays. Best wish for 2010.
Mike Gasser — Greif — Chairman & CEO
Thank you.
Don Huml — Greif — EVP & CFO
Thanks.
Operator
Thank you. Our next question comes from Scott Blumenthal with Emerald Advisers. Please state
your question.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Good morning, Mike and Don.
Mike Gasser — Greif — Chairman & CEO
Good morning.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Don, just a couple of clean up questions following your comments. Can you give us your
expectations for Forex and what you are factoring in the guidance?
Don Huml — Greif — EVP & CFO
Yes.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Thank you.
Don Huml — Greif — EVP & CFO
Scott, for 2009, just as for level setting purposes, the Euro was 137. And we are — we do not
have a step in the bridge for currency since it’s very difficult to predict. If there were no
change from today with the Euro at 147, that would translate to about a $10 million benefit. So
that would be one of the hard spots in bridge.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Okay, that’s helpful from a measure of degree here. And in the asset disposal area, do you
have any more that you are still marketing at this point?
Don Huml — Greif — EVP & CFO
Well, we basically have 15 facilities that are part of our assets held for sale. So those
transactions will occur really over the next 18 to 24 months.
Mike Gasser — Greif — Chairman & CEO
Scott, I would add that number could grow because as we continue to do acquisitions and
consolidate, there is always new ones that come on. It would be an ongoing process for those
facilities.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Okay. Understood. Do we have any facilities for sale out of those 15 that are a result of the
most recent acquisitions?
Mike Gasser — Greif — Chairman & CEO
Not to date. Maybe in the future. Not to date.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
And just two more if I might. Mike, is blending and filling considered to be a consolidation
opportunity or a product extension?
Mike Gasser — Greif — Chairman & CEO
We considered that as an adjacency.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Okay.
Mike Gasser — Greif — Chairman & CEO
Specifically. A different word but that was an adjacency.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Okay. And then therefore in your in your deal acquisition funnel when you talked about
consolidation opportunities and new product extensions, blending and selling them as adjacency is
out or one of those, too?
Mike Gasser — Greif — Chairman & CEO
No. Just that we don’t have a deal in the current mix that would be in the blending, filling
arena.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Okay. That’s really helpful. And I guess the last one for Don, please. Don, you talked about
the steel supply issues. And that they were meaningful costs during the quarter. You might have
mentioned this and I might have missed it. But did you say that they more than offset the earnings
from the facilities disposal?
Don Huml — Greif — EVP & CFO
What I basically said was that for the quarter, the $25 million in disposal gains, the
two-thirds that was related to facility dispositions were substantially offset by the price costs
squeeze combined with the supply chain disruptions.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Okay. Substantially but not completely?
Don Huml — Greif — EVP & CFO
Right, that’s correct.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
And then at this point are we suffering from the same type of steel supply issues? Or has that
cleared up a little bit?
Don Huml — Greif — EVP & CFO
That has definitely cleared up. I appreciate you asking that question. Now that — it was
really a result of the industry ramping up and really starting up blast furnaces and unfortunately
that takes 30 to 60 day period. So when we reached that inflection point volumes increased. There
was difficulty in terms of availability. But those issues have been since resolved.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Do you have any spots at all on the supply chain where you are struggling with the types of
issues that you mentioned?
Don Huml — Greif — EVP & CFO
No.
Scott Blumenthal — Emerald Advisers, Inc. — Analyst
Okay. Terrific. Thank you.
Don Huml — Greif — EVP & CFO
Thanks.
Operator
Our next question comes from Gregory DiMarzio with Century Capital. Please state your
question.
Gregory DiMarzio — Century Capital — Analyst
Most
of my questions have been answered so I will ask a big picture
question. Last year your guidance had 325 to 375 and it seemed like wide end of the range and most of the year we were talking
about the fact that that upper half of the range was sort of aspirational. This time around it’s a
much narrower range and it seems like the tone of the call is that there is a lot of conservatism
around it. If you could describe to us any — did the way that last year’s guidance get perceived
have any effect on your thinking of this year or any thought process we should be aware of?
Mike Gasser — Greif — Chairman & CEO
I
think, Greg, that I think we all lived through the challenging year in 2009 and I think
conservativism is the better part of valor right now as you go forward. I think our conservativism
is stemmed from the uncertainty of what 2010 is actually going to bring. The way we see it now,
this would probably be viewed as conservative. But we were surprised that during last year and
hopefully we won’t have that surprise. And we have no problem going through the quarter if we see
better results to increase our guidance for the year which we had done in 2007 and 2008. We felt
that we just need to give you our conservative view right now and we will update it as each quarter
as we go forward.
Gregory DiMarzio — Century Capital — Analyst
All right, thank you. Most questions have been asked.
Mike Gasser — Greif — Chairman & CEO
Thanks.
Operator
Ladies and gentlemen, I will turn the conference back over to Deb Stohmaier for closing
remarks.
Deb Stohmaier — Greif — VP Communications
Thank you. And thank you all again for joining us this morning. A digital replay of the
conference call will be available in approximately one hour on the Company’s website at
www.Greif.com. Have a great day.
Operator
This does conclude today’s teleconference. You may disconnect your lines at this time. Thank
you for your participation.