Is Greif Inc Stock Worth the Grief After Weak Guidance?

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Source: Thinkstock

Source: Thinkstock

Greif Inc (NYSE:GEF) caught my eye after missing top and bottom line estimates. But should you sell this stock which has returned just 25 percent in two years? Despite the earnings and revenue misses, there were some bright spots.

The company produces and sells industrial packaging products worldwide and operates in several segments. The company’s Rigid Industrial Packaging and Services segment provides rigid intermediate bulk containers, closure systems, transit protection products, water bottles, and reconditioned containers, as well as steel, fiber, and plastic drums; and container lifecycle, blending, filling and other packaging, logistics, and warehousing services. This segment sells its products to customers in the chemicals, paints and pigments, food and beverage, petroleum, industrial coatings, agricultural, pharmaceutical, mineral, and other industries. Its Flexible Products and Services segment offers flexible intermediate bulk containers and related services.These are sold and used to ship a range of industrial and consumer products, such as seed, fertilizers, chemicals, concrete, flour, sugar, feed, pet foods, popcorn, charcoal, and salt primarily in the agricultural, chemical, building products, and food industries. The company’s Paper Packaging segment provides container board, corrugated sheets, corrugated containers, and other corrugated products to customers in packaging, automotive, food, and building products industries. Finally, its Land Management segment is engaged in the harvest and regeneration of timber properties; and sale of timberland and special use land.

The numbers were so-so for the quarter. Net sales were $1.101 billion for the second quarter of 2014 compared with $1.089 billion for the second quarter of 2013. The 1.1 percent increase in net sales was primarily due to the impact of a 2.3 percent increase in selling prices. The higher selling prices were primarily for rigid industrial packaging products in North America, partially as a result of the pass-through realization of higher raw material costs, and for paper packaging products. Volumes in Europe within the Rigid Industrial Packaging and Services segment were higher than a year ago. Gross profit was $204.2 million for the second quarter of 2014 compared with $202.6 million for the second quarter of 2013. Improvements in the Rigid Industrial Packaging and Services and Paper Packaging segments were offset by declines in the Flexible Products and Services and Land Management segments. Gross profit margin was 18.6 percent for the second quarters of 2014 and 2013.

Operating profit was $74.6 million for the second quarter of 2014 compared with $83.9 million for the second quarter of 2013. The $9.3 million decrease consisted of an $11.1 million decrease in the Flexible Products and Services segment and a $6.0 million decrease in the Rigid Industrial Packaging and Services segment, partially offset by a $7.0 million increase in the Land Management segment and a $0.8 million increase in the Paper Packaging segment. Unadjusted earnings were $116.2 million for the second quarter of 2014 compared with $122.0 million for the second quarter of 2013. The $5.8 million decrease was primarily due to costs incurred due to the occupation of a flexible products manufacturing facility. Unadjusted earnings before special items was $112.2 million for the second quarter of 2014 versus $122.0 million for the second quarter of 2013. Depreciation, depletion and amortization expense was $41.9 million for the second quarter of 2014 compared with $38.9 million for the second quarter of 2013.

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