Greif, Inc. (GEF)

F2Q12 Earnings Conference Call

June 7, 2012 10:00 AM ET


Debra Strohmaier – Vice President, Corporate Communications

Robert M. McNutt – Senior Vice President & Chief Financial Officer

David Fischer – President and CEO


Matthew Wooten - Robert W. Baird & Co.

Phil M. Gresh - JP Morgan Chase & Co.

Adam Josephson – KeyBanc

Gabe Hajde - Wells Fargo Securities



Greetings and Welcome to the Greif Inc Second Quarter 2012 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Debra Strohmaier, Vice President of Corporate Communications for Greif. Thank you. You may begin.

Debra Strohmaier

Thank you, Kristine, good morning. As a reminder, you may follow this presentation on the web at in the Investor Center under Conference Calls. If you don't already have the earnings release, it is also available on our website. We are on Slide 2.

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 2 of this presentation in the Company's 2011 Form 10-K, and in other Company SEC filings as well as Company earnings news releases.

As noted on Slide 3, this presentation uses certain non-GAAP financial measures, including those that exclude special items, such as restructuring charges and acquisition-related costs, and EBITDA before and after special items. EBITDA is defined as net income, plus interest expense net, plus income tax expense, less equity earnings of unconsolidated subsidiaries, net of tax plus depreciation, depletion and amortization expense.

Management believes the non-GAAP measures provide a better indication of operational performance and a 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 footnotes. Tables showing the reconciliation between GAAP and non-GAAP measures are available at the end of this presentation and in the second quarter 2012 earnings release.

Giving prepared remarks today are in order of speaking, Senior Vice president and CFO, Rob McNutt; and President and CEO, David Fischer.

I will now turn the call over to Mr. McNutt.

Robert M. McNutt

Thank you, Deb. We're on Slide 4. During the second quarter we continue to focus on three key priorities which include increasing cash flow, improving working capital management, and successfully integrating recent acquisitions. The $161 million of cash from operations generated during the three months ended April 30 is a second quarter record and compares with $56 million for the same period last year. New accounts receivable credit facility for Europe benefitted second quarter 2012 cash from operations by about $30 million. We remain committed to further improvement in cash flow during the second half of the year.

Through the Greif Business System we've been deploying tools and processes to improve our working capital management. We see initial signs of progress that should continue from these efforts. Working capital performance measures are being managed at the plant level in our facilities worldwide and the businesses report monthly on progress to David and me.

Acquisition integration is proceeding as planned and initial synergies are being realized. These efforts include development of our three growth platforms of flexible products, drum reconditioning and rigid intermediate bulk containers, David will comment further on these later. The Greif Business System continues to be a catalyst for identifying savings and is also a strong integration tool for realizing synergies.

As we enter the second half of our fiscal year, we continue to respond as appropriate to external influences related to the macroeconomic environment and market pressure especially in Europe. This involves implementing specific contingency plans and paying close attention to our cost structure. We're encouraged by the progress achieved thus far and will continue to monitor market by market and take appropriate actions.

Please turn to Slide 5. This financial summary highlights key measures of our financial performance in second quarter 2012 compared with the same period last year. The 4% increase in net sales to $1.1 billion benefited from an 8% increase from acquisitions which more than offset a 4% decline on a same-structure basis.

Selling prices increased 2% for the quarter, principally due to pass-through of raw material costs. And there was a negative 3% impact attributable to foreign currency translation.

Gross profit was $203 million for the second quarter and was essentially flat with a year ago. Gross profit margin decreased to 18.5% from 19.7% for the same period last year, principally due to lower volume and market pressure in Europe in our Rigid Industrial Packaging and Flexible Products businesses. Higher volume and lower input costs in our Paper Packaging business helped to mitigate a portion of that decline.

SG&A expenses were $122 million for the second quarter compared with $114 million last year. This increase was primarily due to the inclusion of SG&A expenses for acquired companies and $2.4 million non-cash impairment charge related to properties under contract for sale, partially offset by lower acquisition related costs.

Acquisition related costs were about $1 million for the second quarter of 2012, versus $8 million a year ago. Most of last year's amount was related to our Flexible Products business.

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