Q1 2021 Greif Inc Earnings Call
And then.
Okay.
And.
Okay.
[music].
Ladies and gentlemen, thank you for state and by and welcome to the <unk> first quarter earnings call. At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you would like to withdraw your.
The question press the pound key please be advised that today's conference is being recorded if you require further assistance. Please press star zero and would now like to hand, the conference over to your speaker today, Matt Eichmann and thank you you may begin.
Thank you Dorothy and good morning, everyone. Welcome to the range first quarter fiscal 2021 and earnings Conference call. This is Matt Eichmann and I'm joined by people, often Vice President and Chief Executive Officer, Larry Hill, Shimer price, Chief Financial Officer, Pete and Larry will take questions at the end of today's call and in accordance with regulation Fair disclosure. We encourage you to ask questions regarding issues.
You can sit on important because we are prohibited from discussing material nonpublic information with you on an individual basis.
Please limit yourself to one question and one follow up before returning to the queue.
Please turn to slide two.
As a reminder, during today's call we will make forward looking statements involve and plans expectations and beliefs related to future events.
Actual results could differ materially from those discussed Additionally, we'll be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics can be found in the appendix of today's presentation.
And now I'll turn the presentation over to Pete on slide three thanks, Matt and good morning, everyone.
Price delivered solid first quarter results and we are well positioned for longer term success as the world recovers from the COVID-19 pandemic.
Our performance has been delivered despite continued challenging circumstances.
And Eric Thanks, Glen and <unk> global team from the resilience and dedication over the last three months from there.
The operational standpoint, we generated strong year over year of volume growth across most of our packaging substrates and saw continued robust demand and our containerboard and corrugated sheet feeder network.
We're experiencing inflationary cost headwinds across our portfolio and we will overcome them through commercial activities contractual arrangements and the continued laser focus on performance levers that are within our control.
And also continue to make strong progress across our strategic priorities, we reduced our net debt by approximately $279 million versus the prior year quarter and were once again recognized for our sustainability leadership by several well respected third parties.
We also formed a new reporting segment and global industrial packaging to align our leadership of our organizational structure and a common and market segments, which of all.
Of discuss more in a moment.
Finally, we decided to take advantage of favorable market dynamics to address the COVID-19 related shortfall on our deleveraging plans by entering into the agreement to divest 69200 acres of Timberlands and Alabama to Weyerhaeuser company for approximately of $149 million proceeds from.
Net sales will be applied the debt repayment.
And I'll ask if you please turn to slide four.
We recently combined our rigid industrial packaging and flexible products and services business into a new reporting segment called global industrial packaging.
This new business led by all the <unk> will build upon the considerable improvement we've made to our global portfolio over the last several years.
Binding of our rigid and flexible business and the global industrial packaging aligns operational practices and.
Procedures as well as go to market strategies under a single global global leadership team.
And this results in the business with unmatched product offering capable of exceeding customer needs throughout the world and also enhance cross selling and service offering to customers and common end use markets and enhance the scribes business system effectiveness.
To assist with the modeling we recast our 2020 financial performance for certain segment information and filed an 8-K with data yesterday.
And I could ask you to please turn to slide five.
First quarter volumes were strong across much of the global industrial packaging business.
Global rigid IPC volumes rose by roughly 6% of on a per day basis versus the prior year, while global flexible Abcs rose by more than 15%.
Global steel drum volumes declined by roughly 1% on a per day basis versus the prior year.
Product demand was strongest and APAC, where steel drums rose by three 5% on a per day basis first of the prior year and benefited from improved and industrial trends and a favorable comps and China.
Demand conditions also showed improvement travels to Europe.
Specifically, we experienced strong demand throughout eastern Europe, where steel drums, and rigid <unk> rose by roughly 9% and the 11% respectively.
Volume demand was most challenged and North America, where COVID-19 impact was present it as and this year's volume that we're not in the prior year.
And we're seeing broad based improvement and many of our key end markets, but the pace of recovery of areas. For example, sales to lubricate and bulk chemical customers rose by single digits globally versus the prior year quarter due to better auto demand and generally improving industrial conditions worldwide takes.
Thanks, and coating sales were up low double digits versus the prior year did better auto and construction demand, while sales of pharma and personal care markets remain robust and.
<unk> and beverage sales were weaker versus the prior year as COVID-19 continues to constrain restaurants and other similar entertainment venues.
Tip's stronger volumes and higher average selling prices drove higher segment sales first quarter adjusted EBITDA rose by roughly $13 million versus the prior year quarter, primarily due to higher sales, partially offset by higher transportation expenses.
The business did benefit from $3 $5 million of FX headwind, excuse me tailwind and and opportunistic sourcing behind the roughly.
And one $5 million.
Similar to last quarter, we are closely monitoring steel and resin prices as tight supply conditions exist for our key raw materials.
The majority of our business is covered by price adjustment mechanisms, which pass log raw material inflation, albeit at a lag while supply conditions remain tight to date, we have not experienced any material financial impact relative to sourcing raw materials and the current market.
If I could ask you to please turn to slide six.
Paper packaging first quarter sales rose by roughly $7 million.
First of the prior year quarter, despite the divestiture of our consumer packaging group due to stronger volumes and our mill network corrugated sheet and tube and core business.
Paper <unk> first quarter, adjusted EBITDA fell by roughly $22 million versus.
Versus the prior year, primarily due to a significant $30 million OCC transport and chemical cost headwind.
We recently announced the new set of price increases for containerboard and uncoated recycled box port grades and response to the strong demand and expect full realization of those and our fiscal Q3.
Our converting operations continue to experience robust demand volumes and core choice, our corrugated sheet feeder system and were up nearly 36% per day versus the prior year quarter due to strong durables ecommerce growth auto supply chain and food and beverage demand backlogs and that business continue to grow and <unk>.
Actually product backlogs are especially law.
Volumes and our tube and core business were up roughly 5% per day versus the prior year quarter with strong demand seen specifically and film and construction and market segments.
Demand for pay per mill of course improves sequentially, while the tax total demand remained soft for the prior year quarter.
And I'd like to now turn over the presentation of our Chief Financial Officer, Larry helps Shimmer and can be good morning, everyone. Please turn to slide seven to review our quarterly financial performance first quarter net sales, excluding the impact of foreign exchange rose by roughly 2% versus the prior year due to.
The improvement and higher average selling price we've seen the globe.
<unk> industrial packaging and paper packaging segments.
And we're coming the $53 million.
Dollar sales reduction related to the the divestiture of the consumer packaging group.
First quarter, adjusted EBITDA fell by roughly 6% versus the prior year quarter.
While sales were higher and SG&A slightly lower year over year, despite the negative FX impact cost inflation, especially in transportation and on OCC was a drag on profits.
Strong demand for our products has led us to implement price increases to return to appropriate levels of profitability.
Our non-GAAP tax rate for the quarter was 19, 7% and the first quarter adjusted class a earnings per share was <unk> 61 per share.
Consistent with prior years first quarter adjusted free cash flow with the cash outflow and was roughly flat to prior year.
Please turn to slide eight to review our guidance.
And fiscal Q2, 'twenty, one we expect to generate between 96 and $1 <unk> and adjusted class a earnings per share.
We anticipate global industrial packaging second quarter, adjusted EBITDA to improve sequentially from the seasonally weak first quarter, but it will not be quite as strong as the prior year second quarter during.
During which we benefited from pandemic related pre buying and and opportunistic sourcing benefit of $7 million.
We anticipate the paper business, the second quarter adjusted EBITDA to increase sequentially from quarter, one primarily due to continued strong volumes and the flow through of announced price increases partially offset by additional mill maintenance downtime.
We assume OCC average of $82, a ton and fiscal Q2, roughly $26 per ton higher than the prior year quarter.
This equates to a year over year headwind of roughly $11 million.
Finally, I'll share a couple of thoughts on fiscal 2021 as a whole.
We anticipate net.
Interest expense be and the range of <unk> $99 million to $104 million of roughly $14 million lower year over year as a result of lowered net levels and the favorable rates, we lock and on our term loan <unk> III.
Plan to draw on the term loan in July of 2021 to refinance our existing 730, 750 $200 million senior notes, which mature that month.
We anticipate depreciation and amortization to be and the range of $238 million to $248 million.
And we expect our non-GAAP tax rate to fall between 23% and 27% this year.
Finally, we anticipate spending between 150 and $170 million on Capex with the bulk related to maintenance needs. We anticipate working capital to be of cash used commensurate with our announced price increases and raw material inflation.
Please turn to slide nine.
As Pete mentioned in his opening remarks, we have entered into an agreement with weyerhaeuser to sell them 69200 acres of timberland for approximately $149 million and cash.
It will be a very tax efficient sale is taxable gains on the transaction will be completely offset for federal taxes through other identified tax losses.
The negative financial impact we've experienced from Covid, coupled with robust current timberland prices seen in the market maintenance and opportunistic time to bring acreage to market land monetization.
<unk> and provides an accelerant to our ongoing deleveraging process.
Because of the satisfaction of customary closing conditions, we anticipate the transaction will close and calendar second quarter of 2021.
Please turn to slide 10.
We have three pronged a three pronged capital deployment strategy focused on reinvesting in the business returning cash to our shareholders and delevering the balance sheet.
And we continue to generate cash pay down debt and reduce leverage towards our targeted range of two to two five times, we will shift enterprise value to the benefit of our equity holders and moved to a steadily increasing dividend policy.
With that I'll turn the call back and beat for his closing comments before our Q&A.
Thank you, Larry and I'd ask everyone to turn to the slide 11.
So in summary growth delivered a solid first quarter performance. Despite continued challenging circumstances to the COVID-19.
But looking ahead, our key and markets are rebounding volumes are strong and we're taking proactive steps to offset and recoup cost inflation.
Laser focused on operating levers within our control to drive value and we are well positioned to benefit as the world recovers from the pandemic. Thank you for your interest and growth and Dorothy If you could please open the lines for questions.
Very quickly.
Can I ask a question press star followed by the number one on your Touchtone phone to remove yourself from the queue press the pound key and the interest of time, we ask that you. Please limit yourself to one question and one follow up if you have more question westar and want to get back into the queue and we will address additional questions of time permits. Please.
While we compile the Q&A roster.
Our first question comes from the line of Gabe <unk> with Wells Fargo.
Pete Larry Matt.
And then.
And.
I guess on the second quarter Guide, Larry can you give us a sense for the.
The maintenance downtime.
I guess, both on a per client basis, as well and expense and then.
And kind of maybe compare with the last year.
I've seen it under the that happened later in the year.
From a timing perspective.
Q2, and our Q2 basis gave year over year, it'll be a similar amount of downtime tonnage production and cost. However on a sequential basis from Q1 to Q2, its about 7000 tons of about two and a half to $3 million of.
Incremental cost and the second quarter over the first quarter.
Okay, and then I didn't hear I heard pretty robust volumes per IDC and I think part of that is obviously from industrial.
Market kind of per.
And back up a little bit.
And you guys had on.
A reasonably aggressive expansion plan there what are the kind of co locating.
With some of the risks.
<unk>.
Can you update us on where those are where the standard.
The complete at this point and then the envision kind of continuing to add capacity on the IPC side.
Yes, Gabe and thanks for the question. So we had 6% growth and Richard Rbcs and really good strength in Asia and in Europe and Thats.
And we're really pleased with the expansions we've done so far as you remember we've done a couple of small tuck in reconditioning, IPC businesses, which is eight and our profitability as well. So we don't have any new announced ITC expansion and it's certainly the highest strategic priority for us and we're evaluating the right.
<unk> two and the future.
Okay.
Your next question comes from the line of Mark Wilson.
With BMO capital markets.
Jesse Barone on for Mark Good morning, guys.
Good morning.
First question, just kind of thinking about the new.
Global industrial packaging Simon could you kind of talk about what youre expecting from the margin basis there.
And we still kind of expect that load and kind of a mid teens margin there.
Yes.
It's really isn't day synergy play this is more a market play and it's our beat and I've thought about running the business and have been running it.
And for some time, we match up we had a lot of overlapping and customers we get the go to market.
Gather and.
So it in and of itself is not going to drive margin expansion. However.
Our objective is to continually increase our GOP margins and expect to do so over the next year and a half in excess of note of two points. So.
But unrelated.
Okay, Great and then just a quick follow up can you just talk about kind of the impact of the U S. Gulf Coast shutdowns on your drums of apparel business, Thanks, and I'll turn.
Yes, sure well, so and the weather impact obviously is affected both businesses and our.
Richard operations, we had about eight plants that were shut down for five days, and Texas, and Arkansas really encompass both steel drum, Richard <unk> and plastic operations.
The the.
The important note in the Gulf Coast on our steel production.
For our U S business North America business, that's roughly 30% of our production is and that Gulf Gulf region. So.
Negatively impact volumes and <unk>.
The work that North America business, we do believe the strength and other regions around the world will offset that loss on volume.
On a packaging paper and packaging standpoint affected five operations and our industrial tube and core business.
And included five large customers, who were down and we expect for several weeks. So it will impact our volumes and tube and core and late February and early March.
Had no material damage to our operations due to that.
Great. Thank you I'll turn it over.
As a reminder of people would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Ghansham Panjabi with Baird.
Hi, good morning, and it's actually Matt Krieger sitting in for Ghansham. How are you all do and good day.
And how are you and then.
Great great doing well.
I guess from my first question.
And the level of inflation that the.
Permeating throughout the market can you talk a bit about what has changed from a price cost recovery scenario for greif.
Versus the last time, you saw kind of the cost inflation cycle in 2017, and 2018, I guess I'm asking specifically related to.
And how the repeat industrial business has changed but any details on the on the other businesses would be helpful as well.
We've made a number of improvements as we've gone through our transformation efforts over the.
And last number of years.
And of the biggest was really more tightly aligning the timing of our Pam adjustments to market realities, we used the lag a lot more we've got them now where the lag is very limited.
And so the.
Some of the.
And about unusual timing things that we ran into and the path are much less likely to be as significantly impacting us.
The vast majority of our business is on the Pam contracts. The other big improvement that we made was the introduction of annual openers for other than raw material price increases.
And we have that now and over half of our business and the GIC portfolio and that permits us to go in and address issues like.
Rapidly increasing transportation costs and other elements so.
We take on much better position than we were then and we're seeing that flow through our business.
Great.
That's very helpful and that makes sense and just as a follow up question.
Given the significant year over year variability from a demand and from a volume perspective and.
Kind of the 2020 2021 time frame for you can you give the consensus.
Volumes are likely to progress kind of by segment.
Throughout the remainder of your fiscal 2021, what are some of the puts and takes that we should think about it is we.
We think about that kind of year over year variability.
Yes, so ill comment on February volumes, because we're almost through there and again, we guide just through Q2, so I'll make some comments about.
Volume assumptions and that Q2 guidance.
And <unk>.
Global industrial packaging business and the volumes are really similar to what we experienced from Q1, the exception of that would be what are the norm.
North America's steel volumes that were impacted to the weather and the Gulf Coast and again, 30% of our productions and North America is impacted.
On the Gulf Coast.
And so said, we expect global the regions of the world, the offset that growth on volume and margins.
<unk>.
No.
From a paper packaging standpoint, again, we are really strong demand and our backlogs and the mill system remains strong.
And that could cause Laura on February two.
The Q1 call choice remains robust and so.
Q1.
And our glass short tubes, and cores will be flat and February primarily due to the weather impacts that are referenced in flight and those operations.
And the southwest.
And Q2 from the volume assumption standpoint.
And our steel volumes were projected to be flat.
Resin based products, which are the plastic drugs, <unk> and Ibs C and <unk>.
Flexible oddly cease and we're forecasting and our Q2 guidance to grow by the mid single digits.
And it's also important to note and the global and bolster fracturing side of it the supply chain and clean needs to be really challenging particularly on steel.
And paperboard packaging of volumes and our mills and core choice.
We expect to be very robust, so where the Q1 and then.
And of course, we expect the wholesale growth.
Growth from our assumptions and Q2.
Great that's.
That's very helpful. Thank you very much.
Yes.
Before we go into the next question and I just wanted to clarify something on games the question.
I think I Miss dates on.
And we'll actually have a headwind on year over year Q2.
<unk> tons.
And about 15000 tons of some of that was that actually later in the year as you and actually stated.
And my next question.
Your next question comes from the line of Adam Josephson with Keybanc capital market.
Pete Larry Matt Good morning, Hope you're well.
Adam.
Hey.
One question Larry on the Timberland sale can you just talk about what the EBITDA associated with that Timberland is and can you compare.
I guess the value per acre of your remaining call. It two and 3000 acres to the $21 50 that you are getting from wire Houser and this transaction just given the different geographies et cetera.
And so.
Good questions Adam.
And EBITDA associated with this acreage is less and $2 million per year.
And the.
In terms of the comparable valuation of the acreage I mean, obviously you don't know until you go to market, but theyre very similar.
Portfolios and we have just an outstanding timber management team with outstanding assets across all of them, which is what drove that value and so I would say, it's fair to assume the be similarly valued.
Got it okay. Thank you for that Larry and Jeff.
In terms of the <unk> guidance, just based on your interest expense guidance tax rate guidance et cetera, I'm getting to an EBITDA number of call. It mid to high 100 <unk>.
Thinking about it which would imply a slight decline year over year compared to the 181 last year my thinking about it the right way.
Yeah and you are.
One thing I'd.
And just to remind people.
On the interest expense and our first quarter, we actually received a relatively significant patronage of dividend from our farm credit.
Lenders of roughly $4 million to $5 million. So when you try and annualize that you might get some distortion. There and then obviously we will have the benefit of the reduction related to the use of the proceeds from the land sale.
Alright, Thanks Mark.
Our next question comes from the line of Gabe <unk> with Wells Fargo.
Thanks for taking the follow up real quick I was just curious if you can give us a sense and you gave us obviously, the the underlying assumptions for volume.
But I'm just curious more on the automotive side, if youre seeing any kind of disruptions from the.
<unk>.
From the tip shortages that were reading about the <unk>.
You mentioned not experiencing to date any sort of.
I guess cost headwinds on material availability issues, but as it relates to the ocean freight or anything like that.
And you kind of hesitation or and you guys have been able to maybe buy still ahead of or anything like that.
Give us a sense from the risk mitigation standpoint and guys.
Yes, so great on the auto industry semiconductor shortages to date, we have not had any material impact of growth we are watching it closely.
Keyed into our customers and again, we supply customers, whose customers serve the that auto supply chain, so to date and nothing material or no impact and we'll just have to watch it closely and regard to steel and conditions are very very tight.
All around the world.
We have a pretty a regional supply chain. So we have good redundancy and balance across it. So we're not dependent upon one region.
Of which mitigates some of the transportation freight transportation of those.
And going vessels.
But it is tight and we expect to continue to be tight probably through the second through the first half of the calendar year.
At that point I think some of the.
Steel mills that were down for maintenance and some of the blast furnaces that are restarting.
Should improve that another factor and that is the auto makers had pretty good demand and that pulls the big big amount of steel so tight conditions, we've had no material impact at this point, but we are operating with very low inventories and.
The lead times are growing so we will have more and more to report the and the second and of the second quarter.
Thank you.
Your next question comes from the line of George Staphos with Bank of America Securities.
Hey, Thanks for taking my question is actually the jumbo product on all of the George.
And I was just wondering if you can discuss.
Cut the costs and other one off pressures and the paper from <unk>.
<unk> on how large that effect was and then also how big of a burden.
And in fiscal <unk>.
Yes, and in the first quarter the.
And the impact on between.
So you see and the chemical costs and some of the related.
Other.
Of all materials was about $30 million year over year.
On a drag and as we go into <unk>.
<unk> the OCC cost year over year based on our 82 dollar assumption for us out to about $11 million headwind year over year.
Okay. Thanks for that.
And then I was wondering if you might be able to provide some color on the shelf.
And the global industrial business.
Yes, so and the.
North America business. The one positive note was.
And our resin based products, so large plastic drums were up mid single digits.
Our fiber business was up 4%. So we did see growth in those segments steel was the weakest segment, but a part of that weak demand also is related to COVID-19 and we had some lower operating rates and a few of our plants due to the impact of staffing.
So we can we see that sequentially that business and still growing.
But predominantly the other main substrates seem to be improving sequentially from from our Q4 to Q1, and we expect to see similar sequential improvement.
<unk> from the challenges we had with weather in.
In Q2.
Thank you Dan.
Your next question comes from the line of Adam Josephson with Keybanc capital market.
Thanks, everyone I appreciate it Larry just on working capital can you quantify roughly of precisely what kind of drag you're anticipating this year.
And it's it's.
And clearly going to be of use this year as our teams did such a phenomenal job last year of <unk>.
Really.
Proving our management of working capital so that our year end inventory levels were low on our receivables were improved and our payables were stretched so making of year over year of improvement.
Any time is going to be extremely challenging and I don't anticipate it right now in addition to that with the.
And the price and.
Cost elements going up fairly dramatically because of the.
And Matt as we've talked about on steel as well as and resin and then of course and the paper business. It's clear that we're going to see of use of working capital year over year. The magnitude of it is difficult to be super accurate about right. Now obviously, if we had clarity for what we thought the last two quarters of the year, we're going to be we'd be giving.
Guidance for the full year.
And as of the uncertainty with that it's difficult to give you a real good idea on range because of that will be dependent on what the sales levels are.
Yes, no I appreciate that and I was just two others from day one on OCC. So based on your guidance. It seems like youre not expecting much of any movement and then in the latter two months on the quarter.
One might think that OCC prices would be going up rather significantly just given how good demand is given the new capacity coming on but obviously, that's not happening and I don't know if you attributed to the fact that China is not taking anything.
Or that there have been some supply disruptions and the U S. What do you attribute the the.
Still low OCC prices too.
The first of all we don't consider them too low but.
And because we still believe long term when you get the economy back open and retail establishments and restaurants and all of that.
Come back that we will see more supply side, because it is just way more efficient on that and in the residential collection, that's tied to the e-commerce strength.
And all of the and we've had discussions with some of the national players and even regional players and and.
And the recycling businesses and all of them have plans to enhance.
The collection systems residential and.
That's part of what we are.
We believe will help mitigate further increases.
And as the economy is just slowly starting to reopen we think all of that will help.
Like we said, we've got $82 and our assumption. We don't think there is risk of a significant increase.
Our next question comes from the line of George Staphos with Bank of America Securities.
Hey, just wanted to ask one follow on question and just overall I know you talked about global industrial packaging and you're not expecting anything of significance.
Synergies associated with Apple and I was just wondering what opportunities there might be a per efficiencies there.
Yes, so from efficiency standpoint, when you look at all of the number of the operations we have around the world. There's a lot of opportunities to continue the standardized practices, particularly around the greif business system, So operational effectiveness best practice and on our operations and also.
Sharing sharing the best practices, regardless of where they are around the world. So I think when you add the one single global leadership on the early <unk>.
You get more aligned and improvement in both commercial and operational effectiveness.
And on to that.
And our.
The results that we're really starting to.
And our.
G IP business.
The improvement and our gross profit over the last four years not just the first quarter.
Numbers.
Adjusted EBIT of actually so the first quarter 87, and six first quarter 1984 first quarter 'twenty 10, five first quarter of 'twenty, one 'twenty one.
And we've shuttered over 42 day IP plants, we walked away from $450 million of revenue and only $9 million of EBITDA. We also of my closing those and you look at what we spend on an average plant for Capex and just say 270 300000 of year investment of $11 million to $12 million of Capex.
Kind of be required that we walked away from by shattering in the plant. So those are the type of things.
And as we've driven that improvement through our old rips business. We put this together we will continue to drive forward and see continued improvement and our in our.
On operating metrics.
Okay. Thanks for that additional color.
And if there are no further questions I will turn the call back over to Matt.
Thanks, very much Dorothy and thanks to the audience for joining US today, we hope you have a good remainder of tier weak.
Yes.
Thank you, ladies and gentlemen that does conclude today's conference call you may now disconnect.
Okay.
Yes.
On the.
And.
[music].
And.
And.
Thanks.
Okay.
Yes.
On the growth.
And.
And.
Okay.
Okay.
And.
Okay.
And.
And again.
Okay.
And.
[music].
And.
And again.
And then.