Greif Bros Corporation reported its fourth-quarter earnings, revealing a shortfall in earnings per share (EPS) compared to analyst expectations. The company posted an EPS of $0.85, missing the forecasted $1.09. Despite surpassing revenue forecasts with $1.42 billion against an expected $1.41 billion, the market reacted negatively, with shares falling 2.7% after hours.
Key Takeaways
- Greif's EPS missed expectations by 22%.
- Revenue slightly exceeded forecasts, reaching $1.42 billion.
- Shares dropped 2.7% following the earnings release.
- The company announced a $100 million cost optimization program by 2027.
- New plant in Malaysia and U.S. Postal Service contract highlight expansion efforts.
Company Performance
Greif continues to navigate a challenging industrial environment, marked by a prolonged contraction in the sector. The company's Q4 adjusted EBITDA was $198 million, down from $202 million the previous year, reflecting the broader market softness, particularly in North America. However, Greif remains a leader in agrochemical packaging, with a strong net promoter score of 69.
Financial Highlights
- Revenue: $1.42 billion, up from $1.41 billion forecasted.
- Earnings per share: $0.85, below the $1.09 forecast.
- Q4 Adjusted EBITDA: $198 million, compared to $202 million last year.
- Fiscal 2024 Year-End Adjusted EBITDA: $694 million.
Earnings vs. Forecast
Greif's EPS of $0.85 fell short of the $1.09 forecast, marking a significant miss of approximately 22%. This deviation from expectations is notable compared to previous quarters, where results generally aligned more closely with forecasts. Despite the EPS miss, revenue exceeded projections, suggesting operational resilience amidst sector challenges.
Market Reaction
Following the earnings release, Greif's stock fell 2.7% to $69.58 in after-hours trading. This decline reflects investor disappointment over the EPS miss, despite the positive revenue surprise. The stock's performance remains within its 52-week range of $55.95 to $73.16, but the drop highlights sensitivity to earnings deviations.
Company Outlook
Looking ahead, Greif anticipates mid-single-digit growth in its Polymers and Fiber Solutions segments. The company provided a low-end guidance for fiscal 2025 with an adjusted EBITDA of $675 million for the 11-month period. Strategic initiatives include a $100 million cost optimization program and continued expansion in polymer solutions.
Executive Commentary
CEO Uli Rosgaard emphasized Greif's leadership in agrochemical packaging, stating, "We are now the global leader in packaging for agrochemicals." CFO Larry Hilsheimer highlighted strategic capital deployment, noting, "We have deployed capital exactly according to the priorities we laid out in our 2022 Investor Day."
Q&A
During the earnings call, analysts inquired about the impact of tariffs, which management described as minimal. The discussion also covered the performance of the IPAC Chem acquisition and detailed the company's cost optimization strategy. Volume recovery expectations were addressed, with management expressing cautious optimism.
Risks and Challenges
- Prolonged industrial contraction poses ongoing demand challenges.
- Potential supply chain disruptions could impact production and delivery.
- Market saturation in key segments may limit growth opportunities.
- Macroeconomic pressures, including inflation, could affect cost structures.
- Currency fluctuations could impact international earnings.
Greif's latest earnings report underscores the complexities of operating within a contracting industrial sector, while also highlighting strategic moves aimed at future growth and efficiency.
Full transcript - Greif Bros Corp (NYSE:GEF) Q4 2024:
Conference Operator: Good day and thank you for standing by. Welcome to the Greif Fourth Quarter 20 24 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the call over to Bill D'Onofrio, Vice President of Corporate Development and Investor Relations. Please go ahead.
Bill D'Onofrio, Vice President of Corporate Development and Investor Relations, Greif: Thank you, and good day, everyone. Welcome to Greif's fiscal Q4 2024 earnings conference call. During the call today, our Chief Executive Officer, Oli Rosgaard, will provide you an update on the operating model optimization effort we have undergone over the past year, which will be an important lead in to our Investor Day next week. He will also provide his thoughts on fiscal 2024 as well as the current market landscape. Our Chief Financial Officer, Larry Hilsheimer will provide an overview of our Q4 financial results as well as our 2025 guidance.
In accordance with Regulation Fair Disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material non public information with you on an individual basis. Please turn to Slide 2. During today's call, we will make forward looking statements involving plans, expectations and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non GAAP financial measures and the reconciliation to the most directly comparable GAAP metrics that can be found in the appendix of today's presentation.
I'll now turn the presentation over to Ole.
Uli Rosgaard, Chief Executive Officer, Greif: Thanks, Bill, and good morning, everyone, and thank you for joining today. Before we start, I just want to address one matter. Yesterday, we released our 2024 4Q and full year earnings. Unfortunately, we subsequently discovered an error and reissued a release. Let me turn this over to Larry to address before we proceed with the remainder of the prepared remarks.
Larry?
Larry Hilsheimer, Chief Financial Officer, Greif: Thank you, Uli. Good morning. Despite our usually dependable quality controls, we had an error in our original earnings release in which we had incorrectly included $16,000,000 of income tax expense related to a gain on the disposal of a business. As a result, our originally reported Q4 net income excluding the impact of adjustments was $49,600,000 and our diluted Class A earnings per share was $0.85 per share. As corrected, those figures are $65,500,000 $1.13
Uli Rosgaard, Chief Executive Officer, Greif: per share respectively. Ole, I'll turn it back to you on Slide 3. Thanks, Larry. And again, we apologize for this. And what I usually say in house is that we can all fail at times.
And when we do, I usually tell our organization that's just the learning moments. We just learned something new and that's something we should be happy with. As Bill mentioned, next week we are hosting our Investor Day in New York City. Today, I will begin our presentation by highlighting a few key messages, which will be core to the information you will hear at our Investor Day. The half day event will be attended by our entire executive management team, as well as each of the leaders of our new strategic business units.
We highly encourage in person attendance, which will allow you to engage with our leaders 1 on 1 and deeply understand the value we are creating under our Build to Last strategy. Please turn to Slide 4. Over the past year, we have fundamentally changed how we operate as a company, organizing in a manner that will allow us to fully leverage our core competitive advantages and enable us to double the size of the company in the future. Going forward, we are operating and reporting results based on our 4 material solutions, customized polymer solutions, durable metal solutions, sustainable fiber solutions and integrated solutions. Making steel drums is very different from making polymer drums, which is again different from making small plastics or human costs.
So aligning operations by material solution greatly enhances our ability to leverage our 5 distinct competitive advantages. 1st, it allow us to more efficiently utilize our robust scale and global network of facilities to be more agile and serving our customers even better. 2nd, it aligns operations to capitalize on our deep subject matter technology expertise within each material solution, partnering even closer with our customers to meet their unique needs. 3rd, it enables further innovation and growth of circular packaging solutions. 4th, it organizes our extensive portfolio of solutions in a manner that optimizes cross selling and margin expansion.
Each of those 4 competitive advantages results in a 5th all encompassing advantage, utilizing our world class culture to deliver legendary customer service, which drives loyalty, share of wallet increase and premium margins. Please turn to Slide 5. The key benefits of this operating model optimization for our investor community is enhanced visibility to the performance of the underlying products within our portfolio. So that ends, after the market closes today, we will be releasing fiscal year 2023 2024 recast financial highlights to assist you in understanding the new segments. We have strong conviction in the synergies of operating this diverse comprehensive portfolio of products, which enables us to serve our customers more fully than other industrial packaging companies.
That said, we have also made clear that the biggest growth opportunity we see from a total addressable market and end market growth perspective is in polymer based products. This evolution has been occurring for years and now our polymer business is large enough to warrant individual segmentation to more clearly display the performance of those products. This informs our decision to continue deploying capital in this space. We also plan to grow further in our caps and closures business, which is a key integrated solution. While smaller at present in terms of the overall portfolio, we also expect this business to grow over time.
We'll be highlighting underlying growth expectations in each of these segments next week at Investor Day. We will utilize the rest of this Q4 2024 presentation to serve as a closing chapter of our Global Industrial Packaging (NYSE:PKG) and Paper Packaging and Service segments and discussing our quarterly results in the context of GIP and PPS for the final time. Please turn to Slide 6. Over the past 3 years, we have fundamentally changed the way our business operates and have made significant strides on our build to land strategy. We have allocated over $1,000,000,000 of capital to margin and growth accretive acquisitions, optimized our business model, enhanced and accelerated the Greif business system into GBS 2.0 and invested in technology and innovation.
The collective impact of these changes provide us with the confidence to now announce a formal business optimization effort of at least $100,000,000 of cost reductions to be completed by the end of fiscal 2027. This initiative, which is a combination of SG and A rationalization, network optimization and operating efficiency gains enabled by GBS 2.0 has come as a result of the accumulated learnings of our strategic progress, acquisition integration and business model optimization. This initiative will be supported by further investments in technology and innovation. We plan to talk more about the drivers and impact of this program at Investor Day next week. Now let's turn our attention to Q4 results on Slide 7.
Our business continues to operate with excellence against the historic period of industrial contraction. Since tracking of U. S. Industrial activity began in 1948 by Institute of Supply Management, we have not seen an industrial contraction longer than the current period, which is 25 months through November. Our performance during the protracted length of this cycle has been impressive, but it is critically important to keep this soft macroeconomic environment in mind as Larry presents our 2025 guidance.
In the Q4, EMEA remained the strongest region, although volumes were down slightly on a sequential basis. On our Q3 call, we commented on the notable less bullish sentiment from our global customer base heading into Q4, a sentiment that has remained overall pessimistic into November and was taken into consideration when formulating our fiscal 2025 guidance. That said, we are still outperforming market expectations in EMEA, which we attribute not to any specific end market, but rather to our ongoing business model optimization that is driving increased demand and cross selling opportunities in both our Polymer and Metals business. Our largest market, North America, has not seen the same recovery as EMEA. In GIP, demand remains choppy with polymer based products continuing to offset softness in our durable metals business.
Overall, GIP North America still has significant untapped operating leverage with volumes down almost 18% on a 2 year basis in the quarter. We fully anticipate a recovery of those volumes, which we believe are the result of this extended demand contraction cycle. In PPS, demand has been okay, although it is still down over 4% on a 2 year basis in the quarter. Containerboard has shown a few consecutive quarters of year over year growth on the same store basis and is running at over 90% operating rates, while our URP business is still mixed and is currently operating at over 80% operating rates through November. As a reminder, APAC and LATAM are small pieces of our portfolio.
LATAM is improving, while APAC has continued to be soft, but the overall offset of those regional demand factors is about neutral on a year over year basis in the quarter. And with that, I will turn things over to Larry on Slide 8 to walk through our financial results. Larry?
Larry Hilsheimer, Chief Financial Officer, Greif: Thank you, Uli, and thank you all for joining our call this morning. Our 4th quarter results demonstrate our consistent ability to execute regardless of the operating environment. 4th quarter adjusted EBITDA was $198,000,000 compared to $202,000,000 last year. However, our business also experienced an unplanned $2,000,000 headwind from Hurricane Helene. 4th quarter adjusted free cash flow was $145,000,000 compared to $136,000,000 last year as our teams acted decisively on the bearish demand sentiment that we identified exiting Q3 and reduced working capital to appropriate levels.
While managing results in the presence, we continue to take steps towards the future. As Ole mentioned, we finalized our operating model optimization effort, which unlocks significant new value levers for Greif and that we are excited to talk about more next week at Investor Day. This quarter we completed our 14th net promoter survey resulting in a score of 69. This rating is well above 51, which is considered the benchmark for world class in the manufacturing industry. That level of customer engagement is proof of our significant competitive advantage of legendary customer service.
At Investor Day next week, we will provide information that shows the high correlation between NPS and financial performance to clearly outline the significance of our continually increasing customer loyalty and advocacy. Lastly, we are now just over 8 months into our ownership of IPAC Chem and have made significant progress on integration and synergy capture. As we have noted in the previous few quarters, the ag sector was impacted by significant destocking in the year and has continued to operate at low volume since then. While we have high conviction in our business case financials, we anticipate that overall EBITDA contribution in the 1st full year of ownership will be less than that business case, which I will touch on in guidance. Please turn to Slide 9 to walk through the GIP results.
As Ole stated in his global market overview, we are very proud of the results our GIP team provided given the uncertain and bearish demand environment we experienced in Q4. We finished the quarter up $4,000,000 on adjusted EBITDA dollars, but down 70 basis points on EBITDA margins. Pricing competition has been intense in our GIP business, but our team is finding ways to win and sticking to our value over volume philosophy resulting in resilience. Exiting Q4, sentiment is generally pessimistic. Please turn to Slide 10 for PPS results.
Our paper business experienced an adjusted EBITDA dollar decline of $8,000,000 and adjusted EBITDA margin decline of 2 40 basis points year over year. However, EBITDA margin improved sequentially by 2 20 basis points as a result of some recovery of the price cost imbalance that our business has endured throughout the year. Underlying demand in our paper business remains mixed. Containerboard and corrugated volumes are solid and operating rates are 90 plus percent, while URB and tube and core volumes have continued to lag due to soft paper core demand. This is driven by the overall boxboard industry, which is generally less positive than containerboard.
We anticipate that margins in the new Sustainable Fiber Solutions segment will continue to improve heading into fiscal 2025 due to the continued flow through of recognized paper pricing and the recent favorable OCC changes, which is contemplated in our guidance. Please turn to Slide 11 to discuss capital allocation. Now 3 years into our build to last strategy, we have deployed capital exactly according to the priorities we laid out in our 2022 Investor Day. Next (LON:NXT) week, I will provide an update on our go forward capital allocation framework, which will fuel the next evolution of growth for Greif. Our top near term priority is debt reduction.
Our recent acquisitions coupled with a low EBITDA denominator in our leverage ratio calculation resulted in a 3.53 leverage at the end of fiscal 2024 relative to our target range of 2 to 2.5 times. When demand recovers, the EBITDA denominator will quickly scale down our ratio. However, in the immediate intermediate time, we will focus on paying down debt to get within our target range. In 2019, we made an acquisition at the beginning of an industrial recession and we were still able to pay down debt in advance of our externally stated target and we'll utilize that same playbook now to manage leverage during this industrial recession. Please turn to Slide 12 to discuss our fiscal 2025 outlook.
Given the continued market uncertainty and mix demand trends, which we have commented on throughout prepared remarks today and in previous quarters, we feel it is most prudent to again present low end only guidance to start fiscal 2025. We have yet to see any significant inflections positive or negative that give us confidence in presenting a range. It is important also to remember that we are changing our fiscal year in 2025. Next fiscal year will be 11 months long and end on September 30 with a 2 month long Q4. For that reason, our guidance was calculated on an 11 month basis.
To help you understand our low end guidance, I'd like to provide you with a few key drivers which can bridge you from 2024 on an 11 month basis to fiscal 2025's 11 month guidance. Fiscal 2024 does not have any significant seasonality impact at year end And so fair comparative starting point is simply taking year end adjusted EBITDA for fiscal 2024 of $694,000,000 dividing it by 12 and multiplying it by 11. That gets you to a $636,000,000 starting point for an 11 month 'twenty four. From there, we have assumed a few key tailwinds heading into fiscal 'twenty five. First, dollars 83,000,000 of price cost uplift, most of which is coming from RISI recognized paper pricing and OCC change as of the date of this call with price cost in polymers, metals and integrated largely neutral year over year.
2nd, a $19,000,000 incremental uplift from M and A, which represents the incremental ownership period of IPAC Chem less the fiscal year EBITDA contribution from our disposed of Delta U. S. Business. 3rd, an organic volume uplift of $76,000,000 based on the continuation of exit rate trends in each of our new segments. That volume tailwind is primarily driven by an assumption of mid single digit growth in Polymers and Fiber Solutions despite low single digit headwinds in Metals and Integrated.
Those tailwinds bring you from 636 up to 814. We also have several headwinds assumed in guidance. Let me take you through those to help you understand how we end up at $675,000,000 as our low end guidance number. First, a $19,000,000 headwind from unfavorable year over year FX driven by the strengthening U. S.
Dollar. 2nd, dollars 34,000,000 headwind from items such as a $10,000,000 shift from cost of goods sold into SG and A in our new operating model, which is also reflected in the operating business elements. A $10,000,000 increase from medical and other benefits and additional headwinds from increased IT costs due to license fees, cybersecurity investments and investments in commuter customer digitization which we refer to as Greg Plus. In addition to these headwinds to SG and A, our fiscal year end change creates a headwind of 12 month contractual fees as applied to 11 month fiscal years. For example, your audit fees and tax fees don't change because you have an 11 month year.
The final headwind is considered in this low end guidance. We also assume an incremental $86,000,000 in manufacturing and transportation cost headwind partially attributable to the increased volume assumption, but also factoring in incremental inflationary costs. Those factors offset our tailwinds and bring us to the 6.75 Remember, this is low end guidance, so it assumes the full impact of all potential headwinds, but only explicitly known tailwinds. With that, I'll turn things back to Ole on Slide 13 to provide you with a
Uli Rosgaard, Chief Executive Officer, Greif: preview of our upcoming Investor Day. Thank you all for dialing in today and for your continued interest in Glive. Next week at Investor Day, we will demonstrate to you that Glive is a global market leader for essential industries, well positioned to deliver continually stronger earnings power and proactively allocating capital for the highest shareholder return. I'm proud of the work our global teams have done since our last Investor Day to accelerate our build to last strategy. And we anticipate our event next week will be compelling, insightful and a valuable use of your time.
Registration is still open and so please email our team at investordaygrife.com if you are interested in attending and that is investordaygrife.com. Thank you for your time today. Operator, will you please open the lines for Q and A?
Conference Operator: Certainly. Our first question will be coming from Daniel Herriman of Sidoti and Company. Your line is open.
Daniel Herriman, Analyst, Sidoti and Company: Thank you. Hey, guys. Good morning. Thanks for taking my questions. I don't want to steal too much from next week's Investor Day, but looking out for the future of the company, obviously, customized polymer solutions is going to be the focus, but where else could we expect to see some incremental investment, if it's not solely in the polymer solutions?
And then Larry, just regarding where you are from a leverage perspective, if you could just provide a little bit more commentary regarding how you feel about that level given what you've been able to accomplish in the past after acquisitions in a difficult environment? Thanks.
Uli Rosgaard, Chief Executive Officer, Greif: Hi, Daniel. Thanks for the question. Obviously, Polymer Solutions is
Larry Hilsheimer, Chief Financial Officer, Greif: the primary
Uli Rosgaard, Chief Executive Officer, Greif: place where we invest for growth. And that's because we can achieve margins well in excess of 18%. And in that business, we can also achieve a free cash flow conversion in excess of 50%. So that's why it's so attractive to us to invest in that market. The runway that we will also demonstrate at Investor Day is very, very long in that market.
But saying that, we still have a fiber based and a metals based business. The primary investments we will do there, especially in metals will be automation. It will be maintaining the cash machine that that generates and automation. And I will be amiss if I don't mention caps and closes as well, which is also polymers. It's a relative small part of our overall business, but it's a very, very attractive business that we intend to expand in.
Larry Hilsheimer, Chief Financial Officer, Greif: Yes. The thing I would supplement with that is and we've mentioned this often is we also will continue to consider downstream integrated very profitable businesses for our paper operation, much like the coal pack transaction we did, which we are very, very pleased with. So those are opportunities that are not as much a focal point, but we will be opportunistic on those as well. Relative to the leverage ratio, we feel very, very comfortable where we're at right now because of the impact of this industrial recession and how rapidly we will be able to change that ratio as recovery occurs. With $160,000,000 volume gap just at normal margin rates just because of the volume reductions.
That alone, if replaced, would take us down rapidly to below 3% and the cash pay down would aggressively take us further down from there. So we're comfortable where we're at, but it is the priority focus for us to pay down that debt ratio.
Daniel Herriman, Analyst, Sidoti and Company: Okay, guys. Thanks so much and best of luck in the coming year.
Larry Hilsheimer, Chief Financial Officer, Greif: Thank you very much, Damian. Thanks, Daniel.
Conference Operator: Thank you. One moment for our next question. And our next question will be coming from Ghansham Panjabi of Baird. Your line is open.
Ghansham Panjabi, Analyst, Baird: Thank you. Good morning, everybody. I guess going back to the cost out program $100,000,000 over, I think you said 2027. Can you just give us more details on how that came about? Is it a function of your new operating structure that allows you to target something so substantial because it is quite large relative to your EBITDA base?
And then also how should we think about realization timing over the next 3 years? And then also how do the buckets how do the savings kind of flow through across the various elements that you cited, I think SG and A, network and productivity? Thanks.
Uli Rosgaard, Chief Executive Officer, Greif: Yes. Thanks, Ghansham. First of all, we're not fixing anything that's broken here. I just want to stress that. We are very good, but we want to be even better.
That's our ambition and that's why we started the program. So and as I said, it's the way we have now organized ourselves combined with the high level that we operate our right business systems at now and Lean 6 Sigma has really enabled us to do this now. There's 3 buckets. Obviously, the first bucket is SG and A. The second bucket is network organization.
We operate 254 facilities around the world and we do believe that we can optimize that further. And then we simply have operating efficiencies driven by our right business systems. Hadi will talk more about the network optimization benefits in the new structure during Investor Day. And Kim will also talk about GBS 2.0 and how we are accelerating that in the new structure. As to when, it's difficult to say.
Obviously, we would like the $100,000,000 to come sooner rather than later, but we anticipate realizing the full savings as outlined before the 3 fiscal years out. Yes.
Ghansham Panjabi, Analyst, Baird: Okay. Great. Thank you. And then in terms of just as it relates to your outlook for next year, obviously, you're starting off at the low end and we can do the math on adjusting for 12 months versus 11, which is a construct of your guidance. What is the base volume assumption in there?
Larry, you mentioned quite a few things. I just want to clarify as to what the starting point is for volumes across your legacy businesses, if you can. And what gives you confidence on being able to hit that number? Because it seems quite large, dollars 76,000,000 EBITDA improvement specific to the volume component.
Larry Hilsheimer, Chief Financial Officer, Greif: Yes. We are seeing, and you have seen been seeing that uplift in our containerboard and corrugated business for some time now Ghansham. So a good bit of that lift is from the paper segment. All of our solutions as well, we have confidence that we're going to see some of the growth from the investments we've made in our intermediate bulk container business. And I'm sorry, let me go back on the paper business.
We did open our Dallas sheet feeder business in June of this year and that is ramping up. And we had a significant contractual win in the recent months that will contribute a lot. Oli, what was the size?
Uli Rosgaard, Chief Executive Officer, Greif: Yes. We won the business from the U. S. Postal Service and that's 55,000 tons that was the effect of that. And just to give you an idea again, Chiamo, the other sheet feeders total capacity is around 120,000 tons.
So that's a major win for us. And that's a multiple year contract.
Larry Hilsheimer, Chief Financial Officer, Greif: Yes. And that contract will be serviced not only out of Dallas, but our other sheet feeder facilities as well. But it was significant win, so we have great confidence in the fiber side of the business. Our IBC investments that we've made, we have nice growth prospects in there. So let me give you just broadly $68,000,000 $70,000,000 in our fiber business, dollars 27,000,000 Cephaly roughly in our Polymer Solutions business across all three platforms.
However, in our metal solutions, we're actually looking at volume contraction, roughly about $19,000,000 $20,000,000 roughly gancham. So hopefully that's helpful for you.
Ghansham Panjabi, Analyst, Baird: Okay. Thanks so much.
Conference Operator: Thank you. One moment for our next question. Our next question will be coming from Matt Roberts of Raymond (NS:RYMD) James. Your line is open.
Matt Roberts, Analyst, Raymond James: Hey, good morning everybody and thank you for having me on the call. Larry, I appreciate the very thorough color that you gave on the low end 20 25 EBITDA bridge. But maybe if you could help me kind of frame what a high end scenario could look like without speculating on pricing. Some of your peers in containerboard space have recently announced price increases and given your independent mix and early read throughs on demand, what are you hearing from customers in regard to that passing through? And ultimately, what kind of price cost range could be reasonable pending any further price increases or further decrease in OCC?
Larry Hilsheimer, Chief Financial Officer, Greif: Thanks, Matt. So obviously, if we had real confidence in a high end range, we'd put a range together. But I'll give you some things that could happen. And look, the biggest driver for us going with Boeing (NYSE:BA) guidance is just the uncertainty of when is this industrial recession going to turn. And that can just create such a wide variety of things.
You put any high end number, then everybody's going to focus on a midpoint. So it's fool's it's folly, I think, to put something up. But that said, we also just rolled out this week to our customers a price increase in the containerboard space, dollars 70 on liner and $100 on medium effective January 1. Obviously, the demand dynamics in that space are very strong right now and we believe supports that price increase. The other is the volume inflection.
We still have out there this roughly $160,000,000 of volume centered gains that will come when the industrial economy recovers to levels of our 20 1 volume levels. So, so 21 or 22. 22. 22, I'm sorry. Thank you.
So those things are just very powerful drivers there. If you add to that, what do we gain out of the $100,000,000 initiative that we spelled out this year. So there's a lot of drivers for upside. And like we said, we build in all the negatives and none of the positives. So those gives us optimism for a fairly good year.
Uli Rosgaard, Chief Executive Officer, Greif: Hey Matt, if I can just sort of interject a few comments as well. So if we look at sort of the length of this volume contraction that we have and how the market operates in terms of what will drive recovery. So if you look at the underlying end markets, they remain historically low. Existing home sales over the last 2 years, they have been at the lowest since 1995, I believe. And that they drive a lot.
Home sales or housing impacts, chemicals and lubes and people buying fewer durable goods. And then also when you look at U. S. Auto sales, that's been below the long term average for 3 years now. And you look at the PMI, the comments I made earlier, they're still below 50.
Most of these things are interest rate driven. And so when the interest rate hopefully will keep going down that will start opening up existing home sales and that will have a major effect on not only our business, but our customers' business as well. So that's one to watch.
Matt Roberts, Analyst, Raymond James: Yes. Oli and Larry, thank you. Very helpful. And maybe if I could ask maybe on the polymer side of the business. So you recently opened up the IBC plant in Malaysia.
Maybe if you could discuss how initial demand is trending for that incremental capacity? And speaking more broadly on those polymer products, I mean, you've grown both organically and inorganically. Are you having to give any price for share gains on that space? Or on the contrary, are competitive price pressures still lingering in that business that you discussed last quarter? Thank you again for taking the questions.
Uli Rosgaard, Chief Executive Officer, Greif: First of all, I don't comment on individual plants. But if you look at the overall polymer space that we operate in, our chosen end segment is the premium end of that market, where we can achieve margins in excess of 18%, in fact, well into the 20s. That's an important factor to mention. The other drivers in that market is, in particular, in the ag chem market. And with the acquisitions we made, we are now the global leader in packaging for agrochemicals.
That market is growing and it's driven by the population growth that we see in the world. Also, there's less arable lands who farm food on. That means that there's a demand for higher yield on the land that's available, which sort of ties into why we have focused on really getting into becoming a leader in that market. So I'm confident we will continue to grow in that market and we will continue to enjoy and yields good margins and helping our customers grow as well.
Matt Roberts, Analyst, Raymond James: Certainly, sir. Thank you all again.
Gabe Hajde, Analyst, Wells Fargo (NYSE:WFC): Thank
Conference Operator: you. One moment for our next question. And our next question will be coming from George Staphos of Bank of America (NYSE:BAC) Securities. Your line is open.
George Staphos, Analyst, Bank of America Securities: Hi, everyone. Good morning. Hope you're doing well. Thanks for your question. How are you?
So I want to I know you covered a little bit just now, but can you talk a little bit about the variance in IPAC Chem relative to the deal model? Can you talk about some of the underlying drivers? Obviously, you've covered a little bit. Can you quantify kind of where you are with that and why you remain confident going forward? Secondly, I want to push back a little bit on the cost optimization.
Obviously, you spent a lot of time developing this. You quantified it and you gave us a target by 27. That would suggest you have some window in terms of the cadence. So tell us what might be able to hit the numbers for fiscal 2025? And what is giving you the biggest pause in outlining the goal?
I had a couple of follow ons.
Uli Rosgaard, Chief Executive Officer, Greif: I'll let Larry answer the first question. But before I do that, George, let me just say that when we closed the deal on IPAC Chem, after that, we saw this contraction in the agrochemical markets. That obviously played into our business case a little bit there. But that's going the right way now and I'll let Larry go through the numbers.
Larry Hilsheimer, Chief Financial Officer, Greif: Yes. I mean, you look at we had that $8,000,000 inventory cost adjustment impact that we had. Our uplift from IPAC compared to 2024 is $26,000,000 That will still leave us short of our business case, which we thought was about 57 plus 7 of synergies. With the volume decreases, we are about $4,000,000 on run rate on synergies that's all volume dependent coming out of this year. But we have high confidence in obtaining that once we get the volumes back.
The farmers are doing everything they can to manage their bottom line right now. I mean they're using less, diluting things, all that kind of thing. Eventually things will come back and obviously you have to buy things when they're for sale and it was a strategic buy and we're confident on the long range profitability of that business. In terms of your other question, George, to put this in context, I mean, we literally just arrived at our decision to initiate this cost takeout effort in the last couple of weeks. We announced it to our colleagues yesterday.
We have ranges on each of those three elements that Oli mentioned, but we have not identified how much we're going to be able to get done in 2025, how much we'll get done in 2026 and 2027. We're extremely confident of the $100,000,000 number over that 3 year period. We are not confident about how much in each year or how much in each bucket at this point in
George Staphos, Analyst, Bank of America Securities: time. Okay. I mean, I'll leave it there. But Larry, I would assume if you have a goal that you think you can get to by 27, you had to have been able to build that up somehow, right? It doesn't just show up, right?
We've
Larry Hilsheimer, Chief Financial Officer, Greif: built ranges, George, based on benchmarking data, based on our analysis of things we have in our 6 Sigma program and all that. But these ranges do not have identified, okay, you can do this by this month or this year, this month or this year. We haven't laid all that out yet. It gets back to you. You've been fair all this time and saying, look, I don't run a business.
I'm not in there every day doing it. I just say at this point, just respect that that's how it works. It's hard to get in. You got to there's a lot more work to do.
Uli Rosgaard, Chief Executive Officer, Greif: Understood. This is not a target we will achieve in 2027. No, it's one we have been working on for a while. And so as Larry said, it's difficult to tell you that the next quarter will be this or that. So but it's definitely not back loaded.
I can tell you that as well.
George Staphos, Analyst, Bank of America Securities: Yes, understood. Listen, you're fair to say, right, we don't run business, but we do advocate for your investors, and that's what we're trying to do here. Can you talk a little bit about your tariffs and what some of the positives or negatives might be in terms of how you evaluate the volume outlook for 2025 and beyond? I know it's difficult, but what do you know right now that you can share?
Uli Rosgaard, Chief Executive Officer, Greif: Yes. I mean, we obviously had experiences from the last time that tariffs were imposed. You have to remember that we by and large source our raw materials locally. We produce locally and we sell to our customers locally. And that means tariffs won't really play into our business.
If it does play into our business, it would probably be from a positive point of view. If for instance, steel tariffs means that steel prices go up, which happened last time, we saw that, that benefits us. So and that's something we don't calculate it with, but it benefits us. So that's the net effect of tariffs.
George Staphos, Analyst, Bank of America Securities: Okay. Net of whatever it might do for trade and obviously more trade would be better for you than worse as this structure. Last thing and I'll turn it over. Again, appreciate all the thoughtfulness on the guidance and the buildup. Any help you can give us in terms of how the first portion of the year or Q1 of the year will look relative to the latter quarters?
I'm guessing it will be a slower ramp. It builds in terms of earnings power over the rest of the year, but anything there would be helpful. Thank you guys.
Larry Hilsheimer, Chief Financial Officer, Greif: Yes. I mean, George, we usually our Q1 tends to be a slower ramp. And obviously, with what we just announced on paper pricing, although not built into our guidance, we would clearly expect that to be recognized at some point and then would play through on a longer basis. Also, we do have a little bit of a drag in our metals business in the Q1 because steel prices have been decreasing since about July. And what that tends to do is lowers our margins because as the index price changes on our price adjustment mechanism contracts were bleeding through slightly higher priced inventory.
So you have a little bit of that impact in the early part of the year that will then play out positively through the rest of the year.
Bill D'Onofrio, Vice President of Corporate Development and Investor Relations, Greif: Larry, could you just ask for
George Staphos, Analyst, Bank of America Securities: me, did you say your price increases were effective February 1 or January 1? I'm sorry about that.
Larry Hilsheimer, Chief Financial Officer, Greif: January 1, but they tend to roll through on a delayed basis through the contract mechanisms.
George Staphos, Analyst, Bank of America Securities: Thank you. I'll turn it over.
Gabe Hajde, Analyst, Wells Fargo: Thank you.
Conference Operator: And one moment for our next question. And our next question will be coming from Gabe Hajde of Wells Fargo. Your line is open.
Gabe Hajde, Analyst, Wells Fargo: Larry, good morning.
Uli Rosgaard, Chief Executive Officer, Greif: Good morning, Gabe.
Gabe Hajde, Analyst, Wells Fargo: I'm pretty sure I know the answer to this, Larry. You've I think referenced it twice now about the 100 and $60,000,000 of under absorbed fixed overhead. But in the context of the $100,000,000 savings opportunity that you laid out, some of which is, looks like rooftop consolidation, etcetera, does that limit your way or your ability to unlock or kind of monetize that under absorbed fixed overhead from a volume standpoint? No. Okay.
And then, of course, you guys can disagree. But to your point, we're 25 months into what feels like an industrial winter. Have you guys started to do any work and perhaps this $100,000,000 is a little bit reactionary in the sense that is there any structural change in demand that you might be seeing from your customers from I've got 3 things that kind of popped into my mind. The EV transition, in other words, less lubricants and additives and different things like that for ice engines versus EV, maybe a permanent shift in consumer preferences for experiences versus stuff? And then maybe a push towards multifamily living versus single family houses given affordability?
Larry Hilsheimer, Chief Financial Officer, Greif: Yes, I'd say 3 on that. Let me take those actually sort of in reverse. So, head up housing demand has never been higher in this country right now. I mean, Columbus (WA:CLC), Ohio happens to be the most under house market in the United States. So I don't think there's a permanent shift to multifamily.
I think there right now there's a lot of pent up demand of people sitting in multifamily who would love to get into single family housing. But also let me be clear, the real driver for us is less about new homes than it is about existing home sales. And existing home sales are now at the lowest point they've been since 1995. So when people move those homes, they freshen up the home they're selling. They're paying it, people come in and say, well, you need this to look better, take the carpet out, put this in so you can stage the house to sell it.
That causes people buying things. Then you also go to the new
Uli Rosgaard, Chief Executive Officer, Greif: house and you go in, yes, I fall
Larry Hilsheimer, Chief Financial Officer, Greif: in love with it. And then, one spouse or the other decides when you get in, oh, I didn't really like this room this way. I'm going to change this. I mean, that stuff just drives a lot of product sales, a lot of demands particularly in the lubricant business. In terms of consumer demand and that kind of thing and shifts to experiences rather than stuff, I mean, look, that could be a long term macro trend and that would have consequences.
I don't haven't read anything that indicates people think that that's a long term thing. On EVs, the 3rd element you mentioned, analysis we did that a number of years ago is that the best demand for our lubricants is not in the vehicles or it's really in machinery and industrial plants. And ironically, within the EVs themselves, a lot of the axles and all the things that actually need lubricants, there's actually as much in an EV as there is in a historical combustion engine car.
Uli Rosgaard, Chief Executive Officer, Greif: The CAGR on if you look at like oil quartz, the CAGR on that towards 2,030 is actually over 5%. And it's driven by people run their cars longer. And EV has plateaued out. And what you'll see grow is hybrids, which still requires Loop. So we don't see any effect of that.
Understood.
Gabe Hajde, Analyst, Wells Fargo: Listen, I mean, we'd love to see you guys unlock that $160,000,000 It's just we're kind of scratching our heads trying to understand what the impediment has been from a volume standpoint.
Uli Rosgaard, Chief Executive Officer, Greif: I was just going to say in terms of putting more color to that $100,000,000 we will be doing that at Investor Day next week actually. Both Kim Kellerman and Patty Mulaney will cover that in their presentations.
Brian Butler, Analyst, Stifel: Well, I was going to
Gabe Hajde, Analyst, Wells Fargo: go there. I mean, I know George kind of tried to dissect the different pieces and maybe Ghansham. But are you is any of this also in response to things maybe your customers are doing in terms of consolidating their own footprint and trying to be proactive there or leave it there?
Larry Hilsheimer, Chief Financial Officer, Greif: No, we don't I mean, it's not related to that. Obviously, if our customers did something that resulted in us not needing a particular plant, we would obviously address that, but this is not related to that in any fashion.
Gabe Hajde, Analyst, Wells Fargo: Okay. Last question, maybe putting a little bit too fine a point, but you gave us some data points, so I want to try to use them appropriately. The diligence or math or EBITDA associated with IPAC Chem was $57,000,000 and the $7,000,000 of synergies. I think you said $26,000,000 was a contribution in fiscal 'twenty four and then you told us 19 in fiscal 'twenty five, but that was IPAC Chem less Delta. I'm seeing a $94,000,000 inflow of cash from the sale of Delta.
Maybe that's $10,000,000 or so of EBITDA that goes away. So, I mean, you guys are pretty close on IPAC Chem or is that not the right math?
Larry Hilsheimer, Chief Financial Officer, Greif: Yes. So on Delta, we sold Delta for about $90,000,000 which was 8.5 times. The headwind in Q4 was about $4,000,000 So the
Brian Butler, Analyst, Stifel: net of that is $7,000,000 They were a
Larry Hilsheimer, Chief Financial Officer, Greif: little back ended on the results for Delta. On Ipat chem, the lift year over year is $26,000,000 from last year. I think we get to $42,000,000 run rate in our low end guidance for the year for IPAC this coming year. So it's still $20,000,000 short of our business plan, which is all demand trend driven, Gabe. So hopefully that helps you.
Bill D'Onofrio, Vice President of Corporate Development and Investor Relations, Greif: And that 42 is in 11 months.
Larry Hilsheimer, Chief Financial Officer, Greif: Yes, I'm sorry. Yes, it's 11 months obviously.
Gabe Hajde, Analyst, Wells Fargo: Yes. Okay. Thank you guys.
Conference Operator: And one moment for our next question. Our next question will be coming from Brian Butler of Stifel. Your line is open.
Brian Butler, Analyst, Stifel: Hi guys. Thanks for taking my question. Maybe since you kind of going down the path of resegmenting and you have a low end guidance for 25%. Can you give some color around the new segments and maybe what organic growth is kind of built into that low end guidance?
Larry Hilsheimer, Chief Financial Officer, Greif: Yes. I mean, when we look at what we're seeing in our corrugated business, a lot of the growth is, as I said, is tied to the investment in our Dallas sheet theater kind of business. The growth trend for our URB, CRB, we've built we've got about 8% and tubes and cores about 4%. We've got 2% to 5% on containerboard and corrugated sheets kind of range. Our plastics were 3% roughly.
And then like I said in our metal solutions, it's really low single digits down.
Gabe Hajde, Analyst, Wells Fargo: Okay. And then on the $100,000,000 in
Matt Roberts, Analyst, Raymond James: savings, I know we've kind
Brian Butler, Analyst, Stifel: of gone over this a couple
Uli Rosgaard, Chief Executive Officer, Greif: of times, but I'm going to
Brian Butler, Analyst, Stifel: just maybe ask it another way. It's not $100,000,000 all coming in 2027. So there's something in 2025. You don't know what that is, but you have 0 in your low end guidance. Is that a fair statement?
That's just
Larry Hilsheimer, Chief Financial Officer, Greif: That's accurate.
Brian Butler, Analyst, Stifel: Okay. So there again, whether it's $5,000,000 or $20,000,000 I don't know, but it's something other than 0.
Uli Rosgaard, Chief Executive Officer, Greif: Great. We'll get something in this fiscal year. And just to remind you, Brian, it's 24 is our baseline, the 2024 fiscal year.
Brian Butler, Analyst, Stifel: $24,000,000 for what the $100,000,000
Uli Rosgaard, Chief Executive Officer, Greif: $100,000,000 savings is from a 2024 baseline.
Brian Butler, Analyst, Stifel: Right. So starting this year, but you're going to get the savings over the next 3 years. There wasn't any savings in 2024?
Uli Rosgaard, Chief Executive Officer, Greif: Right.
Larry Hilsheimer, Chief Financial Officer, Greif: Yes.
Brian Butler, Analyst, Stifel: Right. Okay.
Uli Rosgaard, Chief Executive Officer, Greif: All right.
Brian Butler, Analyst, Stifel: I think that was all the all my other questions have been asked. So thank you very much.
Conference Operator: And one moment for our next question. Our next question will be coming from Michael Roxanne of Truist. Your line is open.
Bill D'Onofrio, Vice President of Corporate Development and Investor Relations, Greif0: Yes. Hi, guys. Thanks for taking my questions. This is Nico Pacini on for Mike Roxanne today.
Uli Rosgaard, Chief Executive Officer, Greif: I guess just I apologize if
Bill D'Onofrio, Vice President of Corporate Development and Investor Relations, Greif0: I missed it earlier in the call, but does your guidance assume full implementation of the containerboard price increase?
Larry Hilsheimer, Chief Financial Officer, Greif: No, it has none of it in.
Bill D'Onofrio, Vice President of Corporate Development and Investor Relations, Greif0: Got it. And then just I guess switching to URB, what are you seeing there and what are your thoughts on where pricing might go for URB?
Larry Hilsheimer, Chief Financial Officer, Greif: Yes, we don't talk on future price increases. As we've said, the demand in that segment, Operating rates have been in the 80s, sort of stable demand, but no real pickup. The drag is really in paper cores for most of the boxboard grades of paper. And we haven't seen robust lift or any kind of inflection in that business much across the rest of our portfolio being the same other than containerboard.
Bill D'Onofrio, Vice President of Corporate Development and Investor Relations, Greif0: Understood. And then just last for me. Just on index pricing in general, is there has there been any more discussions or any thoughts around switching maybe further away from index pricing to a value added pricing model in paper?
Uli Rosgaard, Chief Executive Officer, Greif: You mean away from the original model?
Matt Roberts, Analyst, Raymond James: Exactly, yes.
Uli Rosgaard, Chief Executive Officer, Greif: I mean we're not part of that. We don't discuss that. We are in containerboard a small player. So to my knowledge, there's been no developments.
Bill D'Onofrio, Vice President of Corporate Development and Investor Relations, Greif0: Okay, understood. Thank you.
Conference Operator: And one moment for our next question. Our next question is a follow-up from George Staphos of Bank of America Securities. Your line is open.
George Staphos, Analyst, Bank of America Securities: Hi guys. Thanks for taking the follow on. Can you provide perhaps a bit more color on what you're seeing in the boxboard markets? And I was curious, if I heard you correctly, to one of the prior questions, you're looking for growth in URB and CRB. And I thought you said maybe 8%, correct me if I'm wrong.
And how do I in tube and core you have up 4%. And yet based on your answer to I think Niko's question earlier, other than containerboard, you're not seeing much of a lift in any of the paper market. So help me put all those boxes together, no pun intended. Thank you.
Uli Rosgaard, Chief Executive Officer, Greif: Just sort of if we just look at, 1st of all, on the corrugated markets, our demand is up 2% year over year. That excludes Dallas. And if you look at the AFPA numbers, then the industry is down 2%. So we've experienced growth there. In tube and core, we are down slightly year over year and we are flat from a Q3.
But if you look at the spiral bound products we make, we're actually up 2%, but that's offset by softness in specialty products like end protectors and adhesives. The North American market improvements really supports paper tube demands, although it's from a low base. So yes, I don't know if you have any Larry, any comment further to that? I think that's it, Josh, really.
George Staphos, Analyst, Bank of America Securities: Okay. Thank you.
Conference Operator: And one moment for our next question. Our next question is a follow-up from Gabe Hajde of Wells Fargo. Your line is open.
Gabe Hajde, Analyst, Wells Fargo: Thank you guys for taking the question. As it relates to the $100,000,000 you called out $86,000,000 of inflationary headwinds this year, Larry, and then $34,000,000 of sort of what I see as discrete items, medical, technology, things like that. So the question is, is that $86,000,000 sort of a new inflation treadmill that we should think about for Greif on a go forward basis? And then secondarily, are you incurring any costs, whether it's through OpEx or CapEx, to implement this $100,000,000 And again, I appreciate we're kind of stealing some thunder from next week.
Larry Hilsheimer, Chief Financial Officer, Greif: Yes. The inflationary cost increases was our overall increase in manufacturing costs. So we had some of it's related to just volume impact that we've said. And it's all we're tying in all these cost increases in the obviously low end guidance. But the so you've got cost that lift from acquisitions at a time when demand is low.
So you've added manufacturing costs, but the volume pressure is down, because of just the demand dynamics. So you've got that margin squeeze that's just related to that, that then goes back to that $160,000,000 lift if the volume recovery comes about. You might remember when we talked about that last quarter, we talked about it's about in our old segments, dollars 90,000,000 was in the GIP space, about $56,000,000 in PPS, about $20,000,000 in acquisitions totaled up to that roughly $160,000,000 $170,000,000 number. So yes, there's inflationary labor costs and those kind of items in there, but it all comes just into the overall manufacturing cost lift that will be going after part of that through operational efficiencies. And Kim and Patty will talk more about those things next week.
Gabe Hajde, Analyst, Wells Fargo: Okay. And are there any costs discrete costs this year in fiscal 2025 with implementing this $100,000,000 savings?
Larry Hilsheimer, Chief Financial Officer, Greif: Yes, most likely there would be. I mean, obviously to the extent that things go to if we do any plant consolidations or to the extent that you do any headcount moves, there would obviously be some severance related costs that will generate then long term benefit obviously, but and that goes obviously into the whole equation of do you move forward on something like that or not.
Gabe Hajde, Analyst, Wells Fargo: Okay. Thank you.
Conference Operator: And I would now like to turn the call back to Ole Roskar for closing remarks.
Uli Rosgaard, Chief Executive Officer, Greif: Thank you. And thank you once more for your interest in life. And we all hope to see you next week at Investor Day. Thank you.
Conference Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.
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