Greif Down to Sell - Analyst Blog

On May 29, Zacks Investment Research downgraded Greif, Inc. GEF, a provider of packaging services, to a Zacks Rank #4 (Sell) from Zacks Rank #3 (Hold).

Why the Downgrade?

Greif's estimates witnessed sharp downward revisions following its first-quarter fiscal 2014 (ended Jan 31, 2014) results on Feb 26. Though adjusted earnings improved 11% year over year to 44 cents per share, it lagged the Zacks Consensus Estimate of 53 cents.

The company reiterated earnings before interest, taxes, depreciation and amortization (EBITDA) in the range of $490 million to $540 million for fiscal 2014. Excluding timberland gains of around $20 million or 20 cents per share, earnings were reaffirmed in the band of approximately $2.60 to $3.15 per share. Capital expenditure is expected to be less than $150 million for 2014.

On May 22, Greif announced that its second-quarter (ended Apr 30, 2014) earnings would be adversely affected due to disrupted production caused by protestors occupying its flexible products manufacturing facility in Hadimkoy, Turkey for 60 days. Inclement weather will also likely weigh on the Paper Packaging and Rigid Industrial Packaging segments. Due to these reasons, earnings will bear a negative impact of $20 million or 14 cents per Class A share.

Greif anticipates a gradual global economic recovery in fiscal 2014, which should result in a modest improvement in sales. However, foreign exchange volatility as well as social and political unrest remain headwinds in the near term.

Following the first-quarter earnings announcement, Greif's Zacks Consensus Estimate for 2014 fell 2% to $3.03 per share. Likewise, the Zacks Consensus Estimate for 2015 moved south 6% to $3.54.

Other Stocks to Consider

Investors interested in the same sector could consider stocks like Crown Holdings Inc. CCK, Proto Labs, Inc. PRLB and Graphic Packaging Holding Company GPK. While Crown Holdings and Proto Labs sport a Zacks Rank #1 (Strong Buy), Graphic Packaging has a Zacks Rank #2 (Buy).