Greif Down to Strong Sell - Analyst Blog

On Jun 10, Zacks Investment Research downgraded Greif, Inc. GEF, a provider of packaging services, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Greif's estimates witnessed sharp downward revisions following its second-quarter fiscal 2014 (ended Apr 30, 2014) results on Jun 4. Adjusted earnings declined 17% year over year to 57 cents per share, due to disrupted production at its flexible products manufacturing facility in Turkey. Results also fell short of the Zacks Consensus Estimate of 68 cents per share.

The decline in earnings was not a surprise and came in line with Greif's previous announcement that second-quarter earnings would be adversely affected by production disorder caused by protestors occupying the facility in Hadimkoy, Turkey for 60 days. The company had also revealed that inclement weather will likely weigh on the Paper Packaging and Rigid Industrial Packaging segments. These factors had a negative impact of approximately $20 million on earnings.

For fiscal 2014, Greif trimmed its earnings before interest, taxes, depreciation and amortization (EBITDA) guidance to the range of $475 million to $505 million from the previous band of $490 million to $540 million. Excluding timberland gains of around $20 million or 20 cents per share, earnings per share were also lowered to a new band of $2.48 to $2.80 from the earler $2.60 to $3.15.

Greif anticipates a gradual global economic recovery during fiscal 2014, which should result in moderate sales and volume improvement, along with slightly higher raw material costs. The company expects that the Rigid Industrial Packaging segment will however benefit from moderate volume growth, especially in Europe.

Following the earnings announcement, in the past 7 days, 2 of the 3 estimates available for 2014 were revised downward while for 2015, 2 of the 6 estimates were revised downward. The Zacks Consensus Estimate for 2014 fell 8% to $2.78 per share. Likewise, the Zacks Consensus Estimate for 2015 moved south 1% to $3.48.

Other Stocks to Consider

Investors interested in this 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).

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