Greif reported third-quarter EPS before special items of $0.91, ahead of the brokerage's $0.70 estimate and consensus of $0.72. Greif's earnings benefited significantly from a very low tax rate in the quarter (7.1 percent vs. brokerage's 39 percent estimate), which is estimated to have added $0.17 in earnings.
Gross margin expands 300bp year-over-year and 20bp sequentially to 20.9 percent. This follows second quarter gross margin expansion of 90bp year-over-year and 110bp sequentially.
"Despite a struggling top line, gross margins have continued to improve, making us more confident that our full year 20.2 percent gross margin estimate in 2016 and 21.2 percent current estimate for 2017 are attainable," analyst Steven Chercover wrote in a note.
In addition, Greif raised and narrowed its FY16 EPS guidance range to $2.36–$2.56 (previously $2.20–$2.46). With combined EPS of $1.78 through three quarters, the midpoint of the FY16 guidance implies fourth-quarter EPS of $0.68, below the brokerage's $0.76 estimate, but essentially in line with consensus at $0.69.
Chercover has a Buy rating and $44 price target on the stock.
At time of publication, shares of Greif were up 5.98 percent and trading above the price target at $45.18.
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