Greif, Inc. (GEF)
F3Q09 Earnings Call
September 3, 2009 10:00 am ET
Deb Strohmaier - APR, Vice President, Communications
Mike Gasser - Chairman and CEO
Don Huml - Executive Vice President and CFO
Ryan Maclean - Janney, Montgomery, Scott LLC
Jason Brown - Keybanc Capital Markets
Mark Wilde - Deutsche Bank Securities
Steven Chercover - D. A. Davidson & Co.
Walter Liptak - Barrington Research
James Daly - Deutsche Bank
Bob Franklin - Prudential Financial
Tim Burns - Cranial Capital
Greetings and welcome to the Greif, Inc. third quarter earnings conference call. (Operator Instructions)
It is now my pleasure to introduce your host, Deb Strohmaier of Greif, Inc., Vice President of Communications.
Thank you. You may begin.
Thank you, Diego. Good morning.
Previous Statements by GEF
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We are on Slide 2. The information provided during this morning's call contains forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are on Slide 2 of this presentation, in the company's 2008 Form 10-K and in other company SEC filings as well as company earnings news releases.
As noted on Slide 3, this presentation uses certain non-GAAP financial measures, including those that exclude special items such as restructuring charges and timberland disposals. Management believes the non-GAAP measures provide a better indication of operational performance and a more stable platform on which to compare the historical performance of the company than the most nearly equivalent GAAP data. All non-GAAP data in the presentation are indicated by footnotes. Tables showing the reconciliation between GAAP and non-GAAP measures are available at the end of this presentation and in the third quarter 2009 earnings release.
I will now turn the call over to Chairman and CEO Mike Gasser.
Thank you, Deb. Good morning, everyone, and thank you for joining our conference call today.
If you are following this presentation on the web, we are on Slide 4.
The global economic downturn that became apparent last fall and the contingency plans that we have implemented this year to mitigate its effects continues to impact our results for the third quarter.
Despite lower sales volumes year-over-year, we are encouraged by the sequential improvement in sales volume and stronger operating results. We reported sequential volume improvements in all regions, particularly in EMEA. Europe represents the largest portion of this region's business, and we continue to observe signs of improvement there. While the market response is not yet uniform, we are encouraged by the sequential increase in sales volume and cost savings realized thus far in fiscal 2009. Also, Asia-Pacific is rapidly recovering, with sales volume higher than last year by nearly 10%.
As discussed last quarter, we are also executing disciplined growth plans. These include further consolidating the industry, filling in white spaces and evaluating industry adjacencies. We will remain close to our core.
During the third quarter we completed two tuck-in acquisitions, one in North America and one in China. We are pursuing several opportunities to increase our product portfolio and global footprint. Our strong balance sheet plus increased financial capacity and flexibility reinforce these efforts.
Accelerated Greif Business System initiatives and contingency actions we implemented are delivering impact above targeted levels. One result is our operating profit margin, which expanded to 11% for 10%.
Now, Slide 5. Throughout the third quarter formal GBS reviews were conducted in much of Europe. I attended reviews of many of our operations in Houston. From reports I received and through personal observation, I am confident that we still have exciting opportunities for savings and for growth in our operations around the world. With our lower cost structure and improved operating leverage, solid capital structure, financial and operational flexibility, we are positioned to fully participate in any level of global recovery.
Executive Vice President and Chief Financial Officer Don Huml will now provide you with an update of our financial results.
Thank you, Mike. Good morning, everyone.
Please go to Slide 6. We are encouraged by our third quarter accomplishments, the 16% sequential improvement in sales volumes and the recent further uptick in activity levels during July and continuing into August.
Net sales for the quarter decreased 31% or 24% excluding the impact of foreign currency translation to $718 million. The constant currency decline resulted from 18% lower sales volumes and 6% lower selling prices due to the pass-through of lower raw material costs.
Our gross profit margin has improved compared to the same quarter last year due to the Greif Business System initiatives and contingency actions as well as lower raw material costs. The initial plan for $100 million in annual savings was expanded to $150 million during the quarter. Approximately 80% of these savings are expected to be permanent.
Operating profit before special items was $81 million for the quarter, a decline of 25% or less than the 31% delta in net sales. This decrease was due to lower net sales in Industrial Packaging and Paper Packaging, which were partially offset by gross profit margin expansion and lower SG&A expenses.
The company's effective tax rate was 23.6% during the quarter compared to 23.3% for the same period last year. The decline from the second quarter was due to a favorable earnings mix shift and, to a lesser extent, alternative fuel mixture credits of $3.5 million.