Greif Bros. Corporation (GEF)

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Greif (GEF)

Q4 2011 Earnings Call

December 08, 2011 10:00 am ET

Executives

Robert M. McNutt - Chief Financial Officer and Senior Vice President

Debra Strohmaier - Vice President of Corporate Communications

David B. Fischer - Chief Executive Officer, President, Chief Operating Officer and Director

Analysts

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Unknown Analyst

Steven Chercover - D.A. Davidson & Co., Research Division

Paul Owens - Avoca Capital Holdings

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Phil M. Gresh - JP Morgan Chase & Co, Research Division

Presentation

Operator

Greetings, and welcome to the Greif, Inc. Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Debra Strohmaier, Vice President, Corporate Communications for Greif, Inc. Thank you, Ms. Strohmaier, you may begin.

Debra Strohmaier

Thank you, Rob. Good morning. As a reminder, you may follow this presentation on the Web at greif.com in the Investor Center under Conference Calls. If you don't already have the earnings release, it is also available on our website. 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 our 2010 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 acquisition-related costs and EBITDA before and after special items. EBITDA is defined as net income plus interest expense, net, plus income tax expense, less equity earnings of unconsolidated subsidiaries, net of tax, plus depreciation, depletion and amortization expense. 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 fourth quarter and fiscal 2011 earnings release.

Giving prepared remarks today are, in order of speaking, Senior Vice President and CFO, Rob McNutt; and President and CEO, David Fischer. Executive Chairman, Mike Gasser, will be available to answer questions during the Q&A session as well. I'll now turn the call over to Mr. McNutt.

Robert M. McNutt

Thank you, Deb. Please turn to Slide 4. While we fell short of our own end market expectations for the year, driven largely by weakness in Europe in the back half of the year, I don't want to lose sight of the fact that 2011 was a good year in several dimensions.

First, net sales were a record $4.2 billion, with solid contributions from all business segments. Second, operating profit before special items and asset gains was a record $382 million. Third, EBITDA before special items was $527 million, the highest in our history. And finally, earnings per Class A share before special items of $3.73 and the third highest in Greif's 134-year history.

Financial summary on Slide 5 includes key performance items for the fourth quarter on a year-over-year basis. 14% increase in net sales to $1.1 billion is primarily due to increased sales volumes of 7%, including 11% from acquisitions completed during the past 12 months, partially offset a 4% decline in same-structure volumes, higher selling prices that represented 4% and positive impact from foreign currency translation of 3%.

We experienced weaker market conditions and increased market pressures in the Industrial Packaging segment, especially in European markets, in the second half of the year. Gross profit was $206 million for the fourth quarters of 2011 and 2010. Gross profit margin declined 2.6 percentage points at 18.2% of net sales in the fourth quarter. This was attributable to lower market demand in Rigid Industrial Packaging, increased manufacturing cost, overall product mix and higher OCC costs for Paper Packaging compared to the same quarter last year.

SG&A expenses were $119 million for the fourth quarter of 2011 compared with $98 million. This increase of approximately $21 million included $13 million of SG&A expenses related to acquired companies, nearly $3 million of negative impact from foreign currency translation, approximately $5 million of higher professional fees particularly directed towards sourcing and administrative excellence initiatives.

Operating profit before special items was approximately $95 million for the fourth quarter of 2011 versus $120 million in 2010. Special items totaled $26 million compared to $13 million for the same period last year, or $18 million and $12 million net of tax, respectively, for both periods. These included $19 million of restructuring charges driven by consolidation activities in our Flexibles business as we continue to integrate those acquisitions, as well as restructuring in our Rigids business in response to weak markets in Europe. Approximately 80% of these restructuring charges were cash. The most significant items included severance costs, which are higher in Europe than in other regions, and the cost to terminate lease commitments.

There were also $5 million of acquisition-related costs and a $1.5 million noncash asset impairment charge for the quarter. Net interest expense was $26 million for the fourth quarter of 2011 compared with $18 million last year. This was due to the higher level of debt related to acquisitions during the past year consistent with our growth strategy, including pack2pack on August 1 and the related working capital requirements.

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