Here's Why You Should Avoid Betting on Greif (GEF) Now
Greif Inc.’s GEF performance continues to bear the impact of weak demand owing to the coronavirus crisis and weak industrial manufacturing environment. High debt levels also remain a concern.
The Zacks Rank #4 (Sell) company — with a market capitalization of $1.8 billion — is a leading global producer of industrial packaging products and services with manufacturing facilities located in over 40 countries. Shares the company have lost 2.9% against the industry’s growth of 2.8% in a year’s time. Meanwhile, the S&P 500 Index has rallied 12.8% in the same time frame.
Factors Hurting the Stock
Greif expects fourth-quarter fiscal 2020 earnings to be around 66 cents per share implying a decline of 47% and 22% on a year-over-year and sequential basis, respectively. Profits are anticipated to be lower sequentially in the quarter owing to normal business seasonality, higher SG&A expenses, less opportunistic sourcing cost benefits, reduced sales in the high margin filling business in the United States and a sequentially higher tax rate in the fourth quarter.
Greif expects adjusted earnings per share in fiscal 2020 between $3.00 and $3.20. The mid-point of the guidance indicates a slump of 22% from the prior year. The company anticipates global macroeconomic conditions to remain volatile throughout the remainder of the fiscal year on account of the ongoing pandemic.
The company continues to face challenging industrial markets across its portfolio and the overall demand environment remains soft. It is witnessing sluggish demand within the textile, industrial paints, coatings and lubricant industries owing to the pandemic. Around 60% of the Rigid Industrial Packaging & Services segment’s revenues are generated from steel drums. The ongoing volume declines in steel drums will continue to hinder the segment’s results.
The company's total debt to total capital ratio is at 0.69 higher than the industry's 0.60. Its times interest earned ratio is at 2.7, lower than the industry’s 4.5. The company is taking steps to improve liquidity and is reducing 2020 capital spending by delaying certain growth projects, closely managing its working capital and reducing costs.
Which Way Are Estimates Headed?
For 2020, the Zacks Consensus Estimate for revenues is pegged at $4.51 billion, indicating a decline of 1.9% from the prior-year quarter. The same for earnings stands at $3.12 per share, suggesting a fall of 21% from the year-ago reported figure. The earnings estimates has also moved down 10% over the past 60 days.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector include Astec Industries, Inc. ASTE, Berry Global Group, Inc. BERY and SiteOne Landscape Supply, Inc. SITE. While Astec sports a Zacks Rank #1 (Strong Buy), Berry and SiteOne carry a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Astec has an estimated earnings growth rate of 13.5% for 2020. The company’s shares have rallied 68.5% in a year’s time.
Berry has a projected earnings growth rate of 32.3% for fiscal 2020. Shares of the company have appreciated 21.8% over the past year.
SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. The stock has surged 61.6% in the past year.
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