Greif(GEF_B) - 2020 Q2 - Quarterly Report

Part I. Financial Information This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents Greif, Inc.'s unaudited condensed consolidated financial statements, including income, balance sheets, and cash flows, with detailed notes on key accounting events Condensed Consolidated Statements of Income The statements show a decrease in net sales and net income for Q2 2020, while six-month net sales increased with stable net income Key Income Statement Metrics | Financial Metric | Three Months Ended April 30, 2020 | Three Months Ended April 30, 2019 | Six Months Ended April 30, 2020 | Six Months Ended April 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,158.3 M | $1,213.3 M | $2,270.7 M | $2,110.3 M | | Gross Profit | $240.7 M | $248.7 M | $463.3 M | $421.5 M | | Operating Profit | $72.0 M | $90.6 M | $151.2 M | $157.8 M | | Net Income Attributable to Greif, Inc. | $11.4 M | $13.6 M | $43.7 M | $43.3 M | | Diluted EPS (Class A) | $0.19 | $0.23 | $0.74 | $0.74 | Condensed Consolidated Balance Sheets The balance sheets show a slight increase in total assets and a decrease in long-term debt, reflecting the adoption of the new lease standard Key Balance Sheet Metrics | Balance Sheet Item | April 30, 2020 | October 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $1,247.9 M | $1,249.0 M | | Total Assets | $5,529.0 M | $5,426.7 M | | Long-term Debt | $2,595.1 M | $2,659.0 M | | Total Liabilities | $4,373.8 M | $4,214.3 M | | Total Greif, Inc. Shareholders' Equity | $1,083.2 M | $1,133.1 M | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly increased, while investing activities provided cash due to a business sale, and financing activities primarily focused on debt repayment Key Cash Flow Metrics | Cash Flow Activity (in millions) | Six Months Ended April 30, 2020 | Six Months Ended April 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $119.3 | $52.6 | | Net cash used in investing activities | $12.8 | $(1,883.1) | | Net cash provided by (used in) financing activities | $(122.4) | $1,826.8 | | Net decrease in cash and cash equivalents | $(4.9) | $(4.4) | Notes to Condensed Consolidated Financial Statements Detailed notes cover accounting policies, acquisitions, divestitures, goodwill, debt, and financial instruments, highlighting the adoption of ASC 842 and the CPG business divestiture - The company adopted the new lease accounting standard ASC 842 on November 1, 2019, capitalizing $301.2 million of right-of-use assets and $305.8 million of lease liabilities for operating leases[22] - In the second quarter of 2020, the company divested its Consumer Packaging Group (CPG) business for $85.0 million, recognizing a loss on sale of $38.4 million, which included an allocation of $35.6 million in goodwill[33] - Goodwill decreased from $1,517.8 million at fiscal year-end 2019 to $1,474.7 million as of April 30, 2020, primarily due to a $35.6 million allocation to the divested CPG business[35] Long-term Debt Breakdown | Debt Instrument | Balance as of April 30, 2020 (in millions) | | :--- | :--- | | 2019 Credit Agreement - Term Loans | $1,570.3 | | Senior Notes due 2027 | $494.7 | | Senior Notes due 2021 | $216.1 | | Accounts receivable credit facilities | $336.2 | | 2019 Credit Agreement - Revolving Credit Facility | $73.7 | | Total Long-term debt, net | $2,595.1 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting COVID-19 impacts, Caraustar acquisition, and CPG divestiture, with Q2 2020 Adjusted EBITDA growth despite sales decline Results of Operations Q2 2020 saw a decline in net sales and operating profit, but Adjusted EBITDA increased due to raw material costs and reduced SG&A, while six-month sales grew from an acquisition Q2 2020 vs Q2 2019 Key Financial Metrics | Metric (Q2 2020 vs Q2 2019) | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,158.3 M | $1,213.3 M | -4.5% | | Operating Profit | $72.0 M | $90.6 M | -20.5% | | Adjusted EBITDA | $181.3 M | $162.0 M | +11.9% | - The Rigid Industrial Packaging & Services segment's Adjusted EBITDA increased significantly to $92.2 million in Q2 2020 from $68.9 million in Q2 2019, driven by lower raw material costs and strategic pricing actions[189] - The Paper Packaging & Services segment reported an operating loss of $5.5 million in Q2 2020, compared to a $30.2 million profit in Q2 2019, primarily due to the loss on the divestiture of the CPG business[193] - Management anticipates demand softness for the remainder of the fiscal year due to COVID-19, particularly in industrial manufacturing, and expects rising prices for old corrugated containers (OCC) to create a price-cost squeeze in the Paper Packaging segment[182][184] Liquidity and Capital Resources The company relies on operating cash and credit facilities for liquidity, has reduced capital expenditure forecasts due to COVID-19, and remains compliant with debt covenants - The company reduced its 2020 capital expenditure forecast to a range of $141.0 million to $161.0 million, down from previous estimates, in response to economic uncertainty from the COVID-19 pandemic[272] - The company maintains a leverage ratio covenant under its 2019 Credit Agreement, which requires the ratio of total consolidated indebtedness to EBITDA to be no greater than 4.75 to 1.00, with step-downs beginning in July 2020. The company was in compliance as of April 30, 2020[281] - The company utilizes interest rate swaps to manage exposure to variable interest rates. As of April 30, 2020, it had swaps with a total notional amount of $1.3 billion, effectively converting a portion of its variable-rate debt to fixed-rate[290][291] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company entered into new forward-starting interest rate swaps totaling $200.0 million to manage interest rate risk, with no other significant changes to market risk disclosures - In 2020, the company entered into four new forward-starting interest rate swaps with a total notional amount of $200.0 million, effective July 15, 2021, to hedge against variable interest rate exposure[298] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the reporting period[301] - No changes occurred in the company's internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[300] Part II. Other Information This section provides additional information, including risk factors related to the COVID-19 pandemic and details on a new executive compensation plan Item 1A. Risk Factors The company faces significant risks from the COVID-19 pandemic, including softening demand, supply chain disruptions, and raw material price volatility, despite being an essential business - The company's operations are deemed "essential," allowing them to continue, but a significant number of customers in "nonessential" markets have suspended operations, leading to softening demand in industries like textile, automotive, durable goods, and lubricants[304] - Key risks from the COVID-19 pandemic include a potential material reduction in product demand, supply chain disruptions for key raw materials, and significant price increases for Old Corrugated Containers (OCC)[307] Item 5. Other Information The company adopted a new Nonqualified Supplemental Deferred Compensation Plan for executive officers, effective June 1, 2020 - The company adopted a new Nonqualified Supplemental Deferred Compensation Plan effective June 1, 2020, for certain executive officers[312]