NEW YORK , Aug. 29, 2014 (Viewpoint) -
excerpt from KeyBanc Capital Markets
Greif, Inc. reported below-consensus 3Q14 results and reduced its FY14 Class A EPS guidance by a considerable amount, though the operational component of the guidance reduction was just $0.08-$0.11/share. In addition, the Company indicated that its FY14 free cash flow would be in the ~$100 million-$120 million range, down from its previous guidance of $133 million-$218 million (midpoint of ~$175 million). Among the earnings drags in the quarter were higher-than-expected professional fees, unexpected bad debt expense and delays in the fulfillment of recently introduced product lines. In addition, GEF called out increased volatility in parts of the EMEA region, slower growth in China, and other areas of Asia Pacific experiencing sluggish conditions on account of China's slowdown. Also of consequence is that GEF expects to sell its multiwall bag business shortly for approximately $63 million; this business was a nicely profitable one when its financials were disclosed separately back in FY09 (the last time that happened). On the positive side, GEF has identified approximately $6.5 million of expenses incurred in FY14 that it does not expect to recur, as well as $30 million-$35 million of SG&A reductions to be fully realized by FY16 (with at least $20 million of that $30 million-$35 million to come in the currently unprofitable Flexible business). Partly as a result of these expected SG&A reductions, GEF continues to expect to reach 12% EBITDA margins in its Flexible business by 4Q15, which would imply a significant turnaround over the next year.
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