Greif, Inc. Price & Performance (GEF)

Actual results could differ materially from those discussed. Additionally, we will be referencing certain non GAAP financial measures and the reconciliation to the most directly comparable GAAP metrics that can be found in the appendix of today's presentation. I'll now turn the presentation over to Oli on Slide three.

Thank you, Bill, and hello, everyone.

I was pleased to meet so many of you at our Investor Day last December.

As a reminder, at that event, we announced our view 2027 financial commitments of €1,000,000,000 EBITDA and $500,000,000 free cash flow.

Our bridge dollars is very simple. First, over $100,000,000 of known positive discrete items which will impact EBITDA in 2025 and beyond. Notably, the run rate impact of index paper pricing as of the December 2024, Second, volume recovery. Which as discussed at Investor Day will be accelerated by our enhanced business model. Once the industrial economy begins to recover. And finally, we announced a $100,000,000 cost optimization effort we are undertaking which I will touch on in just a moment. We have high conviction in these three levers. And we are confident in meeting or exceeding the commitments we laid out. Please turn to Slide four, [indiscernible] At Investor Day, demonstrated how we lead with our packaging solutions essential industries and how we are well positioned to grow through capitalizing on our new business model leveraging our deep competitive advantages and continuously improving our business through the drive business systems two point zero and our $100,000,000 cost optimization program We combined this earning growth with responsible capital allocation designed to maximize return on invested capital and drive profitability towards our long term targets of 18% EBITDA margin and 50% plus free cash flow conversion. While current industrial economics provide some uncertainty on near term volume growth, we demonstrated in 2023 and again in 2024 that we can produce solid financial results regardless of the negative macroeconomic cycle.

Today, I'd like to highlight the strength of our business in the context of a timely topic making headlines tariffs As you know, our supply channels are generally local to local. Additionally, thanks to our restructured business model, we have embedded flexibility, and adaptability into our global supply chain allowing us to seamlessly navigate disruptions without any material impacts. [indiscernible] we view our key suppliers as critical partners and by fostering strong collaborative partnerships We respond swiftly and effectively to volatility Our supply chain team has conducted a thorough impact assessment across multiple tariff scenarios and developed a robust action plan to effectively mitigate any P and L exposure. Regardless of potential tariff changes, our global scale, operational agility and supplier relationships ensure we continue delivering legendary customer service while driving sustainable profitable growth Please turn to Slide five. And our Investor Day, only two months ago, by the way, with the holiday season in between, Larry announced our commitments of at least $15,000,000 to 25,000,000 of run rate savings identified by the end of fiscal twenty twenty five Today, I'm pleased to update you that we have already identified $5,000,000 of savings on a run rate basis and reaffirm our expectation to achieve at least $15,000,000 to 25,000,000 on a run rate basis by the end of this year.

These savings were primarily SG and A related will fully benefit full year 2026 results and will also provide an incremental impact to the remainder of this year which Larry will touch on in guidance. You may also have noticed we referenced 13,000,000 achieved within our press release. That incremental $8,000,000 is related to our recently announced mill closures. However, we did not want to include that in our full year 2026 run rate yet As we are still assessing the timing of closure costs, which may offset that benefit in short term Larry will touch on that in a moment. We favor a bias by action. And so expect to continue making good progress while also planning for near term accelerated growth As we refine our roadmap, to realize the full $100,000,000 we will continue to provide you with updates. Let's now turn to Slide six, to discuss another recent decision The organizational realignment we executed in 2024 resolving in our new seven SBUs provided us the opportunity to step back fits into the greater Thrive enterprise and how that translates into meeting our aspirational growth objectives. This work also expands beyond our SBUs and focuses on what is core to the long term growth of Drive including our capital deployment strategy.

As such, while we have a long history with our landholding business, Sotera, it has also become clear to us that this is better suited on a new ownership As such, we are announcing today our intention to sell the entire timber portfolio of approximately 176 acres. And use the proceeds to reduce debt We sincerely thank our Sotera colleagues for their years of dedicated service and for their world class execution mindsets. We are fully committed to supporting the business and our colleagues during this transitional period. We will provide updates when available on this process. Let's now turn to Slide seven, to discuss current quarter trends. In our first quarter, of 2025, we continue to see changing demand trends in every product and region. However, as with the past twenty four months, the products we are investing in continue to outperform legacy business.

Polymers, was up 2.7% driven by small containers and IBC demands in the ag and food sectors. Particularly in EMEA, Integrated Solutions likewise saw volume growth with both of our key product groups, Caps and Closures, and paints, linings and adhesives experiencing low double digit growth A reminder that these volume figures are presented on a same store basis. In other words, agnostic of recent acquisitions. Fiber was the next strongest solution with volumes slightly up and operating rates in both paper grades in line with the industry. Metals continue to be impacted most by the soft industrial economy. Due to the high exposure to bulk chemicals petrochemicals and lubricant markets, As you may have seen in some of our key customers earnings reports early this February, those customers continue to suffer from this extended industrial contraction. It was encouraging to see January DMI bumps slightly above 50 However, we still feel the underlying demand in those sectors is uncertain. While we greatly appreciate our relationships, with these important customers, it's important for us to balance out the cyclical nature of their needs by continuing our focus on growing in pharma, flavors and frequencies, [indiscernible] and agrochemical segments. Although we are shifting towards discussing our business on a solutions basis as opposed to regional basis, I know a regional view is helpful to our investors.

And so I will offer some brief comments EMEA continues to demonstrate the highest level of resilience followed by APAC. LATAM has started to trend slightly downwards, which is something are monitoring but the clear outlier remains North America. Where demand sentiment continues to be the most bearish. With that, I will turn things over to Larry, discuss our first quarter results. On Slide eight, Following up on Oli's comments on taking strategic actions, towards our long term goals, I'd first like to briefly touch on another strategic announcement. In late January, we announced the planned close of our A1 paperboard machine in Austell, Georgia as well as our containerboard and URB Flex machine in Fitchburg, Massachusetts. At Investor Day, our Chief Operations Officer, Kim Kellerman, talked about quadrant analysis to assess plants as either invest to grow Protect the Core, Transform or Fix and divest or close. Despite the continued excellent work by our colleagues, at the end of the day, these two facilities fell into the lower quadrant and did not achieve the level of earnings necessary to support continued operations. The two closures will reduce our containerboard mill capacity by thousand tons and our URB capacity by 90,000 tons.

In the short term, this action will be in EBITDA headwind of $3,000,000 in fiscal twenty twenty five versus our prior guidance due to one time closure costs and the timing of shifting tons to other facilities.

Expect this closure to be EBITDA positive of $8,000,000 by 2027 due to the increased efficiency of those tons being redeployed into our remaining mill network. As we are still working through the closure and not certain of the exact timing of the benefits, We have not yet included it in the run rate Optimus cost optimization achievement that Oli touched on earlier.

We While building for the future, we have also remained resilient in our day to day execution. Adjusted EBITDA for the quarter was $145,000,000 an improvement of $7,000,000 over the prior year quarter and in line with our expectations for Q1 Adjusted EPS for the quarter was $0.39 which was lower than prior year due primarily of a one time tax benefit of $48,000,000 as well as $14,000,000 of higher interest expense this year due to higher debt from recent acquisitions. Working capital management was solid in the quarter. However, our adjusted free cash flow was a net use of 62,000,000 slightly higher of a use than prior year due primarily to the higher interest to our performance at a segment level. Gross profit margins in three of our four segments increased year over year due to effective cost management and GBS two point zero gains despite the stagnant demand environment that Oli touched on earlier. Integrated Solutions gross profit margins were down year over year primarily due to product Note also that Q1 results for our now divested Delta Filling business are presented in integrated Solutions prior year results and was an EBITDA contributor of 2,800,000.0 the overall gross profit improvement did drive $7,000,000 positive EBITDA year over year, EBITDA margins were also impacted by higher year over year SG and A costs.

As we discussed throughout 2024, we anticipated short term SG and A cost inflation as we reallocate and invest resources to areas of maximum long term value creation. Right now, we are at the peak of that curve. Have completed our business reorganization in 2024. Our new structure and SBUs are in place and now is when we will start aggressively pursuing streamlining over those processes. This short term divergence between gross profit gross profit and EBITDA margin percentage is mostly due to higher SG and A cost, which is one of the key opportunities listed in our a $100,000,000 cost optimization initiative, which only discussed earlier.

Please turn to Slide 10 to discuss 2025 guidance. [indiscernible] As a reminder, this fiscal year is only eleven months and won't and will conclude on September 30, following a two month fourth quarter In Q4, we presented a low end only view of guidance which incorporates only known upsides year over year, but all downsides of which we have visibility. Given the lack of any compelling demand inflections, we concluded that low end guidance continues to be appropriate. However, we also feel it is warranted to raise the low end for specific known upsides. First, an additional $27,000,000 of positive price cost, which reflects the $40 per ton containerboard price increase announced by RISI last Friday as well as our lower full year OCC assumption of $85 time. It additionally factors in better price cost in our Polymers and Metals business which is trending better than our original low end guidance assumed. As I mentioned during our Q4 call, we anticipated a short term headwind in Q1 related to the flow through of high priced steel in our balance sheet. Our supply chain team did a good job of neutralizing that impact Additionally, our metals team has had great success with value over volume discipline in the quarter.

Those two factors drove the metals price cost tailwind in the quarter. Second, dollars 8,000,000 of lower due to continued solid day to day management by our GBS Group. Lastly, we are including $3,000,000 which reflects the portion of run rate impact of the cost initiative savings Oli touched on earlier, which will be beneficial to fiscal twenty twenty five, However, that is offset by the $3,000,000 headwind from the recent mill closures I discussed earlier. This net change results in a new low end EBITDA guidance of $710,000,000 for '25. Our low end free cash flow guidance is also raised by $20,000,000 to $245,000,000 for the full year. Partially offsetting our EBITDA increase of $35,000,000 is an assumption of $20,000,000 higher working capital costs, which reflects the working capital impact of improving paper price costs, but additionally being low end guidance, we have contemplated some downside for further cost inflation without the benefit of offsetting mitigating actions. Separately, we assume a small $6,000,000 incremental tailwind other operating costs, which balances to the $20,000,000 free cash flow guidance increase. This is a low end view and so our expectations is not that the business will end the year at this performance but is the only data point which we have conviction in sharing at this point.

In subsequent quarters, we will reassess returning to a range guidance for our usual approach. With that, let me turn it over to Oli to close on Slide 11. Thanks, Larry.

As demonstrated at our recent Investor Day, we continue optimizing and fine tuning our business we are transitioning from good to Greif. We are a market leader in our chosen markets. We have strong track records and are very disciplined in the way we execute our strategy. [indiscernible] Other words, we are well positioned for growth We are helping ourselves to grow in very depressed [indiscernible] And when that market just returns even the slightest we are in an ideal situation to take off Thank you taking the time to listen in today. Operator, please open the lines for questions.

Your line is Thanks, operator. Good morning, everybody. I just want to go back to the first quarter results specific to fiber. And just your view as it relates to whether that came in on an operating profit basis or EBITDA, whichever way you want to look at it. In line with your plan because it was quite a bit below our expectation in context of your price increase. It set right? Thank you. Got you. Thanks for the question. Let me go to that. It came in line with our expectations actually a little bit slightly better. Here's the issue that's confusing the matter. We have a protocol for allocating SG and A across the businesses. And we'd ask all of your patients as we've transitioned to this new business model, because it's having impacts And the way that we allocate our SG and A is based on value add, which is just our price versus less raw material. I would tell you that gross profit is a really good proxy So what happens is as margins are expanding in the fiber business, it gets allocated a bigger portion of our SG and A. And somebody might say, well, why do you do that?

Well, if you talk to virtually any CFO or Controller and you talk about getting into allocations among your internal businesses, it is a rabbit hole you'd go down forever. I mean people argue about how you allocate.

So we have a basic protocol for how we've done it. And it's in our former operating model, you really didn't see it because it go across geographies and you had all of the different segments going into those geographies. So again, I ask you to bear your patience, but yes, fiber was good for us. It's picked up a higher allocation of SG and A and then SG and A was higher than what most of the ability in your models. We thought we had done a good job of articulating the fact that we were going to have SG and A cost for example, for Mifect Chem in this first quarter since we didn't have it last year. We thought we'd explain we'd make some investments that we're going to turn around.

Obviously, we didn't explain it enough. And so that one falls on us. We weren't doing as well as we'd hoped relative to all of you as our customersinvestors.

Okay. That's very helpful, Larry. Thank you for that. And then, Oli, your comments on the global businesses, EMEA being the most resilient and North America maybe at the other extreme in terms of being the weakest Is it a difference in terms of end market exposure that would explain the two because that's certainly counterintuitive relative to the macroeconomic strength between the two regions And then related to that, What is your expectation in terms of volume assumptions as it relates to Well, thanks, Gotcha. Well, first of all, as we laid out even in 2022 and then at our recent Investor Day, which end segments and end markets we are targeting for growth. And all of those GDP plus growth markets. One of those is the agrochemical markets. And that's really where you have seen significant growth here recently. Coming out of both EMEA but also North America. For starters. And we continue to focusing on those markets And just to remind you, it's food and beverage, it's pharma and medical and it's flavor and fragrance in addition to to agrochemicals. As to your second question, just remind me again, Gotcha. Yes, embedded volume assumptions, as you think about the portfolio for fiscal year twenty twenty five.

Yes. So we have seen obviously in some of these markets I just mentioned, especially in the polymer markets, we have seen some sequential improvements But I would say our caution being too optimistic. Generally, we don't see any difference from the previous quarter sequentially So I haven't seen any inflection point yet. Yes. You could call this green shoots, but it's too early to say anything on that. So I would am cautiously optimistic about the future.

Got it. Thanks so much.

And our next question will be coming from Matt Roberts of Raymond James. Matt, your line is open.

Hey, good morning everybody. Thank you for taking the questions.

Maybe Larry to that point on the SG and A that some of us might have missed in there.

Could you just help us frame the margin expectation going into 2Q and maybe how that progresses through the year and any lingering impacts we should [indiscernible] next quarter. I just want to caught off guard on my own internal model there. Yes. Good question, Matt. Thanks. So if you look just to give some perspective and a little more color back on some of this element, when we look SG and A sort of year over year, in iPEC Chem is like $11,000,000 which $5,000,000 was amortization related to purchase price allocations on the purchasable items of goodwill that kind of stuff intangibles. You've got another element that's a little bit less clear, but when we went to this new structure, relooking at all of our enabling functions and where cost resided, we ended up moving some people out of what we're manufacturing channels into enabling functions like in the Kim Kellerman's group or or into supply chain out of factories. That ended up us just doing a shift $3,000,000 of cost of goods sold into SG and A levels on a full year basis is like $10,000,000 So I'm just talking about quarter right now. And so you've got those two items As we go through the year, obviously, once we get to when we bought iPacChem, you're going to have not that year over year increment.

And just generally, our EBITDA margins are going to steadily improve through the year, which is which is typical for us. You get volume lifts, which leverages our fixed fixed cost and those kind of things, a steady increase to margins through the remainder of the year. And then that year over year comparison match [indiscernible] Very helpful. Appreciate all the detail there, Larry.

And then secondly, maybe if I could ask on the Timberland sale, just give any additional color? I know it's early in the process, but any additional color on on this asset and how may it compare to the timberland that was sold in 2021? I believe So Terra was $9,000,000 in EBITDA last year versus I think less than $2,000,000 of what you sold in 2021. So what are any differences that we should consider when thinking about proceeds there in terms of either age or productivity of the timber there or any other business considerations of this asset that make it different? Thanks again for taking the questions. [indiscernible] timing or value at this time and 2021 is a long time ago. When you look at the different tracks of Timberland and so on, it's very different. You can't really compare them. We are highly confident in both interest and value and effects we, on an ongoing basis, receive unsolicited offers for our timberlands. And we know we can get a very good price for it, but it we can't comment on it. At this moment in time.

That's certainly fair early. But maybe if I could kind of a different angle on that. I believe we've talked recently about that increase in polymer mix and even getting to 30% organically. So maybe once land is gone and of the fiber closures, can you talk about what the polymer mix will be or what the remaining gap to get to that level will be as a it largely due to higher growth end markets from polymers or just where you see that shaping out.

Well, yes. But as we explained that both at Investor Day in 'twenty two and last year, we are shaping our portfolio and we have identified the end segment markets. Like I mentioned before, ag chem, food and pharma and so on as GDP plus growth end segments. Those end segments are serviced with basically polymer solutions. And that's why we talk about so much about Polymer Solutions. The sale of our land is not linked to that. The sale of our land, we go to proceeds will be used to pay down debt basically. That's it. And they will take our leverage down and us more firepower for the future. But we will continue to focus on those SENSE segments I mentioned and grow our customized polymer business Matt, I'll supplement what Oli said earlier just a little bit is while the prior sale was so long ago, it's not negative and all pieces of land are different. It's like buy pieces of city downtown properties different than out in the suburbs, but everything is different. That said, a lot of things has been happening in land management and our team is really good at what they do. So things like carbon sequestration, solar farms, all of those things have actually been increasing the value of timberland.

Does that mean every one of our acres is going to be worth more than the last time?

We don't know. But like Oli said, he's gotten a lot of just inbound calls with broad offers. Most of the time, they're higher values than what we got we sold before. But that doesn't guarantee anything. The other part of that is that we will have a tax haircut. We've said before, we always have low tax bases. And just as a perspective of time, the last time it took us about eight months to do the transaction. Whether it's eight months, ten months, six months, five, we don't know. But what we're going to do is maximize value.

And that's the primary focus of this.

Larry and Elliot, thank you both again.

And our next question will be coming from Adit Shrestha of Stifel. Your line is open.

Hi, good morning. Thanks for taking my questions. Just going back to the guide, maybe could you help us also bridge sort of the $27,000,000 price cost spread how much of that is actually within fiber versus Polymer? And metals? And And just so that I'm understanding it's clear, the $15,000,000 to $25,000,000 run rate savings, actually not think you've captured $3,000,000 of that. Is that correct?

Yes, that's correct. So just to bridge so you've gone from the $675,000,000 guide [indiscernible] price cost element of it is about 27,000,000 We have roughly 800,000,000 tons of containerboard, dollars 40 half a year, 16 pick up another $3,000,000 on our OCC cost assumption going down For the full year, averaged 87% to 82% gets you $3,000,000 So that's $19,000,000 of that 27 The other is split across the remaining substrates a little bit actually price increase in integrated products and benefit in both polymers and steel.

At relatively small levels.

Okay, great. Thank you.

And in terms of volume, so that we get it right, How should we think about the cadence for going to 2Q and into sort of the second half and for the full year, how should we think about volume year over year?

Based on the the way to look at it, I mean, first of all, you got to build in iPEC Chem because we acquired it last April.

So that impacts things. For the Next, month and a half, February, March and part in April, You then have, I would say, we don't have a clear picture of what we think is going to happen on volumes. If we did, we'd have a range.

I mean, that's the whole constraint here. We don't know when the inflection is going to come. I would say the best guide to use is just just look at the same path that we've had for the past two years. I mean, that's what we've got built in our guidance. And that's what I'd say you should utilize in yours.

So slight pickup in Q2, Q3 and slight fall off in Q4. Generally, that's the high level stuff.

One moment for our next question. And our next question will be coming from Michael Roxlin of Truist. Your line is open.

Yes. Hi, guys. This is Nico Piccin on for Mike. Thanks for taking my questions. First off, can you maybe elaborate on some of the demand trends in boxboard specifically as your closure announcement for Astell, I think you include commentary that specific subsegments of demand were declining. And then maybe an early read on trends you're seeing right now and [indiscernible] Hi, Nico. It's Oli here. So total Boxboard is basically flat year on year. And when you look at the URB business, then the ASP Protection is softest, but Tubmancoids themselves like Spire Bound products, they're actually up year on year. Until we see a paper market inflection, we don't really see a big driver demand. And the biggest product we have is actually core for paper we're selling that to paper mills. So when we see a demand inflection there, then that business will take off as well.

Got it. Thank you. And then I guess, covering all your strategic actions, and in the framework of that the quadrant analysis you had at the Investor Day, I mean, are there if you can answer more mills that fall into that kind of correction or invest to grow, divest to close buckets. Or how much Yes, we Niko, we couldn't comment on that right now. We're looking at all of our footprint. Obviously, that impacts human beings and jobs. So not going to talk about what's on a list at this point in time But everything we have is under review as part of this cost optimization. Completely understand. Thank you very much for the color.

Next question will be coming from Richard Carlson of Wells Fargo.

Your line is open, Richard.

Good morning, guys. So just wanted to revisit the Timberland sale and wonder if that is an indication that you have a full pipeline and some capital that you can redeploy there. And then secondly, I also wanted to ask about the competitive landscape specifically to polymers and metals. Just wondering if you're seeing any signs of stress in some of your smaller competitors?

I'll address the first part. Oli said it before, We're selling the timberland because we looked at our portfolio, we had these incoming calls, we think it's the decision that it's a better asset for somebody else than us.

And we're going to use the proceeds to pay down debt As Zoli has also said before, our M and A pipeline always is robust, but that doesn't mean you're going to spend it tomorrow either.

It means we're analyzing a lot of things and looking at a lot of things. Our first priority right now is always And with that, Richard, a lot of we continue to work on our pipeline. And as Larry said, it's solid. I spent a lot of time with targets on all that. And we're not going to let off on that. But we don't always decide the timing. Of these things And with regard to competition, Basically, we focus on value over volume. And that's that served us well in times like this when you have more macroeconomic parameters in the market. Then that tends to be more hungry for volume And if we can't get a fair price for what we do and the service we provide, we walk away Those customers in our tends to come back to us because our our service and our product quality is very, very high compared to a local player who wants some volume. So we don't see that as an issue. And you'll probably ask, have we lost market shares in my [indiscernible] answer to that is a big no, we haven't. Confident in our ability to maintain our market position due to our differentiated value proposition.

Very helpful. Thank you very much.

Our next question will be coming from Daniel Harriman of Sidoti and Company. Daniel, your line is open.

Thank you. Hey, guys. Good morning. Thank you for taking my Kind of following up from an earlier question with kind of shift in focus now towards end markets over geographies and all the announcements from the Investor Day.

Was hoping maybe you could talk a little bit about the end markets in which you're most excited about and have the greatest level of confidence as we go out through 2025. And then on the flip side, where you have the most concerns? And then with your ability to continue to execute and operate in a difficult environment, and the increase in the low end of the guide I would just be curious to hear your thoughts about where you are you feel about your current net leverage ratio? I'll take the first question and then I'll hand you over to Larry.

So the story about the end markets, The one we are most excited about is agrochemical. That's the one we went into agrochemical in a big way when we Reliance Li and iPad came and basically became the global leader in the in that market providing special solutions to the customers. Another one that we have grown in is food and beverage, where we have some very large global customers as well. We provide solutions to The end market that excites us as well where but which takes a fair amount of time to get into is the pharma space. We do have some solutions that we provide to some pharma customers, but the runway there is very, very long and it takes time. But obviously, that end market excites us as And Daniel, relative to our leverage ratio, First of all, I mean, obviously, we were thrilled that our Board was wholeheartedly supportive of us moving forward on selling our land business Although, it's hard to part ways with our colleagues who are so wonderful and great down there, but it's the right thing for us. Obviously, those net proceeds are going to help us lower our debt ratio quite significantly.

That said, even if we weren't I am have not been at a discomfort level at all because we're operating well in a very difficult environment And as we've said before, if we recover to just normal volume levels out of this industrial recession, whenever this happens, I mean we're looking at $150,000,000 of EBITDA lift from just that.

And that doesn't even take into impact our cost optimization efforts. And even that $1,000,000,000 bridge we showed at Investor Day didn't include the most recent price increase. So we've got lots of factors here that are driving EBITDA. So that debt leverage ratio is going to come down very rapidly.

Industrial economy improves.

That's really helpful. I really appreciate it guys and best of luck in the quarter.

Thank you, Daniel. Thanks.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back to Oleh Rosgaard for closing remarks.

Thank you. And I would like to thank our analysts and our investors for your time today. And for your continued interest and investment in Life We remain committed to delivering exceptional results and are focused on accelerating our performance towards our 2027 commitments of €1,000,000,000 EBITDA and $500,000,000 in free cash flow. We are confident that our relentless pursuit of operational excellence and our customer centric growth will create enduring value for all our stakeholders. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.