GREIF, INC Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Divestments: Containerboard business divestment to close end of month, timberland divestment set for Oct 1. Cash proceeds net of tax ~$1.75B expected to lower leverage ratio below 1.2x.
• Cost Optimization: Achieved $20M in run rate savings towards fiscal 2025 commitments (~$15M SG&A, $5M network optimization). Example: Welcome, NC tube and core plant improved changeover efficiency, boosting line efficiency over 40%.
• Q3 Results: Customized polymer volumes up 2.2% with focused end markets outperforming; durable metals volumes down due to softness in regions; sustainable fiber volumes down but URB Mills at high capacity; integrated solutions up led by recycled fiber.

Segment Performance

• Customized Polymer: Volumes increased 2.2%, with low double-digit growth in small containers; mid-single-digit declines in IBCs and large drums. Focused end markets like Agrochemicals, Pharma, Flavor & Fragrance, and Food & Bev outperformed. Revenue contribution tied to growth in targeted end markets.
• Durable Metals: Volumes declined 5.8% due to low double-digit softness in North America and low single-digit declines in EMEA. Strategy is value over volume and cash generation, with improved year-over-year gross profit margins.
• Sustainable Fiber: Volumes decreased 7.6%. URB Mills operated above 90% capacity, but converting was mixed (tube/core down low single digits, fiber drums down high single digits) due to sluggish North American industrial end markets.
• Integrated Solutions: Volumes grew 2.6%, led by strong volumes in recycled fiber.

Guidance

• Revised 11-month EBITDA guidance midpoint raised to $730M (up $5M from previous low end), free cash flow midpoint raised to $310M (up $30M from previous low end). Increase due to SG&A cost savings, EBITDA increase, and lower CapEx spend. Containerboard divestment not finalized, so full-year guidance not adjusted for its impact. Containerboard contributed $122M sales and $25M EBITDA in August and September, with YTD Q3 contribution of $872M sales and $168M EBITDA.

Risks

• Macro environment mixed; durable metals affected by sluggish housing and petrochemicals, bulk chemical markets down in EMEA. Tariffs impact still below $10M and not material.

Question and Answer

Q: Can you tell us how much of the guidance raise for the year was related to containerboard?

A: No containerboard impact; raise primarily from SG&A cost reductions.

Q: Can you tell us about price cost trends as we're entering the fiscal fourth quarter and really kind of the horizon into '26. To the extent you can comment relative to metal?

A: Steel costs have been relatively flat, no significant index changes expected going into the calendar quarter.

Q: I know you were happy with the growth in your targeted areas in polymers, but I was a little bit surprised to see some weakness in IBC. And so can you tell us how trends, maybe it's in EMEA, are starting to affect the polymers business?

A: Growth in targeted markets like Food & Bev and Agrochemicals continues; metal index stable with no expected impact from it.

Q: Just curious on how you think the business should perform from a cash generation perspective following the divestitures and how do you weigh capital allocation opportunities at your forecasted lower leverage ratio?

A: Cash flow generation expected to be good; allocation priorities: dividends, debt paydown, organic growth.

Q: As you think about the balance sheet you have and all the many decisions you've made in terms of portfolio adjustments in the last few months, is increasing your exposure to perhaps more defensive end markets a strategic priority for you as you consider acquisitions?

A: Focus on end markets growing faster than GDP, like Food & Bev, Agrochemicals; businesses must meet 18% EBITDA margin and 50% free cash flow conversion.

Q: Switching gears, if you could stay on the same analogy, that would be great. But fiber, you've seen a lot of moving pieces there, containerboard coming out, land out, drums are now in this segment since you've resegmented. So with the $218 million coming out in containerboard in 11 months, I mean, how should we think about what's remaining in that fiber business in '26 in terms of margin or driving cost out of that business, recognizing there's still some price to flow through?

A: URB business is a leader, focus on tube/core and fiber drums; margin and cost optimization ongoing.

Q: On Integrated Solutions, that margin came in lower in 3Q, volumes are still up. So what drove the variance in margin quarter-over-quarter within that segment? And what is expected on a go-forward basis to get that back above 20%?

A: OCC pricing drove margin squeeze; caps and closures are better margin business, targets exceed M&A criteria.