Greif faced ‘historic volume adversity’ in 2023

The paper sector has been marked by low mill volumes all year, impacting earnings and prompting optimization strategies among companies across the industry.

Delaware, Ohio-based paper and packaging producer Greif Inc. released its fiscal year 2023 earnings Wednesday, and the company echoes what’s been heard all year, with CEO Ole Rosgaard saying Greif faced “historic volume adversity” in 2023.

Despite market headwinds, Greif earned $359.2 million in net income and is reporting $818.8 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted free cash from of $481.2 million—the second-best adjusted EBITDA and free cash flow in its 146-year history.

“[This is] a truly remarkable achievement,” Greif CEO Ole Rosgaard says.

“I am humbled by our team’s execution and commitment and excited about Greif’s future as we look ahead through 2024.”

Global Industrial Packaging

Net sales fell to $721 million in Greif’s Global Industrial Packaging (GIP) segment, a decrease of $103.9 million compared with last year.

Of its two business segments, GIP and Paper Packaging & Services (PPS), the GIP business faced a bigger decline in net sales and the company says volumes remained historically weak throughout the fourth quarter in most regions and end markets. It adds that destocking largely is complete, but demand remains “near trough levels.”

“This is truly an unprecedented time with no comparable period, including The Great Recession, where we saw a steep drop in drum volumes that quickly recovered,” Chief Financial Officer Larry Hilsheimer said during the company’s earnings call Wednesday. “While this is sobering data, we take pride in the results we have delivered. Those results have enabled us to continue to invest strategically in our Build to Last initiatives focused on the future while managing costs and operations effectively. We are excited about the results of our GIP segment and what they will deliver when the industry [and] industrial economy recovers.”

However, the segment’s gross profit and adjusted EBITDA both increased in fiscal year 2023. Greif reports $154.4 million in gross profit compared with $152.5 million last year and $104.2 million in adjusted EBITDA compared with $96 million.

Paper Packaging & Services

Net sales in Greif’s PPS business decreased by $84 million to $581.6 million this year, which the company attributes to low volumes and lower average selling prices due to lower published containerboard and boxboard prices.

Greif took approximately 62,000 tons of total downtime across its mill system in the fourth quarter compared with 35,000 tons in the fourth quarter of last year, and Hilsheimer notes containerboard fared better than uncoated recycled board with less economic downtime and better volumes in converting.

“But overall, the continued low volume environment combined with rising [old corrugated container] costs during the quarter led to both EBITDA dollar and margin compression to the prior year,” Hilsheimer said. “Our PPS team continues to control the controllable as well and did an extraordinary job on managing working capital to close out the year.”

In terms of optimization, Rosgaard confirmed the closure of Greif’s Santa Clara, California, containerboard mill that was announced in October, and the company also is raising containerboard prices because of continued inflationary cost pressure.

Finally, effective in fiscal year 2026, Greif will adjust its fiscal year to end Sept. 30.

“This change has been requested by our investors and analysts for years and we believe it will better align us to the standard industry calendar and increase our exposure to the investment community,” Rosgaard said during the company’s earnings call.

“It’s a challenging time to give full-year guidance because we do believe the demand environment will turn positively, we just don’t know when yet.”