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Text: My name is Matt Eichmann.
I'm joined by Pete Watson, Greif's president and chief executive officer; Larry Hilsheimer, Greif's chief financial officer; and Ole Rosgaard, Greif's chief operating officer.
We will take questions at the end of today's call.
In accordance with Regulation Fair Disclosure, please ask questions regarding issues you consider important because we're prohibited from discussing material nonpublic information with you on an individual basis.
Please limit yourself to one question and one follow-up question before returning to the queue.
Actual results could differ materially from those discussed.
As always, we appreciate your interest in Greif.
The team delivered excellent results despite a challenging operating environment that was complicated by the pandemic, supply chain disruptions, and inflationary pressures beyond our control.
Fiscal 2021 was an exceptional year with record financial results.
We significantly de-levered our balance sheet, improved our shareholder returns, achieved top decile colleague engagement, and were recognized as a leading workplace in the United States.
Looking ahead, these accomplishments have us positioned for an even stronger future as our fiscal 2022 guidance points to performance in line with the commitments we established in 2019.
Finally, in this past year, we made meaningful enhancements to our already strong sustainability performance and have embedded ESG deeper into our business strategies.
I'd like to ask Ole Rosgaard, our chief operating officer, to make a few comments regarding ESG that's on Slide 4.
I hope you and your families are well.
In my mind, sustainability is not an afterthought or corporate function, rather it's a leadership focus that creates business value by reducing risk and costs and bringing new market opportunities to growth.
We achieved several notable ESG accomplishments in 2021.
For example, we diverted a minimum of 90% of waste from landfills at more than 140 of our global facilities, increasing our global diversion rate to roughly 85% from about 70% last year.
Even more impressive, at year end, 50 of our global facilities had achieved zero waste to landfill status.
We launched our fourth Colleague Resource Group to provide professional development opportunities and further foster a more representative and inclusive culture across Greif.
And finally, we linked ESG KPIs to the Greif business system, improving our performance management capability to further drive this critical work.
The takeaway here is that Greif's strong ESG focus is core to our plans for sustainable value creation.
I look forward to sharing additional highlights with you in the future.
And now, back over to Pete to discuss our business results on Slide 5.
The global industrial packaging business delivered an outstanding fourth quarter result.
Our overall global primary product line was strong and benefited sales by almost 3% versus the prior year.
and EMEA and ongoing recovery in our industrial end markets.
Global steel drum volume fell by 1.5% per day versus the prior year.
The biggest shortfall was in APAC, reflective of our decision to implement strategic pricing actions and supply chain disruptions that negatively impacted our customers' operations.
Fourth quarter global steel drum volume was also impacted by performance in EMEA where volumes, where steady through most of the quarter but did slow in October as customers in this region faced their own set of supply chain disruptions.
The Americas region recorded strong mid-single-digit growth during the quarter.
Generally speaking, our industrial end markets remain healthy.
Customers report solid order backlogs and strong underlying demand, but they do face external supply chain disruptions.
Across GIP, we see little indication of customers building inventory, but some are carrying more stock than normal due to supply chain disruptions, impacting their ability to ship to their customers.
GIP's generally stronger volumes and higher average selling prices resulted in significantly higher segment sales and gross profit year over year.
GIP's fourth quarter adjusted EBITDA rose by roughly $47 million due to higher sales, partially offset by higher raw material, manufacturing, and transportation costs.
The business also benefited from a $3 million dollar FX tailwind.
Looking ahead, we expect GIP's fiscal 2022 profits to be lower year over year, while we do anticipate volume growth, contribution from new capex projects, and beneficial efficiency gains.
Profits will be lower as the unprecedented run-up in steel costs provided a roughly $100 million tailwind to GIP's fiscal 2021 results that will not recur.
We anticipate GIP's normal profit cadence through the year to persist.
Paper packaging's fourth quarter sales rose by roughly $120 million versus the prior year due to stronger volumes and higher published containerboard and boxboard prices.
Adjusted EBITDA rose by roughly $10 million versus the prior year due to higher sales that were substantially offset by higher raw material, manufacturing, and transportation costs, including a significant $50 million -- $51 million drag from higher OCC index cost and an $8 million natural gas cost spike not contemplated in our guidance.
The business benefited from a $4 million legal settlement tailwind reported in SG&A that will not recur.
Volume demand across our paper business remains strong that our combined mill backlogs exceed eight weeks.
Fourth quarter volumes in our CorrChoice sheet feeder system were up 2.4% today versus the prior year.
The demand for durables, e-commerce growth, and the OEMs auto supply chain all remained very solid, and we see no slowdown on the horizon.
Fourth quarter tube and core volumes were up 7% per day versus the prior year.
Demand was strong in most key end markets, including film, paper cores, textiles, and protective packaging.
Looking ahead into fiscal 2022, we expect significantly higher profits in paper packaging due to strong demand and continued flow through published price increases.
Big picture, our team delivered excellent fourth quarter results despite significant external challenges.
Fourth quarter net sales, excluding the impact of foreign exchange, rose 35% versus the prior year quarter due to stronger volumes and higher selling prices.
Adjusted EBITDA rose by 57 million, including a 7 million combined tailwind from FX and a one-time legal settlement.
Keep in mind our adjusted EBITDA result overcame an OCC index headwind of 51 million and roughly 40 million of non volume related transportation and manufacturing inflation, including an $8 million unforecasted natural gas cost spike.
Interest expense fell by 9 million versus the prior-year quarter due to lower debt balances.
We also benefited by reaching a lower interest rate tier in our credit facility as a result of our substantial debt repayments.
Our fourth quarter GAAP and non-GAAP tax rate were both roughly 11%.
Fourth quarter adjusted Class A earnings per share more than doubled to $1.93 a share.
For fiscal '21, we delivered adjusted Class A earnings per share of $5.60 a share, a 74% improvement versus the prior year and a significant beat relative to our Q3 guidance.
Part of the earnings improvement came from a lower-than-anticipated non-GAAP tax rate of 18.1%, which benefited from reserve releases due to audit settlements, and statute of limitation expirations.
We estimate the lower tax rate relative to the guidance we shared at $0.15 at -- to fiscal '21 results.
The lion's share of our year-over-year earnings improvement came from disciplined operational execution.
Fourth quarter adjusted free cash fell roughly $79 million versus the prior year.
While profits improved significantly, capex rose and working capital dragged on cash flow primarily due to higher raw material costs than we anticipated in our forecast.
Working capital was also negatively impacted by lower-than-anticipated October volumes outside the U.S. while customers struggled with external challenges and ordered fewer drums.
That said, our team is controlling what it can with strong results and trailing 12-month average working capital as a percentage of sales, improved by a significant 140 basis points to a -- year over year to 10.8%.
Our core capital priorities are clear and remain consistent: reinvest in the business as needed to create value and support growth, return excess cash to shareholders via an attractive and growing dividend, and de-lever our balance sheet and maintain a compliance leverage ratio between two to two-and-a-half turns.
Our balance sheet is in great shape.
We anticipate spending between 150 million and 170 million in capital expenditures in fiscal '22 and target growing our dividend in '22 as mentioned in previous calls.
We are in the midst of our strategic planning process to determine the focus and extent of growth activities going forward to prudently leverage our strong balance sheet for the benefit of our shareholders.
We are pleased to introduce fiscal '22 guidance, excuse me, that delivers on the commitments we made more than two years ago.
Our guidance reflects the considerable improvement we've made in the base business over the last several years, including the successful Caraustar integration and synergy capture, and demonstrates Greif's resilience in overcoming the unforeseen and considerable external challenges presented by COVID and dramatic inflationary headwinds well beyond our control.
At the midpoint, we anticipate generating $6.15 of adjusted Class A earnings per share in '22.
Overall, we expect lower profits in GIP in fiscal '22 to be more than offset by higher profitability and EPS, highlighting once again the benefit of our diversified portfolio.
Interest expense will be significantly lower in fiscal '22 as a result of our aggressive de-leveraging, and we expect it to evolve further when we move to refinance our 6.5% 27 senior notes sometime in the first half of calendar '22.
We anticipate '22 adjusted free cash flow between 400 million and 460 million.
In addition to increased capital expenditures, we anticipate significantly higher cash tax in fiscal '21, mainly due to additional pre-tax income.
We anticipate working capital revert to a cash source.
It was a $222 million use in '21 as raw material cost inflation accelerated.
Now, a few reflective comments for your consideration.
From my perspective, the Greif of today is a far different company than the Greif of six years ago.
Our margin profile has stabilized and grown, profits have increased significantly, and our transparency and communication has improved and been applauded.
Our capital allocation strategy has been steady, disciplined, and predictable.
We have delivered on what we promised, and we continue to derive even greater value for our shareholders.
Despite these improvements, we continue to trade at a discount to our historical metrics in the broader market.
As an example, assuming a historic free cash flow of 11% in the midpoint of our '22 free cash flow guidance would imply a combined market cap of roughly $3.9 billion, or an increase of roughly 30%.
So, while we don't get to vote when it comes to our valuation, our opinion is that we deserve a closer look, given the discount present in our stock today.
Now, I'm going to take a minute and go off-script.
As most of, if not all of you are aware, today is Pete Watson's last earnings call.
Pete embodies the leadership and has a personal connection with many of Greif's colleagues that developed through personal contact.
He is a humble and respected leader who leans on his athletic coaching background for the skills in building a cohesive team.
As he took leadership at Greif, many things were broken.
Since taking the helm in November of 2015, the results have been extraordinary.
In safety, steady improvement, in colleague engagement, we improved dramatically to be a top decile in gallops industrial sector.
Those engaged colleagues have delivered outstanding customer service and driven incredible improvement in doubling our NPS scores over that period.
That focus on virtuous service profit chain has lead to financial improvement that has been exceptional.
From 2015 to 2021, [Inaudible] and EBITDA have essentially doubled.
Adjusted EBITDA earnings per share has gone from $2.18 to $5.60 with no stock repurchases.
And adjusted free cash flow, which was $70 million in 2015 has averaged nearly $30 million in the last three years and will exceed $400 million in '22.
Pete has worked diligently to ensure this succession plan and left Greif in good leadership hands going forward to secure his legacy as an outstanding leader.
You certainly did go off-script and much appreciated.
And again Larry, I appreciate your comments and thoughts.
You are a good man.
As Larry talked about, today is my final earnings call as president and chief executive officer of Greif.
You know, it's a great company.
It's been my distinct honor to serve our global Greif team.
And I'm extremely proud, as Larry talked about, of what we've all accomplished together over the last six years.
I'm incredibly grateful to all our colleagues for their passion and dedication to excellence and also for their commitment to our team and our customers.
And while fiscal 2021 is a record year for our company, I'm even more excited for what lies ahead.
We are well-positioned to benefit from ongoing strength and improving trends at our key end markets and our extensive global portfolio, our differentiated service capability, and our sharp focus on operational execution allows us to best serve our customers' needs and generate significant shareholder value.
I, along with the rest of the board, are confident in Ole Rosgaard's ability to lead Greif going forward.
His operational background, strategic mindset, and passion for team building and serving customers will be advantageous to Greif's future.
I look forward to the company thriving under his leadership.
It has certainly been a pleasure working with all of you, and we certainly appreciate your interest in Greif.

user
q4 earnings per share $1.93 excluding items.
sees fy 2022 adjusted free cash flow $400 million - $460 million.

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