GREIF INC

Previous wording

The discussion and analysis presented below relates to the material changes in financial condition and results of operations for the interim condensed consolidated balance sheet as of January 31, 2024 and the condensed consolidated balance sheet as of October 31, 2023, and for the interim condensed consolidated statements of income for the three months ended January 31, 2024 and 2023. This discussion and analysis should be read in conjunction with the interim condensed consolidated financial statements that appear elsewhere in this Form 10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023 (the “2023 Form 10-K”). Readers are encouraged to review the entire 2023 Form 10-K, as it includes information regarding Greif not discussed in this Form 10-Q. This information will assist in your understanding of the discussion of our current period financial results.

Current wording

The discussion and analysis presented below relates to the material changes in financial condition and results of operations for the interim condensed consolidated balance sheet as of April 30, 2024 and the condensed consolidated balance sheet as of October 31, 2023, and for the interim condensed consolidated statements of income for the three and six months ended April 30, 2024 and 2023. This discussion and analysis should be read in conjunction with the interim condensed consolidated financial statements that appear elsewhere in this Form 10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023 (the “2023 Form 10-K”). Readers are encouraged to review the entire 2023 Form 10-K, as it includes information regarding Greif not discussed in this Form 10-Q. This information will assist in your understanding of the discussion of our current period financial results.

Previous wording

The following comparative information is presented for the three months ended January 31, 2024 and 2023. Historical revenues and earnings may or may not be representative of future operating results as a result of various economic and other factors.

Current wording

The following comparative information is presented for the three and six months ended April 30, 2024 and 2023. Historical revenues and earnings may or may not be representative of future operating results as a result of various economic and other factors.

Previous wording

Gross profit was $221.6 million for the first quarter of 2024 compared with $251.6 million for the first quarter of 2023. The $30.0 million decrease was primarily due to the same factors that impacted net sales, partially offset by lower raw material, transportation, and manufacturing costs. See the “Segment Review” below for additional information on gross profit by segment. Gross profit margin was 18.4 percent and 19.8 percent for the first quarter of 2024 and 2023, respectively.

Current wording

Gross profit was $270.1 million for the second quarter of 2024 compared with $311.8 million for the second quarter of 2023. The $41.7 million decrease was primarily due to higher raw material, transportation and manufacturing costs, partially offset by the same factors that impacted net sales. See the “Segment Review” below for additional information on gross profit by segment. Gross profit margin was 19.7 percent and 23.8 percent for the second quarter of 2024 and 2023, respectively.

Previous wording

Selling, general and administrative (“SG&A”) expenses were $145.8 million for the first quarter of 2024 compared with $139.4 million for the first quarter of 2023. The $6.4 million increase was primarily due to higher compensation expenses and amortization expenses due to recent acquisitions. SG&A expenses were 12.1 percent and 11.0 percent of net sales for the first quarter of 2024 and 2023, respectively.

Current wording

Selling, general and administrative (“SG&A”) expenses were $167.2 million for the second quarter of 2024 compared with $137.2 million for the second quarter of 2023. The $30.0 million increase was primarily related to higher compensation expenses, costs incurred for strategic investments and amortization expenses due to recent acquisitions. SG&A expenses were 12.2 percent and 10.5 percent of net sales for the second quarter of 2024 and 2023, respectively.

Previous wording

Operating profit was $68.9 million for the first quarter of 2024 compared with $156.4 million for the first quarter of 2023. Net income was $74.3 million for the first quarter of 2024 compared with $93.1 million for the first quarter of 2023. Adjusted EBITDA was $128.0 million for the first quarter of 2024 compared with $164.5 million for the first quarter of 2023. The reasons for the changes in operating profit, net income, and Adjusted EBITDA for each segment are described below in the “Segment Review.”

Current wording

Operating profit was $98.1 million for the second quarter of 2024 compared with $181.1 million for the second quarter of 2023. Net income was $52.0 million for the second quarter of 2024 compared with $116.0 million for the second quarter of 2023. Adjusted EBITDA was $169.9 million for the second quarter of 2024 compared with $228.6 million for the second quarter of 2023. The reasons for the changes in operating profit, net income, and Adjusted EBITDA for each segment are described below in the “Segment Review.”

Previous wording

Although we have seen some sequential improvement in certain regions and businesses, there has not been an overall inflection point in customer demand patterns. We expect the prices for old corrugated containers, which increased during our first quarter, to continue to increase slightly during the rest of the year. We also anticipate prices for steel, which also increased during our first quarter, to decrease slightly overall and prices for resin and other direct materials, as well as prices for transportation, labor and utilities, to remain relatively stable through the rest of the year.

Current wording

We anticipate prices for steel and resin to be relatively stable through the rest of the year, subject to potential slight increases in certain geographies. Prices for old corrugated containers[which just increased $___ per ton as of June 5, 2024], transportation, labor and utilities are also expected to remain relatively stable through the rest of the year.

Previous wording

Our quarterly income tax expense was computed in accordance with Accounting Standards Codification (“ASC”) 740-270 "Income Taxes - Interim Reporting." In accordance with this accounting standard, annual estimated tax expense is computed based on forecasted annual earnings and other forecasted annual amounts, including, but not limited to items such as uncertain tax positions and withholding taxes. Additionally, losses from jurisdictions for which a valuation allowance has been provided have not been included in the annual estimated tax rate. Income tax expense each quarter is provided for on a current year-to-date basis using the annual estimated tax rate, adjusted for discrete taxable events that occur during the interim period.

Current wording

Our quarterly income tax expense was computed in accordance with Accounting Standards Codification (“ASC”) 740-270 "Income Taxes - Interim Reporting." In accordance with this accounting standard, annual estimated income tax expense is computed based on forecasted annual earnings and other forecasted annual amounts, including, but not limited to items such as uncertain tax positions and withholding taxes. Additionally, losses from jurisdictions for which a valuation allowance has been provided have not been included in the annual estimated tax rate. Income tax expense each quarter is provided for on a current year-to-date basis using the annual estimated tax rate, adjusted for discrete taxable events that occur during the interim period.

Previous wording

•An $9.0 million benefit due to changes in the expected mix of earnings among tax jurisdictions, including jurisdictions for which valuation allowances have been recorded, as well as the timing of recognition of the related tax expense under ASC740-270.

Current wording

•A $14.7 million benefit due to changes in the mix of earnings among tax jurisdictions, including jurisdictions for which valuation allowances have been recorded, as well as the timing of recognition of the related income tax expense under ASC740-270.

Previous wording

The Organization for Economic Co-operation and Development proposed a global minimum tax of 15% of reported profits (“Pillar 2”) that has been agreed upon in principle by over 140 countries. During 2023, many countries began to incorporate Pillar 2 model rule concepts into their domestic laws. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar 2 slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar 2. Accordingly, we still are evaluating the potential impacts of Pillar 2 on our longer-term business, financial position and results of operations.

Current wording

The Organization for Economic Co-operation and Development proposed a global minimum tax of 15% of reported profits (“Pillar 2”) that has been agreed upon in principle by over 140 countries. During 2023, many countries began to incorporate Pillar 2 model rule concepts into their domestic laws. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar 2 slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar 2. Accordingly, we still are evaluating the potential impacts of Pillar 2 on our longer-term business, financial position and results of operations. Pillar 2 will be effective for the Company as of the first quarter of its fiscal year beginning November 1, 2024.

Previous wording

Net sales were $1,205.8 million for the first quarter of 2024 compared with $1,271.0 million for the first quarter of 2023. The $65.2 million decrease was primarily due to lower average selling prices and lower volumes across the Global Industrial Packaging segment and the Paper Packaging & Services segment, partially offset by the full-quarter contribution from recent acquisitions. See the “Segment Review” below for additional information on net sales by segment.

Current wording

Net sales were $2,576.8 million for the first six months of 2024 compared with $2,579.9 million for the first six months of 2023. The $3.1 million decrease was primarily due to lower average selling prices and lower volumes across the Paper Packaging & Services segment and lower volumes across the Global Industrial Packaging segment, partially offset by higher average selling prices across the Global Industrial Packaging segment and the contribution from recent acquisitions. See the “Segment Review” below for additional information on net sales by segment.

Previous wording

Operating profit was $16.8 million for the first quarter of 2024 compared with $109.1 million for the first quarter of 2023. The $92.3 million decrease was primarily due to the same factors that impacted gross profit and the $54.6 million gain from divestiture of Tama Paperboard, LLC (the “Tama Divestiture”) during the first quarter of 2023. Adjusted EBITDA was $55.5 million for the first quarter of 2024 compared with $90.7 million for the first quarter of 2023. The $35.2 million decrease in Adjusted EBITDA was primarily due to the same factors that impacted gross profit.

Current wording

Operating profit was $29.4 million for the first six months of 2024 compared with $176.7 million for the first six months of 2023. The $147.3 million decrease in operating profit was primarily due to the same factors that impacted gross profit, a $54.6 million gain from divestiture of Tama Paperboard, LLC (the “Tama Divestiture”) during the first quarter of 2023 and higher SG&A expenses related to higher compensation expenses, costs incurred for strategic investments and amortization expenses from recent acquisitions. Adjusted EBITDA was $104.5 million for the first six months of 2024 compared with $195.6 million for the first six months of 2023. The $91.1 million decrease in Adjusted EBITDA was primarily due to the same factors that impacted gross profit and higher SG&A expenses related to higher compensation expenses, costs incurred for strategic investments and amortization expenses from recent acquisitions.

Previous wording

Income tax benefit for the first quarter of 2024 was $38.2 million on $35.6 million of pretax income, and income tax expense for the first quarter of 2023 was $37.7 million on $130.3 million of pretax income. The change from an income tax expense to an income tax benefit was primarily attributable to the following:

Current wording

Income tax benefit for the first six months of 2024 was $(21.2) million on $103.9 million of pretax income, and income tax expense for the first six months of 2023 was $76.8 million on $285.1 million of pretax income. The $98.0 million net decrease in income tax expense was primarily attributable to the following:

Previous wording

Our primary sources of liquidity are operating cash flows and borrowings under our senior secured credit facilities and proceeds from our trade accounts receivable credit facilities. We use these sources to fund our working capital needs, capital expenditures, cash dividends, debt repayment, and acquisitions. We anticipate continuing to fund these items in a like manner.

Current wording

Our primary sources of liquidity are operating cash flows and borrowings under our senior secured credit facilities and proceeds from our trade accounts receivable credit facilities. We use these sources to fund our working capital needs, capital expenditures, cash dividends, debt repayment, and acquisitions. We anticipate continuing to fund these items in a like manner. We currently expect that operating cash flows, borrowings under our senior secured credit facilities, and proceeds from our trade accounts receivable credit facilities will be sufficient to fund our anticipated working capital, capital expenditures, cash dividends, debt repayment, potential acquisitions of businesses, and other liquidity needs for at least 12 months.

Previous wording

During the first three months of 2024 and 2023, we invested $55.6 million and $49.3 million, respectively, of cash in capital expenditures. During the first three months of 2023, we paid $301.9 million for purchases of business, net of cash acquired, primarily for the Lee Container Acquisition. During the first three months of 2023, we received $105.6 million of cash from sale of businesses, primarily from the Tama Divestiture.

Current wording

During the first six months of 2024, we paid $567.6 million for the purchases of business, net of cash acquired, primarily for the Ipackchem Acquisition. During the first six months of 2023, we paid $447.5 million for purchases of businesses, net of cash acquired, primarily for the Lee Container Acquisition and the Centurion Acquisition.

Previous wording

During the first three months of 2024 and 2023, we paid cash dividends to our stockholders in the amount of $29.7 million and $28.9 million, respectively. During the first three months of 2024 and 2023, we borrowed $109.9 million and $298.0 million of long-term debt, net of payments, respectively. During the first three months of 2023, we paid $17.8 million to repurchase Class B Common Stock through open market purchases.

Current wording

During the first six months of 2024 and 2023, we paid cash dividends to our stockholders in the amount of $59.7 million and $57.9 million, respectively. During the first six months of 2024 and 2023, we borrowed $669.0 million and $332.5 million of long-term debt, net of payments, respectively. During the first six months of 2023, we paid $59.6 million to repurchase Class A Common Stock through an accelerated share repurchase agreement and to repurchase Class A and Class B Common Stock through open market purchases.

Previous wording

The 2022 Credit Agreement provides for (a) an $800.0 million secured revolving credit facility, consisting of a $725.0 million multicurrency facility and a $75.0 million U.S. dollar facility, maturing on March 1, 2027, (b) a $1,100.0 million secured term loan A-1 facility with quarterly principal installments that commenced on July 31, 2022 and continue through January 31, 2027, with any outstanding principal balance of such term loan A-1 facility being due and payable on maturity on March 1, 2027, and (c) a $515.0 million secured term loan A-2 facility with quarterly principal installments that commenced on July 31, 2022 and continue through January 31, 2027, with any outstanding principal balance of such term loan A-2 being due and payable on maturity on March 1, 2027.

Current wording

The 2022 Credit Agreement provides for (a) an $800.0 million secured revolving credit facility, consisting of a $725.0 million multicurrency facility and a $75.0 million U.S. dollar facility, maturing on March 1, 2027, (b) a $1,100.0 million secured term loan A-1 facility with quarterly principal installments that commenced on July 31, 2022 and continue through January 31, 2027, with any outstanding principal balance of such term loan A-1 facility being due and payable on maturity on March 1, 2027, (c) a $515.0 million secured term loan A-2 facility with quarterly principal installments that commenced on July 31, 2022 and continue through January 31, 2027, with any outstanding principal balance of such term loan A-2 being due and payable on maturity on March 1, 2027, and (d) as further described below, a $300.0 million incremental secured term loan A-4 facility with quarterly principal installments that commenced on April 30, 2024 and continue through January 31, 2027, with any outstanding principal balance of such term loan A-4 being due and payable on maturity on March 1, 2027. Subject to the terms of the 2022 Credit Agreement, the Company has an option to borrow additional funds under the 2022 Credit Agreement with the agreement of the lenders.

Previous wording

Interest is based on Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment or a base rate that resets periodically plus, in each case, a calculated margin amount that is based on our leverage ratio. Subject to the terms of the 2022 Credit Agreement, we have an option to add borrowings to the 2022 Credit Agreement with the agreement of the lenders. As of January 31, 2024, we had $591.1 million of available borrowing capacity under the $800.0 million secured revolving credit facility.

Current wording

Interest is based on Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment or a base rate that resets periodically plus, in each case, a calculated margin amount that is based on our leverage ratio. Subject to the terms of the 2022 Credit Agreement, we have an option to add borrowings to the 2022 Credit Agreement with the agreement of the lenders. As of April 30, 2024, we had $307.8 million of available borrowing capacity under the $800.0 million secured revolving credit facility.

Previous wording

The 2022 Credit Agreement contains certain covenants, which include financial covenants that require us to maintain a certain leverage ratio and an interest coverage ratio. The leverage ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of (a) our total consolidated indebtedness (less the aggregate amount of our unrestricted cash and cash equivalents), to (b) our consolidated net income plus depreciation, depletion and amortization, interest expense (including capitalized interest), income taxes, and minus certain extraordinary gains and non-recurring gains (or plus certain extraordinary losses and non-recurring losses), and plus or minus certain other items for the preceding twelve months (as used in this paragraph only “EBITDA”) to be greater than 4.00 to 1.00; provided that such leverage ratio is subject to (i) a covenant step-up (as defined in the 2022 Credit Agreement) increase adjustment of 0.50 upon the consummation of, and the following three fiscal quarters after, certain specified acquisitions, and (ii) a collateral release decrease adjustment of 0.25x during any collateral release period (as defined in the 2022 Credit Agreement). The interest coverage ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of (a) our consolidated EBITDA, to (b) our consolidated interest expense to the extent paid or payable, to be less than 3.00 to 1.00, during the applicable preceding twelve-month period. As of January 31, 2024, we were in compliance with the covenants and other agreements in the 2022 Credit Agreement.

Current wording

The 2022 Credit Agreement contains certain covenants, which include financial covenants that require us to maintain a certain leverage ratio and an interest coverage ratio. The leverage ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of (a) our total consolidated indebtedness (less the aggregate amount of our unrestricted cash and cash equivalents), to (b) our consolidated net income plus depreciation, depletion and amortization, interest expense (including capitalized interest), income taxes, and minus certain extraordinary gains and non-recurring gains (or plus certain extraordinary losses and non-recurring losses), and plus or minus certain other items for the preceding twelve months (as used in this paragraph only “EBITDA”) to be greater than 4.50 to 1.00 through the quarter ending January 31, 2025, and thereafter 4.00 to 1.00; provided that such leverage ratio is subject to (i) a covenant step-up (as defined in the 2022 Credit Agreement) increase adjustment of 0.50 upon the consummation of, and the following three fiscal quarters after, certain specified acquisitions and (ii) a collateral release decrease adjustment of 0.25x during any collateral release period (as defined in the 2022 Credit Agreement). The interest coverage ratio generally requires that at the end of any fiscal quarter we will not permit the ratio of (a) our consolidated EBITDA, to (b) our consolidated interest expense to the extent paid or payable, to be less than 3.00 to 1.00, during the applicable preceding twelve-month period. As of April 30, 2024, we were in compliance with the covenants and other agreements in the 2022 Credit Agreement.

Previous wording

We have a $300.0 million U.S. Receivables Financing Facility Agreement (the “U.S. RFA”). On May 17, 2023, the maturity date of the U.S. RFA was extended to May 17, 2024. As of January 31, 2024, there was $230.8 million ($270.9 million as of October 31, 2023) outstanding balance under the U.S. RFA. The U.S. RFA also contains events of default and covenants, which are substantially the same as the covenants under the 2022 Credit Agreement. As of January 31, 2024, we were in compliance with these covenants. Proceeds of the U.S. RFA are available for working capital and general corporate purposes.

Current wording

We have a $300.0 million U.S. Receivables Financing Facility Agreement (the “U.S. RFA”). On May 17, 2024, the maturity date of the U.S. RFA was extended to May 16, 2025. As of April 30, 2024, there was a $259.3 million ($270.9 million as of October 31, 2023) outstanding balance under the U.S. RFA. The U.S. RFA also contains events of default and covenants that are substantially the same as the covenants under the 2022 Credit Agreement. As of April 30, 2024, we were in compliance with these covenants. Proceeds of the U.S. RFA are available for working capital and general corporate purposes.

Previous wording

We have a €100.0 million ($108.3 million as of January 31, 2024) European Receivables Financing Agreement (the “European RFA”), which matures on April 23, 2024. As of January 31, 2024, $73.8 million ($80.1 million as of October 31, 2023) was outstanding on the European RFA. As of January 31, 2024, we were in compliance with covenants contained in the European RFA. Proceeds of the European RFA are available for working capital and general corporate purposes.

Current wording

We have a €100.0 million ($106.9 million as of April 30, 2024) European Receivables Financing Agreement (the “European RFA”). On April 19, 2024, the maturity date of the European RFA was extended to April 22, 2025. As of April 30, 2024, $87.5 million ($80.1 million as of October 31, 2023) was outstanding on the European RFA. As of April 30, 2024, we were in compliance with covenants contained in the European RFA. Proceeds of the European RFA are available for working capital and general corporate purposes.

Previous wording

As of January 31, 2024, we have various interest rate swaps with a total notional amount of $1,600.0 million, amortizing down over the term, in which we receive variable interest rate payments based on SOFR and in return are obligated to pay interest at a weighted average fixed interest rate of 2.9%, plus a spread. These derivatives are designated as cash flow hedges for accounting purposes and will mature between March 11, 2024 and July 16, 2029.

Current wording

As of April 30, 2024, we have various interest rate swaps with a total notional amount of $1,400.0 million ($1,300.0 million as of October 31, 2023), amortizing down over the term, in which we receive variable interest rate payments based on SOFR and in return are obligated to pay interest at a weighted average fixed interest rate of 2.97%, plus a spread. These derivatives are designated as cash flow hedges for accounting purposes and will mature between March 1, 2027 and July 16, 2029.

Previous wording

As of January 31, 2024, and October 31, 2023, we had outstanding foreign currency forward contracts in the notional amount of $465.5 million, and $66.0 million, respectively.

Current wording

As of April 30, 2024, and October 31, 2023, we had outstanding foreign currency forward contracts in the notional amount of $101.0 million, and $66.0 million, respectively.

Previous wording

We have operations and investments in various international locations and are subject to risks associated with changing foreign exchange rates. We have cross currency interest rate swaps that synthetically swap $532.5 million of U.S. fixed rate debt to Euro denominated fixed rate debt. We receive a weighted average rate of 1.36%. These agreements are designated either net investment hedges or cash flow hedges for accounting purposes and will mature between March 2, 2024 and November 3, 2028.

Current wording

We have operations and investments in various international locations and are subject to risks associated with changing foreign exchange rates. We have cross currency interest rate swaps that synthetically swap $447.6 million ($319.3 million as of October 31, 2023) of U.S. fixed rate debt to Euro denominated fixed rate debt. We receive a weighted average rate of 1.27%. These agreements are designated either net investment hedges or cash flow hedges for accounting purposes and will mature between August 10, 2026 and November 3, 2028.