Greif raises EBITDA guidance to $730M amid portfolio transformation and $1.75B divestitures

Earnings Call Insights: Greif, Inc. (GEF) Q3 2025

MANAGEMENT VIEW

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Ole G. Rosgaard, President, CEO & Director, opened by recognizing the contributions of Greif's 14,000 global employees and specifically highlighted the upcoming retirement of Gary Martz, Executive VP, General Counsel & Secretary, noting, "Gary is a cornerstone example of what makes Greif so special... For myself, Gary has been a constant source of servant leadership, reason, coaching and strategic vision." Dennis Hoffman, Deputy General Counsel, will assume Martz's role effective October 1.

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Rosgaard reported, "We continue to accelerate our portfolio transformation and cost optimization. The divestment of our containerboard business is planned to close at the end of the month and our planned timberland divestment set for October 1 for favorable tax planning purposes." He stated net cash proceeds from these transactions will be approximately $1.75 billion, expected to reduce the leverage ratio below 1.2x.

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He noted, "As of Q3, we have achieved $20 million in run rate savings towards our $15 million to $25 million fiscal 2025 commitments, about $15 million of which is SG&A and the remainder through network optimization, such as the Merced, California closure."

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Rosgaard explained that polymer volumes were up 2.2%, led by low double-digit growth in small containers, offset by mid-single-digit declines in IBCs and large drums. Durable metals volumes declined 5.8%, with continued softness in North America and EMEA. Sustainable fiber volumes declined 7.6%, while URB Mills operated above 90% capacity. Integrated Solutions volumes grew 2.6%.

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CFO Lawrence Allen Hilsheimer stated, "Adjusted EBITDA dollars increased $4 million, while EBITDA margins increased 70 basis points, driven by improved price/cost in our Fiber, Polymers and Integrated segments, which more than offset volume softness across the portfolio. Free cash flow rose by almost 400% to $171 million in the quarter."

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Hilsheimer also reported, "In Polymers, sales improved on volume, price and mix with growth concentrated in our target end markets. Gross profit dollars increased by over $10 million and gross margins increased 150 basis points as we continue to drive structural cost improvement."

OUTLOOK

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Hilsheimer announced, "Our revised 11-month guidance midpoint of $730 million of EBITDA is raised $5 million from the previous low end to current midpoint and revised free cash flow midpoint of $310 million is raised $30 million from our previous low end to current midpoint." He attributed these increases primarily to better SG&A from cost optimization gains.

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Management indicated that combined adjusted EBITDA guidance includes a contribution of $122 million in sales and $25 million of EBITDA in each August and September related to containerboard, in addition to the Q3 year-to-date contribution of $872 million of sales and $168 million of EBITDA from containerboard.

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The company stated, "We will consider that operating environment as we look to full year 2026 guidance next quarter."

FINANCIAL RESULTS

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Hilsheimer confirmed that Q3 financials are presented excluding the containerboard divestment, except for free cash flow, which compares total operations to prior year total operations.

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Hilsheimer reported, "Gross profit dollars were about flat [in Metals], but gross margin was up due to value over volume discipline." He noted that in Fiber, "gross profit dollars were up $8 million and gross margins were up 360 basis points due to better RISI published price/cost dynamics."

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Integrated Solutions, excluding the prior year impact of the Delta divestment, was about flat on both sales and gross profit with gross margin down 160 basis points due to product mix.

Q&A

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George Leon Staphos, Bank of America Securities, asked about the guidance raise and containerboard's impact, pricing trends, and polymer market trends. Hilsheimer responded, "No containerboard impact in raising that played through as we expected... The raise is primarily related to SG&A cost reductions taken relative to our optimization plan."

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Staphos also asked about normalized EBITDA for containerboard. Hilsheimer responded, "Trailing 12 through July... was $218 million. So it was $211 million when we cut the deal and $218 million. It's $25 million per month right now, but that's a highlight kind of number."

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Niccolo Andreas Piccini, Truist, inquired about cash generation post-divestitures and capital allocation. Hilsheimer said, "We don't really anticipate anything shifting. As we've said consistently, our objective is to be a 50% free cash flow generator relative to our performance."

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Piccini followed up on EBITDA guidance. Hilsheimer explained, "That range is really just dependent on volume of what happens in the month."

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Ghansham Panjabi, Baird, asked about capital allocation and strategic priorities for acquisitions. Rosgaard responded, "We started off with the end markets. That's where we start looking. How big are the end markets and which end markets are growing faster than GDP in general."

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Matthew Burke Roberts, Raymond James, asked about leverage and transformative deals. Hilsheimer replied, "We like to target in that 2 to 2.5x. But as we've shown previously, if we can find the right strategic fit... that allows us to pay down debt pretty rapidly."

SENTIMENT ANALYSIS

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Analysts' tone was mostly neutral, with a focus on clarifying guidance adjustments, post-divestiture cash flow, and M&A strategy. Questions were structured and sought details on portfolio changes and future capital deployment.

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Management maintained a confident and disciplined tone throughout, emphasizing execution, cost optimization, and strategic priorities. Rosgaard closed by stating, "We are creating our own path forward with execution discipline, a bias for action and a clear Build to Last strategy."

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Compared to the previous quarter, both analysts and management showed slightly more focus on divestitures, capital allocation, and the implications for future growth, while the confident tone from management remained consistent.

QUARTER-OVER-QUARTER COMPARISON

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The Q3 call saw a heightened emphasis on the $1.75 billion divestitures, portfolio realignment, and the resulting leverage improvements, compared to a prior quarter focus on operational optimization and incremental cost savings.

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Guidance language shifted from a low-end focus in Q2 ($725 million EBITDA) to a raised midpoint for Q3 ($730 million), with increased free cash flow guidance.

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Analysts shifted questions from near-term margin and cost drivers in Q2 to post-divestiture financial structure, capital allocation, and M&A pipeline in Q3.

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Key metric changes included a notable increase in free cash flow and progress toward cost reduction targets, with management reiterating confidence in achieving 2027 commitments.

RISKS AND CONCERNS

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Management highlighted ongoing macroeconomic uncertainty, noting, "Customer sentiment remains cautious and the macro economy as a whole is not robust."

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Persistent industrial softness in North America and EMEA, especially in metals and fiber, was noted as a drag on volume.

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Management addressed tariff exposure, stating impacts remain below $10 million and are not material, given local sourcing strategies.

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Analyst concerns centered on the durability of cost savings, potential volume recovery, and the capacity for strategic M&A at current leverage levels.

FINAL TAKEAWAY

Greif's leadership emphasized that the company is executing a significant portfolio transformation with the planned divestiture of its containerboard and timberland businesses, expected to bring in $1.75 billion and substantially reduce leverage. The company has raised EBITDA and free cash flow guidance for the year, citing progress on cost optimization and continued focus on resilient, high-growth markets. Management reaffirmed confidence in its "Build to Last" strategy, stating that these actions are positioning Greif for accelerated growth and margin expansion as demand returns, while maintaining a strong capital position to pursue organic growth and targeted acquisitions.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/gef/earnings/transcripts]

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