By Ken McEntee
Greif Inc. said it has permanently closed its uncoated recycled board (URB) mill in Mobile, Ala. as part of its commitment to optimize its URB mill network. The closure of Mobile’s No. 1 machine in October 2019 (about 65,000 tons), combined with the closure of the No. 2 machine (about 75,000 tons) removes about 140,000 tons of URB capacity from Greif’s network, Grief said.
The company will transfer existing customer business to other mills in its system. Greif’s URB backlogs near the end of May were reported as steady, at about four to five weeks.
Meanwhile, during an earnings call to discuss the company’s second quarter 2020 financial performance, CEO Pete Watson noted that after a $90 per ton run-up in the price of old corrugated containers (OCC) since January, he anticipated a $30 decline in this month with possible further declines following that.
Overall, Greif executives said, the company had net income of $11.4 million during the quarter, compared to net income of $13.6 million during the same period a year earlier. or $0.23 per diluted Class A share.
However, said Larry Hilsheimer, chief financial officer, “We currently believe our fiscal third quarter will be our weakest volume quarter. We can’t control how long this pandemic will last or determine what the ultimate impact will be to our global customers. That said, we have taken steps to prepare a portfolio for an economic downturn by identifying variable cost reduction actions, determining potential back office reductions or delays in hiring open positions and optimizing capital spending plans and working capital requirements. We believe our business today is significantly better positioned to weather a prolonged economic slowdown than it was in 2008.”
Watson said sales for the company’s Paper Packaging division fell by roughly $16 million in the second quarter versus the prior year quarter, primarily due to lower published containerboard and recycle prices.
“Volumes were also negatively impacted by 24,000 tons of containerboard economic downtime taken in the second quarter,” Watson said. “During the quarter, we announced a $50 per ton price increase for all grades of uncoated and coated recycled board effective with shipments beginning May 13 of 2020, which we’re continuing to implement. “Yesterday we announced the closure of our URB mill in Mobile, Alabama as part of our ongoing network cost optimization activities, and then further enhance our capital deployment efficiency. The total capacity of this mill was 140,000 tons, which includes a shutdown of our mills number one paper machine that was accomplished in October of 2019.”
Regarding end markets for the Paper Packaging division, Watson said Greif’s CorrChoice corrugated sheet feeder network consists of six state-of-the-art facilities east of the Mississippi River that service a mix of independent and integrated corrugated box plants. During the quarter, sales to integrated customers were softer as they internalized some of the volumes previously outsourced to Greif in their own networks. Sales to independent customers were negatively impacted by lower durable goods demand, as a result of the slowing economic activity and all the automobile manufacturing closures.
“Similar to our Rigid Industrial Packaging business, our Tube and Core business serves a diverse mix of end markets,” Watson said. “We estimate that roughly 40 percent of our top 10 Tube and Core customer markets were labeled as non-essential businesses during the health crisis in Q2, which dragged on our results.”
During the quarter, Greif made two acquisitions. One was the acquisition of a minority stake in Centurion Container. The other was the completion of the sale of its Consumer Packaging Group to Graphic Packaging for $85 million.
“We also consolidated two Rigid Industrial Packaging operations – one in Brazil and the other on the West Coast of the United States – as we examine ongoing our portfolio performance in that business,” Watson said.
Other notable comments from the earnings call included:
- Watson: “Our Coated Recycled Board volume continues to be very steady, particularly in our Tama, Iowa and Sweetwater, Georgia facilities. We did take 5,000 tons of economic downtime in containerboard on the West Coast only.”
- Watson: In the last eight days of May, Greif saw strong volume at CorrChoice. “I think that’s reflective of the durable manufacturing businesses, such as the automotive plants starting to reopen and fill up their supply chain needs.”
- Watson said the company is cautiously optimistic about the Paper Packaging business. “As the health crisis continues to recover, we can see improvement sequentially from May through the end of the third quarter in our paper business,” he said.
- Watson said Greif’s raw materials sourcing group sourced about $7 million in raw materials costs relative to index prices. “Most companies would not need a sourcing group if you’re going to be able to buy at index prices,” he said. “What you have them there for is to work the market and see if you can find opportunities in a dislocated market like we’re in. Currently those opportunities surface more often.”
- Hilsheimer said OCC prices should trend downward “if we don’t run into a spike,” because shut down businesses are starting to open. “We think the demand side is probably a little weaker, just particularly if you look at export.”