Greif Class A Earnings Call: Profits Up, Demand Soft

Greif Class A ((GEF)) has held its Q1 earnings call. Read on for the main highlights of the call.

Greif Class A Leans on Cost Cuts and Cash Returns to Counter Soft Demand

Greif Class A’s latest earnings call struck a cautiously confident tone, as management showcased substantial profit and margin gains despite ongoing weakness in end markets. The company delivered a 24% jump in adjusted EBITDA, a 260-basis-point margin expansion to 12.3%, and roughly 140% EPS growth, all while volumes fell mid-single digits and industrial demand remained subdued. Executives emphasized disciplined cost restructuring, balance sheet strength, and aggressive capital returns as key levers offsetting muted volumes, reinforcing their confidence in meeting full-year financial targets.

Strong EBITDA Growth and Margin Expansion

Greif’s profitability improvement was the clear headline. Adjusted EBITDA rose 24% year-over-year in the quarter, with the adjusted EBITDA margin climbing 260 basis points to 12.3%. Management attributed this to favorable price/cost dynamics and structural cost optimization, rather than top-line growth. With overall sales roughly flat and volumes down, the results show that the company is extracting more profit from each dollar of revenue, a critical signal for investors in a sluggish industrial environment.

Earnings Per Share Rebounds Sharply

Earnings per share surged by approximately 140% compared with the prior year, powered by higher EBITDA and lower interest expense. While subdued volumes would typically pressure earnings, Greif’s lower financing costs and operating improvements more than offset that drag. This EPS recovery underscores the earnings leverage embedded in the business as cost actions take hold and financing costs remain contained.

Reaffirmed 2026 Financial Guidance

Management reaffirmed its full-year 2026 financial guidance, signaling confidence in the company’s trajectory. Greif continues to target $630 million in adjusted EBITDA and $315 million in adjusted free cash flow, implying an adjusted free cash flow conversion rate of roughly 50%. The reaffirmation, despite persistent demand softness, suggests the company believes its cost programs, pricing discipline, and capital allocation strategy can bridge the gap left by weaker volumes.

Share Repurchases and Capital Returns Accelerate

Capital return was a major focus. Greif has already completed $130 million of a previously announced $150 million share repurchase program in the first quarter, and its Board has now approved a new $300 million authorization. The company aims to repurchase up to roughly 2% of its shares outstanding annually. Combined with its consistent dividend, this buyback program highlights management’s intent to return excess cash to shareholders while its balance sheet remains strong.

Leverage Hits Historically Low Levels

Greif’s net leverage has fallen to about 1.2x, described by management as historically low for the company. This lean balance sheet gives the firm significant financial flexibility to continue share repurchases, maintain dividends, and invest selectively in organic growth. Management also indicated they expect leverage to remain well below 2x, providing a cushion against macro uncertainty and room for targeted growth investments if attractive opportunities emerge.

Cost Optimization Drives Structural Margin Gains

The backbone of Greif’s margin expansion is its structural cost optimization program. The company has already reached a $65 million run-rate in cost savings early in fiscal 2026, with a year-end run-rate target between $80 million and $90 million. These savings stem from broad efficiency initiatives and overhead reductions, and they are materially contributing to the company’s margin improvement. Management framed these cuts as structural rather than temporary, suggesting the benefits should endure even when volumes recover.

Improved Free Cash Flow and Flexible Capital Deployment

Despite typical seasonal weakness in the first quarter, Greif highlighted better underlying cash generation from its continuing operations once prior-year divestiture-related cash is excluded. At the same time, the company has materially reduced maintenance capital expenditures, freeing capacity to fund growth CapEx in higher-return end markets. This shift supports a more focused capital deployment strategy, balancing reinvestment in attractive niches with strong cash returns to shareholders and debt discipline.

Product and Technology Wins Support Price/Mix

Top-line growth is not yet volume-driven, but Greif is finding pockets of strength in pricing and innovation. Total sales were roughly flat year-over-year, largely due to favorable price/mix. A notable example is the company’s SIOC proprietary barrier technology, where the first machine is already operational in France and three more are in production. Initial orders are in place, and management expects ramp-up over time. These technology wins are intended to position Greif in higher-value applications and support pricing power even in slow demand environments.

Muted Demand and Volume Weakness Persist

Behind the strong profit metrics, the demand picture remains soft. Overall volumes in the quarter were down mid-single digits, roughly around 5%, reflecting a still-sluggish industrial economy across several end markets. Management did not describe any broad-based inflection in demand, instead characterizing conditions as persistently muted. This dynamic emphasizes that the current earnings strength is being driven more by internal actions than by cyclical tailwinds.

Segment-Level Volume Declines Across Key Businesses

Volume trends varied by segment, but most pointed downward. In Customized Polymer Solutions, intermediate bulk container (IBC) volumes were up low single digits, but smaller containers fell low single digits and large containers declined mid-single digits. Innovative Closure Solutions volumes were under more pressure, dropping in the high single digits. Sustainable Fiber converting volumes also fell mid-single digits. These patterns highlight that end-market demand remains choppy and uneven, with particular weakness in some higher-value packaging categories.

Durable Metal Solutions Under Sustained Pressure

Greif’s Durable Metal Solutions business continues to struggle across regions, particularly with chemical customers. Management acknowledged that this segment is facing persistent pressure and is unlikely to see a near-term rebound from market conditions alone. As a result, the company is leaning heavily on cost discipline and cash generation in this business, focusing on operational efficiency and capital restraint rather than aggressive growth spending.

Q1 Free Cash Flow Hit by Prior-Year Divestiture Comparison

Adjusted free cash flow in the first quarter declined year-over-year, but management stressed that the comparison was distorted by the inclusion of cash from divested businesses in the prior-year period. Excluding that divestiture-related cash, underlying free cash flow from Greif’s continuing operations actually improved. The message for investors is that the apparent step back in free cash flow is largely optical and tied to portfolio changes rather than deteriorating cash generation.

Polymer Margin Compression from Mix and Cost Headwinds

Not all profitability trends were positive. In the polymer business, gross profit margins slipped slightly compared with last year, driven by unfavorable product mix—specifically the loss of higher-margin small and large plastics—and higher manufacturing costs. The impact on EBITDA was even more pronounced than the gross margin change would suggest because of overhead allocations. These pressures show the limits of pricing power in certain polymer categories and underscore why product mix and cost control remain critical in this segment.

Fiber Supply Challenges and Timing of Price/Cost Benefits

In the fiber business, Greif faced both demand and timing headwinds. The company’s URB mills recorded around 14,000 tons of economic downtime in the quarter due to softness in converting operations. While management expects favorable fiber price/cost annualization benefits, they emphasized that these advantages are back-end loaded, mostly arriving in the second half of the fiscal year. Until then, the business must navigate weaker converting demand and under-absorption effects, creating short-term pressure on margins and utilization.

End-Market Weakness in Housing and Chemicals

Key end markets such as housing-related products and chemicals remain subdued, and management reported no meaningful pickup so far. They noted that this muted environment has persisted for roughly three years, with limited evidence of an imminent cyclical recovery. This backdrop weighs on volumes in several of Greif’s businesses, particularly chemicals-linked segments and packaging tied to construction and housing, reinforcing the need for the company’s ongoing cost and portfolio actions.

Workforce and SG&A Reductions Bolster Structural Efficiency

As part of its structural optimization efforts, Greif has implemented significant reductions in SG&A and professional headcount. Management cited roughly 220 professional roles eliminated, representing about a 10% reduction on that side of the workforce. These moves aim to permanently lower the company’s overhead base, helping protect margins in a low-growth environment and positioning the business for higher incremental profitability when volumes eventually recover.

Guidance and Outlook: Confidence Backed by Discipline

Looking ahead, Greif reaffirmed its fiscal 2026 guidance of $630 million in adjusted EBITDA and $315 million in adjusted free cash flow, with an expected adjusted free cash flow conversion of about 50%. Management anticipates full-year volumes to be roughly flat, a step up from the mid-single-digit decline seen in the first quarter, with stronger price/mix and cost benefits offsetting demand softness. The company expects lower maintenance CapEx while still funding targeted growth projects and plans to keep leverage well below 2x, preserving capacity for ongoing buybacks after completing $130 million of repurchases and authorizing a further $300 million. Taken together, the guidance suggests Greif is banking on structural cost savings, disciplined investment, and balance sheet strength to navigate a sluggish macro backdrop.

In sum, Greif Class A’s earnings call painted a picture of a company using internal levers—cost cuts, efficiency gains, and capital returns—to overcome external headwinds from weak industrial demand. While volumes remain under pressure across several segments and end markets show few signs of an imminent rebound, the firm’s margin expansion, EPS recovery, lean balance sheet, and assertive share repurchase strategy underpinned a cautiously optimistic outlook. For investors, the story hinges less on a near-term demand recovery and more on the company’s ability to sustain these structural improvements and deliver on its reaffirmed 2026 financial targets.