Greif, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Greif, Inc. Q1 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Matt Eichmann. Thank you. Please go ahead.

Thank you, Denise, and good morning, everyone. Welcome to Grice First Quarter Fiscal 2020 Earnings Conference Call. On the call today are Pete Watson, Grice President and Chief Executive Officer, and Larry Hilsheimer, Grice Chief Financial Officer. Pete and Larry are available to answer questions at the end of today's call. In accordance with regulation fair disclosure, we encourage you to ask questions regarding issues you consider material and because we are prohibited from discussing significant non-public items with you on an individual basis. Please limit yourself to one question and one follow-up question before returning to the queue. Please turn to slide two. As a reminder, during today's call, we will make forward-looking statements involving plans, expectations, and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures, and reconciliation to the most directly comparable GAAP metrics can be found in the appendix of today's presentation. And now, I turn the presentation over to Pete on slide three.

Thank you, Matt, and good morning, everyone. We continue to make strong progress across all of our strategic priorities. From a financial performance standpoint, our first quarter adjusted EBITDA and adjusted free cash flow both improved versus the prior year quarter. We also recorded our 11th consecutive quarter of customer satisfaction index score improvement and received recognition from several third-party organizations for our strong sustainability performance. Finally, we announced today that we agreed to sell our consumer packaging group business to Graphic Packaging for $85 million in cash. We continue to experience challenging industrial markets across our portfolio, and the overall demand environment remains soft. Conditions in several important regions and RIPs improved over the last several months, especially versus the prior year quarter, but it's premature to tell whether those trends are sustainable. Care Star performed better than internal expectations, and our global intermediate bulk container volumes are growing double digits in line with our strategy. I'd like to now review our performance by segment, and if you could please turn to slide four. The Ridge industrial packaging and services segment delivered a strong first quarter, benefiting from better demand in key markets, favorable raw material costs, and strong cost control. Our global IBC volumes grew by 23.5% versus the prior year quarter, partially due to our strategic investments that include the total acquisition, an IBC reconditioner in Europe, and new IBC projects delivering positive results in Houston, Texas, and Russia. Overall, global steel drum vines declined by 1.7% versus the prior year quarter. Steel drum demand in EMEA, which is our largest steel drum region, grew by nearly 3% as customers reported a more stable outlook and we achieved new customer growth. Steel drum volumes in the Middle East and North Africa also grew by roughly 7% thanks to solid chemical and lube demand, and by roughly 1% in Eastern Europe. Steel drum volume in the U.S. remained soft, especially in the trade-sensitive Gulf Coast, while volumes in Southeast Asia were negatively impacted by competition and by price margin decisions. China, on the same store, steel drum volumes were up low single digits versus the prior year quarter. RIP's first quarter sales were roughly $25 million lower versus the prior year quarter on a currency neutral basis due to lower volumes and lower average selling prices tied to contractual adjustments related to raw material price declines, partially offset by strategic pricing decisions. RIP's first quarter adjusted EBITDA rose by roughly $14 million versus the prior year quarter due to lower cost raw materials and aggressive back office cost reduction activities, partially offset by the impact of lower sales. Our Q1 2019 adjusted EBITDA was adversely impacted by a $1.5 million correction adjustment that was previously disclosed related to a divestiture. We continue to assume that RIP's steel drum volume would be roughly flat to fiscal 2019 with IBC volume growth in the low double digits. While pleased with the demand uptick we saw in EMEA, we expect economic growth in Europe to remain subdued overall and vary by country. I'd like you to please turn to slide five. The Flexible Products and Service segment experienced a challenging first quarter was negatively impacted by weak demand in Western Europe and by a delayed fertilizer season due to weather, which is not expected to be fully recovered. First quarter segment sales were roughly 16% lower than the prior year quarter and 15% lower on a currency neutral basis. Weak finds were the main driver to lower sales. First quarter adjusted EBITDA fell by roughly $4 million versus the prior year due to lower volumes, only partially offset by lower SG&A expense. We are reducing our variable cost structure in light of weaker volumes, executing on SG&A and other cost savings opportunities. And please keep in mind that FPS is a 50-50 joint venture, so the bottom line impact from soft end markets is small. Before transitioning to paper patching, I'd like to say a few words on the impact of the coronavirus. We have over 900 Greif colleagues in China working in both our rigid and flexible packaging segments. China accounts for roughly 3% of our overall annual and consolidated revenue, and all of our plants were operational as of February 17th. To our knowledge today, none of our colleagues have contracted the virus, and we have extensive precautions in place to safeguard their health and well-being. While we've incorporated a minor coronavirus drag into our guidance of 1.5 million, it is way too early to assess the ultimate impact the virus may have on global macroeconomic conditions and to our global customers. I'd ask that you turn to slide six, please. Paper packaging's first quarter sales grew by $256 million versus the prior year quarter due to Kerastar's contribution partially offset by lower published prices in our container board business. Biomes were negatively impacted primarily by 21,000 tons of container board economic downtime and by softer demand from integrated customers in our legacy business. Paper packaging's first quarter adjusted dividend rose by roughly 68% versus the prior year. Caristar outperformed our internal expectations during the quarter, which is a seasonal slower period for them. Looking ahead, we incorporated January's published $10-ton liner board and $15-ton medium declines, as well as February's $30-ton box board price decline into our guidance range. Finally, we agreed to sell our consumer packaging group business consisting of seven folding carton facilities to graphic packaging for $85 million. This sale excludes the three CRB mills acquired in the CareStar acquisition, in which we have multi-year supply agreements in place. Given our industrial focus, we are not the rightful owner of the consumer packaging group business. This divestiture helps us delever our balance sheet, optimize our capital allocation plans, and refocuses our business on our core industrial franchise and strategic growth priorities. We expect the divestiture to close by March 31st, and I'd like to thank our CPG colleagues for their contribution to Greif for the past 12 months. Their sincere commitment to safety and the customer service excellence will serve them well in the future. We wish them nothing but the best in the transition ahead. If you could please turn to slide seven. We own the CareStar business now for just over a year and continue to be very pleased. The business has enhanced our overall margins and anticipated synergies have been revised by more than 55% higher since the deal closing. Most importantly, we have a 99% colleague retention rate through a strong cultural fit and alignment, which is a large driver to the success of our integration. We continue to expect to achieve run rate synergies of at least $70 million by the end of fiscal 2022. And there is no material impact or synergy estimates from the Consumer Paction Group divestiture. I'd like to now turn over the presentation to our Chief Financial Officer, Larry Hilshimer.