With the global economy slowing there is lower demand for certain kinds of products. One of those is industrial packaging.
Some companies come on to the scene in a fiery burst of glory and surge to new highs over the next few years as their niche in the industry expands. Once that niche expands too much other competitors begin to appear and the fight is on for market share. Those companies that did well in a low competition environment sometimes to not fare well once the giant corporations begin to crowd out the space. Chinese companies are very adept at recognizing an opportunity and then flooding the space with low cost goods. The original leaders begin to fade and while they may have their own niche for years to come their stock prices slowly dwindle away. This may be one of those companies.
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GEF - Greif Inc - Company Profile
Greif produces and sells industrial packaging products worldwide. With the global economic slowdown and decline in package shipping Greif shares have been sliding.
They reported earnings in December and revenue declined -17% because of lower volumes and the impact of the strong dollar. They also passed along some price decreases because of a decline in the cost of steel and other commodity materials used in their packaging.
They reported earnings of 76 cents compared to estimates for 49 cents but the majority of the gain was due to a reduction in expenses and a lower tax rate rather than an increase in sales. Revenues declined from $1.048 billion to $869 million and missed estimates for $897 million. Profits fell -19.7% year over year. Their cash on hand slipped to $106 million compared to debt of $1.23 billion.
Shares spiked on the earnings beat but then quickly declined from that $35 level to the close today at $25. That is an 11-year low.
With the global economy shrinking and China in decline the outlook for custom industrial packaging products is getting weaker. I expect we will see even lower lows ahead until the global economy begins to recover. Shares did not participate to the upside on the recent positive days in the market.
The volume on GEF is low at 250,000 shares. If that scares you then I would avoid this position. Option volumes are too low so this will be a stock only position.
Earnings are March 2nd.
Sell short GEF shares, currently $24.96, tight stop loss @ $26.25.
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