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DELAWARE, Ohio--June 8,2017--Greif, Inc. (NYSE: GEF, GEF.B), a world leader in industrial packaging products and services, announced second quarter 2017 results.Net sales increased by $47.8 million to $887.4 million from $839.6 million.
Gross profit increased by $8.2 million to $181.9 million from $173.7 million.
Operating profit decreased by $2.4 million to $80.4 million and operating profit before special items1 increased by $5.6 million to $84.9 million.
Net income of $36.0 million or $0.61 per diluted Class A share compared to net income of $31.4 million or $0.53 per diluted Class A share.
Net income, excluding the impact of special items, of $39.3 million or $0.67 per diluted Class A share compared to net income, excluding the impact of special items, of $27.8 million or $0.47 per diluted Class A share.
Interest expense decreased by $5.6 million to $14.3 million from $19.9 million due primarily to the repayment of Senior Notes with borrowings under the Company's Credit Agreement.
Cash provided by operating activities decreased by $24.3 million to $59.6 million from $83.9 million due partially to raw material price increases and to accelerated inventory purchases made in advance of those increases.
Free cash flow2 decreased by $27.7 million, due to the same factors impacting cash provided by operating activities, and a $3.4 million increase in cash paid for properties, plants, and equipment.
Narrowed the range for fiscal year 2017 Class A earnings per share before special items guidance3 to $2.84 - $3.02. Narrowed fiscal year 2017 free cash flow guidance to $180.0 million to $200.0 million as a result of capital expansion projects recently approved due to confidence in cash flow.

“We generated strong financial results this quarter through improved customer service and disciplined commercial and operation execution,” said Greif’s President and Chief Executive Officer, Pete Watson. “Greif’s operating profit before special items and our Class A earnings per share before special items both significantly improved compared to the prior year quarter. Greif’s improved financial and operational stability underpins our strategy to generate greater value for our customers and shareholders.”

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1 A summary of all special items that are excluded from net income before special items, from earnings per diluted Class A share before special items and from operating profit before special items is set forth in the Selected Financial Highlights table following the Dividend Summary in this release.
2 Free cash flow is defined as net cash provided by operating activities less cash paid for purchases of properties, plants and equipment.
3 2017 GAAP Class A Earnings Per Share guidance is not provided in this release due to the potential for one or more of the following, the timing and magnitude of which we are unable to reliably forecast: gains or losses on the disposal of businesses, timberland or properties, plants and equipment, net, non-cash asset impairment charges due to unanticipated changes in the business, restructuring-related activities, non-cash pension settlements or acquisition costs, and the income tax effects of these items and other income tax-related events. No reconciliation of the fiscal year 2017 Class A earnings per share before special items guidance, a non-GAAP financial measure which excludes gains and losses on the disposal of businesses, timberland and property, plant and equipment, acquisition costs, non-cash pension settlement charges, restructuring and impairment charges is included in this release because, due to the high variability and difficulty in making accurate forecasts and projections of some of the excluded information, together with some of the excluded information not being ascertainable or accessible, we are unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measure without unreasonable efforts. A reconciliation of 2017 Free Cash Flow guidance to forecasted Net Cash Provided by Operating Activities, the most directly comparable GAAP financial measure, is included in this release.

Note: A reconciliation of the differences between all non-GAAP financial measures used in this release with the most directly comparable GAAP financial measures is included in the financial schedules that are a part of this release. These non-GAAP financial measures are intended to supplement and should be read together with our financial results. They should not be considered an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of this financial information should not place undue reliance on these non-GAAP financial measures.

Notable Business Highlights

Our three strategic priorities are:

Invest in our people and teams to foster a strong culture of employee engagement and accountability.
Deliver industry leading customer service excellence to achieve superior customer satisfaction and loyalty.
Continually transform our portfolio to drive growth, margin expansion and free cash flow generation.

In general, we delivered a strong second quarter 2017. Starting with customer service, our consolidated customer satisfaction index (CSI) improved by 4 percent year-over-year, with all business segments demonstrating improved performance. We also completed our latest Net Promoter Score survey and recognized a 12 percent improvement versus the previous survey conducted late last fall.

From an operational standpoint, the business performed well during the quarter. The Rigid Industrial Packaging & Services segment - our largest business segment by revenue and operating profit contribution - improved its margins and delivered strong plastic drum and intermediate bulk container (IBC) growth year-over-year, with particularly strong performance in the U.S. gulf region and Eastern Europe. The Paper Packaging & Services segment - which consists of two paper mills and one of the newest corrugator networks in the containerboard industry - delivered strong volumes, helping to offset increased costs for old corrugated containers, and is growing its specialty products portfolio. The Flexible Products & Services segment - the world’s largest producer of industrial flexible intermediate bulk containers (FIBCs) - is on track with its improvement plan and delivered its sixth consecutive quarter of margin expansion.

Looking forward, we are narrowing our fiscal year 2017 Class A earnings per share before special items guidance range to $2.84 - $3.02 based largely on improved business performance. We are also narrowing our fiscal year 2017 free cash flow guidance to $180.0 million to $200.0 million due to recently approved organic growth expansions in our Rigid Industrial Packaging & Services and Paper Packaging & Services segments.

While pleased with the Company's overall performance during the quarter, we were not satisfied with working capital management. Although our working capital days improved year-over-year, working capital dollars are worse primarily due to the adverse effect of raw material price increases. Inventories were driven higher by safety stocks purchased in advance of planned maintenance events at our mills and anticipated raw material price increases throughout the quarter. Seasonality factors also impacted inventories as we prepared for the agriculture season that commences during the second half of the fiscal year.

As a reminder, employee incentives are impacted by working capital management. This alignment of incentives, combined with a planned reduction in safety stocks; a reduction in inventory purchases; and a sharper focus on cash collection are expected to improve working capital throughout the remainder of the year.

Segment Results

Net sales are impacted primarily by the volume of primary products4 sold, selling prices, product mix and the impact of changes in foreign currencies against the U.S. Dollar. The tables below show the percentage impact of each of these items on net sales for our primary products, both including and excluding the impact of divestitures, for the second quarter of 2017 as compared to the second quarter of 2016 for the business segments with manufacturing operations:

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