Now I'd like to introduce Tony back to the stage to welcome our next company. Thanks.
Okay, we'll move right along. Next up we have with us today, honored to have Greif. With us today from Greif is Larry Hilsheimer, the CFO and Investor Relations. Dan is just going to be Larry today. Wonderful. Greif is based in Delaware, Ohio. It's a leader in industrial packaging and plays a significant role in recycling cardboard, particularly through its efforts in processing old corrugated containers, otherwise known as OCC. Larry joined Greif in 2014 as CFO prior to his current role. Dan is not here with us today. The company has 26 million shares outstanding, trades around $55 for almost $3 billion market cap and about $2.5 billion of net debt. Welcome, Larry. Let's sit down and we'll have a nice conversation.
Thank you, Tony.
Okay, we have heard a lot about sort of the recycling industry and packaging industry this morning. Maybe for those less familiar, could you sort of provide an overview of your business and sort of the major portfolio moves that have transpired over the last few years, Larry?
Sure. Greif is about a hundred, well, not about, we're a 147-year-old company, packaging sector, and we have operations in 39 countries. We sell into 42 countries. Our primary business is industrial packaging. Our product is basically air surrounded by a thin layer of something, whether it's steel, resin, paper. That leads us to having 250 plants around the world so that we're close to our customers and transport costs do not wipe out our profitability. We have about 14,000 plus colleagues. Our primary focus is to be the best customer service company in the world. We believe that you get there by having highly engaged colleagues who understand that they're valued and that what they do every day is important. When we started on that journey 10 years ago, we were mediocre at best.
Now we're world-class in both colleague engagement and in NPS score. In 2019, we bought a company called Caraustar, which was in a paper business that expanded our existing paper business. We have two components. One is container board, liner board, the stuff that becomes cardboard boxes. The business that we bought with Caraustar is called URB. It is, for those of us who've been around a while, that'd be me, the dark part or the on the back of a paper pad, that's URB. Okay? We make it into tubes and cores, stuff that you put things into or wrap stuff around that can go from toilet paper to carpet to anything in between. With that business, Caraustar became the 10th largest recycler of OCC in the country.
We actually recycle more than our own needs and then sell into the market in that business. That business, the Caraustar, the whole piece of it, we've been very pleased with since we bought it. We see the ebbs and flows on OCC when it gets to be at a price level that some of your other presenters do not feel is worthwhile. It ends up going into landfill. When it does not, then it comes to us. That is sort of summary.
You know, you've done some larger deals recently. IPACKCHEM closed in last year, Lee Container, and sort of bringing in the premium market, Jerry Can market. What's your draw to the Jerry Can space?
Yeah, so one other thing I didn't mention about our business is Greif has been focused on sustainability for a long time. Everything we do is recyclable. A large predominance of what we make ends up being recycled. As we were the largest manufacturer of steel drums in the world, we're almost number one in large plastic drums. We are now the largest in the world in Jerry Cans, and we're number three in IBCs in industrial bulk containers. We focus on the recyclability of all those. We went into the Jerry Can space because being number one in steel doesn't provide much growth opportunity. Same thing in number two. We're looking also to change the character of the company relative to our profitability. We've driven a significant improvement over the last decade where we went from sub-10% EBITDA margins to near mid-teens.
We walked away from over a billion dollars of business that had 5% EBITDA, closed about 100 plants. We have replaced all that. It was like, where are we going next? We have set an objective to exceed a billion dollars of EBITDA by 2027 and drive ultimately to our margins of being over 18%. Jerry Cans is a $3 billion plus market. There is about a billion of it that is high-end that needs barrier technologies to not let bad stuff get out of the containers. We focused on that. We bought the largest player in the United States, which was Lee Container, and that was a $300 million acquisition a couple of years ago. Last year we bought IPACKCHEM , which had been a roll-up from around the world, and bought it for $535 million.
We are now the largest provider or maker of Jerry Cans in the world. That goes primarily to the agricultural chemical space. The other focus for us is getting rid of some of the cyclicality that drives in our model because our primary end markets in steel and large drums is chemicals and lubes. Those things tend to go with if people are not buying things, then their business goes down, which is if you look at Dow Chemical or BASF right now, they are pretty much in a trial. We went into that Jerry Can space as an effort to our long-term plan of driving higher profitability. In all of these, though, it is a focus on recycled product as well.
Sounds like some interesting opportunities. Greif recently resegmented its business from global industrial packaging and paper packaging to customized polymer solutions, durable metal solutions, sustainable fiber solutions, and integrated solutions. Could you just maybe talk about why you guys did that and how should the investors look at it?
Yeah, so I commented a moment ago about we went through a whole transformation. The company walked away from all those operations. When I got to the company, we had 120 ERP systems. It was a total disaster. We were run geographically. It didn't take us long to figure out that you'd be much better organized by product type because you think about it, you got somebody in Europe who's overseeing a geography, and you walk into a steel drum production, a plastic drum production, IBC, they're all different. How they work, it's all different. It's like, but we had to get the other stuff sort of fixed first. We got that fixed and they said, okay, let's move forward with this.
We realigned the company and we're already seeing great benefits from it, although the industrial sort of recession economy that we're in isn't real helpful. What we're seeing is somebody who does plastic drums worldwide can leverage best practices across plants across the globe as opposed to sitting in Europe trying to figure out, well, what's different between these various plants? You turn over plant managers trying to drive improvement, all of a sudden they have to come in and learn all these different things. We are seeing a lot of benefit on this already. Oh, the other aspect of it is we had stopped being inquisitive for a long time while we fixed things. We're now inquisitive and want to drive growth.
It's much easier to go buy a company and integrate it if it aligns to one product type as opposed to trying to blend it into a geography with managers that don't really understand what you're combining it for.
That makes sense. Could you provide some perspective on the recently announced $100 million cost takeout plan through 2027 and maybe how did re-segmentation enable this and what are the building blocks and what are your targets for 2025?
Yeah, there's a number of components about it. I mean, I think some of you are probably aware, some of you probably aren't. From an industrial economy standpoint, one of the data points is PMI. It's been below 50 for most of over two years. Our volume levels are off significantly from a normal year. I'd call 2022 wasn't our best year ever, but it's pretty normal. If we replace that volume, we'd be like $150 million of EBITDA higher than where we are right now. You coast a while for a long for a while, you operate efficiently, but we decided, look, we need to look at this more closely, focus on automation solutions, focus on the use of AI. What kind of things can we do? We think this $100 million objective or commitment that we've put out is easily achievable.
We expect that this year we'll deliver somewhere between $15 million and $25 million, which will actually be at a run rate that'll be higher than that. It is just a concentrated effort to say, how do we just become more efficient?
You were just saying end markets being tough for Greif for three years and counting, particularly in what was previously classified as your industrial packaging business and now more metal polymer solutions. What actions is Greif taking to which end market challenges may be more secular, sustained, and cyclical?
Yeah, I mean, one of the biggest drivers to the drop in volumes, and it might surprise some people, the worst market for us in the world is the U.S. One of the big drivers of that is the lack of resale of existing homes. If you stop and think about what happens when you move from one to another, you fix up the one you are selling, you paint it up, you put new carpet in, you do whatever, and whoever comes and buys it tears it all out and changes it, does what they want to do, at least if they are like my wife. I love her dearly. You do not have the people buying new furniture, buying new appliances, and all of that leads to making stuff, which is what drives chemical use and lubricants and all that kind of thing.
Those have been big drivers of that market. That is probably the biggest thing going on. You also have, in EMEA, in Europe, the sucking sound of automotive production going to China instead of there. That has impacted our business in those markets. What are we doing? That goes back to our strategic direction of trying to get into more of these less cyclical markets and trying to get more into ag, more into pharma, those kinds of spaces.
Yeah. Maybe this question ties into that as well, but a little more color in industrial packaging. Substrates have been moving from steel and fiber to IBCs and plastic. What's driving that? I know you talked about that a little bit in a little more detail.
Yeah, I mean, and it is. It's driven to go to these higher growth markets. I mean, a lot of the core chemical markets, especially core chemicals, are very tied to just the GDP. You get into some of the things in pharma and some of the ag stuff, a sort of macro trend, there's less and less arable land. You got a growing global population, so you need to produce more off of less. The only way you're going to be able to do that is through science and agri-science. Focusing on that market's a big area for us.
How has Greif organically, inorganically invested to have critical mass in IBCs and plastics?
Yeah, so we're the number three player in IBCs. There's a private company out of Germany named Schütz, who's very, very good technically and that kind of thing. Their focus is not customer service. Then we have Mauser, which is another global concern that competes with us in steel drums and plastic drums as well. They're number two in IBCs, and then we're number three. Because of our focus on customer service, we actually have a lot of our existing customers coming and saying, "Hey, we'd rather buy IBCs from you." What we've been generally doing is investing capital to build new IBC operations around the world once we know we have at least 50% of the operation filled through commitments. Now, it's interesting because we run into a little phenomena because of the position where Schütz is.
They will typically, we'll get into a proposal process, for example. This is happening less now because our footprint's expanding. We would get in, we'd win the bid, and then Schütz would come to the customer and say, "That's fine. You can have Greif do business in Austria, but we don't think we're going to be able to supply you anymore in Spain." That's a really good short-term strategy. It isn't a real good long-term strategy. We have just continued to invest in that space. We have bought one key component of the IBC space. All of our products are recyclable, but these big IBCs, which for those of you who don't know, and you probably do because you do it with foul waste, but they look like big milk jugs inside of a steel cage, and they hold like 300 gallons.
A lot of times to recycle that, literally all you're doing is rinsing it, making certain it's clean, and you resell it. As long as it makes the customer specs, they'll pay you basically the same price. Obviously, you know your margin on that's a lot better than it was on the original manufacturer. We've bought up a premier recycling company in Europe called Tholu about five years ago now. We have built out a comprehensive recycling group. When Mauser got bought by Mike Milken's private equity firm and they brought in a leader, it didn't go so well with their recycling people. They came to us and said, "Would you back us to build a new one?" We've built out a new one. It's a business called Centurion that we ended up funding with them. We are building that out.
Those are the investments we've been making and trying to grow that space.
I think you sort of already talked about this a little bit, but as IBC and plastics become a larger share of your business, how does the competitive set and the serviceable range, I think you sort of already mentioned, and why should we think polymer solutions as a higher margin business in the long term?
Yeah, I mean, the Jerry Can business is easy. I mean, and I did not mention this earlier, we had some operations around the world. We are the largest supplier of Jerry Cans to Coca-Cola. If you do not know this, Coca-Cola syrup, you do not want to concentrate on that table or it will eat right through it. We make that for them in a lot of places around the world. We then just expanded. The margins in that business that we acquired are approaching 25% EBITDA margins. Because of the criticality of that product, I mean, you sell them a can for a few bucks and they are putting thousands and thousands of dollars in it. I forget how many cases of Coca-Cola Coke or cans, one little Jerry Can, but it is like 10,000 or some crazy number. I mean, maybe Dan, is that right? Yeah.
In IBCs and perhaps to a lesser extent plastics, clearly there's a greater emphasis on product life cycle, recycling, and reuse. Can you help us understand how to participate in the full product life cycle, including reconditioning? What are the strategic benefits and how large is that business today?
Yeah, like I said, our paper recycling business is the 10th largest in the U.S. and really good players there. What we build out in the IBC recycling, and we also do some of our own recycling of resin in this plastic drum business. Ironically, and a lot of you probably know this from waste, regrind is actually more expensive right now than virgin. The problem you get with most of it though is it's blended, all the colors and all that. You get this grayish, blackish stuff, which doesn't have a lot of use for us. We've started to get into this more and more ourselves or doing joint ventures or relationships with parties that actually separate the colors and keep it clean, white, that kind of thing. The margins in the business can be very good.
Now, a lot of things in our business though, it's interesting. I'll talk about Europe for a moment. You got a big push about sustainability. We want sustainability. We want recycling. We want all that. You can't put the recycled stuff in a layer that touches the food or whatever. What you do is you end up putting a middle layer of recycled with virgin on the inside and outside.
Maybe let's switch to fiber, sustainable fiber. Both of you are corrugated and.
Can I mention one of the.
Yeah, please do.
One other thing I forgot to mention. The IPACKCHEM company that we bought is, like I said, barrier technologies are critical in this business. We're the only ones that really have the technology on in-mold barrier technology that is very efficient. It's in line. We made an investment in a company called IonKraft. We invested with them. It was funded by the German government. Basically, we have exclusive rights to industrial use of this. The easiest way to describe it, it's essentially flexible glass inside a plastic container. It's way more easily recycled than coax stuff, which used to have a nylon fiber in it. Because when you put the nylon fiber in it, trying to regrind that is really not efficient, not cost-effective. We're in a really great place relative to the competitive marketplace.
Very interesting. On the sustainable fiber side, both your corrugated and Caraustar business, namely URB and tubes and cores business, use OCC as their primary input. Maybe you could talk about the use of OCC.
Yeah, I mean, we're primarily recycled producers, you mentioned. We do some semi-chem, which is a blend of pulp and the recycled OCC. Recycled's great, but eventually the fibers, they start to get weak over time. You look at the global market, and China was a huge direct player in this for a while. They put in some restraints that did not allow them to import OCC into their country. Now what they do is they import pulp from people who take the recycled and turn it into pulp and they ship it over there. They still have it. They're the biggest importer of pulp in the world. They still have an influence on the market. What it has done is it's made it a lot more stable.
I mean, we used to get these high fluctuations and it had very challenging impacts on margin from period to period. That is much less the situation now. Since we bought Caraustar and we have our own recycling operation, it has basically given us a surety of supply, better control over cost, those kinds of issues.
I think you sort of alluded to this, but maybe OCC over the last decade, containerboard side OCC has gone from being an expensive option, which you just mentioned, to being a relatively inexpensive option, even with some price increases in recent years. How have the OCC dynamics changed? Maybe walk us through that.
Yeah, like you said, and like I said, it's gotten a lot less volatile, although we still have some. I mean, a year ago, we were dealing with higher OCC costs than we are now. The pricing mechanism that exists in the paper industries in the United States is nothing short of bizarre. Because of antitrust reasons a long time ago, a third-party entity was put in place called RISI, and they actually used like 23-year-old marketing people to call around and do a survey to get price. And guess what? None of the producers will even talk to them anymore because they think it's crazy. I'll shortcut it there because I could go on. It's a very strange process, and it takes forever to get prices through, unlike the rest of our businesses where we do price when we want to.
That's interesting. Then demand for corrugated, are you seeing maybe like in the outlook, are you seeing that as improving? What's your long-term outlook there? How are you investing? How are you going about investing in that?
Yeah, the only way you really drive significant profitability increase in a paper business is you add mill capacity or you stretch your mill capacity. You can do it marginally on getting into specialized products, which is what we've done. We're the largest producer on real-time demand on what's called triple wall, which the easiest way for you to describe it to you is you go into a grocery store and you see a thing with watermelons in it. That's triple wall. It holds a lot, does industrial gears, all that kind of thing. For us, we've talked about the last few quarters, the container board space is the one thing that we've seen some sort of recovery in demand. We're also very encouraged by a couple of the recent consolidations in this industry and new leadership. International Paper has a new leader.
We very much like what we're hearing from the path there. WestRock merged with Smurfit and same deal there. Our view is that at least what we're hearing, if executed, is very good for the industry in terms of the discipline and operations and managing to the market wisely. I'll just put it that way.
I'll open it up to the audience.
I have to ask, talking about just finished up on corporate lovemaking, the Dempsey family, I represent my own 50% of the voting stock, and the voting stock controls the company. You're selling off my legacy business of timber, and your stock is selling at 12, 13 times, and all these other deals are being like IP, International Paper just paid a much higher multiple. What are you going to do for me?
Yeah, so.
Can I convert my voting to non-voting? I'm not going to do that. It's fun.
You know, I always love Mario. He always knows the answer to the question before he asks it.
I know, I know.
Now, you know, Mario and I, you and I have talked about our land holdings. For those who do not know, Greif started as a maker of wooden drums. And so they had a lot of timberland. Most paper companies sold off their timberland a long time ago. And we have investors. Some love the fact that we had it. Some people did not like the fact that we had it. For a long time, there was an element of our majority shareholder of our B stock that, gee, this was a safety net. If things really went bad, we would always have this to rely on. It has become really clear. We do not need a safety net. We operate really well. Even in a horrible industrial recession right now, we are still making a lot of money and we are producing a lot of cash.
This asset made no sense to us on our balance sheet. We basically made the decision that we're going to sell the 170-some thousand acres of timberland we had. We sold 70-some thousand acres in 2020 and it was 2021. It was about $2,200 an acre. Our tax base is as low as $55 million. We look at this and say we'll probably get somewhere north of $300 million. We can just pay down debt and position ourselves for our strategic objectives going forward.
Maybe we're going to go on capital allocation. How do you guys look at yourselves as stewards of capital? Maybe you could sort of walk through how you do that.
Yeah, we've always taught our target debt ratio is 2x-2.5x . We don't have any vision of being lower than that. The size of our company and the cash flows and the deals we do make that a challenge without a whole lot of benefit. Right now we're in the mid-threes because of this big trough in volume, but we produce cash pretty well. If the volumes come back, we'll be back very rapidly. Obviously, the land sale will help pay down debt as well. Our priority right now is pay down debt. That said, we get asked often.
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Glad it's a test.
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The only thing I would say is we are not proactively looking to do new acquisitions right now. However, because we've been very public about our long-term strategy being more to move into polymers and that kind of thing, you can imagine we get inbound calls constantly from PE firms and others like, hey, we've got this polymer-based business. It's in the pharmaceutical industry, blah, blah, blah. We will look. If there was something truly compelling and it happens to be for sale, you do not get to pick when things are for sale. They are for sale when they are for sale. We would feel very comfortable if it is a truly compelling deal, but it has got to meet our criteria. The criteria are to be in those end markets we want to get into. Second, it has got to be polymer-based.
It's got to have over 18% EBITDA margins, and it's got to have over 50% free cash flow conversion. That eliminates a lot really quickly. If there's something compelling, we might do something, but there's nothing like imminent and nothing of any size right now.
Larry, that was a great overview. Thank you for taking the time today. Congratulations on your successes. Hope to get you back next year.
Thank you very much.
Appreciate it.