On April 18, Greif Inc. announced that Chairman and CEO Michael Gasser, 59,will become executive chairman effective Nov. 1, and President David B. Fischerwill add the title of CEO. Columbus C.E.O. profiled Gasser and Greif in this March 2007 story.
Nestled between gently sloping hills on a 400-acre campus in Delaware, Ohio, Greif's 50,000-square-foot headquarters sits just minutes away from the bustle of U.S. Route 23. Yet Greif's corporate epicenter remains mostly invisible to commuters, many of whom probably haven't even heard of the publicly traded, global industrial packaging giant that sits in their back yard.
With more than 200 locations and 10,000 employees in 40-plus countries, Greif (rhymes with "life") supplies companies around the world with a variety of packaging products, from steel drums to water bottles and corrugated containers.
Under the direction of CEO and Chairman Michael Gasser, Greif reported a banner year in fiscal 2006, which ended Oct. 31. The company achieved record sales of $2.6 billion and record net income of $142 million. Operating profit rose to $246 million, compared to $192 million in fiscal 2005.
With performance like that, it's no surprise that the price of Greif's stock (NYSE: GEF) also has soared, from the $60 range early in 2006 to about $110 in late January. Gasser's well-paid---$799,619 in salary in 2006, plus a bonus of $627,904-but these days that's relatively modest compensation for running a profitable, growing $2.6 billion enterprise.
"There's an old saying, ‘Success breeds success,' " says Gasser, and Greif is building on an impressive, 130-year heritage. Greif's global footprint, however, was planted just six years ago with the acquisition of European powerhouse Van Leer Industrial Packaging--a deal so large that even Greif's board members had their doubts. Long-term debt increased by about $460 million, and Greif faced the arduous task of integrating massive operations during a recession.
In the end, the gamble paid off. Greif more than doubled in size and transformed from a domestic player to a worldwide market leader practically overnight. The company now boasts $2 billion in assets and holds 35 percent of the global market in industrial packaging.
"If you took a step back and looked at what the company has done over the last five years, it's been rather remarkable," says Chris Manuel, an equity research analyst with KeyBanc Capital Markets. "They've transformed from a relatively sleepy Delaware, Ohio, company to more of a lean, mean, fighting machine."
From Wood to Steel
Before the days of steel and plastic packaging drums, goods were shipped in wooden barrels, casks or kegs, made in cooperage shops such as Vanderwyst and Greif, co-founded by one of four Greif brothers in 1877. When the other three brothers joined the Cleveland-based cooperage a year later, they renamed it the Greif Brothers Company.
In the early 1900s, John Raible, a Cleveland-area entrepreneur, purchased Greif. The company made its initial public stock offering as the Greif Brothers Cooperage Company in 1926.
During the Great Depression, Greif bought some 300,000 acres of timberland to provide wood for the cooperage business. Though Greif doesn't use its timber for barrels anymore, it continues to own and actively manage more than 260,000 acres of timberland in the southeastern United States and owns about 37,000 acres in Canada.
"Timber is really a security blanket," Gasser says. "A lot of assets, if you don't do something you have lost opportunity costs. With timber you don't, because if you don't sell it today it continues to grow and continues to get more valuable."
In the mid-1940s, Greif's profitability flagged as demand for wooden barrels diminished in the wake of the introduction of steel drums. With Greif's share price in the doldrums, John "Jack" Dempsey, whose mother-in-law owned about 10 percent of Greif's stock, challenged Raible, eventually accumulating enough shares to gain control of the company. In the early 1950s, a few years after Dempsey became chairman, he moved Greif's headquarters to Delaware.
"We stayed in the wooden barrel business until the late '60s when we really started to evolve into the other products," Gasser says. Greif began manufacturing steel, plastic and fiber drums, as well as corrugated containers, multiwall shipping bags (think dog food bags) and other packaging products. Dempsey "did a great job, with a wonderful vision, in terms of taking the company from a product that ultimately died out into the modern products of today, which is why Greif is still here," says Bill Sparks, who retired as Greif's president and chief operating officer in October.
Dempsey hired Gasser in 1979 as the company's first internal auditor. A native of Ottoville, Ohio, Gasser had graduated from Ohio Northern University with a bachelor's degree in accounting.
"I wanted to get out of public accounting," he recalls, "so I looked around at a lot of different companies and was struck by the culture that was at Greif. When I started, I was around 27 years old, and I was the youngest man in the corporate office, probably by about 30 years. I thought, ‘There may be a future for me here if I stay around.' "
Gasser was right. In 1994, he became CEO following the retirement of Dempsey, whose health was declining.
A New Vision
Gasser has nothing but kind things to say about his predecessor, who died in 1997. "He really set the foundation for the culture of the company," Gasser says. "We've made a lot of changes. . . . It's a much more demanding company today, a much more performance-oriented company, but hopefully it's still the same caring organization."
In 1995, Gasser promoted Sparks, who was serving as president of one of Greif's subsidiaries in California, to president and COO and brought him to the Delaware headquarters. Gasser also began adding outside directors to Greif's board, including attorney Dan Gunsett, managing partner of the Columbus office of Baker Hostetler. "It was basically kind of a reconfiguration time for the board," Gunsett says.
The board wasn't the only thing Gasser reconfigured. Under Dempsey's leadership Greif had been split into nearly autonomous operating divisions across the United States. Gasser led a centralization effort that realigned administrative functions, relocated key operating people to Delaware and reduced staff.
Some chose to leave the company rather than buy into the new structure. "We were breaking people's ways of doing things, and that is difficult," Gasser says.
To increase Greif's share of the declining fiber drum market, Gasser purchased Sonoco's industrial container business, a major fiber drum player, for $183 million in 1998. "We bought them out and became by far the largest producer of fiber drums," Gasser says.
The Sonoco acquisition bolstered Greif's North American status, but Gasser soon found out it wasn't enough. "Our customers were becoming more and more global. For us to continue to be a dominant player with them, we needed to be global also," he says.
In 2001, Greif purchased the industrial packaging unit of Van Leer, a Dutch packaging giant, for upwards of $500 million. The deal expanded Greif's reach to 40-plus countries and more than doubled the size of the company. "The Van Leer acquisition transformed Greif from a nearly pure domestic company to the leading global supplier of industrial packaging products," Gunsett says. "That transaction . . . made the company much stronger from an economic and an operational standpoint."
"The board said to me the day before we signed this, ‘You believe you can do this?' " Gasser recalls. "I said, ‘You know, there was a bigger risk in us buying Sonoco in 1998 than buying this company, because I'm confident today we can do this. Back then, I was hopeful. Today I'm confident.' "
Though Gasser and his management team hadn't had much international exposure, KeyBanc's Manuel believes Gasser made the right decision. "From a strategic standpoint, making their business global and consolidating, taking out one of the biggest players at the same time, was a very, very smart move," Manuel says.
Timing, however, could've been better. As net sales rose from $964 million in fiscal 2000 to $1.5 billion in 2001, long-term debt also escalated, from $235 million in 2000 to $698 million following the acquisition. Then came Sept. 11, 2001, and global recession.
"Looking back at history, it wasn't the most opportune time to make that big of a commitment," Gasser admits. As manufacturing waned, so did demand for Greif's packaging products. The company's net income dropped sharply, from $89 million in 2001 to $31 million in 2002 and just $9.5 million in 2003. Shares of Greif stock were trading at a record low of $16.75 per share in March 2003.
"We believed that we were financially strong enough that we could withstand any kind of recession," Gasser says. "I believed very strongly that the culture of the company would pull us through. Maybe it was being naive, maybe it was a little bit of overzealousness, but I believe it was more just the focus we had on what we were trying to do at the time."
What Greif was trying to do was integrate Van Leer's operations as smartly as possible. "We knew to make this successful we had to close a lot of plants," Gasser says. "I had made a commitment to both companies that we would keep the best people and the best plants, not just Greif plants and Greif people."
Gasser kept his word. During 2001, six of Greif's industrial shipping container operations were eliminated, along with five facilities acquired from Van Leer in North America, South America, the United Kingdom and the Asia-Pacific region.
Gasser and his team also engineered a corporate redesign to cut selling, general and administrative expenses by 30 percent. "The first thing we had to do was take costs out of the system, because anytime you grow at that rate, you get a little bloated," Gasser says.
"The focus was on capturing the synergies from Van Leer, but it was also reducing the cost structure," says Don Huml, Greif's executive vice president and CFO. "It was basically a way of starting with the corporate center to demonstrate the sort of discipline that there needed to be in controlling expenses."
In late 2002, Greif's executives set more financial goals, including raising the operating profit margin to 10 percent, increasing the return on net assets to 20 percent and decreasing operating working capital to 12 percent of net sales-all to be accomplished by 2006.
In 2003, Greif unveiled a performance-improvement plan, the Greif Business System (GBS). "We said, ‘OK, how can we kind of consolidate and make this a more effective and more efficient and less costly operation to support the various operating entities?' " says Sparks. "Then we took the next step, which was to expand this thinking process of becoming more lean and effective to the operating entities of the business."
Regional tactical marketing, value selling, strengthening Greif's global supply chain and running lean operations are key components of the system. Because of GBS, "We're able to accommodate more business within existing facilities today than we could three years ago because we've improved the layout on the floor so that there is more efficient manufacturing operations," says Robert Lentz, president of Robert A. Lentz & Associates in Hilliard, who works with Greif on investor relations.
As GBS slashed costs and increased efficiency, layoffs were unavoidable. From 2003 through 2005, 1,574 employees were severed. In 2006, there were 281 GBS-related terminations. "That's always the most difficult part," Gasser says. "But you also have to come to the realization that you have to do what's best for the greater good. . . . Greif is still growing, we're still evolving and we're always going to have some network consolidation."
The Greif Center of Excellence offers classes at most of the company's facilities on various aspects of GBS, from lean manufacturing to conflict management. Nearly 1,000 employees have graduated from the center since it opened in 2004.
Employees also have been schooled in the company's unique, standards-driven culture, which they call the Greif Way. "It's how we deal with customers and suppliers and employees and each other," Sparks explains. "We set some basic tenets and guidelines to how you act and respect others. Integrity is clearly the core value of the company and not just something that you preach about, but live."
Currently, Greif's Industrial Packaging & Services (IPS) segment is the company's cash cow. In 2006, IPS raked in net sales of $1.9 billion, while $668 million came from Paper Packaging & Services (PPS), and $15 million from timber.
Under the IPS umbrella, Greif manufactures fiber, steel and plastic drums. "They're No. 1 in steel. They're No. 1 in fiber. They're a distant second or third in plastics," Manuel says. "Maybe that's an area where they need to focus some more attention."
Greif's IPS sales, Gasser says, grow at about the same rate as the gross domestic product. "Our aspirations are to grow faster than that through some product innovation, product substitution, and we'll continue to look at some roll-up opportunities where it makes sense," he says. "We also will grow that business through emerging markets."
Right now, Greif is focusing on emerging markets in China, Russia and the Middle East. Gasser says the company already has two plants in China and will open two more this year. Five plants are open in Russia, with more on the way. "In today's world, 45 percent of our revenue is outside of the United States," Gasser says. "Five to seven years from now it will be at 55 percent. That's just where the growth is today."
Greif's PPS segment is a much smaller player in the much bigger paper packaging market. "We're a very regional player," Gasser says. "We're just starting to put the Greif Business System in there, so we think there's some great upside potential. We're optimistic about the market in general today. We have good leadership, and since we're such a small player, we do have room for growth in that business before we even start looking internationally."
Manuel says Greif has less than 3 percent market share in its paper business and perhaps should think about exiting that segment altogether. "When you think about the paper business, they're clearly a very small fish in a big sea," he says. "I believe that they could sell the business. It would be substantially accretive."
Walt Liptak, a vice president and senior investment analyst at Barrington Research in Chicago, agrees Greif could sell both the PPS and timber segments, though he doesn't think it's necessary. "They're in consolidating industries, so if they wanted to they could sell them, but there's plenty of room for them to make profits in those two segments," Liptak says. "I really like their strategy of focusing on improving the paper and packaging segment profitability. I think there's a big opportunity there."
With or without PPS, Greif's future looks bright. In late 2006, the company made three more acquisitions. Greif bought the steel drum manufacturing and closures business of Belgium-based Blagden Packaging Group, a leader in the European and Asian markets, for 205 million euros. The other acquisitions, for a total of $102 million, were Louisiana-based Delta Petroleum Company, one of the largest blenders and packagers of lubricants and chemicals in North America, and TNK, a Russian industrial packaging company. The Delta acquisition marks a new line of business for Greif, which will now be able to manufacture and fill drums for clients. Gasser says Greif plans on one day taking the drum-filling business outside of North America.
"We have big aspirations," Gasser says. "Since 1995, we've doubled the size of the company every five years, so there's no reason to think that we shouldn't do that again."
"I think they've got some work ahead of them to get these several acquisitions integrated. That's a big task," Manuel says. But he has no doubt Gasser's up to the task. "Mike has done a great job," Manuel says. "Anytime you overhaul a company and re-engineer how you work, one of the toughest things to do is keep everybody on board for change. He's done a good job."
"Looking at Greif's stock in the first quarter of 2003, it looks like it was in the teens and now it looks like it's somewhere about $100-plus. That's the kind of guy I want on my team," says Steven Davis, chairman and CEO of Bob Evans Farms, where Gasser has been a board member for more than nine years. "Whenever you're looking for leaders, the first thing I always look for is a demonstrated track record. Mike's track record speaks for itself. In addition to being a great leader, he's a great human being, so you can't ask for too much more from somebody."
Amy Aldridge is a formerassociate editor for Columbus C.E.O.
Reprinted from the March 2007 issue of Columbus C.E.O. Copyright © Columbus C.E.O.