Greif’s Mill Closure: A Strategic Shift or a Costly Gamble?

The closure of Greif’s Los Angeles paperboard mill, announced in May 2025, marks a pivotal moment for the packaging giant. By shutting down its West Coast production hub, Greif aims to streamline operations and focus on higher-margin markets. But with debt rising and cash flow strained, investors must ask: Is this move a necessary step toward profitability—or a risky bet on an uncertain future?

The Financial Calculus of Closure

The Los Angeles mill, which produced 50,000 tons of coated recycled paperboard (CRB) and 22,000 tons of uncoated recycled paperboard (URB), is being shuttered due to rising operational costs and poor integration with Greif’s broader network. While the move eliminates 72 jobs, it also promises annual savings of $13 million by Q1 2025, part of a wider cost-optimization drive.

However, the closure’s immediate financial toll is stark. Greif’s Sustainable Fiber Solutions (SFS) segment, which includes the mill, saw its operating profit drop to $3.6 million in Q1 2025—down from $8.2 million a year earlier. A $13.7 million non-cash impairment charge tied to the mill’s closure was a major factor. Meanwhile, Greif’s total debt surged to $2.84 billion, pushing its leverage ratio to 3.63x—a worrying sign for investors.

Industry Context: A Shifting Landscape

The U.S. paperboard industry is undergoing a structural shift. Total capacity fell by 1.6% in 2023, with older, less efficient mills like Greif’s Los Angeles facility becoming liabilities. Meanwhile, demand for eco-friendly packaging is rising, driven by e-commerce growth and sustainability mandates. However, Greif faces headwinds:
- Export Challenges: China’s retaliatory tariffs on U.S. paperboard—up to 20%—threaten West Coast mills reliant on Asian markets.
- Input Costs: Pulp prices are volatile, squeezing margins. Competitors like Packaging Corp of America (PKG) maintain higher profit margins (21.2% in 2024) due to better cost management.
- Competition: Firms like WestRock (WRK) dominate with scale, leaving smaller players scrambling to adapt.

Greif’s decision to exit low-margin West Coast production aligns with trends. The company plans to divest its 176,000-acre timberland portfolio to reduce debt, a move that could free up $200–$300 million—critical for deleveraging.

Risks and Uncertainties

The closure hinges on two variables:
1. Market Recovery: Greif’s adjusted EBITDA guidance for 2025 is $710 million, just 0.6% above 2024’s trailing EBITDA. If demand for industrial packaging weakens further, this target could slip.
2. Divestment Success: The timberland sale’s timing and valuation are unclear. Delays could prolong high-debt pressures.

CEO Ole Rosgaard emphasizes that the closure is part of a “strategic shift to high-potential markets.” Yet history offers caution: When International Paper (IP) closed its Red River mill in 2025, it incurred a $271 million pre-tax charge, dragging its Q1 net loss to $(0.24). Greif’s path is similar—and similarly risky.

Conclusion: A Necessary Pain, but a Long Road Back

Greif’s Los Angeles mill closure is a logical step to prune underperforming assets and reduce debt. The $13 million in annual savings and timberland divestment could stabilize its balance sheet over time. However, near-term challenges loom:
- Debt Overhang: At 3.63x leverage, Greif’s flexibility to weather downturns is limited.
- Margin Pressures: The SFS segment’s Q1 operating profit fell by 56%, signaling execution risks in its restructuring.

Investors should monitor two key metrics:
1. Cash Flow Turnaround: Greif’s adjusted free cash flow is projected to improve to $245 million in 2025, but this depends on cost savings outweighing macroeconomic headwinds.
2. Debt Reduction: If the timberland sale proceeds exceed $250 million, leverage could drop below 3.0x, a safer threshold.

In conclusion, Greif’s move is a necessary strategic adjustment—but success hinges on disciplined execution. With the right market conditions and divestment outcomes, this could position Greif for long-term growth. Without them, the Los Angeles mill closure may prove a costly distraction.

Final Verdict: Hold for now. Greif’s restructuring is credible, but risks remain until debt is stabilized and cash flow improves.