Greif's Strategic Mill Closure: A Necessary Move to Boost Long-Term Profitability

Greif, Inc. (GEF) is making a bold move to permanently shutter its Los Angeles paperboard mill by June 2025, marking the latest step in a broader strategy to streamline operations and focus on high-margin markets. The closure, part of a $100 million three-year cost-reduction plan, reflects tough choices in an industry grappling with rising operational costs and shifting demand. While the decision carries short-term financial pain, it positions Greif to capitalize on growth opportunities in sectors like agrochemicals and pharmaceuticals.

The Rationale Behind the Closure

The Los Angeles mill, which produces coated and uncoated recycled paperboard (CRB/URB), has become a financial burden due to soaring operational expenses and limited synergies in the region. This aligns with earlier 2025 closures in Georgia and Massachusetts, collectively removing 72 jobs (adding to 140 total layoffs this year) and reducing CRB/URB capacity by 50,000 and 22,000 tons, respectively. CEO Ole Rosgaard framed the move as a necessary trade-off: “We’re strengthening focus in key markets while enhancing the performance of our existing network.”

The strategic shift underscores a broader industry reality. Greif is pivoting away from regions where paperboard production faces margin pressures and toward high-growth segments like food and beverage packaging, where demand remains robust. This realignment also aims to counterbalance weak performance in bulk chemicals and metals, sectors where Greif has seen declining sales.

Financial Implications: Short-Term Pain, Long-Term Gain

The closure will impose a $3 million EBITDA headwind in 2025 due to closure-related costs but is projected to yield an $8 million annual EBITDA benefit by 2027. Already, Greif has identified $5 million in run-rate cost savings this year, with expectations to reach $15–$25 million in savings by year-end. These figures are critical to achieving the $100 million three-year target.

However, the move isn’t without risks. The loss of West Coast CRB capacity could strain supply chains for regional customers, potentially leading to pricing pressures or market share losses. Greif’s Q1 2025 adjusted EBITDA rose to $145 million, a $7 million improvement over 2024, driven by volume growth in polymers and integrated solutions—a positive sign that the strategy is gaining traction.

Investor Sentiment and Market Outlook

Investor reactions have been mixed. DEPRINCE RACE & ZOLLO INC and POINT72 ASSET MANAGEMENT increased holdings in Q4 2024, betting on Greif’s restructuring. Meanwhile, FMR LLC and INVESCO LTD reduced stakes, possibly wary of near-term execution risks. Analysts see a potential 36% upside from current prices, reflecting optimism about Greif’s ability to deliver on its cost targets.

The stock’s performance, however, will hinge on two factors: the successful divestment of its timberland portfolio to reduce debt and the execution of its high-growth strategy. Greif’s Q1 results already hint at progress, with integrated solutions revenue up 18% year-over-year.

Conclusion: A Calculated Risk with Upside Potential

Greif’s Los Angeles mill closure is a calculated sacrifice to prioritize profitability over geographic presence. While the short-term EBITDA hit and workforce reductions are concerning, the long-term benefits—$8 million annual savings by 2027 and a leaner, more focused business model—suggest the move is strategically sound.

Investors should monitor two key metrics: first, whether Greif meets its $100 million cost-savings target by 2027, and second, how its high-growth segments (agrochemicals, pharmaceuticals) perform relative to weaker sectors. With $145 million in Q1 EBITDA and a 36% analyst upside target, the stock appears positioned for gains—if Greif can execute. The mill closures, while painful, may prove to be a critical step toward sustainable growth in a challenging industry.