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GLGI is definitely preparing for new customers and I do believe they are working with AB in some way. I just don't know that a potential business combination announced today would have any impact on GLGI operations in the near term. I would think if they were going to commonize operations as part of a merger that would happen in the year or two following the merger close.
But what do I know. Maybe AB has been preparing for this buyout and their whole pursuit of GLGI pallets was for this reason. Maybe they want to start producing/shipping miller products from AB breweries and vice versa so they need to commonize the whole logistics operations and they want to do it all ASAP. In that case perhaps AB will buy up miller and push quickly to convert over to GLGI pallets. It would take years to fully convert over to GLGI pallets from Rehrig so they can't expect it to get done overnight.
I wonder how long this AB and miller buyout process will take
Wouldn't that be great! I personally don't think that's why AB contacted GLGI in the first place because if it was merger driven they I they'd wait until the merger/buyout was completed. It could push AB to move completely into GLGI pallets thought
But there is risk too. If AB and miller combine, then what happens to the MillerCoors JV? I imagine both Miller and Coors would continue using GLGI pallets because they're whole logistics operation is already set up for them but who knows.
Yeah I know what you mean. I'm a bit torn on GLGI right now. I've been trying to take a clean look at it recently without the cloud of someone who's been posting about it and first bought at ~$0.50.
As far as AB is concerned I don't think the length of time is an indicator of not having a contract. If you look at past development programs like the slim keg and half barrel pallets, it took years to get to production so I think they're on schedule. The problem is no updates from the company so how do you know what's going on.
I'd say it's more than just a single PR from two years ago because there was also the mention of AB in their loan documentation. Then there are the couple of things the CFO told me: that they had built a mold specifically for AB and AB was testing the units. At this point I think they are still in the evaluation or negotiation process and don't know how that'll turn out.
Plus there's the $500k they spent this past quarter preparing for new customers. And the CEO comment from April "The diligence and patience exhibited while working through an extended series of challenges and opportunities will be rewarded." Maybe that's just BS or maybe he's referring to AB taking longer than anticipated.
I still wonder about the option exercising and CEO purchases from last Dec/Jan. I thought that meant something big coming but so far there's nothing and the activity dried up even though they could be exercising more options now.
I agree on the investment still working out from here. All else being equal, if they just pay off ~$2M per year in debt that should go straight to the equity and we should have a share price around 25% higher next year. I'm all for that
So for me, I'll just wait and see what happens. I don't think the company will shrink so the question is how much will they grow
Two things are bothering me though at the moment. For one, the company does not seem cheap to me on an EV/Ebit basis. And two GLGI is too big a part of my portfolio. I bought a bunch earlier this year when the share price dropped and there was all that insider activity. I have other things I'd like to buy so I have to figure out if I want to sell some GLGI or wait or sell something else. we'll see
Sorry about the post getting so long. sometimes I ramble
Is there something specific that has made you give up on the AB deal, or just that it's taken so long?
I'm bummed too. I still think AB is moving forward but just taking time. Everything in life takes longer than you think it should. Of course there is the risk that it could fall apart because nothing is for sure until the contract is signed. Up to this point we know they've made a mold specifically for AB and spent $500k preparing for "new customers" in Mar-May.
But then if AB is coming why haven't they exercised the options they were granted on June 1? Maybe they are short on cash but are all 4 of those guys short on cash? All 4 of them have options they could be exercising.
You're probably right.
The debt service coverage ratio requirement of 1.25 has made me wonder what the bank expected would happen when they signed GLGI up. That IBC loan was signed in Feb 2014 so they already would have had the MC order for calendar year 2014 which was lower than 2013. So they must've expected that to be filled somehow. In any case GLGI will have to do better than FY15 to say up on their debt. The wine order will help for this year.
I emailed the CFO to ask about status on their new products and he said the slim keg has tested well but no orders received yet. I wonder if MC will wait until Jan 2016 to start those orders.
He also told me the new 48x40 has been received well and orders are growing
As for the "new customers" comment in the 10K he said "no information will be released until testing is complete and a contract in place." Testing must be going well if they're putting in this effort. My optimistic, conspiracy theory brain really thinks this is AB. Whatever it is has they are willing to spend $500k. And it must be different from what they normally do to require $500k. It's a new customer so not MC slim kegs. No contract in place so it's not the wine order. They have seemed excited about the 48x40 and that's a super popular size so maybe it's that. Maybe I'll try to get more info on what exactly this $500k was spent on.
"to meet the production requirements of new customers"
Here's the little blurb that Phaedrus77 pointed out from the 10K:
"
Cost of sales was $18,269,192 (82% of sales) and $18,107,627 (77% of sales) in fiscal years 2015 and 2014, respectively. The ratio of cost of pallet sales to pallet sales in fiscal year 2015 was 81% in fiscal year 2015 compared 75% for fiscal year 2014. The increase in cost of sales in fiscal year 2015 compared to 2014 is principally due to the inflexible fixed costs in pallet production and development costs incurred during the last three months of fiscal year 2015 in preparation to meet the production requirements for new customers.
"
I wanted to figure out how much was spent for these new customers:
-- pallet sales total for 2015 = 21,064,335, so at 81% the cost of pallet sales was 17,062,111.
-- pallet sales total for 2014 = 22,086,768, so at 75% the cost of pallet sales was 16,565,076
So in 2015 there was an extra 497,035 spent. That's a pretty good chunk of change. Since they reference "inflexible fixed costs" it seems that about this much was spent on preparing for the new customers.
Debt Service Coverage Ratio
As part of the IBC loan agreement Greystone "shall maintain on a consolidated basis a Debt Service Coverage Ratio of at least 1.25:1.00"
And the “Debt Service Coverage Ratio” means, as of any calculation date, the ratio of Cash Flow for the four trailing quarters ending on such calculation date, to the sum of the current portion of the Borrowers’ long-term Debt as of such calculation date, plus interest expense of the Borrowers on all Debt for the four trailing quarters ending on such calculation date."
So the calculation is something like:
DSCR = cash_flow_TTM / (current_portion_of_long_term_debt + interest_for_next_year)
On Jan 26, 2015 I asked the company about how they were not meeting the required DSCR of 1.25 and was told "Greystone anticipates being in compliance for the year ended May 31, 2015." At that point we were already 8 months into the fiscal year ending May 31 and GLGI had already received MC's PO for calendar year 2015.
It turns out they ended FY 2015 with a DSCR of 0.54 which is a far cry from 1.25. Perhaps they did not really anticipate being in compliance but were just feeding me optimistic talk. Or perhaps they really did expect to be in compliance and something that was supposed to deliver a lot of cash in those last few months did not follow through...
I see they have violated the IBC loan debt service coverage ratio again. That makes 3 or 4 quarters in a row and the bank just keeps on giving them a waiver every time. I suppose the bank must think it won't continue but then again they had told me they expect to be in compliance by this time
Yeah I got $570k increase in sales YOY for Q4. Pallet sales up by $1M. When they got the big wine order they said that about 30% of $3M = $900k would be in Q4. MC pallet sales dropped by about $100k = 2%, so non-MC and non-wine pallet sales must have gone up by about $200k = 6.5% YOY.
Next quarter we should have about $2.1M from the wine order. Hopefully MC goes back to the $4.5M Q1 spending of 2013&2014 rather than the $3M spending of 2014.
Good catch on that "development costs" comment. I wonder if they'll tell us who that is in reference to. Hopefully it's AB but they also have the other few new pallets that have come out. They sounded excited about the 48x40.
I wonder when they'll start shipping the new slim keg pallet to MC.
I also wonder what's up with Green Plastic Pallets. They sold $333k worth of product to them in FY15. GPP is owned by Kruger's brother and as far as I can tell they have two employees: Kruger's brother and his wife. The company used to be a subsidiary of Native American Marketing which was owned by LeBarre until it was sold to Seminole Energy last year. Seminole is now Continuum and both LeBarre and Rosene sit on the their board or are advisors or something. In Apr 2014 GPP filed to be an LLC and they completely changed up their website around last Dec, it now prominently features statements about being minority owned and a government small business contractor. Kruger's brother has worked at Native American for years and GPP always existed, selling plastic pallets made by GLGI. Past 10-k's did not disclose sales amounts from GLGI to GPP/Native American. I'll have to ask them about this whole deal and what are the expectations moving forward.
Earnings can't come soon enough! Should be another few weeks. I'm looking forward to it
Who knows what Kruger is thinking. I still wonder why none of them exercised options this summer because I think they vested some more.
Write up on HEMA
I've done a little write up on HEMA on my blog.
http://www.nonamestocks.com/2015/08/hemacare-transformation.html
new GLGI post on my blog.
I just couldn't help myself. It's all speculation on GLGI and AB. I think about this stuff too much...
http://www.nonamestocks.com/2015/07/a-conspiracy-theory-for-glgi-and-ab.html
I agree. The big wine order should come in these next two quarters. If all else stays the same, that alone will make for big quarters. On top of that, I wonder if they have orders for any of their new molds yet. Maybe I'll email Rahhal but I don't want to annoy him with too many questions.
I wonder what Kruger's comments about patience being rewarded are in reference to. I know the slim keg mold has taken longer than they originally planned so maybe he's talking about that. Or maybe the new 48x40. Maybe AB... Or maybe he's just talking in generalities and it means nothing. I'm sure I read too much into it because I think about this company too much.
I wish it were august already.
I was emailing with the CFO the other day about the new 37x37 beverage pallet they had announced with the most recent 8K. In Apr I had emailed him about this 37x37 and he said it was different from what they normally offered by being wider for manual forklifts and he also said the non-recurring pallet charges from last year were due to a customer having issues with manual forklifts. At that time I figured the customer behind this new 37x37 was AB but I know think that is not correct. In January they announced the new slim keg pallet and a 48x40, in Apr they again mentioned the slim keg and 48x40 then added talk of the 37x37. I figured the 37x37 was for AB just because I know they have made a mold for AB but had not yet disclosed it. Turns out I was wrong and should not quit my day job just yet to become a detective...
I think they have made a mold for AB and have still not yet disclosed it. I was asking Rahhal about the 37x37 when he said that the sale they were targetting with this mold fell through. I was concerned that meant AB was gone so I asked if this 37x37 was meant for a major beer distributor and he said no. He also said they made the 37x37 mold more so because they like the size and want in in their inventory than just for this one customer so the sale falling through wasn't that big of a deal.
This is good news because we know AB uses a 32x37 and I was wondering what they were doing with a 37x37. I have asked if they're working on a 32x37 or what size the mold is for the new major beer distributor but haven't received an answer. I think the GLGI mold for AB is probably a 32x37 meant to displace at least some of the current Rehrig pallets
And now I'll hurry back to waiting for the 10-k in 3 months...
The executes vest another 25% of their options on Monday. I wonder if any will be exercising them right away
new write up on IEHC.
I have done some research and wrote up an article on IEHC on my blog. Lot of good info there:
http://www.nonamestocks.com/2015/05/the-growth-of-iehc.html
Great, thanks!
I was looking through pictures online trying to figure out the sizes but it's not easy. I could tell in one picture that the AB pallets were not square and this confirms that.
So now we know AB uses a 32 x 37 and the new GLGI pallet that I think is for AB is 37 x 37. Why would AB want different sized pallets? Seems strange to me that they'd want to change sizes.
I wonder if AB uses different sized pallets now or if every one of their pallets is 32 x 37? Also how long has AB been using the 32x37?
Thanks. It's good to hear such supportive comments.
Could you tell if the AB pallets are square or rectangle?
Thanks. I emailed AB directly because my question was if they have a desire to switch to recycled pallets. I do still wonder about the size of their pallets but that was not the line of questions I sent them.
I agree on the GLGI price. Lately whenever I look at a new company that I think might be a buy I come back to GLGI because it's more of a buy.
Maybe I'll try to contact an AB distributor. good idea
OT: I started a blog.
www.nonamestocks.com
I have been researching a company, TIK, and got to the point where I wanted to write another article but I didn't want to put it on SA because they hide things after a month. So I decided to just start my own thing. So far I have the first GLGI article I wrote and this new one on TIK. I have another write up that I'm working on now but it could take a while to finish. I'm reading filings and waiting to hear back on some questions I sent to the company. We'll see how things go
GLGI is still my favorite and I am still trying to figure out what AB wants with GLGI pallets. I have been buying lately but don't want to buy more until I have a better idea of how big the AB contract could be. I emailed AB and to ask their environmental task force if they have thought about switching from recylable (Rehrig) pallets to recycled pallets but have not heard back yet... I also emailed GLGI to ask if they could grind up a competitor's pallets (Rehrig) to make their own if a customer wanted to switch suppliers but they never responded...
Yeah if I had to guess I'd say TIK wins the lawsuit but I can't be sure. The problem for me is if they lose I could see the penalty being pretty big. But of course I'm not a lawyer so this is all just a guess on my part. You have almost a year anyhow until the trial and TIK should report some great numbers in that time. And of course the trial could continue getting backed up
Dan
New write up on TIK.
I have done a lot of research into TIK and wrote it up on my blog.
http://www.nonamestocks.com/2015/05/why-is-tik-so-cheap.html
I could not get comfortable with the lawsuit so I took no position. Lot of background info there for anyone researching the company
Someone really wanted to get out today
I agree. I think they're getting orders on all 3 new pallets and the question is how much and for how long into the future. Kruger said a new mold costs about $250k a few years ago. The range of outcomes here is pretty large.
They seem pretty excited about the new 48x40 pallet. I have no idea the market though but that's a more standard pallet size I think so could be big. It'd be interesting to see a breakdown of all their sales by pallet type and size.
I'm still surprised the pallets can be that different of a size between AB and MC. I mean they are making the same product shipping to similar locations in the same country in what are probably similar trucks with similar dollies/forklifts/etc. And they've been doing it forever. I would expect them to converge on the same type of operation. I'm sure they have their reasons though and if they have equipment set up for a certain size of pallet then it could be expensive to change sizes. Maybe AB changing from 32x37 to 37x37 is enough of a change to give benefit while a small enough change to not disrupt operations much.
Can changing from 32x37 to 37x37 really help much though? If you're stacking cases of beer how does that help you fit more product on the pallet?
Could you measure the AB pallets? That'd be great! I have been looking at pictures online and I think AB uses this 32x37 Rehrig pallet but I'm not certain
http://www.rehrigpacific.com/resources/downloads/get/90
More email questions for the CFO.
I talked to the Rahhal again after the 10Q the other day. Here's what he said:
1. Today's PR mentions the two pallets that were also mentioned in a PR last quarter: slim keg and 48x40 nestable. This quarter's PR also mentions a new 37x37 beverage pallet. How does the new 37x37 beverage pallet differ from the existing MC beverage pallet? I know the MC pallet is an open rack 40x32 design. The 48X40 is not a nestable but a lighter weight standard pallet designed to meet OSHA requirements for pallets not to exceed 50 pounds. The 37X37 was designed for a market that uses this pallet size. The 48X40 was designed to meet the requirements of a new customer, but the company feels that its weight and versatility (configuration to meet racking or other requirements0 make it very marketable.
2. Are these three new pallets ready for production delivery or still in the test & development phases? When do you anticipate shipping product from these new pallets? Do you have orders in place for any of these? All three molds are in place ready for production. There are no specific orders in place for these pallets, except that a company has been testing the 48X40 and is very pleased with the results.
3. Is the new 37x37 beverage pallet for one specific customer or more of a general development of your product portfolio? If it was created for one specific customer, can you tell me who this is? Both. The company does expect an order for these pallets, but there is currently no commitment.
4. For the big wine company order that is to be filled over the next few months, is that a pallet you already have available or a new design?this is a mold which has been in inventory for several years.
5. I see that finished goods inventory has gone up quite a bit. Are you having problems selling product or is this in preparation for some big deliveries coming up soon? I know you will start shipping to the wine customer soon and maybe there's another? Because of the seasonality of a major customer, it is necessary to build inventory during the third quarter to meet the customer’s needs.
6. The 10Q mentions that last year there were some non recurring pallet sales in 2014. Can you explain a bit more about this? What makes this non recurring versus any of your other pallet sales? Perhaps they were part of a test order? The company sold pallets to satisfy a customer’s immediate need. The customer abbreviated its normal testing. There was a problem that occurred with the use of the pallet with manual forklifts. To maintain goodwill and to build customer relations, Greystone agreed to take back the pallets which were recorded into inventory at scrap values.
7. Do you see a market for tolling services outside of Trienda? Unknown at this time, but limited.
8. Are there any plans to further the relationship between Trienda and Greystone? Not at the present time. There is may be synergetic opportunities for certain designs due to the different processes and applications between the two companies.
9. On the new 37x37 beverage pallet from the press release, how does that differ from the 37x37 pallets already advertised on your website? The new design has wider slots to accommodate manual forklifts. Also, the clips that hold the top and bottom together were changed to be less susceptible to breakage.
10. Is the new 37x37 beverage pallet different from the one sold to MC mainly just in the size? Is that just a preference thing with different customers and whatever manufacturing/distribution systems they have in place? MC does not use this size.
I think the new 37x37 pallet is the AB pallet. Of course I don't know for sure and GLGI will not talk about AB so I can't confirm this. We will have to wait and see
I think the non-recurring costs from last year were the test pallet order from AB. Rahhal says there was a problem that occurred with the use of manual forklifts. He also says the 37x37 new pallet is different from their old 37x37 pallet in that it can accommodate manual forklifts. And we know the non-recurring was not from MC because it was listed in their non-MC income.
I wonder if the whole story is this: AB contacts GLGI about a 37x37 pallet and GLGI sends them some. AB finds a problem due to manual forklifts and since GLGI wants the new business, GLGI swallows the costs and designs a new pallet that is good with AB's forklifts. Now the pallet is complete so AB can order production quantities.
The next question to me is what the quantity will be of AB's order. I think AB uses a 32x37 pallet now and I don't know why they would want to switch to a 37x37. MC uses a 40x32. I feel like GLGI must see a good opportunity if they're willing to eat those costs last year but who knows.
And I still wonder why AB wants to use GLGI when they have a 10-15 year relationship with Rehrig. Only thing I can think of is that the Rehrig pallets are recylable but not recycled while the GLGI pallets are both. I know AB has an environmental initiative and perhaps that is driving this whole thing.
Who knows. I am eager to see what happens over the next few quarters now that the new pallets are ready for production order.
yeah it sure does seem bigger. Wish I would've saved it months ago
Does anyone have Greystone's product page saved from some time in the past? I would like to compare what's on there now versus what used to be on there. I should've started saving the site long ago
For real. Greystone blends and pelletizes plastic resin for Trienda using equipment and raw materials owned by Trienda. What a mess
Additional PR from GLGI
They have out a press release stating:
Warren Kruger, CEO, stated, "While the company's sales lagged for the reporting periods, the outlook for the fourth quarter is very promising with the fulfillment of orders for our seasonal customers and business from new customers." Kruger continued, "'We are excited about the future of the new slim-keg pallet, the versatile-new 48X40MVP pallet and our 37X37 beverage pallet as these pallets are testing extremely well."
Kruger adds, "Our entire organization is committed to the Company's goals, producing results that are in line with the expectations laid out in our business plan and continuing to build value for our shareholders. The diligence and patience exhibited while working through an extended series of challenges and opportunities will be rewarded. Plastic pallets are more frequently being recognized as a necessity rather than a luxury and our 100% recycled plastic products help the environment while providing sustainable money saving solutions. Growth is coming from a broad range of products and new product designs with concentrations in the beverage, agriculture, and pharmaceutical industries."
Last quarter they mentioned two new pallets which were the nestable and slim keg; they had the AB pallet in testing and did not mention in. In this latest PR I think the 48x40MVP is the nestable and the 37x37 beverage pallet is the AB pallet
So they are doing business with Trienda now. I wonder what will come of that
Few bad things. Sales to MC down about 4% yoy. Sales to other down 16.5% which they say is the result of some non recurring sales last year.
Some good things. Improved quality yoy since they said last year there were some customer returns, and earnings is up as a result. They've started selling tolling services; I wonder if that's solely for Trienda or if there's more market there.
And then there's the huge ballooning of finished goods inventory. Could be good if they have a big order coming or could be bad if they're having issues selling product. Or could end up being nothing
Next Q should have the start of the big wine order so that's good. Still waiting on the whole AB thing...
That's interesting. Makes more sense than Kruger waking up one day and deciding that he needs to increase his holdings by 0.04%
haha. It's so funny to see someone with $2.4M in stock go spend $1k on more. slow and steady I guess
Now I'm going to be wondering if every purchase I see is his, just like I was in January
So Kruger is buying again. He just filed a form 4 disclosing a small order. Why is he buying now after no activity for two months? I'm just glad there is some news to read. This non-activity is killing me. I can't wait for earnings
I don't know if that's new. Their product page shows way more than 7 pallets so I feel like that is old. They've been talking about leasing for years so that idea is not new. But I don't know for sure. Maybe the AB stuff is a lease deal, that would be great. If have to search around to check out that distributor. I know they've been working with a distributor for a long time but can't remember their name.
I wish it was time for the next 10q. I'd really like to hear some news
woah, that is huge! I wonder who he bought from and if he's going to stop. Every time I see a purchase I wonder if it's him. That's 1.6% of the outstanding shares a price 43% higher than current
He must really think it's undervalued.
Why do you think AB has contacted Greystone? Anyone have thoughts on this?
I have been wondering what AB wants with Greystone. I know that AB has been purchasing plastic pallets from Rehrig Pacific since at least 2003 so what would they want with GLGI? As Phaedrus has said, AB was purchasing $20M annually at least at one point so I imagine that by now AB would have as many plastic beverage pallets as they want. Rehrig has been around for something like a hundred years so I doubt they're going anywhere. Does anyone have a theory? Maybe AB wants a specialty pallet that Rehrig doesn't supply like the keg pallets.
Most of Rehrig's products are other plastic things like bins and trash cans. They have some large contracts for cities to use their garbage pins and things like that.
The only difference I can think of is on the recycled content side of things. Rehrig's website states the pallets are "100% recyclable" and that "our products are designed to contain as much as 100% recycled material, depending on customer requirements." These statements only mean that all their products could be recycled into something and that at least one of their products is made from 100% recycled material. I have read in a comment on a forum that Rehrig offers a pop bottle credit similar to GLGI where they'll buy back a broken pallet for some amount. AB has an environmental initiative that is striving to do things like reduce water usage, greenhouse gases, etc:
http://legacy.ab-inbev.com/go/social_responsibility/Environment/2017_Goals.cfm
So my conspiracy theory is that, as part of their environmental initiative, AB wants recycled pallets and Rehrig doesn't supply those so they are going to have GLGI replace their existing pallets as the Rehrig pallets break. AB will ship the broken Rehrig pallets to Greystone who will grind them up and mix up their special sauce then mold new recycled pallets. AB will slowly transition to using GLGI pallets.
Along with this theory, the Dec 2013 test pallets sent from GLGI to AB were normal GLGI beverage pallets for AB to check the supplier's quality. Then AB sent old rehrig pallets to GLGI who came up with a design and plastic mix that will work for the required load. The new mold is done and the latest test pallets sent to AB are the final design using Rehrig's broken old pallets.
I think if Rehrig's pallets were made of recycled materials then they would state that explicitly instead of saying they are "recyclable." Maybe the only way Rehrig can get the high strength necessary for the beverage pallets is to make them with virgin plastic and then when the pallets break they are recycled into other low strength products like soda trays.
I've emailed AB and Rehrig but that was a dead end. I emailed GLGI to ask if they could recycle another company's pallets and if anyone had ever asked them to do that but they didn't respond. Maybe the no response is because that's exactly what AB and GLGI are doing, or maybe I spend too much time thinking about this stuff...
IBC has granted GLGI the waiver they requested for violating the debt service coverage ratio in the most recent quarter. http://goo.gl/p8YKJZ
Also Kruger is still buying. He filed two more form 4s this week. It's funny to see him buy $525 worth of stock