Graphic Packaging Holding Company

Hello and welcome to the Graphic Packaging Second Quarter 2022 Earnings Call. My name is Katie and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. I'll now hand over to your host, Melanie Skiges, Vice President of Investor Relations, to begin. Melanie, please go ahead.

Good morning and welcome to Graphic Packaging Holding Company's Second Quarter 2022 Earnings Call. Joining us on our call today are Mike Doss, the company's president and CEO, and Steve Scherger, executive vice president and CFO. To help you follow along with today's call, we will be referencing our second quarter earnings presentation, which can be accessed through the webcast and also on the investor section of our website at www.graphicpkg.com. Before I turn the call over to Mike, let me remind you that today's press release and the presentations made by our executives include four looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the release and in our filings to the Securities and Exchange Commission. With that, let me turn the call over to Mike.

Thank you, Melanie. Good morning to everyone joining us on the call and this webcast this morning. The second quarter of 2022 was a very strong quarter overall. We demonstrated clear progress on our Vision 2025 goals. During the quarter, we advanced our strategic objectives, building upon our three-year track record of sustained net organic sales growth and delivered margin expansions. Financial results benefited significantly from a positive price to commodity input cost relationship, strong contributions from recent acquisitions, earnings on our organic growth and positive net productivity. Given strong overall performance and execution, we are upwardly revising our full year 2022 adjusted EBITDA guidance range today. Beginning on slide three of the earnings presentation, we provide key highlights another quarter of 3% net organic sales growth, matching our year-over-year growth achieved in the first quarter. In addition, in line with our guidance to increase integration rates in 2022, year-to-date integration was up 300 basis points to 74% for the same period in 2021. Adjusted EBITDA moved higher to $396 million, an increase of 60% or $148 million from the prior year period. Adjusted earnings per share, excluding amortization of purchased intangibles, more than doubled from the same quarter last year to $0.60. We operated well in the quarter, servicing our global base of customers. We continue to successfully ramp up our new K2 coated recycled board machine in Kalamazoo, Michigan. The startup has gone extremely well, and full production capacity is expected by mid-2023. Accordingly, we closed the Battle Creek mill and have successfully sold paperboard inventory. Returns on our transformational investment in Kalamazoo are on track, and I'm excited about the new opportunities we're seeing in packaging applications that will increasingly utilize coated recycled paperboard. Successful $400 million of positive price cost in 2022, fully offsetting the $180 million dislocation we experienced in 2021. The resulting higher 2022 adjusted EBITDA guidance midpoint of $1.55 billion will drive significant cash flow. This will allow us to deliver quickly. We expect year-end leverage will be in the range of 3.0 to 3.5 times, well on our way to a targeted range of 2.5 to 3.0 times. Turning to slide four, during the quarter, we continue to execute the pricing necessary to offset commodity input costs. $278 million of positive price flowed through the business, more than offsetting commodity input cost inflation of $180. In the first half, we realized a favorable price-cost relationship of nearly $140 million. On this slide, you see full-year expectations for commodity input cost and price realization. We refined our expected range for commodity input costs to $550 to $650 million. Pricing expectations for the full year were increased roughly $100 million. cost relationship for the full year has increased 50 million dollars at the midpoint from our previous guidance. Finally, as we committed last quarter, you will also see we are providing an initial look at current rollover estimates into 2023. Based on known pricing initiatives, we expect 300 million to 400 million dollars in 2023 pricing rollover. At current commodity input costs, rollover input cost inflation would be in a range of $100 million to $150 million. Please note these figures are directional in nature and are point-in-time estimates. These figures should not be viewed as official guidance for 2023. Turning to slide five, let me walk through some examples of innovation and new products being developed for our customers by our expanded team in Europe. have shared with you our excitement regarding the growth potential we see with existing and new customers markets and geographies seeing is believing and this slide showcases a small sample of fiber-based consumer packaging solutions recently launched by our european team in healthcare the tamper-proof testing kit for athletes from loccon won the 2022 swiss packaging award our design team in europe made entirely from paperboard sourced from responsibly managed forests and replaces the previous plastic packaging solution. When Beersdorf Healthcare launched its first climate neutral bandages to the market as part of its sustainability agenda, the company wanted new packaging that mirrors the sustainable nature of the new green and protect branded products through wound care. The packaging solution featured here is made from unbleached fibers, comes from 93% As desired by BeerStore, the graphics reflect the product inside and features multi-level 3D embossing and special varnishes to recreate the look and feel of the bandage. The packaging serves to capture consumer attention from the store shelf. You will also see on this slide the new sustainable packaging Let me conclude my prepared remarks on slide six. The investments we have completed and the initiatives we are undertaking to advance our capabilities, engage our employees, and optimize our operating infrastructure have and will continue to differentiate the company. We are leaders in sustainable fiber-based consumer packaging. Our integrated packaging solutions are made primarily from renewable wood fiber from sustainably managed forests in the United States. paperboard we source for operations in Europe and other geographies outside the U.S. is also made from sustainably managed forests. Greater than 95% of our fiber-based packaging solutions can be recycled today. While there's always room to improve actual recycling rates, we expect the percentage of fiber-based packaging that is recycled in the communities to continue to increase as collection processes are improved and municipalities accept more fiber into the recycling stream. We will continue to invest behind recycling initiatives, consumer education, and new product development through specific company initiatives and through paper and packaging industry associations. The strong performance and cash flow generation expected in our business will result in rapid deleveraging of our balance sheet. This will allow us to continue to execute our long-term balanced approach to capital allocation, including investments back into the business, execution of high-return strategic M&A, and opportunistic return of capital to stockholders. We are meeting or exceeding important 2022 milestones on our path to our vision 2025. We are delivering on new product development opportunities for customers, and today we have exceeded our sustainably supported organic sales growth goals. We expect net organic sales growth in 2022 to be at or above the high end of our targeted range. Our ability to help customers reduce their environmental impact and elevate their brands through innovation and improvements in packaging is driving profitable growth for us well into the future. With that, I'll hand the call over to Steve for a review of the financials. Steve, over to you. Thanks, Mike, and good morning.