Graphic Packaging Holding Company

Good day, everyone, and welcome to the Graphic Packaging Third Quarter 2024 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Melanie Skigis. Ma'am, the floor is yours.

Good morning, and welcome to Graphic Packaging Holding Company's Third Quarter 2024 Earnings Call. Joining us on our call today are Mike Dawes, 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 third 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 are include forward-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 with the Securities and Exchange Commission. With that, let me turn the call over to Mike.

Thank you, Melanie. Good morning, everyone, and thank you for joining our call today. Graphic Packaging is a global leader in sustainable consumer packaging with a portfolio constructed to deliver consistency and growth across a wide range of economic conditions. Considering the uneven market conditions we have experienced in 2023 and 2024, we are indeed delivering solid results. In the third quarter, Graphic Packaging sales were $2.2 billion. adjusted EBITDA was $433 million, and adjusted EPS was $0.64. We saw a clear but muted pivot to volume growth of 1% during the third quarter after Europe's return to growth last quarter. Price was down 2%, roughly the same as last quarter. The company's adjusted EBITDA margin, despite the modest volume growth and some weather and power disruptions, was a very solid 19.5%, in line with our expectations. That speaks to the strength of the business we have built. In a challenging environment, we are delivering strong and consistent margins you should expect from a consumer packaging leader. Turning to slide three, the Waco, Texas recycled paperboard manufacturing facility investment remains on track for the fourth quarter 2025 startup. We have recently begun the hiring process and made our first hires. The pool of applicants we are seeing is excellent As expected, an attractive labor pool is one of the key reasons the company selected Waco for this important strategic investment. Once Waco is up and running, we will be able to service the entire North American market with the highest quality coated recycled paper board from two locations in Michigan and Texas. Waco will further expand the company's long-term competitive advantage in both cost and quality. During the quarter, we also made a number of packaging facility investments, and I'd like to highlight one in particular at our Poznań packaging facility in Poland. We recently completed the commissioning of a Heidelberg XL106 press with 10 colors, double varnish, another color at the end of the line, and a cold foil unit. This state-of-the-art equipment is designed for high-value, high-complexity printing and significantly enhances our position in the European health and beauty market. PoseNOT is an excellent facility with a very strong team and an ideal location for this kind of investment. This new press not only strengthens the company's product offerings, but also increases our manufacturing flexibility, both of which are especially important to the health and beauty customers. You may have seen our August announcement of a virtual power purchase agreement with Celestra, who will build two new solar power generating plants in Spain. The agreement is a key component of the company's plan to reduce Scope 1 and Scope 2 greenhouse gas emissions by 50.4% by 2032 and will take the company's purchased renewable electricity equivalent in Europe to approximately 70%. Reducing the company's carbon footprint is central to our mission as a leader in sustainable consumer packaging and part of what makes us the supplier of choice to leading consumer product companies, retailers, and restaurants. After the divestiture of the Augusta, Georgia, bleach paperboard manufacturing facility in May, consumer packaging makes up approximately 95% of our sales, with the sale of paperboard representing just 5%. As we have discussed in the past, the paperboard and paperboard packaging industry has changed dramatically, both in structure and in competitor strategies. As a result, market movements related to the sale and pricing of paperboard have become far more challenging for third parties to assess. And so perhaps not surprisingly, their results are increasingly inconsistent with what we see in the market. As we have previously disclosed, we are actively working to transition all graphic packaging customer contracts to more transparent and more accurate price change mechanisms. Beginning in the first quarter of 2025, we will no longer enter into new open market paperboard sales contracts that include third-party price change mechanisms. This move with paperboard sales is a small but important piece of our ongoing transition. Turning to the company's packaging results, as I noted, we saw a pivot to positive volume growth. Beverage and food service results were again solid, and we saw year-over-year improvement in food, household, and health and beauty, While we had expected somewhat stronger volumes overall, we were pleased to see improvement across a large number of product categories and geographies. Mass retail and super stores continue to gain share in the grocery category, and that includes both private label and branded products. We are participating in this shift with a number of recent innovation wins in private label and mass retail, particularly with new multi-packs and our proprietary Oreo paperboard canister solutions. Innovation sales growth in the third quarter was $54 million, in line with our expectations, and we remain on track to deliver $200 million for the full year. These results are impressive and speak to the high-priority customers put on moving to better, more sustainable packaging solutions. That is especially true in Europe, where regulations are creating some urgency for new solutions, but also in North America, where the consumer-driven push for more sustainable packaging remains strong. Slide four is a reminder of just how broad the company's portfolio really is and why we are able to generate solid results even in challenging market conditions. There's a very good chance that you've had at least one of our products in your hands in the last 24 hours. Now let's look at our sales in more detail on slide five. We saw overall packaging sales improve after two quarters of weakness. As you can see, we saw improvement in food, household and health and beauty, and continued solid performance in beverage and the food service markets. While we and many of our customers had expected even stronger volume improvement, the pivot back to positive volume growth is certainly encouraging. Food markets, which represent approximately 40% total sales, saw improvement across a number of categories. Performance has been uneven and impacted by promotional activity, which was much stronger in some categories than in others. Prepared food continues to do well with fewer people working from home, but consumers are choosing less expensive options. Frozen prepared meals, for example, remain weak, but frozen entrees are seeing growth among value conscious consumers who might otherwise grab dinner at a quick service restaurant. Refrigerated categories, including protein, were mostly softer. Higher prices for both beef and chicken are driving consumers to look for cheaper options. Private Label has been making inroads in bakery, where overall volumes remain relatively flat. And while high cocoa prices have dampened demand for confectionery in Europe, candy and gum held up better, and the U.S. has an affordable indulgence. Savory snacks and other discretionary food market have been weaker. In the beverage market, you've heard producers reporting uneven results, and we see that in our volumes. In beer, multi-pack volumes are down more than single-serve volumes, but in soft drinks, we are outperforming the markets. These results reflect innovation wins, particularly in Europe, where new regulations are phasing out plastic ring carriers and shrink wrap. We are also seeing pockets of strength in the U.S. in non-alcoholic beverage categories. Promotional volumes increased in our food service business, and you have all heard from some of the biggest quick service restaurants that they plan to extend third quarter promotions through the fourth quarter. Whether increased promotional activity will help restore sustainable volume growth remains an open question so far, but we are working closely with our customers to find the right solutions for their strategies. Beyond promotional activity, our food service customers are very focused on reducing or eliminating plastic, both in Europe and in the U.S. We have a range of development programs underway with a number of food service customers, and we will be highlighting one recent innovation success in just a moment. Household products results improved in the third quarter. The stronger results in tissue, pet care, and food storage. Investors often ask, are there gaps you would like to fill in your portfolio? And the answer, broadly, is that our portfolio as a whole has very few significant gaps. But in household products, which is an exceptionally broad market, we have some very strong positions, but also plenty of categories where we have substantial room to grow here in North America and in Europe. And finally, health and beauty continues to improve slowly. This is mainly a European business for us, and there, health care volumes remain relatively weak, while beauty has shown more improvement. Recently, we have seen many of the big cosmetic and personal care companies making a push for volumes with some success. We see a very attractive growth opportunity in these businesses in North America with our Pace Center Rainier 100% recycled paper board, which performs as well as the more expensive bleach paper board. But big packaging change decisions take time, and even more so in markets with very demanding print and performance requirements like healthcare and cosmetics. We've been very encouraged by the feedback we are getting from customers who are testing the Rainier paperboard and expect to see solid growth in the years ahead. If you will turn with me to slide six, you will see what typical seasonality looks like on the left. And while 2024 has been anything but typical in many respects, quarterly patterns have held up reasonably well. During the third quarter, food was up sequentially and beverage was solid, but aggregate packaging sales were pretty flat sequentially. Monthly patterns have shown quite a bit more variation this year than we normally see. July, for example, is usually the weakest month of the third quarter, but this year was actually the strongest, edging out August. But September was unusually quiet. We saw a return to positive growth on the third quarter, as we had expected, with Europe continuing to improve after turning positive last quarter. The overall volume recovery remains quite gradual, however, even when we consider the relatively easier comps to the second half of 2023. The timing of promotional activity may explain some of the variations in normal patterns, and we are certainly seeing high levels of promotion across food and food service categories. but the stretched consumer is having an impact on overall demand, and so far, higher promotional activity does not appear to be translating into materially higher volumes. We saw continued strength in private label and mass retail, and overall, pricing was not very different from what we saw in the second quarter, down approximately 2% year over year. Looking ahead to the fourth quarter, we expect to see continued improvement in volumes driven by ongoing promotional activity the rollout of new products and more affordable price points, and the continued growth in mass retail superstore volume. But as you have been hearing from our customers, the strength and timing of that recovery has become more difficult to estimate. The shift from fall to winter means more indoor holiday entertainment, which tends to support strong demand in various food categories, but also is generally good news for food service demand, and especially in our product portfolio, hot coffee. Consumers continue to feel the pinch of relatively high food prices, and we are working closely with our customers to develop packaging solutions they need to deliver on their strategies to drive higher volumes. Demand for packaging that is more circular, more functional, and more convenient has never been higher. And today's affordability challenges, while creating some headwinds, are also creating new opportunities for graphic packaging to partner with customers to develop new and better solutions. Slide seven outlines the company's five innovation platforms, and I'm happy to report that we are seeing a high level of customer engagement across all five. Plastic substitution is one of the more common themes across many of our innovations, and we're having outstanding commercially tested solutions for a wide range of new applications. Turning to slide eight, last quarter I highlighted the company's paper seal shape tray and bowl technology, a major upgrade in the way prepared food is packaged with better product visibility and much less plastic. Today, I want to share a new food service innovation that was recently rolled out across the United States and Canada at McDonald's. McDonald's McFlurry is a soft-serve frozen dessert served in a cup with a choice of toppings. McDonald's wanted a more sustainable container for its North American markets with less plastic. Our development team worked closely with McDonald's and Hobby TMS on a packaging solution that reduces operational complexity and improves user experiences, while at the same time providing a reduction in single-use plastic. The wider opening and open-top design makes it easier for employees to fill and serve. They also improve the customer experience, making mixing easier. Plastic reduction is achieved with the replacement of the clear plastic lid with a built-in four-flap paperboard lid. These innovations in McFlurry packaging are helping McDonald's achieve its sustainability goals while improving operational efficiencies and advancing consumer experiences. A true win for the brand and for the environment. Along with the new McFlurry packaging, McDonald's announced the release of a smaller size mini McFlurry. We are pleased to support our customer with this new offering as well. Finally, I'll end where I usually do, with Graphic Packaging's Vision 2030 summary on slide 9. We are a global, sustainable consumer packaging company built on a foundation of innovation, exceptional people, and a commitment to protecting and preserving the planet. And we do that while delivering exceptional results for customers, shareholders, and all of our stakeholders. We are making excellent progress towards all of our Vision 2030 goals, and I am incredibly proud of the results the team is delivering, particularly in these challenging markets. Now let me turn it over to Steve for a review of the company's financials and operations. Steve? Thank you, Mike.