Graphic Packaging Holding Company

Greetings. Welcome to the Graphic Packaging Holding Company fourth quarter and full year 2024 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Melanie Skigis. Vice President of Investor Relations, you may begin.

Good morning and welcome to Graphic Packaging Holding Company's fourth quarter and full year 2024 earnings call. We have with us on the call today Mike Doss, the company's President and Chief Executive Officer, and Steve Scherger, Executive Vice President and Chief Financial Officer. On today's call, we will be referencing our fourth quarter and full year 2024 earnings presentation, which you can access through the webcast and also on the investor section of our website at www.graphicpkg.com. Today's press release and the presentations made by our executives 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. Now, 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. In 2024, we demonstrated the strength of our business model, delivering strong and steady margins in challenging market conditions. We are well positioned for 2025 and to meet our Vision 2030 aspirations in the years ahead. For the full year 2024, graphic packaging sales were $8.8 billion, adjusted EBITDA was $1.7 billion, margins were 19.1%, and adjusted EPS was $2.49. In the fourth quarter, graphic packaging sales were $2.1 billion, adjusted EBITDA was $404 million, margins were 19.3%, and adjusted EPS was 59 cents. Turning to slide three, 2024 marked the start of our transition from our Vision 2025 transformation plan to Vision 2030, which we presented at our investor day last February. Our transformation to a leading consumer packaging company will be largely complete later this year. I will come back to Vision 2030 later in my remarks. In May of 2024, we divested our Augusta, Georgia, bleach paperboard manufacturing facility, along with most of our open market bleach paperboard sales exposure. Augusta was a high-quality asset with a strong team, but did not have the level of competitive advantage we believe was required to support ongoing capital investment. We elected to put the capital to better use for our stockholders. After the day of estature, 95% of our sales come from high-value consumer packaging. We made a number of moves during 2024 to improve our environmental footprint, including the execution of a virtual power purchase agreement, which significantly increases renewable energy use in our European operations. Minimizing our environmental footprint and helping our customers minimize theirs is fundamental to our mission. During the second quarter, we applied $200 million to the Augusta domestic common shares outstanding, and during the full year 2024, we paid dividends of $122 million. After the close of 2024, and in recognition of the strong results our business model is delivering, as well as declining capital spending needs, the Board of Directors approved a 10% increase in our quarterly dividend to $0.11 per share, effective with the April 2025 dividend payment. Volumes did turn positive in the second half, up 1%, although the pace of normalization was slower than we and many of our customers had anticipated. Four-year volumes are down approximately 1%. We delivered a scoring 19.1% adjusted EBITDA margin for the four-year 2024, with outstanding quarter-to-quarter stability, despite a challenging market environment. Our financial performance demonstrates just how much graphic packaging has evolved. When I became CEO back in 2016, our business, which was about half the size, far less balanced than it is today, wasn't capable of generating the consistency that we now deliver. Our team has done an outstanding job executing at a high level to build a consumer packaging business capable of generating strong and steady margins and cash flow across a variety of market environments. 2024 saw clear consumer focus on finding value, significant growth in private labels, and more consumers shopping for groceries at club and super stores. Our portfolio, which is designed to move with the consumer, responded well to those trends. We introduced new packaging innovations in all categories with significant new product innovations for our private label customers across the US and Canada and Europe. As our experience demonstrates, our private label customers and retailers are just as committed as our branded customers to plastic reduction, and to a more circular, more functional, and more convenient packaging that consumers prefer. And finally, we delivered innovation sales growth at $205 million in 2024. Turning to the fourth quarter on slide four, our Waco, Texas recycled paper board investment is moving ahead well and remains on schedule for startup in the fourth quarter. On a smaller scale, but no less important strategically, we continue to make targeted investments in our packaging facilities to drive productivity and expand our capabilities. Culture is the second pillar of Red Vision 2030, and keeping our team safe and focused on delivering results for customers is essential to our success. We continue to have one of the industry's best safety records, and in the fourth quarter, we saw improvement in employee engagement. We had an 87% global participation in our recent employee survey, which is really outstanding, and we saw a meaningful improvement in 11 of the 12 categories we measure. Engagement and safety go hand in hand and are two of my highest priorities. In the fourth quarter, volume was up 1%. Price was down 2%, consistent with the second and third quarter results. Results in beverage, food service, and household were relatively steady overall, while food was modestly weaker and health and beauty remained mixed. We saw further gains during the quarter with our private label customers and participated in the continued growth in grocery sales by club and super stores. In Europe, where consumers tend to shop more often for prepared, ready-to-eat foods, we are seeing volume gains with our convenience channel customers. The European convenience channel is a high-service, rapid turnover, refrigerated food market where our extensive packaging and logistic capabilities are a critical competitive advantage. As I noted, innovation sales growth of $63 million in the quarter brought our full-year innovation sales growth to $205 million. We are well positioned to achieve our goal of at least 2% innovation sales growth again in 2025. Our customers are always looking for better, more sustainable packaging solutions, and no one has invested as much or built as powerful a platform as we have to deliver the more circular, more functional, and more convenient packaging solutions that consumers prefer. Slide five is a reminder of just how broad our portfolio really is and why we are able to generate strong results even in challenging market conditions. Turning to slide six, let's look at our sales in more detail. Overall, year-over-year fourth quarter and full-year packaging sales were roughly flat, with a relatively steady performance in beverage, food service, and household, of modestly weaker results in food. Food represented approximately 38% of our packaging sales in 2024, and here we saw a continuation of the uneven results we experienced all year. We saw significant gains in pasta, which is seeing growth from consumers looking for simple and less expensive alternatives to prepared meals and takeout. We were also participating in the growth in mac and cheese. Always an affordable choice, mac and cheese is also benefiting from the newer gourmet varieties, which are taking a classic comfort food off-market while remaining relatively affordable. It is worth noting that in both the Americas and in Europe, private label represented the biggest share of the growth we are seeing in both pasta and mac and cheese, although branded is also doing well. But these gains were not enough to offset the continued weakness in frozen and refrigerated prepared foods categories, which tend to come in at a higher price point. Confectionery continues to see weakness in Europe as a result of high cocoa prices, while the U.S. demand has been more stable. Coffee and tea saw significant gains, thanks in part to our Bordeaux product innovation, but also from a shift in coffee consumption to home and office and away from coffee shops driven in part by the consumer focus on value. Categories like yogurt did well in both the Americas and Europe as consumers opt for this less expensive source of protein. As we think about shifting food purchasing behavior, it is important to consider the role retailers are playing. While growth in private label is significant, retailers are also creating and expanding loyalty programs. Loyalty programs are designed to keep consumers coming back at a time when consumers are increasingly visiting more stores but spending less in each one. The market will continue to shift, and graphic packaging is one of the very few companies with the capabilities to execute quickly and in scale for the largest CPGs co-packers, and smaller regional customers. The average, which represents about 25% of our overall packaging sales, saw some modest improvement with continued solid growth in Europe. Our European business is benefiting from regulatory requirements to eliminate plastic, and we expect those regulations to support growth in the business for several years to come. We are well positioned after the investments we have made in anticipation of this trend, including at Bristol in the U.K., where we've doubled the size of our facility and built a world-class innovation center. Food service represented 21% of our packaging sales in 2024. After 11 consecutive positive quarters, nine in a row, with over 5% year-over-year growth, we saw stability in the fourth quarter against a very strong comp last year. Our multi-year outperformance of the food service market has been driven by the growth in investments we've made and in innovations, that are helping our customers meet their goals to reduce plastic consumption and improve functionality. Food service continues to represent a big opportunity for us, driven by plastic and foam replacement and the demand for better, easier to use, and easier to recycle containers. Promotional activity by quick service restaurants remains strong. Our food service customers continue to focus on value options and are making other menu changes to drive volume. Household products represents approximately 12% of our packaging sales, and the results were generally flat year over year. Tissue continues to be one of the weaker year over year, but we are seeing better growth in cleaning products, particularly in Europe, as we are in pet care. Over time, we see clear opportunities to expand this part of the portfolio in both the Americas and in Europe. And finally, health and beauty, a small but promising part of our overall packaging sales, continues to show mixed results. This is mainly a European business for us now. Although we have some very exciting opportunities here in North America, thanks in part to Paysetta Rainier, our 100% recycled paperboard that performs as well as more expensive bleached paperboard. The high end of the cosmetics market remains challenged, but we are seeing improvement at the lower price points. Fine Fragrance is also showing encouraging gains. Healthcare remains challenging, but we suspect the majority of the destocking is over If you'll turn with me to slide 7, we present typical seasonal patterns on the left and our actual and expected experience on the right. Seasonality in the fourth quarter was relatively normal in beverage, where we saw the usual dip, but as I noted, after 11 quarters of impressive gains, our food service results were relatively flat in the fourth quarter. Our other markets, food, household, health, and beauty, performed broadly in line with normal seasonality patterns overall, with quite a bit of variation within those segments. driven by the consumer search for value. Monthly patterns were also mixed. October overall was not as strong as we typically see. November was fairly normal, and December followed the typical pattern, but with incremental impact from the timing of the holidays this year, as expected. I have already summarized our fourth quarter experience. Looking ahead to the first quarter, we expect the consumer's focus on value to remain strong. And importantly, as you are hearing from many of our customers, driving volume is moving up in priority. Many of our food and beverage customers are rolling out more new products and new configurations to reach consumers in new and existing channels. In food service, we continue to see focus on promotion with new menu choices emphasizing value and more limited time offerings designed to drive foot traffic. Each of these represent an opportunity for us to partner with our customers to create real value and we are encouraged by the level of engagement we are experiencing. Slide 8 outlines the company's five packaging innovation platforms and notes the scale of the opportunity we see in each one. Each of these five platforms made important contributions to our innovation sales growth in 2024 and will again in 2025. Alongside volume growth, plastic substitution is a top priority for many of our customers, and we have outstanding, commercially proven solutions for a very wide range of new applications. Turning to slide nine, I thought it would be useful to step back and look at the breadth of the innovation we delivered in 2024. Each quarter I've been highlighting an innovation win, but there are dozens of exciting new packaging innovations that we haven't talked about. From trays and bowls to beverage multi-packs to toothpaste to razor blade packaging, we have introduced some of the most innovative, most functional, and most convenient new packaging available anywhere. We are a clear global leader in sustainable consumer packaging innovation, and we are excited about the opportunities we see in the year ahead. On slide 10, you can see from the picture that our Waco, Texas recycled paperboard investment is moving ahead nicely. Our decision to accelerate equipment purchases has helped us de-risk key elements of the project. Today, we have all the major equipment on site, and that gives our contractors more flexibility and more ways to stay on schedule. We are signing recovered fiber contracts to coincide with the startup, setting up the logistics to bring trimmings from our own packaging plants to Waco, and talking to a wide range of sources to collect and recover paper cups. We designed Waco to be able to recycle up to 15 million paper cups per day because cups are an outstanding fiber source. Our ability to process paper cups generated in the Texas Triangle of Houston, Dallas, and San Antonio is one of the many competitive advantages that we've designed into this important strategic investment. Stepping back for just a moment, Vision 2025 was about transformational investment, investment in capabilities to drive greater top-line consistency, investments in innovation to drive growth and create the kind of packaging that consumers prefer, and investment in competitive advantage, which is what our Waco recycled paperboard manufacturing facility is all about. Waco is the last major investment of Vision 2025 and will allow us to fully capture the competitive advantage in quality and economics that started with our Kalamazoo investment and will soon be in place throughout North America. Turning to slide 11, Vision 2030 marks our transition from major transformational investment to innovation and execution. We have built a world-leading sustainable consumer packaging company on a foundation of innovation, an exceptional team, and a commitment to protecting and preserving the planet. We focus our resources to deliver outstanding results for customers, stockholders, and all our stakeholders. We are already making excellent progress towards our Vision 2030 goals and aspirations, and I'm incredibly proud of the results our team delivered in the challenging market environment we and our customers faced in 2024. Now let me turn it over to Steve for a review of our company's financials and operations. Thank you, Mike.