Graphic Packaging Holding Company (NYSE:GPK) is a leading global provider of consumer goods packaging made from renewable or recycled materials. The company designs and manufactures sustainable packaging solutions including cartons, multipack cartons, trays, carriers, paperboard canisters, and cups and bowls, made primarily from unbleached paperboard, recycled paperboard, and bleached paperboard.
Financials
In 2023, Graphic Packaging generated annual net income of $723 million on revenue of $9.428 billion, with annual operating cash flow of $1.144 billion and free cash flow of $340 million. The company's transformation over the past 8 years has built a stronger, more diverse consumer packaging portfolio capable of delivering more consistent results, solid growth and substantial cash flow.
During the first quarter of 2024, Graphic Packaging reported net sales of $2.259 billion, down 7.3% year-over-year. Adjusted EBITDA was $443 million, with an adjusted EBITDA margin of 19.6%. Adjusted EPS was $0.66 for the quarter. The company noted that the biggest driver of the sales decline and EBITDA decline was its decision to reduce production of bleached paperboard to match demand.
Segment Performance
Graphic Packaging's Americas Paperboard Packaging segment reported net sales of $1.531 billion in Q1 2024, down slightly from $1.544 billion in the prior year period. Income from operations for the segment was $281 million. The Europe Paperboard Packaging segment generated net sales of $470 million, down from $532 million a year ago, with income from operations of $19 million. The Paperboard Manufacturing segment had net sales of $223 million, down from $316 million, with a loss from operations of $26 million.
Recent Developments
The company's diverse consumer packaging portfolio performed broadly as expected in the first quarter, with sales improving sequentially compared to Q4 2023. Graphic Packaging saw volume improvement in certain markets and customer categories, including foodservice and beverage. Excluding the impact of the Augusta bleached paperboard manufacturing facility sale, the company expects to generate positive full year sales growth in 2024 as it partners with customers to deliver sustainable packaging solutions.
Graphic Packaging's innovation sales grew $37 million in Q1 2024, with contributions across all five of its innovation platforms. Key innovations included the Nissin Noodles Cup, the Chick-fil-A Cold&Go Cup, and the Boardio paperboard canister solutions. The company remains confident it will meet its $200 million innovation sales growth target for 2024.
The company's Waco, Texas recycled paperboard manufacturing facility is progressing well, with foundations largely complete and buildings for incoming fiber and outgoing paperboard already in use. Once operational, Waco is expected to deliver an incremental $80 million in EBITDA in each of 2026 and 2027. Graphic Packaging also opened a new beverage packaging and innovation facility in Bristol, UK to support its growing European beverage business.
Outlook
Graphic Packaging expects to see an acceleration in volumes as 2024 progresses, with positive sales growth for the full year excluding the impact of the Augusta facility sale. The company has updated its 2024 guidance to reflect the partial year ownership of Augusta, with an expected EBITDA impact of $65-$70 million for the year. Graphic Packaging maintains its long-term Vision 2030 financial targets of low single-digit sales growth, mid-single-digit adjusted EBITDA growth, and high single-digit adjusted EPS growth.
The company's transition from Vision 2025 to Vision 2030 will see a shift towards execution and cash flow generation. Graphic Packaging expects to generate over $5 billion in cash through 2030, which it plans to deploy towards reinvesting in the business, maintaining a strong financial position, and returning capital to shareholders through dividends and share repurchases.
Conclusion
Graphic Packaging's transformation into a global leader in sustainable consumer packaging has positioned the company well to capitalize on evolving consumer preferences and regulatory changes, such as the European Union's new Packaging and Packaging Waste Regulation. The company's diverse portfolio, innovation capabilities, and operational excellence have enabled it to deliver consistent results across a wide range of economic conditions.
With a focus on sustainability, innovation, and operational efficiency, Graphic Packaging appears well-positioned to continue its growth trajectory and create value for shareholders in the years ahead.