Executive Summary / Key Takeaways

• Strategic Pivot to Free Cash Flow: Graphic Packaging has completed its Vision 2025 transformation, culminating in the early startup of the Waco recycled paperboard facility. The company is now firmly focused on its Vision 2030 goals, prioritizing significant free cash flow generation, deleveraging, and shareholder returns.
• Technological Edge and Cost Advantage: The Waco facility, alongside the Kalamazoo K2 machine, represents a best-in-class, low-cost, high-quality recycled paperboard platform. This integrated system provides a durable competitive advantage, enabling GPK to outperform in a challenging market and strategically displace more expensive bleached paperboard.
• Innovation as a Growth Engine: Despite broader market softness, GPK's innovation platform consistently delivers, contributing $52 million in sales growth in Q3 2025 and targeting 2% annual innovation sales growth. This focus on sustainable, functional, and convenient packaging solutions opens new markets and strengthens customer relationships.
• Financial Inflection Point: Capital expenditures are set to decline sharply from a peak of $1.2 billion in 2024 to an estimated $700 million in 2025, and then to approximately 5% of sales from 2026 onward. This reduction, combined with Waco's EBITDA contributions and favorable tax dynamics, is projected to drive free cash flow to $700 million-$800 million in 2026 and $900 million-$1 billion by 2027 and beyond.
• Navigating Market Headwinds: While facing a "stretched consumer," unpredictable volumes, and "unusual competitive pressure" from bleached paperboard producers, GPK is actively managing costs, optimizing inventory, and implementing strategic price adjustments to protect its industry-leading margins and market share.

A Transformed Enterprise: Setting the Stage for Value Creation

Graphic Packaging Holding Company (NYSE:GPK) stands as a global leader in sustainable consumer packaging, having meticulously reshaped its enterprise over the past decade. Since Mike Doss assumed the CEO role in 2016, the company has evolved from a less balanced entity to a powerhouse capable of delivering consistent performance across diverse market conditions. This transformation culminated in the ambitious "Vision 2025" program, a period marked by significant investments in capabilities, innovation, and competitive advantage, now giving way to the "Vision 2030" era focused on execution and cash flow generation.

The company's core business revolves around designing, producing, and selling consumer packaging products made from renewable or recycled materials. These solutions, including cartons, multipack cartons, trays, carriers, paperboard canisters, cups, and bowls, serve a wide array of consumer markets from food and beverage to foodservice, household products, beauty, and healthcare. GPK's integrated business model, encompassing paperboard production and converting operations across over 100 locations in more than 20 countries, provides a distinct competitive edge in cost control and supply chain efficiency.

The broader packaging industry is currently shaped by several powerful trends. A "stretched consumer" grappling with high food prices and economic uncertainty has led to "uneven volumes" and a pronounced shift towards value-seeking behaviors, including increased demand for private label offerings and shopping at mass retail and superstores. Simultaneously, a global imperative for sustainability is driving demand for eco-friendly packaging, with the sustainable packaging market projected to reach $367.8 billion by 2030. GPK's strategic alignment with these trends, particularly its emphasis on fiber-based, recyclable solutions, positions it favorably.

Technological Leadership: The Waco Catalyst and Innovation Moat

At the heart of Graphic Packaging's competitive strategy lies its technological differentiation in paperboard manufacturing and packaging innovation. The company's significant investments in state-of-the-art facilities, particularly the Kalamazoo K2 machine and the recently operational Waco, Texas recycled paperboard manufacturing facility, are foundational to its long-term success.

The Waco facility, GPK's largest capital investment, began producing commercially saleable rolled paperboard on October 24, 2025, ahead of schedule. Modeled after the highly successful K2 machine, Waco is designed to be "the world's most efficient and highest-quality recycled paperboard manufacturing facility." This cutting-edge mill incorporates a blended fiber line capable of repurposing 250,000 tons of recyclable scrap paperboard from GPK's own facilities, enhancing circularity and reducing waste. A horizontal drum pulper at Waco can process up to 15 million paper cups daily, a critical capability given the Recycled Materials Association's recent inclusion of paper cups in recycling specifications. This not only addresses a significant underutilized fiber source but also dramatically boosts GPK's capacity for high-quality recycled paperboard. The facility also features a co-generation plant, generating its own energy and utilizing steam byproducts for paperboard drying, improving overall efficiency and reliability.

These technological advancements offer tangible, quantifiable benefits. Recycled paperboard, as produced by GPK's modern mills, boasts the lowest environmental footprint and significantly lower upfront and sustaining capital requirements compared to bleached paperboard. This cost advantage allows GPK to "match bleached paperboards appearance and print performance with a sheet that costs significantly less to make on equipment that requires a fraction of the capital to maintain."

Beyond manufacturing, GPK's innovation team is a key differentiator, consistently opening new markets for paperboard packaging. In Q3 2025, innovation sales contributed $52 million, representing approximately 2% growth and demonstrating the company's ability to outperform broader market trends. Examples include:

• Paperboard Punnets: These solutions for produce use up to 95% less plastic than traditional punnets and are recyclable. They have demonstrated an increase in shelf life of over three days for cherry tomatoes and slowed mold growth compared to plastic alternatives.
• EnviroClip Beam: A proprietary, plastic and glue-free solution for PET bottle multipacks, offering superior product stability and marketing value.
• Boardio Container: Driving solid growth in coffee packaging, benefiting from a shift towards home and office consumption.
• Nested Coffee Pod Solution: A design for club store customers that reduces package size by 21% and material use by 30% for the same number of pods, while improving shelf appeal and labor efficiency.

For investors, this technological leadership and innovation pipeline translate into a robust competitive moat. GPK's ability to produce high-quality, low-cost recycled paperboard, coupled with its proven innovation engine, positions it to capture market share from more expensive alternatives and expand into new product categories. This strategic advantage underpins the company's confidence in its long-term financial targets and its ability to generate superior returns.

Strategic Evolution and Financial Performance

Graphic Packaging's journey to its current position involved significant strategic portfolio optimization. In May 2024, the company divested its Augusta, Georgia bleached paperboard manufacturing facility for $711 million, along with most of its open market bleached paperboard sales exposure. This move was driven by a desire to reallocate capital from an asset that lacked the desired level of competitive advantage, focusing 95% of sales on high-value consumer packaging. Concurrently, GPK has been consolidating its manufacturing footprint, closing facilities like Middletown, Ohio (May 2025) and East Angus, Quebec (December 2025), to streamline operations and enhance efficiency as Waco ramps up.

Despite a challenging market backdrop, GPK has demonstrated resilience. For the third quarter of 2025, Net Sales decreased 1% year-over-year to $2,190 million, primarily due to lower pricing and volumes in the Americas, partially offset by positive international volumes and a $24 million favorable foreign currency exchange impact. Adjusted EBITDA for the quarter was $383 million, with a margin of 17.5%, down from 19.5% in Q3 2024. This decline was attributed to lower packaging prices, modestly lower volumes, and commodity inflation, partially offset by net performance. For the nine months ended September 30, 2025, Net Sales decreased 3% to $6,514 million, and Income from Operations decreased 26% to $648 million, impacted by the Augusta divestiture gain in 2024 and ongoing pricing and inflation pressures.

The Americas Paperboard Packaging segment experienced a decline in Net Sales and Income from Operations in Q3 and YTD 2025, driven by lower pricing and reduced packaging sales in food, beverage, foodservice, and household markets. Conversely, the International Paperboard Packaging segment saw Net Sales increase in both periods, supported by innovation sales growth, higher packaging volumes, and favorable foreign currency exchange, despite a decrease in Income from Operations due to inflation.

Operationally, GPK has focused on cost control and inventory reduction. The company achieved a $30 million capital release from inventory year-to-date, with expectations for an additional $20 million in Q4 2025. Capital spending for the first nine months of 2025 was $808 million, with $628 million dedicated to capacity expansion and process improvements, primarily for the Waco facility.

Competitive Landscape and Strategic Positioning

Graphic Packaging operates in a competitive industry, but its integrated model and focus on recycled paperboard provide distinct advantages. The company's primary competition stems from other paperboard manufacturers and converters, including major players like International Paper (IP), WestRock (WRK), Packaging Corporation of America (PKG), and Berry Global (BERY). While these competitors offer overlapping products, GPK differentiates itself through its specialized fiber-based solutions, innovation speed, and customer-centric approach.

A significant dynamic in the market is the "highly unusual competitive pressure from bleached packaging producers" who are offering discounts that "essentially matches recycled packaging pricing despite the obvious lack of profitability." This behavior is unsustainable given that bleached paperboard has "dramatically higher" capital costs and annual sustaining capital requirements. GPK's investments in Kalamazoo and Waco allow it to produce recycled paperboard that can match the appearance and print performance of bleached paperboard at a significantly lower cost. This positions GPK to "replace more expensive bleached paperboard in a range of markets" over time.

The coated recycled paperboard (CRB) and coated unbleached kraft (CUK) markets, where GPK is a major player, are generally in good balance. The net impact of Waco's 550,000 tons of new capacity, combined with GPK's own closures (Middletown, East Angus) and other announced competitor closures, is an estimated net addition of only about 75,000 tons to total industry capacity, ensuring market balance. GPK's flexible manufacturing system allows it to manage supply and demand effectively, using its K1 machine in Kalamazoo as a swing machine to optimize production from its most efficient facilities (Waco and K2).

GPK's strategic focus on innovation and sustainability also provides a competitive edge. The company's 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." GPK's capabilities allow it to "execute quickly and in scale for the largest CPGs, co-packers, and smaller regional customers." This adaptability and breadth of offerings are critical in a market where consumers are increasingly shifting preferences and retailers are expanding their private label portfolios.

Outlook, Guidance, and Capital Allocation: A Cash Flow Inflection

With the Vision 2025 transformation complete, Graphic Packaging is entering a new phase defined by its Vision 2030 goals, which target low-single-digit annual sales growth, mid-single-digit adjusted EBITDA growth, and high-single-digit adjusted EPS growth. The company has "modestly revised" its 2025 guidance to reflect an "increasingly difficult-to-predict volume outlook," with full-year adjusted EBITDA now expected between $1.4 billion and $1.45 billion, and adjusted EPS between $1.80 and $2.00. Volume expectations for 2025 have shifted from "+/- flat" to "-1% to flat."

Despite near-term volume challenges, the outlook for free cash flow is robust. Management is "confident in our ability to generate our targeted $700 million to $800 million of free cash flow in 2026." This significant inflection is driven by several factors:

• Capital Expenditure Reduction: Capital spending, which peaked at $1.2 billion in 2024, is projected to decline to $700 million in 2025 and then stabilize at approximately 5% of sales (around $450 million) from 2026 onward. This reduction alone is expected to generate a $400 million cash flow inflection in 2026.
• Waco EBITDA Contribution: The Waco facility is expected to deliver incremental EBITDA of $80 million in both 2026 and 2027. The start-up charges for Waco, estimated at $65 million-$75 million, are phased with approximately two-thirds in 2025 and one-third in 2026.
• Favorable Tax Dynamics: Federal cash taxes are expected to be "very favorable" in 2026, nearing zero, further boosting cash flow.
• Cost and Inventory Management: Ongoing efforts to reduce SG&A and plant costs, coupled with continued inventory optimization, will contribute to cash generation.

GPK anticipates achieving its original free cash flow targets of $900 million to $1 billion annually by 2027 and beyond, as market volumes normalize.

The company's capital allocation priorities are clear: deleveraging the balance sheet and returning cash to shareholders. GPK aims for a net leverage ratio below 3.5x by year-end 2025, having ended Q3 2025 at 3.9x. The company is committed to achieving an investment-grade credit rating by 2030. In October 2025, GPIL secured a $400 million delayed draw term loan to refinance bonds maturing in April 2026, demonstrating proactive debt management. GPK also authorized a new $1.5 billion share repurchase program, reflecting confidence in future cash flows, and increased its quarterly dividend by 10% in early 2025. Since 2018, GPK has repurchased approximately 24% of its outstanding shares.

Risks and Challenges

Despite a compelling long-term outlook, Graphic Packaging faces several near-term risks. The "stretched consumer" environment continues to create "unpredictable volume outlooks" and "soft demand," particularly in food packaging. Promotional activities by CPG and QSR customers have not consistently translated into meaningful volume growth, leading to caution regarding 2025 volumes.

Input cost inflation, including energy, chemicals, purchased materials, and logistics, remains a concern, with an anticipated $80 million impact in 2025. While GPK has implemented price increases, the timing of full recovery may extend into 2026. "Unusual competitive pressure" from bleached paperboard producers, offering discounts that impact packaging pricing and profitability, also presents a challenge. Furthermore, foreign exchange fluctuations pose a headwind, with an estimated $120 million sales and $20 million adjusted EBITDA impact in 2025 due to a strong U.S. dollar. The potential impacts of new medical developments like GLP-1 and MAHA policy initiatives on consumer preferences and packaged food demand also introduce an element of uncertainty.

Conclusion

Graphic Packaging Holding Company stands at a pivotal moment, having successfully completed its Vision 2025 transformation and now poised to unlock substantial value through its Vision 2030 strategy. The early startup of the Waco recycled paperboard facility, a technological marvel, solidifies GPK's competitive advantage in cost and quality, enabling it to strategically address market shifts and displace less efficient alternatives. This, coupled with a robust innovation pipeline consistently delivering new, sustainable packaging solutions, positions the company for sustained growth despite a challenging consumer backdrop.

The impending free cash flow inflection, driven by sharply declining capital expenditures, Waco's incremental EBITDA contributions, and favorable tax dynamics, presents a compelling investment thesis. GPK's commitment to deleveraging and returning significant capital to shareholders through dividends and opportunistic share repurchases underscores management's confidence in the company's long-term financial health and value creation potential. While near-term market volatility and competitive pressures persist, GPK's integrated business model, technological leadership, and disciplined capital allocation strategy position it as a resilient and compelling opportunity for discerning investors seeking long-term value in the sustainable packaging sector.