GPK - Graphic Packaging Holding Company (GPK) 2024 Investor Day and Q4 2023 Earnings Call (Transcript)

2024-02-23 13:05:07 ET

Graphic Packaging Holding Company (GPK)

2024 Investor Day and Q4 2023 Results Conference Call

February 21, 2024 09:00 AM ET

Company Participants

Melanie Skijus - Vice President of Investor Relations

Michael Doss - President, Chief Executive Officer and Director

Maggie Bidlingmaier - Executive Vice President and President, Americas Business Unit

Mark Connelly - SVP, Investor Strategy and Development

Jean-Francois Roche - Senior Vice President and President, EMEA

Stephen Scherger - Chief Financial Officer

Michelle Fitzpatrick - Vice President and Chief Sustainability Officer

Conference Call Participants

Phil Ng - Jefferies

Mike Roxland - Truist Securities

George Staphos - Bank of American

Matt Roberts - Raymond James

Gabe Hajde - Wells Fargo

John Dunigan - Jefferies

Gregory Andreopoulos - Citi

Presentation

Melanie Skijus

Good morning, everyone. It's great to see all of you here at the New York Stock Exchange. And in addition to all of you here live, we have a large number of investors joining us remotely. I think the number is now 150, but it's climbing. So thank you everyone on the webcast.

My name is Melanie Skijus, I'm the Vice President of Investor Relations. Before I kick it off today, for safety, I want you to be aware of 2 stairwells that you can exit if needed, directly behind me down the hallway is a stairwell as well as one by the elevator bay. Before we get started, I just -- I told you about the exits -- the presentation materials you have at your desk. We welcome you to walk through those with us today. On the webcast, you will see it in the webcast view as well as a PDF is available on our Investor Relations website.

The presentation this morning are being recorded so they will be available to listen in replay probably later this afternoon. We have a great agenda for you this morning. You'll be hearing presentations from senior leadership. We're going to kick off with 2 and then we'll go into a 10-minute break. when we get back from the break we'll have 3 more and then we'll have a Q&A session.

[Operator Instructions]

Forward-looking statement. I encourage everyone to read through this. Our presentation today will contain forward-looking statements that will have -- or subject to risks and uncertainties that could cause these statements to not come into reality. So please look through the list of risks, and they're also available in our filings with the SEC.

And with that, I'm going to turn it over to our first speaker today, Mike Doss, our President and CEO. I'm sure most of you are familiar and know Mike. He's been with the company since 1990, has been our CEO since 2016. And with that, I'll turn it over to Mike.

Michael Doss

Great. Thank you, Melanie, and I also want to thank Alexandria, who's over in the corner here, as all of you know it takes a lot of work to pull together one of these Investor Day. They've been working really hard to pull things -- all the materials together that you see today, and we're going to cover. So thank you guys for all that. I also want to acknowledge Mike Ryan, one of our senior designers who is -- drove all the way down from Philadelphia -- a lot of the samples you see here today out in the lobby.

So Mike, I don't know where you are, wave your hand. Thank you very much for doing that. Much appreciated. I'm going to start with a few comments around a few announcements we made last night, and then I'll jump right into the presentation, and then I'm going to introduce our speakers that you'll see today. And then as Melanie said, we'll go through that cadence and ultimately -- we'll have a few breaks in there.

And then I'm sure there will be a very robust Q&A session, which we're really looking forward to. Let's start by talking a little bit around the first announcement that went out last night, and that's the sale of the Augusta mill to Clearwater Paper Company. Now what you need to know is that really, over time, Arsen Kitch and I've had a number of conversations around kind of the overall fit of some of the mills that we've got. And for them in the vision of the future, they have for their company, it became pretty clear that the Augusta mill, which is an outstanding mill with excellent people and a very good infrastructure is a better fit for them and what they really want to do over the long term than it is for Graphic Packaging. And so as we kind of went through those dialogues, we worked through a deal.

You saw it announced last night. We're happy to go into whatever level of detail you'd like to do in terms of talking about that in the Q&A.

But the reality of it is for Graphic Packaging, the Augusta mill, the Augusta manufacturing facility didn't offer the same strategic benefits over the long term as some of our other wood fiber manufacturing facilities or our recycled manufacturing facility. So it's the right thing to do for our shareholders to monetize that, which we'll do. And again, we'll talk a lot more in detail about what that means during Q&A. Second thing I want to hit on real quickly and there's a few questions I got in the lobby here was the pricing declarations from RISI over the weekend. And many of you know because I've expressed a fair amount of frustration on this over time in terms of how they do it.

And I can absolutely tell you that on cupstock they got it wrong.

We're in that market every single day. It's one of our strongest markets. If you look at over the last 3 years, what we've done with our Foodservice business, it's grown every quarter, and it's growing here in Q1. So that made no sense to us, it's a 180 degrees out from what we're currently experiencing. And really -- and you've heard Steve and I talk about this, it just strengthens our resolve to continue to move away from third-party indices that really lack any level of what we believe to be accuracy as well as transparency.

And so over time, third-party indexes that really aren't accurate or have transparency hurt packaging companies and they ultimately hurt the customers as well. So we are going to strengthen our resolve to continue to march away. We've been doing it for a number of years. It's one of the reasons why several of the analysts in the room, you guys have had difficulty trying to track our pricing because we've been moving to a more value-added pricing model, which we'll get into a lot of detail today in terms of how we look at that, and it's going to continue to be the case. So third-party indices will be an increasingly smaller part of our business going forward, and our resolve is very high to make that happen.

So with that as a backdrop, I'm going to pivot now and talk a little bit about our overall results, which also were released last night. Look, by any measure, if you're a consumer goods company last year, food beverage or just actual goods, it was a very challenging year as consumers really pivoted in terms of their preferences in some cases, and our customers had to adapt to that in a real-time basis. It really resulted in a fair amount of inventory destocking, which is well chronicled, you're all aware of that. And against that challenging backdrop, Graphic Packaging held up very, very well. You see our results here on the page.

I mean, a few high levels. Our sales were actually flat on a year-over-year basis. We had $200 million of innovation sales in that number. And our value-added pricing actually more than offset the volumetric decline that I talked about, which for the year was about 4%. Fourth quarter -- third and fourth quarter, most pronounced down around 5.6%.

Steve will get into those numbers in a little bit more detail.

But what we're really encouraged about here going forward is the fact that as we've rolled into 2024, our volumes actually -- to date through today are flat on a year-over-year basis, which is actually a very good thing because as you recall, last year, in the first quarter, we were actually up. So we've seen some stabilization.

Fourth quarter was really most pronounced in the last probably 3 weeks of December. It was almost like many of our customers just threw in the towel. And that really manifested itself in Europe in a big way. We saw volumes that were down the last 3 weeks pretty substantially, and they bounced back really well here to start the year off. So that's what really gives us confidence in the year, but -- and a return to organic growth.

But what I would also say -- and this is -- and you're going to hear this thematically through my conversation is that our confidence is really more in what we do control versus what we don't. And if you think about Graphic Packaging, and I'll go into to a lot of detail on this, we're just a fundamentally very different company than we were just a few years ago. Our innovation is wide and deep. You will -- [indiscernible] spend a lot of time talking about that. Our customer relationships are strong and growing, and we're managing them different than we were before, and we're getting paid for the value that we bring.

So with all that is the backdrop. I'm really pleased with the results that we generated. Our EBITDA was up almost 20% on a year-over-year basis. You see EPS that on an adjusted basis is approaching $3. Remember, in 2019, when we talked to you about this, it wasn't even $1.

So we've made dramatic progress in a very short period of time and that momentum, I expect to continue to move on. Look, Graphic Packaging is a leader in sustainable consumer packaging. You all know that, and you really touch our products every day. So think about the cup of coffee you have in the morning or the cereal box that your cereal comes in, the snack you have at lunch, maybe a frozen dinner you eat late afternoon, soft drink that you may have as an afternoon snack or hopefully a beer, you have later on in the evening. All of those things are things that we do....

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