Graphic Packaging Company (GPK) investor relations material

Business transformation and strategic investments

• Over the past seven years, the company has transformed its business, expanding capabilities, especially through acquisitions like International Paper's Consumer Packaging and AR Packaging, making it a leader in paper cups and innovation centers.

• Major capital expenditures are winding down with the Waco, Texas recycled paperboard facility coming online in Q4, shifting CapEx from 12% to about 5% of sales, enabling significant cash flow generation.

• The business now operates with a balanced portfolio across food, beverage, food service, household, and health and beauty, with 70% of sales in North America and 30% in Europe.

• Innovation and sustainability are core, with over 3,000 patents and a focus on plastic and foam replacement, supported by five global innovation centers.

• Nearly $2 billion invested in recycling platforms over five years, positioning the company as North America's lowest-cost, highest-quality recycler.

Market dynamics, headwinds, and operational focus

• Near-term headwinds include consumer affordability, customer reformulations (MAHA movement, GLP-1 drugs), and excess SBS paperboard capacity, all seen as temporary but impactful.

• Q3 volumes are down about 2% year-to-date, slightly outperforming broader market data, with destocking largely behind.

• The company is focused on operational execution: ramping up Waco, driving innovation, and leveraging cost advantages to gain strategic share.

• Pricing strategy is shifting from RISI-based to more transparent, value-based, and cost-plus models, with a goal to increase the share of such contracts.

• No major M&A planned; growth will be driven by innovation and execution on the existing asset base.

Financial outlook and capital allocation

• CapEx will revert to 5% of sales or less in 2026, with about 2% for maintenance and the rest for growth and efficiency.

• Free cash flow is expected to rise significantly as CapEx moderates, with Waco contributing $80 million annually over the next two years.

• Dividend growth and share repurchases remain priorities, with nearly 25% of shares repurchased since 2018.

• Leverage is targeted to finish the year at 3.5x, with a focus on achieving investment grade as part of Vision 2030.

• Inventory optimization and bonus depreciation from recent legislation are expected to further support cash flow.