Charlie Muir-Sands

Charlie Muir-Sands inquired about the relative profitability of new volume wins in North America compared to the business that was exited. He also asked for insights into the pro forma volume performance and similar commercial trends observed in the EMEA region.

Answer

Chairman and CEO Andy Silvernail stated that the new volume wins in North America are at high-quality profitability levels, reflecting the company's pricing discipline. He noted substantial market share gains in North America (3-4 points above market) and highlighted a disciplined approach in Europe to avoid chasing unprofitable business in a softer market, confirming good commercial momentum in both regions.

Charlie Muir-Sands asked about the relative profitability of new volume wins in North America compared to the business that was exited. He also inquired about the pro forma volume performance achieved in the EMEA region.

Answer

Chairman and CEO Andy Silvernail confirmed that the new volume wins in North America are at high-quality profitability levels, contributing to expanding margins. He noted significant market share gains in North America in the latter half of the year. For EMEA, Mr. Silvernail stated the company has maintained discipline in a softer market, focusing on value and not chasing unprofitable business, and expressed confidence in the commercial momentum in both regions.

Charlie Muir-Sands sought to clarify if the lighthouse strategy is the primary driver for recovering the $300-$400 million in lost productivity and asked for an update on the expected annual corporate expense for 2025 after recent restructuring.

Answer

Executive Andrew Silvernail clarified that the $300-$400 million opportunity is composed of roughly $175-$200 million from mill reliability improvements and the balance from broader productivity. He explained the lighthouse strategy delivers savings by closing plants and consolidating volume. For corporate expense, he confirmed it will decrease by the announced $120 million, with costs being reallocated more appropriately to the business segments.

Charlie Muir-Sands asked how much of the long-term EBITDA uplift target was expected to come from the Global Cellulose Fibers (GCF) business and whether recent procurement savings were included in previously announced figures. He also sought clarification on the definition of the 20-30% productivity improvement in the pilot programs.

Answer

Chairman and CEO Andy Silvernail stated that GCF represents a 'pretty small part' of the path to the $4 billion EBITDA target. He also confirmed that the recent procurement wins were not part of the previously disclosed $230 million opportunity. He clarified that the 20-30% productivity improvement is best measured as an increase in output over a fixed base, such as 'square feet per unit,' which frees up capacity for growth or consolidation.

Charlie Muir-Sands questioned the contribution of the Global Cellulose Fibers (GCF) business to the company's long-term EBITDA target and asked for clarification on the 20-30% productivity improvement metric from the pilot programs.

Answer

Chairman and CEO Andy Silvernail explained that GCF represents a 'pretty small part' of the path to the $4 billion EBITDA target. He also clarified that recent procurement savings were not part of previously announced cost-saving figures. On productivity, he defined the metric as an increase in output over a fixed base (e.g., square feet per unit), which frees up capacity for growth or allows for consolidation in over-supplied regions.

Charlie Muir-Sands asked about PCA's anticipated containerboard capacity increase over the next 12 months, given expectations to run full out, and how potential constraints would be addressed. He also sought clarification on whether quoted bookings and billings numbers were for legacy PCA only or an all-in figure including Greif's operations.

Answer

Chairman and CEO Mark Kowlzan stated the Greif acquisition provides a growth runway, with an anticipated 200,000 tons of additional capacity from the two acquired mills over time, and that PCA continuously seeks future capacity. President Tom Hassfurther clarified that the bookings and billings numbers provided were essentially for legacy PCA, with Greif's business showing similar trends.

Charlie Muir-Sands from BNP Paribas asked about PCA's anticipated containerboard capacity increase over the next 12 months, given the expectation of running full out in 2026, and how the company plans to address potential constraints. He also sought clarification on whether the quoted January bookings and billings numbers were solely for legacy PCA or an all-in figure including Greif operations.

Answer

Chairman and CEO Mark Kowlzan stated that the Greif acquisition, with an expected additional 200,000 tons from the two mills over a couple of years, provides the growth runway for the next few years, and that PCA is always looking for future containerboard capacity. President Tom Hassfurther added that PCA will grow with its customers. Tom Hassfurther clarified that the bookings and billings numbers provided were essentially for legacy PCA, though the Greif business showed similar trends.

Charlie Muir-Sands of BNP Paribas asked for details on the Greif assets' corrugated production and integration rate, the marginal cost of debt for the acquisition, and the expected operational leverage from marginal volume growth.

Answer

President Thomas Hassfurther estimated the Greif assets have a 70-75% integration rate, leaving some needed tons available for PCA. EVP & CFO Kent Pflederer stated they are modeling a 5.5% interest rate on the new debt. Hassfurther explained that as volume increases, most fixed costs are already covered, so marginal growth largely falls to the bottom line with only minuscule incremental costs like overtime.

Charlie Muir-Sands asked about the volume deceleration seen during Q1, from strong initial bookings to the quarter's final growth rate. He also questioned if the Q2 guidance is based on the current 4% run rate or a more conservative assumption.

Answer

President Tom Hassfurther attributed the Q1 volume moderation to weather impacts and increased customer caution surrounding tariffs, which led them to draw down inventories. He noted that the current Q2 growth is strong, especially considering it is against a difficult comparison from the prior year when volume was up 9.2%.

Charlie Muir-Sands asked for the portion of the 2025 capital budget considered maintenance CapEx and whether the Q1 weather impact was more severe than the impact experienced in Q1 2024.

Answer

CFO Robert Mundy noted that maintenance typically runs 60-65% of total CapEx but will be a lower percentage in 2025 due to several large, discrete growth projects. CEO Mark Kowlzan confirmed the recent cold weather was particularly disruptive, especially in the deep south with events like the I-10 shutdown, impacting not just operating costs but also business volume.

Charlie Muir-Sands asked for clarification on the source of PCA's strong sequential volume growth, specifically whether it was coming from existing customers, new business with existing customers, or entirely new client acquisitions.

Answer

Executive Vice President Thomas Hassfurther stated that the primary driver of growth is expanding business within their existing customer base. He added, however, that the company has also been successful in winning new clients, attributing this to PCA's strong market reputation for quality and service reliability.

Charlie Muir-Sands sought clarification on the phasing of Waco's $65-$75 million start-up costs, asking if they were largely incurred or step up sequentially, and how to think about them this year versus next. He also asked for an update on selling Pacesetter Rene Premium CRB, specifically if a price premium is being achieved, and about the expected deleveraging in Q4 to reach 3.5-3.7x net debt.

Answer

Mike Doss (President and CEO, Graphic Packaging) stated that two-thirds of the $65-$75 million one-time cash costs for Waco's start-up are in 2025, and one-third in 2026. Chuck Leisher (SVP and Chief Accounting Officer, Graphic Packaging) added that these costs are mostly operating expenses for training and preparing the facility before start-up, and capitalized interest will cease once the asset is in service. Mike Doss explained that Rene is a tool to compete against SBS producers, which might impact margins due to lower expected pricing. He confirmed the 3.5-3.7x year-end leverage target, attributing the modest increase to reduced EBITDA expectations and opportunistic share repurchases, with deleveraging and shareholder returns prioritized in 2026. Mark Connelly (SVP of Investor Strategy and Development, Graphic Packaging) added that Q4 is typically a strong free cash quarter, which will help reduce leverage.

Charlie Muir-Sands sought clarification on the phasing of the $65 million to $75 million in Waco start-up costs, asking if they have been largely incurred or will step up sequentially into Q4, and how to account for them this year versus next year. He also inquired about the progress in selling Pacesetter Rainier Premium CRB, achieving specific price premiums, and the deleverage expectation for Q4.

Answer

President and CEO Mike Doss confirmed that two-thirds of the start-up costs are expected in the current year and one-third in 2026. SVP and Chief Accounting Officer Chuck Leisher clarified that these are primarily operating costs incurred prior to the facility's start-up, not capitalized, and that capitalized interest would cease once the asset is in service. Mike Doss stated Rainier is a tool to compete against SBS, which has some margin impact due to lower pricing. He expressed confidence in the 3.5x-3.7x leverage target for year-end, noting Q4 is typically a strong cash quarter, as added by SVP of Investor Strategy and Development Mark Connelly.

Charlie Muir-Sands asked for clarification on the uncertainties driving the wide Q4 guidance range, an update on the "beyond $400 million" synergy opportunities, and quantification of the one-off operational issue in Latin America. He also inquired about the target return thresholds for Smurfit Westrock's capital investments beyond maintenance.

Answer

CFO Ken Bowles attributed the Q4 guidance range uncertainty primarily to December's demand, while quantifying the Latin American operational issue (continuous digester in Colombia) at approximately $10 million in Q3, now resolved. He stated that additional operational/commercial improvements are already evident in North American margin performance, reinforcing confidence in opportunities beyond the $400 million synergies. For CapEx, Ken Bowles indicated a blended target of around 20% IRR for the portfolio, aiming for mid-teens ROCI, with higher returns from cost takeout and long-term benefits from sustainability projects.

Charlie Muir-Sands asked for clarification on the main uncertainties contributing to the wide range in the revised Q4 guidance, an update on additional synergy opportunities beyond the initially stated $400 million, and a quantification of the one-off operational issue in Latin America.

Answer

CFO Ken Bowles quantified the Latin America operational issue as a $10 million impact in the quarter, now resolved. He attributed the Q4 guidance range primarily to uncertainty around December demand. Regarding synergies, Ken stated that additional operational and commercial improvements are already evident in North America's margin performance, making them comfortable with achieving 'well in excess' of the initial $400 million synergy target.

Charlie Muir-Sands from BNP Paribas sought to quantify the dollar value of the historical losses from the now-terminated box contracts and asked for clarification on the second-half volume assumptions and historical Q4 seasonality in North America.

Answer

CEO Tony Smurfit explained that on a $10 billion sales system, the box plants should generate $800 million to $1.2 billion in profit, but the system was loss-making last year, indicating a significant opportunity. EVP & Group CFO Ken Bowles clarified that the 'flat volumes' guidance for the second half is relative to the first half of the year, not year-over-year.

Charlie Muir-Sands asked for clarification on the assumptions underpinning Smurfit Westrock's full-year guidance, specifically regarding North American box volumes, European price hikes, and OCC costs. He also inquired about the potential impact of planned investments in 25 new converting machines on the company's 2026 capital expenditures.

Answer

CEO Tony Smurfit stated that it's too early to define 2026 CapEx but emphasized the company's flexibility and disciplined approach. He does not anticipate significant box volume improvement due to the 'value over volume' strategy. Regarding pricing, he confirmed the first hike is holding but the success of a second hike is uncertain due to volatile input costs. CFO Ken Bowles added that the primary change to the outlook is an incremental $100 million in Q2 downtime.

Charlie Muir-Sands of BNP Paribas Exane inquired about the full-year EBITDA guidance, asking if the implied Q4 decline was due to conservatism or specific factors like maintenance downtime. He also questioned if the CapEx return opportunity on legacy Westrock assets is superior due to low-hanging fruit.

Answer

CEO Tony Smurfit confirmed the Q4 forecast includes a $60 million negative impact from additional maintenance and commercial downtime not present in Q3, alongside some conservatism. Regarding CapEx, Smurfit stated that while the mid-to-high-teens return target remains, there is significant opportunity in the legacy Westrock assets, and the 2025 CapEx plan addresses immediate needs while they assess further projects.

Charlie Muir-Sands from BNP Paribas asked for a quantification of the historical losses from the unprofitable North American box contracts that are being addressed. He also sought clarity on whether the 'flat volumes' guidance for the second half was on a sequential or year-over-year basis.

Answer

CEO Tony Smurfit provided context by stating that a box plant system with $10 billion in sales should generate $800 million to $1.2 billion in profit, whereas this system was loss-making last year, indicating a significant opportunity. EVP & Group CFO Ken Bowles clarified that the guidance for 'flat volumes' refers to the second half of the year compared to the first half.