Lewis Merrick

Lewis Merrick asked for further details on the portfolio review, specifically the factors that would determine whether an asset is considered core or non-core to the business. He also inquired if the company and board had considered revisiting the dividend policy for 2026.

Answer

Robbert Rietbroek, President and CEO, emphasized focusing on a strong, growing core, citing North America and Europe food and beverage as core. He mentioned an initial review of the business portfolio and global footprint to identify areas with a 'right to win,' durable competitive advantage, synergies, and higher integration rates. He also noted a review of zero-based budgeting and CapEx in the context of changing market and consumer dynamics. Regarding dividends, Rietbroek stated that debt paydown is the highest near-term priority, with no commitment to a dividend change for this year, but expects growing dividends and increased shareholder returns over time as leverage declines.

Lewis Merrick inquired about the current competitive environment, specifically asking if there have been any changes in competitive dynamics or price discipline when bidding for new business.

Answer

CEO Michael Doss explained that the North American solid bleached paperboard (SBS) market is oversupplied, which creates a competitive environment. He contrasted this with the more balanced recycled and unbleached paperboard markets. He emphasized that Graphic Packaging's small, integrated position in SBS allows them to manage the situation effectively while observing the broader market dynamics.

Lewis Merrick asked about the path back to the prior 19-21% EBITDA margin ambition from the newly revised 17-19% range. He also questioned if the company now expects a net positive price contribution for the full year 2025.

Answer

CFO Stephen Scherger outlined that recovering the temporary inflation via pricing would restore about 100 basis points to the margin, with the incremental $160 million of EBITDA from the Waco project providing the path back to the 19-20% range. CEO Michael Doss clarified that they still expect modestly negative pricing for 2025, with the benefits of recent price actions materializing in 2026 due to a roughly six-month lag.

Lewis Merrick asked about the potential impacts of possible future tariffs on the business and whether the positive volume trajectory from the second half of 2024 continued into January.

Answer

President and CEO Michael Doss explained that the company has minimal exposure to China and that North American cross-border trade is relatively small, around 3% of sales. He noted the company has operational flexibility to mitigate potential tariff impacts. Doss also confirmed that volume growth was seen in January and is expected for Q1, continuing the positive trend from the latter half of 2024.

Lewis Merrick from BNP Paribas requested an update on the proportion of the packaging business that has been transitioned to new contract structures, moving away from third-party indexes. He also asked for clarification on the revised leverage guidance, questioning if factors like working capital contributed to the change beyond the stated EBITDA and CapEx adjustments.

Answer

CFO Steve Scherger clarified that the transition from third-party indexes is a multiyear journey and that about half of the business is already on cost-based or annual models. He mentioned that large-scale customer negotiations are currently underway to implement a new index tied to known commodities. CEO Mike Doss added that these mechanisms apply to price movements between tenders, where the business is initially won on a market-competitive basis. Regarding leverage, Scherger stated there was nothing unusual to call out and that the revision to 'sub-3x' was a direct result of the lower EBITDA guidance midpoint and the $100 million increase in CapEx.

Lewis Merrick from BNP Paribas asked about the impact of rising OCC prices on the Fiber Packaging business and whether the company could pass these costs on in Q2 or if a lag was expected.

Answer

Executive Ralf Wunderlich acknowledged the rising raw material costs for fiber. He explained that pricing in this segment is dynamic, without long-term contracts, which allows the company to react quickly. He expressed confidence that while short-term timing differences can occur, higher input costs are ultimately passed on to customers, neutralizing the impact over the course of a year.