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GRAPHIC PACKAGING HOLDING CO (GPK)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered modest top-line outperformance and a clean beat vs consensus on revenue, adjusted EPS, and adjusted EBITDA; however, margins compressed due to planned maintenance and inventory drawdowns executed to normalize run-rates for 2H25 .
  • Net sales were $2.204B, adjusted EBITDA $336M (15.3% margin), and adjusted EPS $0.42; packaging volumes rose 1% and “Innovation Sales Growth” was $61M .
  • FY25 guidance was tightened: net sales raised to $8.4–$8.6B, adjusted EBITDA maintained at $1.45–$1.55B (midpoint unchanged), adjusted EPS lifted to $1.90–$2.20; capex increased to ~$850M for Waco, with 2025 FCF “unchanged” due to offsets in cash taxes and working capital .
  • Management emphasized a path to stronger 2H25 margins (less downtime, normalized production) and reiterated Waco benefits ($80M in 2026 and another $80M in 2027); share repurchases of $111M in Q2 reduced shares outstanding by ~1.6% .

What Went Well and What Went Wrong

  • What Went Well

    • Revenue and earnings beat consensus: Q2 revenue $2.204B vs $2.161B estimate*, adjusted EPS $0.42 vs $0.40 estimate*, adjusted EBITDA $336M vs $335M estimate* .
    • Volume and innovation momentum: packaging volumes +1%; innovation sales growth $61M; management cited stronger beverage season and robust innovation pipeline .
    • Clear capital allocation and confidence in Waco: reaffirmed $80M EBITDA uplift in 2026 and another $80M in 2027; maintained vision to return substantial cash via buybacks/dividends and target investment-grade over time .
    • Quote: “Promotional activity drove modestly better than expected volumes… With our Waco… investment nearing completion… we expect to generate cash well in excess of our internal needs for years to come.” — CEO Mike Doss .

  • What Went Wrong

    • Margin compression: adjusted EBITDA margin fell to 15.3% (from 18.0% LY) driven by lower price, labor/benefits inflation, input cost inflation, divestiture effects, and negative net performance from inventory actions and production inefficiencies .
    • Leverage ticked up: net leverage rose to 3.7x from 3.0x in Q4’24 as the company leaned into buybacks at what it viewed as attractive prices .
    • Capex increased again: 2025 capex raised to ~$850M (labor, permitting/insurance, finish-phase engineering); management reiterated project returns and unchanged 2025 FCF .
    • Analyst concerns: sustainability of price/mix amid macro uncertainty, and clarity on the 2H margin bridge and inventory normalization cadence .

Financial Results

Sequential trend (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$2.095 $2.120 $2.204
GAAP Diluted EPS ($)$0.46 $0.42 $0.34
Adjusted EPS ($)$0.59 $0.51 $0.42
Adjusted EBITDA ($USD Millions)$404 $365 $336
Adjusted EBITDA Margin (%)19.3% 17.2% 15.3%

YoY comparison

MetricQ2 2024Q2 2025
Revenue ($USD Billions)$2.237 $2.204
GAAP Diluted EPS ($)$0.62 $0.34
Adjusted EPS ($)$0.60 $0.42
Adjusted EBITDA ($USD Millions)$402 $336
Adjusted EBITDA Margin (%)18.0% 15.3%

Results vs S&P Global consensus (Q2 2025)

MetricConsensusActualResult
Revenue ($USD Billions)$2.161*$2.204 Beat
Adjusted EBITDA ($USD Millions)$334.6*$336 Beat
Adjusted EPS ($)$0.4005*$0.42 Beat

Values marked with * retrieved from S&P Global.

Key drivers and KPI snapshot (Q2 2025)

KPIQ2 2025
Packaging volumes+1%
Innovation Sales Growth$61M
Capex$228M
Share repurchase$111M; ~5.0M shares (~1.6%)
Total Debt$5.859B
Net Debt$5.739B
Net leverage3.7x
Cash & Equivalents$120M

Non-GAAP adjustments (Q2 2025)

ItemAmount
Business combinations/exit & other special items (net)$13M
Accelerated depreciation related to exit$4M
Amortization of purchased intangibles$15M
Tax impact of adjustments$(8)M

Guidance Changes

MetricPeriodPrevious Guidance (Q1 2025)Current Guidance (Q2 2025)Change
Net SalesFY2025$8.2–$8.5B $8.4–$8.6B Raised and narrowed
Adjusted EBITDAFY2025$1.4–$1.6B $1.45–$1.55B Narrowed; midpoint maintained
Adjusted EPSFY2025$1.75–$2.25 $1.90–$2.20 Raised and narrowed
CapexFY2025~ $700M ~ $850M Raised (project finish-phase costs)
Free Cash FlowFY2025Not quantifiedUnchanged vs prior despite higher capex Maintained
Dividend (quarterly)Ongoing$0.11 (raised in Feb-25) $0.11 declared 7/31/25 Maintained
Net leverageYE2025—Below ~3.5x expected New detail
Waco benefits2026/2027$80M/$80M (targeted) —Reiterated $80M in 2026 and $80M in 2027 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Consumer affordability & volumes2024: volumes improving 2H; 2025: consumers “stretched,” pricing action taken; innovation supporting customers Promotions aided modest volumes; customers focused on share/volume; continued uncertainty Mixed, cautious
Waco project & capexCapex 2025 initially ~$700M; Waco Q4’25 startup Capex lifted to ~$850M (labor/permits/insurance); startup still Q4; returns intact Costs up; schedule intact
Margin trajectoryFY24 adj. EBITDA margin 19.1% 1H margin pressured (maintenance, inventory actions); 2H margin to improve toward ~19% on less downtime and normalized production Improving 2H
Pricing & market balanceQ1: announced pricing to offset inflation Price down ~$25M 2H vs 1H; disciplined supply/demand; SBS oversupplied vs healthier CRB/UB grades Stable to modest headwind
Innovation & pipelineRecord innovation in 2024; focus continues $61M innovation sales; strong pipeline, club-store solutions; paper cups added to recycling specs Positive
Tariffs/regulatory—New 15% tariff dynamic modest positive; EUDR non-tariff barrier relief beneficial; FBB import economics less favorable Modestly positive

Management Commentary

  • Strategy and positioning: “Investments like Waco and Kalamazoo, and our world-class innovation platform have positioned Graphic Packaging as the supplier of choice…” — CEO Mike Doss .
  • Capital allocation: “We repurchased 1.6% of the company’s outstanding shares… We expect to end the year with net leverage below 3.5x… availability under share repurchase authorizations was approximately $1.75 billion.” — CFO Steve Scherger .
  • 2H setup: “First half EBITDA $700M, midpoint of second half $800M… ~$60M benefit from less maintenance and market downtime; pricing headwind moderates.” — CFO .
  • Waco return profile: “Our long-term outlook is for returns beyond the $80M and $80M… due to cost and quality advantages and input cost advantages.” — CFO .

Q&A Highlights

  • 2H25 margin bridge: CFO detailed ~$100M 1H→2H uplift, primarily from less planned maintenance and eliminating market downtime; pricing drag moderates to ~$25M in 2H .
  • Waco capex overrun and returns: Higher finishing-phase labor and permitting/insurance costs pushed 2025 capex to ~$850M; management reaffirmed startup timing and return profile (still $80M in 2026 and $80M in 2027) .
  • Inventory normalization: Inventory volume down ~50k tons (~12%); negative net performance in Q2 from inventory draw doesn’t repeat in 2H .
  • Capital deployment tilt: With leverage manageable and strong FCF outlook, management expects to lean more to buybacks in 2026, while keeping leverage reasonable (~3.5x) .
  • Trade/tariffs: 15% tariff structure viewed as a modest net positive; reduced non-tariff barriers (EUDR) also beneficial .

Estimates Context

  • Q2 2025 performance vs S&P Global consensus: revenue $2.204B vs $2.161B*, adjusted EBITDA $336M vs $334.6M*, adjusted EPS $0.42 vs $0.4005* — all beats .
  • Coverage depth: 10 estimates on EPS for Q2 2025*; outlook embeds a 2H margin recovery and no Waco benefit until 2026 .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term: Q2 was a clean beat with conservative execution (inventory normalization, heavy maintenance) setting a stronger 2H margin profile; tactically supportive for sentiment into Q3 seasonally strong beverage quarter .
  • Medium-term: Waco startup (Q4’25) underpins structural cost/quality advantages and ~$160M EBITDA ramp through 2027; capex normalizes to ~5% of sales in 2026, unlocking significant FCF for buybacks and deleveraging .
  • Valuation setup: Incremental confidence in 2H margin recovery and FY guide tightening (raised sales/EPS, unchanged EBITDA midpoint) could drive estimate stability to upward revision bias on EPS .
  • Risk watch: Consumer affordability, SBS overcapacity, and macro/promo uncertainty persist; pricing/mix discipline and innovation execution remain critical .
  • Balance sheet: Leverage elevated near term (3.7x) but expected to improve to <3.5x by YE; significant buyback authorization remains .
  • Structural moat: Recycling spec update (paper cups) and innovation breadth support long-run share gains, especially in CRB/UB where markets appear healthier vs SBS .

Additional detail

  • Q2 operating detail: Price −$23M; labor/benefits inflation +$26M; input cost inflation +$10M; Augusta divestiture/open market −$5M; net performance −$13M; FX +$11M .
  • Cash/returns: $177M returned to holders YTD (dividends + buybacks) through Q2; quarterly dividend $0.11 declared 7/31/25 .