• Revenue: $2.1 billion for the first quarter of 2025.
• Adjusted EBITDA: $365 million.
• Margins: 17.2%.
• Adjusted EPS: $0.51.
• Volume in the Americas: Down approximately 1%.
• International Volume Growth: Up approximately 3%.
• Innovation Sales Growth: $44 million for the quarter.
• Net Leverage: 3.5 times at the end of the quarter.
• Capital Spending: Expected to be in the $700 million range for 2025.
• Share Repurchase Authorization: New $1.5 billion authorization approved.

• Warning! GuruFocus has detected 3 Warning Sign with GPK.

Release Date: May 01, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Graphic Packaging Holding Co (NYSE:GPK) reported first quarter sales of $2.1 billion, with adjusted EBITDA of $365 million and margins of 17.2%.
• The Waco recycled paperboard investment is on track for a fourth-quarter startup, with hiring and training effectively complete.
• A new $1.5 billion share repurchase authorization was approved, reflecting confidence in the company's future cash flow generation.
• Innovation sales growth was $44 million for the quarter, driven by new contributions in strength packaging, coffee, snacks, and cleaning products.
• The company expects to generate substantial excess cash over the next several years, with a focus on returning capital to stockholders and debt holders.

Negative Points

• First quarter results were significantly below expectations due to weaker volumes in the Americas and broad-based input cost inflation.
• Volumes across consumer staples remained uneven and below expectations, with a 1% decline in the Americas.
• Input cost inflation was significant, with increases in energy, chemicals, logistics, and transportation.
• The company lowered and widened its volume guidance range, now expecting a 4% volume decline at the low end.
• Consumer confidence has declined significantly in the US and other markets, impacting volumes and promotional activity effectiveness.

Q & A Highlights

Q: Can you confirm if the volume decline is primarily due to affordability issues rather than other factors? A: Michael P. Doss, President and CEO, explained that affordability is a key factor. The company initially expected a 3% volume growth based on customer feedback but ended up with flat volumes. The current guidance reflects a 2% volume decline, outperforming customer expectations of a 3-4% decline. The company is focusing on cash flow management and running the business to demand to address these challenges.

Q: What is the embedded assumption for when price costs will turn neutral to positive in 2025? A: Stephen R. Scherger, CFO, stated that the company expects to flip to positive pricing late in 2025 and recover inflation as they roll into 2026. They are executing on $100 million of price actions across various fronts to address inflation.

Q: Are there any footprint actions needed due to the volume decline, and how is the supply-demand balance in your grades? A: Michael P. Doss mentioned that the company will take rolling market-related downtime to match supply with demand. Recent competitor mill closures and the company's own closures will help maintain a balanced supply-demand environment, particularly in the coated recycled paperboard market.

Q: How does the revised guidance reflect on EBITDA margins, and what is the path to return to previous margin levels? A: Stephen R. Scherger explained that the midpoint of the guidance reflects an 18% EBITDA margin, with temporary inflation impacts expected to be recovered. The Waco project is expected to contribute $160 million in EBITDA over the next two years, helping return margins to the 19-21% range.

Q: What are the startup costs associated with the Waco project, and how are they accounted for in the guidance? A: Stephen R. Scherger noted that the Waco project has startup costs of $65-75 million, mostly below the line, and these are included in the cash flow expectations for the year. The $1.5 billion EBITDA guidance includes these startup costs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.