Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Graphic Packaging Holding Co (GPK, Financial) reported strong margins and adjusted EBITDA of $402 million for Q2 2024.
- Innovation sales growth was $51 million in the quarter, with a target of $200 million for the full year.
- The company completed the sale of the Augusta bleached paperboard manufacturing facility, focusing 95% of sales on sustainable consumer packaging solutions.
- Construction progress at the Waco recycled paperboard manufacturing project is on schedule, expected to enhance competitive advantage in late 2025.
- The European business contributed significantly to innovation sales growth, leveraging global packaging innovation.
Negative Points
- Reported sales were down $155 million year-over-year, with net sales from the packaging business down $73 million or about 3%.
- Overall volumes were flat, with both price and mix being small negatives.
- The company incurred significant planned maintenance expenses during the quarter.
- Price headwinds and minor negative mix impacts were noted, particularly in the European business.
- Household products and health and beauty segments showed slower recovery compared to other markets.
Q & A Highlights
Q: Can you talk a bit about what you're seeing in terms of volume and which end markets are giving you the most confidence in terms of that 3% to 4% adjusted growth rate for the second half of the year?
A: July has shown continued strength in our European business and encouraging signs in the Americas, specifically in the food business. Beverage and foodservice were very strong in the second quarter, and we expect promotional activities by large customers to increase, supporting our confidence in the 3% to 4% growth rate.
Q: What gives you the confidence that you can achieve 19% to 20% margins for the year, given that you're under 19% in the first half?
A: The second half will benefit from $50 million less in planned maintenance expenses. Additionally, we expect 3% to 4% volume mix growth and continued strong execution and performance, which will support achieving 19% to 20% margins for the full year.
Q: How are your European operations performing, and how does that business fit within the overall portfolio?
A: Our European business is outperforming the broader market due to strong innovation activities. Over half of our innovation sales were in Europe this year, driven by the sustainability-conscious European consumer. The European business is a crucial part of our portfolio, contributing to consistent results and innovation that we leverage globally.
Q: Can you give us some color on the exit rate for volumes in June and any acceleration throughout the quarter?
A: The quarter played out as expected, with flat to modest growth. July has come in consistent with our guidance, supporting the 3% to 4% volume growth expectation for the second half of the year.
Q: What drove the outperformance in beverage in 2Q, and how do you see those trends in the back half of the year?
A: Innovation and strong demand due to hot weather in North America drove the outperformance in beverage. We expect continued positive trends in beverage and foodservice, with food showing significant improvement and household products and health and beauty recovering more slowly.
Q: How should we think about the volume component in H2, and how does that fit with potential innovation growth in 2025?
A: We expect 3% to 4% volume growth in H2, supported by innovation sales growth of over $100 million in the second half. Our innovation pipeline remains robust, supporting continued growth into 2025 and beyond.
Q: Are you seeing any change in behavior from European competitors due to surging wood costs, and how does that impact your North American business?
A: We have not seen significant impact from European imports in our markets. Scandinavian producers face increased costs due to wood shortages and container shipping costs, making it less likely for them to compete effectively in the North American market.
Q: Can you reconcile your foodservice growth with recent industry stats showing a mid-single-digit decline?
A: Our outperformance in foodservice is driven by innovation and the Bell acquisition, which contributed to our growth despite broader industry declines.
Q: How are the price hikes in the North American business being accepted, and when will the benefits show up?
A: We are actively implementing price increases, and while we can't provide forward-looking comments, we expect the majority of the pricing benefits to be recognized in 2025 due to a six-month lag.
Q: How should we think about cash flow and CapEx reduction in 2025?
A: We expect CapEx to step down by at least $200 million in 2025, improving cash flow. Our Vision 2030 outlines CapEx as a percentage of sales at 5% or below post-Waco, with maintenance requirements around 2%, allowing us to invest in smart projects and drive further value creation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
