Graphic Packaging at Jefferies Conference: Strategic Moves Amid Challenges

On Wednesday, 03 September 2025, Graphic Packaging Holding Company (NYSE:GPK) presented at the Jefferies Mining and Industrials Conference 2025. CEO Mike Doss outlined the company’s strategic transformation over the past seven years, focusing on innovation and sustainability. Despite facing near-term challenges like food affordability and market dynamics, the company remains optimistic about its long-term growth strategy.

Key Takeaways

• Graphic Packaging aims for a 50% reduction in carbon emissions by 2032.
• The Waco facility is expected to generate $80 million in EBITDA annually for the next two years.
• The company has a $1.6 billion share repurchase authorization.
• Current market challenges include the SBS paperboard market and consumer behavior shifts.
• Strategic priorities include innovation and sustainability.

Financial Results

• Reported sales of nearly $9 billion, with 70% from North America and 30% from Europe.
• CapEx is targeted to be reduced to approximately 5% of sales.
• Free cash flow guidance for 2026 is between $700 million and $800 million.
• The company plans to grow its dividend every 24 months.

Operational Updates

• The Waco, Texas facility is set to commence operations in Q4 of the current year.
• The acquisition of AR Packaging has bolstered innovation and market presence in Europe.
• Focus on plastic and foam replacement, with $13 billion allocated for innovation.
• Q3 volumes are down about 2%, attributed to customer destocking and market trends.

Future Outlook

• Aims to achieve investment-grade status by Vision 2030.
• Innovation is expected to drive low-single-digit annual sales growth.
• Share repurchases are prioritized due to current stock valuation.
• M&A considered but with a high threshold due to the current market environment.

Q&A Highlights

• Lower cash flow guidance is due to a lower starting point, with expectations to rebound.
• SBS market dynamics are expected to improve as overcapacity issues are addressed.
• Transitioning to cost-plus pricing models for better value capture.
• The Waco facility’s initial EBITDA contribution is driven by cost savings.

For a detailed understanding, readers are invited to refer to the full transcript.

Full transcript - Jefferies Mining and Industrials Conference 2025:

Mike Doss, CEO, Graphic Packaging: Thank you, Phil, and good morning, everybody. It’s nice to be here. Appreciate the invitation to come to the industrial conference. And we’re first up on presenting this morning on the packaging side, which is great. We appreciate that and your interest in graphic packaging.

I’m going to start by basically get through these Safe Harbor statements. Making the case for why Graphic, and that’s really what I want to do over the next twenty, twenty five minutes in my prepared comments. Then we’ll open it up for questions from the floor. Hopefully, there are some there. Phil’s got some too.

So I’m sure we’ll use our thirty five minutes in a productive way. Look, I mean, if you think about Graphic, one of the things we’ve really done over the last seven years is transform this company. I’ll go into some details in terms of what that really looks like. The last of the major expenditures are getting ready to wind down with our Waco investment, recycled paperboard manufacturing facility in Texas. And we will inflect to serious cash flow generation, really driven primarily by the reduction of CapEx going down to a more moderated level at about five percent of sales, as well as the EBITDA that will come from Waco as well as some working capital reductions given just really shrunk our paperboard manufacturing platforms, make us more efficient.

So that really will all nerd to significant value creation for shareholders and something that I want to make sure that we outline for you. We do have some near term headwinds that we’re dealing with. Some of those have been pretty well chronicled. I’m going spend some time talking about those when I get to a slide. We believe they’re temporary and we’ve got a lot of confidence in our long term algorithm and the business model that we’ve built.

So let’s jump right in. Here’s graphic at a glance. You can see, we’re a little almost $9,000,000,000 in sales. We operate principally in two markets, North America and Europe. We do have a little bit of sales outside of those regions, which is primarily all beverage servicing our large beverage customers.

About 70% of it’s in North America, 30% of it’s in Europe. Europe is a growth market for us. We earn our cost of capital in Europe. We have good ROIC in Europe, even though we’re not an integrated business in Europe. We do ship some of our own paperboard over there.

I think the other note that I’d make here is the portfolio we have is really not commodity based. We’ve got over 3,000 patents and a lot of intellectual property that we use for the packaging we supply our customers. We spent the last seven years really transforming the business as part of our Vision 2025 for those of you who are familiar with us. And there were really three main things that we tried to do when we did that. First thing we wanted to do is have more capabilities.

For example, we didn’t even have a foodservice business in 2017. And really what that caused is if consumer was eating out, we weren’t getting those sales. So it impacted our ability. I’ll show you a slide here in a little bit later on in the deck, but I’ll kind of profile that in a lot more detail for you and why it’s important. But the big thing we did to address that is in 2018, we purchased International Paper Consumer Packaging business, making us the number one player in paper cups.

Roughly 30% of all the paper cups in North America we manufacture. We make the paperboard for that, as well as have five low cost cup converting facilities there. We’ve also invested in innovation in a big way. Many people thought our expansion with AR packaging in Europe was simply just to get more geography. There was an element of that, it allowed us to get into Eastern Europe, which are great markets for us.

But the biggest part of it was they were the most innovative company in the space. And combined with ours that we had, we now have five global innovation and design centers that routinely develop new and different solutions to replace primarily plastic and foam packages. And that’s allowed us to really expand our markets. And I’ll talk a little bit about that more in a minute. Lastly, we invested for competitive advantage.

We had some bespoke opportunities on the coated recycled paperboard area here to take a significant step forward in terms of cost leadership. Our first investment was in Kalamazoo, Michigan. That one’s pretty well chronicled and has gone extremely well. And then after that we announced that we’re going to a greenfield facility in Waco, Texas, which will bring online here in Q4 of this year. And as I mentioned earlier, at that point in time, we will have all our major investments made in this kind of long cycle CapEx that we’ve been doing, high CapEx upwards of 12% of sales here will revert back to a more balanced level around 5% of sales or below.

So we’re excited about that. Look, this is where we were in 2017. I mentioned this earlier before we got our foodservice platform. We were largely dry foods and beverage. We’re kind of center of the store primarily.

Our top 25 accounts represented almost 80% of our sales. It was nice from an SG and A standpoint, but again, if one of those customers got a cold, we got the flu. And so we really needed to build out our portfolio and that’s exactly what we’ve done. When you look at that same, you know, picture of the store now. We actually put a drive through in there because we’re getting the drive through window as well and a lot of the work that we’ve done around plastic replacement really allows us to get that perimeter of the store and we’ll be profiling some of those packages in our upcoming earnings report, here with Q3 with some things that we’ve done in Europe that are continuing to accelerate that.

So really excited about that. Again, real balanced customer portfolio, which allows us to drive consistency across our revenue base. I guarantee you that in the last twenty four hours, you’ve touched something that we make. Here are some examples of what we do. You can see there on the slide the balance that we have really across our portfolio between food, beverage, food service, household and health and beauty.

Health and beauty is the smallest business. It came from AR packaging and that really allowed us to get into that space primarily in Europe. We’re learning a lot about what it takes to be a successful provider of those cartons. We really provide a limited amount of that in North America, but we see that as an opportunity for us. Here’s that slide that really shows that.

You can see AR Packaging’s addition with the lighter green balls there. We really have a nice platform in Europe with 38 facilities now geographically located in the right spots to take care of customers. As I mentioned earlier, this is a non integrated business. We do ship about 250,000 tons of our own paperboard to ourselves into that market and we buy the rest of the paperboard, which is a great position to be in given the supply and demand dynamics of paperboard in Europe. So excellent business, great innovation and AR Packaging has really been a home run for us.

Here’s our five platforms that we drive as part of our innovation. And they’re primarily 13,000,000,000 of that 15,000,000,000 is really focused on plastic and foam replacement. And what this has allowed us to do is really outperform our customers in the markets that we participate in. Look, we’re not immune to our customers, you know, having volume challenges. And I’ll talk a little bit more about what we’re doing about that here in a minute.

But what innovations allowed us to do consistently quarter after quarter is outperform and it’s really a function of the innovation efforts that we have and that that’s why we spend so much time investing in that space. Here’s some examples of some of the innovations we’ve done. You can see these are types of products that are available every day in the marketplace, things that you and other consumers use routinely, and this will continue to be a key focus for us as we go forward here. Here’s our Vision 02/1930. We put this together and we rolled this out in February.

And you can see there are really four pillars of this. It starts with innovation. I’ve commented a lot on innovation already and why that’s so important to us, allowing us to outperform in markets that are a bit challenged with innovation really kind of driving that uptick that we have. We focus on culture. We focus on people.

At the end of the day, have 23,000 associates that come to work every day and they’re driving our business forward, taking care of customers. We need them motivated. We need them to, you know, be, you know, committed and so we work hard to create a, you know, a culture that really fosters that kind of, you know, engagement and innovation across the, you know, our entire company. We focus on making the planet a better place. We do invest, you know, heavily to reduce the amount of carbon that we generate.

I’ve got a slide in here. I’ll show you how we’re going to do even more of that. The investments on recycled packaging, I think, speak for themselves. We spent almost $2,000,000,000 in the last five years to create the, you know, North America’s lowest cost, highest quality, you know, recycling platform. We can now take dirtier fiber, clean it all up and put it into high quality packaging and we’ve got significant cost advantage in being able to do that.

Most importantly, that’s where the end use customers really want us to go. They really appreciate coated recycled paperboard where it can be used in a package. They they want it used in a package. And all of that really inerts itself into do a good job on those three things, the results for both our customers, our our shareholders, and all our employees as well. As I mentioned earlier, what I’m excited about with our Vision 2,030 is when once Waco is complete, we have everything that we need to drive this, you know, Vision 2030 and commitments that we’ve made on this.

It’s not like we’ve got another big acquisition or another big, you know, capital investment that we need to make to go out there and do it. This is gonna be about innovation and execution on the asset base that we have. I like this slide. It kinda organizes a little bit, you know, some of the things we’re doing around sustainability commitments. I get asked all the time, are are you still committed to reducing the amount of carbon that you generate?

And the answer is yes. We’re gonna be thoughtful on how we do it, but you have to remember almost half our customers are domiciled in Europe and they’ve specifically called us and said, look, are you still committed to driving, you know, the reduction of carbon and, you know, out of the, out of your company? And the answer is yes. We will be able to do that and you see here, you know, on the on the lower section there that we expect to generate almost 50% reduction in our overall carbon by 2032 with investments that we’ll make in the business, all part of our 5% of sales on the CapEx line. So it’s all in the numbers.

It’s not like there’ll be some big capital call that we have to do. We’ve laid that out. If you haven’t had a chance to take a look at our impact report, it’s very detailed in there what we plan to do, how we plan to do it, and the timelines that we’ve put together to do it, and that’s really resonating well with our customers who have made some pretty significant pledges even though some of those have been moved back a little bit. We need to be there to be able to support them, and we will we will be there. Investing in people, I’ve mentioned why that’s important.

All of you understand that. You know, we need to make sure that we’ve got the right workforce and strain the right way to be able to do what our customers need them to do. And, course, the packages that we generate each and every day need to be more circular, more functional and more convenient. Otherwise, they just won’t resonate with our customers. Those are the things that we have to do.

So every time we have a new innovation, we’ve hit the mark on those three things and that’s really a differentiating point for us in the marketplace in terms of what we do with innovation. Here’s our arrow slide that really shows our end use markets. I think this really speaks to the diversification I mentioned earlier with some of the things that we did at Vision twenty twenty five relative to building out our portfolio in that that kind of that overall picture I showed you of the of the supermarket with the drive thru in there. Look. You know, you can see, you know, in quarter two, we actually went sideways on a number of those.

Health and beauty was up a little bit. I think that’s a pretty good testament. We if you think about what has happened here on the food service side of the business, it’s been pretty well chronicled some of the challenges that the QSRs have experienced, and yet the last two years, our business has been up pretty substantially and the reason for that was we’ve been replacing plastic and foam, you know, in terms of cups. And so again, kind of giving you some real examples of how that works. Being able to shift and move with the consumer is essential and that’s what allows us to drive that consistency and the innovation allows us to drive market expansion and really make sure that we outperform in terms of volumes, in terms of what our customers are buying from us each and every year.

One thing I will add, and I was asked a question in the hallway and I want to make sure that I address this too, in terms of Q3 volumes. Those of you who follow consumer, your packagers, you or consumer goods companies, should say, food companies and beverage companies, several of them have released in the last couple of weeks, some of our customers have. So you’re probably not surprised to know that our Q3 is off to a little bit of a mediocre start. We had kind of forecasted to be plus or minus flat and we’re probably down about 2% through volumetrically through the August really a little outperforming relative to what we’ve seen in terms of Nielsen and some of the other data but I am willing to share that with you today. Okay.

Let’s spend a little bit of time on this slide. This is an important slide because it’s really part of the case that I need to make around why graphic. If you look at the far left hand side of that and take a look at the volumes, you can really see what we’ve been dealing with for the last, you know, couple of years. If you look at 2023, as our customers kind of rolled out of COVID, they dealt with the destocking, got their inventories back in line with where they wanted them to be. I get asked a lot, is there still destocking going on?

If there is, we don’t really feel it as a material on our business. I think most of that’s in our rearview mirror. But you can certainly see where it was in 2023. Our volumes held up pretty well. We did take a fair amount of market related downtime in our paperboard manufacturing facilities to make sure that we dealt with that, matching our supply and demand like we always do.

You But can see the margins held up pretty good during that period of time. There are really three things that are impacting us right now. We view them as unusual and we view them as temporary, but they’re real for us in the near term. And so I need to talk about and make sure you understand how we’re viewing them and what we’re doing about them. The first one is really the fact that, you know, food is extensive.

If you take a look at really what’s happened, this has been, you know, again, well chronicled. You know, our our customers raised prices pretty dramatically during the COVID era, and they’ve been reticent for all the right reasons not to reduce those costs, you know, reduce the pricing. In many cases, you know, their costs are up pretty substantially as well. But affordability remains a challenge. You know, the consumer is stretched and so that’s impacting our customers’ ability to drive their volumes.

I have to tell you, it’s gone on a little longer than I anticipated it would, but there are some, you know, green shoots that seem to be happening. Of course, you read the journal as I do. This weekend, there was a fair amount of news in there around what’s going on with the big CPGs. Four of our big customers were mentioned in there. So from our standpoint, we believe it’s being addressed by those companies in those boards.

And they’ve got a long history of reformulating and repositioning their business in order to resonate with customers, and I anticipate that they will. All that said, that takes some time. Reformulation doesn’t happen overnight. Repositioning some of these brands, you know, takes some time as they’re going through some of their, you know, the changes that are gonna happen in corporate structure and things like that. We’ll have to deal with that, you know, over that period.

But, you know, they will get it right. I’m quite confident these are well capitalized companies with great brands and they’ve been through, you know, different events in the past and able to do it. The second part of that is really dealing with what I’ll call the MAHA movement and GLP-one drugs and they’re different. I mean, the MAHA movement is really somewhat expensive for our customers and comes at a very inopportune time for them. They’re already dealing with some of their volumetric challenges, and now they’re having to go to reformulations that almost always are more expensive.

You know, just kind of a fact in terms of what’s happening there, replacing some of the artificial flavors and colorings that are out there, and that takes away from money that they otherwise could be using for promotional activity, slotting fees, and things like that. So it impacts some of their demand. They’ll work through that. Most have made pledges to do it in ’26 ’25, ’26 and I think some in early twenty seven. So it’ll kind of flow through there.

But it is something that they’re having to address and it’s a near term headwind for them for sure. GLP one drugs, yeah, I could make a case those actually are probably more of a friend for graphic than a foe. We don’t participate in kind of the the salty snack, you know, category in a material way. That’s mostly film, you know, plastics, you know, that do that. And again, customers will reformulate.

Some have already started doing this with higher protein, you know, type additives and and food. And anytime they reformulate or look at a different size, that’s an opportunity for graphic. But again, it’s churn that our customers are dealing with. They’re having to figure out how they put the resources on this and it takes some time for them to get it right, but I believe that they will. A third element that’s impacting us right now is really kind of a a truly, you know, interesting and unusual situation.

That’s on the paperboard market, specifically SBS. So that’s the white paperboard. We’re a small player in that market. Almost 80% of everything that graphic does is on recycled paperboard or unbleached paperboard. The biggest thing we do on the bleached paperboard side is paper cups, and that’s a really good market as I already I already mentioned to you.

But on the coated SBS market, there’s been capacity added here in North America to a market that was already well supplied and it’s driving operating rates down pretty dramatically. One analyst wrote this morning, and he’s right. There was a 520,000 ton machine added into a market that was operating rate of around 82%. So what that’s doing is that’s keeping a bit of a collar on our ability to push pricing on coated receptive paper board and unbleached paperboard. And it’s really kind of a unique phenomenon because if you look at the spread on coated SBS and go back ten years, it used to have a 40% premium over coated recycled paperboard.

That premium right now is per RISI vast markets is down to 7%. So it’s a very, very unusual spot to be in, particularly when you think about it cost 50% more to make that paperboard than it does to make coated recycled paperboard and the CapEx requirements are substantially higher, almost 4x that of coated recycled paperboard annually. Our opinion is that really no producer that’s making that right now is probably earning the cost of capital. So it will get solved, but that’s an issue in the near term that we’re dealing with. So those three things are really what’s impacting us.

You see in our adjusted EBITDA margin, our confidence remains high in our business model and the investments that we’ve made. Again, we’ve more than doubled down on coated recycled paperboard. We’re the lowest cost producer of that grade. But these issues, you know, do impact us, particularly the SBS one in terms of what those markets are doing in the near term. So it’s something that we have to watch.

It’s not ours to solve. We’re a small player. We’re actually busy, you know, on our on our coated reset or coated bleach side of the business and our cup business. We have two machines in our Texark can, a paperboard manufacturing facility. One makes cup, the other makes coated bleached, and both of those are are very busy because it’s, you know, they’re over 95% integrated in our own stuff.

So it’ll be someone else that needs to do it. It won’t be us, but in the near term, that’s a headwind that we have to deal with. Here’s our base capital allocation model as you look there in our algorithm. We’re obviously behind a bit on our base model. We’re not generating those results right now, but our confidence over time that we will is very high.

You can see low single digits on the annual sales growth, which really assumes kind of called a flat market then innovation really being what gets us into that low single digit. Right now, that innovation is getting us closer back to zero. So far, year to date, in 2025, with markets being down a couple of percent. So we’re not hitting on that right now, but we believe we will over time for the reasons I just got done talking about with what our customers are doing reformulating. And that drives adjusted EBITDA growth of mid single digits.

It’s pretty mechanical for us. We get good absorption relative to that level of growth that drives high single digit EPS growth and I’ve already mentioned that our CapEx is going to revert back to 5% of sales or less starting in 2026. So that’s like six months away from now relative to what you can expect from us. And that drives our capital priorities, which are listed there. To reinvest back in the business, we need about 2% of that 5% is what I’ll call true maintenance CapEx.

So even at 5%, we’re investing to, you know, into new markets, into lower cost assets, you know, things that make the company better. It sounds like we’re starving the company of CapEx. We have a well invested company, very well invested company as a matter of fact, and we’ll continue to be smart about how we allocate capital to do that from an investment standpoint. We want to grow the dividend. You see us made a couple of moves here.

But every twenty four months, we take a look at that. We think a growing dividend attracts investors, investors that want to invest in a company like Graphic. So, we’re committed to that. We’ve been pretty upfront around our desire to reinvest repurchase our own shares, if you will. We have allocation right now about $1,600,000,000 out there and you saw us in our second quarter, made some moves.

We have to manage that in accordance with our leverage ratio, which we said will finish the year around 3.5 times. But with our stock trading where it’s at, it’s pretty clear what the best priority for us in 2026 is. You can expect us to continue to be very focused on that. Getting investment grade by as part of Vision 02/1930, that’s in the cards here too. We need to get our leverage down a bit, which we will.

It’s pretty mechanical with the cash flow generation we’re going to generate over the next few years. We think that’s important and that will be another leg of the stool in terms of our overall financial stability. And I have to tell you that M and A, do we look at it? Sure. But is the bar extremely high in this environment?

Absolutely. And it’s even higher now given where our stock is trading relative to what we can do with our own reinvestment back in our company and purchasing our own shares. So that’s how we think about capital allocation as we roll into 2026. This slide basically just shows the cash flow, and we’ve adjusted it to kind of show the jump off point a little bit lower than where we had anticipated to be. But I think the point you really need to take away from this is the vast majority of what’s driving that uptick in the free cash flow CapEx.

Then you’ve got a little bit of Waco coming on $80,000,000 next year and $80,000,000 the following year, a little bit of working capital. And then there is some growth in the overall business, but the big uplift here isn’t around, hey, you know, our volumes have to come back and be, you know, 3% in order to make this all happen. Certainly not in the the near term years that we’ve got. So our confidence and our ability to generate that free cash flow is very high. And and you should take some comfort in the fact that we know how to repurchase the company back.

This slide is in there. We bought back almost 25% of the company since we did the acquisition of IP’s consumer business in 2018. You can see it there. We’ve been pretty smart about how we do it, and we’ve retired those shares in a way that has been value creating for our shareholders. There’s our guidance and commentary, which is unchanged.

And with that, Phil, I’ve got about ten minutes left. So I’m happy to take questions.

Phil, Analyst: I’ll kick things off and then we’ll open up to the group. Mike, appreciate all the great color. The three headwinds you talked about, whether it’s SBS, MAHA and just volume challenges as consumers seek value. Those don’t seem to be an easy fix in the medium term. So, in that backdrop, what are some of levers that are at your disposal to kind of grow earnings or is it going to be a pretty muted EBITDA environment and just focus on cash and things that you can control?

Just kind of help us think about the longer term, In the medium term

Mike Doss, CEO, Graphic Packaging: the near term, what those is the headwinds that we’re facing right now, our focus is clear. I mean, we’ve got to get Waco up and running, which will start up here in Q4 of this year. We’re heads down really focused on that. You should have a fair amount of confidence that that’ll be successful given it’s an identical paper machine to the one we started up successfully in Kalamazoo in 2022. So we got a lot of people there that know how to do that.

We need to continue to drive innovation. We have to help our customers win in this crowded market space with the things that they’re dealing with. And suppliers that help them win when they’re going through all these changes and struggles are the ones that are going to be rewarded with additional volume. We have to earn that. Our cost structure is such, you know, that we can be smart about where we would decide to take strategic share and really focus on, you know, the investments that we’ve made and leveraging the investments that we’ve made to make sure that we hit volumetric targets that we put out there.

So I think when you look at all that, those are kind of operationally what we’re focused on and then the capital allocation piece of it, Phil, as I mentioned is another area we generate, you know, alpha for our shareholder base and I’ve kind of alluded to, you know, what our priorities are there. So near term, that’s what we have to do.

Phil, Analyst: Super. Questions to the audience?

Unidentified speaker: Yeah. Can you just clarify a little bit about this reduction in cash flow long term that you guys talked about with your Q2 call and how we should think about that? Yes. Does that all

Mike Doss, CEO, Graphic Packaging: you for the question. And so really, as I mentioned, our jump off point is a little lower as we go into next year. So that’s why it was the $800,000,000 that we talked about. And I think you’re specifically asking around when do we get back to $1,000,000,000 which is kind of what we guided with the Vision 2030 piece. The question is I don’t know for sure when those three things really kind of take care of themselves, but they will take care of themselves.

Their customers will find their mojo. They will reformulate. And, you know, on the SBS side of the business, you know, people aren’t going to operate, you know, paperboard mills, you know, that aren’t earning the cost of capital, you know, in in infinite. You know, sooner or later, someone’s gonna make a decision. I’ve been doing it thirty five years.

It always happens. It seems like it takes longer than it should. And as I mentioned, this is one where, you know, we’re kinda on the sidelines watching and waiting. So it does impact us, but there’s not a lot we can do in the short term there because our our facility, as I mentioned, in Texarkana is running full. We get some collateral damage on that and it certainly puts a cap on what we can do on our other two grades, which by the way, the backlogs on both coated recycled paperboard and unbleached paperboard are very solid as you saw and Phil actually wrote about in, you know, coming out of q two with the AF and PA data that was released.

So those are again the things that we can do. And I think the thing that you can count on is that we’re positioning graphic to be spring loaded when that does get resolved and it will, that we’re in a good position to take advantage of it and kinda close that gap. But I can’t give you an exact timing on it. Just

Unidentified speaker: a technical one related to the same question. So 2026, you gave me this free cash flow guidance of 700 to 800, and then you said cash requirements from seven fifty to eight fifty. It’s in front of agreement. Just looking through components, CapEx, four fifty, going back to 5% of 5,000,000 sales. Financials, two twenty, and then taxes, basically, I’m at $2.30.

That puts me at 900. Where is this hunt like, 100 coming from? Is it lower taxes? Because of the one you you will, or how do you look at the same kind of lower cash flow?

Mike Doss, CEO, Graphic Packaging: It’s a combination of things. It’s, you know, the big beautiful bill is a portion of it as well as working capital reductions on the downsizing, specifically inventory, the downsizing to five very well capitalized paperboard manufacturing facilities.

Unidentified speaker: Yeah. There’s an inventory optimization in there that we couldn’t do before Waco. We need to build up our inventory to get ready for the closures. So inventories and then, of course, with customers coming in short, we ended up with inventories even higher than we expected. But the big beautiful bill has a significant positive for us with the bonus depreciation.

Mike Doss, CEO, Graphic Packaging: Our timing was quite good with Waco as a result of, you know, that legislation.

Unidentified speaker: The expectations were flattish and you see 2% to 3% down?

Mike Doss, CEO, Graphic Packaging: So through what I’ve said is through the August right now, we’re seeing we had guided to plus or minus flat, and we’re down 2% through the August volumetrically.

Unidentified speaker: Yes, that plus or minus flat is for the year. But third quarter tends to be a good quarter and it’s starting off slow.

Mike Doss, CEO, Graphic Packaging: We had a number of customers that actually took the week of the July 4 just down. They didn’t manufacture anything. And so that impacted us a little bit there. Other questions, Phil?

Phil, Analyst: From a pricing standpoint, I think you guys have been trying to move off of RISI and have more of a cost plus type approach.

Mike Doss, CEO, Graphic Packaging: Yeah.

Phil, Analyst: And you introduced a value based pricing where it’s off of public indexes. How’s how’s that evolution coming along as you kind of negotiate contracts for for next year perhaps?

Mike Doss, CEO, Graphic Packaging: Yeah. Thank you for that. And you’re absolutely correct. That is a stated strategy of ours. And we were kind of early and kind of moving away from RISI as you well know.

We’ve been at this now for the better part of six or seven years for reasons that make a lot of sense, you know, at least for graphic. And we continue to make progress there. It takes a while to do it. We don’t play to an empty chair. That’s number one.

You know? And so, you know, customers, you know, still have options there, and we need to make sure that we’re thoughtful in terms of how we do it with them. But those who have made the move really like the transparency. They’ve got the ability to sit at their Bloomberg terminal and really know what’s going on with their pricing because it’s very transparent in terms of how it goes as opposed to, as you know, the RISI process, which is is far from transparent.

Phil, Analyst: Well, you guys were roughly 50%. Like, is there an aspirational target, call it, in next two or three years where you want the to be more cost plus versus RISI?

Mike Doss, CEO, Graphic Packaging: Yes. Higher.

Phil, Analyst: Okay. And then you talked about some of the MAHA dynamics, GLP-1s and then some of your customers going through some transition. How do you kind of tackle that? Are you making incremental investments in bolt ons to be more perimeter store? And do you expect some of the changes at the customer level, MAHA, or creating some disruption this year in terms of demand?

Mike Doss, CEO, Graphic Packaging: To this point, it really hasn’t been our response has not been M and A. And I don’t think it will be yet. The bigger opportunity for us is to continue to take advantage of this excellent innovation, you know, team and process we have internally with Graphic. And and we get asked a lot, you know, Europe is still very, very committed to innovation and moving away from plastic. It slowed down a little bit in The US for reasons that are pretty well understood here, but that doesn’t mean that it’s gonna go away.

It just means in this dynamic where you have customers splitting themselves up and selling their businesses, you know, that they’re focused on different priorities right now, but we have to continue to come forward with those ideas because ultimately, they to win in the marketplace. They ultimately have to sell more products. And our customer our our products help get it off the shelf and into the cart for our customers, and that’s really where we we plan to help them win.

Phil, Analyst: Okay. Super.

Unidentified speaker: You’re get a good one. You’re already sick.

Unidentified speaker: The Waco 80,000,000 and then 80,000,000.

Mike Doss, CEO, Graphic Packaging: Yeah.

Unidentified speaker: What utilization does that assume?

Mike Doss, CEO, Graphic Packaging: Yeah. Thank you for the question because we get asked a lot around is it volumetric set. You know, now if volumes just completely crash, the answer is yes. But the first 80,000,000 is really driven by cost. The better part, if you remember when we rolled it out, we said $100,000,000 of the 160,000,000 is cost, shutting down Middletown, shutting down East Angus and tying out that EBITDA that we got from those because we’re just it’s a lot lower cost facility.

And then the remaining 80 will have to be, you know, some impacted by, you know, volumetric growth. So that’s into 2027. But 2026

Unidentified speaker: So utilization is just equivalent with what you’re shutting down?

Mike Doss, CEO, Graphic Packaging: Yes. Well, we’re actually adding tons at Graphic, but the industry has taken tons away. The industry removed about 330,000 tons here this year. And when you tie that all out, the net add into the industry with Waco is about 80,000 tons. So it’s pretty small.

CRB is a really good balanced market and it’s in high demand by consumers as well, particularly the high quality material that we’re generating.

Unidentified speaker: And East Angus will come down after Waco starts because we can’t we’ll get too short. The market is tight in recycled. You don’t see it in pricing right now because of what’s going on in bleach, but the market is tight. If we shut East Angus, we’d be shorting our customers right now.

Mike Doss, CEO, Graphic Packaging: And we’re tied in unbleached too. We’ve actually had to purchase more tons this year than we anticipated to kind of take care of that business. So it really is a phenomenon with bleach paperboard that we’re dealing with.

Phil, Analyst: With some investments you made on the CRB side, anything you call out from a customer penetration for some of your newer products where you’ve taken share or any new innovation that you could point to where you’ve seen adoption?

Mike Doss, CEO, Graphic Packaging: Certainly, the Ranir product that we launched competes directly with coated SBS. It kind of creates another headwind for coated SBS. And that particular product, you know, has got the brightness and smoothness capabilities of the high, you know, quality SBS materials, which I mentioned to you earlier, usually take about 50% more cost to make. So that is resonating with some customers. We anticipate, I think, over the next three years that we’ll have upwards of 80,000 tons in that grade, and we started with zero.

You know? So it’s been a nice win for us. Good innovation. Thank you, Phil, good morning, everybody. It’s basically through these Safe Harbor statements.

Making the case for YGraphics, that’s that’s really what I want to do over the next twenty, twenty five minutes in my prepared comments. Then we’ll open it up for questions from the floor. Hopefully, are some there. Phil’s got some too. So I’m sure we’ll use our thirty five minutes in a productive way.

Look, mean, if you think about Graphic, one of the things we’ve really done over the last seven years is transform this company. I’ll go into some details in terms of what that really looks like. The last of the major expenditures are getting ready to wind down with our Waco investment in recycled paperboard manufacturing facility in Texas. And we will inflect to serious cash flow generation, really driven primarily by the reduction of CapEx going down to a more moderated level at about 5% of sales, as well as the EBITDA that will come from Waco as well as some working capital reductions given just really shrunk our paperboard manufacturing platforms, make us more efficient. So that really will all nerd to significant value creation for shareholders and something that I want to make sure that we outline for you.

We do have some near term headwinds that we’re dealing with. Some of those have been pretty well chronicled. I’m going spend some time talking about those when I get to a slide. We believe they’re temporary. And we’ve got a lot of confidence in our long term algorithm and the business model that we’ve built.

So let’s jump right in. Here’s graphic at a glance. You can see we’re a little almost 9,000,000,000 principally in two markets, North America and Europe. We do have a little bit of sales outside of those regions, which is primarily all beverage servicing our large beverage customers. About 70% of it’s in North America, 30% of it’s in Europe.

Europe is a growth market for us. We earn our cost of capital in Europe. We have good ROIC in Europe, even though we’re not an integrated business in Europe. We do ship some of our own paperboard over there. I think the other note that I’d make here is, the portfolio we have is really not commodity based.

We’ve got over 3,000 patents and a lot of intellectual property that we use for the packaging we supply our customers. We spent the last seven years really transforming the business and is part of our Vision 2025 for those of you who are familiar with us. And there were really three main things that we tried to do when we did that. First thing we wanted to do is have more capabilities. For example, we didn’t even have a foodservice business in 2017.

And really what that caused is if consumer was eating out, we weren’t getting those sales. So it impacted our ability. I’ll show you a slide here in a little bit later on in the deck, it’ll kind of profile that in a lot more detail for you and why it’s important. But the big thing we did to address that is in 2018, we purchased International Paper’s Consumer Packaging business, making us the number one player in paper cups. Roughly 30 of all the paper cups in North America we manufacture.

We make the paperboard for that as well as have five low cost cup converting facilities there. We’ve also invested in innovation in a big way. Many people thought our expansion with AR packaging in Europe was simply just to get more geography. There was an element of that. It allowed us to get into Eastern Europe, which are great markets for us.

But the biggest part of it was they were the most innovative company in the space. And combined with ours that we had, we now have five global innovation and design centers that routinely develop new and different solutions to replace primarily plastic and foam packages. And that’s allowed us to really expand our markets. And I’ll talk a little bit about that more in a minute. And lastly, we invested for competitive advantage.

We have some bespoke opportunities on the coated recycled paperboard area here to take a significant step forward in terms of cost leadership. Our first investment was in Kalamazoo, Michigan. That one’s pretty well chronicled and has gone extremely well. And then after that we announced that we’re going to a greenfield facility in Waco, Texas, which we’ll bring online here in Q4 of this year. And as I mentioned earlier, at that point in time, we will have all our major investments made in this kind of long cycle CapEx that we’ve been doing high CapEx upwards of 12% of sales here will revert back to a more balanced level around 5% of sales or below.

So we’re excited about that. Look, this is where we were in 2017. I mentioned this earlier before we got our foodservice platform. We were largely dry foods and beverage. We’re kind of center of the store primarily.

Our top 25 accounts represented almost 80% of our sales. It was nice from an SG and A standpoint. But again, if one of those customers got a cold, we got the flu. And so we really needed to build out our portfolio and that’s exactly what we’ve done. When you look at that same, you know, picture of the store now, we actually put a drive through in there because we’re getting the drive through window as well.

And a lot of the work that we’ve done around plastic replacement really allows us to get that perimeter of the storm. We’ll be profiling some of those packages in our upcoming earnings report, you know, here with q three with some things that we’ve done in Europe that are continue continuing to accelerate that. So really excited about that. Again, real balanced customer portfolio, which allows us to drive consistency across our revenue base. I guarantee you that in the last twenty four hours, you’ve touched something that we make.

Here are some examples of what we do. You can see there on the slide the balance that we have really across our portfolio between food, beverage, food service, household and health and beauty. Health and beauty is the smallest business. It came from you know, AR Packaging, and that really allowed us to get into that space primarily in Europe. We’re learning a lot about what it takes to be a successful provider of those cartons.

We really provide a limited amount of that in North America, but we see that as an opportunity for us. Here’s that slide that really shows that. You can see AR Packaging’s addition with the lighter green balls there. We really have a nice platform in Europe with 38 facilities now geographically located in the right spots to take care of customers. As I mentioned earlier, this is a non integrated business.

We do ship about 250,000 tons of our own paperboard to ourselves into that market and we buy the rest of the paperboard, which is a great position to be in given the supply and demand dynamics of paperboard in Europe. So excellent business, great innovation and AR Packaging has really been a home run for us. Here’s our five platforms that we drive as part of our innovation. And they’re primarily 13,000,000,000 of that 15,000,000,000 is really focused on plastic and foam replacement. And what this has allowed us to do is really outperform our customers in the markets that we participate in.

Look, we’re not immune to our customers, you know, having volume challenges. And I’ll talk a little bit more about what we’re doing about that here in a minute. But what innovations allowed us to do consistently quarter after quarter is outperform. And it’s really a function of the innovation efforts that we have and that that’s why we spend so much time investing in that space. Here’s some examples of some of the innovations we’ve done.

You can see these are types of products that are available every day in the marketplace, things that you and and other consumers use routinely, and this will continue to be a key focus for us as we go forward here. Here’s our Vision 02/1930. We put this together and we rolled this out in February. And you can see there are really four pillars of this. It starts with innovation.

I’ve commented a lot on innovation already and why that’s so important to us, allowing us to outperform in markets that are a bit challenged with innovation really kind of driving that uptick that we have. We focus on culture. We focus on people. At the end of the day, we have 23,000 associates that come to work every day and they’re driving our business forward, taking care of customers. We need them motivated.

We need them to, you know, be, you know, committed and so we work hard to create a, you know, a culture that really fosters that kind of, you know, engagement and innovation across the, you know, our entire company. We focus on making the planet a better place. We do invest heavily to reduce the amount of carbon that we generate. I’ve got a slide in here. I’ll show you how we’re going to do even more of that.

The investments on recycled packaging, I think, speak for themselves. We spent almost $2,000,000,000 in the last five years to create the, you know, North America’s lowest cost, highest quality, you know, recycling platform. We can now take dirtier fiber, clean it all up, and put it into high quality packaging, and we’ve got a significant cost advantage in being able to do that. Most importantly, that’s where the end use customers really want us to go. They really appreciate coated recycled paperboard where it can be used in a package.

They they want it used in a package. And all of that really inures itself and to do a good job on those three things, the results for both our customers, our our shareholders, and all our employees as well. As I mentioned earlier, what I’m excited about with our Vision 2030 is once Waco is complete, we have everything that we need to drive this Vision 2030 and commitments that we’ve made on this. It’s not like we’ve got another big acquisition or another big capital investment that we need to make to go out there and do it. This is gonna be about innovation and execution on the asset base that we have.

I like this slide. It kinda organizes a little bit, you know, some of the things we’re doing around sustainability commitments. I get asked all the time, are you still committed to reducing the amount of carbon that you generate? And the answer is yes. We’re going be thoughtful on how we do it.

But you have to remember, almost half our customers are domiciled in Europe and they’ve specifically called us and said, look, are you still committed to driving, the reduction of carbon out of your company? And the answer is yes. We will be able to do that and you see here on the lower section there that we expect to generate almost 50% reduction in our overall carbon by 2032 with investments that we’ll make in the business, all part of our 5% of sales on the CapEx line. So it’s all in the numbers. It’s not like there’ll be some big capital call that we have to do.

We’ve laid that out. If you haven’t had a chance to take a look at our impact report, it’s very detailed in there what we plan to do, how we plan to do it, and the timelines that we’ve put together to do it, and that’s really resonating well with our customers who have made some pretty significant pledges even though some of those have been moved back a little bit. We need to be there to be able to support them, and we will we will be there. Investing in people, I’ve mentioned why that’s important. All of you understand that.

You know, we need to make sure that we’ve got the right workforce and strain the right way to be able to do what our customers need them to do. And of course, the packages that we generate each and every day need to be more circular, more functional, and more convenient. Otherwise, they just won’t resonate with our customers. Those are the things that we have to do. So every time we have a new innovation, we’ve hit the mark on those three things and that’s really a differentiating point for us in the marketplace in terms of what we do with innovation.

Here’s our arrow slide that really shows our end use markets. I think this really speaks to the diversification I mentioned earlier with some of the things we did at Vision twenty twenty five relative to building out our portfolio in that kind of that overall picture I showed you of the of the supermarket with the drive through in there. Look. You know, you can see, you know, in quarter two, we actually went sideways on a number of those. Health and beauty was up a little bit.

I think that’s a pretty good testament. We if you think about what has happened here on the food service side of the business, it’s been pretty well chronicled some of the challenges that the QSRs have experienced, and yet the last two years, our business has been up pretty substantially. And the reason for that was we’ve been replacing plastic and foam in terms of cups. And so again, kind of giving you some real examples of how that works. Being able to shift and move with the consumer is essential and that’s what allows us to drive that consistency and the innovation allows us to drive market expansion and really make sure that we outperform in terms of volumes, in terms of what our customers are buying from us each and every year.

One thing I will add, I was asked a question in the hallway and I want to make sure that I addressed this too, in terms of Q3 volumes. Those of you who follow consumer, your packagers, you or consumer goods companies, should say, food companies and beverage companies, several of them have released in the last couple of weeks, some of our customers have. You’re So probably not surprised to know that our Q3 is off to a little bit of a mediocre start. We had kind of forecasted to be plus or minus flat and we’re probably down about 2% through volumetrically through the August really. A little outperforming relative to what we’ve seen in terms of Nielsen and some of the other data but I am willing to share that with you today.

Okay. Let’s spend a little bit of time on this slide. This is an important slide because it’s really part of the case that I need to make around why graphic. If you look at the far left hand side of that and take a look at the volumes, you can really see what we’ve been dealing with for the last, you know, couple of years. If you look at 2023, as our customers kind of rolled out of COVID, they dealt with the destocking, got their inventories back in line with where they wanted them to be.

You know, I I get asked a lot, is there still destocking going on? If there is, we don’t really feel it as a material impact on our business. I think most of that’s in our rearview mirror. But you can certainly see where it was in 2023. Our volumes held up pretty well.

We did take a fair amount of market related downtime in our paperboard manufacturing facilities to make sure that we dealt with that, matching our supply and demand like we always do. But you can see the margins held up pretty good during that period of time. There are really three things that are impacting us right now. We view them as unusual and we view them as temporary, but they’re real for us in the near term. And so I need to talk about and make sure you understand how we’re viewing them and what we’re doing about them.

The first one is really the fact that, you know, food is extensive. If you take a look at really what’s happened, this has been, you know, again, well chronicled. You know, our our our customers raised prices pretty dramatically during the COVID era, and they’ve been reticent for all the right reasons not to reduce those costs, you know, or reduce the pricing. In many cases, you know, their costs are up pretty substantially as well. But affordability remains a challenge.

You know, the consumer is stretched and so that’s impacting our customers’ ability to drive their volumes. I have to tell you, it’s gone on a little longer than I anticipated it would, but there are some, you know, green shoots that seem to be happening. Of course, you read, you know, the the journal as I do this weekend. There was a fair amount of news in there around what’s going on with the big CPGs. Four of our big customers were mentioned in there.

So from our standpoint, we believe it’s being addressed by those companies and those boards and they’ve got a long history of reformulating and repositioning their business in order to resonate with customers and I anticipate that they will. All that said, that takes Repositioning some of these brands, you know, takes some time as they’re going through some of their, you know, the changes that are gonna happen in corporate structure and things like that. We’ll have to deal with that, you know, over that period. But, you know, they will get it right. I’m quite confident.

These are well capitalized companies with great brands and they’ve been through, you know, different events in the past and been able to do it. The second part of that is really dealing with what I’ll call the MAHA movement and GLP-one drugs and they’re different. I mean, the MAHA movement is really somewhat expensive for our customers and comes at a very inopportune time for them. They’re already dealing with some of their volumetric challenges, and now they’re having to go to reformulations that almost always are more expensive. You know, just kind of a fact in terms of what’s happening there, replacing some of the artificial flavors and colorings that are out there, and that takes away from money that they otherwise could be using for promotional activity, slotting fees, and things like that.

So it impacts some of their demand. They’ll work through that. Most have made pledges to do it in ’26 ’25, ’26, and I think some in early twenty seven. So it’ll kind of flow through there, but it is something that they’re having to address and it’s a near term headwind for them for sure. GLP one drugs, you know, I could make a case those actually are probably more of a friend for graphic than a foe.

We don’t participate in kind of the the salty snack, you know, category in a material way. That’s mostly film, you know, plastics, you know, that do that. And again, customers will reformulate. Some have already started doing this with higher protein, you know, type additives and and food. And anytime they reformulate or look at a different size, that’s an opportunity for graphic.

But again, it’s churn that our customers are dealing with. They’re having to figure out how they put the resources on this and it takes some time for them to get it right, but I believe that they will. A third element that’s impacting us right now is really kind of a a truly, you know, interesting and unusual situation. That’s on the paperboard market, specifically SBS. So that’s the white paperboard.

We’re a small player in that market. Almost 80% of everything that graphic does is recycled paperboard or unbleached paperboard. The biggest thing we do on the bleached paperboard side is paper cups, and that’s a really good market as I already mentioned to you. But on the coated SBS market, there’s been capacity added here in North America to a market that was already well supplied. It’s driving operating rates down pretty dramatically.

One analyst wrote this morning and he’s right. There was a 520,000 ton machine added into a market that was operating rate of around 82%. So what that’s doing is that’s keeping a bit of a collar on our ability to push pricing on coated receptive paperboard and unbleached paperboard. And it’s really kind of a unique phenomenon because if you look at the spread on coated SBS and go back ten years, it used to have a 40% premium over coated recycled paperboard. That premium right now is per RISI fast markets is down to 7%.

So it’s a very, very unusual spot to be in, particularly when you think about it cost 50% more to make that paperboard than it does to make coated recycled paperboard and the CapEx requirements are substantially higher, almost 4x that of coated recycled paperboard annually. So our opinion is that really no producer that’s making that right now is probably earning the cost of capital. So it will get solved, but that’s an issue in the near term that we’re dealing with. So those three things are really what’s impacting us. You see in our adjusted EBITDA margin, our confidence remains high in our business model and the investments that we’ve made.

Again, we’ve more than doubled down on coated recycled paperboard. We’re the lowest cost producer of that grade. But these issues do impact us, particularly the SBS one in terms of what those markets are doing in the near term. So it’s something that we have to watch. It’s not ours to solve.

We’re a small player. We’re actually busy, you know, on our on our coated reset or coated bleach side of the business and our cup business. We have two machines in our Texarkana paperboard manufacturing facility. One makes cup, the other makes coated bleached, and both of those are are very busy because it’s you know, they’re over 95% integrated in our own stuff. So it’ll be someone else that needs to do it.

It won’t be us, But in the near term, that’s a headwind that we have to deal with. Here’s our base capital allocation model as you look there in our algorithm. We’re obviously behind a bit on our base model. We’re not generating those results right now, but our confidence over time that we will is very high. You You see low single digits on the annual sales growth, which really assumes kind of, call it, a flat market and then innovation really being what gets us into that low single digit.

Right now, that innovation is getting us closer back to zero. So far, year to date in 2025 with markets being down a couple of percent. So we’re not hitting on that right now, but we believe we will over time for the reasons I just got done talking about with what our customers are doing reformulating. And that drives adjusted EBITDA growth of mid single digits. It’s pretty mechanical for us.

We get good absorption relative to that level of growth that drives high single digit EPS growth. And I’ve already mentioned that our CapEx is going to revert back you know, to 5% of sales or less starting in 2026. So that’s like six months away from now relative to what you can expect from us. And that drives our capital priorities, which are listed there, you know, to, you know, reinvest back in the business. We need about 2% of that five is what I’ll call true maintenance CapEx.

So even at five, we’re investing to, you know, into new markets, into lower cost assets, you know, things that make the company better. It sounds like we’re starving the company at CapEx. We have a well invested company, very well invested company as a matter of fact and we’ll continue to be smart about how we allocate capital to do that from an investment standpoint. We want to grow the dividend. You see us made a couple of moves here.

But every twenty four months, we take a look at that. We think a growing dividend attracts investors, investors that want to invest in a company like Graphic. So we’re committed to that. We’ve been pretty upfront around our desire to reinvest repurchase our own shares if you will. We have allocation right now about 1,600,000,000 out there and you saw us in our second quarter, made some moves.

We have to manage that in accordance with our leverage ratio which we said will finish the year around 3.5 times. But with our stock trading where it’s at, it’s pretty clear what the best priority for us in 2026 is. You can expect us to continue to be very focused on that. Getting investment grade, you know, by as part of Vision 02/1930, that’s in the cards here too. We need to get our leverage down a bit, which we will.

It’s pretty mechanical with the cash flow generation we’re going to generate over the next few years. We think that’s important and that will be another leg of the stool in terms of our overall financial stability. And I have to tell you that M and A, you know, do we look at it? Sure. But is the bar extremely high in this environment?

Absolutely. And it’s even higher now given where our stock is trading relative to what we can do with our own reinvestment back in our company and purchasing our own shares. So that’s how we think about capital allocation as we roll into 2026. This slide basically just shows the cash flow and we’ve adjusted it to kind of show the jump off point a little bit lower than where we had anticipated to be. But I think the point you really need to take away from this is the vast majority of what’s driving that uptick in the free cash flow is the reduction in CapEx.

Then you’ve got a little bit of Waco coming on $80,000,000 next year and $80,000,000 the following year, a little bit of working capital. And then there is some growth in the overall business, but the big uplift here isn’t around, hey, our volumes have come back and be, you know, 3% in order to make this all happen. Certainly, not in the near term years that we’ve got. So our confidence and our ability to generate that free cash flow is very high. And you should take some comfort in the fact that we know how to repurchase the company back.

This slide is in there. We bought back almost 25% of the company since we did the acquisition of IP’s consumer business in 2018. You can see it there. We’ve been pretty smart about how we do it and we’ve retired those shares in a way that has been value creating for our shareholders. There’s our guidance and commentary, which is unchanged.

And with that, Phil, I’ve got about ten minutes left. So I’m happy to take questions.

Phil, Analyst: Sure. I’ll kick things off and then we’ll open up to the group. Mike, appreciate all the great color. The three headwinds you talked about, whether it’s SBS, MAHA and just volume challenges as consumers seek value. Those don’t seem to be a easy fix in the medium term.

So in that backdrop, you know, what are some of the levers that are at your disposal to kind of grow earnings or is it going to be a pretty muted EBITDA environment and just focus on cash and things that you can control? Just kind of help us think about the longer term, In the medium term

Mike Doss, CEO, Graphic Packaging: the near term, what those is the headwinds that we’re facing right now, focus is clear. I mean, we’ve got to get Waco up and running, which will start up here in q four of this year. We’re heads down really focused on that. You should have a fair amount of confidence that that’ll be successful given it’s an identical paper machine to the one we started up successfully in Kalamazoo in 2022. So we got a lot of people there that know how to do that.

We need to continue to drive innovation. We have to help our customers win in this crowded market space with the things that they’re dealing with. And and suppliers that help them win when they’re going through all these changes and struggles are the ones that are gonna be rewarded with additional volume. We have to earn that. Our cost structure is such, you know, that we can be smart about where we would decide to take strategic share and really focus on, you know, the investments that we’ve made and leverage the investments that we’ve made to make sure that we hit volumetric targets that we put out there.

So I think when you look at all that, those are kind of operationally what we’re focused on and then the capital allocation piece of it, Phil, as I mentioned is another area we generate, you know, alpha for our shareholder base and I’ve kind of alluded to, you know, what our priorities are there. Near term, that’s what we have to do.

Phil, Analyst: Super. Questions to the audience?

Mike Doss, CEO, Graphic Packaging: Yeah. Can

Unidentified speaker: you just clarify a little bit about this reduction in cash flow long term that you guys talked about with your Q2 call and how we should think about that? Yes. Does that all

Mike Doss, CEO, Graphic Packaging: you for the question. And so really, as I mentioned, our jump off point is a little lower as we go into next year. So that’s why it was the $800,000,000 that we talked about. And I think you’re specifically asking around when do we get back to $1,000,000,000 which is kind of what we guided with the Vision 2,030 piece. The question is I don’t know for sure when those three things really kind of take care of themselves, but they will take care of themselves.

Our customers will find their mojo. They will reformulate. And on the SBS side of the business, you know, people aren’t gonna operate, you know, paperboard mills, you know, that aren’t earning the cost of capital, you know, in in infinite. You know? Sooner or later, someone’s gonna make a decision.

I’ve been doing it thirty five years. It always happens. It seems like it takes longer than it should. And as I mentioned, this is one where, you know, we’re kinda on the sidelines watching and waiting, so it does impact us. But there’s not a lot we can do in the short term there because our our facility, as I mentioned, in Texarkana is running full.

We get some collateral damage on that, and it certainly puts a cap on what we can do on our other two grades, which, by the way, the backlogs on both coated recycled paperboard and unbleached paperboard are very solid as you saw and Phil actually wrote about in you know, coming out of q two with the AF and PA data that was released. So those are again the things that we can do and I think the thing that you can count on is that we’re positioning graphic to be spring loaded when that does get resolved and it will, that we’re in a good position to take advantage of it and kinda close that gap. But I can’t give you an exact timing on it. Thank you.

Unidentified speaker: Just a technical one related to the same question. So 2026, you gave the free cash flow guidance of 700 to 800, and then you said cash requirements from $7.50 to $8.50 as in form of 800. Just looking three components, CapEx four fifty, going back to 5% of 5,000,000 sales. Financials, two twenty, and then tax is basically what I’m at. $2.30, that puts me at 900.

Where is this, 100 delta coming from? Is it lower taxes because of the one you’re doing the bill? Or how do you look at the same kind of lower cash requirement?

Mike Doss, CEO, Graphic Packaging: It’s a combination of things. It’s, you know, the big beautiful bill is a portion of it as well as working capital reductions on the downsizing, specifically inventory, the downsizing to five very well capitalized paperboard manufacturing facilities.

Unidentified speaker: Yeah. There’s an inventory optimization in there that we couldn’t do before Waco. We needed to build up our inventory to get ready for the closures. So inventories and then, of course, with customers coming in short, we ended up with inventories even higher than we expected. But the big beautiful bill has a significant positive for us with the bonus depreciation.

Mike Doss, CEO, Graphic Packaging: Our timing was quite good with Waco as a result of, you know, that legislation.

Unidentified speaker: And then the very short one, can you describe the expectations for flattish and you see 2% to 3% down?

Mike Doss, CEO, Graphic Packaging: So through what I’ve said is through the August right now, we’re seeing we had guided to plus or minus flat and we’re down 2% through the August volumetrically.

Unidentified speaker: Yes, that plus or minus flat is for the year. Third quarter tends to be a good quarter and it’s starting off slow.

Mike Doss, CEO, Graphic Packaging: We had a number of customers that actually took the week of July 4 just down. They didn’t manufacture anything. And so that impacted us a little bit there. Other questions, Phil?

Phil, Analyst: From a pricing standpoint, I think you guys have been trying to move off of RISI and have more of a cost plus type approach.

Mike Doss, CEO, Graphic Packaging: Yeah.

Phil, Analyst: And you introduced a value based pricing where it’s off of public indexes. How’s how’s that evolution coming along as you kind of negotiate contracts for for next year perhaps?

Mike Doss, CEO, Graphic Packaging: Yeah. Thank you for that. And you’re absolutely correct. That is a stated strategy of ours. And we were kind of early and kind of moving away from RISI.

As you well know, we’ve been at this now for the better part of six or seven years for reasons that make a lot of sense, you know, at least for graphic. And we continue to make progress there. It takes a while to do it. We don’t play to an empty chair. That’s number one.

You know, and so, you know, customers, you know, still have options there and we need to make sure that we’re thoughtful in terms of how we do it with them. But those who have made the move really like the transparency. They’ve got the ability to sit at their Bloomberg terminal and really know what’s going on with their pricing because it’s very transparent in terms of how it goes as opposed to, as you know, the RISI process, which is is far from transparent.

Phil, Analyst: Well, you guys were roughly 50%. Like, is there an aspirational target, call it, in the next two or three years where you want the to be more cost plus versus RISI?

Mike Doss, CEO, Graphic Packaging: Yes. Higher.

Phil, Analyst: Okay. Okay. And then you talked about some of the MAHA dynamics, the LP ones and then some of your customers going through some transition. How do you kind of tackle that? Are you making incremental investments in bolt ons to be more perimeter store?

And do you expect some of the changes at the customer level, MAHA or creating some disruption this year in terms of demand?

Mike Doss, CEO, Graphic Packaging: To this point, it really hasn’t been our response has not been M and A. And I don’t think it will be yet. The bigger opportunity for us is just to continue to take advantage of this excellent innovation, you know, team and process we have internally with Graphic. And and we get asked a lot, you know, Europe is still very, very committed to innovation and moving away from plastic. It slowed down a little bit in The US for reasons that are pretty well understood here, but that doesn’t mean that it’s gonna go away.

It just means in this dynamic where you have customers splitting themselves up and selling their businesses, you know, that they’re focused on different priorities right now, but we have to continue to come forward with those ideas because ultimately, they have to win in the marketplace. They ultimately have to sell more products. And our customer our our products help get it off the shelf and into the cart for our customers, and that’s really where we we plan to help them win.

Phil, Analyst: Okay. Super.

Unidentified speaker: You’re get a quick one on your list. Hi.

Unidentified speaker: The Waco $80,000,000 and then $80,000,000

Mike Doss, CEO, Graphic Packaging: Yeah.

Unidentified speaker: What utilization does that assume?

Mike Doss, CEO, Graphic Packaging: Yeah. Thank you for the question because we get asked a lot around is it volumetric set? Now if volumes just completely crash, the answer is yes. But the first 80,000,000 is really driven by cost. The better part if you remember when we rolled it out, we said a $100,000,000 of the 160,000,000 is cost, shutting down Middletown, shutting down East Angus and tying out that EBITDA that we got from those because we’re just it’s a lot lower cost facility.

And then the remaining 80 will have to be, you know, some impacted by volumetric growth. So that’s in 2027. But 2026

Unidentified speaker: So utilization is just equivalent with what you’re shutting down?

Mike Doss, CEO, Graphic Packaging: Yes. Well, we’re actually we’re actually adding tons at Graphic, but the industry has taken tons away. You know, the industry removed about 330,000 tons here this year. And when you tie that all out, the net add into the industry with Waco is about 80,000 tons, so it’s pretty small. CRB is

Unidentified speaker: a really good balanced market and it’s in high demand by consumers as well, particularly the high quality material that we’re generating. And East Angus will come down after Waco starts because we can’t we’ll get too short. The market is tight in recycled. You don’t see it in pricing right now because of what’s going on in bleach, but the market is tight. If we shut East Angus, we’d be shorting our customers right now.

Mike Doss, CEO, Graphic Packaging: And we’re tied in on bleach too. We’ve actually had to purchase more tons this year than we anticipated to kind of take care of that business. So it really is a phenomenon with bleach paperboard that we’re dealing with.

Phil, Analyst: With some investments you made on the CRB side, anything you call out from a customer penetration for some of your newer products where you’ve taken share or any new innovation that you could point to where you’ve seen adoption?

Mike Doss, CEO, Graphic Packaging: Certainly, Ranir product that we launched competes directly with coated SBS that kind of creates another headwind for coated SBS. And that particular product, you know, has got the brightness and smoothness capabilities of the high, you know, quality SBS materials, which I mentioned to you earlier, usually take about 50% more cost to make. So that is resonating with some customers. We anticipate, I think, over the next three years, that we’ll have upwards of 80,000 tons in that grade. And we started with zero.

So it’s been a nice win for us. Good innovation.

Phil, Analyst: Sounds good. I think we’ll just wrap it up here then.

Mike Doss, CEO, Graphic Packaging: Wonderful. Thank you for your time. Appreciate your interest in Graphic.

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