BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - GRAPHIC PACKAGING HOLDING CO

Financial Performance:

• EBITDA margins improved sequentially throughout the year, rising from 10% in Q1 to 11% in Q2, and 13% in Q3.
• Debt is projected to fall to $4.9 billion by year-end, marking the first sub-$5 billion level since 2020.
• Net leverage is expected to end the year at 4.7x, with a strategic target of achieving investment-grade metrics by the 2030 range.
• Free cash flow (FCF) midpoint guidance is $650 million for the current year, with $300 million attributed to one-time working capital normalization.
• Total one-time costs for the year totaled $135 million, including $75 million specifically to reduce working capital.

Guidance and Future Outlook:

• Management revised volume guidance for the full year from -1% to +1%, indicating a midpoint of 50 basis points of growth and the first growth forecast in over three years.
• Pricing actions totaling $150 million are locked in for 2027 ($60 million realized in 2026, $90 million in 2027).
• Inflation pressure for the current year has escalated from an initial $35 million to $170 million, driven largely by raw material costs exceeding $100/barrel.
• Strategic focus for the coming years is on deleveraging, restoring margins to the mid-teens or higher, and optimizing capital expenditure.
• The company expects to avoid significant new capital investment, focusing instead on deploying cash flow toward debt reduction and shareholder returns.

Business Segments and Product Lines:

• Re-entry into the Unbleached Recycled Board (URB) market is a key growth lever; over 20,000 tons are served this year with qualifications ongoing, targeting 100,000 tons in 2027 to absorb Waco mill capacity.
• Innovation in "plastic-to-paper" conversion is accelerating, with an estimated $15 billion future addressable market (e.g., replacing plastic rings with EnviroClips).
• The company has installed 95 machines in its copacker network, capitalizing on growth in sports drinks, protein shakes, water, and emerging startups.
• Strategic portfolio focus remains on North America and Europe, specifically within the food and beverage sectors, while non-core assets continue to be evaluated for potential divestiture.
• Recent cost reductions included a Refactoring (REF) initiative eliminating 500 roles to improve structural health.

Market and Competitive Landscape:

• The industry is recovering from a four-year price decline post-COVID; current pricing recovery is described as a "first recognized pricing in several years" for bleached board.
• Market segmentation shows bifurcation: premium brands and value propositions both perform well, while food service remains softer compared to stronger food retail demand.
• Substrate market dynamics vary: Bleached board is tightening due to closures and tariffs; Coated Unbleached Kraft (CUK) remains tight with unique strength characteristics; Unbleached Recycled Board (URB) is the focus of new capacity utilization.
• Demand for private label and emerging brands is driving volume in the beverage sector.

Risks and Challenges:

• High customer price elasticity following aggressive post-COVID price hikes poses a challenge to sustained volume growth.
• Input cost volatility remains a risk, with inflation driven by oil, diesel, freight, and OCC (Old Corrugated Containers) prices.
• The company faces "whack-a-mole" competitive dynamics regarding capacity fluctuations across different paperboard grades (SBS, CRB, URB).
• Regulatory changes in Europe regarding single-use plastics require rapid adaptation to maintain market share in converted packaging.

Management Commentary and Tone:

• Management (CEO Robert Wrightbrook and Interim CFO Chuck Leischer) expressed confidence in the company's pivot from heavy investment/acquisition to optimization and debt paydown.
• The tone is cautious yet optimistic, comparing the current situation to a successful historical deleveraging cycle under former CEO David Scheibel.
• Emphasis is placed on "controlling the controllable" through commercial excellence, operational excellence, and a unified procurement organization.
• Management highlighted the importance of fair pricing to reflect inflation and strong partnerships with customers to navigate market challenges.

Analyst Questions and Answers:

• Deleveraging Timeline: Confirmed net leverage of 4.7x for year-end, targeting investment-grade status by the 2030 range; specific 2027-2028 guidance to be provided later.
• URB Profitability: Analyst queried margin impact of re-entering URB; Management confirmed it is margin-dilutive on a standalone basis but accretive system-wide due to Waco cost absorption and capacity utilization.
• Volume vs. Price Dynamics: Discussed market bifurcation and customer focus on innovation/premiumization to offset affordability constraints; noted 95 copacker machine installations.
• Substrate Market Outlook: Addressed tightness in bleached and CUK markets versus new capacity in recycled; confirmed new price increases effective November for bleached board.
• FCF Normalization: Clarified that the $300 million working capital benefit was one-time; 2027 FCF will normalize, excluding one-time costs and with offsetting inflation/carryover pricing.

Other Key Points:

• The company holds over 3,000 patents, filing 50+ new ones this year, positioning itself as a leading innovation player in sustainable packaging.
• Short interest remains high at 9.1%, reflecting market skepticism typical of turnaround stories.
• Management emphasized the "virtuous cycle" of paying down debt to unlock equity value, similar to the company's previous successful transformation.
• Contracts are being adjusted to move from annual/biannual inflation clauses to quarterly updates to better capture cost pressures.