BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - GRAPHIC PACKAGING HOLDING CO

Explicit Guidance:

• Net Debt: Targeting $4.9 billion by year-end 2026 (first time below $5B since 2020); expecting net debt-to-EBITDA of 4.7x at year-end 2026, with a trajectory to reach investment-grade metrics in the 2027–2028 timeframe.
• EBITDA/One-Time Items: Guiding for 2026 EBITDA midpoint of $1.05 billion, net of $135 million in one-time costs (including $75 million for working capital restructuring); expecting 2027 margins to normalize as 2026 one-timers and inflation carryovers offset.
• Free Cash Flow (FCF): Midpoint 2026 FCF guidance of $650 million; noting that the $300 million working capital benefit is non-repeatable, with future years expected to rely on structural productivity improvements rather than working capital drawdowns.
• Pricing/Cost Recovery: Capturing approximately $150 million in pricing in 2027 ($60 million recognized in 2026, $90 million in 2027); managing against ~$170 million of annual inflation; expecting $90 million of inflation carryover offset by $90 million of pricing carryover in 2027.
• Volume Outlook: Updated 2026 volume growth guidance to 0–1% (midpoint 50 bps), the first growth indication in approximately three years.

Business-Segment Outlook:

• URB (Uncoated Recycled Boxboard): Anticipating production of 100,000 tons in 2027 driven by the new Waco capacity and URB relaunch; serving >20 customers with >20,000 tons already installed, with a large qualification pipeline; expected to serve as a key cost-absorption driver for the Waco asset.
• CRB (Coated Recycled Board): Continued tightness expected through the 2027 beverage season due to unique strength characteristics and lack of easy substitution.
• Bleached Board: Market tightening observed with operating rates moving from low 80s to mid-80s; price increases of $60/ton recognized in 2026 with a further increase effective November; driven by tighter supply, reduced imports, and tariff impacts.
• Innovation & Plastic-to-Paper: Targeting a future addressable market of at least $15 billion for plastic-to-paper conversion opportunities; expanding presence in private label (volume growth) and startup beverage markets (sports drinks, protein shakes, water).

Market and Competitive Outlook:

• Demand Trends: Observing market bifurcation where premium and value-tier products both outperform; food service volumes slightly softer but offset by strength in grocery food and private label; beverage growth driven by new entrants and copacker networks.
• Pricing Dynamics: Industry pricing success remaining limited on paperboard despite high input costs; however, non-paperboard segments seeing success through inflation pass-through clauses (quarterly updates replacing biannual/annual).
• Substrate Dynamics: Bleached board moving from loose to tight; URB and CRB positions viewed as best-in-class assets with capacity to grow; potential for continued substitution dynamics but constrained by long-term customer relationships and quality requirements.

Macro / Industry Outlook:

• Inflation Management: Embedded $170 million inflation assumption in guidance; managing cost fluctuations in oil (above $100/bbl at peak), diesel, freight, and OCC; expecting slow flow-through of recent oil price declines.
• Consumer Behavior: Focus on everyday essentials (non-luxury) with strategies to flex packaging sizes and configurations (e.g., smaller counts) to address consumer affordability concerns.
• Regulatory Environment: Anticipating benefits from European regulations reducing single-use plastics, driving secular growth in paper-based alternatives (e.g., blueberry baskets, keel clips).

Strategic Initiatives:

• Deleveraging: Primary focus on debt reduction and free cash flow conversion to achieve investment-grade status within 2–4 years (targeting 2027–2028).
• Operational Excellence: Completion of a Refocusing (REF) effort eliminating 500 roles; consolidating 150–200 procurement personnel into a single organization; continuing to drive productivity and inventory reduction.
• Capacity Optimization: Commercializing installed capacity at Waco and Kalamazoo; focusing on capacity utilization and cost absorption via URB launch rather than new heavy investment.
• Portfolio Review: Maintaining focus on core North America and Europe food/beverage markets; evaluating non-core peripheral assets for potential divestiture (to be disclosed when imminent).
• Customer Partnership: Shifting from "blunt instrument" pricing to joint business partnerships focused on innovation and cost recovery, helping customers reformulate and innovate with minimal capex.

Risks and Headwinds to Outlook:

• Pricing Recognition: Future margin improvement depends on the full recognition of announced price increases ($200M+ total) subject to third-party index movements and customer acceptance.
• Macroeconomic Volatility: Potential for sustained economic weakness impacting volume growth; inflation volatility in energy and feedstock (OCC, oil) could outpace contract price recovery clauses.
• Competition: Ongoing "whack-a-mole" dynamics regarding capacity shifts and substrate substitution (e.g., players attacking CRB/U-B markets); potential margin dilution from the URB segment (though partially offset by cost absorption).
• Execution Risk: Debt reduction timeline dependent on consistent free cash flow generation; potential for one-time costs or restructuring delays to impact short-term earnings.

Management Tone on the Future:

• Confidence: Management expresses optimism regarding the return to volume growth (updated guidance) and confidence in the "deleveraging/value creation" playbook similar to the 2000s.
• Strategic Shift: Clear pivot from an investment-heavy growth phase to a cash-flow-focused optimization and debt-reduction phase.
• Long-term View: Commitment to restoring margins to the mid-teens or above over the mid-to-long term; emphasizing control over operational variables despite cyclical headwinds.
• Shareholder Return: Priority on returning cash to shareholders via debt paydown and potential future dividends/buybacks once investment-grade status is approached.