BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - GRAPHIC PACKAGING HOLDING CO

Okay, last presentation of the day. Thanks, everyone, for joining this afternoon. My name is Ganshu Punjabi. I cover packaging and materials for Baird on the equity research side, along with my team, Josh and Will. Thanks again for joining us. The next presenter will be graphic packaging. From graphic packaging, we have Robert Wrightbrook, CEO since January of this year. We have Chuck Leischer, interim CFO since November 2025, and Melanie Skagis from Investor Relations, who boomeranged back. So welcome back, Melanie, to our conference. So, Robert, I don't know if you've been to our Conference before. First time. First time, welcome. We hope it's many more years in the future. So I know you had some introductory comments you wanted to make, so I'll turn it over to you. Yeah, well, thank you, Gansham and the whole team here at Baird. I want to thank you for welcoming us and allow us to be part of your wonderful conference. I was just telling the team that it's been a great day. It's very well laid out. And, you know, we are always very excited about listening to our investors. So for the investors that came to meet with us, thank you for not only listening to the story, but also providing the feedback so we can incorporate that in how we run the company. Now, overall, it's been a really good year. We have made a lot of progress. We've come out of a big investor cycle. A lot of capital has been put on the ground. We built a line in Kalamazoo. We built Waco. And since the beginning of this year, we've refocused on harvesting off of those investments. What that means is really the commercialization of the installed capacity. We are making a lot of progress in offsetting the inflation through a number of enterprise-wide initiatives like commercial excellence, which involves revenue growth management, customer service, operational excellence, which involves S&OP, demand and supply plan, production plan, and inventory reduction, and then our procurement initiative as well, where we are really trying to organize the 150 to 200 people that procure, source, or buy into a single procurement organization to drive productivity out of that. We've made progress in the sense that we have seen sequential margin improvement this year, from 10% EBITDA margin in Q1, 11, and Q2 to 13 and Q3. We're also on track to deliver a debt reduction. So we plan to be at $4.9 billion by the end of this year, which is the first time since 2020 that we're below five. Our priority is to reduce debt and to free up more of our earnings into free cashflow conversion, be a shareholder-friendly company, return cash to our investors and pay down debt. So, you know, as you listen to the Q&A, we're excited that you're here. Thank you for any questions you'll have later, but over back to you, Gancho. Yeah, so, Albert, you now, just in terms of your unique background coming from the Consumer Products Group, you know... I mean, you as well, Chuck. What are the opportunities you see for graphic packaging? You know, what's your first year been like? And it hasn't been fun, all of it. You know, I think, look, it's definitely challenging times for the industry as a whole. Obviously, prices have come down for the last four years since COVID, really, when we took quite a lot of pricing. It's been coming down ever since. And we've now been able to pivot back to, you know, commercialization of our invested, you knows, mills and converting facilities and growing price again. And so we have been able to realize about $150 million of pricing into next year, 27, 60 of that this year, 90 more. That is the number one priority. You know, our customers are incredibly important. They're at the heart of all we do. But what we need is fair and reasonable reflection of the inflation we face. You know as we started the year we had about $35 million of inflation built in and that became $170 million. We've seen oil prices above $100 a barrel this year, so what we need now is to really make sure that we pass on that inflation. That's all we're asking for, fair and reasonable pricing, joint business partnerships with our customers. And as we get into next year, we will continue on with our productivity initiatives. We did a REF this year. We eliminated 500 roles that was necessary. Very difficult, obviously, decision, but very important for the structural health of the business. So as we look to the future, really, it's all about restoring growth, driving productivity, generating free cash flow, improving our free free cashflow conversion, paying down debt, getting to a net leverage ratio. that's investor-grade, and that's going to take a couple of years, and we're storing our margins over time. You know, a tool that we're looking at, obviously, is the relaunch of URB, the introduction of ULB. We used to be a producer of URP in Middletown, Ohio. We made CraftMax there as well. We moved CraftMax to West Monroe. We went out of the URV market. Going back into URP has been incredibly successful. um we are going to serve more than 20 customers this year already with over 20 000 tons we have just as many in qualification as we speak and we are anticipating about a hundred thousand tons next year of urb that is a big part of our cost absorption plan for waco you probably know that when we built waco we added some capacity to our overall recycled platform We need to grow into that, and this is a way where we will grow into it in an accelerated fashion. So we're very excited about the commercial excellence initiative. We're very exited about the operational excellence initiative and the procurement work. And then the launch of URB. Those are some of the highlights of the last nine months. So in terms of our coverage of your company, which is almost 20 years, It's almost a deja vu moment because when first launch coverage of the company was extremely levered over six times that that TV does a public company And the company orchestrated a textbook deleveraging slash value creation just mathematical transfer to equity And it was very successful and it led with productivity Accepted it was low growth focused only on productivity maximize cash flow Punch down the leverage and all you have to do is move the numerator and the denominator in your way to get leverage down. Very simple. So where are we on that journey for you guys? Yeah, there's actually an article online about that period when David Scheibel was CEO of the company. And I actually forwarded that article to my leadership team last week when I found it. And everybody's response was how striking the similarities are from then and now. We are over levered. We are leading with productivity, following with price recovery and restoring growth. The same objectives, really get back to a net leverage ratio that is investor-grade, restore the margins, and then drive as much cash flow out of that for our investors and pay down debt. I think it's a similar situation. I'm excited about the journey we're on. We have a lot of work ahead of us, Ganshan. We're not there. We need to continue to work hard at this. We've been very lucky. Chuck and I have been very aligned on the approach. Do you have any thoughts? Yeah, and if I could just build on that, I think the good news for us is it comes at a time when we are pivoting out of this cycle from heavy investment, heavy acquisition to one where we're seeking to optimize the company, generate cash flow, and pay down debt. So we don't need to go out and make a lot of other investments that's been done for us in the past. So we have the opportunity to deploy our cash flow to pay down debt and have that virtuous cycle that you're talking about of paying down debt and that driving equity value. Yeah. And what is your, just remind me in terms of your net debt to EBITDA progression from here versus the peak? Yeah, well, all we've said so far is that we expect to end the year at 4.7 times and that we would continue to deliver from here. We'll give you more guidance on what it specifically looks like 2027, 2028 going forward, but said that we're targeting to get to investment grade or investment grade metrics in the 2030 range. So one of those during that initial deleveraging slash value creation phase, which was successful, stock re-rated accordingly, the end of that was the company pivoting as is human nature because the growth is slow in the industry towards growth. And it was magnified by sustainability and COVID and many other things, right? Investment community preference were sustainability stories. Do you think that was an overcorrection of something that was never going to happen? Or is it just delayed, you know, in terms of the transition from a sustainability standpoint? Yeah, look, the good news is that we are, we've just updated our volume outlook from minus one to one to zero to one with 50 basis points of growth in the midpoint. And that is the first time in, what, three years or so at least that we're storing growth on the company. That is really a function of how well diversified our portfolio is. As you know, we are heavily in the food segment, in the beverage, food service household, but we also have a health business and a beauty business in Europe. We're very well diversified geographically. We have a strong core business in North America and Europe. And we have some peripheral businesses that are maybe not core to the business, but part of the portfolio and contributing to the portfolio. So as we see the slowdown in demand, we have slightly outperformed the scan data on unit sales because of the strength we have in certain categories. You see protein, for instance, our protein categories are doing very well. Our food service is a little slower, but it's offset by strength in food. We just announced that we now, I think, have 95 machines installed in the Copacker network in beverages. If you look at where beverage is growing, it's basically sports drinks, it is protein shakes, it it is water, and it is a lot of startups. You know, you have probably all seen prebiotics, probiotics come into the segment. And a lot brands, emerging brands, are made by Copacker. So for us, whilst we have tremendous investment and business together with our global beverage partners, we also have to play in the startup space. Similar to that, we're also involved in some minor private label businesses that obviously are volume growers as well. So for us, remaining the diversified portfolio and then obviously benefiting from from whatever the growth will return, because it always does, as you know, is what we're focused on right now. And then if I just could add, if I could just add to that, then Robert mentioned earlier URB. So that's clearly a growth opportunity for us. And then our innovation engine continues to allow us to grow faster than market. And the innovation space for us is primarily new businesses, but also plastic to paper conversion. I'll give you an example. In Europe, where new legislation is being introduced, there's some new regulations coming around reducing single-use plastics in the grocery channel. We have a rapidly growing business in fruits, actually, blueberries to be specific, which is being converted from plastic to paper. And these are secular trends that we continue to see occurring. We've actually quantified what that would be worth. All of the plastic to pay for conversion opportunities for the industry are worth at least $15 billion is our current estimate. That's not the current total addressable market. That is the future addressable market from plastic to paper. If you go to our website, you'll find products like the keel clip and the EnviroClip, where we replace plastic rings around cans and bottles with paper executions. And this is primarily for beverages. But that's a great example of where we make the world a better place, where мы remove plastic from the environment, and we solve a big problem for our customers. And that's what we really are about. We're about solving problems for our customers, driving innovative new solutions. We are an innovation company, a consumer packaging innovation company with over 3,000 patents. This year alone, we've filed more than 50 patents, and we continue to innovate and drive R&D around how to convert plastic to paper. We used to be focused on smaller innovations, and now we're really going for the bigger opportunities. And we're also partnering and co-creating with some of the largest CPG companies in the world around their needs, their plans to get out of plastic, and how to get into paper. To elevate our purpose, it really is to bring more sustainable and biodegradable fiber-based solutions to the consumer package goods space and putting customers at the heart of all we do. So for me, some of the most exciting meetings actually are not only with our investors and getting feedback on how we should run the company, but also to meet with our customers and understand how we can help them be successful. Overnight, there was a transaction in Europe. You're not the only ones feeling the pressures of the downturn in the industry, obviously. And one of your peers sold a business, a private equity firm. When you joined, you were talking about perhaps looking at different assets in the portfolio as it relates to core. Obviously, there's a bid in the market from a financial sponsor standpoint. Where are we in that process as you evaluate the portfolio? Yeah, look, we've said thus far that North America and Europe, and especially food and beverage, are very much the core of our company. It's very well known that we use our incredibly high-quality paper board from North America, from the Southeast, in Europe for a beverage business. It has particular strength properties made with Georgia pine and other pines in the southeast. We also use it in Japan. We use it on Australia. We like those businesses. We do serve global customers that like us to serve them beyond North America. Having said that, we are a company that is built out of almost 20 acquisitions over the life of the company. and there is always going to be businesses that are maybe not core or in the periphery that we will continue to evaluate. That obviously is something that we'll disclose when we get to that point, if we get to that, but I do want to re-emphasize that food and beverage, North America and Europe are very much in core right now to our business. Any questions in the audience before I keep going? Go ahead, Samir. How about profitability and URB versus CRB? Just repeat the question. It's a great question. The question is URV profitability versus CRV. So URP is a very healthy segment. Obviously, it's slightly margin dilutive to CRV, but when you look at the system economics, adding URG to the available capacity and driving higher capacity utilization, it's a double whammy. So on the one side, we have the margin we get out of the URB sales, and on the other side, we have The Cost Absorption of Waco. That cost is already absorbed in our business today, so it is rather incremental. And we are in URBE, and we plan to stay in UREBE because it's part of our recycled platform. Would it be fun to also switch back to CRT with the same increment or other supplies right now? Well, we do look for longer-term supplier relationships with our customers, So that would not be that would not go fast. And, you know, right now we plan to be in Europe for the long run. Good question. I guess in terms of the 100,000 times it's probably the next year, is that the result of some machines or could that 100,00 tons be a larger number in 2028? It goes well next year. So understanding that the flex you have. Yeah, the question is I'll repeat that for the online listeners, whether we could grow beyond the $100,000, sorry, the 100,000 tons of URB in Waco. And the answer is yes, we still have headspace there. Is there anybody else? Will? Can you just think about how much inflation the consumer has faced? How do you think about oscillations of growth between your end markets? Yeah, the question that was asked in the room was, when you look at the inflation the end consumers face what can we expect from our end markets you know we we are we play in everyday life's essentials for every day so we don't play in luxury cars we do play a little bit of luxury perfumes we see a bifurcation of the markets right in the high ends premium brands continue to do well and the value propositions are doing well we also see a lot of back price architecture moves new sizes new different pack sizes yesterday I was walking through our demonstration factory and I saw you know a count of cans that I hadn't seen before it was a smaller count configuration which was very interesting so there's definitely the ability to flex up and down in terms of quantity of of sizes of products I believe I'm an optimist I think the market eventually will return to growth. I do agree that affordability is key. And that's why we play across all the price tiers. We play with private label, branded, quick service, premium, super premium across 26 markets in different end markets. There seems to be a inverse correlation between food service and food. Food service is slightly softer. Food is slightly stronger. Is that because maybe people eat less outside the house and maybe more inside the house? Those are the questions we're trying to answer right now. But overall, you know, I think the fact that we've taken up our volume guidance for the year to 50 basis points of growth versus where we were before is a positive indicator. Anybody else? As it relates to your customers, the challenges they face, right? You know, it seemed like pricing was a blunt instrument they used coming out of COVID. Inflation was there. Demand was good. Everybody's happy. Raised prices. And they were successful to a certain point. And then elasticity kicked in, right, significantly. And we're dealing with the consequences of that at this point. How do you think they're going to approach in your conversations with them? Because, you know, we cover some of the ingredients and additives companies as well. There seems to be much more innovation because they're trying to reformulate products just to kickstart the engine in terms of growth because it's not just affordability. There's GLP issues. There's snap benefit changes in terms OF spending and so on. What are customers sharing with you as it relates to 2027 in terms Of balancing price versus volume? Yeah, we are seeing in the public domain more announcements around better balancing volume and pricing versus volume only. and we're seeing a new refocus focus on innovation as part of the mix and innovation tends to come with premium ization and margin accretion our our job in that ecosystem is to make sure that we help our customers be successful we can rapidly innovate with them we can be part of the innovation development we can create solutions that they can run on their existing production lines with minimal to no capex. And ultimately, if they do well, we do well. So we're in it together. OK, great. So deleveraging stories in this space have a very high success rate in terms of creating value for shareholders. The one thing that keeps us nervous is we see some inefficiencies as it relates to paperwork. So you have four different substrates or grades, SBS, CRB and URB, and you're seeing SPS was impacted by capacity additions, which ultimately the industry tried to offset with cuts and then substituting into other grades. You see another player that's trying to attack the C-U-K market, and moving into UR-B, which was a pretty tight market for the two incumbents in there. So this sort of whack-a-mole that's occurring, how does this end? Yeah, this is Chuck. I'll take that. So I would say overall, we are pleased with the development of the industry throughout 2026. We went into it in a much looser, more challenged place than we are. Bleached, as you mentioned, was clearly the one that was the most challenged, and that's the one that's tightened the most during the year. Operating rates were in the low 80s in the beginning of the year, now in the mid 80s. Bleach is a substrate where we've had our first recognized pricing in the industry in several years and we continue to be tight and bleached and and therefore went out with another price increase in october that becomes effective in the marketplace here in november so that continues to be tied driven by closures fewer imports driven by tariffs increasing demand um cuk that has been tight for us all year continues to be tight we see cuk or sauce being tight through the beverage season next year You know, that grade of paperboard has some real unique strength characteristics and is something that our customers want all over the world. So it's not something that's easily replaceable, easily substitutable, and something that, you know, is a high-quality paperboard with long-term customer relationships. And so there's more to it than just being able to make the grade ofpaperboard. And then on recycled, that's of course the grade where we added capacity. We're the ones with capacity. That is why we're launching into URB. We are looking to grow in UR B, we're looking to grow in CRB so that we can get the maximum returns from those best-in-class assets. So you look back at this year, you had every possible reason to get price. You had oil up, diesel up, freight. You had OCC up and the industry's pricing success was pretty limited did that surprise you as it relates to like you know looking back the years not over but certainly you know bulk of it is well I think what you're saying is correct when it comes down to the paper board side of things on the non paper board site we have been relatively successful in fairly and reasonably reflecting our inflation into the inflation correction clauses when it comes to OCC resins, transport, diesel, oil, utilities. We'll continue to do so. We're also shortening the go from biannual or annual corrections to quarterly updates in our inflation clauses as we renew our contracts. With regards to paper board, Chuck, what do you think? Yeah, so we of course have a third-party index in our industry, and we don't try to speculate what they do. As Robert said, we just really focus on the things that we can control. And so what we could control going into the year was making sure that we had identified all the cost recovery options. So what we talk about is the $150 million of pricing that we're taking between 2026 and 2027. That's made up of three things, the cost recoveries, the $60 a ton on bleach that's been recognized, and also the pricing that we're taking on the $1 billion of non-contractual pricing in the business. And so we're looking for every opportunity to control what we can. We are certainly out with price increases that total still over $200 million if they're fully recognized, but with the third-party index, that's up to them what actually happens. And you were very clear on guidance for this year on free cash flow and, you know, obviously EBITDA, et cetera. As you think about next year, going back to the numerator-denominator, net debt to EBITTA, how do you feel about free cashflow in terms of, you Know, this year's benefiting significantly from working capital, as an example? Yeah. That probably doesn't repeat, correct me if I'm wrong. Yeah, we are indeed on a multi-year initiative or journey to take working capital out of the business. So I think that will, you should expect that to continue at some level. But clearly it won't continue at what we guided to as $300 million at the midpoint level of this year. But I'll also remind, so our midpoint of our guide is $6.50 of cash flow. Midpoint of the working capital guide is 300 of that is driven by working capital. But I'll also remind you that there's $135 million worth of one-time cost in the business, including $75 million to drive that working capital out of the business. So, you know, if you kind of normalize for all that, that gets you to more of a normalized view than how to think about 2027 from here. Like I said, we continue to be on a multi-year journey to take working capital of the company. We continue to do a lot of the work that we do in the capital of business. We continue to be well invested, so don't see the need to have a significant increase in investments from here. And so we'll come back with the full guide, of course, for 2027, but lots of reasons to go forward from here and the denominator on on that same measure. You had some a lot of one timers that hurt you this year. Maybe dimensionalize that for us. Yes, it's the same 135 that we talked about. So our current guide is approximately 1050. And then we've got the same $135 million of one-timers in the business. And then, we've talked about the carryover of the pricing being about $90 million, offsetting about the same amount, $90 billion of carryover inflation. So think of those two things as offsetting each other. And then some of our structural cost takeouts will continue to benefit 2027. then that's $90 million in 2026 and $105 million in total, so about $15 million carryover. In terms of this pullback in oil, if it lasts, we've gotten used to many different swings in the price of oil. When would you start to see that as it relates to flowing through your system? How long does it take? Yeah, it starts to flow through as soon as it happens. I mean, diesel prices are down slightly from where they were at the peak. So it starts to flow through, but it'll flow through slowly. Those prices seem to go up like a rocket and down like a feather. So we feel good managing towards the $170 million of inflation that we've called out in the business this year. And that's what's embedded within our guide. Fantastic. Robert, in the last minute and a half, 90 seconds, I'll let you give us an investment pitch. I mean, clearly, you know what the issues are and pressure points. It seems like you have a strategy in place to counter them. Your short interest on the stock is 9.1%, very, very high. Not unusual for turnaround stories, but it is quite outsized, so clearly the market feels differently as it relates to the outcome going forward. So how would you have us think about graphic packaging of today with the challenges you're facing as it relates to an investment case for people that consider names for next year, for example? Yeah, I think you said it very well, Gansham. This is a little bit back to the future story where we again have the opportunity to improve our net leverage ratio, pay down our debts, drive productivity, drive our margins back, hopefully over the mid to long term to the mid teens or above. Then drive as much free cash flow conversion out of those earnings. Manage your CapEx with a great deal of discipline. Maintain discipline around OpEx. Be a shareholder-friendly business in a challenging industry, but that is somewhat cyclical and eventually should bounce back. We're doing everything we can to control the controllables. You know, we've been working hard this year on productivity and commercialization, operational excellence and procurement excellence. And we are very excited about, you know, closing out the year strong and getting into 2027. It's a good way to end it. Nice job. Thank you for joining us. This concludes graphic packaging. There is a breakout at the Levante room and hope to see some of you there. And if not, enjoy the evening. Thank You again. Thank you.