"Quality First ,Credit First"

edited transcript of gpk earnings conference call or presentation 23-jul-19 2:00pm gmt

by:Taian Lamination Film     2020-10-01
CallMarietta July 25, 2019 second quarter 2019 graphics Packaging Holding Company Revenue (
Thomson StreetEvents)--
On Tuesday, July 23, 2019, at 2:00:00 in the afternoon, the editor of the earnings conference call or presentation of Graphic Packaging Holding Company copied copies of the gm company participant Alex * Alex ovshey Graphic Packaging Holding Company-
Vice President of IR * Michael P
Packaging Holding Company-
President, CEO and director
Scherger Packaging Holdings-
Conference Call Participant Adam Jesse Joseph sokbank capital markets
Research Department-
Director and Senior stock research analyst at research division Anthony James pitini Tik Group
Research Department, Packaging & Forest Products analyst * Arun Shankar ViswanathanRBC Capital Markets Limited
Analyst Brian P.
Goldman Sachs Group Limited
Research Department-
Stock analyst * Clyde Alvin Dillon vertical research partner Limited-
Partner * Daniel Dalton RizzoJefferies Limited, Research Office,
Stock analyst Edlain S.
Research Department of Investment Banking, RodriguezUBS-
Director of chemicals * John RiderStephens Inc. and assistant in stock research
Research Department-
Assistant * John prington BabcockBofA Merrill Lynch in the research department-
Mark Adam WeintraubSeaport Global Securities Co. , Ltd. , Research Office,
Mark William WildeBMO Capital Markets stock research-MD & Senior Research Analyst
Matthew T, senior analyst
Robert W. KrugerBaird & Co.
Registration of Research Department-
Steven Pierre ChercoverD, junior analystA. Davidson & Co.
Research Department-
MD and senior research analyst-------------------------------------------------------------------------------Operator [1]--------------------------------------------------------------------------------Good morning.
My name is Michelle. I will be your conference operator today.
At this time, you are welcome to call the quarterly earnings report of Graphic Packaging. (
Operator instructions)
I would like to transfer the call to Sir now.
Alex Ovshey, vice president of investor relations.
Please continue. --------------------------------------------------------------------------------
Alex Ovshey, Graphic Packaging Holdings-VP of IR [2]--------------------------------------------------------------------------------
Thanks, Michelle.
Good morning, welcome to the second quarter 2019 performance conference call of Graphic Packaging Holding Company.
Mike dos, President and CEO of the company, will speak on the phone;
Steve Scherger, executive vice president and chief financial officer.
To help you keep up with today\'s call, we offer a slide presentation that can be accessed by clicking on the webcast and demo link in the investor section of our website. graphicpkg. com.
I would like to remind you that the speech did not meet our expectations, plans, estimates and beliefs (
Technical difficulty)--------------------------------------------------------------------------------Operator [3]--------------------------------------------------------------------------------
Our meeting will resume soon. --------------------------------------------------------------------------------
Alex Ovshey, Graphic Packaging Holdings-VP of IR [4]--------------------------------------------------------------------------------
Except as required by law, there is no obligation to update such statements.
Mike, I\'ll give it to you. --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director5]--------------------------------------------------------------------------------Thank you, Alex.
Good morning, thank you for discussing with us the 2019 performance for the second quarter.
As the adjusted EBITDA profit margin increased by 160 basis points year on year, we reported strong results in this quarter --over-year to 17. 2%.
The adjusted EBITDA was $0. 267 billion, exceeding our expectations, due to strong execution in pricing, performance, growth plans and synergies.
We recorded $31 million a year. over-
Annual improvement of adjusted EBITDA.
Pricing increased by $40 million this quarter, reflecting the benefits of the pricing plan.
It is important that our pricing for the cost-of-commodity input relationship is $26 million in the current quarter and $41 million in the year --to-date.
Overall, we have been operating well this quarter and our performance has increased by $22 million.
The expansion of commodity input costs, particularly the increased expansion of wood, Labor and Welfare, and unfavorable foreign exchange, partially offset these benefits.
Wet weather in the United States continues to drive up wood costsS.
Southeast and Gulf region.
As I mentioned, we created a $40 million positive pricing this quarter.
We continue to expect a price of about $2019 for 0. 11 billion.
We are pleased to report that our business team has been successful in customer negotiations compared to 8 months ago, reducing our pricing lag to 6 months.
This cut is an important milestone as it provides the opportunity to adjust pricing twice a year on average to better reflect market conditions.
In the second quarter, we bought back $18 million of stocks at a value lower than the intrinsic value of the graphic packaging.
Over the past three quarters, we have bought back $0. 198 billion in stock, successfully reducing our stock count by 5%.
Since our stock repurchase was scheduled for 15 years in February 20, we have successfully reduced 10% of our shares.
Let me briefly discuss our current 2019 financial guidance and the art carton company acquisition we announced this morning.
We expect the 2019 adjusted EBITDA to be within the $1 range.
Between $1 billion and $1.
3 billion, an increase of $15 million over the midpoint of our previous guidance.
This growth reflects continued strong execution in more favorable pricing --to-
Cost environment for commodity input.
We continue to anticipate that 2019 of cash flow will be approximately $0. 525 billion compared to $0. 469 billion in 2018.
Transfer to art carton acquisition.
The business includes a CRB factory located in White Pigeon, Michigan with an annual capacity of about 70,000 tons;
As well as 2 conversion facilities in Auburn, Indiana and Elgin, Illinois.
The business generated $63 million in revenue over the 12-year period.
For the one-month period ended June 30, 2019.
We expect the annualized EBITDA to generate approximately $10 million, including expected synergies over the next 12 to 18 months.
This acquisition will provide compelling opportunities for optimization and growth for our cardboard mills and conversion platforms in North America.
In addition, the acquisition will promote the conversion end
Diversified market, enhance our conversion platform.
We expect to achieve significant synergies driven by cardboard integration, plant and conversion manufacturing optimization and supply chain efficiency.
We expect the transaction to be completed by 2019.
Now, let me provide more details on the main operating trends for the second quarter.
Driven by the acquisition, the number of our global cardboard packaging business grew modestly in the second quarter.
It is encouraging that we continue to see the benefits of consumers moving from plastic to custom cardboard solutions.
In addition, in the second half of 2019, several new customers won organic sales growth of 100 basis points.
Now let me briefly discuss our new product development work.
As we highlighted last quarter, the customer\'s interest in KeelClip beverage packaging solutions remains high.
We are actively building new packaging machinery for our big customers and we expect these machines to drive KeelClip\'s needs in the coming years.
In the already modulated food category, our proprietary cardboard bowl is gaining market share from plastic pallets.
The prepared food categories continue to perform well, according to Nielsen data, and customers are actively innovating in the breakfast, main course and meal categories.
As cardboard solutions are seen as more sustainable products, customers are increasingly choosing SBS cardboard pallets instead of plastic ones.
In addition, customers are integrating the proprietary microwave cooking solution for graphic packaging to achieve an excellent consumer experience (inaudible)
In the release of many new products in multiple categories this quarter ,[according to]operations.
Our factory and conversion assets worked well this quarter.
The Augusta SBS plant benefited from the massive reconstruction of the recycling boiler, as well as a major upgrade of the plant\'s mechanical and electrical systems, and we completed the upgrade in 2018.
AF & PA reports the CRB index of Q2 2019 running speed 97% and SBS of 92%.
The rate of Graphic Packaging CUK is more than 95%.
The backlog is kept healthy 5-
CRB and CUK have a few weeks left.
As a reminder, our CRB and CUK mill operations are highly integrated with our conversion platform, consuming about 87% of the cardboard we produce for these grades.
Our SBS backlog is currently around 3 weeks.
Since the completion of the merger of SBS and catering services assets in early 2018, we have successfully increased the integration rate of SBS from 20% to 40%.
Steering performance.
Continued emphasis on improvement plans, variable cost and operational efficiency benefits from capital projects, and implementation of synergies contributed to strong performance this quarter.
We are operating well and have created a net performance of $22 million.
Go to cost.
This quarter, we increased the cost of wood inputs and external paper costs, resulting in a net increase of $14 million in commodity inputs.
The tariffs set by the United States in 2018 have limited inflation impact on our cost structure yearto-date.
Let me now focus on how we implement the strategy of integrating SBS and catering services to convert assets.
At the beginning of 2018, the addition of SBS and food service assets enabled us to optimize factory production for all 3 cardboard grades.
Therefore, we are improving meaningful efficiency for the company.
We are also implementing growth opportunities related to positive trends in food services and the shift to innovative cardboard solutions, particularly from plastics-
Based on cups, trays and flip covers.
The integration of the Letica acquisition is still in progress and is highly supportive of these growth initiatives.
Finally, we continue to be confident in our ability to offer US $75 million in acquisitions.
Relevant synergies will be achieved by the end of 2020.
With this, I will transfer the call to Steve Scherger, our chief financial officer. Steve? --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer6]--------------------------------------------------------------------------------
Thank you, Mike. Good morning.
We report a second-quarter gain of $0.
After dilution, $22 per share, up from $0.
2018 in the second quarter.
Affected by $5, net income for the second quarter was $2019.
Special costs of 8 million are detailed in the reconciliation
GAAP Financial Indicators Table attached to revenue release.
In adjusting these costs, the adjusted net income for the second quarter was $69. $6 million or $0.
24 per share after dilution.
In contrast, adjusted net income for the second quarter was $2018. $5 million or $0.
18 per share after dilution.
Focusing on second-quarter net sales, revenue grew by 3%, mainly due to a $40 million increase in pricing and a $16 million increase in acquisitions-related volumes.
Those benefits were partially offset by the unfavorable foreign exchange of $14 million.
To the Adjusted EBITDA for the second quarter.
The $31 million increase to $0. 267 billion was driven by $40 million in positive pricing and $22 million in performance.
The cost of commodity inputs expanded by $14 million, mainly timber, partially offsetting these benefits;
Other inflation of $12 million, primarily labor and welfare;
Unfavorable foreign exchange of $3 million;
And a $1 million portfolio of unfavorable volumes.
We ended the second quarter with more than $1.
4 billion of global liquidity and $3 billion of net debt.
Total net debt fell by $0. 121 billion this quarter.
In the second quarter, we invested $78 million in capital, bought back $18 million in stock, paid a dividend of $22 million and allocated $6 million to our GPIP partners
The net leverage ratio is expected to be 2 in the second quarter.
91x Adjusted EBITDA compared to 3.
End Q1 13x.
We are still committed to our long term
Net leverage target 2.
5 to 3 times, expected to enter this range well this year
Our strong cash flow is reflected.
Turn to full year guidance in 2019.
As Mike mentioned, we now expect the Adjusted EBITDA for the full year to be within the $1 range.
Between $1 billion and $1.
3 billion, an increase of $15 million over the midpoint of our previous guidance.
This increase reflects a more favorable pricing for the relationship between commodity input costs.
We continue to expect positive 2019 pricing of about $0. 11 billion.
We expect the commodity input cost inflation rate to be $70 million compared to our previous $85 million.
The reduction reflects more favorable cost of recycled fiber, freight and energy inputs, partially offset by higher coststhan-
Estimated cost of wood.
We expect the Adjusted EBITDA for the third quarter to be between $0. 235 billion and $0. 245 billion.
The key drivers of the adjusted EBITDA continuous decline from the second quarter to the third quarter are related to the timing of our annual maintenance downtime schedule.
Specifically, our Texarkana SBS plant plans to extend the scheduled maintenance downtime.
In addition to the regular annual work that we will be doing at the factory, we will also replace the bottom tube section that they cover the boiler.
We expect this additional work to improve the safety and reliability of the mill.
With regard to cash flow, we continue to expect cash flow in 2019 to be approximately $0. 525 billion.
The rest of our guide is included on the last page of the demo on our website.
Thank you for your time this morning.
I transferred the phone back to Mike. Mike? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director7]--------------------------------------------------------------------------------
We are encouraged by the excellent results achieved in the first half of the year.
We are implementing our strategy to build a highly integrated packaging company to achieve profitable growth on all 3 cardboard substrates.
We have the capacity to drive efficiency through our growth, productivity and collaborative initiatives that we expect to surpass our workforce --
Investment cost inflation
We expect strong cash flow in 2019 and we will continue to focus on creating shareholder value through effective capital allocation.
We believe that these actions will create value for all of our stakeholders in 2019 and beyond.
I will now transfer the phone back to the operator to ask questions.
Questions and Answers--------------------------------------------------------------------------------Operator [1]--------------------------------------------------------------------------------(
Operator instructions)
Your first question comes from George Staphos of Bank of America. --------------------------------------------------------------------------------
John Plimpton Babcock, Merrill Lynch, Bank of America, Research Office,Associate [2]--------------------------------------------------------------------------------
This is actually John Babcock lining up for George.
I just wanted to start, you talked about this earlier, but could you elaborate on the success of new customers and how the shift from plastic to cardboard solutions affects your salesAnd then also --
Let me add, what also gives you confidence in the volume outlook for the second half of the year? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director3]--------------------------------------------------------------------------------
So as far as our new customers are concerned, as we talked about earlier this year, we really saw the triumph of this transformation into the food service business, in particular, converting polystyrene into paper cups, trays, clam shells, these types of products, and I think the continuous acceleration of our beverage business.
We talked about KeelClip here and moved it out of shrink films in Europe and elsewhere.
Therefore, we have a high degree of confidence in the 100 basis points we outlined in the second half of the year.
Our business is 95% food and drinks and in any type of economy our business tends to remain fairly stable and we see this here in the second half of this year.
So this is all included in our guide. --------------------------------------------------------------------------------
John Plimpton Babcock, Merrill Lynch, Bank of America, Research Office,Associate [4]--------------------------------------------------------------------------------Okay.
Also, in CUK and CRB, the backlog still looks strong but remains in SBS.
Can you talk about the current market dynamics of these rates? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director5]--------------------------------------------------------------------------------Sure.
I\'m glad to do so.
As you know, the rate of surgery is stable in both CUK and CRB.
On the SBS side, they dropped a bit in the range of 92%, which is really driven by the factors of new entrants entering the market, this is already fully included in the actual numbers released by AF & PA.
As we have seen in this quarter, one of our competitors has announced that they will actually take out their capacity.
So if you look at the kinds of networks
In both terms, as of the fourth quarter and 2020, we expect operating rates to rise slightly online --
The result of these two moves is a net basis. --------------------------------------------------------------------------------
John Plimpton Babcock, Merrill Lynch, Bank of America, Research Office,Associate [6]--------------------------------------------------------------------------------Okay.
Then the last question before I turn it over, just about the acquisition of art cartons.
Can you talk about the logistics and other benefits you see from this transaction, and how the CRB plant finally fits into your existing dot network?
Also, it looks like the factory is at the top of the CRBs cost curve.
So, what are the opportunities to improve efficiency from this facility? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director7]--------------------------------------------------------------------------------
Well, you have a lot of questions to ask.
I will answer them in order.
In terms of our excitement about art acquisitions, we do see a good diversity of customers in business transformation.
They are in some areas where we are not.
In the past, we have talked about the needs and goals that continue to diversify our portfolio and portfolio.
They are doing retail.
There are also some industrial markets that we find interesting.
So we think this is a great opportunity for us.
Regarding the synergy on the CRB side, we have a fairly large CRB business and we really see supply chain efficiency as the biggest opportunity where we can take advantage of some of the things we do, and promote some synergies. --------------------------------------------------------------------------------Operator [8]--------------------------------------------------------------------------------
The next question comes from Mark Wilde of BMO Capital Markets. --------------------------------------------------------------------------------
BMO Capital Market stock research
Senior analyst9]--------------------------------------------------------------------------------
I would like to know that back to John\'s question about art, we can add another one there.
Just talk a little bit about the timing of synergies and also about the capital use of this acquisition, such as developing the food service business or developing the European carton business, which--
I think the priority of both methods is a little higher. --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director10]--------------------------------------------------------------------------------Yes.
So I think, Mark, the way we look at it is that the expectation of multiples is still high in this area.
As we have already talked, we must look at this and look closely at these issues to ensure that we find opportunities to create value for our shareholders over the long term.
This is a unique example. We think valuation is good for us.
It brings us into some of the vertical areas that we are not in.
You are right, and from a priority perspective, anything we can do for these reasons will be prioritized.
But we have to make sure that we get the right valuation in these kinds of transactions as well.
In Europe, we are still interested in driving the transformation of the $1 billion platform we have discussed with you in the past.
But that market. -
Well, our business is progressing very well because we have a close connection in terms of convenience and drinks.
When we see this, we will be more cautious and may give special priority to North America, anything you can improve our integration level in SBS. --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer11]--------------------------------------------------------------------------------Yes.
Mark, this is Steve.
I also think one of the things is that the overall allocation of capital is relatively mild and we can see this very clearlyand post-
When we decide to use capital for acquisitions, we are eager to gain multiples. --------------------------------------------------------------------------------
BMO Capital Market stock research
Senior analyst12]--------------------------------------------------------------------------------Okay.
Then is the timing of synergies and synergies? --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer13]--------------------------------------------------------------------------------
As we mentioned, on this issue, when we look forward to 2020, we expect that the $10 million EBITDA will be used mostly for post-
We will provide synergy numbers for most of 2020.
So, it\'s a fair number when we see it.
It is clear that we will rely on close for some very modest improvements this year.
Think of it as a quarter.
Normally, we will make sure we understand the business in the first few months and then work hard to operate and improve efficiency.
In this case, we expect to be the main sight of $10 million by 2020. --------------------------------------------------------------------------------
BMO Capital Market stock research
Senior analyst14]--------------------------------------------------------------------------------Okay. And then for --
Just to follow me.
At, I was hit when I looked at the slide.
You\'re still buying 100 million lb polyethylene, and I\'m just curious that your situation in developing alternative coatings for paper cups and food service products is easier to recycle than polyethylene coatings, which makes the problem more complicated. --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director15]--------------------------------------------------------------------------------It does.
Thank you for your question.
This is our strategic focus relative to our new product innovation.
As I have commented in the past, this is the top priority of our catering business.
We have many different test materials and we are working with biotech customers
This will reduce this footprint.
About low
As you know, Mark, the density polyethylene is very cost-effective and the barrier properties are high.
So we have to face a very optimized specification.
But as far as you are concerned, from a sustainability point of view, this is one of them, and we believe that consumers will eventually help maintain this through the market as we come up with these new options and innovations.
Over the next 12 to 24 months, we expect progress on this 100 million.
Another thing I want to mention to you is that we are working with our customers to collect these materials and have the ability to bring them back to our factory and elsewhere because the fibers there are very good, so it can be used.
We may be a little behind in America. S.
Of course, parts of Europe and Asia are also in this regard.
This is also an opportunity for us. --------------------------------------------------------------------------------Operator [16]--------------------------------------------------------------------------------
Your next question comes from Mark Connelly from Stephens. --------------------------------------------------------------------------------
John Ryder of Stephens
Research Department-Associate [17]--------------------------------------------------------------------------------
This is actually Mark\'s John Ryder.
So our first question is, should we assume that the price drop will pass-
From 8 months to 6 months represents most of your response to addressing the price cost gap?
Or will you take any other significant action in the future to address this issue? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director18]--------------------------------------------------------------------------------
So John, this has been an important task for us in the past few years, and it has been a task for many years.
So we believe that six months is the end of our lives. --------------------------------------------------------------------------------
John Ryder of Stephens
Research Department-Associate [19]--------------------------------------------------------------------------------Okay.
So, as a follow-upup to that.
So, do you have other ways to mitigate the risk of cost inflation? --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer20]--------------------------------------------------------------------------------Yes.
This is Steve, John.
As we discussed before, I think in addition to compressing the time frame, this is an important initiative for us in the past few years, and we will take some other actions around pricing.
So take a look at how we can ensure that we address any areas of potential leakage, such as shipping, passes
Relief, etc.
So this is really a multi-dimensional approach that allows us to commit to pricing improvements this year --over-year.
$80 million last year, $0. 11 billion this year.
This is a combination of these negotiations and the compression of time lag and other initiatives to lock in areas that may have price leaks, whether during negotiations or during normal business processes. --------------------------------------------------------------------------------
John Ryder of Stephens
Research Department-Associate [21]--------------------------------------------------------------------------------Great. Okay.
Our second question is if you can talk about the productivity of the factory.
We saw some good improvements here last quarter, we know your wood cost is very high, but the OCC is also very low.
If you can help us take a look at your overall productivity effort. --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director22]--------------------------------------------------------------------------------Sure.
It\'s a pleasure to do so, John.
So seriously, what you see is that our investment in 2016 and 2017, especially our investment in CUK factory in ximenro, has brought a lot of benefits, we put the curtain coating machine and the pressed part into ximenro.
As far as productivity is concerned, all this is coming to an end. On a year-over-
We do see a significant increase in productivity there.
With respect to the issues you raised relating to the cost of OCC and wood, we expect that the cost of wood here will continue to rise in 2019.
While the weather in the South-East and Gulf states is a little bit better, we are lagging behind in building stocks of wood needed for the rainy season.
So you will see that we have put a lot of effort on our own, and I will assume that others will build these piles here when we can, because of course, once we get into the fourth quarter, we expect more normalization of wet weather patterns, which are historical patterns in these areas.
So with respect to the OCC, you can see from what it looks like, we see that they have fallen.
This is a commodity.
In terms of supply and demand, we expect it to move up and down.
Demand has fallen a bit now.
Globally, I think I saw the most recent AF & PA data and the exports dropped by 3.
5% take June as an example.
So that\'s what we think. But net-
Our cost of fiber is rising year by yearon-
Driven mainly by Wood, offset to a certain extent by secondary fibers. --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer23]--------------------------------------------------------------------------------
John, the combination of these things in the revised $70 million guide, some of the natural benefits of recycling fiber, chemicals, shipping costs, are partially offset by the continued rise in wood prices, as Mike mentioned--------------------------------------------------------------------------------Operator [24]--------------------------------------------------------------------------------
Your next question comes from the chip Dillon for vertical research. --------------------------------------------------------------------------------
Clyde Alvin Dillon, vertical research partner LimitedPartner [25]--------------------------------------------------------------------------------
The first question is--
Just the last one on the price.
I believe, I know you still have some price related to the cost, not only do we see the decline in OCC, but also some white people recently-
Pulp replacement grades have also fallen sharply.
Will this generate any form of price giveaway in some of your contracts, or the amount of material we will see or notice in early 2020, say, or at any time in the future? --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer26]--------------------------------------------------------------------------------Yes.
This is Steve.
Our cost model will take these costs into account, but they will also be offset by other inflation dynamics.
So if you consider it as a whole, we will still experience net inflation throughout the business, so our cost model will still have some moderate inflation where applicable.
Yes, you may get some benefits if you are just a pure CRB client.
They will be offset elsewhere or may apply to cost models such as Virgin, CUK, and SBS.
In general, when we look forward to 2020, we will discuss it later and in the future.
We have now seen the price we expected in 2020.
We will discuss this issue later.
At the moment, this is a net positive factor, but this will be the issue that we will be discussing in Q3, Q4. --------------------------------------------------------------------------------
Clyde Alvin Dillon, vertical research partner LimitedPartner [27]--------------------------------------------------------------------------------Okay.
I think I have a way to follow.
Up, will be a wide range.
From the water market, a can company has talked about the fact that plastic water bottles are more --
Than existing services-
The use of beverage cans is everything else.
I do notice that, normally, an aluminum tank with water ---
There is distilled water in it, but I might notice that some kind of SBS-if not more-
Type of bag with water inside.
I don\'t know if you think this is a more niche situation or because the cost difference is too big.
You might want to talk too--
SBS water packs are compared with aluminum cans, PET or plastic. --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director28]--------------------------------------------------------------------------------Yes.
I mean, the SBS package will be significantly higher than the aluminum tank in terms of total cost.
We have not seen a significant increase in specific vertical areas related to water and SBS.
We have read the same type of announcement as the water in the aluminum tank you mentioned.
I think this is probably the more likely area where we can get some pick-up, because if they end up with cardboard packaging as an example, it will be what we are doing for these purposes at the moment
Using customers may be a more likely area for us to be involved in this trend. --------------------------------------------------------------------------------
Clyde Alvin Dillon, vertical research partner LimitedPartner [29]--------------------------------------------------------------------------------
Are you talking about the beverage company? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director30]--------------------------------------------------------------------------------
Yes, that\'s right. --------------------------------------------------------------------------------
Clyde Alvin Dillon, vertical research partner LimitedPartner [31]--------------------------------------------------------------------------------
Pour the individual jar for you. --------------------------------------------------------------------------------Operator [32]--------------------------------------------------------------------------------
Your next question comes from Anthony pitinari at Citi. --------------------------------------------------------------------------------
Anthony James pitinari, Citigroup research
Analyst of packaging and forest products [33]--------------------------------------------------------------------------------
Just follow up on the end of the delay from 8 months to 6 months.
Is this all your box Board grades, or is this a traditional CRB and CUK?
Over the years, it seems that the target of narrowing these lags has made significant progress in this quarter.
Is there any problem with the market environment or big contract renewal?
Or, over the last quarter, after years of hard work, what color can you give us to be able to move these lags so meaningfully? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director34]--------------------------------------------------------------------------------
So Anthony, the average time for all of our cardboard grades and all of our packaging contracts is 6 months if you like.
This has been our strategic focus for the last few years and I will tell you, the inflation we experienced in 2017 and 2018 was the main driver of our entry and we had to shorten the renewal time with our customers.
This is therefore a strategic focus in these negotiations, and we have finally made progress here. --------------------------------------------------------------------------------
Anthony James pitinari, Citigroup research
Analyst of packaging and forest products [35]--------------------------------------------------------------------------------Okay. That\'s helpful.
In terms of sustainable development, do you see the pace of sustainable development?
Drive Replacement of cardboard?
Is Europe growing faster than the United States? S.
Or maybe some low.
Maybe the fruit has been picked around polystyrene?
I was just wondering if you could compare the speed and substitution of Europe and market opportunities and sustainability and then see what lessons are learned in the USS. market. --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director36]--------------------------------------------------------------------------------Yes.
Thank you for your question.
As you know, we have a pretty big business in Europe and one of the things we really like to operate in Europe is, packaging trends are 12 to 18 months ahead of what we see in North America.
I will tell you about the activities surrounding the elimination of single
Using plastic is--
It continues to be very, very high.
So we will see and expect that these trends will continue to be translated here, we will see what we have seen in North America, and what we want to see global customers, many of them operate in Europe, so they operate in the United StatesS. as well.
As you can see, Anthony, they are setting goals for sustainable development goals that have been translated into multi-year goals and into reducing the use of certain materials over a specific period of time.
So, I expect this activity to remain quite hot. --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer37]--------------------------------------------------------------------------------
Then Anthony, as far as Mike is concerned, in Europe, we see that secondary packaging like drinks can be more confidently converted into cardboard because these packages have a long history in other substrates, films
Base plate based.
However, as Mike also mentioned, in the United StatesS.
Or North America, there is a very long runway that can convert the main packaging of the Cup, as we talked about in trade, closer to the final product.
These changes may be comparable to what we have seen in Europe. --------------------------------------------------------------------------------Operator [38]--------------------------------------------------------------------------------
The next question comes from Ghansham Panjabi of Baird. --------------------------------------------------------------------------------Matthew T.
Robert W. KrugerBaird & Co.
Registration of Research Department-
Junior analyst [39]--------------------------------------------------------------------------------
It\'s actually Matt Kruger sitting here.
I just want to ask, how are you going to manage the implementation risks associated with a more active maintenance schedule for 2019?
From the point of view of inventory management or operations, do you have any unique actions that we should know? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director40]--------------------------------------------------------------------------------Yes.
Thank you, Matt.
The answer is that we have built stock on our CUK and SBS.
You can see it in a year. over-
According to these scores, the scores rose by 5% to 6%.
So we have the materials we need to take care of our customers.
We plan these things many, many quarters in advance to make sure that we manufacture and pre-position the board in order to serve these customers.
In terms of the downtime we actually use, this is a normal or normal annual outage that I call Macon.
So we do this every year.
This one is actually a little less complicated because we don\'t have the curtain coating machine installed as we did in Macon\'s last few downtime.
And then at Texarkana, we\'re actually doing the downpipe work that we\'re talking about, which is consistent with what we did with the power outage in Augusta in the fourth quarter of last year, but the range is much smaller.
So we have the same vendors doing great work for us in the fourth quarter of last year and we want to be able to manage the power outage accordingly.
So we have stock and we know where it is and it is in the right place.
We have good project management skills to handle these two interruptions.
I guess since you asked this question, I would add a bit more, that\'s why sometimes you see that something we actually produce in a month is a bit misplaced --
According to the date, why are we [happened]
There are 2 SBS factories.
In order to run our business and take care of our customers, we must build stock. --------------------------------------------------------------------------------Matthew T.
Robert W. KrugerBaird & Co.
Registration of Research Department-
Junior analyst [41]--------------------------------------------------------------------------------
It makes sense and helps.
Then, when you negotiate a contract to reduce the pricing lag during the quarter, and then before that, if any, what you have to give up, on the other hand, in order to close the price gap, especially considering that your client usually has a type of 1-
Annual pricing model with its own retail customer base? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director42]--------------------------------------------------------------------------------Yes.
So I\'m not going to talk about a single pricing component because it\'s wide-ranging and varies depending on the actual contract, but I just want to say that it\'s part of our normal negotiations with them.
They have what they want, we have what we need, and that\'s where we end up. --------------------------------------------------------------------------------Operator [43]--------------------------------------------------------------------------------
The next question comes from Brian Maguire of Goldman Sachs. --------------------------------------------------------------------------------Brian P.
Maguire, Goldman Sachs Group
Research Department-
Stock analyst [44]--------------------------------------------------------------------------------
Just a multi-part question about the volume, which can be difficult to answer directly, but hopefully you can give some color of how many of the 100 basis points are the organic volumetric acceleration you expect in 2Q.
How much of this do you think is directly related to sustainability trends or the transfer of plastics, and directly related to normal terminal market growth or market share growth?
Is there any reason to think that this will end at the end of this year, at least in the first half of next year, when you annualize these contracts, this will not continue?
I guess I mean, is there anything in these contracts like a lot of pre-fill?
Or should we consider spending a year each year?
Last, in relation to the quantity, have you ever seen a customer going to stock or activity similar to 2Q post or 3Q to date? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director45]--------------------------------------------------------------------------------Sure.
Let me cut it on here.
So in terms of our visibility, I don\'t want to go out for more than a year because it\'s hard for us to have visibility outside of here.
But if you think about the growth of the 100 basis points we see, I would say that this is highly relevant in terms of sustainability.
Really, if you look back, Brian, we haven\'t seen a lot of real organic growth in the last few years, as you know.
So I believe it has a high correlation with this, and the types of products we sell tend to be the ones that I \'ve talked about, converted into paper cups, beverage Packaging for trays, flip covers, shrink film and high cone rings and this stuff.
Highly relevant in this regard.
Can you repeat the second part of your question? --------------------------------------------------------------------------------Brian P.
Maguire, Goldman Sachs Group
Research Department-
Stock analyst [46]--------------------------------------------------------------------------------Yes.
I\'m just asking, I want to be interested in the sales growth in the second half of the year.
I know you have a new client in the copy space.
I was just wondering if there was some inventory build up going on there, and some padding would make the business cut the standardized quantity by 1% on a running rate basis.
Then have you seen separate destocking later in 2Q or so far in 3Q? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director47]--------------------------------------------------------------------------------
So far, I have not been able to talk to any major go-to-stock work we have experienced in the second or third quarter.
When we enter Q3, our volume is in line with what we see in Q2, which is the acceleration of some of the organic growth we have talked about.
Don\'t look too much, Brian. --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer48]--------------------------------------------------------------------------------Yes.
I think Mike\'s point is, Brian, we haven\'t seen yet, what kind of potential appeal our customers will have if you look at it as a core quantity, the kind that has always been so flat--
Over the years, the bland we have seen has been offset by our new product development activities.
As far as Mike is concerned, this is mainly driven by the actual decision to convert other substrates into cardboard --Based on the solution. --------------------------------------------------------------------------------Brian P.
Maguire, Goldman Sachs Group
Research Department-
Stock analyst [49]--------------------------------------------------------------------------------Okay. Got it.
Just to turn gears to art carton acquisition.
Is there a way to give a rough discount on the purchase price of these assets?
It\'s clear that CRB already has some integration.
Is there any expected problem with the Department of Justice, especially with the factory?
Then there are other ideas inside the CRB.
I know there are three other companies in this market that are exploring strategic options for their assets.
Is there any interest, or do you think it is possible to do something along these lines? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director50]--------------------------------------------------------------------------------
Brian, we haven\'t disclosed the purchase price yet regarding the valuation, but you can expect it to be in line with our previous classification before the purchase
Get multiple and post.
This will be a 5, 6x deal on a post.
I think this can make you feel where our deals are relative to multiples.
Very consistent with where we used to buy business. --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer51]--------------------------------------------------------------------------------
Then, just in the second part of your question, discuss some assets that may be sold in the market.
I think my answer is, you see, we often look at all kinds of capital allocation decisions, invest in our business, and do Tucker-
Return cash to shareholders through acquisitions.
We do these three things every year. to-
Dating here in 2019, so we will continue to look at things that make sense to us and assess opportunities.
What we will not do, though, is to guess what we will or will not do in the market before we get it. --------------------------------------------------------------------------------Operator [52]--------------------------------------------------------------------------------
The next question comes from Adam Josephson of KeyBanc. --------------------------------------------------------------------------------
Adam Jesse Joseph of capanke capital markets
Research Department-
Director and Senior stock research analyst [53]--------------------------------------------------------------------------------Just a 2-
The first part, Steve, is on your--
Forgive me if I miss it.
In the basket of commodity costs, I know you said inflation will reach $85 million this year.
Given what happened in the first two quarters, what are your assumptions now?
So, how much is the $85 million drop relative to the $15 million guidance increase? --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer54]--------------------------------------------------------------------------------Yes.
Adam, when we see this change.
Our $85 million rose to $70 million.
As we mentioned earlier in the first quarter, we have foreseen a known inflation rate of approximately $60 million to $65 million.
This is still the case in general.
We \'ve seen some inputs and acquisitions, so we \'ve seen a decrease in inflation rates for recycled fibers, chemicals, as we mentioned in the freight,, as far as these cores are concerned, it is offset by the continuation of wood.
As a result, the reduction of $15 million is mainly considered as a net impact of cargo chemicals and recycled fibers, and $85 million will reach $70 million.
Essentially, this is the $15 million increase in our EBITDA guidelines. --------------------------------------------------------------------------------
Adam Jesse Joseph of capanke capital markets
Research Department-
Director and Senior stock research analyst [55]--------------------------------------------------------------------------------Right. Got it.
This makes sense.
Last year, it was clear that you and other producers experienced huge cost inflation and you responded by raising prices.
Now your cost is-
Everyone\'s cost is falling.
You have reason to think that the price will follow like the price increase after the cost rises, because it is clear that there is a clear relationship between the price and the cost over time? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director56]--------------------------------------------------------------------------------
Look, Adam, if you look at operating rates from a historical perspective, there\'s actually a clear relationship.
As I mentioned, the opening rate for 2 of the 3 levels is 95%-plus.
On the third issue, it dropped a bit, but there will be some changes in the structure of the mill.
You two--
Some capacity will disappear as some capacity increases.
So I think in general we see a very balanced operating environment for the 3 cardboard grades. --------------------------------------------------------------------------------
Adam Jesse Joseph of capanke capital markets
Research Department-
Director and Senior stock research analyst [57]--------------------------------------------------------------------------------
If I could--
Steve, the last question about cash tax, if you don\'t mind.
Your expectation is still 2021, will your cash tax be close to or close to your book tax?
Or could it be longer before this happens? --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer58]--------------------------------------------------------------------------------
I think it would be--
It will begin to enter our current structure in 2021.
So there are some modest increases in the 21 annual meeting, and more in the 22 annual meeting.
Probably not [veer]
All the way to our 25% cash tax rate, if you do a long term job, it could be a few hundred basis points lower than that. range modeling. --------------------------------------------------------------------------------Operator [59]--------------------------------------------------------------------------------
Your next question will come from D. Steve ChercoverA. Davidson. --------------------------------------------------------------------------------
Steven Pierre lidA. Davidson & Co.
Research Department-
Senior Research Analyst60]--------------------------------------------------------------------------------
So I think this is the guiding factor to some extent.
I noticed that I think Texarkana will be 4 days longer than you expected in Q1, but your total loss production actually dropped by 15 days to 134.
So I would think it would be better for you guys, I just wanted to know--
If there is any content that may be related to maintenance that affects your full year EBITDA guide. --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director61]--------------------------------------------------------------------------------No.
I really wouldn\'t say that.
I think what\'s going on here, Steve, as you know, when we get into the year, we make a plan that we\'ll keep working on as the blackout approaches --
Of course, we always try to find ways to reduce downtime to do what we need to do in any particular downtime.
So there are a few that we can do faster.
Texarkana, we actually have a few days, and we \'ve actually added that as far as you are concerned. But net-
Net, we are down from where we think we will go, which is the normal process we use to plan. --------------------------------------------------------------------------------
Steven Pierre lidA. Davidson & Co.
Research Department-
Senior Research Analyst62]--------------------------------------------------------------------------------Sure.
What\'s starting?
Increased costs associated with new product launches, which will drive your sales growth of 1% in the second half of the year? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director63]--------------------------------------------------------------------------------
There is nothing in the guide. --------------------------------------------------------------------------------
Steven Pierre lidA. Davidson & Co.
Research Department-
Senior Research Analyst64]--------------------------------------------------------------------------------Okay.
In the end, it\'s really easy, I guess, but I mean ---
Despite the better weather in the southeast, it will be a constant headwind.
Will this allow you to reconsider future purchases and perhaps bring higher inventory? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director65]--------------------------------------------------------------------------------Yes.
We have been discussing this issue.
I think there are some strategies there that we will investigate in terms of a little more inventory, especially when we enter the wet weather season.
The first thing we have to do is rebuild it, and that\'s what we have to do in the third quarter.
That\'s why we expect the third quarter to rise as well, because in some cases we have to pull out of the larger basin, ship further, enter our factories and build those reserves back, so that we can operate efficiently during the rainy season. --------------------------------------------------------------------------------Operator [66]--------------------------------------------------------------------------------
The next question comes from Arun Viswanathan of RBC Capital Market. --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director67]--------------------------------------------------------------------------------Arun? --------------------------------------------------------------------------------
Arun Shankar viswanzai, Research Department, RBC Capital Market Co. , Ltd-Analyst [68]--------------------------------------------------------------------------------
Guys, I\'m sorry. I\'m here.
I\'m sorry.
So, I want to go back to the case of commodity cost and pricing to understand.
You did give up a little price--in SBS.
You can offset this with CUK.
The cost of goods is now a little lower.
The second quarter was strong.
So, I guess, just to confirm, I guess, is there a conservative factor in the outlook for commodity costs?
If so, is it because of the wood and recycled paper?
Or chemicals and energy? Or anything --
Can you provide any details? --------------------------------------------------------------------------------Stephen R.
Scherger, Graphic Packaging Holdings-
Executive Vice President and Chief Financial Officer69]--------------------------------------------------------------------------------Yes.
I\'m Steve, Allen.
In general, we think the $70 million guideline is appropriate.
We have seen more than $30 million a year. to-
Dating and a lot of things, as we talked about here, around the wood.
We haven\'t seen Wood step back yet.
As Mike said, we have to rebuild our inventory.
This may be much longer than we had expected.
So I described it as the cost of having a basket for us.
As you know, billions of dollars worth of purchases.
When we look through all of this, its net worth is $70 million.
Wood plays a real role there. --------------------------------------------------------------------------------
Arun Shankar viswanzai, Research Department, RBC Capital Market Co. , Ltd-Analyst [70]--------------------------------------------------------------------------------Okay.
Then in terms of volume, congratulate you on winning.
I think this is encouraging.
I think I just want to hear what you think about the entire terminal market.
At least in terms of cans, the beverage market is relatively strong.
It looks like there has been some growth in catering services.
So, just curious to know what you think, if at some point, if you start to think that there might be 1 to 2 structural organic growth, you should see these growth, or, is this still a unified expectation as the most reasonable basic case? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director71]--------------------------------------------------------------------------------
I think the basic situation is still there.
We expect a flat volume relative to what we already have.
As you know, we will be able to break through a bit and we always do new product development work of about 100 basis points.
In many cases, over the past few years, this has increased the decline in long-term traffic in certain categories such as carbonated soft drinks or cereals.
So what we really want to say is that we have a little bit of a role here to be able to restore New product development to 100 basis points of organic growth.
So this changed. --------------------------------------------------------------------------------Operator [72]--------------------------------------------------------------------------------
Your next question is from Mark Weintraub, a global seaport. --------------------------------------------------------------------------------
Research Department, Seaport Global Securities Co. , Ltd. Mark Adam Weintraub-
Senior Research Analyst73]--------------------------------------------------------------------------------
With regard to pricing lag, congrats it dropped from 8 months to 6 months.
I\'m curious, is there any change in the relationship between cost push and pricing index due to these successful negotiations? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director74]--------------------------------------------------------------------------------Not meaningful. --------------------------------------------------------------------------------
Research Department, Seaport Global Securities Co. , Ltd. Mark Adam Weintraub-
Senior Research Analyst75]--------------------------------------------------------------------------------Okay.
It can be said that the cost of CRB is still higher --
Push and SBS are still the main price index, I think CUK--
More drinks in the middle? --------------------------------------------------------------------------------Michael P.
Graphic Packaging Holdings-Doss
President, CEO and director76]--------------------------------------------------------------------------------
This is a fair statement. --------------------------------------------------------------------------------
Research Department, Seaport Global Securities Co. , Ltd. Mark Adam Weintraub-
Senior Research Analyst77]--------------------------------------------------------------------------------Okay. Super.
Then I also realized it was just an optical system, but congratulated on getting positive cash from operations for the first time in the last few quarters.
I think this is the result of your rewrite of the factoring contract, right?
Are there any more changes in this regard?
Or
Custom message
Chat Online
Chat Online
Chat Online inputting...
Sign in with: