Graphic Packaging to abandon third-party pricing indexes, provides Waco update

Graphic Packaging has released its third-quarter 2024 earnings this week, revealing the impact of the sale of one of its mills earlier this year, a shift toward more consumer packaging and a move away from using third-party pricing indexes.

The Atlanta-based paper and packaging company’s net sales decreased 6 percent in the third quarter to $2.22 billion compared with $2.35 billion in the same period last year. GP says the decline was driven by a $109 million impact from the sale of its bleached paperboard mill in Augusta, Georgia, in May as well as reduced open market sales participation and a $35 million net decline in sales from packaging operations, where price declines partially were offset by volume growth.

According to CEO Michael Doss, after the Augusta divestiture, consumer packaging makes up about 95 percent of GP’s sales, and paperboard makes up the other 5 percent.

“We saw overall packaging sales improve after two quarters of weakness,” Doss added during the company’s earnings call Oct. 29. “We saw improvement in food, household and health and beauty and continued solid performance in beverage and food service markets. While we and many of our customers had expected even stronger volume improvement, the pivot back to positive volume growth is certainly encouraging.”

When it comes to volume improvement, Doss notes the overall volume recovery remains “quite gradual.”

The Augusta sale also impacted GP’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), which totaled $433 million in the third quarter this year versus $482 million last year.

Net income for the third quarter also was down, totaling $165 million this year compared with $170 million in the same period last year.

“Despite volume challenges brought on first by customer and retailer destocking and later by the pressure consumers are feeling from price inflations, we are delivering margin strength and consistency in line with the best global consumer packaging companies,” Doss said.

“As volumes continue to improve and our Waco investment moves toward completion, cash generation will rise significantly, and we will deploy that cash to create substantial additional value for shareholders.”

GP’s $1 billion recycled paperboard mill project in Waco, Texas, reportedly is on track to start up in the fourth quarter of 2025. The company says deliveries are on schedule, structural steel installation is complete and the first round of hiring also is finished.

“The pool of applicants we are seeing is excellent as expected,” Doss said of the Waco project. “An attractive labor pool is one of the key reasons the company selected Waco for this important strategic investment. Once Waco is up and running, we'll be able to service the entire North American market with the highest quality coated recycled paperboard from two locations in Michigan and Texas. Waco we will further expand the company's long-term competitive advantage in both cost and quality.”

Finally, GP announced a transition away from using third-party pricing indexes, saying market movements related to the sale and pricing of paperboard have become “far more challenging” for third parties to assess.

“So, perhaps not surprisingly, their results are increasingly inconsistent with what we see in the market,” Doss says. “As we have previously disclosed, we are actively working to transition all graphic packaging customer contracts to more transparent and more accurate price chain mechanisms.”

Starting in the first quarter of 2025, GP no longer will enter into new open market paperboard sales contracts that include third-party price change mechanisms, with Doss adding that the move is a “small but important” piece of the company’s ongoing transition.

“I wouldn't expect that to be a material impact in 2025 just given the small nature of what we sell on the open market, but it's an important step and, we believe, over time, helps give our customers more confidence in their ability to predict their pricing, because they want that to be fair,” he said. “They want it to be transparent and they don't want to be surprised, and all those things are really what we're aiming to do with our customers.”

The full Graphic Packaging third-quarter 2024 earnings presentation can be found online.