GPK - Earnings call transcript Q3 2017 | Graphic Packaging Holding Company

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Operator

Hello. My name is James and I will be your conference operator today. At this time, I would like to welcome everyone to the Graphic Packaging Conference Call. [Operator Instructions] I would now like to turn the call over to Alex Ovshey, Vice President of Investor Relations.

Alex Ovshey

Thanks, James. and to combination Holding International of America Packaging welcome to conference Paper’s and results. Consumer the XXXX discuss Graphic business morning Graphic Company’s Packaging call North Good quarter third Packaging and

made on obligation the Mike, as forward-looking speak risks on the statements link subject are contained Speaking reliance with by to statements of and website on Doss, expectations, as President the and Undue Presentations materially should from are results company and to help President section and CEO the to that the on slide Webcast statements turn our risks it Exchange required will placed I Such and have performance you Vice estimates based at the are and which Investors date be not statements, they which like clicking events undertakes follow you. currently such would Steve be Senior remind uncertainties today’s CFO. of actual expectations. no presentations, plans, statements. these information various the provided constitute except call beliefs could Scherger, we future company’s and periodic www.graphicpkg.com. cause and such of Commission. filings differ I to the call regarding the will regarding company’s everyone and forward-looking that on our present and company’s on Securities available uncertainties Mike be Information law. in To accessed update only is as along statements can and by to over with two

Mike Doss

Alex. you, Thank

American service – integration to scale market, our to we achieve to International provide business Graphic a faster combine value. transformative and platform mill and with greater growing Consumer converting growth synergies, create transaction be our transaction organic create growth mill to $X This Graphic exposure food paper-based compelling to packaging converting and significant announce Packaging We a will to through shareholder this efficiencies are a that that accretive drive and create Paper’s SBS earnings to integrated footprint that billion and increased Packaging for meaningfully Packaging the expect excited company. to acquisitions will runway North increase across to

employees mill the the more assessment the mill of the the decision a and impact system. in CRB context Before mill’s Steve closure early cost I review provide announced on further our and discuss recently community, September. I I made Santa a the one a Santa our was the the in and transaction the briefly that we closure Clara Norcraft will the brief Europe, in will detail, quarter turn the CRB completed of Scherger our transaction well in I who as broader We CUK the third like of then of would return given will operating to capabilities in mill the then announced over detail. difficult overview to Clara after It discuss of recently acquisition and call structure results as to reported thorough

improve our many class discussed to to we us capital calls, CUK paperboard world our modestly pulp the capacity tap last to over Midwest and times to production we unused CRB allowed increase mills. produce. have our also we As our continue mills investments These at cost our that several into on and CUK capability have at CRB strategically reduce invested mills and the quality these years of the

As have a in current our flexibility result, mill tremendous we system.

our our Santa the Santa tons which CUK in fiber drive increased Midwest Midwest cost be end annually fixed now to net of costs decision will savings at West mill annual and should XXXX. the by $XX produced we CUK with tons we is will produced $XX occur tons into the to in along other us labor, from give Overall, at million reduction mills the to investments chemical XXXX. the Mills. Clara We in Clara partially benefit half most Post-closure lower be are be produced freight CRB now range half mills, expected of will confidence Coast. and targeted a ship million recycled the offset will able costs and redistribute achieve to CRB CRB about by in which have to XXX,XXX $XX that we This million made at year our productivity will

me early very moves $X Graphic closer completed acquisition, generating strategic to of billion objective in of Packaging step one acquisition converting the carton discuss our Norcraft Let which in we revenue folding briefly Europe. now October. The achieving

levels the Importantly, turn will growing will markets, the converting I to our Steve results. an in footprint stable acquisition their beverage discuss position to quarter European and provide and Southern now over to and call cost time. integration expands Spanish modestly third improves increase to our food plant over mill Steve? opportunity

Steve Scherger

Thanks, Mike.

expectations. hurricanes core was as FX during disruption. quarter of the were as costs, of EBITDA few and of estimate The commodity elevated our primarily slightly We offset during The for The were an by quarter well volumes benefits on $XXX hurricanes cost million up met favorable a quarter cost quarter the also negative recycled acquisition, X%. sales chemicals Third operations million. the which due and in was by accelerated input Net impact adjusted significantly during the our to impacted lower disrupted our negatively fiber that pricing. modestly facilities $X freight quarter. the hurricane-related higher positive

freight EBITDA estimated the let $XXX guidance cash year full the be costs our million. related reduction now and the the XXXX be and an offset me largely are Midwest mill reflects of resins fiber recycled our will details prices. guidance. compared mills We current closure range costs XX,XXX lower of CUK support expect in our million to costs. million build $XX Santa benefit tons CRB our costs and range approximately adjusted specifically $XX inventory from mills by year impact to related to approximately million, The of providing hurricane-related adjusted net to Santa to mill EBITDA $XXX $XX our costs customer assuming million at update will XXXX These quarter, Clara flow million $XXX of of higher transitions. full Clara For costs chemicals, previous and on

in recover first is to million expect the We inventory $XX approximately of of as half the half XXXX. sold

cost costs recycled disruptions higher are fiber input of XXXX benefit lower relationship pricing was the to by commodity Our freight hurricane related net costs. to unchanged inflation as chemical offset

mill is $XX million a EBITDA the to which Clara productivity Our drives XXXX our outlook closure to costs, $XX lower million year reduction XXXX full due Santa guidance.

range reflect We build guidance million our are the million cash completing to $XXX flow ton EBITDA closure. approximately the reduction to we to are year full XX,XXX reducing guidance the $XXX to higher support inventory $XXX to the million working and related to our capital from

to volatility at expect CUK would recycled input could Looking $XX recycled price we Having XXXX. results. current impact levels current results that high commodity fiber remains said and to year-over-year. pricing in costs, and positive to ahead XXXX, cost materially we and continue CRB to fiber relationship improve At expect short-term million

in with over input the said cost we pricing to time. past, inflation As we remain have committed offsetting

mill the mill. to cost well XXXX capital expected the $XX our labor investments, the benefits also as limited downtime, from We cost generate as reductions targeted maintenance Santa positive a million to of productivity savings closure cost expect Clara continued reflecting of the relationship in

quarter XXXX. Looking to at the quarter, of $X.XX diluted the in earnings we $X.XX, down per third quarter compared third recorded share of

of Third charges XXXX impacted and quarter $X.X net of was other with tax associated business combinations net income special million, charges. million negatively benefit by $X.X

Focusing positive quarter on pricing. FX acquisition core modestly was the sales, slightly third X% an volume to and partially by increased benefit revenue net positive as by from lower

encouraged quarter positive volume X.X% are business, volume was in trends for second We quarter. during Price the quarter. now with lower the the and by consecutive million the core by in $X up core volume

and this While models. benefit half from lapped still implemented XXXX to reported and to negative, in as negative increases the in our cost earlier year reduction CUK along of in XXXX was compared price the began an price we CRB first quarter with from the RISI CRB recognized impact index the the price improvement

volume of your Mike to $XX Thanks of mix. The morning. time now turn by Paper for inflation productivity input was Third cost detail. $X more decrease positive $XX will of million back of call driven declined lower and million million. pricing million partially quarter to million this transaction $XXX EBITDA International in offset I and million adjusted discuss $X to $XX the by the

Mike Doss

Thanks, Steve.

International this International Let and $XXX Consumer the be the Board Packaging value will Paper will of me multiple billion. XX.X% operator change partnership North International discussing the leadership of Graphic to Packaging’s key X.X debt Graphic XX.X% structure partnership The of will Packaging Packaging and International form its Directors Packaging’s and of to business. be Packaging $X.XX sole current no for will of Packaging a Paper is American $X.X business transaction. exciting contribute by own all businesses terms and American which Paper’s transaction start of Consumer North for The will Graphic its will contribute will the into partnership own There value Graphic times billion. International shareholders. to partnership. team. transfer Graphic Paper million transaction the partnership. to provides Paper EBITDA will compelling the of enterprise or a equivalent transformative

the strong balance newly will allow platform sheet on basis. Packaging an to Graphic a As created importantly, us grow will integrated that have

carton organically do Specifically, through service and acquisitions. this we by growing converting food and business will the folding

leading three provide to of Augusta, adjusted UK of paper-based two brief containers. capacity approximately The Packaging and known business. paperboard with products the paper-based tons into projected in $X.X is America. includes Paper’s X.X in XXXX. of XXX,XXX bleached North service a business The cups cylindrical converting producer $XXX billion Let billion to Texas, SBS and in million mills as the production The of business generates SBS, generate in one of Texarkana, Consumer million annual American U.S. to revenue and business have tons. located SBS is units of solid The paperboard EBITDA International me and the in sulfate capacity Georgia North convert food market XX and overview facilities the of

cost me for assets are to the business discussing rationale compelling now shift Let and and combination. this low scaled. financial The

food CUK to mark. our and to CRB production growing will service broaden our The increase transaction materially exposure the SBS mill will footprint assets. leading We include

year times The transaction to EBITDA pre expect earnings will creates accretive converting The X.X the to We And by in multiples we and respectively. folding million value. be $XX and acquisitions. at compelling in through carton year. SBS synergies finally, and X.X Graphic for and of real are transaction the of post the and food platform one end organically creates service expect achieve a markets synergy to the grow shareholder Packaging third

the of characteristics Let me critical combination. provide detail now more on three

extending are leading we and assets. production and low include to paperboard in CRB SBS First, mill scaled our cost position mill CUK

We production expect service for mill significant this drives will opportunities and of new optimization three substrates cost and provide with across integration. all allow customers offerings, and us reduction, paperboard procurement through expanded and synergies and spending to product optimization

the growing the market total will increase food combined compared to XX% transaction with approximate XX% exposure of our service sales Second, materially to currently.

As core with our than evolving market you a consumer rate has this preferences, expanded know, the food at segments. much faster

America. expand our expect in scaled paper-based market service we North packaging the will the with most participation be innovative will We food and what in platform

Lastly, currently. of is XX% Packaging business levels Paper’s integration Consumer International

increase We we as existing expect will purchases. the SBS roughly paperboard integration integrate XX% our to level

for higher will level we laser on mills. SBS importantly, materially be More the integration focused driving

integration approximately acquisition current levels organic level on CRB time will and the with as strategies. CUK the and our consistent expect businesses our the growth SBS We execute over in to for rise XX% we assets

let provide So, synergy more opportunity. me color on

of SGA mill synergies to million earlier, $XX procurement. mentioned years. driven X and Key and expect cost paperboard we the optimization be integration As synergies by I reductions, generate next over will and

will and of SG&A spending $XX drive million cost expect savings. annual general We reductions, including

expect paperboard in-source from drive integration SBS will increased in mix increasing we We savings currently $XX annualized paperboard. XX% improving SBS range purchased as integration to by million and XX%

optimization savings. will mill million $XX and procurement expect annual of drive We

chemicals, on and We coatings North have Consumer Paper’s International with freight American business significant overlap purchases. Packaging

potential to additional to trends drive the see savings. cost freight also optimize We and paperboard

including and $X a EBITDA provide Let and the the business neutral partnership for organically me adjusted on synergies, the – $XX XXXX combination EBITDA. million the nearly expect revenue acquisitions. see EBITDA adjusted American we The for the in margin which $X us business. XXXX in billion combined guidance, on to growth of Consumer strong will financial future through expected Paper’s profile basis billion business. and On flexibility is generate for potential combined drive more also North transaction will EBITDA synergies, of and International color Packaging strong the strong Based leverage give we our

to grow mid-XX% increasing that integration mill more SBS provide materially in business. the level rates We our Currently, Let integration see rate converting range. assets. in me to are opportunities now significant by for the industry mill SBS integration plans the detail SBS to the increase of

targeting over assets We current and integration an time are XX% on consistent levels for CRB our businesses. CUK SBS with rate the our

we have provide believe our reduced us shareholder with increasing structure, rates sheet further balance our to opportunities offering, noted drives earlier, As will we product our value. immigration cost leverage and improve

existing how strategic longstanding objectives. discuss me fits and Let this and operational into our transaction

driving will As improved growth growing all transaction development, new through optimization. focused end in of objectives. to our markets, been integration relentless to acquisitions our profitability believe a we cost a exposure these We company, run-rate on extend bolt-on and long productivity have and mill organic increasing through this on materially product focus increasing achieve

So, transaction. color on let the the of more briefly structure provide me

I partnership will XX.X%. Packaging of International As noted own will own Graphic and XX.X% earlier, the Paper

Paper next Graphic have interest monetization common will have the business. Importantly, the X Packaging of involvement GPK will no also International the the a combined that will standstill partnership running from on preclude for years. have will Paper sole and X-year would their be operational them and lockup shares partnership of purchasing a the International operator

believe for a let significant opportunities our create a our service to the we meaningful increase value. Lastly, acquisitions, and turn expect with The across now our to to run-rate gives back will SBS and accretive to of value increase provides conclude scale growth levels we our to profile, shareholder growth me to and financial platform increases expect transaction the converting food the broadens converting to organic to and significant drive it drive a synergies, footprint call us growing to questions. with by combination. operator earnings increasing the we mill from summary growth be mill lastly, market how I strengthens through

Operator

[Operator from comes please. ahead Your Markets. of Wilde question first Go Instructions] the from Mark line Capital BMO

Your line is open.

Mark Wilde

Mike. Good Good morning, morning, Steve.

Mike Doss

Hi, Mark.

Mark Wilde

looks make. you Congratulations these deal kind to on of on give perspective a us, Mike, it well on Actually, pretty Can this some deal. timing structured like synergies?

Mike Doss

Yes.

we we are X-year get stated Mark, As in the can confident a them we of period announcement, time. over

place as this the like SG&A are Of to obviously line up are at operate as course, can. on parts us own business in have initially we we least help get There have to going will bottom be of carve-out sure certain into, kind a make to look of those that fast TSAs our and because is them to that the we as take functions. that stand system we structure

can. that try to I to years, So, it understand but drive will again fast the X we pointed deniably focused we as as be

Mark Wilde

of you X, cadence Would to year and year want kind kind that us try for X? of X, year

Steve Scherger

Hey, Mark, Steve. it’s

to in said it after kind Mike brought but think appropriate up we the somewhere is of we expectation can I third, knowing for as in the we standing here as year, will business first this third the business about an that the as integration be. get the to to think realistically of overall be and third, Mike appropriate in the of enhancements in put the cost side of the want where structure on some stated some value comments place structure we while and business of SG&A to mix structure we the the drive cost paperboard the the

Mark Wilde

to ton deal of the in Any Okay. SBS because kind I from curious $XXX competitors and am to looks like of thoughts per about of board it’s on much pointing that? your integration converting. on And a it synergy kind integration, of of ton one kind a then recently just bigger the was much, about the synergies

Mike Doss

Mark right running about Well, to the way I think that now these is assets are think full.

And existing they so business. are loaded with

as what us. we we a do is the to mix of net are $XXX looking mix on to is And that for enhancement, So, that. the result closer believe enhance about

Mark Wilde

are the push kind the whether your in your service of of to range finally talk just in be? just but can what service I mentioned want going of also your of then priorities, you food of would Mike, food in expand you of to offering And leverage level sort sort forward, about kind with Okay. wonder And terms Europe, you growth then going area?

Mike Doss

a think Yes, I great it’s question. part, the initial

about because have are and expanded participated we a For markets us, plus way assets, a now offerings, we away small but as food perimeter are much we been these really these our more in you has in, existing service profile. scaled X% And at having from excited know, Mark, home. store, around some of the with that growing the

to level want build integration that and So, out we drive up.

there acquisitions the just we have didn’t because service, that tuck-under you into. to As assets SBS actually pursue not are integrate food did know, backward certain in we

expect to on in $X many, I doing building have $XXX do have think billion our acquisitions million need million to some can we to have our us that converting about look up to there us dollar times of as talked is focused what that optionality backward platform level many towards there integration gives time a well. and scale over to we So, out been that integrate be that will drive Europe potentially tuck-in as continue annual that of we you to continue to $XXX for

to that We tons know XXX,XXX markets. upwards in you also there ship SBS we material some Europe believe is of FBB of buying able opportunities are some of to into as our board

great gives optionality as a So, of really us business. it a lot

Mark Wilde

luck over. good you. Well, it Alright. and listen turn Thank I will

Mike Doss

you. Thank

Operator

you. Thank Instructions] [Operator

of is Your BOA ahead line Go Lynch. George the please. Staphos question from Merrill from next

line open. is Your

George Staphos

the on with I luck details vertical for integration. transaction. guys. follow-up Hi, Thanks discussion on to good the Thanks. Good morning. the and wanted

or of of as go how things other more integration. our much from see have folks that to thing how it think becomes you is is As M&A, really obviously in of comprised because you your purely that M&A basically XX% and the really of that, difficult today, vertical to are listening own experience control you kind there capture integration perhaps to on much requires sit on it’s and based goals multiples here M&A difficult your

how the and a goal? much a M&A that by much is your from of hearing one much driven how part control capability, driving are under of conference and is bigger is things recent we machinery So, integration how

Mike Doss

and replace SBS a are things with trays, side as of and that these we comes on will we on our driving net it I or pressed faster successful got I CPET process are lot things least take on experts bowls this it is even have growth group to that. And to as Steve few year-over-year. kind on product know as assets to forming into those you that these NPV years standpoint of basis being mean business development add a at comments able stab They real machinery that a paperboard kind integrated we at George. that Thanks, well. robust Yes. X% We at got last all bowls a his from products. worked can go on really by a cylindrical very focused over have our assets, on been be level. cups pace have and opportunity those able an like the in actively a being And taking and SBS very see well, folks. the with of do will now new

can farther we faster that accelerate go think And organic side. we and so

track tend You able being do but the our a inorganic lumpier, is little to really that. at acquisitions, on be the are they right side, good record to

X to years, back range the able Xx. synergies X.Xx been in that being to have down X.Xx transact you in net and after go X If last to we

a think to is we model that us. that, still So, that’s available

set fair can And that done the get we sure over have confidence to that. of the that a X of We we there. do research, amount have next had imagine, you a could path goal us as we on years to a X to making market have allowed that

the in will early brought You the CUK, when levels and XX% we range. on were business XXXXs, CRB together our on much integration lower in recall the that first

doing market into type a we same So, thing of it’s done growing have the actually that that’s actually little a faster.

So excited we that. about are

George Staphos

and the to case, of I turn I’ll a lot so which more we plastics been that’s even food CUK, cup question in growth fair, packaging, at in liquid addition, had our that industry seems tray I of get, plastics. industry the look and number to deal relative other over, be premised I bleached well it’s has has the Mike. guess do pretty plate – frankly, particularly service. in is mean, a stock data, and a been markets, versus weak, is on this board, of of AF&PA and data which whether side this I Yet in it bleached to when combination boxboard, continued

of all this about that year. outgrown paper plastics, have for plastics So discussion has halo the food paper in the versus service

going did this how role better So you. acquisition why at you, make a to the mosaic on when as would company you that reconcile Thank trends, that was initial GPK forward? looked an

Mike Doss

is to and you that on Liquid is of some through cup see exports talked actually the data and a So, number is a little SBS tray. dish verticals packaging, stock and service. down for food you year-on-year of bit, up there is the But about, are got as as plate different side. parse up

we take confidence some that. So, in

full Macon as mill you have Santa a CUK into of also Monroe. tonnage know, Clara with and and the very West system, that the both closure We coming

opportunity here. to a see to substrates mill assets real mix a create of broad all be to we So, really portfolio value with low now is very able do across what three manage cost

Steve Scherger

mentioning. George, Steve. Mike component, an this is That’s important as is

with mill two of now all having we assets. We our moving we contemplate we of the will, some that things opportunities Now we and manage have the with them, substrates all think, optimization mix two. enhance three three to and get there oftentimes which to I those – we across actually see can scope substrates, into had were broaden only nice how

George Staphos

you. thank Okay,

it containerboards each turn in kidding, just will Now, over. I

Operator

Connelly question line comes Mark ahead Go from the Stephens. from of please. next Your

open. Your line is

Mark Connelly

Thank you.

a I that? curious customers lot the your little of color give to can So, customers, numbers the yet? moves customers a just us more mix that talked up kinds players big on the their and core making volume but smaller have fix small am what You you in improvement? about showing are are driving

Steve Scherger

major those business, Carton and it’s our to like strategies, and trying are the last what and very really strategies back participation combat have Craft, investing the earlier, development touched beverage natural to a our welcome in what Yes, volumes. frame our have continues fundamental business, on through new consistent, Mark, it it core Steve as has think players investments have around you activities, call. growth the But our of us lot Mike platform, I Yes, into of seen that. up pressures we though do some product seen our it we shown we which seen so of out, seeing participation bit, really filter even that couple the food have to the has had are through a over years, widening

you And participation in more activities we and and some had, the really store, lot is some center a to our sales participation it’s some CRB where mentioned. we’ve than segments. other a the actually more that’s in pockets been work some Yes, core of good food growth as got the respect that so that commercial and And our of where through weakness have but that there example it’s we’ve strategy in been of that offset business of has able outside food NPD we’re participating great is now strong focused. of where of

Mark Connelly

exports are mentioned That’s overseas you IP’s in customer is significant business? FBB board and super you overlap helpful. One that your more there the question, bleached buying,

Mike Doss

that be, Mark, to no, would it’s answer The Mike.

Mark Connelly

very Thank Okay, you. good.

Operator

comes please. Your the next Brian Sachs. Go Goldman of line from question from Maguire ahead

open. line Your is

Brian Maguire

transaction Mike good the my congratulations Hey, and and Steve here. morning on

Mike Doss

Thank you, Brian.

Brian Maguire

ask comment little structure any of on together, future? you that point the seems IP’s from if maybe cash bit have on kind of maybe cleaner that a and point some of you but at to It you it, interest kind in been came it see all would like you a could to all why wanted Just how bit Graphic’s could comment right cleaned of just or about the makes view. up debt little deal, with sense the got whether or how getting buy at out stub just equity that point

Mike Doss

at been really able we making a to run to our down driving little mean, balance sheet for were race. talk am I’ve bit that why different about that to balance And and tenets of be long We Steve in that few asked I Brian, deal us for nonnegotiable. going the through I’m that let to of the there. So go the talking needed look leveraging about we and the this, for came going SBS, a that I into way. to a a all us us, to mechanics you integration taking important our of all flexibility sheet terms and and and to overpay, for want said have reasons backward that the is we drive sure that believe didn’t synergies we couple – to had were the a there get about

transaction very parties were critical for highly two us this for both of really and So is tax-efficient objectives at accomplishes taking that in assets. those acquiring a SBS terms look

Steve Scherger

Brian, it’s Steve.

obviously And the this from it terms structurally Graphic for will minority a in the have sell of up us and Just But P&L Graphic picked structurally into the be an it how International days. partnership. we after X-year terms or of a XX.X% after we Packaging handling in we lockup be in a elected modeling. perspective, in that as Packaging it XX.X% into than occur Paper to will terms be that XX.X%, interest sell – discretion. that International structure will If stock either will over ownership can as functions, the because cash accounting less our the how, of see as would converted we how at of of period a how monetization, is of lockup on their you can that there walk partnership, work Paper of converted a through was is will position, you a as if X-year XX we that Packaging stock, if Graphic through

it’s if so cash. the an is will it be And and exit, into remaining an X% convertible exit then

are for exit have that lockup, was during an after X-year interest partnership options or So a there additional to pursued time. that to positions also an at X-year standstill the purchase And the then period. ability X-year you if GPK relative clear

Brian Maguire

X, to something for on then forma the is one targeting? but $XXX low CapEx just And think that helpful. like per getting mid-single on XXX% to year range IP wondered in of you you seems help, the I just allocated accretion in are maybe the reporting the you kind digit it million share And Okay, that’s cents if segment, there. then of the are had segment company, maybe the not pro could it

where some forma on would go? So just guidance CapEx pro maybe

Steve Scherger

Sure.

that me Let take on.

You said it quite well. actually

and talked of of the obviously, into million If it of the you and accretion. appropriate to detail, this apply you borrowing million in capture we tax $XXX get XX% interest earlier. apply modest works synergy assumption based very million the will but take rate depreciation – EBITDA that of more on million that amortization we And $XX upon and XX% will effective in $XX and the the well, to pickup obviously that through range levels then of the $XXX about

as a has team productivity forward. pretty talk business the for being CapEx There strong from drive us the there few the – we range investments a to going That So million thoughts the said, we in assumptions in about core core. of the quite think business $XXX good the a business were that’s your kind that that is reasonable. around some is of overall

more into once the in that, that capital in modeling, As of after to about doing we on a first have business past, as always specifically the fair actually come we But anything we’re that above utilization that an would and the spend I business. back provide of of the initial back year, talk we of recognizing as cash you back assumption, an we’ll to position done investment the you very overall color be the the ownership are would baseline the kind just will into business. think

Mike Doss

that thing these we build out Brian, only really that forward, the going to we’ve we’ve see tuck-in is opportunities know you the acquisitions as think on And been types real drive accretive, I’d the is talking Steve the levels runway economics got over integration where to transaction able base the said, we’ve about. but been add, time. further I of is that

for creation. So of value equation of in it’s a kind terms us two-part

Brian Maguire

guys. makes that Thanks, Okay, sense.

Mike Doss

Brian. Thanks,

Operator

of Dillon next please. Your from comes Vertical. from Go question the line Chip ahead

is open. Your line

Chip Dillon

Hi, good Steve and congratulations. morning and Mike

Mike Doss

Chip. you, Thank

Chip Dillon

questions. deal the terms your that post you – mentioned in that in of – or Could issued their situation, sell is, dividend couple still maintain out spin you stock X-year they proposing? option integrity of could could to it One you IP also in post and A IP can be shareholders to they and the stock tax it. pay XX.X% what are a as it of

Steve Scherger

This will structure to is, a tax a some No, play be of of the deferred that’s don’t tax a the efficiency necessarily event and that it, the terms Obviously, respects, event. but eventual Chip. a I likely part monetization. out in many think of structure. of in in event isn’t the there of that’s conversion

Chip Dillon

deferred there being even event, is sounds community assets written a I yet up. understand. like though it that And are tax

As also in assume will going XXX $XXX you that should what said so new at to the confirm that’s we company? rates interest DD&A and on of debt – that and million the be stay now just

Steve Scherger

Yes.

Term is have $X.X our We to the have – secured. be coming billion likely as senior that on be you see A occur we what will the structure in our with Loan the way. what’s will likely similar tends That to

the have. billion, expect excuse $X.X I me of we would that that So

the to of as think in over it would this. tranche coming $XXX with million we along have. similar very won’t a structure that coming be I a mod So that There

interest similar on that very it’s see what you’d So we to that. expense today that the have

Chip Dillon

And what that? is

Steve Scherger

Low Xs.

Chip Dillon

Low Xs, Low it. got it. Xs, got

buying the – those your let the exceptions. know just Okay. have you some standstill exceptions next of in is, what somewhere us can it last that X And And then in question are? stock mentioned with years a the they

Steve Scherger

anti-diluted limited dilution an under limited that very would which were purpose. another for just to are issue in very have have ability they do we new if are would actually that losses They to scenario. some be There the exceptions shares to with

Chip Dillon

you I understand, just Great. standard stuff. Thank so much.

Mike Doss

Thanks Chip.

Operator

of Go ahead Your from question comes from please. Baird. line Ghansham Panjabi next the

is line open. Your

Ghansham Panjabi

and Hi, guys. Good morning congrats again.

productivity about on mill that forward? increase previous a given the GPK to mill your sort think we Santa you addition your million near productivity on $XX off First how have on in going legacy across $XX produced should of tons change, of with the Clara how target closure, system? the million impact XX% And also does in IP’s assets,

Mike Doss

It’s Ghansham. Mike. Thanks,

on I the Santa year. think the around of to I we $XX answer next million is closure a degree productivity $XX got of million with base have our existing confidence Clara in question would high way our productivity your

Midwest the tons. mills, better our mills well CUK mills, of Our CRB as part that will absorbing both a be XXX,XXX as

going productivity helps So be reduction. able that us cost operating know are And you our and drive very as are those ensure rates we to that ongoing high. in mills to

how that’s So base we business. the on think it about

basis, of on and what when ongoing actually productivity. a terms about February want of to terms there hang I would that do have forma you In in in to pro out the question assets talk that we we

I’d now, For to million in $XX the synergies. point

you model cleaner facilities, our now be about working We the work. how and really into time to putting should but and with their next talk will And that we of a have getting that, are you, people between the applies. we a be same these sight into thinking to going lot lot together folks

year-on-year asset to productivity through are we drive going We every own. to look

We have to do that.

Ghansham Panjabi

in relates pro to And ownership already your as expect it terms transaction, we then both share allocation the all if it buybacks, given significant evolve, capital company – how your forma? IP in to of the should

Steve Scherger

Steve. Yes, Ghansham, it’s

balanced have maintain capital itself. think removed with really overall, driving I the that will to are structure. been no this allocation we approach that levers from that are There

to and integration And to the do tuck-unders then dividend see drive continue repurchases. you acquisitions work to put would to to to prudently to business the so think us and very expect in the share capital I capacity and the

strategies, And So really platform this larger same techniques available us, the the side. the respects, just can many levers on as onto in no have earlier, those a change the apply to SBS of we over we’ll that of Mike real said continuation is all there.

Ghansham Panjabi

Okay, perfect. Thanks so much.

Mike Doss

Okay, got it.

Operator

the Go please. from line Adam of Your ahead next KeyBanc. question Josephson comes from

Your is open. line

Adam Josephson

I can say good morning.

Mike Doss

Adam. Hi

Adam Josephson

Just to be – on just NOLs, you the clear a to hold on few you one, what so – they will will have.

through or anything be that then left the that or right? thereafter. to not And have year. run all of them will next right little end You’ll there is if Is most of by

Steve Scherger

Yes, now – think taxpayer at material be Adam, that the we looking this I is a cash assumption holistically our appropriate won’t XXXX. until

cash to we would with So that get in we now over we’ll structure begin roughly place. believe, traditional would in XXXX. to And then a ‘XX, be a through convert taxpayer

Adam Josephson

We one cash a will year of being more now. minimal feel taxpayer

Steve Scherger

‘XX and ‘XX.

Adam Josephson

talk you’d I cost Right, right. plus. just Can all million earlier, your about And maybe help Obviously, price at about but year? guidance missed for there? you us previously it talked you next $XX can

Mike Doss

secondary today, is October and Adam, fiber I prepared his Steve now as right pricing, remarks, OCC pricing talked intact. mean it’s and $XX in million mean that October about Mike. I

fiber view in clear half mills, you which that production how at We And And will. they an are time. closure, happens the our so the one going don’t going able of fiber. terms a don’t do does, the OCC Clara its on we as secondary happening up of up or or West I licenses a be. be whether the the evaluated in to end you between what we be took these percentage costs. down? the the of that as and potentially is to just paper going And challenge actually out input volatility reasons over volatility lot year, there because a think there. mill with they of of the we we medium of contaminants, well as of there’s to on of know, end I now think to see highest a fair Are over the what be those is believe expect to If and much as to system ends relative in not cost continue term, now Coast, with licenses what that mill has over going of to in that of if to know, is us, less to be volatile import That’s between mixed the are volatile Santa paper are going able China the bigger imported mixed anybody most our be have upward period terms is location you of year. and for will bias much CUK why now go amount to

taking there. some we’re So actions

percentages us These but some us alternative taking to also CRB are savings mills drive and allow road. and actions they’re down Midwest like own our ongoing types continue mixed We incremental paper flexibility in of give to that our the projects, to SUS. secondary use aren’t in huge fiber greater projects

kind So a two-part equation. it’s of

the same that for of through We critical time, got get to mitigate with us volatility up the what purchase. and that And have see commodity actions we to ends at secondary fiber. we try happening to are internally taking

Adam Josephson

of just a couple others. Right. Thanks. And

gotten much It on ‘XX. so. that in and IP over are ago weaker on Obviously, the It’s pressures bet or making ‘XX dollar, the on better X significant SBS year-to-date, cut obviously was been years last amount It’s partly the Just a market. SBS you the itself weak markets, service that volatile pretty years big couple on production a on partly given food of being better. market. a fairly

gives the for So why? confidence the long-term in what market you and outlook SBS

Mike Doss

to perimeter to do allows the store. that ongoing data like it. This food really service. the All have the We right us Look, substrates like supports to consumer be trend able of of we preferences.

operation short a very replicate of It’s to difficult something We scaled very time. have machines period and sizable, spread a XXX it’s America. with got in that the over manufacturing cup across like North

to that talked I So we integration different the to years. race and levels our we think can as XX%-plus a next about, X run driving over scale X that up

that’s So we’re really what focus going to on, Adam. really

Adam Josephson

a And so supplier? just of in customer one, one-stop one why be to being exposed a one last to want terms shop, would

Mike Doss

out suppliers there a mean I there. number of are Well,

And provide earn go with verticals we’re we we business assets, expand that additional to to that not. quite allow believe got assets new to that into the offerings relationships to we that our have tend we cost them, frankly, think us I low now have. and continue

way that we a We’ve with share lot operated is and every have what for in number been each with our because know it’s year of a kind high while. for that market Graphic. value they’ve customers. them got outside we of of an choices a And of So environment create to that

Adam Josephson

so I it. Thanks appreciate much.

Operator

of the Debbie ahead from next from please. Go line Jones question comes Your Deutsche Bank.

Your line is open.

Debbie Jones

based. OCC about I could comment referring assuming are there? you you you hoping where to And mitigating was just when is? about you What the am target with talk shifting more cost think that you can to talk you contracts morning. Can I about good you volatility. made Hi, are strategy? get your

Mike Doss

Santa not OCC, know, not would talk you which mitigating a have as our paper our allow I’m Yes, and volatility, am OCC, certainly about all to When buy XX,XXX fiber Clara, Midwest our about clippings cost to own as the input I I XX tons tends ability talking volatile to – half which projects talked us CUK stable system, use two talking the and our I volume not the more scenario, things, more about into transfer quite when Debbie. well mills about as grades. secondary about you be that those OCC market. in to – of would much in which mixed most about as of much some What influencing as or from much SUS is that’s

So to part that’s question. the your first

yes, we work our towards model. part, more pricing cost-based a on The second to migrating continue

produce still are that the range We business paperboard on roughly we that XX% for. in

remains a something of we’re and focus couple in with negotiations customers. intact active our that So

come those know, up to X every years. Now contracts as X you

more not quarter, us that like on. you’d we’ve impact to one annual the that. an needle those see every of of it’s move going This be So got tends on

Debbie Jones

Okay, thanks.

transaction? quick coming deal, with IP from will assuming business team be One at two on the the Just consumer the am I leadership questions. the that

Mike Doss

That’s correct.

Debbie Jones

we that bit mentioned, this a European or strategy. should a delay of you term kind your pause integration? then Is that And just this near a focus of really expect Okay. in longer doesn’t there’s on term,

Mike Doss

this job good a do to got on have we Look, integration.

synergies we relative in would nail – us actual doing helps to it’s of are I actually $XX it deal, the to what Europe. have argue these actually plus. We complementary million to But

have us mentioned SBS gives to into options plants low-cost support there. I we it some of those the earlier, paperboard our As markets our to that export – converting existing

of I of towards acquisitions Europe. can years, that So $X it look you we as continuing expect to well X billion of converting will assets think building that in at X next to combination objective tuck-in be a as move our the over on SBS as volume

Steve Scherger

Debbie, Steve. it’s And

things of the think structure that. sheet is gives that other one balance I the the flexibility us to

both that’s really, execute by so improve the of and on drive in those can phase in levels that as here Europe. balance strong And economics, next Mike America integration out position, mentioned North earlier, in can investments a and having we the be sheet

Debbie Jones

the Thanks. Turn color. I appreciate it over. Great.

Operator

question Viswanathan of Arun from Go Markets. comes Capital next the from ahead line RBC please. Your

open. Your line is

Arun Viswanathan

you. Thank Great. morning. Good

Mike Doss

Hi, Arun.

Arun Viswanathan

versus the And other you transaction, just I Is you on some portfolio out overall? on do you’ve of you opportunity Maybe definitely a us give there? a can some a mean, color the your you transformation this evaluation stand still where of bit had on for Congratulations opportunities acquisitions. Thanks. that of little deal focus? guys. completed international kind

Mike Doss

we at when build is low-cost, for this assets multiple net synergies the standpoint, our runway powerful from time, mean, with and and to I at and here transaction that Graphic. Mike. it’s do getting over drive Arun, think, I transformative pretty can scaled, to down And out Yes. we X.Xx a well-capitalized the X.Xx look

So it. real we’re And came making do studying view, opportunity from it, run to of opportunity the when the up, that allocation time thrilled this frankly, we race. spent a point end-use markets, able that we an be sure some different we could with like quite to

levered, our and pro pursue this would sheet, mentioned grow the forma us we a of So combined your question. at continue to flexibility part Steve balance all our as of I as company. ambitions basis to that’s still X.Xx gives And kinds on first how answer other objectives

Arun Viswanathan

also real as then just I ask Okay, helpful. to but might And hate I well. the question, that’s quickly,

on So X and you corollary, early or us continue give to over and your out OCC next months potentially your and if your to expectations how CUK year down, Thanks. or you pricing? thoughts next the maybe plays then could and driving rise are it view then CRB go Do on the just what – what’s expect so. as

Mike Doss

Right.

than are guess question. import big bulls have up articles. And the that because that China And talk answer any opens you I that, insight clearer read do. so OCC about Arun, way off, is mean, into taking I’d I is don’t same the there. licenses I I and The the the

to the be know. be less here pressure the smaller about creates going of fiber a to talk is contaminant Some lot and on the and in more downward there ratios fiber don’t bears that are U.S., going here. I puts imported just

why the that that’s answer works. so we spread At current question million way And the that we prices, did. $XX

demand Right given to licenses. China, their containerboard isn’t The about America, it things and see some going North having the build-out to is and a are again We both have that couple going into the doing clearer next you in to an the be the over supply import in government, are relative of And talk that talked systems on do past. reasons that, as still Chinese of by the for view totally how like. of time will the the all we upward said But what be looks to bias monitoring over to secondary in term, said, fiber we February, we now demand the related moves. all balance medium we recycled months. I early Europe there all

that’s we just really So saying, know a for long to sure. I answer guess don’t

Steve Scherger

And Arun, this Steve. is

commitment of I inflation offsetting – cost our over points earlier one Mike’s intact. think input time, too, the price Mike’s remains to absolute

as with And with overall our we the we have. Santa obviously what what will doing that pricing we so cost that customer taking upward demand over that’s actions us believe And mill are to and we you this with is supply so. time, match and structure help manage out Clara do see over our relationships like the offset to bias, an obviously plays actions time necessary

Mike Doss

going to be mills just Arun, earlier, are on our high, as operating mean – I And the build that I high at in very point, mentioned our in to XXs. rates

Arun Viswanathan

of out next actually achieve independent now, with that Essentially, more closures industry of Great, year. yes. the these question. possible that’s was OCCs? the Is my industry can little bit pricing it That XX% a

Mike Doss

to success appropriate Look, over things pricing. is forward But I wouldn’t am not business on control long-term. I be me all the can say do. to That speculate that would on going to actions that position taking our for for we’re internally the we

Arun Viswanathan

Okay, Got Mike. it. Thanks right.

Operator

Your D.A. ahead. of from Davidson. line comes Chercover from question Steve next Go the

line Your open. is

Steve Chercover

Thank then but you and hope want a interest? it. to understand isn’t how of just this report continue good question, GPK XXX% Will and silly morning. XX.X% be partnership, I the to there’ll I minority a report you

Steve Scherger

Steve. Steve, it’s Yes, That’s correct.

minority be there’ll the You’ll enterprise then at see a all and the call report us interest with billion And the XX.X% that out of level. EBITDA the that. totality $X along comes GPK and

to enterprise equity out. no minority So change method, minority, full XX.X% with the non-controlling equity-based, – the will it call interest be

Steve Chercover

what and That’s then... just I wanted make thought. sure to I

Steve Scherger

I am glad you asked.

Steve Chercover

converting, divestitures, any that My will would bonus whether acquisitions occur or I partnership be mill at or additional it’s question assume level. even the

Steve Scherger

occur will It partnership correct. level. That’s at the

be We’re a acquisition putting Future correct. business and the the of That’s part into the that IP’s combination of partnership. would our businesses take activities place partnership. of all

Steve Chercover

and Great. congratulations. Thanks

Mike Doss

Right, thank you.

Operator

the Your ahead next James question line of please. from Investments. comes from Go Armstrong Armstrong

is open. Your line

James Armstrong

transaction. the on congrats and morning Good

is for First a along be deal pension start the wondering basically people the question IP? any pension, coming fresh or this is how Just come for the of is the with IP on along works modeling? with going that to that

Mike Doss

or the liabilities over any assets be transaction. won’t There pension coming with

we’ll over IP So of in then, will the up team assets, nothing folks for those that’s is we’ll relative be up necessary form standing on to coming point. with the IP long-term and that of those basis a but appropriate coming obviously benefits. to those those employees. have provided up what there’s for existing But plans defined-benefit, And defined-contribution of course, all stand by long-term go-forward appropriate

James Armstrong

cleanup up. you you XX% talked growing on Okay. Slide segment And question, Could then about a help XX% food other a where from in us X of what’s segment? just shows to XX%, other that describe service

Mike Doss

that and Yes, things is pharmaceutical market other can I other And kind for catch-all James. big the like presence right some tobacco There market, drive open an to buckets think are more time, like a It’s to traditional right on are us outlined you our as is imagine, what now. would you’d that, and pie now. that Mike. other into be there Over expect more there open do chart. verticals there that of

James Armstrong

helps. Thank you. That Perfect.

Mike Doss

You bet.

Operator

Your ahead next the from line Gail comes of ROE Glazerman question Go Research. from please. Equity

Your line is open.

Gail Glazerman

Hi, good morning.

Going the and But I only the seen a the less cost at of customers come any contracts one back those pass-through? realized negotiation to the year willing of tenor has we’ve to exceptional time. for a portion are agree pass-throughs, to that this the volatility up negotiations anymore changed

Mike Doss

haven’t we months. lot X had up Gail, mean, last Not it’s I just a in the contracts Mike. of really. come

will year come got have focused be up next we on and we will that. So some that

customers. some those discussions started already have with We those of

the I mentioned is sometimes our that for years to move. be It to So like or a X duration. know, contracts our as more I that X function earlier to takes tenders really a it it seems fact in of tend while

So it’s a thing. queuing

Gail Glazerman

XX% of Okay. Paperworks the Clara over of out. months got the obviously closure just CRB And between in and then terms Santa X ago, coming about you’ve market CRB,

into going. the is? pushing You’re it’s And think just of CUK. you of demand in well of obviously it I Because excess where rest I’m where some that wondering imagine is

Mike Doss

and from paperboard’s done answer production AF&PA the is at XX,XXX market, recycled on producers take have of our we data make I’d That’s guess point I’d to and and had I sure reduction reduction going to it’s million our cost tons out. drive look because year-on-year. What the back down very absorb cost so pretty the factually high. case, did that operating ton capacity essentially about at that standpoint that net are our some capacity In that coated X.X be a small. or is lower kind it, question a Well, way that we’ve ability rates mills

but I So others case, in are what that, doing, to in speak can’t what we our certainly that’s – did. case our

Gail Glazerman

of then as – growth. you’re on Is seeing just as start Okay. demand bit quickly looking start guess to to broad anything material you change, any outlook, I that’s looking going And teeny perspective there you ‘XX? out a just occur encouragement

Mike Doss

call what mean, of modest and I business I early guess X% it now core of a the being on are year. up better we down going to and down, not was couple around growth. only of say thing that, we’ve Gail, which got X%, is but I’ll than quarters jump I’d it’s X.X% certainly last

we that with of So salt. take grain a

that. looking We’re at

that for all a service We We volumes. And flat after food the data continue more our because being I’m than that’s you our markets. to in material faster plan lot build core way, to look, really know, on model. supports excited able go food business about that as growing

for relevant around only more trends. R&D evolving the I and have to know to important They are in Packaging. the But Our a got on of the core the not food are and store, a store, for markets of that perimeter are much capitalized. we very lot are they focused Graphic always very center more consumer which be of optionality well going now are but products basically ability for those to will It’s the volume, be these trying us. big have drive budgets important customers creates they lot

Gail Glazerman

Thank Okay. you.

Mike Doss

Gail. Thanks,

Operator

line with ahead the please. from Capital comes Wilde question next Markets. BMO your And Mark Go of

line open. is Your

Mark Wilde

couple I’ve got of follow-ons. a

real do all, the First of Clara, estate is the Steve? you on what mill, underneath think Santa worth

Steve Scherger

thanks, – It’s valuable Mark. a piece it’s of property. Yes,

paperboard that We’re got today. right Obviously, on mill now. assessing a it’s it

at once will down actually work the that offset cost that valued takes it will get got It to than certainly through be – that So of to logistics will our to that be closure. the take level a we’ll there. more what we’ve we incur onetime

any certainly generation, it be be wouldn’t positive. significant measured closure net will positive. dollars. we it millions – but that cash certainly it probably So will modestly in will expect But I don’t to positive cash, assume be of led slightly – cash, low be

Mark Wilde

alright. Okay,

cups have They kind of supply that business getting from international have The with that to food large on IP. about a question of you’re ability I’m a kind curious is, them paper customers. I basis. second on just couple service very of And global the more

Mike Doss

hard. we’ll about of customers think Europe the and something Mark, it’s about relationships are customer I of certainly that kind look existing at we as you’re mean talking already ours.

multiple So on options partners even up then global a more to large it to growth, capabilities And those Graphic with markets. well try customers scale. someone these combined really that has like continue basis, more drive to and we’ll have operate in geographic as

Mark Wilde

and are product Are or Europe of those kind of two using of parts world? Paper big outside different North the IP they using America Cup an a customers other in

Steve Scherger

details don’t specification-by-specification a No, basis. have Mark. all on I the

today. appreciate, we’re still separately competing can you as of As

color on and you February get a this go So we more into we’ll deal closed. have give as that lot

Mark Wilde

Okay, sounds and good, Thanks good Mike. luck. a lot

Mike Doss

Mark, very much. thank you

Operator

that, with closing like the I’d And turn to call for to over some Mike remarks. back

Mike Doss

like for to transformative And thank look QX you very to and all forward to everybody very you talk of talking deal. joining our us today Thank about we soon. I’d again to much.

Operator

conference. today’s concludes This

disconnect. now may You

Graphic Packaging Holding (GPK) 25 Oct 172017 Q3 Earnings call transcript