Graphic Packaging Second Quarter Profit Off Slightly on Lower Pricing

July 25, 2013 - Graphic Packaging Holding Company (GPK), (the "Company"), a leading provider of packaging solutions to food, beverage and other consumer products companies, today reported Net Income for second quarter 2013 of $21.2 million, or $0.06 per share, based upon 351.5 million weighted average diluted shares. This compares to second quarter 2012 Net Income of $42.4 million, or $0.11 per share, based on 397.8 million weighted average diluted shares.

Adjusted Net Income for the second quarter of 2013 was $44.1 million, or $0.13 per diluted share, when adjusted for a $16.0 million Loss on Modification or Extinguishment of Debt (Net of Tax) and $6.9 million in Restructuring and Other Special Charges (Net of Tax). This compares to second quarter 2012 Adjusted Net Income of $45.6 million or $0.11 per diluted share.

"Our second quarter results were in line with our expectations in a tough operating environment," said CEO David Scheible. "Strong operating performance offset lower pricing and sluggish demand, particularly in our beverage folding carton business. Volumes in both beer and soft drink were undoubtedly impacted by cooler and wetter than normal weather during the Memorial Day weekend through the end of June. At the same time, year over year pricing was down about $16 million, mostly due to contractual resets related to 2012 commodity input deflation. We were able to offset these headwinds by delivering $29 million of benefit from improved operating performance and cost reductions, which keeps us on track to achieve our full year savings target of $100-$120 million."

Net Sales
Net Sales increased 2.5% to $1,139.7 million during second quarter 2013, compared to second quarter 2012 Net Sales of $1,111.9 million. The $27.8 million increase resulted from $48.9 million of favorable volume/mix, partially offset by $15.7 million of lower pricing and $5.4 million of unfavorable exchange rates. The favorable volume/mix was primarily driven by the fourth quarter 2012 acquisitions of Contego Packaging Holdings Limited and A&R Carton Holding B.V.

On a segment basis, Paperboard Packaging sales, which comprised 85.3% of total second quarter Net Sales, increased 4.7% compared to the second quarter of 2012. The increase primarily reflected the addition of the two acquisitions. Net sales in the Flexible Packaging segment decreased 8.9% compared to the second quarter of 2012. The decline was primarily the result of the planned shift from external sales to internal consumption of kraft paper produced at our Pine Bluff, AR mill. Attached is supplemental data showing Net Tons Sold, Net Sales and Income (Loss) from Operations by business segment for the first and second quarters of 2013 and each quarter of 2012.

EBITDA

EBITDA for second quarter 2013 decreased 18.4% to $139.7 million from $171.2 million in the second quarter last year. Excluding $25.9 million of Loss on Modification or Extinguishment of Debt and $9.5 million of Restructuring and Other Special Charges, Adjusted EBITDA decreased 0.7% to $175.1 million in second quarter 2013 from $176.4 million in second quarter 2012. When comparing against the prior year quarter, Adjusted EBITDA in the second quarter of 2013 was positively impacted by $28.9 million of improved net operating performance and $2.6 million of favorable volume/mix. These benefits were offset by $15.7 million of lower pricing, $10.5 million of commodity inflation and $6.7 million in other costs, primarily for labor and benefits.

Other Results
Taking cash and cash equivalents into account, total Net Debt at the end of second quarter 2013 was $2,290.1 million. This represents a decrease of $43.6 million in Net Debt from the end of first quarter 2013. Including cash and cash equivalents, at June 30, 2013, the Company had available liquidity of $657.2 million, including the undrawn availability under its $1.0 billion revolving credit facility.

Net Interest Expense was $29.7 million in the second quarter of 2013, compared to $27.4 million in the second quarter of 2012. The increase was attributable to the Company's decision to take advantage of favorable market conditions to issue new 4.75% Senior Notes on April 2, 2013, approximately 2.5 months prior to using the proceeds to redeem its higher 9.5% notes on June 17, 2013.

Capital expenditures were $51.7 million in the second quarter of 2013, compared to $39.2 million in the second quarter of 2012. The quarter over quarter increase was due to timing as the Company incurred final expenditures related to the startup of the Company's new biomass boiler at its Macon, GA paper mill along with several planned asset upgrades at its U.S. based converting operations. Through the first six months of 2013, capital expenditures were $84.6 million compared to $80.9 million over the same period in 2012.

Income Tax Expense was $11.4 million in the second quarter of 2013 compared to $28.6 million in the second quarter of 2012. The decrease was primarily attributable to lower pre-tax earnings. As of June 30, 2013, the Company had approximately $859 million of NOLs for U.S. federal cash income tax purposes.

On April 2, 2013, the Company completed a debt offering of $425 million aggregate principal amount of 4.75% senior notes due 2021 in a registered public offering. The Company used the net proceeds of this offering, together with cash on hand, to refinance through a redemption, all $425 million of its 9.5% senior notes due 2017, at a redemption premium plus accrued and unpaid interest to June 15, 2013. The refinancing will result in an annualized reduction in Net Interest Expense of approximately $20 million. Earnings Call

Graphic Packaging Holding Company (GPK), headquartered in Atlanta, Georgia, is a leading provider of packaging solutions for a wide variety of products to food, beverage and other consumer products companies. The Company is one of the largest producers of folding cartons and holds a leading market position in coated-unbleached kraft, coated-recycled boxboard and specialty packaging. The Company's customers include some of the most widely recognized companies in the world. Additional information about Graphic Packaging, its business and its products, is available on the Company's web site at www.graphicpkg.com.

SOURCE: Graphic Packaging Holding Company