PaperAge Magazine

Graphic Packaging Holding Company Reports Fourth Quarter and Full Year 2017 Results

Michael Doss "Fourth quarter Adjusted EBITDA met our expectations at $192 million compared to $175 million in the prior year period. Net tons sold were up 1.9%, driven by acquisitions and the continuation of modestly positive core volume. – Michael Doss, President and CEO, Graphic Packaging Holding Company.

Feb. 6, 2018 - Graphic Packaging Holding Company (NYSE: GPK), (the "Company"), a leading provider of packaging solutions to food, beverage and consumer product companies, today reported Net Income for fourth quarter 2017 of $173.9 million, or $0.56 per share, based upon 311.2 million weighted average diluted shares. This compares to fourth quarter 2016 Net Income of $34.9 million, or $0.11 per share, based on 317.9 million weighted average diluted shares.

Fourth quarter 2017 Net Income was negatively impacted by $14.9 million (net of a $7.6 million tax benefit) of business combinations and other special charges and accelerated depreciation related to the shutdown of the Santa Clara, California mill, and positively impacted by a $136.0 million benefit related to the Tax Cuts and Jobs Act of 2017. When adjusting for these charges, Adjusted Net Income for the fourth quarter of 2017 was $52.8 million, or $0.17 per diluted share. This compares to fourth quarter 2016 Adjusted Net Income of $44.7 million or $0.14 per diluted share.

For the full year 2017, Net Income was $300.2 million, or $0.96 per share, based upon 311.9 million weighted average diluted shares. This compares to 2016 Net Income of $228.0 million, or $0.71 per share, based on 321.5 million weighted average diluted shares.

Full year 2017 Net Income was negatively impacted by $32.5 million (net of a $16.0 million tax benefit) of business combinations and other special charges and accelerated depreciation related to the shutdown of the Santa Clara, California mill, and positively impacted by the $136.0 million tax benefit recorded in the fourth quarter 2017. When adjusting for these charges, Adjusted Net Income for the full year 2017 was $196.7 million, or $0.63 per diluted share. This compares to full year 2016 Adjusted Net Income of $233.4 million or $0.73 per diluted share.

"Fourth quarter Adjusted EBITDA met our expectations at $192 million compared to $175 million in the prior year period. Net tons sold were up 1.9%, driven by acquisitions and the continuation of modestly positive core volume. The business operated well in the quarter reflecting a continued emphasis on production efficiencies and cost reductions generating $24 million in performance improvements," said President and CEO Michael Doss. "While recycled fiber input costs moderated significantly during the quarter, we incurred escalating logistics and chemicals input costs. We remain focused on offsetting our commodity input cost inflation with pricing initiatives, consistent with our long term track record."

"We completed the Norgraft acquisition on October 4, 2017 and the Seydaco acquisition on December 1, 2017. We also closed our Santa Clara, California coated recycled paperboard mill as planned on December 1, 2017. This action was enabled by strategic capital investments at our Midwest coated recycled paperboard mills, as well as our Louisiana and Georgia coated unbleached kraft paperboard mills. We have successfully integrated these mills into our West Coast supply chain. We announced the transformative combination with International Paper's North America Consumer Packaging business on October 24, 2017 and closed the transaction on January 1, 2018, reflecting the significant effort of all those involved. Looking ahead, we are well positioned to leverage the investments we made in 2017 and our enhanced mill and converting footprint to deliver significant value to all our stakeholders."

Operating Results

Net Sales

Net Sales increased 5.0% to $1,109.9 million in the fourth quarter of 2017, compared to $1,057.2 million in the prior year period. The $52.7 million increase was driven by $36.7 million of improved volume/mix related to acquisitions and modestly positive core volume, $15.5 million of favorable foreign exchange, and $0.5 million of higher pricing.

Net Sales increased 2.5% to $4,403.7 million for the full year 2017, compared to $4,298.1 million in the prior year. The $105.6 million increase was driven by $135.6 million of improved volume/mix related to acquisitions and modestly positive core volume. The net sales increase was partially offset by $27.1 million of lower pricing and $2.9 million of unfavorable foreign exchange rates.

EBITDA

EBITDA for the fourth quarter of 2017 was $179.1 million, or $17.9 million higher than the fourth quarter of 2016. After adjusting both periods for business combinations and other special charges, Adjusted EBITDA increased 9.9% to $192.4 million in the fourth quarter of 2017 from $175.1 million in the fourth quarter of 2016. When comparing against the prior year quarter, Adjusted EBITDA in the fourth quarter of 2017 was positively impacted by $23.9 million of improved net operating performance, $7.2 million of favorable volume/mix, $2.7 million of favorable exchange rates, and $0.5 million of higher pricing. These benefits were partially offset by $11.1 million of commodity input cost inflation, and $5.9 million of other inflation (primarily labor and benefits).

EBITDA for the full year 2017 was $680.0 million, or $43.4 million lower than the full year 2016. After adjusting both periods for business combinations and other special charges, Adjusted EBITDA decreased 6.8% to $712.2 million in the full year 2017 from $763.8 million in the full year 2016. When comparing against the prior year, Adjusted EBITDA in 2017 was positively impacted by $57.0 million of improved net operating performance and $16.6 million of favorable volume/mix. These benefits were more than offset by $70.9 million of commodity input cost inflation, $27.1 million of lower pricing, $24.9 million of other inflation (primarily labor and benefits), and $2.3 million of unfavorable foreign exchange rates.

Other Results

Total Debt (Long-Term, Short-Term and Current Portion) decreased $1.1 million during the fourth quarter of 2017 to $2,287.0 million compared to the third quarter 2017. Total Net Debt (Total Debt, net of Cash and Cash Equivalents) decreased $51.3 million during the fourth quarter of 2017 to $2,219.6 million compared to the third quarter 2017. The Company's year-end 2017 Net Leverage Ratio was 3.12 times Adjusted EBITDA compared to 2.76 times at the end of 2016.

At December 31, 2017, the Company had available global liquidity of $1,165.9 million, including the undrawn availability under its global revolving credit facilities.

Net Interest Expense was $23.3 million in the fourth quarter of 2017, up compared to the $21.5 million reported in the fourth quarter of 2016, primarily reflecting slightly higher average borrowing rates. Full year 2017 Net Interest Expense was $89.7 million compared to the $76.6 million reported in 2016, primarily reflecting slightly higher average borrowing rates.

Capital expenditures for the fourth quarter of 2017 were $62.3 million compared to $36.2 million in the fourth quarter of 2016. For full year 2017, capital expenditures were $260.1 million compared to $294.6 million in 2016.

Fourth quarter 2017 Income Tax Benefit was $112.6 million, and included a $136.0 million tax benefit related to recently enacted tax legislation, compared to a $21.9 million expense in the fourth quarter of 2016. Full year 2017 Income Tax Benefit was $45.5 million including the $136.0 million tax benefit recorded in the fourth quarter 2017, compared to a $93.2 million expense in 2016.

Graphic Packaging Holding Company, 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 and coated-recycled board. To learn more about Graphic Packaging, please visit: www.graphicpkg.com.

SOURCE: Graphic Packaging Holding Company