PaperAge Magazine

Graphic Packaging Holding Company Reports Second Quarter 2018 Results

Michael Doss - Graphic Packaging "We reported solid results in the second quarter reflecting strong performance improvements, steady volume, and continued favorable momentum from the solid bleached sulfate (SBS) mill and foodservice converting assets." – Michael Doss, President and CEO, Graphic Packaging Holding Company.

July 24, 2018 - Graphic Packaging Holding Company (NYSE: GPK), (the "Company"), a leading provider of packaging solutions to food, beverage, foodservice, and other consumer products companies, today reported Net Income for second quarter 2018 of $49.4 million, or $0.16 per share, based upon 311.3 million weighted average diluted shares. This compares to second quarter 2017 Net Income of $42.0 million, or $0.14 per share, based on 311.1 million weighted average diluted shares.

Second quarter 2018 Net Income was negatively impacted by a net $5.1 million of special charges that are detailed in the attached Reconciliation of Non-GAAP Financial Measures table. When adjusting for these charges, Adjusted Net Income for the second quarter of 2018 was $54.5 million, or $0.18 per diluted share. This compares to second quarter 2017 Adjusted Net Income of $46.4 million or $0.15 per diluted share.

Highlights

  • Q2 Net Sales were $1,509.3 million versus $1,094.7 million in the prior year period.
  • Q2 Earnings per Diluted Share were $0.16 versus $0.14 in the prior year period.
  • Q2 Adjusted Earnings per Diluted Share were $0.18 versus $0.15 in the prior year period.
  • Q2 Net Income was $49.4 million versus $42.0 million in the prior year period.
  • Q2 Adjusted EBITDA was $235.8 million versus $170.6 million in the prior year period.
  • Integration of the SBS mill and foodservice converting assets remains on track; executing on targeted $75 million of synergies that are expected to be achieved by the end of year three.
  • Completed acquisition of PFP, LLC on June 12, 2018; expanding position in the growing paperboard-based air filter frame market.

"We reported solid results in the second quarter reflecting strong performance improvements, steady volume, and continued favorable momentum from the solid bleached sulfate (SBS) mill and foodservice converting assets. Second quarter Adjusted EBITDA of $236 million included a negative $6 million impact from unplanned outages at our Augusta, Georgia, SBS mill, which occurred in late June and were associated with power interruption to the facility. The second quarter results met our expectations for the quarter before the impact of the unplanned outages," said President and CEO Michael Doss.

"The business operated well in the quarter generating $19 million in performance improvements. The integration of the SBS mill and foodservice converting assets remains on track, and we are executing on the targeted year one synergies, specifically SG&A reductions and paperboard integration. Pricing improved by $8 million during the quarter reflecting the benefits of recent pricing initiatives. Importantly, we successfully implemented a second open market price increase this year for our coated recycled paperboard (CRB) grade during the quarter, and announced a second open market price increase in 2018 on our coated unbleached kraft paperboard (CUK) grade in July. We expect the successful open market paperboard price increases we achieved across our CRB, CUK, and SBS paperboard grades in the first quarter coupled with the continued positive pricing developments in the second quarter, will drive a positive pricing to commodity input cost relationship starting in the second half of 2018. We remain focused on offsetting our commodity input cost inflation with pricing initiatives over time, consistent with our long term track record."

OPERATING RESULTS

Net Sales

Net Sales increased 38% to $1,509.3 million in the second quarter of 2018, compared to $1,094.7 million in the prior year period. The $414.6 million increase was driven by $360.1 million of revenue from the SBS mill and foodservice converting assets, $37.0 million of improved volume/mix related primarily to acquisitions, $9.5 million of favorable foreign exchange, and $8.0 million of higher pricing.

Below is supplemental data highlighting Net Tons Sold for the first and second quarter of 2018 and for each quarter of 2017.

EBITDA

EBITDA for the second quarter of 2018 was $227.2 million, or $62.7 million higher than the second quarter of 2017. After adjusting both periods for business combinations and other special charges, Adjusted EBITDA increased 38% to $235.8 million in the second quarter of 2018 from $170.6 million in the second quarter of 2017. When comparing against the prior year quarter, Adjusted EBITDA in the second quarter of 2018 was positively impacted by $54.5 million of Adjusted EBITDA from the SBS mill and foodservice converting assets, $19.4 million of improved net operating performance, and $8.0 million of higher pricing. These benefits were partially offset by $11.6 million of commodity input cost inflation (primarily freight) and $5.7 million of other inflation (primarily labor and benefits).

Other Results

Net Cash Used in Operating Activities was a negative $300.2 million during the first half of 2018, compared to negative $103.9 million during the first half of 2017. Adjusting for the new GAAP guidelines related to the classification of certain cash receipts and payments associated with our receivables securitization and sale programs and the cash payments associated with special charges, Adjusted Net Cash Provided by Operating Activities was a positive $206.5 million during the first half of 2018, compared to a positive $177.3 million during the first half of 2017.

Total Debt (Long-Term, Short-Term and Current Portion) decreased $124.0 million during the second quarter of 2018 to $2,987.8 million compared to the first quarter 2018. Total Net Debt (Total Debt, net of Cash and Cash Equivalents) decreased $122.4 million during the second quarter of 2018 to $2,936.9 million compared to the first quarter 2018. The Company's second quarter pro forma 2018 Net Leverage Ratio was 3.0 times Adjusted EBITDA compared to 3.3 times at the end of first quarter 2018.

At June 30, 2018, the Company had available global liquidity of $1,164 million, including the undrawn availability under its global revolving credit facilities.

Net Interest Expense was $30.3 million in the second quarter of 2018, up compared to the $22.5 million reported in the second quarter of 2017, primarily reflecting the $660 million of debt assumed from the combination with the SBS mill and foodservice converting assets and higher average borrowing rates.

Capital expenditures for the second quarter of 2018 were $81.3 million compared to $68.4 million in the second quarter of 2017.

Second quarter 2018 Income Tax Expense was $18.5 million, compared to a $23.6 million expense in the second quarter of 2017.

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