PaperAge Magazine

Graphic Packaging Holding Company Reports Third Quarter 2018 Results

Michael Doss - Graphic Packaging "We are encouraged by our overall progress in the third quarter. Specifically, the integration of the SBS mill and foodservice assets is on track and the pricing to commodity input cost relationship for the CRB and CUK mill and global converting assets turned $6 million positive during the quarter." – Michael Doss, President and CEO, Graphic Packaging Holding Company.

Oct. 23, 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 third quarter 2018 of $94.3 million, or $0.30 per share, based upon 311.5 million weighted average diluted shares. This compares to third quarter 2017 Net Income of $47.3 million, or $0.15 per share, based on 310.9 million weighted average diluted shares.

Third quarter 2018 Net Income was positively impacted by a net $25.2 million of special charges and credits that are detailed in the attached Reconciliation of Non-GAAP Financial Measures table. When adjusting for these items, Adjusted Net Income for the third quarter of 2018 was $69.1 million, or $0.22 per diluted share. This compares to third quarter 2017 Adjusted Net Income of $54.8 million or $0.18 per diluted share.

"We are encouraged by our overall progress in the third quarter. Specifically, the integration of the SBS mill and foodservice assets is on track and the pricing to commodity input cost relationship for the CRB and CUK mill and global converting assets turned $6 million positive during the quarter. We announced the Letica Foodservice assets acquisition, which closed on September 30th, and will extend our leading position in the growing North America paperboard-based foodservice market. We also invested $30 million to install a curtain coater on our Macon No. 2 CUK paperboard machine, which we expect will add $10 million of annualized EBITDA," said President and CEO Michael Doss.

"Third quarter Adjusted EBITDA of $256 million was up $68 million year over year. The SBS mill and foodservice assets generated $63 million of Adjusted EBITDA. We are driving improved profitability across these new assets by successfully executing on our synergy plans. Our CRB and CUK mill and global converting assets generated $6 million of improvement in the quarter driven by increased pricing and the benefits from tuck-under acquisitions. The improvement was partially offset by commodity input cost inflation, specifically, increased freight, chemicals, wood, purchased external paper, and pulp substitute recycled fiber costs, along with labor and benefits inflation. While our profitability improved during the quarter, we were impacted by continued commodity input cost inflation pressures, with wood fiber, chemicals, and resins accelerating during the quarter, hurricane related costs, and reliability issues at our SBS paperboard mills."

"Pricing improved during the quarter reflecting the benefits of recent pricing initiatives. Importantly, we successfully implemented a second open market price increase this year for our CUK and SBS paperboard during the quarter. We expect the successful open market paperboard price increases we achieved across our CRB, CUK, and SBS paperboard grades over the course of 2018 will drive strong pricing momentum as we turn to 2019. Despite the difficult commodity inflation environment, we are well positioned to generate continued profitability improvement driven by our pricing, new product development, and productivity initiatives."

Operating Results

Net Sales

Net Sales increased 35% to $1,530.0 million in the third quarter of 2018, compared to $1,137.6 million in the prior year period. The $392.4 million increase was driven by $352.7 million of revenue from the SBS mill and foodservice assets, $28.2 million of improved volume/mix related primarily to acquisitions, and $17.6 million of higher pricing. These benefits were partially offset by $6.1 million of unfavorable foreign exchange.


EBITDA

EBITDA for the third quarter of 2018 was $282.7 million, or $98.6 million higher than the third quarter of 2017. After adjusting both periods for business combinations and other special charges and credits, Adjusted EBITDA increased 36% to $256.3 million in the third quarter of 2018 from $188.3 million in the third quarter of 2017. When comparing against the prior year quarter, Adjusted EBITDA in the third quarter of 2018 was positively impacted by $62.5 million of Adjusted EBITDA from the SBS mill and foodservice assets, $17.6 million of higher pricing, and $8.9 million of improved net operating performance. These benefits were partially offset by $11.3 million of commodity input cost inflation (primarily freight) and $6.7 million of other inflation (primarily labor and benefits).

Other Results

Net Cash Used in Operating Activities was $300.0 million during the first three quarters of 2018, compared to $118.3 million during the first three quarters 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 $416.2 million during the first three quarters of 2018, compared to $443.4 million during the first three quarters of 2017.

Total Debt (Long-Term, Short-Term and Current Portion) decreased $43.9 million during the third quarter of 2018 to $2,943.9 million compared to the second quarter 2018. Total Net Debt (Total Debt, net of Cash and Cash Equivalents) decreased $32.7 million during the third quarter of 2018 to $2,904.2 million compared to the second quarter 2018. The Company's third quarter pro forma 2018 Net Leverage Ratio was 2.97 times Adjusted EBITDA compared to 3.01 times at the end of second quarter 2018.

At September 30, 2018, the Company had available global liquidity of $1,191.6 million, including the undrawn availability under its global revolving credit facilities.

Net Interest Expense was $31.0 million in the third quarter of 2018, up compared to the $22.6 million reported in the third quarter of 2017, primarily reflecting the $660 million of debt assumed from the combination with the SBS mill and foodservice assets and higher average borrowing rates.

Capital expenditures for the third quarter of 2018 were $96.6 million compared to $53.3 million in the third quarter of 2017.

Third quarter 2018 Income Tax Expense was $17.8 million, compared to a $25.9 million expense in the third 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