Good afternoon, everybody. My name is Matt Roberts. I'm the Packaging Analyst here at Raymond James, and I'm pleased to welcome Graphic Packaging here to Raymond James Consumer and TMT Conference in New York. While Graphic is no stranger to Raymond James conferences in the past, this is your first attendance at our Consumer and TMT Conference, which I think really does speak volumes to the evolution the business has undergone over the past roughly seven years from really a paperboard producer and, sorry, a paperboard producer and converter into now one of the world's leading sustainable consumer packaging companies. But you're really not here to listen to me tell the story. So with that, I am pleased to have Graphic Packaging CEO Mike Doss with us, as well as the SVP of Investor Strategy and Acquisition, Mark Connelly. So with that, Mike, I will cede the floor to you.
Thank you, Matt. It's good to be here, and thank you for coming to participate in this update today. I've got probably 15-20 minutes and a quick slideshow that I'm going to go on, and then Matt's got some questions that he'll walk us through. Hopefully, you've got a few of your own. We're happy to take those as well. It's been a good day for us. We're glad to be here at the Consumer Conference. Maybe just a little bit of background. You can see a little bit about our company up there on the chart. There's some numbers there. We're around a $9 billion revenue business. We operate really on a global level. You can see our biggest markets are in North America as well as Europe.
You can see that really 77% of our sales are North American domiciled, and then the balance of that is global, with the vast majority of that global being in Europe. We've got a beverage business that is focused on a few markets like China, Japan, Australia, New Zealand, and Brazil, where we follow our customers. We've got around 23,500 employees, and we're a very innovative company. We've got a lot of patents that really tie into the packagings that we make, and I'll comment on that here in a few minutes. Maybe if I could take a step back and just give you the thumbnail on Graphic Packaging, though, I think it's helpful to do that.
An elevator speech for our company would kind of be like this: So there's not anybody in this room that in the last 24- 36 hours hasn't used something that we make or manufacture for our customers. So whether that's the cup you start your day off with that has the coffee in it, maybe the box that your cereal came in, maybe a carton that contained a snack between breakfast and lunch, a frozen entrée for your lunch in the afternoon, maybe a carbonated soft drink after hours of beer. And if we didn't get you on any of those verticals, we got you brushing your teeth or feeding your pets. And so we really impact a lot of people's lives in the products that we make for our big customers, many of whom are represented at this conference today.
But it wasn't really always that way, and this slide really shows that really well. You can see 2017, we were just a little over $4 billion in sales, and we were really focused in a few principal markets. And I'm going to show you that on a profile we have on a store here in a minute versus where we were in 2023. We've really built out the segments where we participate in, the categories where we are, as well as the retail channels that we participate in. And you'll see that in these slides that I'll flip through here relatively quickly. So 2017, that's where we were. We were really good in that sector, but what happened is if that sector wasn't popular, people were going through the drive-throughs or on the food service side of the business, our business suffered as a result of that.
We didn't have a food service business. Wind the clocks forward to 2023 into 2024 here. That's where we are. We're really all around the perimeter of the store. We're still in the center of the store. We have a club store business that does really well. We've got a food service business that's scaled. We're the largest manufacturer of paper cups in North America. So we participate in all those different verticals, and as you can see, the retail channels have expanded as well. And that really allows us to, as we talk about moving with the consumer. And I'm going to show you really a few slides here that will kind of make that point. So as you kind of look at that, you see the various different categories that we're in.
Food and beverage are still real important to us, but look at a scaled business in food service that's now 22% of our revenues and a growing business on the household and health and beauty side. That's really important for us. We acquired a lot of the intellectual property, both human and physical assets, with an acquisition we did in Europe that I'll comment on in a minute here that really gave us scale in Europe in those categories, and we believe we can continue to grow those here in North America as well. If you look at this slide, and you know this from the customers that you follow and participate in, this really allows us to move with the consumer, and that's our mantra. So if the economy's doing well and people are going to the drive-throughs and getting their food, that way we win. If, and participate.
If the economy's maybe taking a downturn and people are making more of their products at home, again, we've got a very scaled business in the center of the store. If they're provisioning for their families around the perimeter of the store, we do fine with that as well. In club stores is something that is a big business for us as well. More and more of our retail customers and partners are having their own brands, and we've got answers and solutions for their packages as well. So we move with the consumer, and that's a big change from where we were in 2017. I used to say if one of our customers got a cold, we got the flu. It was a very concentrated portfolio.
Now we've got a balanced portfolio that allows us to actually have much more stability in terms of our overall revenue base and cash flows. And it really shows up here. This has been pretty well chronicled, the destocking that's occurred in the retail channels around the big CPGs out there. You see volumes going down in 2023 and then starting to recover in 2024. We actually saw our volumes inflect positively in our third quarter this year, not by a lot, but we were up 1% year on year. What is really different about that chart, though, for us is the stability of our Adjusted EBITDA margin. You see it on a tight band there around 19%-20%, which is really, as we've rolled out our Vision 2030, which I'll talk about here in a little bit, is really the target that we've got.
We're earning a good return on our invested capital at that kind of level, and it allows us to really grow with our customers and invest back into the business. So we get a lot of questions around our Vision 2025 and then our Vision 2030. If I could for a minute, just spend a few minutes around the big investments we made with our Vision 2025, they're really listed up here on the board. There were three principal areas we invested heavily into as part of our Vision 2025, which we rolled out to the marketplace in September of 2019, right before the pandemic. So this has been tested and tested hard over that period of time. But the first one was we needed to have more stability around the top-line revenue. I've kind of walked you through the different verticals that we've gone into along those lines.
We also said we need to drive innovation at a faster level and have capabilities that allow us to win in the marketplace with customers. Our market share is quite large, and if we did nothing at all, we get Beta, we'd probably play to a draw on those verticals. But we're able to grow because we actually have a very big portfolio of products that actually are replacing single-use plastics as well as polystyrene applications in the marketplace. And so those innovation capabilities came with some of the acquisitions we've done. We acquired top talent, and in some cases, we've invested behind that talent as well to have the capacity to be able to do that too. The third area that we invested in heavily was on where we could get competitive advantage.
When you look at a couple of the big investments we did over that period of time, they're listed on the board. We invested in Kalamazoo, Michigan, in a brand new paperboard manufacturing facility, and that came operational in early 2022. Now we're in the middle of finishing up a big investment, a $1 billion-plus investment in Waco, Texas, that's building upon that foundation. That machine will come online here at the end of 2025, and we will have a significant cost advantage in the marketplace for that material, which is really desired by the end-use consumer. They want things that are made out of recycled materials, and they want it to be very high quality, both of which those things are. Those three things are really what we did with our Vision 2025.
We also looked at it and said, are there some assets we don't need or where we don't have competitive advantage? And in the case of Graphic Packaging, we actually ended up divesting one of our bleached paperboard manufacturing facilities in Augusta, Georgia. We did that earlier this year. We sold that paperboard manufacturing facility for $700 million because we did not have a competitive advantage there selling those tons to the open market. We want to, people get asked all the time, is integration all you want to drive in terms of your business? And for us, that answer is nuanced. We want to be integrated where we can drive higher returns on invested capital for our shareholders and competitive material for our customers. If it fits those two boxes, then it makes sense for us to do so, but we don't seek it just to do it.
And that's really demonstrated here. And why that's important will come evident when I talk a little bit about Vision 2030 here in a minute. But before I do that, you can see here that in Europe, we made a big acquisition in 2022. It's up there on the board. And so you see the legacy markets we ran on food and beverage, but look at the three new ones that we got. We already had the food service, but the health, healthcare, and beauty, as well as household products, we scaled those products. The lighter green really shows the facilities we acquired. That allowed us to go further east into Europe, lower cost, more market penetration, really big market, and a lot of innovation capabilities that have really helped us to accelerate our innovation around the globe, including North American market. It's true.
The packaging trends all start in Europe, and then 18-24 months later, they usually wind up here in North America. So by having a scaled business there that's well invested, we have the benefit of being out in front of those new trends, and that allows us to participate in those and rapidly prototype them much faster back into the North American market. If you break that down a little bit, you look at what we call our TAM, or our total addressable market. This isn't a theoretical exercise for us. We have to have a product that's either in the marketplace or close to being launched in order for it to wind up here on the board. And you can see that we've identified roughly $15 billion of opportunities. It's in separate categories there: trays and bowls, cups and containers, multi-packs, paperboard canisters, and strength packaging.
We don't chase every bright, shiny object. We really focus on the products where we can have meaningful impact for our customer and make an acceptable margin for our business. And those are the major categories where we go, and that's what gives us a lot of confidence in our ability to drive our innovation at that 100-200 basis points each and every year. As I mentioned, if we did nothing at all, we'd get beta. Call that a draw. This allows us to grow our business because we're innovating and we're coming up with new solutions that help our customers get lift in the marketplace and meet their objectives, sustainability, and other. Here's a few examples of some of the products that started in Europe and are migrating here to the U.S.
We've talked about our KeelClip package before that replaced the plastic rings that used to package cans and plastic bottles out there that no one really liked. We'd all seen the pictures of those things getting in fish and turtles and snarled in those and having to clip and cut those. Well, with the paperboard option we have up there on the top, you no longer need to do that. 100% recyclable, so you got an aluminum can, infinitely recyclable, recyclable paperboard, very good package for the consumer. Ultimately, it's got better merchandising capabilities on it as well. You can print on the top, and our machine that actually does this indexes each one of the cans, as you can see there, and promptly displays the customer's logo in a way that is very visually appealing for the consumer in a crowded marketplace.
So those are the types of things that we do. You can see in the middle, we're replacing a number of different polyester trays for fruits and vegetables. This is gaining a lot of momentum in Europe right now. We're investing heavily to continue to be able to have the capacity to be able to do it. We're talking to customers in North America about that as well. And then one of my favorites over on the far side is this PaperSeal in various different sizes. We profiled this on a couple of our earnings calls recently where on the inside of these packages, there's still a layer of plastic to provide a barrier for proteins and other things like that so you can seal it up tight, but it's easily separated from the rigidity of the paperboard.
The paperboard is easily thrown in the recycling bin, and then the plastic portion of it is discarded. So it's a nice source reduction as opposed to just a 100% plastic tray. Also, coming here to North America now. So we like how we built this company. We like our innovation engine, and that gives us a lot of confidence in our ability to hit this 100- 200 basis points of growth that we have as part of our Vision 2030. At the same time, we're investing heavily to drive our sustainability commitments. I've got a number of them on the board. I won't drain the slide other than to tell you we really focus on our people in a big way. Our safety record as a company is one of the best in the industry. It's been that way for over the last decade.
We do engagement surveys with our employees to make sure that they feel like they're being heard in the marketplace or in the marketplace within the company, and we act upon the types of feedback we see from our employee base there. It's really important to us to actively engage. We need their ideas. We need their commitment to deliver on these things for our customers, and we've got a clear plan to decarbonize the company here that we've laid out for the marketplace. This is all within our 5% of CapEx of sales. You see where we are in 2021 and in the path to 2032. We reduce our greenhouse gas emissions by almost 50%. A couple of big projects in there and many small ones.
And we're also going to be able to increase our renewable energy, particularly in Europe and to a lesser degree here in the U.S., just because we don't buy as much over time. And so we're proud of that. Our people are very excited about our ability to continue to do that. That ties into many of our customers' commitments that they have out there. And we were asked today a couple of times, "Hey, are customers walking these things back?" In some cases, they're extending them out, but they're not walking them back because the end-use consumer has already decided that they're going to support the brands that ultimately are making the right decisions for the environment. And if you're not doing that over time, it'll cost you revenue sales.
And so we will be that customer or that supplier to those customers that ultimately helps them have an answer for those things. Lastly, and I'll finish with this slide, our Vision 2030. I mentioned Vision 2025 and the investments we made. What's great about our Vision 2030 commitments is we have everything we need right now within the corporation to deliver on these targets. We don't need to restructure our business. We don't need to go buy something new. We don't need to make big investments like we did in Michigan and Texas. We have it all. Once Waco comes online, those are the types of commitments that we're going to make. And ultimately, we've got the capabilities that we have.
So while others are busy buying, selling, and consolidating perhaps on the M&A front, we've got a clear path that's going to allow significant shareholder value accretion as well as customer satisfaction with the investments that we've made. And so that's really what our Vision 2030 was meant to do. We rolled it out in February of this year. Let's put a finer point on what all these investments really made and what our investors can expect from us over that period of time. And with that, oh, I should probably hit this, the algorithm, the earnings algorithm. It's always kind of the punchline here at the top. You see it up there. Sorry, Mark. That we rolled out that 100 to 200 basis points of true growth will drive mid-single-digit EBITDA growth and high single-digit EPS growth. The model is very mechanical in that regard.
I mentioned that CapEx will revert back to the norm here. It's still generous at 5% of sales, to be fair. We probably need 2-2.5% of our sales to drive just true maintenance CapEx. The rest of that is improving the company. So it's going to be more capabilities, more cost reduction if we spend above that 2-2.5%. In doing so, we will generate a fair amount of cash flow that exceeds the amount of money that we need to operate the business. You can see the slide there, and every investment we make at Graphic is really held against buying the company back, particularly given the valuation that we have, so we're pretty excited about that. We've been on a heavy investment cycle here over the last four to five years.
And now with that engine built and the capabilities in line, we're excited for that cash flow generation to be able to be put to use for our shareholders to create long-term shareholder value. And with that, Matt, I'm happy to take any questions that you may have.
All right. Thank you very much, Mike. I certainly have a few questions. If anybody in the audience has any, feel free to raise your hand. Or for those of you, if you have a paper cup, you can just lob it up here. You get my attention. It won't hurt me. It doesn't hurt the environment either. So with that, I just want to.
If I could, that's actually a really good point. The reason it doesn't hurt the environment is because we're investing in Waco to be able to take up to 15 million paper cups a day and harvest that fiber and turn it back into first-line packaging.
I like how you took the bait there. So maybe I'll start with that, actually. Okay. So excellent lead in there. So maybe when we think about Waco coming online, you have talked about 80 million incremental EBITDA contribution in 2026 and then again in 2027.
Correct.
So maybe if you could talk about the drivers of that. Is it incremental volume, the lower cost production? And on the last earnings call, you did note that you made incremental investments on the recycling capabilities that were not factored into that. So how should we think about any incremental return profile at or above what you were previously laying out?
It's a great question. I would say it's $160 million plus, is kind of how we answer that question. We learned some additional things. Again, Kalamazoo has only been running since 2022, so that's still pretty new in for us. It was a $750 million investment we made to do that, and we learned some additional things around how we could save a little bit more cost, have a little bit more capability, so the time to integrate that was now as we were building that machine. There was a little bit of metal inflation on there, some stainless steel costs. That's really what accounted for that extra $100 million that we talked about there.
But we'll get that back in terms of additional type return that is similarly modeled to the original commitment that we made, the $160 million, which you correctly said is 80 million of it is 2026, 80 million of it is 2027. Of the $160, $100 million of it is cost. And so we'll shut down smaller, older paperboard manufacturing facilities. They're already aware. We've publicly announced which ones will go. And that will happen relatively quickly as the machine comes online. And then we'll have about 200,000 additional low-cost, high-quality tons that over a multi-year period of time into 2027, we will sell to customers. And that'll create the additional $60 million of EBITDA. And that puts us in really good shape to supply our converting operations with the base material they need, very high-quality material they need to go sell cups and cartons to customers.
Yeah, certainly. Very encouraging there. And you did allude to the timing a little bit. So maybe we'll just backtrack and kind of hone in on some of the points you made earlier. So in 2022, you undertook the new machine in Michigan.
Yeah.
In 2026, you have Waco coming online. So maybe if you could discuss the rationale on the timing of why you did Waco right after the K2 machine. And after you cut the ribbon in Waco, are there any gaps that still remain in the facility network that you think you would need to address post-Waco?
Yeah, thank you for that. So the investment in Kalamazoo was a big one for our company. If you think about it at the time, it was all our free cash flow for a two-and-a-half-year period of time that was going to go into Kalamazoo. And it was 100% cost-driven. We were going to shut down three paperboard manufacturer facilities and one additional machine that was already housed in the Kalamazoo mill. And it was a unique investment for Graphic because all those assets were on top of one another in the Midwest. So it made perfect sense for us to be able to do it that way. I think the market was a little skeptical when we rolled it out in September of 2019. Our stock took a hit for a little period of time.
And then, of course, we went through COVID and all the things that went along with that. But it's been nothing short of a home run for us. And we learned a ton as we kind of went through that process, both from an engineering standpoint as well as training and hiring people to come in and operate that asset. And given the success that we'd had, and we still had some additional facilities out there, we talked with our board, "Hey, maybe if this works well, someday in the future, we could do another one of these." We didn't talk about it being as quick as we ended up doing it. We couldn't even see some of those angles, quite frankly, until we had it up and running and how well it was going to work and the quality that we were going to get.
And so once we started seeing that, we had discussions with our board. And a number of the people that worked on that project were in their mid-50s to late-50s, some even in their early 60s. And so from a timing standpoint, if we were going to do another one, those skills atrophy pretty quickly if you don't take advantage of them. And so we talked to those folks. Would they be willing to stay through getting Waco done? And to a person, everybody said, "Yeah, we're willing to do it." And so we had good discussions with the board and said, "Look, now's the time to go. Well, we've got those skills. And when you look at what we've done in the marketplace, it's an investment that would be very difficult for anybody else to try to duplicate." So we like all of that.
In the second part of your question, refresh my memory. I want to make sure I get the answer.
Really, really around. So now that you've had all these benefits from K2 and you're cutting the ribbon on Waco here, so what's next after that? Are there still any gaps regionally or in other substrates anywhere you would see that you would need a similar type investment?
It's really the point that I was trying to make around Vision 2025 was an investment in those three major areas, and the third one was for capability, like significant competitive advantage, and so we're sincere with what we say. We get asked this question a lot given what we've done. "Hey, is there something else?" We like the investments you've made, but it's been a steady stream of these investments. "When do we get to take advantage of some of the cash flow that you're going to generate" is really a question we got as recently as this afternoon a couple of times, and it's fair, and our answer is we have everything we need to be successful here, and this is really what we're looking to deliver on over the next five years, and even with that, with 5% CapEx of sales, we're improving the company.
We're taking our carbon out. We've got the ability to lower our costs in our converting operations. We can automate to stay ahead of some of the labor that's out there depending on how that all plays out with some of the policies that we've got out there. So we feel for the most part, we can control our destiny with the investments that we've made.
Right.
So that's a long way of saying what I'll just come out and say. We don't have another big paperboard manufacturing facility we're looking to invest in. And we don't need to integrate our business in Europe. There's plenty of people we can buy from in Europe right now. In 2019, that was something I was postulating around. Are we eventually going to have to integrate back in Europe? And then we got this really big business in Europe. And being a buyer, a net buyer, a big buyer of paperboard over there really allows us to take advantage of the fact there's a lot of excess capacity and we buy really, really well. So why would you want to have to go put a bunch of extra capital to work to generate what are pretty low returns for people that are making paperboard in that environment?
So we like our competitive positioning there.
Right, right, and you did, well, actually, let me pause. Are there any questions in the audience? We're not recycling cups up here, collecting them yet, so I'll check.
I'd love to understand just because you don't necessarily own the end customer relationship, how you think about innovation, how that decision tree takes place now that you have this more efficient capacity to set up. How do you determine which projects make sense for your business in the context of your relationship with the manufacturers?
As you can appreciate, we get a fair amount of consumer knowledge with how we participate in the marketplace. And so we try to factor that in as we think about our innovation and design capabilities. If you look at the 2x6 vendor for beverage, it used to be 3x4. That was based on insights that we got from consumers around how they like to use these in the refrigerator. And it completely revolutionized the category. Same thing with the KeelClip. We hear from end-use consumers, "We want to get out of single-use plastics." They don't like it. They're quite cheap, relatively speaking, for what they do. So I won't tell you because in most cases, our fiber solutions are slightly more expensive than the plastic solution. So it's on us to try to find ways to close that gap.
And we spend a fair amount of effort each and every day trying to figure out how to do that for our customers. But I think actually that knowledge of the end-use consumer through the customer, it's a fine balance. We need to make sure we're not being presumptuous for how our customer wants to go to the marketplace. But we do have a lot of ideas. And we try to work with them to help them figure that stuff out.
Just with that answer, is it fair then to say that ESG becoming a four-letter word, that doesn't necessarily seem to be the driver of this business because if it's the end market, it's the end-consumer driver?
I mean, the biggest part of ESG for us has always been the sustainability part. That's unchanged. I mean, people aren't saying they don't want to be more sustainable. I think what they don't like is this targets and some of the bespoke things and things will probably move out a little bit, but they're not going to go away. I'm happy that we've got a great plan to decarbonize the business over that period of time because I know that will be important to consumers in the future, and ultimately, that's where we need to drive to.
Thank you. Kind of a follow-up to that. Are your end consumers, are they obviously it costs a little bit more right now and you're working to reduce that? How much conversation do you have and how reluctant or are they willing to pay a little bit extra in order to have that sustainability? Where does that balance find in your end customer?
That's the tipping point, right? I think the end-use consumer is willing to pay marginally more, but not a lot. And so what does that mean? So like on that KeelClip, it's probably just I'll make a number up that'll be pretty close. $0.015 more per package, which doesn't sound like a lot of money. Until you multiply it times 600 or 700 million of those packs that they're going to put in the marketplace, it's a big part of COGS. So I don't want to make it minimal. But we have merchandising capabilities on that package. Does it help with more lift? Does the indexer around getting the brand name out in the front really help? Our speeds work at incredibly high speeds. It's got to be a holistic answer that we come forward with.
That's really where our teams are trying to focus on. We don't take it for granted that just because we're fiber-based, we're going to win a jump ball against someone who's making plastics. Polystyrene resin is fantastic in its thermal capabilities and its cost. It's just once you crack that resin, it's in the environment for 400 years. Our stuff will actually, that paper cup that we're talking about, it'll go back to its organic state once we take the polyethylene off the inside, which then we'll also have an end use for within, call it 12 months. Our solution is really sustainable along those lines. The science really drives a lot of that.
I would just add to that that in Europe, there's a lot more legislation of packaging solutions and therefore a lot of urgency towards it. And Europe is not backing away. The multinationals and the global CPGs have to hit those standards in both places. So we can use Europe as an incubator. There's urgency and there's a lot of innovation going on. So we can develop a package in France, fine-tune it in Italy, and then introduce it to the U.S. market much more slowly, but generate years of growth because the market is so much bigger. And we did that with our paperboard canister, which was infant formula in France, not the biggest market in the world. And then we took it to Perfetti in Italy, which is Mentos gum, which is actually a pretty big market around the world.
And now we're at Costco and Target in ground coffee. Now there's a category that's got some growth and places we can go. And so the strength of this portfolio is we are the world's best paperboard innovator. And we're in the market where it is most urgent to achieve innovation. And then we can bring it here. And if it happens more slowly, that just means more years of growth.
Thank you. Any other questions before we move on with Matt's list?
Yeah, we're about running up on time here, but I'll leave us with one more or anything else you want to add at the end as well. So at Investor Day, you did discuss a more durable and sustainable margin profile within a tight band around 20%. So understanding your top line can fluctuate. You mentioned earlier you could have cost inputs, whether that's labor or raw materials fluctuate. So really, what gives you confidence or what levers can you pull to maintain that tight band that you've laid out?
We're seeing some of them. I mean, look, we saw our volumes actually go down quite a little bit. And we kept our margins up. So that shows the pricing stability that we speak to. Our customers aren't going to pay for our labor and benefit inflation. We have to offset that each and every year. A portion of that's just cheaper, faster, better that the teams do through their Kaizen events. Some of that will be some of that capital that I talked about, all part of the 5% of sales driving more automation primarily. That pays for itself more now than in the past with labor costs going up. So it's a combination of those things. Driving new innovation and the operational leverage we get off one to 200 basis points is pretty significant through our integrated model that we've got.
And so it's a combination of all those things that come together that really kind of spin and create a robust flywheel of cash flow and EBITDA and tight margin profile.
That all makes sense. Anything else with that? We thank you all. And thank you all for the audience participation as well. Very interactive.
Yeah, thank you very much. Thank you for your interesting graphic. Late in the afternoon.