Last presentation of the day. Thanks everyone for joining this afternoon. My name is Ghansham Panjabi. I cover packaging and materials for Baird on the equity research side, along with my team, Josh and Will. Thanks again for joining us. The next presenter will be Graphic Packaging. From Graphic Packaging, we have Robbert Rietbroek, CEO since January of this year. We have Chuck Lischer, interim CFO since November 2025. And Melanie Skijus from Investor Relations, who boomeranged back. Welcome back, Melanie, to our conference. Robbert, I do not know if you have been to our conference before.
First time.
First time. Welcome. We hope it is many more years in the future. I know you had some introductory comments you wanted to make, so I'll turn it over to you.
Well, thank you, Ghansham and the whole team here at Baird. I want to thank you for welcoming us and allowing us to be part of your wonderful conference. I was just telling the team that it has been a great day. It is very well laid out, and we are always very excited about listening to our investors. So for the investors that came to meet with us, thank you for not only listening to the story, but also providing the feedback so we can incorporate that in how we run the company.
Overall, it has been a really good year. We have made a lot of progress. We have come out of a big investor cycle. A lot of capital has been put on the ground. We built a line in Kalamazoo, we built Waco, and since the beginning of this year, we have refocused on harvesting off of those investments.
What that means is really the commercialization of the installed capacity. We are making a lot of progress in offsetting the inflation through a number of enterprise-wide initiatives like commercial excellence, which involves revenue growth management, customer service, operational excellence, which involves S&OP, demand and supply plan, production plan, and inventory reduction, and then our procurement initiative as well, where we are really trying to organize the 150 to 200 people that procure, source, or buy into a single procurement organization to drive productivity out of that. We've made progress in the sense that we have seen sequential margin improvement this year from 10% EBITDA margin in Q1, 11% in Q2, to 13% in Q3. We're also on track to deliver a debt reduction. We plan to be at $4.9 billion by the end of this year, which is the first time since 2020 that we're below $5 billion.
Our priority is to reduce debt and to free up more of our earnings into free cash flow conversion, be a shareholder-friendly company, return cash to investors, and pay down debt. As you listen to the Q&A, we're excited you're here. Thank you for any questions you'll have later, but over back to you, Ghansham.
Yeah. Robbert, just in terms of your unique background, coming from the CPG landscape, and you as well, Chuck, what are the opportunities you see for Graphic Packaging? What's your first year been like? It hasn't been fun, all of it.
If you look, it's definitely challenging times for the industry as a whole. Obviously, prices have come down for the last four years since COVID, really, when we took quite a lot of pricing. It's been coming down ever since, and we've now been able to pivot back to commercialization of our invested mills and converting facilities and growing price again. We' ve been able to realize about $150 million of pricing into next year, 2027, $60 million of that this year, $90 million more. That is the number one priority. Our customers are incredibly important. They're at the heart of all we do, but what we need is fair and reasonable reflection of the inflation we faced. As we started the year, we had about $35 million of inflation built in, and that became $170 million. We've seen oil prices above $100 a barrel this year.
What we need now is to really make sure that we pass on that inflation. That's all we're asking for, fair and reasonable pricing, joint business partnerships with our customers. As we get into next year, we will continue on with our productivity initiatives. We did a RIF this year. We eliminated 500 roles. That was necessary. Very difficult, obviously, decision, but very important for the structural health of the business. As we look to the future, really it's all about restoring growth, driving productivity, generating free cash flow, improving our free cash flow conversion, paying down debt, getting to a net leverage ratio that's investor grade, and that's going to take a couple of years, and restoring our margins over time. A tool that we're looking at, obviously, is the relaunch of URB, the introduction of URB.
We used to be a producer of URB in Middletown, Ohio. We made KraftMax there as well. We moved KraftMax to West Monroe. We went out of the URB market. Going back into URB has been incredibly successful. We are going to serve more than 20 customers this year already with over 20,000 tons. We have just as many in qualification as we speak, and we are anticipating about 100,000 tons next year of URB. That is a big part of our cost absorption plan for Waco. You probably know that when we built Waco, we added some capacity to our overall recycled platform. We need to grow into that, and this is a way where we'll grow into in an accelerated fashion. So we're very excited about the commercial excellence initiative.
We're very excited about the operational excellence initiative and the procurement work, and then the launch of URB. Those are some of the highlights in the last nine months.
In terms of our coverage of your company, which is almost 20 years, it's almost a deja vu moment because when we first launched coverage of the company, it was extremely levered, over 6x net debt EBITDA as a public company. The company orchestrated a textbook deleveraging/value creation, just mathematical transfer debt to equity, and it was very successful, and it led with productivity. Accepted it was low growth, focused only on productivity, maximized cash flow, punched down the leverage, and all you have to do is move the numerator and the denominator in your way, right, to get leverage down. Very simple. So where are we on that journey for you guys?
Yeah, there is actually an article online about that period when David Scheible was CEO of the company.
Yep.
I actually forwarded that article to my leadership team last week when I found it, and everybody's response was how striking the similarities are from then and now. We are over-levered, we are leading with productivity, following with price recovery, and restoring growth. The same objectives, really get back to a net leverage ratio that is investor grade, restore the margins, and then drive as much cash flow out of that for our investors and pay down debt. I think it is a similar situation. I am excited about the journey we are on. We have a lot of work ahead of us, Ghansham. We are not there.
We need to continue to work hard at this. Been very lucky. Chuck and I have been very aligned on the approach. Do you have any thoughts?
Yeah, if I could just build on that, I think the good news for us is it comes at a time when we are pivoting out of this cycle from heavy investment, heavy acquisition, to one where we are seeking to optimize the company, generate cash flow, and pay down debt. We do not need to go out and make a lot of other investments. That has been done for us in the past. So we have the opportunity to deploy our cash flow to pay down debt and have that virtuous cycle that you are talking about of paying down debt and that driving equity value.
Yeah. What is your? Just remind me in terms of your net debt to EBITDA progression from here versus the peak?
Yeah. All we have said so far is that we expect to end the year at 4.7x , and that we would continue to delever from here. We will give you more guidance on what it specifically looks like 2027- 2028 going forward, but said that we are targeting to get to investment grade or investment grade metrics in the 2030 range.
So one of those, during that initial deleveraging/value creation phase, which was successful, stock re-rated accordingly, the end of that was the company pivoting, as is human nature, because the growth is slow in the industry, towards growth. It was magnified by sustainability and COVID and many other things, right? Investment community preference were sustainability stories. Do you think that was an over-correction of something that was never going to happen, or is it just delayed, in terms of the transition from a sustainability standpoint?
Yeah, look, the good news is that we've just updated our volume outlook—
Mm-hmm.
—from -1% to 1% to 0% to 1%, with 50 basis points of growth in the midpoint, and that is the first time in, what, three years or so at least—
Yep.
—that we're restoring growth on the company. That is really a function of how well diversified our portfolio is.
Mm-hmm.
As you know, we are heavily in the food segment, in the beverage, food service, household, but we also have a health business and a beauty business in Europe. We're very well diversified geographically. We have a strong core business in North America and Europe, and we have some peripheral businesses that are maybe not core to the business, but part of the portfolio and contributing to the portfolio. So as we see the slowdown in demand, we have slightly outperformed the scan data on unit sales because of the strength we have in certain categories. You see protein, for instance. Our protein categories are doing very well. Our food service is a little slower, but it's offset by strength in food. We just announced that we now, I think, have 95 machines installed in the co-packer network in beverages.
If you look at where beverage is growing, it's basically sports drinks, it's protein shakes, it's water, and it's a lot of startups. You've probably all seen prebiotics, probiotics come into the segment. A lot of brands, emerging brands, are made by co-packers. So for us, whilst we have tremendous investment and business together with our global beverage partners, we also have to play in the startup space. Similar to that, we're also involved in some minor private label businesses that obviously are volume growers as well. For us, remaining the diversified portfolio, then obviously benefiting from whenever the growth will return, because it always does, as you know
is what we're focused on right now.
If I could just add to that, Robbert mentioned earlier URB, so that's clearly a growth opportunity for us. Our innovation engine continues to allow us to grow faster than market.
Yep. The innovation space for us is primarily new businesses, but also plastic to paper conversion. I'll give you an example. In Europe, where new legislation is being introduced, there's some new regulations coming around reducing single-use plastics in the grocery channel. We have a rapidly growing business in fruits, actually.
Mm-hmm.
Blueberries, to be specific, which is being converted from plastic to paper. These are secular trends that we continue to see occurring. We've actually quantified what that would be worth. All of the plastic-to-paper conversion opportunities for the industry are worth at least $15 billion, is our current estimate. That's not the current total addressable market. That is the future addressable market from plastic to paper. If you go to our website, you'll find products like the KeelClip and the EnviroClip, where we replace plastic rings around cans and bottles with paper executions. This is primarily for beverages. That's a great example of where we make the world a better place, where we remove plastic from the environment, and we solve a big problem for our customers. That's what we really are about. We're about solving problems for our customers, driving innovative new solutions.
We are an innovation company, a consumer packaging innovation company with over 3,000 patents. This year alone, we've filed 50, more than 50 patents, and we continue to innovate and drive R&D around how to convert plastic to paper. We used to be focused on smaller innovations, and now we're really going for the bigger opportunities. We're also partnering and co-creating with some of the largest CPG companies in the world around their needs, their plans to get out of plastic, and how to get into paper. If you elevate our purpose, it really is to bring more sustainable, biodegradable, fiber-based solutions to the consumer packaged goods space, and putting customers at the heart of all we do.
For me, some of the most exciting meetings actually are not only with our investors and getting the feedback on how we should run the company, but also to meet with our customers and understand how we can help them be successful.
Overnight, there was a transaction in Europe.
Yeah.
You're not the only ones feeling the pressures of the downturn in the industry, obviously, and one of your peers sold a business, a private equity firm. When you joined, you were talking about perhaps looking at different assets in the portfolio—
Yeah.
—as it relates to core. Obviously, there's a bid in the market from a financial sponsor standpoint. Where are we in that process as you evaluate the portfolio?
Yeah, look, we've said thus far that North America and Europe, and especially food and beverage, are very much the core of our company. It's very well known that we use our incredibly high-quality paperboard from North America, from the Southeast, in Europe for our beverage business. It has particular strength properties made with Georgia pine and other pines in the Southeast. We also use it in Japan. We use it in Australia. We like those businesses. We do serve global customers that like us to serve them beyond North America. Having said that, we are a company that is built out of almost 20 acquisitions over the life of the company, and there is always going to be businesses that are maybe not core or in the periphery that we will continue to evaluate.
That obviously is something that we will disclose when we get to that point, if we get to that point. But I do want to reemphasize that food and beverage, North America and Europe, are very much the core right now to our business.
Okay. Any questions in the audience before I keep going? Go ahead, sir.
Talk about profitability in URB versus CRB.
Just repeat the question.
It's a great question. The question is URB profitability versus CRB. URB is a very healthy segment. Obviously, it's slightly margin dilutive to CRB, but when you look at the system economics, adding URB to the available capacity and driving higher capacity utilization, it's a double whammy. On the one side, we have the margin we get out of URB sales. On the other side, we have the cost absorption of Waco. That cost is already absorbed in our business today, so it is rather incremental. We are in URB, and we plan to stay in URB because it's part of our recycled platform.
Would it be fungible to switch back to CRB if there is demand increment or other supply coming in?
Well, we do look for longer-term supplier relationships with our customers, so that would not go fast. Right now, we plan to be in URB for the long run.
Good.
It is a related question. I guess in terms of the 100,000 tons you are talking for next year, is that a result of some two of the machines, or could that 100,000 tons be a larger number in 2028 if it goes well next year? I am just understanding about the flex you have.
Yeah, the question is, I will repeat that for the online listeners, whether we could grow beyond the 100,000 tons of URB in Waco. The answer is yes, we still have headspace there.
Is there anybody else? Will?
When you just think about how much inflation the consumer has faced, how do you think about oscillations in growth between your end markets?
Yeah, the question that was asked in the room was, when you look at the inflation the end consumer has faced, what can we expect from our end markets? We are, you know, we play in life's essentials for every day. We don't play in luxury cars. We do play a little bit in luxury perfumes. We see a bifurcation of the markets, right? The high-end premium brands continue to do well, and the value propositions are doing well. We also see a lot of pack price architecture moves, new sizes, new different pack sizes. Yesterday, I was walking through our demonstration factory, and I saw, you know, a count of cans that I hadn't seen before. It was a smaller count configuration, which was very interesting. There is definitely the ability to flex up and down in terms of quantity of sizes of products.
I believe, I'm an optimist, I think the market eventually will return to growth. I do agree that affordability is key, and that's why we play across all the price tiers. We play with private label, branded, quick service, premium, super premium, across 26 markets in different end markets. There seems to be an inverse correlation between food service and food. Food service is slightly softer, food is slightly stronger. Is that because maybe people eat less outside the house and maybe more inside the house? Those are the questions we're trying to answer right now. But overall, I think the fact that we've taken up our volume guidance for the year to 50 basis points of growth versus where we were before is a positive indicator.
Anybody else? As it relates to your customers, the challenges they face, right? It seemed like pricing was a blunt instrument they used coming out of COVID. Inflation was there, demand was good, everybody's happy. Raise prices, and they were successful to a certain point, and then elasticity kicked in, right? Significantly, and we're dealing with the consequences of that at this point. How do you think they're going to approach, in your conversations with them, because we cover some of the ingredients and additives companies as well, there seems to be a much more innovation because trying to reformulate products just to kickstart the engine in terms of growth, because it's not just affordability. There's GLP-1 issues, there's SNAP benefit changes, in terms of spending and so on. What are customers sharing with you as it relates to 2027 in terms of balancing price versus volume?
Yeah, we are seeing in the public domain more announcements around better balancing volume.
Pricing versus volume only. We're seeing a new refocus on innovation as part of the mix. Innovation tends to come with premiumization and margin accretion. Our job in that ecosystem is to make sure that we help our customers be successful. We can rapidly innovate with them. We can be part of the innovation development. We can create solutions that they can run on their existing production lines with minimal to no CapEx. Ultimately, if they do well, we do well. So we're in it together.
Okay, great. Deleveraging stories in this space have a very high success rate in terms of creating value for shareholders. The one thing that keeps us nervous is we see some inefficiencies as it relates to paperboard. So you have four different substrates, or grades, SBS, CUK, CRB, and URB. You're seeing SBS was impacted by capacity additions, which ultimately the industry tried to offset with cuts and then substituting into other grades. You see another player that's trying to attack the CUK market, and you're moving into URB, which was a pretty tight market for the two incumbents in there, right? So this sort of whack-a-mole that's occurring, how does this end?
Yeah, this is Chuck. I will take that. I would say overall, we are pleased with the development of the industry throughout 2026. We went into it in a much looser, more challenged place than we are. Bleached, as you mentioned, was clearly the one that was the most challenged, and that is the one that has tightened the most during the year.
Operating rates were in the low 80s in the beginning of the year, now in the mid-80s. Bleached is a substrate where we have had our first recognized pricing in the industry in several years, and we continue to be tight in bleached, and therefore went out with another price increase in October that becomes effective in the marketplace here in November. That continues to be tight, driven by closures, fewer imports driven by tariffs, increasing demand. CUK, that has been tight for us all year, continues to be tight. We see CUK or SUS being tight through the beverage season next year. That grade of paperboard has some real unique strength characteristics and is something that our customers want all over the world. It is not something that is easily replaceable, easily substitutable, and something that is a high-quality paperboard with long-term customer relationships.
There is more to it than just being able to make the grade of paperboard. Then on recycled, that is of course the grade where we added capacity. We are the ones with capacity. That is why we are launching into URB. We are looking to grow in URB, we are looking to grow in CRB, so that we can get the maximum returns from those best-in-class assets.
You look back at this year, you had every possible reason to get price. You had oil up, diesel up, freight, you had OCC up, and the industry's pricing success was pretty limited. Did that surprise you as it relates to looking back? The year is not over, but certainly, the bulk of it is.
Well, I think what you're saying is correct when it comes down to the paperboard.
Mm-hmm.
On the non-paperboard side, we have been relatively successful in fairly and reasonably reflecting our inflation into the inflation correction clauses.
When it comes to OCC resins, transport, diesel, oil, utilities, we'll continue to do so. We're also shortening the going from biannual or annual corrections to quarterly updates in our inflation clauses as we renew our contracts. With regards to paperboard, Chuck, what do you think?
Yeah. We, of course, have a third-party index in our industry, and we do not try to speculate what they do. As Robbert said, we just really focus on the things that we can control.
Mm-hmm.
What we could control going into the year was making sure that we had identified all the cost recovery options. What we talk about is the $150 million of pricing that we are taking between 2026 and 2027. That is made up of three things: the cost recoveries, the $60 a ton on bleach that has been recognized, and also the pricing that we are taking on the $1 billion of non-contractual pricing in the business.
We are looking for every opportunity to control what we can. We are certainly out with price increases that total still over $200 million if they are fully recognized, but with the third-party index, that is up to them what actually happens.
You were very clear on guidance for this year on free cash flow and, obviously, EBITDA, et cetera. As you think about next year, going back to the numerator, denominator, net debt to EBITDA, how do you feel about free cash flow in terms of this year is benefiting significantly from working capital as an example?
Yeah.
That probably does not repeat. Correct me if I am wrong.
We are indeed on a multi-year initiative or journey to take working capital out of the business.
I think that will, what you should expect that to continue at some level. Clearly, it will not continue at the, what we guided to is $300 million at the midpoint level of this year, but also I will also remind, our midpoint of our guide is $650 of cash flow. Midpoint of the working capital guide is $300 of that is driven by working capital.
I will also remind you that there is $135 million worth of one-time cost in the business, including $75 million to drive that working capital out of the business. So, you know, if you kind of normalize for all that gets you to more of a normalized view of then how to think about 2027 from here. Like I said, we continue to be on a multi-year journey to take working capital out of the business. We continue to be well-invested, so do not see the need to have a significant increase in investments from here. We will come back with the full guide, of course, for 2027—
Yeah.
—but lots of reasons to go forward from here.
And the denominator on that same measure, you had a lot of one-timers—
Yeah.
that hurt you this year. Maybe dimensionalize that for us.
Yeah. It's the same 135 that we talked about. So our current guide's approximately 1050.
We got the same $135 million of one-timers in the business. We talked about the carryover of the pricing being about $90 million, offsetting about the same amount, $90 million of carryover inflation. Think of those two things as offsetting each other, and then, s ome of our structural cost takeouts will continue to benefit 2027. That is $90 million in 2026 and $105 million in total. It is about $15 million carryover.
Mm-hmm. In terms of this pullback in oil, if it lasts, we have gotten used to many different swings in the price of oil. When would you start to see that as it relates to flowing through your system? How long does it take?
Yeah. It starts to flow through as soon as it happens. Diesel prices are down slightly from where they were at the peak. It starts to flow through, but it will flow through slowly. Yeah. Those prices seem to go up like a rocket and down like a feather. We feel good managing towards the $170 million of inflation that we have called out in the business this year, and that is what is embedded within our guide.
Fantastic. Robbert, in the last minute and a half, 90 seconds, I will let you give us an investment pitch. I mean, clearly, you know what the issues are and pressure points. It seems like you have a strategy in place to counter them. Your short interest on the stock is 9.1%. Very, very high. Not unusual for turnaround stories, but it is quite outsized, so clearly the market feels differently as it relates to the outcome going forward. How would you have us think about Graphic Packaging of today with the challenges you are facing as it relates to an investment case for people that consider names for next year, for example?
Yeah. I think you said it very well, Ghansham. This is a little bit back to the future story where we again have the opportunity to improve our net leverage ratio, pay down our debt, drive productivity, drive our margins back hopefully over the mid to long term to the mid-teens, or above. Then drive as much free cash flow conversion out of those earnings, manage our CapEx with great deal of discipline, maintain discipline around OpEx, and be a shareholder-friendly business in a challenging industry, but that is somewhat cyclical and eventually should bounce back. We are doing everything we can to control the controllables. We've been working hard this year on productivity and commercialization, operational excellence, and procurement excellence. And we are very excited about closing out the year strong and getting into 2027.
It's a good way to end it. Nice job. Thank you for joining us. This concludes Graphic Packaging. There is a breakout at the Levante Room, and hope to see some of you there, a nd if not, enjoy your evening. Thank you again.
Thank you.