Market dynamics: Graphic Packaging International’s packaging volumes remain down, but “we view destocking as largely in our rearview mirror now,” said CEO Michael Doss on Tuesday’s Q3 earnings call, cautioning that pulling up from the low demand environment will take time. “Recovery is just not linear; it tends to be a little bit lumpier than anybody says. ... We have some customers that are talking about an elongated recovery,” he said. 

“Cautious consumer” has an impact: The company reduced paperboard production by 150,000 tons in Q3 to align with demand. The consumer spending environment remains “dynamic” and economic uncertainty has resulted in a “more cautious consumer in the near term,” which is impacting sales, he said. Although food, beverage and consumer markets fell 6% year over year, food service sales grew 8% as consumers seek convenience for eating and drinking on the go.

Optimization: Doss provided updates on GPI’s multi-year coated recycled board network optimization effort, saying this will establish GPI as the lowest cost, highest quality CRB producer in North America. In October, GPI permanently decommissioned its K3 CRB machine in Kalamazoo, Michigan, which it had intended to close after opening its new mill in Waco, Texas, in 2026. During Q3, GPI also decided to discontinue a project to modify an existing machine to add capacity in Texarkana, Texas, according to a quarterly filing Tuesday. 

Investing in innovation: Executives on the call explained that system optimization will allow GPI to strategically invest in other areas, namely the “robust and deep innovation pipeline.” Doss especially noted new opportunities as customers request substrate switches from plastic or foam to fiber. He announced a partnership with Nissin Foods to convert the Cup Noodles cups from foam to fiber. GPI’s proprietary, double-walled, fiber-based cup will begin to roll out in Q1 2024, and the rest of the product line will transition over time. “This packaging application marks our first in microwave cups,” Doss said. “What we’re really excited about is our ability to take those cups back to Waco and we can process them with the new vertical drum pulper that we’re installing. ... We’ll recycle those cups.” Doss also noted that the $262.5 million acquisition of Bell Inc. closed in September, launching GPI into the fiber mailer sector.

Sustainability: Besides assisting with customers’ substrate shifts, executives detailed other sustainability initiatives, including GPI achieving two of its 2025 targets earlier than planned. In October, GPI learned that the Science Based Targets initiative approved its 2032 carbon reduction goals, Doss said. “As an increasing number of consumers are voting with their wallets by purchasing products, and brands are doing the right thing for the planet, we are proud to be filling our purpose to package life’s everyday moments for a renewable future,” Doss said.

Closure costs: GPI recognized $24 million in “exit activities,” or facility closures, in Q3. Graphic Packaging said in its quarterly filing it expects to close two smaller coated recycled board plants when its new mill opens in Waco. The moves will “strategically expand capacity while lowering costs.” The filing also referenced the previously announced closures of three packaging facilities, which will occur by the end of this year. GPI also expects to incur $5 million to $10 million of additional costs for dismantling the K3 CRB machine before year’s end. 

2024 outlook: Executives expressed confidence in sequential improvements in Q3 and GPI’s ability to return to growth in 2024. Doss said the company expects less planned downtime and further supply and demand normalization. “It’ll be a different year than 2023 in terms of some of the pluses and minuses,” he said. Plus, GPI also expects that the Cup Noodles and other sustainability-driven substrate switches in 2024 and beyond will boost business. “We remain confident in our innovation pipeline and our ability to execute on commercial opportunities to fuel our organic growth in the years ahead,” said CFO Stephen Scherger.