By the numbers: Q4 and full-year 2023
Q4 net sales: $2.25B
Down 5.7% year over year
2023 net sales: $9.43B
Down 0.1% year over year
Q4 net income: $196M
Up 25.6% year over year
2023 net income: $723M
Up 38.5% year over year
- Financial overview: Volumes have stabilized following an extended period of customer destocking, and overall sales in 2023 were flat despite a challenging environment, Graphic Packaging International executives said while discussing the company’s latest earnings results during a Wednesday investor day event. Volumes in the food segment were “solid” for the first part of 2023, but then destocking for the remainder of the year resulted in relatively flat full-year results, said CFO Stephen Scherger.
- Paperboard facility sale: Just before it released earnings Tuesday, Graphic Packaging announced plans to sell its bleached paperboard manufacturing plant in Augusta, Georgia, to Clearwater Paper for approximately $700 million. The mill produces solid bleached sulfate, which executives said doesn’t fit as well with GPI’s long-term strategy, in part because they’re seeing much more demand for recycled content. The deal is expected to close in the second quarter, pending regulatory approval. The Augusta mill “didn't offer the same strategic benefits over the long term as some of our other wood fiber manufacturing facilities or our recycled manufacturing facilities,” said CEO Mike Doss. “So it's the right thing to do for our shareholders to monetize that.”
- Vision 2030: Executives introduced GPI’s strategic plan, Vision 2030, which includes reworked goals from the previous strategic plan, Vision 2025. “We’re just a fundamentally very different company than we were just a few years ago,” Doss said. Executives noted an ongoing shift to focus less on manufacturing raw materials to sell in the open market and more on growing as a consumer packaging manufacturer. Vision 2030 targets 2% annual growth from innovation, or new product partnerships, and meeting science-based environmental targets, among other things.
- Investments: Capital expenditures in Q4 were $212 million, up from $104 million in Q4 2022. Full-year capital spending was $804 million, up from $549 million in 2022. The increase was largely due to GPI building a new recycled paperboard manufacturing facility in Waco, Texas — a project it announced in February 2023. GPI is at “absolutely peak capex” and spending will ramp down in 2025 and 2026 after the Waco mill is complete, Scherger said.
- Manufacturing footprint changes: GPI’s Feb. 21 annual report cited other M&A activity and closures in 2023, including the purchase and then closure of a paper mill in Tama, Iowa; the ahead-of-schedule permanent shutdown of a coated recycled paperboard machine in Kalamazoo, Michigan; and the discontinuation of a project in Texarkana, Texas, to modify an existing paperboard machine to add capacity.
- Innovation: Executives noted $200 million in innovation sales, which represents 2% annual sales growth. They noted partnerships that launched last year to help customers switch from plastic to fiber substrates, including for Chick-fil-A beverage cups and Nissin’s Cup Noodles. They touted PaceSetter Rainier, a coated recycled paperboard product launched last summer, and highlighted customers’ uptake of Boardio, a recyclable, rigid, fiber-based canister. Certain acquisitions add to the innovation category as well, such as last year’s purchase of Bell, which expanded GPI’s presence in the fiber mailer category.
- Pricing: Doss brought up pricing, in light of the recent debate over whether customers would accept the increases that most major fiber packaging manufacturers announced for this year. Mirroring recent comments from competitors, Doss criticized Fastmarkets RISI’s pricing index for not reflecting the increases. The index’s January numbers showed no movement and February showed increases at about half of what that companies initially announced. The results “made no sense to us,” said Doss, adding that the company anticipates moving further away from third-party indices that “lack any level of what we believe to be accuracy, as well as transparency.”
- Outlook: GPI expects 2024 adjusted earnings before interest, taxes, depreciation and amortization to be $1.75 billion to $1.95 billion. To date in 2024, volumes have been flat on a year-over-year basis, Doss said, noting stabilization after a dip in December, especially in Europe. Executives expressed confidence in a return to organic growth in 2024 and expect a busy food service sector. “We're managing and balancing inventory quite wisely here in the first quarter ... We like the start that we're off to with our consumer packaging volumes returning to more normalized levels,” Scherger said.
