Graphic Packaging(GPK) - 2024 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements The company's Q2 and H1 2024 financial statements reflect decreased Net Sales, a Q2 Net Income increase to $190 million, and a slight decline in total assets to $10.8 billion, with reduced operating cash flow Condensed Consolidated Statements of Operations Q2 2024 Net Sales decreased to $2.24 billion, but Income from Operations and Net Income increased, while H1 Net Sales fell to $4.50 billion with flat Net Income Condensed Consolidated Statements of Operations (In millions, except per share) | Indicator | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,237 | $2,392 | $4,496 | $4,830 | | Income from Operations | $324 | $267 | $602 | $597 | | Net Income | $190 | $150 | $355 | $357 | | Net Income Per Share - Basic | $0.62 | $0.49 | $1.16 | $1.16 | | Net Income Per Share - Diluted | $0.62 | $0.49 | $1.15 | $1.15 | Condensed Consolidated Balance Sheets As of June 30, 2024, total assets decreased to $10.83 billion, driven by reductions in Goodwill and Intangible Assets, while total equity slightly increased Condensed Consolidated Balance Sheets (In millions) | Balance Sheet Item | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $2,840 | $2,845 | | Total Assets | $10,828 | $11,175 | | Total Current Liabilities | $1,963 | $2,589 | | Total Liabilities | $8,015 | $8,393 | | Total Equity | $2,813 | $2,782 | Condensed Consolidated Statements of Cash Flows H1 2024 saw operating cash flow decrease to $164 million, investing activities provide $175 million due to divestiture proceeds, and financing activities use $368 million Condensed Consolidated Statements of Cash Flows (In millions) | Cash Flow Activity | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $164 | $291 | | Net Cash Provided By (Used In) Investing Activities | $175 | $(437) | | Net Cash (Used In) Provided By Financing Activities | $(368) | $131 | | Net Decrease in Cash and Cash Equivalents | $(37) | $(25) | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, recent business activities, and financial positions, including the $711 million Augusta divestiture, facility closures, debt activities, and share repurchases - The company completed the sale of its Augusta, Georgia bleached paperboard manufacturing facility on May 1, 2024, for a total consideration of $711 million, resulting in a $75 million gain on sale[132] - In Q2 2024, the company decided to close additional packaging facilities by year-end, consolidating production, in addition to 2023 closures[127][292] - The company issued $500 million of 6.375% senior unsecured notes due 2032 and redeemed its 0.821% Senior Notes due 2024 using new credit facilities and cash[50][78] - The company repurchased 7.24 million shares for $200 million in H1 2024, completing the 2019 program, with $365 million remaining under the 2023 program[269][289] Management's Discussion and Analysis (MD&A) Management attributes Q2 Net Sales decrease to divestitures and lower volumes, while Q2 Operating Income rose 21% due to a $75 million divestiture gain, maintaining strong liquidity Results of Operations Q2 2024 Net Sales decreased by $155 million (6%) due to divestitures and lower volumes, while Operating Income increased by $57 million (21%) primarily from the Augusta sale gain Net Sales Change and Key Drivers | Period | Net Sales Change (YoY) | Key Drivers | | :--- | :--- | :--- | | Q2 2024 | -$155M (-6%) | Augusta divestiture, lower volumes/pricing, Russia divestiture, partially offset by Bell acquisition | | H1 2024 | -$334M (-7%) | Lower open market paperboard volumes/pricing, Russia divestiture, lower packaging volumes, partially offset by Bell acquisition | - The primary driver for the increase in Income from Operations in both Q2 and H1 2024 was the $75 million gain from the Augusta divestiture[160][164] Segment Reporting Q2 2024 saw slight Net Sales decreases in Americas Paperboard Packaging, declines in Europe Paperboard Packaging, and a significant drop in Paperboard Manufacturing sales due to divestitures and lower volumes Segment Net Sales (In millions) | Segment | Q2 2024 Net Sales | Q2 2023 Net Sales | H1 2024 Net Sales | H1 2023 Net Sales | | :--- | :--- | :--- | :--- | :--- | | Americas Paperboard Packaging | $1,551 | $1,571 | $3,082 | $3,115 | | Europe Paperboard Packaging | $474 | $523 | $944 | $1,055 | | Paperboard Manufacturing | $174 | $252 | $397 | $568 | - The Paperboard Manufacturing segment's Income from Operations increased significantly to $68 million in Q2 2024 from a $33 million loss in Q2 2023, primarily due to the Augusta divestiture gain[123][222] Financial Condition, Liquidity and Capital Resources Liquidity is supported by operations and credit, despite H1 2024 operating cash flow decreasing to $164 million, while investing activities provided $175 million from the Augusta divestiture - Net cash provided by operating activities decreased by $127 million in H1 2024 compared to H1 2023, mainly due to lower cash generated from operations[201] - The company completed the sale of the Augusta facility for $711 million in cash, significantly impacting investing cash flows[227] - The company was in compliance with its debt covenants as of June 30, 2024, with a Consolidated Total Leverage Ratio of 2.70 to 1.00 (covenant limit < 4.25) and an Interest Expense Ratio of 7.50 to 1.00 (covenant limit > 3.00)[210][235] Quantitative and Qualitative Disclosure About Market Risk The company faces interest rate risk, with approximately 30% of its total debt subject to floating rates as of June 30, 2024, and no active interest rate swaps - As of June 30, 2024, approximately 30% of the Company's total debt was subject to floating interest rates[161] - The company had no outstanding interest rate swaps as of June 30, 2024, compared to $750 million notional value at year-end 2023 that matured in April 2024[109][215] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2024[216] - No material changes occurred during the quarter that affected the Company's internal control over financial reporting[242] PART II — OTHER INFORMATION Legal Proceedings The company is involved in ordinary course lawsuits, but does not anticipate a material adverse effect on its financial position, results, or cash flows - The company does not expect lawsuits arising from the ordinary course of business to have a material adverse effect on its financial results[253] Risk Factors No material changes to the company's risk factors were reported compared to the previously disclosed 2023 Annual Report on Form 10-K - No material changes to risk factors were reported compared to the 2023 Annual Report on Form 10-K[254] Issuer Purchases of Equity Securities In Q2 2024, the company repurchased over 7.2 million shares, completing its 2019 program and continuing purchases under the 2023 program Issuer Purchases of Equity Securities | Period (2024) | Total Shares Purchased | Average Price Paid ($) | | :--- | :--- | :--- | | April 1 - 30 | — | — | | May 1 - 31 | 3,991,952 | $27.68 | | June 1 - 30 | 3,251,782 | $27.52 | - The company completed its 2019 share repurchase program in Q2 2024 by repurchasing 2,329,140 shares under it[244]