Graphic Packaging(GPK) - 2023 Q4 - Annual Results

Financial Performance Overview The company demonstrated strong profitability growth and balance sheet improvement in 2023, despite sales challenges, and provided a positive outlook for 2024 Fourth Quarter and Full Year 2023 Highlights The company achieved strong profitability growth in Q4 and FY2023, with increased Net Income and Adjusted EPS, improved leverage, and anticipates positive organic sales growth in 2024 Q4 & Full Year 2023 Earnings Summary | Metric | Q4 2023 | Q4 2022 | Full Year 2023 | Full Year 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $196 million | $156 million | $723 million | $522 million | | Diluted EPS | $0.64 | $0.50 | $2.34 | $1.69 | | Adjusted Net Income | $230 million | $181 million | $899 million | $722 million | | Adjusted Diluted EPS | $0.75 | $0.59 | $2.91 | $2.33 | Full Year 2023 Key Financial Metrics | Metric | 2023 Value | YoY Change | | :--- | :--- | :--- | | Net Sales | $9,428 million | Flat | | Net Income | $723 million | +39% | | Adjusted EBITDA | $1,876 million | +17% | | Earnings per Diluted Share | $2.34 | +38% | | Adjusted EPS | $2.91 | +25% | | Year-end Net Leverage | 2.8x | from 3.2x | - CEO Michael Doss highlighted that despite a 4% negative organic sales growth due to inventory normalization, the company executed well, expanded profitability, and achieved over $200 million in innovation sales. The company is positioned for a return to positive organic sales growth in 2024[6] Operating Results Full year 2023 Net Sales remained flat due to pricing offsetting volume declines, while Adjusted EBITDA significantly increased to $1.876 billion, driven by strong pricing and favorable net performance despite lower volumes - Q4 2023 Net Sales decreased 6% to $2,249 million, driven by a $198 million unfavorable volume/mix impact, partially offset by $40 million in positive pricing[8] - Full year 2023 Net Sales were flat at $9.428 billion, as $556 million in positive pricing was offset by $580 million in unfavorable volume/mix[9] - Q4 2023 Adjusted EBITDA rose to $457 million from $413 million in Q4 2022. The increase was primarily due to positive pricing ($40 million) and favorable net performance ($90 million), which offset unfavorable volume/mix ($64 million) and inflation ($38 million)[10] - Full year 2023 Adjusted EBITDA increased to $1.876 billion from $1.600 billion in 2022. The growth was driven by positive pricing ($556 million) and favorable net performance ($75 million), partially offset by unfavorable volume/mix ($171 million) and inflation ($169 million)[11] Financial Position and Other Results The company strengthened its balance sheet in 2023 by reducing net debt and improving its leverage ratio to 2.8x, while increasing capital expenditures to $804 million and maintaining strong liquidity of $1.43 billion - Total Net Debt decreased by $228 million during Q4 2023 to $5.234 billion, and the Net Leverage Ratio improved to 2.8x Adjusted EBITDA from 3.0x at the end of Q3 2023[12] - The company returned $48 million to stockholders in Q4 2023, comprising $31 million in dividends and $17 million in share repurchases[12] - Full year 2023 capital expenditures increased to $804 million from $549 million in 2022, largely due to the Waco, Texas recycled paperboard manufacturing facility project[14] - As of December 31, 2023, the company had available liquidity of approximately $1.433 billion[13] Full Year 2024 Guidance Graphic Packaging projects full year 2024 Adjusted EBITDA between $1.75 billion and $1.95 billion and Adjusted EPS between $2.50 and $3.00, excluding the impact of the Augusta facility sale Full Year 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | Adjusted EBITDA | $1.750 billion to $1.950 billion | | Adjusted Earnings per Diluted Share | $2.50 to $3.00 | - The provided 2024 guidance excludes the potential impact of the announced sale of the Augusta paperboard manufacturing facility[16] Consolidated Financial Statements This section presents the company's detailed consolidated financial statements, including the statements of operations, balance sheets, and cash flows for the reported periods Consolidated Statements of Operations For the full year 2023, Net Sales remained stable at $9.43 billion, while Income from Operations grew to $1.17 billion and Net Income increased by 39% to $723 million due to cost controls Full Year Statement of Operations Summary (in millions) | Line Item | 2023 | 2022 | | :--- | :--- | :--- | | Net Sales | $9,428 | $9,440 | | Cost of Sales | $7,311 | $7,610 | | Income from Operations | $1,174 | $906 | | Net Income | $723 | $522 | | Net Income Per Share - Diluted | $2.34 | $1.69 | Condensed Consolidated Balance Sheets As of December 31, 2023, Total Assets increased to $11.18 billion, primarily from property, plant, and equipment, while Total Shareholders' Equity grew over 29% to $2.78 billion Year-End Balance Sheet Summary (in millions) | Line Item | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $2,845 | $2,706 | | Property, Plant and Equipment, Net | $4,992 | $4,579 | | Total Assets | $11,175 | $10,328 | | Total Current Liabilities | $2,589 | $1,933 | | Long-Term Debt | $4,609 | $5,200 | | Total Liabilities | $8,393 | $8,178 | | Total Equity | $2,782 | $2,150 | Condensed Consolidated Statements of Cash Flows For the full year 2023, Net Cash Provided by Operating Activities was $1.14 billion, while Net Cash Used in Investing Activities more than doubled to $1.03 billion due to increased capital spending Full Year Statement of Cash Flows Summary (in millions) | Line Item | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $1,144 | $1,090 | | Net Cash Used in Investing Activities | $(1,025) | $(435) | | Net Cash Used in Financing Activities | $(106) | $(666) | | Net Increase (Decrease) in Cash | $12 | $(22) | Reconciliation of Non-GAAP Financial Measures This section provides reconciliations of non-GAAP financial measures, including Adjusted EBITDA, Net Debt, Adjusted Cash Flow, and Net Organic Sales Growth, to their most directly comparable GAAP measures Reconciliation of EBITDA and Adjusted EBITDA For full year 2023, Net Income of $723 million was reconciled to an Adjusted EBITDA of $1.88 billion, with the Adjusted EBITDA margin significantly expanding to 19.9% from 16.9% in 2022 Full Year Reconciliation of Net Income to Adjusted EBITDA (in millions) | Line Item | 2023 | 2022 | | :--- | :--- | :--- | | Net Income | $723 | $522 | | Interest, Taxes, D&A, etc. | +$1,072 | +$947 | | EBITDA | $1,795 | $1,469 | | Special Charges | +$81 | +$131 | | Adjusted EBITDA | $1,876 | $1,600 | | Adjusted EBITDA Margin | 19.9% | 16.9% | Reconciliation of Net Debt and Leverage Ratio The company's Net Leverage Ratio significantly improved to 2.79x at year-end 2023 from 3.21x in 2022, driven by a 17% increase in Adjusted EBITDA despite a slight rise in Total Net Debt Net Leverage Ratio Calculation | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Net Debt | $5,234 million | $5,133 million | | Adjusted EBITDA (LTM) | $1,876 million | $1,600 million | | Net Leverage Ratio | 2.79x | 3.21x | Reconciliation of Cash Flow Adjusted Net Cash Provided by Operating Activities increased to $1.297 billion in 2023, but Adjusted Cash Flow decreased to $493 million due to significantly higher capital spending Adjusted Cash Flow Calculation (in millions) | Line Item | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $1,144 | $1,090 | | Adjustments | +$153 | +$159 | | Adjusted Net Cash Provided by Operating Activities | $1,297 | $1,249 | | Capital Spending | $(804) | $(549) | | Adjusted Cash Flow | $493 | $700 | Calculation of Net Organic Sales Growth The company reported a negative 3.9% Net Organic Sales Growth for full year 2023, a non-GAAP metric adjusted for various factors to reflect underlying business performance Full Year 2023 Net Organic Sales Growth Calculation (in millions) | Line Item | Amount | | :--- | :--- | | Net Sales | $9,428 | | Less: Open Market Paperboard Sales | $(1,022) | | Less: Impact of Acquisitions | $(53) | | Less: Impact of Pricing | $(514) | | Less: Impact of Foreign Exchange | $(13) | | Net Organic Sales | $7,826 | | Prior Year Net Organic Sales | $8,140 | | Net Organic Sales Growth | (3.9)% |