Graphic Packaging(US:GPK)2023-02-07 21:18Financial Data and Key Metrics Changes - Adjusted EBITDA for Q4 2022 was $413 million, an increase of $128 million or 45% year-over-year, with an adjusted EBITDA margin of 17.3%, up 300 basis points from the prior year [17] - Full-year adjusted EBITDA reached $1.6 billion, a growth of $544 million or 52% from 2021, with an adjusted EBITDA margin of 16.9%, up 210 basis points year-over-year [17] - Net sales for the full-year increased 32% to $9.4 billion, driven by $1.1 billion in positive pricing, 3% organic sales growth, and acquisitions [22] Business Line Data and Key Metrics Changes - Food, beverage, and consumer sales grew 37% in 2022, driven by positive pricing, organic sales growth, and acquisitions [61] - Foodservice sales achieved strong growth of 25% from 2021 [61] - Full-year net organic sales growth was 3%, representing the third consecutive year of delivering organic sales growth at or above the high-end of the targeted range [36] Market Data and Key Metrics Changes - Industry operating rates for SBS were reported at 91% and CRB at 95% in Q4, with CUK operating rates remaining over 95% [18] - The addressable market for organic growth increased to $12.5 billion from $5 billion in previous years, indicating strong demand for fiber-based consumer packaging [6] Company Strategy and Development Direction - The company is focused on extending its leadership in fiber-based consumer packaging, with significant investments in new capabilities and sustainability initiatives [3][8] - A new CRB mill is planned in Waco, Texas, expected to start construction in Q1 2023 and ramp up production by early 2026, enhancing the company's capacity and sustainability [13][35] - The company aims to achieve 100 to 200 basis points of annual net organic sales growth in 2023 and beyond, supported by strong demand from global customers [6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the uncertain economic environment while continuing to invest for long-term value creation [25] - The company anticipates strong cash flow generation in 2023, with adjusted EBITDA expected to be in the range of $1.7 billion to $1.9 billion [39] - Management highlighted the importance of sustainability and consumer preferences for recycled materials as key drivers for future growth [10][11] Other Important Information - The company announced a quarterly dividend increase to $0.10 per share, reflecting the strength of cash flows and progress towards Vision 2025 goals [19] - Net debt declined by $526 million to $5.1 billion, with a net leverage ratio reduced to 3.2x at year-end 2022 from 4.6x at the end of 2021 [38] Q&A Session Summary Question: How did the company manage to achieve growth while other CPGs reported declines? - Management noted broad-based growth across all geographies, with a strong performance in October and November, despite a weaker December due to customer destocking [43] Question: What is the rationale behind building a new mill in Waco instead of expanding existing facilities? - The decision was based on the need for high-quality, low-cost CRB production in a growing fiber basket area, providing reliability and security of supply [70][71] Question: How does the company view the competitive landscape and pricing pressures? - Management expects volumes to grow in 2023, indicating a solid market demand, and believes that their backlogs remain healthy [104] Question: What are the expectations for commodity costs in 2023? - Management acknowledged the volatility in commodity costs and provided a prudent range for potential inflation, indicating readiness to adjust pricing as necessary [105][106] Question: How does the Waco investment compare to other capital allocation options? - The investment is seen as a long-term value creation opportunity with lower ongoing capital requirements compared to virgin mills, providing significant cash flow benefits [88][90]