Graphic Packaging Holding Company Reports Strong Fourth Quarter and Full Year 2022 Results; Strengthening Leadership in Fiber-Based Consumer Packaging with New Coated Recycled Paperboard Mill Inve...

2022 Highlights

• Net Sales were $9,440 million versus $7,156 million in the prior year.
• Net Organic Sales increased 3% from the prior year.
• Net Income was $522 million versus $204 million in the prior year.
• Earnings per Diluted Share were $1.69 versus $0.68 in the prior year.
• Adjusted Earnings per Diluted Share were $2.33 versus $1.31 in the prior year.
• Adjusted EBITDA was $1,600 million versus $1,056 million in the prior year.
• Net debt was $5,133 million versus $5,659 million at prior year end.
• Year-end net leverage was 3.2x versus proforma 4.6x at prior year end.

Investing to Strengthen Leadership in Fiber-Based Consumer Packaging

• New coated recycled paperboard (CRB) mill will support growing demand and extend position as the lowest-cost, highest-quality paperboard producer in North America. Investment of approximately $1 billion over three years will be internally funded with operating cash flow.

ATLANTA, Feb. 7, 2023 /PRNewswire/ -- Graphic Packaging Holding Company (NYSE:GPK), (the "Company" or "Graphic Packaging"), a leading fiber-based consumer packaging company, today reported Net Income for fourth quarter 2022 of $156 million, or $0.50 per share, based on 309 million weighted average diluted shares. This compares to fourth quarter 2021 Net Income of $39 million, or $0.13 per share, based on 309 million weighted average diluted shares.                               

Fourth quarter 2022 Net Income was impacted by a net $25 million of special charges, that are detailed in the attached Reconciliation of Non-GAAP Financial Measures table. When adjusting for these charges, Adjusted Net Income for the fourth quarter of 2022 was $181 million, or $0.59 per diluted share. This compares to fourth quarter 2021 Adjusted Net Income of $111 million, or $0.36 per diluted share. For the full year 2022, Net Income was $522 million, or $1.69 per share, based on 309 million weighted average diluted shares. This compares to 2021 Net Income of $204 million, or $0.68 per share, based on 298 million weighted average diluted shares.

Full year 2022 Net Income was impacted by a net $200 million of special charges that are detailed in the attached Reconciliation of Non-GAAP Financial Measures table. When adjusting for these items, Adjusted Net Income for full year 2022 was $722 million, or $2.33 per diluted share. This compares to Adjusted Net Income for the full year of 2021 of $390 million, or $1.31 per diluted share.

Michael Doss, the Company's President and CEO said, "2022 was an excellent year of performance and execution by our global team. Financial results improved materially and are on pace to meet our Vision 2025 goals. Our continued innovation in fiber-based consumer packaging solutions drove a third consecutive year of net organic sales growth at or above the high-end of our targeted range. Our large acquisition in Europe has been integrated and is providing growth opportunities in new consumer markets while meeting our financial and synergy expectations. The state-of-the-art CRB machine in Kalamazoo, Michigan successfully ramped production and is on track to achieve an expected $130 million in incremental, annual EBITDA from the investment. Price execution, strong demand for innovative packaging solutions, acquisitions, and positive net productivity resulted in Adjusted EBITDA increasing 52% to $1.6 billion."

The Company's EVP and CFO, Stephen Scherger, added, "We delivered robust fourth quarter financial results despite a $20 million unfavorable impact to Adjusted EBITDA from the late December winter storm, which impacted paperboard production by approximately 40,000 tons. During the year, we reduced net debt by $526 million and, as committed, exited the year with net leverage of 3.2x, down from a proforma 4.6x at the end of 2021. We expect to grow Sales, Adjusted EBITDA, and Adjusted EPS in 2023 and further reduce net leverage to approximately 2.5x by year-end, while continuing to invest in our capabilities to drive growth."

Doss concluded, "We remain committed to our Vision 2025 goals and are pleased with our progress to date. Investments such as the CRB machine in Kalamazoo and other strategic initiatives are delivering real returns for shareholders and high-quality packaging for consumers. Our plans to build a new CRB mill in Waco, Texas and optimize our paperboard network over the next three years will extend our position as the lowest-cost, highest-quality paperboard producer in North America and enhance our ability to meet growing global demand for fiber-based consumer packaging."

Operating Results

Net Sales

Net Sales increased 20% to $2,386 million in the fourth quarter of 2022, compared to $1,988 million in the prior year period. The $398 million increase was driven by $137 million of favorable volume/mix and $298 million in positive pricing, partially offset by $37 million in unfavorable foreign exchange.

Net Sales increased 32% to $9,440 million for the full year 2022, compared to $7,156 million in the prior year. The $2,284 million increase was driven by $1,283 million of favorable volume/mix from organic growth and acquisitions and $1,131 million in positive pricing, partially offset by $130 million in unfavorable foreign exchange.

EBITDA

EBITDA for the fourth quarter of 2022 was $408 million, an increase of $190 million from the fourth quarter of 2021. After adjusting for charges associated with business combinations and other special charges, Adjusted EBITDA increased $128 million to $413 million in the fourth quarter of 2022 from $285 million in the fourth quarter of 2021. When comparing against the prior year quarter, Adjusted EBITDA in the fourth quarter of 2022 was positively impacted by $14 million in favorable volume/mix and $298 million in positive pricing.  These benefits were partially offset by $75 million of commodity input cost inflation, $40 million of labor, benefits and other inflation, $63 million in unfavorable net performance including $25 million in incentives and $30 million of unfavorable impact related to weather and outages, and $6 million of unfavorable foreign exchange.

EBITDA for the full year 2022 was $1,469 million, an increase of $563 million from the full year 2021. After adjusting for charges associated with business combinations and other special charges, Adjusted EBITDA increased 52% to $1,600 million in the full year 2022 from $1,056 million in the full year 2021. When comparing against the prior year, Adjusted EBITDA in 2022 was positively impacted by $224 million in favorable volume/mix and $1,131 million in positive pricing. These benefits were partially offset by $598 million of commodity input cost inflation, $112 million in labor, benefits and other inflation, $59 million in unfavorable net performance including $82 million in incentives and $20 million of unfavorable impact related to the late December winter storm and related mill downtime, and $42 million in unfavorable foreign exchange.

Other Results

Net Cash Provided by Operating Activities was $1,090 million for the full year 2022, compared to $609 million for the full year 2021. Adjusting for GAAP guidelines related to the classification of certain cash receipts and payments associated with our receivable sale programs and the cash payments associated with special charges, Adjusted Net Cash Provided by Operating Activities was $1,249 million for the full year 2022, compared to $883 million for the full year 2021. Adjusted Cash Flow for the full year 2022 was $700 million, compared to $81 million for the full year 2021.

Total Debt (Long-Term, Short-Term and Current Portion) decreased $244 million during the fourth quarter of 2022 to $5,283 million compared to the third quarter of 2022. Total Net Debt (Total Debt, net of Cash and Cash Equivalents) decreased $312 million during the fourth quarter of 2022 to $5,133 million compared to the third quarter of 2022. The Company's year-end Net Leverage Ratio was 3.2x Adjusted EBITDA compared to 4.6x (proforma) at the end of 2021.

At December 31, 2022, the Company had available liquidity of $1,538 million, including the undrawn availability under its global revolving credit facilities.

Net Interest Expense was $54 million in the fourth quarter of 2022, an increase as compared to the $35 million reported in the fourth quarter of 2021. For full year 2022, net interest expense was $197 million compared to $123 million in 2021.

Capital expenditures for the fourth quarter of 2022 were $104 million compared to $214 million in the fourth quarter of 2021. For full year 2022, capital expenditures were $549 million compared to $802 million in 2021.

Fourth quarter 2022 Income Tax Expense was $60 million, compared to a $10 million expense in the fourth quarter of 2021. Full year 2022 Income Tax Expense was $194 million compared to a full year 2021 Income Tax Expense of $74 million.

Please note that a tabular reconciliation of Net Organic Sales, Net Organic Sales Growth, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, Adjusted EPS, Adjusted Net Cash Provided by Operating Activities, Adjusted Cash Flow and Total Net Debt is attached to this release.

Earnings Call and Webcast

The Company will host a conference call at 10:00 a.m. ET today (February 7, 2023) to discuss the results of fourth quarter and full year 2022. The conference call will be webcast and can be accessed from the Investors section of the Graphic Packaging website at www.graphicpkg.com.  Participants may also listen via telephone by referencing conference ID 169486 and dialing:

844-200-6205 from the United States,
833-950-0062 from Canada, and
929-526-1599 from outside the United States and Canada.

Forward Looking Statements

Any statements of the Company's expectations in this press release, including but not limited to guidance regarding 2023 Net Sales, Adjusted EBITDA, Adjusted EPS and Net Leverage at year-end as well as statements regarding the new CRB machine in Waco, Texas constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company's present expectations. These risks and uncertainties include, but are not limited to, the effects of the COVID-19 pandemic on the Company's operations and business, inflation of and volatility in raw material and energy costs, continuing pressure for lower cost products, the Company's ability to implement its business strategies, including productivity initiatives, cost reduction plans, and integration activities, as well as the Company's debt level, currency movements and other risks of conducting business internationally, the impact of regulatory and litigation matters, including the continued availability of the Company's U.S. federal income tax attributes to offset U.S. federal income taxes and the timing related to the Company's future U.S. federal income tax payments. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made and the Company undertakes no obligation to update such statements, except as required by law. Additional information regarding these and other risks is contained in the Company's periodic filings with the SEC.

About Graphic Packaging Holding Company

Graphic Packaging Holding Company (NYSE: GPK), headquartered in Atlanta, Georgia, is committed to providing consumer packaging that makes a world of difference. The Company, a leading fiber-based consumer packaging provider, serves the world's most widely-recognized food, beverage, foodservice and other consumer products companies and brands.  The Company operates on a global basis, is one of the largest producers of folding cartons and fiber-based foodservice products in the United States and Europe, and holds leading market positions in coated recycled paperboard, coated unbleached kraft paperboard and solid bleached sulfate paperboard. Additional information about Graphic Packaging, its business and its products is available at www.graphicpkg.com.

GRAPHIC PACKAGING HOLDING COMPANY
Reconciliation of Non-GAAP Financial Measures

The tables below set forth the calculation of the Company's earnings before interest expense, income tax expense, depreciation and amortization, including pension amortization ("EBITDA"), Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Earnings Per Share, Adjusted Net Cash Provided by Operating Activities, Adjusted Cash Flow, Net Leverage Ratio, Total Net Debt and Net Organic Sales Growth. Adjusted EBITDA and Adjusted Net Income exclude charges associated with: the Company's business combinations, facility shutdowns, and other special charges. The Company's management believes that the presentation of EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings Per Share, Adjusted Net Cash Provided by Operating Activities, Adjusted Cash Flow, Net Leverage Ratio and Net Organic Sales Growth provides useful information to investors because these measures are regularly used by management in assessing the Company's performance. EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings Per Share, Adjusted Net Cash Provided by Operating Activities, Adjusted Cash Flow, Net Leverage Ratio, and Net Organic Sales Growth are financial measures not calculated in accordance with generally accepted accounting principles in the United States ("GAAP"), and are not measures of net income, operating income, operating performance, liquidity or net sales presented in accordance with GAAP.

EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings Per Share, Adjusted Net Cash Provided by Operating Activities, Adjusted Cash Flow, Net Leverage Ratio and Net Organic Sales Growth should be considered in addition to results prepared in accordance with GAAP, but should not be considered substitutes for or superior to GAAP results. In addition, our EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings Per Share, Adjusted Net Cash Provided by Operating Activities, Adjusted Cash Flow, Net Leverage Ratio and Net Organic Sales Growth may not be comparable to Adjusted EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate such measures in the same manner as we do.

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