Thank you for joining us for the Graphic Packaging Holding Company Fourth Quarter and Full Year 2020 Earnings Call. I would like to turn the call over to Ms. Melanie Skijus, Vice President of Investor Relations. Please proceed.

Good morning, and welcome to Graphic Packaging Holding Company's conference call to discuss our fourth quarter and full year 2020 results. Speaking on the call will be Mike Doss, the company's President and CEO; and Steve Scherger, Executive Vice President and CFO. To help you follow on with today's call, we will be referencing our fourth quarter earnings presentation which can be accessed through the webcast via self-directed slides and also on the Investors section of our website at www.graphicpkg.com. I would like to remind everyone that statements of our expectations, plans, estimates and beliefs regarding future performance and events constitute forward-looking statements. 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. Information regarding these risks and uncertainties is contained in the company's periodic filings with the Securities and Exchange Commission. Undue reliance should not be placed on 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. Mike, I'll turn it over to you.

Thank you, Melanie. Good morning, and thank you for joining us on the call today. I'm pleased with the results we delivered in 2020, and I'm looking forward to executing on growth opportunities in front of us in 2021 and beyond. We are successfully achieving the milestones established with our Vision 2025 goals. Specifically, we are executing strategic growth initiatives driven by innovation and supported by sustainability. Providing exemplary service to customers, further strengthening our long-term partnerships, allocating capital to growth initiatives and ensuring strategic projects remain on time and on budget while prudently managing the balance sheet; and lastly, investing in and developing our most important asset, our people. 2020 was an unprecedented year for the world and our industry, creating unique challenges that our team had head on. In March, we were designated an essential business and our 19,000 employees solved every challenge our customers placed on us. We delivered exceptional service and quality throughout the year, and we accomplished this while maintaining our focus on long-term goals. Turning to Slide 3. I'll expand on some of our 2020 highlights. We achieved our EBITDA guidance and exceeded cash flow guidance that we provided before the COVID-19 crisis began. We successfully pivoted the company to growth, increasing net organic sales by 4% which was well ahead of our 100 to 200 basis point target. Operationally, we accelerated strategic business decisions to adapt to the changing environment and invested in tools to keep our employees healthy and safe. Continued growth in integrated volume, 2 tuck-under acquisitions and our proactive conversion of customers from CUK to SBS folding carton grades resulted in a 2 percentage point increase in our total company integration rate for the year to 70%. This number will continue to grow as integrations progress and supply agreements unwind. The balance sheet was prudently managed as we borrowed effectively where needed, successfully worked inventory out of the business and exceeded guidance for cash flow. As a result, we continued our significant return of capital to stakeholders, with over $900 million distributed in dividends, share repurchases, partnership distributions and redemptions. As Steve will discuss, these actions are accelerating value creation for stakeholders. We also enhanced disclosure and elevated our communication platform around the company's corporate and social responsibility programs with our comprehensive ESG report, which can be found in the Investor Relations section of our website. You can expect to hear much more about our programs and our progress on our critical environmental, social and governance initiatives in the future. As we turn to 2021, I'm confident in our ability to continue to grow net organic sales, EBITDA and ROIC consistent with the goals established in the Vision 2025. On Slide 4, let me walk you through our roadmap to capture continued growth this year while strengthening our leadership position in the industry. We will continue our unwavering focus on winning and growing markets, and I will share with you today some of our latest innovation and new product developments. In addition to the organic sales growth, we expect to capture this year, we will continue to closely match our paperboard supply with demand and manage the commodity input cost environment. During the year, we intend to deliver productivity improvements that will more than offset labor and benefit inflation with annualized net performance improvements resulting from continued execution of strategic projects. To that end, we are announcing today that our new CRB machine in Kalamazoo, Michigan is expected to begin producing paperboard in Q4 this year ahead of schedule. The acceleration provides increasing confidence we will achieve the first $50 million EBITDA benefit in 2022. Today, we are also providing details on our plans to convert an SBS machine in Texarkana, Texas to a swing machine in an overall capacity neutral investment. This will provide production capacity necessary to meet demand for global CUK beverage packaging solutions while increasing our long-term flexibility across our paperboard substrates. I will cover both of these in greater detail shortly. Slide 5 is a brief recap of our Q4 performance. Total net sales, including acquisitions, were $1.7 billion. This was an impressive 9% increase over the prior year period. Excluding acquisitions, core food, beverage and consumer sales were roughly $100 million or 9%. Our foodservice business improved sequentially, declining 10% year-over-year in the quarter compared to a 14% decline in Q3. As a result, net organic sales growth for the quarter was 5% over the prior year period. Net performance was $25 million during Q4, benefiting from the completion of several strategic projects and implementation of ongoing productivity initiatives. Proactive decisions made in 2020 to manage inventory levels helped align our supply with demand. This included market downtime on our SBS cup stock line and the substitution of 90,000 tons of CUK to SBS only carton grades to accommodate increased food and beverage demand for CUK. AF&PA industry operating rates in Q4 in SBS and CRB were 96% and 92%, respectively, and our company's CUK operating rate remained above 95%. Industry inventories declined across all 3 substrates and are now below historic averages. Backlogs in all grades remain at 5-plus weeks. Steve will discuss the financials and capital allocation in greater detail during his remarks, but I would like to quickly highlight stakeholder returns. We continue our return of capital during the quarter with $90 million distributed in dividends, partnership distributions and share repurchases. As I mentioned earlier, for the full year, we returned over $900 million to stakeholders. Of that, share repurchases were $316 million, and were executed at an average price per share of $13.48. As stewards of your capital, this reflects our commitment to achieve the best return for investors, allocating capital to our share repurchase program when we feel the GPK share price is below the intrinsic value of the company. Turning now to Slide 6. New business across 3 growth platforms is increasing, and our innovative offerings continue to support growth opportunities with customers. The addressable market for fiber-based packaging solutions has grown from the initial estimates provided at our Investor Day in September of 2019. With demand for fiber-based packaging solutions expanding across markets, we now believe the total addressable market is closer to $7.5 billion as compared to the initial $5 billion market opportunity we were focused on in 2019. We have witnessed the rapid adoption of our KeelClip beverage packaging solution, an innovative fiber-based packaging that secures cans with a center keel and replaces plastic rings and shrink wrap, while offering merchandising benefits. The package is being rolled out across Europe by major global soft drinks and beer brands. In addition, the PaperSeal tray innovation of hermetically sealed tray designs to replace existing plastic and foam tray packaging alternatives continues to penetrate in meat, poultry and other protein markets. We are seeing significant growth and additional market opportunities with each of these unique solutions. On Slide 7, we provide an example of IntegraFlute, our proven strength packaging solution with the ships in own container or SIOC design. This solution helps reduce overall packaging while providing supply chain efficiencies, including ease of storage. It extends customers' marketing programs with striking branded cartons and benefits the overall consumer experience with efficiency in delivery. The branded carton provides a seamless packaging solution from doorstep to pantry to recycling them. The package arrives, ready-to-use with easy carrying handles and its sturdiness provides a well-kept appearance in the pantry. This trademark solution is currently being tested by customers and is used in omni-channel distribution environments, including mass retailers and Amazon today. While still early days, customer tests are having extremely favorable results and interest is expanding. Moving to Slide 8 and 9, and the discussion of strategic initiatives we are undertaking in 2021 and 2022 to position us competitively for growth. CUK remains a growing global paperboard substrate. We are the leading provider of CUK and have been growing production consistently at a 3% CAGR over the last 12 years. We are currently running 90,000 tons of CUK packaging on SBS assets and are purchasing an additional 50,000 tons externally to service our global CUK demand in 2021. In order to optimize our paperboard mill infrastructure, increase strategic optionality, improve margins and capture growth, we're adding a capacity neutral CUK production capability to our network in early 2022. This will be done with an estimated $100 million investment in our Texarkana, Texas SBS mill over the next 15 months. The investment to an existing SBS machine will convert it to a swing machine capable of producing both CUK and SBS. It is expected to drive $20 million in annual EBITDA growth over the next 3 years, primarily from margin improvements supporting the growing CUK platform. The swing machine will provide exceptional flexibility to support demand for both SBS and CUK. We are over 95% integrated in our CUK business today when including 1 large converting customer with a long-term contractual agreement. With our current substitution to SBS folding carton grades and the external purchase is necessary to meet near-term CUK demand, we already consumed over half of the machine's future potential CUK production. Importantly, with the strategic investment, we'll be servicing our own internal CUK demand with flexible production capacity. On Slide 9, we provide an update to our well-chronicled CRB platform consolidation investment in Kalamazoo, Michigan. We remain on budget, and I'm pleased to report we are ahead of the original schedule with the start-up timing for the new CRB machine. As a result, we expect to begin producing paperboard in late 2021. This provides greater confidence in our estimates of the first $50 million of EBITDA realized in 2022 and the remaining $50 million in 2023. We have an outstanding team managing this transformational project for the company. The beneficiaries of this project for a wide range may include our employees. We have the opportunity to learn and grow with new automation and world-class paperboard technology. Our customers with a greater quality cycle paperboard and opportunities for new applications and the environment as we reduce greenhouse gases, water usage, and purchased energy in the world's lowest cost and most environmentally friendly CRB production platform. Turning to Slide 10. I will conclude my remarks with thoughts on industry positioning and creating value through leadership with our Vision 2025. We are running a different race. We are focused on innovative, sustainable fiber-based packaging solutions and continue to create and commercialize valuable, safe and circular packaging solutions that help customers achieve their sustainability goals while providing preferred solutions demanded by today's consumer. We have identified strategic investments that improve our long-term competitive positioning and value proposition to the market. Our focus as a leading integrated provider of all 3 paperboard substrates, CRB, CUK and SBS sets us apart. We focus solely on providing the lowest cost, highest quality fiber-based packaging solutions in the industry. We continue to increase our integration rates over time through downstream strategic acquisitions and organic sales growth. Our dedicated vertically integrated model creates a competitive advantage that provides significant flexibility and results in best-in-class paperboard margins for the company. We will continue to enhance our differentiated model with targeted and strategic investments. We are hitting the milestones that enable us to achieve our Vision 2025 growth goals as we drive value to the market and for our customers. 2020 was an unprecedented year for all of us, and I'm very proud of what we accomplished. Importantly, we moved quickly to ensure employees have the resources necessary to perform their jobs safely. Our teams successfully completed multiple strategic projects, managing a year that also had significant capital investment and growth. We took care of customers and met rapidly changing demand patterns. In closing, with the promise of the vaccines on the horizon, we look forward to the ongoing recovery in our foodservice business. We also expect continued solid performance in our food and beverage markets as consumers work and do more from home. In addition, the push by consumers for more sustainable packaging solutions is only strengthening. While we are not out of the woods yet as it relates to the impact from COVID-19, it is clear the value we provide the end-use consumer is real. We will build on our sustainable portfolio of packaging solutions and continue to deliver innovation through fiber-based packaging. Our teams are motivated, and with the perseverance and passion exemplified by our employees in 2020, we are set up for yet another strong year in 2021 and beyond. Steve, over to you.

Thanks, Mike, and good morning. Turning to Slide 11, focused on full year 2020 results. Net sales increased 6% from the prior year to $6.6 billion driven by 4% net organic sales growth and acquisitions. Adjusted EBITDA improved 4% year-over-year to $1.07 billion. Demand patterns changed overnight near the end of Q1 2020, and we responded rapidly to meet the needs of our customers. We went above and beyond to keep customers in supply, expediting production and delivery as necessary. In addition, we took market downtime in cup stock and shifted scheduled maintenance to the fourth quarter to match supply with the changing demand environment. Total revenue and EBITDA growth during the year reflected the healthy increase in volumes from conversions to paperboard and greater at-home consumption. EBITDA margins were modestly impacted by the actions I just mentioned that were necessary to fulfill fluctuated supply chain requirements and match supply with demand. The timing of synergy achievement related to the 2 acquisitions we completed in 2020 was also a factor. Full year adjusted EPS was $1.12, an impressive 29% increase from 2019. We delivered significant stakeholder value as we acquired $500 million of the international paper partnership interest and continued our share repurchase program. Turning to Slide 12 and our full year net sales waterfall. Net sales increased $400 million in 2020, driven by $408 million of improved volume mix resulting from a combination of 4% organic sales growth and acquisitions. Our full year EBITDA waterfall can be seen on Slide 14. Adjusted EBITDA increased $40 million to $1.07 billion in 2020. Adjusted EBITDA was positively impacted by $30 million of favorable volume mix, $22 million of commodity input cost deflation and $42 million of positive performance. These benefits were partially offset by $52 million in other inflation, primarily labor and benefits, and $1 million of pricing. Foreign exchange impact was essentially flat for the year. As you can see on the waterfall, net performance would have been $57 million for the full year before taking into account our decision to execute SBS cup stock market downtime and moderately higher expenses associated with maintenance downtime as we move the timing of outages to meet increased customer demand. Adjusted EBITDA in Q4 increased $6 million from Q4 2019 to $265 million. As seen on Slide 15, adjusted EBITDA during the quarter was positively impacted by $9 million of favorable volume mix, $25 million of improved performance, and $4 million of favorable foreign exchange. These benefits were partially offset by $11 million of pricing, $8 million of commodity input cost inflation, and $13 million of other inflation, primarily labor and benefits. Turning to cash flow. Our adjusted cash flow was over $300 million in 2020, ahead of the guidance we provided at the beginning of the year. We invested $646 million in capital expenditures including capital for our transformative CRB platform consolidation project. We ended 2020 with over $1.7 billion of global liquidity and $3.5 billion of net debt. Total net debt in Q4 decreased $171 million sequentially due to strong cash flow generation. Our net leverage ratio at the end of 2020 was 3.26x. We expect our year-end 2021 net leverage ratio to be in a range of 3x to 3.5x. Our long-term leverage target of 2.5 to 3x remains unchanged. Last quarter, we mentioned the completion of a $425 million delayed draw term loan with the Farm Credit system intended to refinance our $425 million bond maturing in April 2021. As an update, we funded the Farm Credit loan in mid-January and called the bond at par on January 15. With this backdrop, let's turn to Slide 16 to discuss 2021 guidance. We expect full year adjusted EBITDA to be in a range of $1.09 to $1.15 billion. A year-over-year increase of 5% at the midpoint. Key drivers of adjusted EBITDA growth this year include positive volume mix productivity gains. We expect $10 million to $40 million in favorable volume mix from 100 to 200 basis points of net organic sales growth. Net performance improvements are anticipated to be in the range of $70 million to $90 million this year as the large recovery boiler projects completed over the last 3 years will not repeat in 2021. Net performance is expected to more than offset labor, benefit, and other inflation, primarily property insurance of $50 million to $60 million. At current rates, foreign exchange is not expected to have a material impact on results. Finally, we expect price actions will offset commodity input cost inflation for the year. Adjusted cash flow is expected to be in the range of $175 million to $250 million in 2021. The reconciliation from adjusted EBITDA to cash flow includes $690 million to $710 million in capital spending, including the remaining portion of capital deployed in our CRB platform consolidation project, along with the investment we are making in Texarkana. $120 million to $130 million in cash interest, $35 million to $45 million of cash taxes, $10 million to $30 million in working capital, and $10 million to $20 million in pension contributions. Importantly, as we look ahead to 2022, we expect to see a significant improvement in cash flow as capital spending returns to more normalized levels, and we earn on these critical projects. I will end my remarks this morning on Slide 17 with an illustration of the value creation we are providing our stakeholders. We combined our operations with International Paper's Consumer Packaging business in January 2018. This can be seen on the slide. The combination was immediately accretive to stakeholders. And after accounting for the combination, adjusted EBITDA has grown at an attractive 5% compound annual growth rate over the period ending 2020. Over that same period, adjusted EBITDA per ownership unit, which includes both IP's partnership units and GPK shares, has grown at an impressive 15% compound annual growth rate. We look forward to continuing our focus on growth and driving returns to stakeholders. I'll now turn the call back to the operator for Q&A.

Your first question comes from the line of Mark Wilde from BMO.

I wanted to talk a little about the pull forward of the CRB machine? And then just kind of a follow-on question around the go-to-market strategy of machines. So can you give us a little color, first of all, on what's allowing you to kind of pull the timing forward?

Yes, thank you for that, Mark. The main point is that we executed effectively. As you can understand, for a project of this magnitude, we incorporate some contingency plans. Despite the challenges posed by COVID and the shelter-in-place order in Michigan last April, we managed to execute well throughout the summer. We benefitted from favorable weather, and the construction process went smoothly. Our team is making substantial progress. The facilities are now enclosed; Steve and I visited last week and met with the team to review the current status and the schedule for commissioning the machine. We are optimistic about achieving that in the fourth quarter of this year. Additionally, we expect to produce commercial material by the end of the fourth quarter, which will then be sent downstream to our carton plants later this year.

Okay. Mike, this machine is significantly newer and more advanced than its competitors in the North American CRB market. I’m interested in how you plan to position this product in the market and your thoughts on the pricing strategy, as much as you can share during this public call. Will it be priced similarly to other CRBs, or can it be considered as an alternative to CNK because the multiply board likely has better wet strength characteristics?

Yes. So it's a 3 ply machine. So we'll start with that. So it is consistent with our K1 machine, and those are the only 2 machines in the U.S. that obviously have that capability to your point. It's going to have the widest caliber range, meaning that we'll be able to specifically go to the low end of the caliber range that others won't be able to and still get our tons per hour up. So relative to pricing, what we really want to do is have that capability and afford our customers, those types of products that allow them to continue to grow their business and see a lift in the marketplace. So we're excited about that. I mean it really is from a positioning standpoint, to your point, unique and different. We justified it, as you know, on cost, but there's going to be a number of commercial capabilities that are going to allow us to continue to drive our growth and specifically drive our integration rates up on that machine because our goal is to sell finished packages to our customers. So it will be part of our overall portfolio of offerings to our customer set.

But will it be pitched solely as a CRB product, or are you considering positioning it differently, perhaps as a substitute for CNK in certain applications?

There will be several applications. As demonstrated by our work on CUK in Texarkana, we're pursuing both avenues. I'll take a moment to discuss all three substrates for clarity. I appreciate the question. Regarding CRB, we plan to establish the lowest cost, highest quality CRB platform in North America, producing just over 1 million tons. Looking at CUK, we have achieved a growth rate of roughly 3% CAGR over the past 12 years on our platform. Our global beverage franchise continues to expand significantly, leading us to operate at 90,000 tons on SBS and purchase an additional 50,000 tons. This will give us three mills capable of producing our high-quality, low-cost CUK or our trademark SUS. Approximately 150,000 of the 300,000 ton machine is already sold, primarily to ourselves, and we maintain a 95% integration rate on that machine. If we project forward over the next few years, our growth on CUK may approach 2 million tons, which is part of the reason for these developments. For our SBS platform, which currently has a total tonnage of about 1.2 million, we're looking at around 900,000 tons. Out of that, approximately $400 million comes from our uncoated cup stock line, which is highly integrated, with about 85% of production directed to our cup plants. We will also have coated material, amounting to about 500,000 tons, allowing us to service important external customers while optimizing our operations. Our clear objective is to increase our integration rates to around 80% over the next 24 months. When considering our business repositioning, please view it in the broader context of our overall strategy across all three substrates for graphic packaging and the needs of our end-use customers.

Our next question comes from the line of Mark Connelly from Stephens.

Mike, is the cost issue at Texarkana on CUK going to be materially different from your larger mills?

No. That's why we're investing the money we are because you can convert any machine to make almost any product, depending on the cost curve. We are the largest producer of CUK and SUS in the world. As I mentioned earlier, we have two mills and four paper machines already producing it. We know how to create high-quality, low-cost CUK and SUS, which is why we're allocating funds there. It will maintain a quality and cost profile consistent with our current products. We're really excited about this because it allows us to leverage the excellent fiber resources available around our Texarkana mill, which provides low-cost pulp. This is crucial for our cost structure.

Sure. And just one follow-up question on KeelClip. As we see craft beer proliferating, is KeelClip catching on in the U.S. Every time I go to the supermarket and see the 4 packs of craft beer, it got those heavy plastic carrier things on top that never get recycled. And I look at KeelClip and say, is there a problem getting that product on with smaller brands because really only the bigger craft beer brands at our supermarkets show up in CUK at this point. So I'm just curious how do you see the domestic opportunity and whether there's a volume limitation that will keep some of these smaller craft beers away?

Thank you for your question. When we initially focused on KeelClip, particularly in Europe, we aimed at the high-volume markets such as carbonated soft drinks and beer, utilizing our integrated machine solution because those bottlers require high speeds and throughput. This is where we see a significant volume opportunity. We are experiencing positive interest in the North American market, with many customers showing enthusiasm as we continue to roll this out. Larger craft customers might view this as a viable option, in addition to other CUK packages. However, smaller craft accounts typically use hand-setup cartons that they attach to plastic tops, which hasn't been our primary focus until now. Nonetheless, you can expect KeelClip to gain further penetration in the North American market throughout 2021.

Do you think the North American market for KeelClip is as big as the European market?

Yes. I do. I mean, it's all of that size. I think what's really drove Europe quicker from an adoption standpoint as they were heavily indexed into plastic more so than the U.S., as you know, between shrink wrap film and a lot of their Hi-Cone rings. And so there was more urgency over that, and we actually wanted to go fast there to get the adoption rates in place, as you know, when you install those machines, it makes you pretty sticky. And so now that that's being proven and proving out well, we've won a number of accolades, as you know, for that particular package. We're seeing more interest here in North America, which is a logical extension of that innovation.

Your next question comes from the line of George Staphos from Bank of America.

Congratulations on the progress made this quarter. I wanted to ask about Texarkana first, Mike. Can you tell us if you will be converting a machine that currently makes the Bristol at Texarkana? Will that machine have any practical limitations in switching from bleach to CUK or SUS? In theory, could you run the full 300,000 tons on SUS? Lastly, what assumptions have you factored into the $20 million benefit you mentioned?

Sure. I will address a few of those points, and then Steve can add more details. First, regarding the specific machine, it's a 300,000-ton machine, and we haven't produced any Bristol. This is entirely coated SBS. As I mentioned earlier, we've already utilized about 90,000 tons of that material to support our customers and facilitate the growth we achieved last year. What excites me about this machine is that it will be a single ply machine, which will allow us to focus on the lower caliber ranges that are continuing to expand, while also giving us extra capacity in both Macon and West Monroe to excel in their medium and high-caliber ranges. This integrated approach provides us with a lot of flexibility. Concerning the margin profile, the main factor is that we are currently selling SBS to customers at a CUK price to sustain our business. When this machine becomes operational, we will be able to optimize our cost structure and improve margins. Our strategy has been to capture growth, as reflected in our 9% growth this year from acquisitions and organic growth. Additionally, our ability to reduce costs over time is well established, and this investment will enhance our capacity in that area, which I find very promising.

And, George, it's Steve. Regarding the financials, as Mike mentioned, we'll take a bit of downtime in Q1 to complete the investment. In terms of returns, since about half of the volume is already sold, we'll quickly generate roughly half of the economic value, likely just under half, due to margin improvement from existing volume. This asset has been very supportive of the growth of CUK. Over the next couple of years, if we maintain traditional growth rates, we could see an increase of 30,000 to 50,000 tons in CUK. This machine will eventually be fully supportive of CUK, and that's our long-term goal. We'll see just under half of the benefits early, with the remainder coming over the next few years.

That's very helpful, guys. I want to switch gears a little bit. Can you talk a bit about what assumptions you have for inflation currently in your guidance. Obviously, we're not going to hold you to this. You don't have a crystal ball, but what do you have baked in, in terms of inflation, whether it's on recycled fiber, freight, and energy? And can you discuss the relative progression net price cost over the quarters and you've given us some directional guidance, if you had any additional color that would be great.

Thank you, George. I'll provide some context to your question and address the details you're looking for. The guidance we're setting for EBITDA aims to continue our goal of improving it, with the midpoint indicating a 5% annual increase. Looking at the year, three key factors are crucial for achieving this: successfully generating organic growth, which translates to 100 to 200 basis points; ensuring productivity outweighs labor cost inflation, which we have a clear plan for; and focusing on mitigating commodity input cost inflation over time. We aim for any disruptions to be minor and temporary, which has been our focus for the past couple of years. Regarding our inflation assumptions, we have approximately $2.5 billion in commodity input costs, and we estimate a 1% to 2% inflation on that amount. This translates to an expected inflation impact of about $25 million to $50 million, as you've mentioned. We are experiencing some inflation in areas such as freight—particularly truck freight—resin, energy, and some recent fluctuations in OCC. However, assessing the broader context, a $25 million to $50 million inflation assumption feels appropriate given the $2.5 billion cost basket. It's worth noting that for our entire fiber basket, which includes both hardwood and softwood and OCC, the total spend is around $550 million. Current pricing indicates that this would be mildly deflationary, despite some fluctuations in OCC. Our wood pricing is currently stable. The inflation assumption again stands at $25 million to $50 million. On the pricing side, we're navigating a complex environment that involves cost and market models and ongoing negotiations to minimize leakage or maintain margins. Given the breadth of our pricing efforts, we foresee a similar $25 million to $50 million impact on pricing as well. Specifically in response to your question, we anticipate some price-cost dislocation during the first half of the year, with Q1 of '21 likely mirroring Q4 due to timing in pricing adjustments. We expect to see improvements in Q2 and, as outlined in our appendix, a favorable price/cost environment in Q3 and Q4. I appreciate your patience with this detailed response, and we encourage you to join us in our journey as a packaging company committed to managing and offsetting commodity input costs while working to keep variations around $20 million.

Your next question comes from Ghansham Panjabi from Baird.

So Mike, just kind of reconciling all the numbers you laid out by substrate. CUK would be roughly 50% pro forma from a ton standpoint. And CUK is obviously disproportionately beverage. As you sort of raised your organic growth initiatives, is the beverage market where you're seeing the most incremental momentum and foresee that for the next x number of years? And if so, will become an even bigger portion of the end market metrics over time in your opinion?

Beverage has certainly been strong over the past 18 months, and we anticipate continued strength in 2021. This demand in cans is significant, and most of those cans require a carton. We're involved in that aspect, but it's not limited to just beverage. We're also noticing that this is an excellent substrate from a strength and fitness perspective, performing well for many of our end-use customers with lower caliber profiles. Looking back to 2008, we worked on making people comfortable with the idea that this growth has been consistent and part of a real trend over the last 12 years, which gives us the confidence to make capital investments in Texarkana.

I think where Mike was discussing earlier is that we are seeing growth in our targeted substrates like SBS on cups, with ongoing conversions from foam and plastic to our solutions. There is a return to some of the norms post-pandemic, but those conversions remain strong. As we mentioned, strength packaging solutions are a great combination of both CUK and even CRB. CUK will play a significant role, as Mike said, and the other substrates are very supportive.

Okay, that's helpful. Steve, I believe you mentioned an organic growth forecast of 100 to 200 basis points for 2021. Can you break this down between the consumer packaged goods market, as you've described in previous earnings calls, and the food service sector? What assumptions do you have for 2021, and how should we prioritize these two markets as the year progresses?

Yes. I'll jump in and Mike can add some addition. I think the way we're thinking about it is really our growth platform. So the 3 growth platforms, plastic substitution. The things we've talked about here around strength packaging, around microwave and cooking solutions. They can drive the net 100 to 200 basis points of growth, and we have line of sight to multiple installations and innovation and new business development projects that are really that result in the outcome. We do expect to see some reversion, if you will, from food and beverage coming down from some of the growth rates, food service moving up. But the net of those, as we've discussed before, we don't expect to be net material on a volume basis. Really, it's $100 million to $200 million is driven by the new product development and innovation initiatives.

I think the only other thing I'd add Steve to that is we saw a sequential improvement in foodservice on Q4, which was an important start on inflection, and we'd expect that to continue in 2021. We're not anticipating that we're back to that being a growth platform on a net basis in 2021, but we would expect it to be in 2022. So kind of the portfolio, as we've talked about is very balanced around beverage, food, consumer products and food service. And so we think that gives us a lot of optionality as the consumer comes back, and we learn new habits. I mean it's kind of an unviable trend that there's going to be more work done at home. Well, that's going to have different implications for our food and beverage business long term. It will also add some implications for foodservice. And we think the investments we're making on the substrates Ghansham are really supportive of those kind of structural trends that we're seeing.

Our next question comes from the line of Anthony Pettinari from Citi.

On the operating performance target of $70 million to $90 million, you don't have the boiler projects this year. I'm just wondering if there are any particular projects that you'd highlight as driving a large portion of those operating performance improvements? And then just longer term, I mean, you're transitioning from a company that was really seeing flattish growth to sustain positive growth. How does that kind of change volume profile, change how you think about the potential for operating performance improvements in the future, if it does?

Yes. Regarding productivity, I want to highlight a few key points. First, our investment in Monroe, Louisiana, and our beverage investment in Monroe and Sneek, Netherlands are showing positive year-over-year productivity. Sneek is still in the early ramp-up stages, but we're beginning to see some benefits. On the mill side, in addition to the $20 million for recovery boiler work, we installed a curtain coater on our number 7 paper machine in West Monroe, which provides an annualized benefit of about $20 million, effective from August. This means we'll gain three quarters of a year's benefit from that investment. Many of the investments we've already made are contributing to our confidence in reaching the upper end of our outlined range. As for our overall growth trajectory, last year was outstanding for us with 4% organic growth. However, we expect some fluctuations moving forward, partly influenced by COVID-19. Nonetheless, we are confident in our ability to achieve our Vision 2025 goals of driving an additional 100 to 200 basis points. Our belief is reinforced by the continuous growth in paperboard markets, indicating that end consumers prioritize fiber-based packaging and sustainability in their purchasing decisions. We are positioning our business to capture a significant portion of that expanding market over the next few years.

Okay. That's very helpful. And then just a quick follow-up on the price to commodity cost outlook that you gave. I'm sorry if I missed this, but there are price hikes that have been announced for CUK, CRB, SBS, some of which have been recognized by Pulp and Paper Week, some of which have not, but maybe will be recognized this month. Does the outlook that you gave on price costs, is it just assuming hikes that have been recognized by Pulp and Paper Week? Or are you on the SBS hike? Or are you assuming some of that goes through? Or is there any kind of finer point you can put on that?

Yes, Anthony, as I mentioned just a moment ago, we're assuming some execution, some positive execution from the SBS and the second CRB price increase in that range. And so obviously, it's a range, but we're executing on them, and we expect to have some success there. So if you kind of work through that midpoint of that range, of $37.5 million, that does have some execution, successful execution of things that are in motion as well as other pricing initiatives that we're taking on. One example of that for example is on a go-forward basis, as we're working through contracts with customers, what new initiatives we're bringing forward is that for freight, freight from us to our customers. We'll have 4 openers a year rather than two, for example, so that we're able to capture inflation or deflation on freight faster. So it's those kind of initiatives, along with all of our other activities, that resulted in the guide, the $25 million to $50 million that we've talked about for both price and commodity input cost inflation.

Our next question comes from Kyle White from Deutsche Bank.

I wanted to address the sustainable packaging that you talked about in the total addressable market. I think you said it increased to $7.5 billion. I think before it was around $5 billion. Just kind of curious what drove this increase? Is the plastic substitution opportunity being greater than initially expected? Or is strength packaging a bigger opportunity? Any color you could give there?

Yes. Thanks for the question, Kyle. I mean it's really a combination of all 3 of those things and a little bit more experience and work that we've been able to do in those verticals as we look at the wide range of products that we can actually provide to customers. And I'll give you one specific example that's really helped to expand it. Our work that we're doing with PaperSeal. And I talked about that in my prepared comments for proteins, in particular, we're seeing a lot of traction on that on a global basis. And that's much bigger than we initially thought, and it's one that we'll continue to work towards. Same thing I'd say around pressed trays and bowls. I mean that progress continues to accelerate as we see more and more demand from customers along those lines. So it's really a combination of really looking at those addressable markets with a finer point and doing a little more work around how deep they are and broad they are kind of customer-by-customer basis.

Got it. And my next question, I just wanted to focus in on leverage. This year above 3x, which is above the long-term target you have. Obviously, you have the IP partnership sales that are like upcoming here this year. You also bought a decent amount of your own shares this year. I'm just curious, how do we think about this leverage. Again, when your guidance to being above your long-term target once again for this coming year. How do we think about that in terms of your repurchases that we should expect for the coming year as well?

Yes, Kyle, it's Steve. We really like the flexibility that we have here in 2021, as we mentioned, 3.5x. We have complete flexibility on how best to handle ongoing international paper partnership redemptions, assuming that those occur. So we have flexibility to do so either like we have done with cash or debt or in other forms. And so we really like that flexibility. We have it. It all fits inside of the 3 to 3.5x. And so we've really been borrowing obviously very effectively within that. If you forward beyond it, we are committed to the 2.5 to 3x. And if you look out to 2022, just by way of example, and you look at where we're guiding this year and you assume the good return on the investments that we're making in round figures in 2022, here at an EBITDA that's in the $1.2 billion range and $400 million of cash capital and another couple of hundred million dollars in interest and taxes and pension, you've got a $600 million cash engine that we can deploy. And obviously, we can put it to work in multiple strategic ways, but that alone, if it were applied to debt is 0.5 turn, roughly. So our confidence in our ability to get back into the 2.5 to 3x range is high. And it gives us flexibility, obviously, to invest further in the business if we choose to.

Our next question comes from the line of Adam Josephson from KeyBanc.

Steve, I have a couple of follow-up questions. Regarding Kyle's inquiry about leverage, could you provide more details on what you plan to purchase? If IP increases its stake in you this year by approximately $500 million, are you anticipating that? Will you be financing this through cash, debt, or stock as part of your year-end target of 3.0 to 3.5 times?

Yes, Adam, we don't know what actions IP will take, so we won't speculate on that, aside from what they have done in the past. We won't discuss our approach yet because it will depend on other strategic options available at the time a decision is made. The numbers are clear; if we consider a range of 3 to 3.5x based on our guidance, each end of that range represents a different assumption. We'll make decisions as they arise and will communicate our plans once we have more clarity. I wouldn't want to assume anything at this stage, as our decisions will depend on our discussions with IP regarding their strategic intentions.

Sure. I appreciate that. And one more, Steve, on the cost inflation. Can you just be a little more specific in terms of the buckets composing that $25 million to $50 million, so you break out in your presentation, obviously, wood, fiber, recycled fiber, nat gas, caustic, et cetera, et cetera. Freight is one that you don't break out, but that's obviously a big component, nonetheless. Can you just talk about what exactly you're expecting from those various buckets? Are you assuming deflation in wood, fiber, for example, is part of that $25 million to $50 million?

Yes. We really take a more holistic view than that. I mean, we have a $2.5 billion spend. We see inflation happening in certain categories, they're well chronicled. We do expect truck inflation. It's 10% of that is in the areas of truck. Could that inflate 5% to 8%, clearly based upon what we're seeing relative to the market. That being said, spot rates are down. As I mentioned earlier, wood costs are currently down. We don't assume those necessarily will stay down, but currently, today, they are. Obviously, we know and it's well chronicled, where there are some pockets of inflation in resin and chemicals. So we really look at it as a true basket of costs. We think the 1% to 2% range is appropriate knowing where we're experiencing inflation currently as well as where we have pockets of modest deflation obviously, OCC moved up more recently. That certainly could move up further, and that's within the guide that we're providing. So I think we're really trying to not move away from this specific $5, $10 type move, but the basket of commodity input costs at 1% to 2%, we believe, is a very prudent and practical assumption here in February based upon all that we know and all that we're negotiating with our suppliers.

Our next question comes from the line of Arun Viswanathan from RBC Capital Markets.

Congratulations on the progress in '20. I wanted to start by asking about the long-term growth rate. You mentioned a larger addressable market for some of these sustainable products now at $7.5 billion for the conversion. What do you think that adds to your organic growth profile? Is it around 50 basis points? And does that suggest that over the next couple of years, you could see that growth accelerate above the 1% to 2% range you are currently considering?

Thank you, Arun. I believe this gives us significant confidence in the 100 to 200 basis points we are discussing. Last year was exceptional at 4%, aided by certain dislocations that helped us achieve that. Looking ahead, we have a steady and growing backlog of projects across the three growth platforms we mentioned. We want to enter 2021 and assess how things are progressing, particularly with the economy reopening in a post-vaccine world. By midyear, we should be able to provide clearer insights on how this all unfolds. For now, the key takeaway is our confidence in achieving 100 to 200 basis points despite the challenges we faced in 2020, which is a solid outcome for Graphic.

Okay. And then also just a quick question on the cadence of your price cost outlook. It sounds like you expect that to switch positive in the back half of '21. Could you just walk us through some of the assumptions there? Is that dependent on getting further price in CRB and SBS? Or is it more a result of inflationary pressures subsiding?

Yes, Arun, we've discussed this before. We expect some successful execution with SBS and CRB, which is reflected at the midpoint of our guidance. We've already seen success in CUK and CRB, which we have accounted for. As mentioned earlier, that's when we anticipate a shift toward more favorable net pricing as we move past the reductions that took place earlier in 2020.

Yes. Thanks for that. Look, our growth in overall capacity and our strategic investments are really supportive, and I think we're prepared for that as we have anticipated shifts coming on board. We've got some exciting growth initiatives aligned in response to those trends. You know the projects we've embarked on, in particular in our CUK and SBS growth platforms. I think that's really a strong backdrop to set for the coming year.