Good day, everyone, and welcome to the Graphic Packaging Third Quarter 2024 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host. Ma'am, the floor is yours.

Good morning, and welcome to Graphic Packaging Holding Company's third quarter 2024 earnings call. Joining us on our call today are Mike Doss, the company's President and CEO; and Steve Scherger, Executive Vice President and CFO. To help you follow along with today's call, we will be referencing our third quarter earnings presentation, which can be accessed through the webcast and also on the Investors section of our website at www.graphicpkg.com. Before I turn the call over to Mike, let me remind you that today's press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to the factors identified in the release and in our filings with the Securities and Exchange Commission. With that, let me turn the call over to Mike.

Thank you, Melanie. Good morning, everyone, and thank you for joining our call today. Graphic Packaging is a global leader in sustainable consumer packaging with a portfolio constructed to deliver consistency and growth across a wide range of economic conditions. Considering the uneven market conditions we have experienced in 2023 and 2024, we are indeed delivering solid results. In the third quarter, Graphic Packaging sales were $2.2 billion. Adjusted EBITDA was $433 million and adjusted EPS was $0.64. We saw a clear but muted pivot to volume growth, up 1% during the third quarter after Europe's return to growth last quarter. Price was down 2%, roughly the same as last quarter. The company's adjusted EBITDA margin, despite the modest volume growth and some weather and power disruptions, was a very solid 19.5%, in line with our expectations. That speaks to the strength of the business we have built. In a challenging environment, we are delivering strong and consistent margins you should expect from a consumer packaging leader. Turning to Slide 3, the Waco, Texas recycled paperboard manufacturing facility investment remains on track for the fourth quarter 2025 startup. We have recently begun the hiring process and made our first hires. The pool of applicants we are seeing is excellent as expected. An attractive labor pool is one of the key reasons the company selected Waco for this important strategic investment. Once Waco is up and running, we'll be able to service the entire North American market with the highest quality coated recycled paperboard from two locations in Michigan and Texas. Waco will further expand the company's long-term competitive advantage in both cost and quality. During the quarter, we also made a number of packaging facility investments, and I'd like to highlight one in particular at our Poznan packaging facility in Poland. We recently completed the commissioning of a Heidelberg XL-106 press with 10 colors, double varnish, and a cold foil unit. This state-of-the-art equipment is designed for high-value, high-complexity printing and significantly enhances our position in the European health and beauty market. Poznan is an excellent facility with a very strong team in an ideal location for this kind of investment. This new press not only strengthens the company's product offerings but also increases our manufacturing flexibility, both of which are especially important to our health and beauty customers. You may have seen our August announcement of a virtual power purchase agreement with Zelestra, which will build two new solar power generating plants in Spain. The agreement is a key component of the company's plan to reduce Scope 1 and Scope 2 greenhouse gas emissions by 50.4% by 2032, and will increase the company's purchase of renewable electricity in Europe to approximately 70%. Reducing the company's carbon footprint is central to our mission as a leader in sustainable consumer packaging and part of what makes us the supplier of choice to leading consumer product companies, retailers, and restaurants. After the divestiture of the Augusta, Georgia bleached paperboard manufacturing facility in May, consumer packaging makes up approximately 95% of our sales, with the sale of paperboard representing just 5%. As we have discussed in the past, the paperboard and paperboard packaging industry has changed dramatically, both in structure and in competitor strategies. As a result, market movements related to the sale and pricing of paperboard have become far more challenging for third parties to assess, and so perhaps not surprisingly, their results are increasingly inconsistent with what we see in the market. As we have previously disclosed, we are actively working to transition all Graphic Packaging customer contracts to more transparent and more accurate price change mechanisms. Beginning in the first quarter of 2025, we will no longer enter into new open market paperboard sales contracts that include third-party price change mechanisms. This move regarding paperboard sales is a small, but important piece of our ongoing transition. Turning to the company's packaging results, as I noted, we saw a pivot to positive volume growth. Beverage and food service results were again solid, and we saw year-over-year improvement in food, household, and health and beauty. While we had expected somewhat stronger volumes, overall, we are pleased to see improvement across a large number of product categories and geographies. Mass retail and superstores continue to gain share in the grocery category, including both private label and branded products. We are participating in that shift with a number of recent innovation wins in private label and mass retail, particularly with new multi-packs and our proprietary Boardio paperboard canister solutions. Innovation sales growth in the third quarter was $54 million in line with our expectations, and we remain on track to deliver $200 million for the full year. These results are impressive and speak to the high priority customers place on moving to better, more sustainable packaging solutions. That is especially true in Europe, where regulations are creating some urgency for new solutions, but also in North America, where the consumer-driven push for more sustainable packaging remains strong. Slide 4 is a reminder of just how broad the company's portfolio really is and why we can generate solid results even in challenging market conditions. There is a very good chance that you've had at least one of our products in your hands in the last 24 hours. Now, let's look at our sales in more detail on Slide 5. We saw overall packaging sales improve after two quarters of weakness. As you can see, we saw improvement in food, household, and health and beauty, and continued solid performance in beverage and foodservice markets. While we and many of our customers had expected even stronger volume improvement, the pivot back to positive volume growth is certainly encouraging. Food markets, which represent approximately 40% of total sales, saw improvement across a number of categories. Performance has been uneven and impacted by promotional activity, which was much stronger in some categories than in others. Prepared food continues to do well with fewer people working from home, but consumers are choosing less expensive options. Frozen prepared meals, for example, remain weak, but frozen entrees are seeing growth among value-conscious consumers who might otherwise have chosen dinner at a quick-service restaurant. Refrigerated categories, including protein, were mostly softer. Higher prices for both beef and chicken are driving consumers to look for cheaper options. Private label has been making inroads in bakery, where overall volumes remain relatively flat, and while high cocoa prices have dampened demand for confectionery in Europe, candy and gum held up better in the U.S. as an affordable indulgence. The savory snacks and other discretionary food markets have been weaker. In the beverage market, you've heard producers reporting uneven results, and we see that in our volumes. In beer, multi-pack volumes are down more than single-serve volumes, but in soft drinks, we are outperforming the market. These results reflect innovation wins, particularly in Europe, where new regulations are phasing out plastic ring carriers and shrink wrap. We're also seeing pockets of strength in the U.S. and non-alcoholic beverage categories. Promotional volumes increased in our food service business and you have all heard from some of the biggest quick-service restaurants that they plan to extend third-quarter promotions through the fourth quarter. Whether increased promotional activity will help restore sustainable volume growth remains an open question, but we are working closely with our customers to find the right solutions for their strategies. Beyond promotional activity, our food service customers are very focused on reducing or eliminating plastic both in Europe and in the U.S. We have a range of development programs underway with a number of foodservice customers and we'll be highlighting one recent innovation success in just a moment. Household products results improved in the third quarter with stronger results in tissue, pet care, and food storage. Investors often ask, are there gaps you would like to fill in your portfolio? And the answer broadly is that our portfolio as a whole has very few significant gaps, but in household products, which is an exceptionally broad market, we have some very strong positions, but also plenty of categories where we have substantial room to grow here in North America and in Europe. And finally, health and beauty continues to improve slowly. This is mainly a European business for us, and healthcare volumes remain relatively weak, while beauty has shown more improvement. Recently, we have seen many of the big cosmetic and personal care companies making a push for volumes with some success. We see a very attractive growth opportunity in these businesses in North America with our PaceSetter Rainier, 100% recycled paperboard, which performs as well as the more expensive bleached paperboard. However, big packaging change decisions take time, especially in markets with very demanding print and performance requirements like healthcare and cosmetics. We've been very encouraged by the feedback we are getting from customers who are testing the Rainier paperboard and expect to see solid growth in the years ahead. If you'll turn with me to Slide 6, you'll see what typical seasonality looks like. While 2024 has been anything but typical in many respects, these quarterly patterns have held up reasonably well. During the third quarter, food was up sequentially, and beverage was solid, but aggregate packaging sales were pretty flat. Monthly patterns have shown quite a bit more variation this year than we normally see. July, for example, is usually the weakest month of the third quarter, but this year was actually the strongest, edging out August. However, September was unusually quiet. We saw a return to positive growth in the third quarter as we had expected, with Europe continuing to improve after turning positive last quarter. The overall volume recovery remains quite gradual. However, even when we consider the relatively easier comparisons to the second half of 2023, the timing of promotional activity may explain some of the variations from normal patterns, and we are certainly seeing high levels of promotion across food and food service categories. But the stretched consumer is having an impact on overall demand, and so far higher promotional activity does not appear to be translating into materially higher volumes. We saw continued strength in private label and mass retail, and overall pricing was not very different from what we saw in the second quarter, down approximately 2% year-over-year. Looking ahead to the fourth quarter, we expect to see continued improvement in volumes driven by ongoing promotional activity, the rollout of new products, more affordable price points, and the continued growth in mass retail and superstore volume. However, as you've been hearing from our customers, the strength and timing of that recovery has become more difficult to estimate. The shift from fall to winter means more indoor holiday entertainment, which tends to support strong demand in various food categories, but is also generally good news for food service demand, particularly in our product portfolio focused on hot coffee. Consumers continue to feel the pinch of relatively high food prices, and we are working closely with our customers to develop packaging solutions they need to deliver on their strategies to drive higher volumes. Demand for packaging that is more circular, more functional, and more convenient has never been higher. Today's affordability challenges, while creating some headwinds, are also creating new opportunities for Graphic Packaging to partner with customers to develop new and better solutions. Slide 7 outlines the company's five innovation platforms, and I'm happy to report that we are seeing a high level of customer engagement across all five. Plastic substitution is one of the more common themes across many of our innovations, and we're having outstanding commercially tested solutions for a wide range of new applications. Turning to Slide 8, last quarter I highlighted the company's paper seal shape, tray and bowl technology— a major upgrade in how prepared food is packaged with better product visibility and much less plastic. Today, I want to share a new food service innovation that was recently rolled out across the United States and Canada at McDonald's. The McDonald's McFlurry is a soft-serve frozen dessert served in a cup with a choice of toppings. McDonald's wanted a more sustainable container for its North American markets with less plastic. Our development team worked closely with McDonald's and Hobby TMS on a packaging solution that reduces operational complexity and improves user experiences, while at the same time providing a reduction in single-use plastic. The wider opening and open-top design makes it easier for employees to fill and serve. They also improved the customer experience by making mixing easier. Plastic reduction is achieved with the replacement of the clear plastic lid with a built-in four-flap paperboard lid. These innovations in McFlurry packaging are helping McDonald's achieve its sustainability goals while improving operational efficiencies and advancing consumer experiences—a true win for the brand and for the environment. Along with the new McFlurry packaging, McDonald's announced the release of a smaller-size mini McFlurry. We are pleased to support our customer with this new offering as well. Finally, I'll end where I usually do with Graphic Packaging's Vision 2030 summary. We are a global sustainable consumer packaging company built on a foundation of innovation, exceptional people, and a commitment to protecting and preserving the planet. We do that while delivering exceptional results for customers, shareholders, and all of our stakeholders. We are making excellent progress towards all of our Vision 2030 goals, and I'm incredibly proud of the results the team is delivering, particularly in these challenging markets. Now, let me turn it over to Steve for a review of the company's financials and operations. Steve?

Thank you, Mike. Turning to Slide 10, in the third quarter, we again executed very well, generating a solid 19.5% adjusted EBITDA margin despite volumes that fell below expectations. All reported sales were down $133 million, with $109 million of that decline representing the impact of the Augusta divestiture and the dramatic reduction in our participation in open market bleached paperboard sales. The volume mix in our packaging business was up 1%, modestly below our expectations after an encouraging start in July. Price in the quarter was down 2%, similar to last quarter, with the North American and international businesses experiencing similar outcomes. The sales impact from other M&A and foreign exchange were a combined $11 million net positive in the quarter. There were two unexpected sources of pressure on our adjusted EBITDA results in the quarter. The first was the impact of weather and power disruptions that we disclosed mid-quarter, which reduced adjusted EBITDA by $25 million. The second was softer September sales, which left volumes below our expectations. Even so, excluding the weather and power disruption impact, strong net performance fully offset the price and inflation headwinds we experienced during the quarter. The adjusted EBITDA impact from other M&A, excluding Augusta and foreign exchange, was an $8 million tailwind. The Bell acquisition was completed in September of 2023, and as such, this is the last quarter that Bell will be included as M&A. As a reminder, the Russia divestiture took place in November 2023. Our net leverage at 3.1x is at an acceptable level, and the company's current average cost of debt is approximately 4.7%. We expect to end the year with net leverage below 3x. Slide 11 puts the strength of the company's business model into perspective. In the past seven quarters, we have experienced a negative impact of broad-based customer and retailer destocking and of a consumer under pressure from inflation. You can see the impact on volumes on the left side of this page. On the right side, you see that despite those challenges, we have generated strong and consistent adjusted EBITDA margin performance. Looking at 2024 year-to-date, despite the challenges of destocking and consumer affordability, sales in our packaging business, excluding the Augusta sale, are down just 3%, with volume down 1%, driven by the strength of renovation and execution and price down 2%. Well below our targets, these results demonstrate the strength of the business model under less than ideal conditions. Graphic Packaging's transformation was designed to deliver consistency across a wide range of market conditions. Prior to the business transformation, we could not have maintained this level of volume, price, and margin stability. As volumes improve, we expect operational leverage to drive continued strong margins, significant cash generation, and to cover cost of capital returns. Turning to operations and capital investments on Slide 12, the company's paperboard manufacturing facilities ran well during the quarter, despite weather and power disruptions. We were fortunate to have no material impact from either Hurricane Helene, and the company's global packaging operations also ran very well during the quarter. As Mike noted, we continue to invest in the company's packaging facilities, with press investments high on our list of priorities. These tend to be relatively modest projects with attractive financial returns that allow the company to deliver favorable results for customers and shareholders. The Waco investment is also progressing very well. Deliveries are on schedule, and the decision earlier this year to accelerate equipment orders meant that we did not have much exposure to the port strikes. Key equipment like head boxes, dryers, and rolls are either already on site or already in the United States if they were coming from overseas. At this point, structural steel for the machine hall is complete and preparation for major equipment installation is well underway. We have as many as 1,400 contractors on site and have begun the hiring process for our full-time team. We have, however, experienced some modest project cost inflation that we have not been able to offset elsewhere and have made targeted modifications to the facilities' front-end processes to drive additional cost and quality advantages. Together, these raised expected project costs by approximately $100 million to $1.1 billion. The process changes will yield upside beyond our original $160 million incremental EBITDA estimate, and we plan to provide further details on those changes and the expected benefits on our fourth quarter call in February. Turning to Slide 13 and the outlook. As Mike noted earlier, we saw a pivot to volume growth in the third quarter, but the demand recovery remains more gradual than we anticipated. We now expect volume growth in the second half, excluding the impact of the Augusta divestiture, to be in the 1% to 2% range, down from 3% to 4%. That reflects the reality of what customers are seeing and expecting relative to where we were a few months ago. We are now expecting full-year adjusted EBITDA in the $1.68 billion to $1.73 billion range and full-year adjusted EPS in the $2.49 to $2.61 range. In addition to previously disclosed weather and power disruptions, revised guidance reflects the impact of lower expected second-half volume, as well as our decision to pull forward maintenance work. During the annual maintenance outage at the West Monroe paperboard manufacturing facility earlier this year, we identified additional required maintenance and repair issues with the digester and related equipment. When we were able to secure the necessary specialized contractors, we elected to get those repairs done now, given the near-term volume outlook rather than wait until 2025. The total impact on adjusted EBITDA of less than $20 million, all of which will be incurred in the fourth quarter. We expect full-year adjusted EBITDA margin to be in the 19% to 19.5% range, a very good outcome considering the challenging volume environment. Looking ahead to 2025, we expect financial performance to be consistent with the company's base financial model—low-single-digit sales growth, mid-single-digit adjusted EBITDA growth, and high-single-digit adjusted EPS growth. As you have heard us say, 2024 represents peak CapEx, and with the increase in anticipated 2024 CapEx, we are now anticipating a decline in spending in 2025 of approximately $300 million. Slide 14 summarizes the company's Vision 2030-based financial model and outlines our capital allocation priorities. Waco is the last major asset investment in our strategy to capture a unique and powerful long-term competitive advantage in the North American consumer packaging market. Once complete, the company's capital allocation priorities will return to a more normal level of reinvestment, grow the dividend, pursue opportunistic share repurchase, and explore tuck-under M&A. Turning to Slide 15. Over the next several years, we expect to generate substantially more cash than we require for reinvestment. 2025 will mark the beginning of a multi-year cash flow expansion cycle, and we intend to deploy that incremental cash to generate returns to shareholders and strengthen Graphic Packaging's position as the world's leading sustainable consumer packaging company. On Slide 17, you'll find supplemental information that may be useful for modeling purposes. That concludes our prepared remarks this morning. We will now turn the call back to the operator to begin Q&A.

Your first question is coming from Matt Roberts from Raymond James.

My first question is on the sales guidance into 2025. So clearly, exiting the second half of '24 lower and united low-single-digits off, I believe it was 2024, less $144 million from August in the first few months there. So while early, could you help me bridge that in terms of overall volume expectations by end market? Any change in timing on innovation sales? And in regard to the price change mechanisms you mentioned, should we expect a price benefit from that in 2025, or is that more of an evolution that will take time as contracts come up for renewal?

It’s Steve. Why don't I start and then Mike can add some color there. I think in terms of the leap-off point for next year, Page 14 does a nice job of adjusting for the limited time we have Augusta in 2024, so about an $8.8 billion top line will be the starting point. Our innovation engine should continue to provide a couple of hundred basis points of growth next year. Overall, the market is evolving this year, being down a little bit at the market level, but evolving towards neutral or very modest growth. That’s kind of the enabler for low-single-digit top line growth. I'll let Mike talk about the mechanisms that we're putting in place, but we're very excited about the new price change mechanisms we’re executing on in the open market and with customers. So we'll talk about that probably a little bit separately, but that's the overall kind of the enabler for low-single-digit top line growth next year.

I think maybe just to expand a little bit on what Steve said, while it was below our expectations, the pivot to growth was important in the quarter and gives us confidence in terms of the jump-off point as we head into 2025. That's consistent with what we've seen at least through the month of October here. Steve covered the innovation, so I won't go into more detail on that. But regarding the pricing mechanism, you have to remember that on the open market paperboard side, really only about 5% of what we do is selling paperboard to customers. So the vast majority flows through cartons and cups, where we've been on a multi-year journey of modifying those proprietary customer relationships in terms of pricing that we have. Moving away from third-party indexes, this is really just the ongoing transition we've been on for several years to move away from those types of mechanisms. I wouldn't expect that to be a material impact in 2025 given the small nature of what we sell on the open market. But it's an important step, and we believe over time, it helps give our customers more confidence in their ability to predict their pricing because they want it to be fair, transparent, and predictable. Those are all things we aim to ensure for our customers.

For my second question, looking out into 2025 and even maybe beyond, how is the competitive landscape shifting or maybe even bifurcating between your bleached and unbleached paperboard products versus recycled products? How does that impact either price, ROIC, or margin in recycled versus other parts of the business? If one side is generally more favorable than the other, are there alternatives that you would consider that could further accelerate that shift towards recycled products?

In terms of how we're positioning the company, you saw us make a big move with the sale of the Augusta mill. The Augusta mill was a largely open market seller of coated bleached paperboard, where we just didn't have a competitive advantage distinct from other market participants. What we did, as we talked about this, and I think there's still maybe some confusion around why it was so important, but it's incredibly strategic for us to have the Texarkana mill that's largely integrated into our own operations. The vast majority of what we make in Texarkana is cup stock. We don't sell cup stock in a material way to the open market. We're selling cups, and we have the ability to make our own coated bleached where we need to. That fits us very well and allows us not to have to participate in the open market side of the bleached paperboard market, which is the most fragmented and has the biggest challenges. Certainly, if that market gets messy, we get some secondary knock-on benefit, but we don't have the type of exposure we used to have when we had the Augusta mill. We've really focused our investments back in where we can make exceptional returns for our shareholders on the grades that we choose to make: coated bleached paperboard as well as coated recycled paperboard. Both of those grades are the low-cost producer in North America. We generate excellent returns on those. We've made significant investments into both of those systems, including the new paperboard manufacturing facilities in Michigan and Texas. One in Texas is expected to come online next year, this time in the fourth quarter, as we've committed to. We expect to see significant growth opportunities for us to win with our high-quality and low-cost position. Steve, maybe you can talk a little bit about the arbitrage and margins.

The only thing I'd add, Matt, is that when you look at coated unbleached or unbleached participation or coated recycled board participation, you see our facilities are incredibly well capitalized and are positioned to support the packaging growth algorithm that's a couple of hundred basis points of growth year-over-year. So where we choose to make paperboard, it's competitively advantaged and supports our growth as a consumer packaging business. That really is the critical imperative. It's obviously very constructive from a competitive dynamic, and our margin profiles there allow us to generate above cost of capital returns while maintaining stability. You're seeing this year in a tough volume environment, margin stability in the 19% to 20% range, which speaks to the competitive advantage of our approach to producing paperboard.

Again, we'll be down to five paperboard manufacturing facilities when we're done with this capital expenditure we’re making in Waco. As you've stated, all these are incredibly well capitalized, low-cost paperboard manufacturing facilities. We think we're uniquely positioned, Matt, to win in the marketplace based on that.

Your next question is coming from Lars Kjellberg from Stifel.

I'm going to start with a short-term question. Your third-quarter volumes came in below your expectations. Can you provide any color on where that happened, geographically, in end markets? You also called out continued growth in Q4, but with the slowdown you mentioned in September specifically, and I think you indicated October is looking better. What is happening in that market? What happened in September and what is driving that recovery you're now seeing in October?

I'll take the first part of it and Steve can add anything that I missed. We started off the quarter very strong in July, August was pretty average, and September was a little more muted. When we look at what fourth quarter looks like, we see it kind of being more around that 1% to 2% volumetric number, based on what our customers are telling us now. Coming out of the second quarter, we heard from them that we would see stronger sales. They were initiating several promotions, and we have to be prepared to make those packages when they need us. However, when our customers fall short, it impacts us, and that's what we saw in the third quarter.

Yes, Lars, the only thing I'd add is that geographically we continue to see positive volume growth from Europe, driven by our innovation activities there. Last quarter, our European and international operations made up 50% of our innovation; this quarter it was 40%, so still substantial. The improvement for the quarter was shared, but as we've noted, it's sometimes a bit uneven. We have pockets of strong steady growth, but customer expectations may not always align with actual sell-through. The pivot to real volume growth in the quarter was important; although it was below what we expected, it’s a positive and gives us some confidence heading into Q4 and towards 2025.

My follow-up question was actually related to sustainable packaging. You seem to have better visibility in that business; you delivered in line with what you had called out despite the slower overall market. Again, highlighting that importance of that business for you, you're currently talking about this as something that will repeat itself over the years ahead. What gives you the confidence that this will be a continued growth driver? What are you seeing in terms of innovation that you can talk about or increased adoption of your solutions that will benefit you in the years ahead?

I'll take a step; Steve, you can jump in if I miss anything. If you look at this year, we’re telling you we’ll be on track to achieve the $200 million target of commercial sales through our innovation pipelines. You can go back three additional years, so four years now, we'll hit that mark. That informs some level of confidence that the overall algorithm we've got out there is generating consistent sales. In the deck, you saw a profile of kind of what we call a modified Total Addressable Market (TAM). Our defined TAM is based on what we already have sold or are very close to selling, and that number has grown quite a bit; it's now almost $15 billion. The market, the addressable market, with the products we make has gotten bigger, creating more opportunities for us. The interest from customers remains high, and while it can be lumpy from time to time, we see a very attractive growth opportunity in these businesses.

Your next question is coming from Lewis Merrick from BNP Paribas.

As you've talked about before, you're currently transitioning your customers away from contract prices based on risk indexes, which are less representative of your cost base. Can you give us an update on roughly how much of your packaging business operates on these new contract structures? I have a follow-up after that, if that's okay.

Yes, Lewis, it's Steve. I'll back up a little bit. As Mike mentioned, we've been on a multi-year journey to ensure our contractual relationships with customers represent the value of packaging. We are well along in making sure that we're pricing our products based on the inherent value. About half of our business is already in a position where it’s attached to either more cost-based models or more annual-type models. The next step is the development of a new index, attached to known commodities that correlate nicely with our cost structure. We have a couple of large negotiations underway with some very large global customers where we're bringing that into play. We're making progress, and our interest in transparency with pricing is high.

One thing to expound a bit: What Steve outlined was about price change mechanisms. Remember, we must earn this business through tenders and RFPs. We are market competitive at that point in time. All we're discussing is the movement in the time period between those tenders.

And just on the technicals regarding the change in leverage guidance, we were previously at 2.7x, I believe, last quarter on guidance, now at less than 3x. I understand CapEx guidance has been raised and EBITDA guidance adjusted somewhat, but it seems like there could be other contributing factors, potentially working capital. Is there anything notable regarding that movement?

There's nothing to call out specifically. It's really the combination of a midpoint guide that went from $1.78 billion in the low $1.7 billion, combined with an extra $100 million on the CapEx. I think a sub-three leverage ratio is a good place to end, and we will keep the balance sheet in good shape. But nothing unusual to highlight.

Your next question is coming from Arun Viswanathan from RBC Capital Markets.

My first question would be just a clarification. On one of the guidance slides, you note that the updated range for '24 includes the contribution from Augusta. On the subsequent slide, it says $1.7 billion. When you say that the base is $1.7 billion for '24, does that include the $40 million for EBITDA contribution from Augusta in '24? So the base should be something like $1.66 billion. I ask this because you have called out mid-single-digit growth for '25 on EBITDA, and so if we apply it to the $1.66 billion, we perhaps would only get to around $1.7 billion or $1.72 billion. If we applied it to the $1.7 billion, we get more into the $1.75 or $1.76 billion range. Could you clarify that?

Yes, I'd be glad to, Arun. I think on Page 13, the guide for 2024 of course includes everything from Augusta, with a little bit in the first four months of the year. Page 14 is intended to clarify the leap-off point for next year. $8.8 billion would exclude a little bit of Augusta from this year. The $1.7 billion is roughly where we see the business functioning as the leap-off point for next year that will be in the low $1.7 billion tier in the guide. We do have a couple of headwinds this year that we recently outlined for you, but generally speaking for modeling, around $1.7 billion or very slightly below it would be that leap-off point for your calculations—not back to $1.66 billion.

Another question I had was just on the pricing outlook. We've noticed an increase in exports out of Europe into North America from some of the Northern European players due to weakness in demand in Europe. I think we've seen exports from Asia into Europe of paperboard. Additionally, we've seen Suzano making strong remarks about entering food service and cup stock in a big way. Does this concern you regarding the pricing outlook? We did see a downturn in the market previously, and while the indices may not be getting the same read on market dynamics as you are from your customers, I wanted to gather your thoughts on these differences in supply and demand.

I'll take this. I'm going to unpack some numbers here, as you’ve asked a broad range of questions. Firstly, I will say that this is the 35th call I've done as CEO, and the question around imports has come up on almost every call. Yet imports into the U.S. right now, across all three grades, are just a few percent. If you look at the census data—the best we have on that, and unpack it a bit, because paperboard can be a catch-all—Scandinavian imports are the most relevant. Looking at coated unbleached paperboard, as an example, it is a 2.5 million-ton market, and there have been about 140,000 tons of imports—call that roughly 5%. For SBS, with a 6 million-ton market in the U.S., imports are about 450,000 tons year-to-date, or about 7.5%. That's the highest level we've seen. Then, the recycled paperboard, with a 2.7 million-ton market, largely from Canada, has imports at around 2%. It's all relatively minor. Even looking at the 2024 data compared to '23, it's down. When reading some industry comments that suggest numbers are increasing, they aren't based on the data we have. Moreover, if we look back two years, we saw similar trends—it's kind of the high watermark for imports into this market. I’m not surprised. The fiber cost in Scandinavia has gone up dramatically. Containers are four times as expensive to get from Europe to the U.S. due to trade imbalances. Could someone make a short-term strategy due to a tough market? Sure, but generally, low-cost wins over the medium to long-term. While short-term implications may arise, we don't focus on it heavily because imports aren't a huge part of the market. It's worth mentioning the changes in the North American paperboard supply; for instance, there were 18 suppliers in the U.S. ten years ago, and now there are only 10. Out of the 18, only four continue to exist today. New leadership and new entrants are in the market, as you've mentioned about Suzano. They'll have to determine how they plan to compete. We've focused our pricing strategies and production to withstand fluctuations in these dynamics significantly.

Additionally, to connect the dots on the margins, the moves we're making around pricing, tuck-under acquisitions done recently, and the investments in our paperboard manufacturing will help reinforce our market positioning. I know that's a lengthy response to your question, but I wanted to ensure that I addressed it fully. I'll take any follow-ups you have.

I appreciate that. The only quick follow-up I had was just on the CapEx. It looks like you're still guiding to $800 million to $1 billion in '26. Do you still see that as likely, especially with some inflation affecting that CapEx? Are you still confident in that?

Arun, it's Steve. Yes, our confidence in the free cash flow inflection from today's limited free cash flow is grounded in the Waco investment next year, stepping down to $800 million. In 2026, a clear step down to sub-5% of sales, which would be sub-$500 million, remains exceptionally high. We're reviewing our long-range capital plans literally again this week, as you know. We’re always thorough. We know the projects and their trajectories, $1.1 billion, $800 million, and then sub-$500 million—that’s our path to cash flow generation. We know it by project. We believe our confidence in multi-year free cash flow expansion is exceptionally strong, and we’ve outlined our strategies for expenditure. However, these things can shift on the edges, considering growth projects, but overall, we have a clear path forward.

Your next question is coming from Ghansham Panjabi from Baird.

Going back to Slide 11, you presented packaging volumes and adjusted EBITDA margins. What's the base case for 2025 about market conditions and the low single-digit sales guidance? Will it mainly be your innovation that drives that, or do you assume the market will remain flat?

Yes, you stated it well, Ghansham. I think the base case would be a couple hundred basis points from our innovation engine and a flat to very modestly up consumer. Given that, this year, if you kind of step back, with innovation growth at around 2%, overall volume is going to be zero to minus 1%. You have a consumer trending in a minus 2% to minus 3% range. So the base case for us is low-single-digit top line, attributed to a couple of hundred basis points of innovation and 0 to 1 on the rest, leading to overall low-single-digit growth.

Regarding the promotional activity discussed earlier—are we seeing that dynamic building, plateauing, or what are your customers thinking as it relates to 2025? The consumer affordability component on that chart is unlikely to change near-term, right?

It’s a really intriguing question, Ghansham. We’re examining this closely. For foodservice, the well-publicized value meals have performed well, but overall lift hasn't been seen. What we're experiencing is a mix change. When companies promote, that category sells better, while others do not. One of our branded customers may promote, while others do not, which results in a shift to where promotions happen but doesn't change the overall category performance. While we're confident in the inflection to 1%, we still see that innovation can drive that in a stable environment into 2025.

Your next question is coming from George Staphos from Bank of America.

Is there a way, Mike, that you can, since you're integrated with your customers, share information with them or leverage information from downstream sources if they are not pricing or promoting correctly? What about your engagement with retailers where you can relay their feedback back to customers regarding promotions?

Of course, we look at it closely. Aside from that, our large CPGs are tied into the retailers marketing their materials, and we aim to coordinate well with them. Some retailers are customers for store-brand items we produce. We try to signal trends and help customers win in the marketplace, enhancing the innovation design. They are skilled marketeers, but there’s room to challenge existing norms. Regarding the pricing aspect—you’re correct; high fixed costs come into play. If volumes decrease, those costs are under-absorbed. While I won’t go into specifics on individual pricing mechanisms, it’s valid to consider in our proprietary relationships with customers to ensure both sides receive fair deals.

As we look to next year, with the digester reversal in 2025 and the power outage issue from Q3, would pricing be net positive or negative if we hold pricing constant? Any other factors we should consider for preliminary analysis for '25?

Overall, right now the pricing situation will be about neutral. In terms of traditional commodity inflation, it’s neutral, and labor and benefits inflation appears similar to past trends. Any improvements will derive mainly from positive volume growth, along with our productivity commitment that offsets other inflationary impacts.

Thank you. That concludes our Q&A session. I will now hand the conference back to Mike Doss for closing remarks. Please go ahead.

Thank you, operator, and thank you, everyone, for joining our call today. 2024 is a challenging year for consumer products companies and for quick-service restaurants. Despite these headwinds, Graphic Packaging is delivering solid results. I'm very proud of our team, excited about our innovation pipeline, and optimistic about our outlook. Thank you, and have a great day.

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.