Greetings. Welcome to the Graphic Packaging Holding Company Fourth Quarter and Full Year 2024 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Melanie Skijus, Vice President of Investor Relations. You may begin.

Good morning and welcome to Graphic Packaging Holding Company's fourth quarter and full year 2024 earnings call. We have with us on the call today, Mike Doss, the company's President and Chief Executive Officer; and Steve Scherger, Executive Vice President and Chief Financial Officer. On today's call, we'll be referencing our fourth quarter and full year 2024 earnings presentation, which you can access through the webcast and also on the Investors section of our website. Today's beliefs 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. Now, 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. In 2024, we demonstrated the strength of our business model, delivering strong and steady margins despite challenging market conditions. We are well-positioned for 2025 and to meet our Vision 30 aspirations in the years ahead. For the full year 2024, Graphic Packaging sales were $8.8 billion, adjusted EBITDA of $1.7 billion, margins were 19.1%, and adjusted EPS was $2.49. In the fourth quarter, Graphic Packaging sales were $2.1 billion, adjusted EBITDA was $404 million, margins were 19.3%, and adjusted EPS was $0.59. Turning to Slide 3, 2024 marked the start of our Vision 2025 Transformation Plan to Vision 2030, which we presented at our Investor Day last February. Our transformation to a leading consumer packaging company will be largely complete later this year. I will come back to Vision 2030 later in my remarks. In May of 2024, we divested our Augusta Georgia bleached paperboard manufacturing facility, along with most of our open market bleached paperboard sales exposure. Augusta was a high-quality asset with a strong team, but did not have the level of competitive advantage we believe was required to support ongoing capital investment. We elected to put the capital to better use for our stockholders. After the divestiture, 95% of our sales came from high-value consumer packaging. We made a number of moves during 2024 to improve our environmental footprint, including executing a virtual power purchase agreement, which significantly increases renewable energy use in our European operations, minimizing our environmental footprint and helping our customers minimize theirs. During the second quarter, we applied $200 million of the Augusta divestiture proceeds to repurchase approximately 2% of our common shares outstanding. And during the full year 2024, we paid dividends of $122 million. After the close of 2024 and in recognition of the strong results our business model is delivering as well as declining capital spending needs, the Board of Directors approved a 10% increase in our quarterly dividend to $0.11 per share effective with the April 2025 dividend payment. Volumes did turn positive in the second half, up 1%, although the pace of normalization was slower than we and many of our customers had anticipated. Full year volumes were down approximately 1%. We delivered a growing 19.1% adjusted EBITDA margin for the full year 2024 with outstanding quarter-to-quarter stability despite a challenging market environment. Our financial performance demonstrates just how much Graphic Packaging has evolved. When I became CEO back in 2016, our business was about half the size, far less balanced than it is today, and wasn't capable of generating the consistency that we now deliver. Our team has done an outstanding job executing at a high level to build a consumer packaging business capable of generating strong and steady margins and cash flows across a variety of market environments. 2024 saw a clear consumer focus on finding value, significant growth in private label, and more consumers shopping for groceries at club and superstores. Our portfolio, which is designed to move with the consumer, responded well to those trends. We introduced new packaging innovations in all categories with significant new product innovations for our private label customers across the U.S. and Canada and Europe. As our experience demonstrates, our private label customers and retailers are just as committed as our branded customers to plastic reduction and to a more circular, more functional, and more convenient packaging that consumers prefer. Finally, we delivered innovation sales growth to $205 million in 2024. Turning to the fourth quarter on Slide 4, our Waco, Texas recycled paperboard investment is moving ahead well and remains on schedule for startup in the fourth quarter. On a smaller scale, but no less important strategically, we continue to make targeted investments in our packaging facilities to drive productivity and expand our capabilities. Culture is the second pillar of our Vision 2030 and keeping our teams safe and focused on delivering results for customers is essential to our success. We continue to have one of the industry's best safety records and in the fourth quarter, we saw improvement in employee engagement. We had an 87% global participation in our recent employee survey, which is outstanding, and we see meaningful improvement in 11 to 12 categories we measure. Engagement and safety go hand-in-hand and are my two highest priorities. In the fourth quarter, volume was up 1%. Price was down 2%, consistent with the second and third quarter results. Results in beverage, foodservice, and household were relatively steady overall, while food was modestly weaker and health and beauty remained mixed. We saw significant gains during the quarter with our private label customers and participated in the continued growth in grocery sales by club and superstores. In Europe, where consumers tend to shop more often for prepared, ready-to-eat foods, we are seeing volume gains with our convenience channel customers. The European convenience channel is a high service and fast turnover refrigerated food market, where our extensive packaging and logistics capabilities are a critical competitive advantage. As I noted, innovation sales growth of $63 million in the quarter contributed to our full year innovation sales growth of $205 million. We are well-positioned to achieve our goal of at least 2% innovation sales growth again in 2025. Our customers are always looking for better, more sustainable packaging solutions and no one has invested as much or built as powerful a platform as we have to deliver the more circular, more functional, and more convenient package solutions that consumers prefer. Slide 5 is a reminder of just how broad our portfolio really is and why we are able to generate strong results even in challenging market conditions. Turning to Slide 6, let's look at our sales in more detail. Overall, year-over-year fourth quarter and full-year packaging sales were roughly flat with a steady performance in beverage, foodservice, and household, with moderately weaker results in food. Food represented approximately 38% of our packaging sales in 2024, and here we saw a continuation of the even results we experienced all year. We saw significant gains in pasta, which is seeing growth from consumers looking for simple and less expensive alternatives to prepared meals and takeout. We are also participating in the growth in macaroni and cheese. Always an affordable choice, macaroni and cheese is also benefiting from the newer gourmet varieties, which are taking this classic comfort food to market while remaining relatively affordable. It's worth noting that in both the Americas and Europe, private label represented the big area of growth we are seeing in both pasta and macaroni and cheese, although branded is also doing well. However, these gains were not enough to offset the continued weakness in frozen and refrigerated prepared foods categories, which tend to come in at a higher price point. Confectionery continues to see weakness in Europe as a result of high cocoa prices, while U.S. demand has been more stable. Coffee and tea saw significant gains, thanks in part to our product innovations, but also from a shift in coffee consumption towards home and office, driven in part by the consumer focus on value. Categories like yogurt did well in both the Americas and Europe as consumers opted for this less expensive source of protein. As we think about shifting food purchasing behavior, it is important to consider the role retailers are playing. While growth in private label is significant, retailers are also creating and expanding loyalty programs designed to keep consumers coming back at a time when consumers are increasingly visiting more stores but spending less in each one. It will continue to shift and Graphic Packaging is one of the very few companies with the capabilities to execute quickly and at scale for the largest CPGs, co-packers, and smaller regional customers. Beverage, which represents about 25% of our overall packaging sales, saw some modest improvement with continued solid growth in Europe. Our European business is benefiting from regulatory requirements to eliminate plastic, and we expect those regulations to support growth in the business for several years to come. We are well-positioned after the investments we made in anticipation of this trend, including at Bristol in the U.K. where we have doubled the size of our facility and built a world-class innovation center. Foodservice represented 21% of our packaging sales in 2024. After 11 consecutive positive quarters, with over 5% year-over-year growth, we saw stability in the fourth quarter against a very strong comp from last year. Our multiyear outperformance of the food service market has been driven by the growth in investments we've made in innovations that are helping our customers meet their goals to reduce plastic consumption and improve functionality. Foodservice continues to represent a big opportunity for us, driven by plastic reform and the demand for better, easier-to-use, and easier-to-recycle containers. Promotional activity by quick-service restaurants remained strong. Our foodservice customers continue to focus on value options and are making other menu changes to drive volume, and we are working closely with them to develop the best solutions for their strategies. Household products represented approximately 12% of our packaging sales and the results were generally flat year-over-year. Tissue continues to be one of the weaker areas year-over-year, but we are seeing better growth in cleaning products, particularly in Europe as we are in pet care. Over time, we see clear opportunities to expand this part of the portfolio in both the Americas and Europe. Finally, health and beauty, a small but promising part of our overall packaging sales, continues to show mixed results. This is mainly a European business for us now, although we have some exciting opportunities here in North America, thanks in part to PaceSetter Rainier, our 100% recycled paperboard that performs as well as more expensive bleached paperboard. The high end of the cosmetics market remains challenged, but we are seeing improvement at lower price points. Fine fragrance is also showing encouraging gains. Healthcare remains challenging, but we suspect the majority of the destocking is over. If you'll turn to Slide 7, we present typical seasonal patterns in our action and expected experience. Seasonality in the fourth quarter was relatively normal in beverage where we saw the usual dip. However, after 11 quarters of impressive gains, our foodservice results were relatively flat in the fourth quarter. Our other markets - food, household, health, and beauty performed broadly in line with normal seasonality patterns overall, with quite a bit of variation within those segments, driven by the consumer's surge for value. Monthly patterns were also mixed. October overall was not as strong as we typically see, November was fairly normal, and December followed the typical pattern but with incremental impact from the timing of the holidays this year as expected. I have already summarized our fourth-quarter experience. Looking ahead to the first quarter, we expect consumers' focus on value to remain strong. Importantly, as you are hearing from many of our customers, driving volume is moving up in priority. Many of our food and beverage customers are rolling out more new products and new configurations to reach consumers in new and existing channels. In foodservice, we continue to see focus on promotion with new menu choices emphasizing value and more limited time offerings designed to drive foot traffic. Each of these represent an opportunity for us to partner with our customers to create real value, and we are encouraged by the level of engagement we are experiencing. Slide 8 outlines the company's five packaging innovation platforms and the scale of the opportunity we see in each one. Each of these five platforms made important contributions to our innovation sales growth in 2024 and will again in 2025. Alongside volume growth, plastic substitution is a top priority for many of our customers, and we have outstanding, commercially-proven solutions for a very wide range of new applications. Turning to Slide 9, I thought it would be useful to step back and look at the breadth of the innovation we delivered in 2024. Each quarter, I've been highlighting an innovation win, but there are dozens of exciting new packaging innovations that we haven't talked about. From trays and bowls to beverage multi-packs to toothpaste packaging, we have introduced some of the most innovative, functional, and convenient new packaging available anywhere. We are a clear global leader in sustainable consumer packaging innovation, and we are excited about the opportunities we see in the year ahead. On Slide 10, you can see from the picture that our Waco, Texas recycled paperboard investment is moving ahead nicely. Our decision to accelerate equipment purchases has helped us de-risk key elements of the project. Today, we have all the major equipment on site, which gives our contractors more flexibility and more ways to stay on schedule. We are signing recovered fiber contracts to coincide with the startup, setting up the logistics to bring trimmings from our own packaging plants to Waco and talking to a wide range of sources to collect and recover paper cups. We designed Waco to be able to recycle up to 15 million paper cups per day because cups are an outstanding bio-source. Our ability to process paper costs generated in the Texas Triangle of Houston, Dallas, and San Antonio is one of the many competitive advantages that we've designed into this strategic investment. Stepping back for a moment, Vision 2025 was about transformational investment - investment in capabilities to drive greater top line consistency, investments in innovation to drive growth and create the kind of packaging that consumers prefer, and investment in competitive advantage, which is what our Waco recycled paperboard manufacturing facility is all about. Waco is the last major investment of Vision 2025 and will allow us to fully capture the competitive advantage in quality and economics that started with our Kalamazoo investment and will soon be in place throughout North America. Turning to Slide 11, Vision 2030 marks our transition from major transformational investment to innovation and execution. We have built a world-leading sustainable consumer packaging company on a foundation of innovation, an exceptional team, and a commitment to protecting and preserving the planet. We focus our resources to deliver outstanding results for customers, stockholders, and all our stakeholders. We are already making excellent progress towards our Vision 2030 goals and aspirations, and I'm incredibly proud of the results our team delivered in the challenging market environment we and our customers faced in 2024. Now, let me turn it over to Steve for a review of our company's financials and operations.

Thank you, Mike. Turning to Slide 12. Sales for the full year 2024 were $8.8 billion. Fourth quarter sales were $2.1 billion. Volumes, which turned positive in the third quarter, were up 1% in the fourth quarter. Full year volumes were down 1%, a modest decline given the challenging market environment. Price declines remained steady and relatively modest at about 2%, consistent with the second and third quarters. Prices are stable as we begin 2025. The divestiture of Augusta and lower open market bleached paperboard sales reduced reported sales by $389 million for the year and by $103 million for the quarter. Other M&A, excluding Augusta, was a $27 million positive for the year and a $14 million negative for the fourth quarter. The fourth quarter saw two months of sales impact from the Russia divestiture, which took place in November 2023. Recent currency movement has been noteworthy following the November election in the United States. Foreign exchange was a $15 million sales headwind in the fourth quarter, taking the full year to an approximately $24 million headwind. I'll come back to the implications that a strong U.S. dollar could have on our 2025 results in just a few minutes. Adjusted EBITDA for the full year was $1.7 billion and $404 million for the fourth quarter. Adjusted EBITDA margins remained strong and steady at 19.1% for the full year and 19.3% for the fourth quarter. Net performance was an outstanding $270 million for the full year and $80 million for the fourth quarter, offsetting lower pricing and inflation. The adjusted EBITDA impact of the Augusta divestiture and lower bleached paperboard sales was a negative $164 million for the full year and a negative $39 million in the fourth quarter. Power issues in the third quarter and the decision to accelerate digester maintenance into the fourth quarter reduced 2024 adjusted EBITDA by approximately $30 million for the full year and $5 million in the fourth quarter. These items should not repeat in 2025. Other M&A, excluding Augusta, was a positive $10 million for the year and a negative $3 million in the fourth quarter. Foreign exchange was a $9 million adjusted EBITDA headwind for the year and $5 million in the fourth quarter. The swing we saw in foreign exchange was the largest piece of the shortfall versus our Q4 expectations. We ended the year with $5 million in net debt and net leverage of 3 times, in line with our expectations. Net debt is at a reasonable level for us given the consistency of our sales and margins, our declining capital spending needs, and the rapidly rising cash flow generation we are anticipating as we move towards 2026 and beyond. We have no debt maturities in 2025 and only modest maturities in 2026. During 2024, we reduced outstanding shares by $5.6 million or approximately 2%, even as the company invested $1.2 billion of capital and kept leverage within the target range. Slide 13 highlights the impressive margins that our business delivered in a challenging volume environment. Despite a broad-based customer and retailer destocking and consumers under pressure from inflation, both of which reduced our volumes, we are generating appropriate value for the packages we deliver, and that is translating into strong and steady margins. Turning to the outlook on Slide 14, we expect 2025 sales growth consistent with our Vision 2030 base financial model in the low single digits. That, of course, includes our 2% expected innovation sales growth. Given the volume challenges our customers are facing, the bottom of our 2025 adjusted EBITDA range assumes the year is not very different from the one we just ended. Even at that level, margins would be in the 19% range, which again speaks to the strength of the business model. Over the next six years of Vision 2030, we are confident in our ability to achieve our base model of low, mid, and high single-digit growth for sales, adjusted EBITDA, and adjusted EPS. We have quantified the impact of the foreign exchange headwind that developed in late 2024. At current forward rates from Bloomberg, foreign exchange is approximately a $120 million sales headwind and a $20 million adjusted EBITDA headwind in 2025 as compared to 2024. Our largest currency exposure is to the euro, but we also have meaningful exposure to the peso, pound, Swedish krona, Canadian dollar, and yen. Our base financial model and our 2025 core guidance exclude the foreign currency impact. The column on the right adjusts those core figures to incorporate the currency headwinds. If we leave currency aside for a moment, our expectations for 2025 would call for a relatively normal overall quarterly cadence, broadly in line with the pattern outlined on Slide 7. In the fourth quarter, we successfully accelerated capital spending again, taking total capital expenditures in 2024 to approximately $1.2 billion versus our previous estimate of $1.1 billion. 2024 was peak CapEx for Graphic Packaging and we are now targeting 2025 capital spending in the range of $700 million, down $100 million from our previous estimate. As a reminder, beginning in 2026, we expect capital spending to be roughly 5% of sales, with 2% of that representing maintenance capital spending and the rest available for growth projects, greenhouse gas emissions projects, and other productivity initiatives. Slide 15 provides the company's Vision 2030-based financial model and our capital allocation priorities. Once the Waco investment is completed later this year, our priorities will turn to our normal level of reinvestment for growth, included in our 5% sales CapEx target, growing the dividend, opportunistic share repurchase, deleveraging, and tuck-under M&A. Turning to Slide 16, over the next several years, we expect to generate significantly more cash than we require for reinvestment. 2025 marks the beginning of a multiyear cash flow expansion cycle, and we intend to deploy that incremental cash to generate outstanding returns to stockholders, while we further strengthen Graphic Packaging's position as the world's leading producer of sustainable consumer packaging. On Slide 18, you will find supplemental information that may be useful for modeling purposes. That concludes our prepared remarks. We will now turn the call back to the operator to begin Q&A.

Certainly. At this time, we will be conducting a question-and-answer session. Your first question for today is from Lewis Merrick with BNP Paribas Exane.

Morning Mike, morning Steve. Thank you for taking my questions. Just to start, I was wondering if you could give us a bit of a flavor for how you're thinking through the impacts from any possible tariffs that have been mentioned from President Trump both for yourselves and the wider industry? And if there are any potential second-order effects that might entail? And now I've just got a quick follow-up.

Yes. Thank you, Lewis. I'll start with some of the macro on that and I'll turn it over to Steve to make some commentary perhaps on the financial side of that. I guess if you just speak for a minute around what was announced here at the end of last week in terms of Canada and Mexico, from a high level, we manufacture products largely for customers in those geographies and the facilities we have, both in Mexico and in Canada. If you look at the cross-border in North America, we would estimate that around $300 million of paperboard flows in some cases that's flowing in, and some cartons that would flow out of the U.S. and into Canada., as an example. So, it's relatively small. I think about 3% of our total sales. We really don't have exposure to China in a material way at all. And so as you look through that, the biggest impact we've seen so far has really been on the translational impact on the strengthening of these currencies. And Steve gave a pretty good explanation of what that looks like. For these tariffs are now on hold for 30 days. So, like everybody else, we're going to have to wait and kind of see how that plays off and certainly, that's Canada and Mexico. But that's how we're thinking about it. We do have some actions as things get clearer where we could shift some production to probably minimize some of those impacts once we have clear line of sight, if, in fact, something does go in and we need to respond.

Perfect. Thank you. And then just focusing a bit more on the volumes. Clearly, we returned to positive volumes in the second half of 2024. Have you seen that trajectory continue as that played out in January?

Yes. Thanks for the question. If you look at macro 2024, in the first half we were down 2%. The second half, we were up 1%. We delivered $205 million of innovation sales, and I'm really proud of that. Our funnel for innovation remains very strong and our confidence level remains high. We expect continued growth here in Q1, and that's consistent with what we saw here in January.

Great. Thank you. I'll pass it over.

Your next question is from Anthony Pettinari with Citi.

Good morning.

Morning.

Hey. Mike, could you talk a little bit about the relative strength in the different substrates that you produce, maybe kind of industry operating rates, and how your system is operating, obviously post-divestiture with Augusta?

Our system is operating very well, as you saw from the performance that we generated on a year-over-year basis. The relevance of operating rates for us is a bit diminished, relative to how we think about the business. Specifically, what I'm talking about on our solid bleached paperboard that's mid folding cartons and our unbleached, once our bleached uncoated paperboard that we use for cup-stock, that's almost 100% integrated into our operations. So, it's really not as relevant for us anymore. We get a ton of questions on imports. The reality of it is, as I've told you guys in the past, it really doesn't make my list of things that keeps me up at night because it doesn't impact our overall business. Relative to coated recycled paperboard and the unbleached paperboard, those grades continue to be strong and in demand. We're investing heavily in coated recycled paperboard, as you know, and what we're doing in Waco. We publicly stated that the most likely result is that we will close or smaller undercapitalized facilities in Ohio and once that machine is up and running, we expect to be making commercial paperboard on it in Q4 this year. We will have five incredibly well-capitalized assets that are making the paperboard that we need flowing through our 120 converting facilities spread around the globe. That's the business we're running; we're selling packaging, we're selling cups. That's why you've seen our disclosures make more of a shift towards end-use markets, what's the consumer doing, and how we're performing in those markets because it's more relevant for how we're running the company and how we think investors should be looking at us.

Got it. That's very helpful. And then you talked about volume assumptions for 2025. I'm just wondering if you could talk a little bit about pricing assumptions or at least the pricing environment as you start the year, both in terms of just kind of the strength of the market, but also your efforts to move customers off of the RISI index?

Yes, Anthony, it's Steve. Good morning. Just a couple of things there. Overall, in our guide, as Mike just said, we're assuming continued modest volume growth kind of in that 2% range, consistent with our innovation year-over-year. Right now, pricing heading into 2025 is pretty neutral, the 2% price declines that we managed through in 2024 are fundamentally behind us. So, we've got relative price neutrality heading into 2025, which is pretty consistent with what we're seeing on the input cost side as well. We're actually very pleased with the progress we're making with our customer negotiations where we're putting in place our internal duly-developed index for price changes with our long-term customers. Overall, interest receptivity has been high, and we're executing those proprietary negotiations with our customers. So, we're actually very pleased with the movement on that front.

Okay, that’s helpful. I'll turn it over.

Your next question is from Phil Ng with Jefferies.

I was curious to get your latest thoughts on the quarter itself; it's a little softer than we expected. Can you help us understand whether it was due to productivity or how Augusta turned out? Please provide more details on how this might impact 2025.

Phil, it's Steve. You broke up a little. You're referring to Q4?

Yes, Q4. I mean, I thought volumes in price was largely in line. EBITDA is relative to consensus was a little lighter, help us think through were there any big surprises in the quarter that we should be considering?

Yes. Thanks Phil. Really, two things. First, our expectations. One, volume came in at 1% and we had guided for the quarter inherently in the 1% to 3%. So, volume was a little bit lighter than we expected, a little less promotional activity and volume from our customers. So, about 1% was volume-driven. At 1% of the top line, of course, that flows through our EBITDA and then really was FX. This move post the election was kind of an $8 million to $10 million hit for us relative to what we expected it to be when we last chatted and put out our guidance. So, really, it's those two things, Phil, nothing operationally of any substance margin overall at a very high 19.3%. So, a little late FX move and 1% volume versus an expectation of modestly higher were the two things that caused the shortfall versus our expectations in Q4.

Okay. And when we think about 2025, your 1% and 3% volume growth, that's largely assuming the markets are still pretty muted. Is that the right way to think about it?

Yes. Our primary assumption is that the 2% innovation growth will be the primary driver of volume growth for the year, which assumes pretty market neutrality. Now, keep in mind, in 2024, we were down 1% on volume, we were inside of that up 2% innovation, minus 3% on the market. So the market goes from kind of a minus 3% to pretty neutral on a year-over-year basis, hence the 2% volume growth on the top line, price relative stability.

Okay, appreciate all the color guys. Thank you.

Your next question is from Gabe Hajde with Wells Fargo Securities.

Mike, Steve, good morning.

Good morning Gabe.

I had a question about inventory levels. I'm looking at inventory days that have kind of jumped up since 2018. I suspect part of that might be related to the cups business maybe in a little bit more inventory for QSR to make sure that they have what they need. But it also kicked up a little bit in 2023 and 2024. I'm just curious if there's anything that's intentional, number one? And then number two, on the production side, the paper side or maybe folding cartons, I don't suspect you guys are holding a lot of inventory there. What that might imply for your own operating rates in 2025, meaning it matched up with what you expect to be kind of 2%-ish volume rates?

Yes, you read it right. I appreciate the question you're asking there. In some cases, we did have inventories that were a bit depleted coming out of the rush through the pandemic, if you will. And so, our customers wanted us to get those back to more normal levels, which we've done. The biggest impact on a year-over-year basis was due to the planning we're already doing to get ready for the Waco startup as you can appreciate. We've got a couple of paperboard manufacturing facilities that we need to take down. We have to protect our customers during that process. You'll see that wash through pretty quickly as Waco comes online; we expect to harvest that working capital. It's something we're focused on, but we want to be able to respond to customer needs in a highly variable market.

Got it. Okay. And then maybe, Steve, you talked about kind of it sounded like price cost neutrality, and maybe that includes productivity. We've only heard from a couple of companies thus far. But seems like labor and some of these indirect costs are still rising. I'm curious what assumptions you have for the more visible direct implementation that we can track in the outside world versus maybe where you guys are doing better on the indirect side?

Yes. You're spot on there. Overall, our pricing, as we mentioned, is pretty stable heading into 2025, along with the accumulation of our input costs. We continue to have labor and benefits and other inflation, which is in the 3%-4% range as we've seen in the past, maybe a little lower than historical. But it's in that $100 million range for us on a total basis. Our confidence that our productivity initiatives will more than offset that again in 2025 remains high, given the productivity initiatives we have in place. Those fundamentals remain intact, which is why margin stability remains extremely high.

Got it. Thank you.

Thank you.

Your next question is from Ghansham Panjabi with Baird.

Yes, hey guys. Good morning. I'm thinking back to 2024; it's clear that your customers started ramping promotional activity higher, but frankly, it was not enough to move volume velocity in a material way. Do you sense any shift in terms of what they may do different in 2025, if anything, maybe in terms of packaging mix or lower price point architecture, etc.?

Yes. We certainly heard that in my prepared remarks; we're seeing a lot of activity around new products and trying to position things. Some of that is tied to the GLP-1 drug set there that our customers are reacting to, and that creates opportunities for us. Anytime there's a change, as you know, Ghansham, that presents an opportunity for us to have a conversation with our customers. We are seeing that engagement, but you're right that promotional activity really saw one customer in a category promote, and the overall segment of the category didn't really grow; it shifted to that producer or that promoter who won at the expense of somebody else. It didn’t expand the category itself. We also saw it on food service, where those promotions were really high— like the $5 value meal, etc. So, it was prioritizing mix rather than growing the overall pie. As we look to 2025, we’ve got a pretty neutral market assumption there. I am used by the amount of activity we see; our confidence level is high in our innovation pipeline.

Okay. And then my second question relates to the comments on tariffs and the direct impact on you, but if we zoom out on the supply chain, including your customers, is there any consideration to change the network of production in any way to offset what looks like a secular issue in terms of tariffs?

Yes, I think, look, every one of our customers has got a war room set up trying to figure this out because we have to be proactive. They're all trying to get a good grasp on what kind of path it's going to take. Again, I mentioned, and we know there's a 30-day reprieve now for both Canada and Mexico, but it's something we will have to deal with. A fair amount of consumer goods applications are coming from the U.S., and any of that made domestically ultimately benefits us. I think we can leverage our large platform in North America. We have 85 converting facilities across North America. That gives us a lot more options than most packaging companies, and we’ll work hard with our customers to minimize any supply chain disruptions.

Yes, Ghansham, it's Steve. Just to add to Mike's commentary, I think the modest potential tailwind is just a little more of a localization, if you will, of raw material production and the ability to produce packaging in our facility network. We're nicely positioned to be close to those customers.

Perfect. Thank you guys.

You bet.

Your next question is from Matt Roberts with Raymond James.

Hey, Mike, Steve, good morning. Steve, you talked this a little bit earlier, but I want to dig into the ongoing contract negotiations just a bit more. So last quarter, you announced you addressed the remaining 5% of open market contracts. Is there some type of natural price benefit we should see in 2025 from that? And being that I believe you've noted that 50% are still tied to the index. Are you able to provide more color in terms of how many contracts have come up since the initiative was undertaken? What is the conversion rate of those been or when we should start to see more material benefit flow through from that initiative?

Yes, Matt, it's Steve. I think we might take a little different take on what you're asking. We've been on a five-year journey of being compensated appropriately for the value of our packages, and we've made a lot of progress in that regard. Regarding the open market, yes, we've made those transitions and we're being compensated appropriately for paperboard at market rates. We'll have mechanisms in place to move pricing with that small segment of customers. We're in a step-by-step renegotiation of all our natural packaging customer contracts. We don't have plans to put those out in percentage terms because it's an ongoing journey. What we like is that receptivity is high, and there’s recognition that having a transparent price change mechanism that works with our customers is something they prefer. That's the context of the consumer packaging company we've become.

One other thing I'd point out - on Slide 13, you can see the material benefits we're experiencing from the effort Steve referenced over the last five years. The stability of our margins out of quarters shows it's clear it's working, and our investors are benefiting from that.

No, it's all very helpful, and it certainly makes sense. Maybe holistically, if I could ask another question on the unbleached side of the business, can you talk about how your share has trended over time? Is that market relatively stable? And given the structure, are there any differences in the contracts there versus either bleached or recycled? Or any color you could give on the different dynamics that would be helpful.

No, I appreciate the question. I think on the unbleached paperboard side, there's been a lot of risk about weakness there, and we just haven't seen that. Our overall beverage business has performed quite well. It's a global business; the vast majority of that material flows through our own converting facilities. We saw very little of that in the open market, and it's a very good grade paperboard. As you know, we've made two large-scale investments in coated recycled paperboard in Michigan and Texas to increase our capabilities and quality, where we are able to generate and ultimately, the cost position customers are always looking for. Those two grades are strong, and we'll continue to sell them through our converting facilities to customers.

Thanks, Mike. Appreciate it.

Thanks Matt.

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

Hi, good morning everyone. Thanks for the details and taking the question guys. I guess I had three questions, I'll ask them in sequence. So, first of all, as we do the guidance for the year, and the fact that this juncture ex-FX will be a little below your normal target of mid-single digit. What would be the biggest risk factor you see in guidance and the variance there? Is it just the fact that we're stepping off at a lower point from 2024 because of all the risks from the consumer, or are there other factors at work as well?

Overall, of course, volume will be vertical there. We are assuming some modest volume growth that has a market assumption that is neutral, as we talked earlier. This requires our customers to make commitments to promotion and manage through day-to-day life of a really stretched consumer. So, I think that really evolves around volume. Our productivity, the initiatives we have in place, and our confidence in our innovation pipeline are all positive. FX can move, and that's mostly just translation activity, which is the reason we called it out for you here.

Thanks Steve. Yes, I understand. I was asking before foreign exchange, but basically, it's the volume and consumer variability that's in the guide that you're calling out. Thanks Steve.

Yes. And then your question on cash flow is an important one. Our confidence in the cash flow inflection for the business remains very high, particularly given the catalyst it will provide for margin enhancement as we move out of 2025 and into 2026, once we bring Waco to life and really inflect on the cash flow front.

In regard to foodservice growth, George, you referenced correctly that we have outperformed in that space pretty dramatically. However, we have to meet tough comps. We are investing heavily in innovation. We profiled on our last earnings call one innovative product we put in place with McDonald's, which has been successful.

Thanks so much.

Your next question is from Arun Viswanathan with RBC Capital Market.

Great. Thanks for taking my questions guys. Hope you are doing well. I guess the first question, going back to the inventory side. It looks like you took quite a bit of action over the last half year. So, I know there was some downtime. There was also some downtime a year ago in the second half. So, as it stands, would you say that your inventories are balanced where you want to be? Or is there still more work to bring those down? I think, building some inventory ahead of the Augusta closure. Can you just update us on that?

Yes, as I mentioned there, Arun, I mean, from our interactions, we had some rebuilding we needed to do with our finished goods coming through the pandemic. We've done that. We've made sure we have the capacity to service our customers in a highly variable market. We're in a good position. Our on-time delivery is very high, and we're servicing them well. As I mentioned, we decided to build a little inventory here as we prepare for the start of the Waco paperboard mill. By and large, we’re at a good level with our finished goods; we’ve just got more work to do on the raw material side as we look towards Waco.

Okay, that's helpful. I was just hoping we could address some of the concerns in the market around new capacity as well as imports. Several of us have seen reports of imports coming in from Europe, given maybe a softer demand environment there. Are you still seeing that? Is that a credible threat to oversupply? And then similarly, there were some announcements of new capacity in CRB. There were conversions from SBS and into the U.K. So, maybe just give us your thoughts on new capacity as well as import threats?

I think, Arun, and I'll make a few comments on it, but this question is much better for people that are actually in the marketplace selling paperboard. In particular, I think what you're referencing is some of the FBB board that's coming into the North American market, Europe, which was up modestly last year as I look at the numbers. But again, as I indicated, it really doesn't impact our business much, if at all. We're integrated into that in our own paperboard facility in Texas or Canada. We use almost 100% of our own material. The impact on that really falls on others that are participating in that market.

Yes, Arun, it's Steve. Just to add to that commentary, there are no low-cost alternatives to converting something from bleached paperboard into unbleached coated. That is our product category. We are a low-cost producer of uncoated material here in North America, and that will continue to be the case.

Great. Thanks.

We have reached the end of the question-and-answer session, and I will now turn the call over to Mike Doss for closing remarks.

Thank you, operator and thank you for joining us on our call today. There is no doubt 2024 was a challenging year for consumer product and quick-service restaurant customers. For Graphic Packaging, it was challenging but an exciting year. We harvested capital from the business that lacked competitive advantage. We delivered significant packaging innovations to new and existing customers, and we made outstanding progress in Waco. Despite the headwinds, we returned to growth in the second half and delivered exceptional margin stability. Graphic Packaging is demonstrating the strength of its business model. I'm proud of our team, excited about our innovation pipeline, and optimistic about our future. Thank you and have a good day.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.