to welcome today Graphic Packaging and representing the company is CEO Robert Raibook and who has just over five months I guess tenure as company president CEO and also attending Chuck Lushner interim CFO and Melanie Skeegis in the audience with us. GPK as many of you may or may not know world's largest manufacturer of sustainable consumer packaging primarily made from paperboard currently close to two-thirds of sales are in food and beverage applications about another 20% coming from food service so generally speaking should be pretty resilient so this is intended to be a fireside chat to the extent there are questions in the audience please blurt it out raise your hand throw something at me that's fine and with that introduction there Robert I think you had maybe a couple of opening remarks and then we can jump into Q&A we can go right into Q&A if you want to okay fair enough so I'm asking all my companies this question you were at a different seat when all this happened but how would you compare the current acceleration and input cost inflation however you kind of want to describe it and maybe the durability of that because I think you know at least as we're thinking about it looking out over kind of the next six to twelve months we've learned that inflation is not ideal for the low end of the K for the consumer which then translates into a more challenging volume environment. So just thinking through that piece of it as you guys are kind of experiencing it real Yeah.

The question obviously is, is this inflation more permanent in nature or is it more inflationary or transitory in nature? And as I think Chuck mentioned in the earnings call, we were about $65 million more inflation than originally anticipated in the annual operating plan and the guidance, which we're We're trying to work through an offset now. I think part of it is probably going to be there for a while, given the fact that some capacity has been taken out of the market and there's a time to start that back up. Part of it is transitory. It's not entirely clear yet how much of that, but it's definitely some of it will be permanent. and you know we're doing a lot of work in productivity so we've announced in the first quarter we did a or actually in the earnings call for the first quarter we announced that we executed the reduction in force we reduced 500 rolls to to drive better costs in in our SG&A we are currently working through a number of other initiatives in procurement for instance where we're looking at all of the direct and indirect cost to see if there's any immediate savings that we can generate. We've announced the sale of our Croatia facility as part of our footprint optimization effort to really get the right the right network of production facilities and Chuck and I are working on a weekly basis to manage our OPEX to really look at costs across the board to drive savings and capex as well so capex is obviously related to our free cash flow but all of the capex projects that were in flight were relitigated if you will reevaluated and requested for new approvals so you know we are treating this inflation like it's permanent in the way that we're re engineering our cost structure but we are hopeful that part of it is transitory Understood.

We're going to have a couple different angles and bites at demand, but just is there anything that you've seen kind of post February 28th from a demand cadence standpoint when you look at the business that would suggest to you customers are either trying to pre-build some inventory ahead of potential price increases, potential shortages, anything like that that stands out to you all?

Well, we have seen our demands in the market be very resilient. We have not seen spikes in any way that would suggest inventory buildup. We feel that given the fact that we're so diversified across food, beverage, households, we're even outside of the perimeter now in fruits and vegetables, we're in health, we're we're in nicotine, we're in Europe, we're in Asia, we're in Africa, we're in North America, that that geographic spread, that portfolio diversity and diversification has created quite a bit of a calm in our top line. So we've had the luxury of not worrying so much about our top line so far, and really focused on the cost side of things. That's where all the volatility sits in the business. So you know that our margins are more depressed than they were maybe two years ago. So we're laser focused on productivity and driving our cost structure down to restore EBITDA margins. Part of that obviously is impacted by the fact that we're taking inventory down this year. That's $130 million.

But that's the right decision from a free cash flow generating standpoint. okay um all right back at the ranch so um new ceo about five months um it's been a difficult time to come into the organization as as an outsider um and then obviously you get hit with the conflict um there's some winter storms um it's probably easier to run i'm going to say a water cooler business and you know versus running paper machines during winter storms but just as you kind of you're settled down now what excites you most about you know what brought you what drew you into GPK I know you've been asked on the

conference call but just anything that now comes to mind five months in will get you excited about working at GPK and the opportunity yeah Gabe thanks for that question I was attracted to graphic because I was excited about the prospect of leveraging my three decades almost in consumer packaged goods at Procter & Gamble, Kimberly Clark and PepsiCo and to serve my previous employers and other players, big players in the CPG industry, be a vendor and work so closely with them and at the same time the sustainability aspect of this company. We make fiber based biodegradable packaging so all the secular trends are in our favor in Europe by 2030 single-use plastics will be largely eliminated from grocery we anticipate similar you know similar trends to come to at least certain states in the US and potentially broader so I think the long-term prospect of this company when I when I look at the last five months as you know I've told you this I've traveled a lot I've been to various markets in fact in one week I was in six countries I did eight flights in a week this was this was a really eye-opening I've visited four of our five mills I visited the number of converting facilities and what I realized as I was traveling the world is what a big moat we have we have five mills that have a massive replacement value and just under a hundred converting facilities just the sheer replacement value of those facilities is an enormous competitive advantage. It's really hard to replicate. The second thing is if you look at the demand side, as I said before, it's far more resilient as I've seen it than what you read in the media. In the media, you read the media, you think all of the consumer packaged goods companies are in a severe decline. That's a little bit of the headline. we see a far more resilient demand picture, where we see all of the turbulences on the cost side, the inflation side, particularly driven by transport, logistics, oil and gas prices, and obviously related to the conflict. From a consumer side, there is a challenge consumer. We can talk about it maybe a little later, but there's a value orientation now that we see that can be addressed through price tiers, that can be addressed to pack price architecture and simple promotions, end caps, etc. The customers are really engagement graphic, so I visited a number of customers in the Northeast, in the Midwest, in the Netherlands, in Switzerland, in France, and I visited facilities in the UK and France as well, and so what we see there is that we are absolutely one of their preferred vendors because of our capabilities. You know, we talk a lot about paperboard pricing, but we are actually a packaging company. So more than $8 billion of our sales is finished product. And so we have 3,100 patents and we have proprietary products like the fridge pack for beverages is one of our inventions. So really we got to think less about this constant focus on pricing of paperboard and much more about, you know, what we do in the market with our customers, the innovation we drive, the products we launch, the innovation centers we have in places like Colorado, Atlanta, Bristol, UK, that's where the energy is and that's where our customers are engaging with us. So the net of it is, I'm incredibly encouraged by the last five months. It was difficult walking into this assignment.

It was definitely, I'm not going to deny that, but as I, where I sit now, five months later, I'm far more optimistic, but also realistic about the challenges that we have on the cost side so I would double click on that a little bit because um I think Smucker was out today talking about you know they gave their fiscal 27 guide I think volumes they pointed to would be down one across the the organization or on a consolidated basis but just if that's the new normal and and we can kind of kind of tick down the list of is it population trends is a GLP one is it you know um health and wellness I think sometimes there's there's winners and losers within those buckets writing like sometimes we make healthier decisions

and that means more around the perimeter but just as you look across the portfolio as you challenge the teams what are you seeing in terms of kind of real-time feedback yeah I'll say absent the macro in terms of what demand we hear like you said reading in the market the headlines yeah Gabe I think what we need to do and what we are doing is expand our portfolio beyond the center store so we are more and more active in the perimeter of the store we've developed a very large fruit trade business in Europe where products like berries are now marketed not in plastic but in paper trays again towards the 2030 regulatory change in Europe we have talked about the fact that we have a It's a $15 billion, a potential addressable market of plastic to paper conversion and foam to paper conversion. So whether you're replacing a styrofoam cup or styrofoam food container that you get maybe when you're going to pick up your food at a restaurant or whether we're looking at expanding beyond center store from the traditional cereals businesses and the cookies businesses where we have such strongholds. That's the focus. So we're trying to grow the category and there are a lot of plastic to paper conversion projects in the pipeline. I can't name any of them because that's obviously proprietary information. But, you know, think about replacing a plastic tray in a cookie execution with a paper tray. Think about fruit, vegetables, tomatoes, cherry tomatoes, blueberries, things of that nature. There is a tremendous upside. And, you know, I just came back from Bristol and Cholene, France, and we're making some of those products there, and I was surprised to see the size of that business. It's actually very meaningful already, and we're now obviously trying to globalize those businesses. So I think rather than, you know, only competing where we've historically competed, we are going to start growing the paper convertible packaging category instead.

That's much more exciting for for the team It's much more exciting for the industry and also we have some excess capacity as you know in Waco for Recycled board, so we'd like to make sure that we could you know complete and fill that mill Okay, I guess to two questions off of that the value orientation you talked about from the consumer your products when you think about relative cost to Whether it's polymer or otherwise Polymer's up right now, and actually I think polypropylene, polyethylene, we're down a little bit on a spot basis in May. But just cost competitiveness of your product, are there offsets if it's more expensive, sort of the initial upfront cost, whether it's throughput, whether it's efficiency somewhere else?

Yeah, you know, I've had this conversation in the boardrooms with my top customers several times in the last couple of months where we typically look at a certain product category where they're currently in plastic and then they express a desire to go to paper. And then the question is, is this cheaper or more expensive? I've seen both. All right, so the first is like, let's take the styrofoam beverage container. That's much cheaper than a paper beverage container. But a plastic single-use microwavable cup can be more expensive than a paper microwavable cup. So, for instance, if you're in the ready-made meals category where you add a little water and you have mac and cheese or something like that, or it's rice-based or something like that, pasta-based, you may be better off with a paper cup. Then there's a lot of gray area where we may be a fraction more expensive than plastic, but then that's obviously evolving with the resin prices and the coming up in oil and gas prices, so there's a lot of variability. Beyond that, all of these large customers have tremendously high aspirations from a sustainability standpoint, and a carbon emission reduction and recyclability. So that's the angle where it's a multidimensional discussion. It's not only, hey, what's the cost? But how can we make the footprint better and how can we drive more recycling? You know 70% of our products are made of recycled material, approximately, and I think just in the mid-90s are recyclable. So we really are well positioned in that discussion. So I'm actually engaging in some cases with the chief sustainability officers of some of these large corporations directly to understand their needs, the process, how they engage with procurement, how they track performance.

Shrinkflation. You know, you sell converted product, surface area. I would assume that goes up on a per calorie basis or however we want to measure it. Again, are there some analytics behind that that you all have done internally or a way to think about it? Net positive, neutral?

Yeah, I think that the shrinkflation word, I've seen it, I've read it. We like to call it pack price architecture. So it's a much more friendly word. And we like to call it portion control. And so when you look at the best examples of portion control are, for instance, mini cans of CSDs, which we all love because all of us like, most of us like the occasional CSD, but we may not be feeling like drinking a full can. Those are all very favorable for graphic packaging because that's a lot more packaging material and packaging boxes for us because you sell a lot more of those units. So when we look at downsizing portion control, we are very much in favor of that when our customers go there. We can support that and make that economically viable. Also, we have such a big global footprint and we have the lead times that they require for both promotional packaging as well as we can really be agile. We have some customers where we work in a two and a half week lead time. That's pretty incredible. And we can even move faster in the food service side of the business.

We're going to switch gears a little bit. We'll try to maybe talk some dollars and cents in the first half and the second half, and we've got a lot of investor questions about it. You mentioned $130 million of D-stock on the cash flow side. Our math says roughly maybe $400 a ton of underabsorbed fixed overhead. directionally. I know the math doesn't always work out right but just Q1 came in I think at 234 you're guiding 230 to 250 for the second quarter. Anything on the production side or is the destocking tracking with what you were kind of projecting at the beginning of the year? Any color context around that?

Yeah this check I'll take that. So a couple of things. So if you looked at our Q1 inventory decline. Q1, we saw about a $50 million decline in inventory from year-end, whereas in the prior year, it was a $60 million increase. So you're clearly seeing that the inventory come out of the business, and that's something that is helping to support our free cash flow. Due to the seasonality of the business, we do generally have more of an inventory build in the first half and then we harvest that more in the second half and so we did have negative free cash flow in Q1 but even though it was a negative almost two hundred million dollars 250 million dollars positive to where it was last year at the same time so all that will give us a long way to take us a long ways to get into the seven and seven to eight hundred million dollars of free cash flow that we see in 2026 versus the just under $200 that we saw in 2025.

And then I think there's a SPS price increase on the table for folding carton as well as cup stock for June implementation. Seems like, at least from the feedback that we've been getting, folks are fairly optimistic that that will be implemented. So I guess maybe two-part question. One, to the extent you can comment, whether it's contract business versus non-contract business, what you've been doing on the price side to offset some of that $65 million of inflation that you've seen. And by our math, I think even just on the transportation side for paper, there's probably $25 to $30 million a ton, excuse me, of inflation flowing through the system. You've got the normal, I call it the inflation treadmill, labor, et cetera. Just how you're tracking, you reiterated the $65 million, so I'm assuming that's still a good number. Anything else you want to call out?

Yeah, on the pricing side and all that, as you said, we are out with both cup stock increase on the bleach side and folding carton side, and then also out with unbleached price increase as well. So that's all on the paperboard. We will see how that gets recognized. First opportunity in a couple of weeks. We don't speculate on that, but as you pointed out and as Robert talked about earlier there's a tremendous amount of inflation in the business so that's clearly what's driving the need for the the price increase and that's well chronicled both in our business and in the broader broader industry so that is something that certainly shows the need for the price increase and then the way that'll that'll all show up in our individual contracts just as a reminder the way the index works for us that's really a price change mechanism so we set the price of a package at the time that we negotiate a contract with the customer and then the price change mechanism during the during the contract is partially driven by the the paperboard price and there's some other other pieces of that price change mechanism as well a piece tied to CPI and a few other things a few other other items as well but but that's driving the majority of it and and for us the from a bleach standpoint there is a greater business that's tied to open market so we do have a greater percentage of our overall business that is is tied to an index in the bleach business and it is in some of the other businesses so that's on that portion the price increase we also talked about on the Q1 call that we were out with a billion dollars of packaging price increase and then we also have contractual pass-through mechanisms to offset some of the inflation that we see so all of that will help us bridge from the first half to second half guide.

Okay as it relates to paper board supply you talked about we sell packages and we've heard this for a while we also So, you know, raw box board, there was a tragedy in the Pacific Northwest that took some capacity Just to clarify for investors and folks that are asking questions, we continue to get questions about it to this day. Our understanding is a liquid packaging board was the majority of what that mill was making. And it's a little bit different characteristics and capabilities that you need within a mill to make that lamination and extrusion, et cetera. So just maybe talk about what your capabilities are. or have you heard anything in the marketplace in terms of trying to source alternative supply? Again, our understanding was that the majority of that mill's production was going back to Japan. So just, I know it's not your asset, but to the extent it affects you.

Yeah, we've all heard and read about the extraordinary tragedy that occurred for those that are unaware there was an accident in the state of Washington at a mill. And, you know, our thoughts go out to those affected and the victims. The impact on our market is minimal and, you know, we would probably get a couple of orders here and there. We can help out, we'll help out. But most of that production was going back to Japan and that was being used for an integrated fashion.

So, you know, the closest thing we make to that product is our cup stock paper, bleached paper in Texarkana but we we do not believe that there's a major impact on our business from that okay if you were to kind of put your old consumer hat on and right now we've got the World Cup we've got America 250 which I think you know most people are pretty excited about just maybe things that you would be thinking about from a marketing standpoint from a commercial standpoint that maybe is an opportunity for for graphic today and then maybe one or two key things that you're worried about yeah you know we think about again we continue to read the low

end of the k is struggling yeah so as you know i worked in cpg for about just just under 30 years and i've not only worked in the north american europe but also in some of the emerging markets like venezuela and we dealt with a lot of economic volatility in those markets and the first thing that we would have looked at would have been getting the right price tiers in the market the right portfolio to serve the high end of the market the middle end of the market and the lower end of the market to really offset and fight back against the private label growth from a branded standpoint so having the right portfolio and that's usually enabled by formulation but also by price back architecture that we talked about earlier to have more accessible variants then you look at what channels you want to operate in. So certain channels tend to grow in growth periods and other channels tend to grow in more recessionary or economically challenged periods. So you want to make sure you're in those channels. And then e-com is continuing to go from strength to strength. Particularly the younger generation tends to get a lot of home delivery. It's unbelievable how that's taken off and how that continues to grow. And that requires new formats, new pack formats and new product executions. So I would focus there and then I would try to drive and reignite growth. There's a lot of categories that we see that are contracting right now from a consumption standpoint. It is possible to restore growth in those markets. You just have to get very creative and you have to get differentiated. So marketing, brand building, product innovation are really important right now. And we see that, for instance, the protein products, particularly helped by GLP-1s, are That's been a trend that's been going on for a while. I remember when gluten-free was the big idea, and then protein came in, early beginning of the decade, became really big. I launched a number of protein products myself in oats, for instance. And that's that continues to be very popular so when we look at our business and we talked about in the earnings some of the protein areas have grown much faster and we tend to be over represented in that space. I would also then really take advantage of the World Cup. We have 24 brands that we serve in our portfolio that are doing World Cup thematic events and you know that is a worldwide event with billions of viewers that happens to be in North America this year in Canada Mexico in the US I'm personally planning to be there this Sunday at the game in Dallas I can't wait it's exciting I hope all of you are going to tune in and if you see brands that are doing promotions in the World Cup just buy them just go just go all out just support them because we do we do want to make sure that we continue to market our brands and that you know everybody's excited about what's going on in the world and this is a very positive event where all the nations come together. So yeah I would be focused there. Packed price architecture, product price to your portfolio, winning in the right channels and specifically in e-commerce and I would really drive thematic promotions. And the last thing I'll say is value meals are really in demand right now. We obviously have a very big business in food service with the biggest companies in the world that's there's a lot of activity in thematic value meals and there there's still a lot of room to to to do exciting marketing promotions there protein forward yes and and maybe one or two things that would keep you up at night i think the the last five years have been um we've seen a lot of inflation so in the beginning of covid there was a lot of demand driven inflation everybody remember everybody's filling their pantries with beans and rice and oats and spaghetti and it was just a shortage and there was just not enough inventory around that was then followed by supply driven inflation when we saw shortages in jet ballots and transport issues and stuff like that remember all the containers in the ship in Los Angeles so you know the consumer is fatigued when it comes to inflation they're sort of tapped out and that's exacerbated by the fuel prices and so now you have to make choices everyday consumers moms and dads out there have to make choices so as manufacturers we have to be empathetic we have to make sure we provide the right value propositions to enable consumers to to buy what they need and you know it goes back to the earlier conversation and then overall I think you know the the the inflation and transport oil and gas diesel diesel affects everything it touches all the AG sectors etc so you know for that that would come down it would be very beneficial to everyone got it going back to the guidance to like I said 230 to 250 for Q2 you know kind of puts you let's say at 470 for the first half of the year the midpoint of the guidance is 1150. so again we talked about being back in weighted non-repeat of weather we got

some pricing that should be coming through can you walk us through some of the puts and takes h2 to h1 and if there's any more clarity today than there was maybe at the earnings call in april yeah so i think you touched on um several of them and it's the same items that i some of it In addition to some of the same pricing that I touched on earlier, so yeah, the weather impact in the first half is $25 million. There was additional about $20 million of higher maintenance in the first half than there is in the second half, additional production curtailments, about the same number, about $20 million in the first half versus the second half. And then, of course, then the cost, on the cost side, we committed the $60 million of cost takeout, and that's a 2026 number, not an annualized number. And we saw about $10 million of that in Q1, and then a little bit more of that in Q2. And so that'll accelerate the pricing that I already talked about earlier on the billion dollars, the packaging price, and the contractual pass-through mechanisms will all contribute. So as you can tell, there's a long list of things that are going to help us bridge from first half to second half, but a high level of confidence that we can bridge the inflation that we see.

Okay. I think the 15 billion of addressable market on conversion opportunities that you talked about, I think, Robert, you called out some converting capacity that it'd be nice to have, or maybe that, you know, it seems like it's grown pretty quickly. I think you said France on fresh produce. is that I'm assuming the answer is yes but just maybe lay out for us I'm going to bring up vision 2030 only because we talked about I think five percent of revenue and capex so all within that spend wallet of five percent that we can achieve what you'd like to yeah so the the fruit tray business was actually initiated in the UK markets okay and is now rolling out and we have those capabilities to produce those things in France as well in the Cholet factory where I was recently.

When you look at the 5% capex, so it's what we said is 5 or below, which is really a big part of becoming free cash flow generative, and we want to return money to our shareholders obviously over the years to come. we are going to pivot a little bit and allocate a little bit more of that to the converting side of the business so when you are engaging in a project with graphic there's three ways you can do that the first way is we sell you or lease to you a piece of capex for instance for keel clips for cans or bottles the clips that that used to be plastic they're not paper the rings around the cans it's a great example of such a project the second type of project we would put the capex in in-house those are low amounts usually with really aggressive returns very fast paybacks and the third and those are things we designed for is that we use existing equipment of manufacturers that are let's making making cookies and they want a tray that looks and gets handled the same way as the plastic current execution so we will design for that so that it goes through the same machinery or minor adaptations those are obviously preferred by our customers so you know with regards to the mills we will continue to invest the necessary maintenance and repair but there's also regulatory investments I think water treatment is a big deal we will and and we're still working on the code gen facility in waco we will complete that code gen facility we will invest in regulatory requirements we will invest in repairs maintenance and make sure that we have the right outages to do the maintenance which is required on an annualized basis where you go into the equipment and you look for cracks and you do welding and you do inspections to keep it all operating well and safely and at a higher performance level and then on the converting side it's really exciting because there's some projects that Chuck and I get on our desks that we look at that have a payback under a year and you simply go and build the equipment and you launch the product and it's already contractually agreed obviously and then you have that instant payback that is going to be part of a becoming a much more free cash flow generative business over the next years and be a higher ROIC because as I looked at the ROIC over the last five years I don't think it is where it should be with regards to the industry average and industry standard but we can get there last one for you I think we got about a little over a minute left you talked about some divestitures to maybe accelerate the leveraging or things that I'm gonna say non-core but just as you look across the portfolio anything that's become more evident to you again I know it's only been six weeks or so since we last caught up but just yeah yeah so we've we have announced the vesture of the Croatia facility we are always going to look at our footprint globally to understand where there are opportunities to let's call it unlock cash that is trapped this could be consolidating facilities this could be selling facilities or you know parts of our business it could even be a sale of a building and doing a lease back so all of the above will be part of our ongoing business process we did conclude a 90-day review which resulted in obviously not only sale of croatia but also the reduction in force where we reduced 500 rolls to drive productivity and our sgna number down but yeah this will be an ongoing an ongoing process and europe was determined to be strategic yes we have uh we we deliberately went out in earnings to say we are very committed to our Europe business we believe we are a our core is North American Europe we serve a lot of the same customers in both continents and we are very happy with our European business excellent puts us out of time thank you all for your attention thank you Robert Chuck thanks Gabe thank you