U.S. Markets open in 2 hrs 24 mins

Edited Transcript of GPK earnings conference call or presentation 23-Apr-19 2:00pm GMT

Q1 2019 Graphic Packaging Holding Co Earnings Call

Marietta Apr 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Graphic Packaging Holding Co earnings conference call or presentation Tuesday, April 23, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Alex Ovshey

Graphic Packaging Holding Company - VP of IR

* Michael P. Doss

Graphic Packaging Holding Company - President, CEO & Director

* Stephen R. Scherger

Graphic Packaging Holding Company - Executive VP & CFO

================================================================================

Conference Call Participants

================================================================================

* Adam Jesse Josephson

KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst

* Anthony James Pettinari

Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst

* Brian P. Maguire

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Clyde Alvin Dillon

Vertical Research Partners, LLC - Partner

* Daniel Dalton Rizzo

Jefferies LLC, Research Division - Equity Analyst

* Deborah Anne Jones

Deutsche Bank AG, Research Division - Director

* George Leon Staphos

BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research

* Mark Adam Weintraub

Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst

* Mark William Connelly

Stephens Inc., Research Division - MD & Senior Equity Research Analyst

* Mark William Wilde

BMO Capital Markets Equity Research - Senior Analyst

* Matthew T. Krueger

Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst

* Sahas Apte

UBS Investment Bank, Research Division - Equity Research Associate

* Steven Pierre Chercover

D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Kyle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Graphic Packaging Company Earnings Call. (Operator Instructions)

Mr. Alex Ovshey, Vice President of Investor Relations, you may begin your conference.

--------------------------------------------------------------------------------

Alex Ovshey, Graphic Packaging Holding Company - VP of IR [2]

--------------------------------------------------------------------------------

Thanks, Kyle. Good morning, and welcome to Graphic Packaging Holding Company's conference call to discuss our first quarter 2019 results. Speaking on the call will be Mike Doss, the company's President and CEO; and Steve Scherger, Senior Vice President and CFO.

To help you follow along with today's call, we have provided a slide presentation, which can be accessed by clicking on the Webcasts and Presentations link on the Investors section of our website at www.graphicpkg.com.

I would like to remind everyone that statements of our expectations, plans, estimates and beliefs regarding future performance and events constitute forward-looking statements. Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the company's present expectations. Information regarding these risks and uncertainties is contained in the company's periodic filings with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements as such statements speak only as of the date on which they are made, and the company undertakes no obligation to update such statements, except as required by law.

Mike, I'll turn it over to you.

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Alex. Good morning, and thank you for joining us to discuss our first quarter 2019 results. We are very pleased with our performance in the first quarter reflecting 160 basis point improvement in our adjusted EBITDA margin to 17.2%. First quarter adjusted EBITDA of $260 million was ahead of our expectations driven by strong execution on pricing, performance, growth initiatives and synergies.

While we reported $29 million of year-over-year improvement in adjusted EBITDA, pricing improved by $32 million during the quarter reflecting the benefits of pricing initiatives executed throughout 2018. Importantly, our pricing to commodity input cost relationship was a positive $16 million. The business operated well in the quarter, generating $31 million of performance improvements.

These benefits were partially offset by commodity input cost inflation, specifically increased wood fiber, external paper and freight as well as labor and benefits inflation and unfavorable foreign exchange. As I mentioned, we generated $32 million of positive pricing during the quarter. We expect our pricing will continue to remain strong as we move through 2019.

We successfully implemented an open market $50 per ton CUK paperboard increase in February. Open market SBS folding carton grade prices declined $20 per ton in February. We expect the impact of the February 2019 paperboard price changes will be neutral to our 2019 pricing outlook and a modest positive on an annualized basis. We continue to expect positive 2019 pricing of approximately $110 million.

In Q1, we repurchased $60 million of shares at values we estimate to be below the intrinsic value of Graphic Packaging. Over the last 2 quarters, we've repurchased $180 million of our shares, successfully reducing our share count by a meaningful 5%.

Before I discuss the details of the quarter, I would like to briefly discuss our 2019 financial guidance. We continue to expect 2019 adjusted EBITDA will be in the range of $995 million to $1.015 billion, up compared to $971 million in 2018. While we exceeded our Q1 adjusted EBITDA expectations, we are maintaining our current full year adjusted EBITDA outlook as it is early in 2019 and wood inflation remains stubbornly high. We expect 2019 cash flow to be approximately $525 million, up from our previous outlook of $500 million and compared to $469 million in 2018. The increase in our 2019 cash flow reflects a continued focus on managing our inventory levels.

Now let me provide more detail on the key operational trends from the first quarter. Volume in our global paperboard packaging business was up modestly in the first quarter driven by acquisitions. Encouragingly, we are starting to see the benefits from the shift away from plastics into our customized paperboard solutions. Notably, our European sales were strong in Q1. Moreover, several new customer wins positioned the business for modest volume growth in the second half of 2019.

In Europe, which represents approximately 10% of our total revenue, sales were up mid-single digits in Q1. The growth is being driven by a continued penetration of multi-pack beverage in Europe, targeted conversions from corrugated into CUK paperboard and the continued traction in shifting CPET plastic trays into our paperboard pressed bowl solutions. We have also begun to migrate our customers from plastic and shrink wrap packaging into paperboard solutions. As we have discussed in the past, we expect our new product development efforts will drive approximately 100 basis points of organic volume growth per annum.

Let me highlight one important new product commercialization in the quarter. We recently commercialized the KeelClip, a new, proprietary, highly efficient solution to replace plastic rings and shrink wrap for beverage cans. The KeelClip is displayed on Page 6 of our presentation. The KeelClip is a paperboard wrap that securely connects 4, 6 or 8 cans while also covering the top of the cans. The KeelClip offers excellent merchandising capabilities, lining the cans up in a way that allows for maximum visibility of the brands on the retail shelving. Most of you know that we also manufacture the machines over which our paperboard packaging materials run. We have seen significant interest in this solution from several multinational beverage customers. Two customers have ordered our machines, with sales of the KeelClip expected to commence in Q1 2020. We anticipate significant runway for further growth as we expect plastic replacement opportunities to accelerate in 2020 in Europe and around the globe.

Turning to operations. Our mills and converting assets ran well during the quarter. The Augusta SBS mill is benefiting from the extensive rebuild of the recovery boiler and significant upgrade to the mill's mechanical and electrical systems completed in Q4 2018.

The AF&PA reported operating rates were 95%-plus for all 3 paperboard grades in the first quarter. Backlogs remain at a healthy 5-plus weeks for CRB and CUK. As a reminder, our CRB and CUK mill operations are highly integrated with our converting platform, consuming approximately 87% of the paperboard we produce for these grades. Our SBS backlogs are currently approximately 4 weeks.

Shifting to performance. Continued emphasis on improvement initiatives, variable cost and operating efficiencies, benefits from capital projects and the execution on synergies drove strong performance in the quarter. We operated well and generated $31 million of net performance in the first quarter.

Moving on to costs. We incurred escalating wood fiber costs and modestly higher external paperboard and freight costs, resulting in $17 million of commodity input cost inflation during the quarter.

Let me now focus on how we are executing on our strategic vision for integrating the SBS mill and foodservice converting assets. Our scaled position across the CRB, CUK and SBS paperboard grades allows us to optimize our mill production, and as a result, we are driving meaningful efficiencies for the company. We are also executing on growth opportunities tied to positive trends in foodservice and a shift into our innovative paperboard solutions, specifically the shift away from plastic-based cups, trays and clamshells. The integration of the Letica acquisition remains on track and is highly supportive of these growth initiatives.

And finally, we continue to have a high confidence in our ability to deliver our acquisition-related synergies by the end of year 3.

And with that, I'll turn the call over to Steve Scherger, our Chief Financial Officer. Steve?

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [4]

--------------------------------------------------------------------------------

Thanks, Mike, and good morning. We reported first quarter earnings of $0.19 per diluted share, up compared to $0.10 in the first quarter of 2018. First quarter 2019 net income was negatively impacted by a net $3.8 million of special charges that are detailed in the reconciliation of non-GAAP financial measures table attached to the earnings release.

When adjusting for these charges, adjusted net income for the first quarter was $61.7 million or $0.21 per diluted share. This compares to first quarter 2018 adjusted net income of $58.1 million or $0.19 per diluted share.

Focusing on first quarter net sales. Revenue increased 2% driven primarily by $32 million of higher pricing and $17 million of volume related to acquisition. These benefits were partially offset by $20 million of unfavorable foreign exchange.

Turning to first quarter adjusted EBITDA. The $29 million increase to $260 million was driven by $32 million of positive pricing and $31 million of performance. These benefits were partially offset by $17 million of commodity input cost inflation, primarily wood; of $11 million of other inflation, primarily labor and benefits; $4 million of unfavorable foreign exchange; and $3 million of unfavorable volume/mix. We ended the first quarter 2019 with over $1 billion of global liquidity and $3.1 billion of net debt. Total net debt increased $229 million during the quarter.

In the first quarter, we invested $80 million in capital. We also repurchased $60 million in shares, paid $23 million in dividends and made a $6 million distribution to our GPIP Partner.

First quarter pro forma net leverage ratio was 3.13x adjusted EBITDA compared to 2.98x at the end of 2018. We remain committed to our long-term net leverage target of 2.5 to 3x and expect to be well into this range by year-end, reflecting our strong cash flow generation.

Now turning to 2019 full year guidance. As Mike referenced, we continue to expect our full year adjusted EBITDA will be in a range of $995 million to $1.015 billion. Currently, we are not making any material changes to the key drivers of our full year adjusted EBITDA outlook.

We expect second quarter adjusted EBITDA will be in the $250 million to $260 million range. We expect our third quarter adjusted EBITDA will be modestly below second quarter levels. The key driver of the modest sequential decline from Q2 levels is related to the timing of our annual maintenance outage schedule. Specifically, we have an extended scheduled maintenance outage at our Texarkana, Texas SBS mill in Q3. In addition to the routine annual work that we will perform at the Texarkana mill, we will replace the bottom tube section of the recovery boiler. We expect this additional work will result in improved safety and reliability of the boiler.

Turning to cash flow. We now expect cash flow will be approximately $525 million in 2019, up from our previous $500 million outlook. The $25 million increase is driven by our plan to reduce inventory levels.

Finally, we revised our depreciation and amortization estimate to $450 million from $435 million to reflect a higher depreciation and amortization allocation for the SBS mills and foodservice assets, including the Letica acquisition. The remainder of our guidance is contained on the last page of the presentation on the website.

Thanks for your time this morning. I'll now turn the call back to Mike. Mike?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [5]

--------------------------------------------------------------------------------

Thanks, Steve. We are encouraged by our strong start to the year. We are executing on our strategy of building a highly integrated packaging company that is delivering profitable growth across all 3 paperboard substrates. We expect to benefit from previously implemented pricing initiatives. We are also well positioned to drive benefits from our productivity, growth and synergy initiatives that we anticipate will be in excess of labor and benefit cost inflation. We expect to generate robust cash flow in 2019, and we will continue to focus on creating shareholder value through effective capital allocation. We believe these actions will create value for all stakeholders in 2019 and beyond.

And with that, I'll turn the call back to the operator for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of George Staphos from Bank of America.

--------------------------------------------------------------------------------

George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [2]

--------------------------------------------------------------------------------

One shorter-term question and one longer-term question for my 2. Mike, you might have mentioned it, and if you did, I apologize in advance. But with the volume growth that you reported, recognizing a lot of that was acquisition, I noticed that the tons shipped were down a couple percentage points. If you could talk about what was driving that, if I framed it correctly, and what some of the underlying drivers, either by end market or what have you, were there. And then I'll come back with my second question.

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [3]

--------------------------------------------------------------------------------

It's Steve. Just briefly on the volume. The volume we're referring to on the supplemental material, keep in mind too, we have a fair amount of internalization of paperboard that we've been doing as we internalized paperboard at the beginning of a year ago, when we started the international -- with the SBS and foodservice asset. We've been aggressively internalizing paperboard, which actually kind of impacts that number when you stand back from it. When you stand back from our core volumes, George, in the first quarter at the converting level, the finished product level, volumes excluding acquisitions were fundamentally flat. And as Mike mentioned, we see some positive momentum as we move towards the second half of the year relative to core volume.

--------------------------------------------------------------------------------

George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [4]

--------------------------------------------------------------------------------

So Steve, just as a quick follow-on. You could say yes or no. I mean so in your key end markets, there's nothing that's degraded that's in that 2%, that it's largely the volume internalization. Is that fair?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [5]

--------------------------------------------------------------------------------

I think, George, just to put a little finer point on it. I mean, Steve covered it. It's largely the year-over-year integration. The only other thing I'd add, and you know this, is we've been very aggressive in 2018 on pushing price on all 3 of the substrates that we use. And as such, when you push price that hard, you're going to take a few nicks here and there, but it's all in the numbers that you see. The biggest portion of that is really the internalization. We internalized the better part of 140,000 tons. And of course, as you know, we've got to eliminate that.

--------------------------------------------------------------------------------

George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [6]

--------------------------------------------------------------------------------

Understood. My other question and then I'll turn it over. Certainly, everyone on this phone understandably talks a lot about conversions out of graphic paper into various substrates, whether it's containerboard or boxboard, and that's certainly something that Graphic Packaging has to contend with as well. What are, in your view, the things that make you most comfortable about your ability to manage against that potential risk? Is it the performance improvements that are now seemingly coming to the bottom line from your investment activities the last couple of years? Is it you're finding more and more opportunity to really focus on packaging and innovation, which kind of obviates somebody who shows up with just paperboard supply? I know the answer is going to be kind of a combination of all that, but what do you think the key things are? What are we missing in that discussion?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [7]

--------------------------------------------------------------------------------

Yes, thanks, George. I appreciate the question. I think the first thing I'd point to, and you alluded to this in a little bit in your question, is we've got a highly integrated packaging business with 75 converting plants, geographically distributed across North America, Europe and other geographies where our customers sit, and that drives a high-level integration up and allows us to really be at the touch point with the end-use customer, figuring out what they need to make customized packaging solutions. We identified one in here that's come up in the last 6 months, the KeelClip that's replacing plastic rings as a great example. We have that knowledge. We have those relationships that uses our paperboard. Of course, on SBS, we've got the same thing going on, on the foodservice side. So I think the biggest thing that differentiates us from just an open market seller of paperboard, for sure, is the fact we view ourselves as a packaging company first, and we're kind of driving those relationships and that value back through the end-use supply chain in a way that differentiates us.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Your next question, coming from the line of Anthony Pettinari from Citi.

--------------------------------------------------------------------------------

Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [9]

--------------------------------------------------------------------------------

In 1Q, EBITDA came in, I think at $20 million above guidance, and I think you referenced pricing and better operations and performance improvements as driving that. And understanding there's a few moving pieces there, is it possible to parse out how much of the beat relative to your expectations were from those different buckets?

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [10]

--------------------------------------------------------------------------------

Yes, Anthony. It's Steve. It's really 2 primary drivers. We really performed and operated very well during the quarter across our mill and converting assets. As Mike was just referencing, the integrated platform operated exceptionally well. That was probably half of the improvement. And then we had a steady quarter of very little disruption in areas like weather, which for the last few years, we've had some difficulty in Q1, weather-related, noncontrollable. We factored that into some of our thinking, if you will. And it didn't occur, so we had a good, clean quarter from an uncontrollable perspective, which is good for us. The one thing that was a bit disruptive, as we've already talked, is on the inflation side with wood with all of the rain. That's something that is staying stubbornly high for us on the inflationary front, but overall, very strong operations from a quarter and no real major disruptions that's noncontrollable, weather-related.

--------------------------------------------------------------------------------

Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [11]

--------------------------------------------------------------------------------

Okay. Okay. That's helpful. And then I was wondering, Mike, maybe if you could talk a little bit about the divergence that we're seeing between SBS folding carton grades and cup stock grades in terms of demand and now prices. Can you talk about your split between the 2 grades? How easy is it to switch over production from one to the other? Can you push some customers from CUK, which seems tighter, towards SBS, which is maybe a little bit looser? Just your kind of general thoughts on SBS and the 2 grades.

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [12]

--------------------------------------------------------------------------------

Sure. Thanks for that. The first thing I'd point out, Anthony, is that we manufacture all 3 grades, so we're a little bit agnostic with our end-use customers around what grade we're actually making for them. We want to make packaging for them that is best suited for the needs that they have, be those the commercial needs or the performance needs or the specifications and how they hold up for them in the marketplace, so I'd start with that.

The demand on CRB and CUK, which I think is what you're getting at, has been very solid. On SBS, if you take a step back, it's just the biggest market. There's 5.4 million tons that are manufactured on SBS, and there's kind of 4 verticals that it goes into at a really high level. I mean, you've got general folding carton. You've got cup and plate. You've got liquid packaging, and you've got Bristols. We really don't play in Bristols or liquid packaging. The majority of our effort, the 1.2 million tons that we manufacture, our capacity to manufacture, really falls into cup and plate and general folding. The split's about a little over 400,000 tons of cup and plate and the rest is general folding. You know that cup and plate has been very strong, so that demand has held up very good. And we're continuing to see conversion opportunities on polystyrene foam and into paper, and that will continue to play itself out here through 2019 and 2020 with some of the wins that we have.

On the general folding carton, it's been steady. There are a few verticals like tobacco that are down and then some others that are up. So overall, the overall demand of SBS has been okay, but we do have opportunities to convert things from CUK and SBS and back from SBS into CUK where it makes sense for customers. So again, really focusing on being a packaging company and giving customers what they need for them to be successful in the market.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [14]

--------------------------------------------------------------------------------

I wonder, Mike, if you could talk about some of these new customer wins that will drive volume in the second half and if there's any way to just help us think about order of magnitude on those wins.

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [15]

--------------------------------------------------------------------------------

Yes, sure. I mean they continue to be in the categories that we've talked about, Mark. I mean it's really about, in Europe, getting out of -- we identified the rings, the plastic rings and some shrink wrap going to fully enclosed and wraps for beverage cartons substituting on the CPET trays and into pressed paperboard trays continues to be a trend that's accelerating that we see and then obviously some Strength Packaging applications, where we're able to ship directly to the end-use consumer in a carton as opposed to having that carton go into an overwrap package. So those are the types of things that we're working on.

In terms of kind of order of magnitude, as you know, you've been following us a long time, Mark, our goal has always been to generate about 100 basis points of year-on-year growth due to our new product development efforts. And for the last few years, a lot of that has kind of gone towards buttressing up our overall demand where -- to kind of play to a draw or play it flat. So the way I'd have you think about in the second half of the year is that, that 100 basis points is -- can be accretive. It can be up 1% or so on a run rate basis. It's kind of how we're thinking about it as we sit here at the end of Q1.

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [16]

--------------------------------------------------------------------------------

And Mark, the only thing to add on the growth front is we have some good cup conversions too happening on the foam and the plastic side into the paper-based solutions as well, and that's what gives us good visibility into the second half of the year.

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [17]

--------------------------------------------------------------------------------

Yes. I guess just as my follow-up, Steve, I'll go on that one. I picked up a cup of coffee and a doughnut this morning, and the doughnut was in -- or the coffee was in a paper cup. Can you talk about sort of how much volume you think you'll pick up year-over-year in the cup business this year and also where you're at in terms of moving toward a polyethylene-free paper cup?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [18]

--------------------------------------------------------------------------------

Yes, I'll handle both of those. First, appreciate your support with the paper cup, Mark. Always appreciate it. I think the other part of that is if you think on a year-over-year basis, our volume really starts to come on, as Steve alluded to, in the second half of this year, so it will be split a little bit between the second half of this year and into next year. Obviously, there's more opportunities that we're working on. But we can see that being 25,000, 30,000 tons of SBS that come our way here over the next year or so, so it's meaningful for us.

And in terms of the replacement for low-density polyethylene, that's a very active set of projects for us with a very distinct set of market requirements that we're working through with our R&D folks and with outside suppliers who manufacture those coatings and our customers because there are certain requirements that some have and that are different than others. But over the next 12 to 24 months, we feel very confident we can continue to make progress to find coatings that are more compostable and recyclable than the current offering.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Mark William Connelly, Stephens Inc., Research Division - MD & Senior Equity Research Analyst [20]

--------------------------------------------------------------------------------

Mike, just 2 questions. First, how far along are you in internalizing the board on the bleached board side? And can you give us a sense of how different the synergies you still have ahead of you are versus what you've already picked up so far?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [21]

--------------------------------------------------------------------------------

Yes. Thanks, Mark. I would tell you that as of the end of really this quarter, we're all in on our conversions. They're complete, the ones that we planned to do, so those cycle through in second, in third and fourth quarter on a comp basis there. We were actually able to do that faster than what we had planned, so that -- I'll start with that as being kind of an upside relative to what that looks like.

We've done very well against the SG&A targets that we put out there, for sure. Some of the targets on the procurement side, we've gotten what we thought we'd get, but then we got some inflation in some other areas like hardwood, so it's a little bit more of a mixed bag. But we've got a lot of confidence in our ability to deliver the full $75 million that we committed to by the end of year 3, and we'll make meaningful progress on that here in 2019.

And I think you can kind of see the firepower we have when we're able to run all our mills wide open as we did here in Q1, as Steve alluded to, with some of the actions that we talked about last year really showing up here from a productivity standpoint in Q1.

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [22]

--------------------------------------------------------------------------------

And Mark, specifically, we're operating at about 40% integration level across the SBS platform since we've moved through with the integration. So from 25% to 40% on our way to the longer-term goal of 70% to 80%. So we're at 40% run rate today.

--------------------------------------------------------------------------------

Mark William Connelly, Stephens Inc., Research Division - MD & Senior Equity Research Analyst [23]

--------------------------------------------------------------------------------

Okay. That's helpful. And just one last question. You've talked about looking at tuck-in M&A against the value of buying back your stock. Has your view of the economics available in one versus the other changed much in the last quarter or 2? I'm just curious if your market for assets is changing.

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [24]

--------------------------------------------------------------------------------

Thank you for that question. I mean as we talked about at the end of -- or the last quarterly call, valuations remained, in our opinion, high. And as a result of that, when we compared those against buying our own stock, I think our actions kind of spoke for ourselves in terms of what we did there. Having said that, our pipeline for acquisitions in both North America and in Europe remain strong. We remain active there, but we're going to be very thoughtful in terms of the valuations that we pay to ensure that we create value as we work really hard to drive our integration levels up on SBS.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Your next question comes from the line of Chip Dillon from Vertical Research.

--------------------------------------------------------------------------------

Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [26]

--------------------------------------------------------------------------------

My first question is -- deals with your performance savings, which seemed quite strong at $31 million in the first quarter. And can you just help us understand how we should think about that for the full year and how that splits up between the synergies from the SBS acquisition and just other initiatives?

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [27]

--------------------------------------------------------------------------------

Yes, Chip. It's Steve. We added a new slide to Page 12 of the materials to try to provide some insight into kind of our -- a couple of metrics, one of them being mill maintenance schedule. And what we're going to find this year is the majority of our productivity will occur in the first half of this year because we have much more limited downtime, very modest in Q1, a little bit more in Q2. But as I mentioned in the remarks, we have a pretty significant amount of downtime particularly focused at Texarkana that will be in Q3. And so we'll have a bit of a step-down in terms of our EBITDA from Q2 to Q3 driven by the additional maintenance downtime. Q4 will be somewhat consistent year-over-year. As such, the majority of our productivity will be driving in the first half of the year because we've got about a $20 million headwind in Q3 associated with the incremental downtime in Texarkana. In that context, the -- that's in the context of the $85 million of productivity, that combination of $60 million of core and $25 million of additional synergies.

--------------------------------------------------------------------------------

Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [28]

--------------------------------------------------------------------------------

Okay. So you're saying $85 million all in. And then when you're done with the $25 million this year, how many more -- how much will be left on synergies, would you say, from the acquisition of SBS?

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [29]

--------------------------------------------------------------------------------

Yes. We -- that would be -- we had $35 million last year and $25 million, so we'll be at $60 million. There'll be a little bit left in 2020, about another $15 million.

--------------------------------------------------------------------------------

Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [30]

--------------------------------------------------------------------------------

Okay. And there's been mixed, I guess, signals in terms of what some of us have seen in the -- when we look at paperboard in general, it seems like the market -- you mentioned the 95% operating rate, and the market has shown some strength certainly in the lower [2] substrates. But in the highest substrate, we've seen some mixed -- a mixed picture. And is it fair to say most of the competitive activity is more domestic versus export? In other words, if we were to split it between a new domestic player versus export competition, would you say it's more of a domestic source of where there might be a bit more competition there than -- or competitive pressure, I'll use that term, than what we've seen in some of the other grades?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [31]

--------------------------------------------------------------------------------

Yes. I'll take that one, Chip. Here's what I would tell you just by a few data points that might be helpful to put a finer point on that. As we look at imports in 2018 for FBB, as Alex monitors that for us every month, the census data would suggest that imports were up a modest 20,000 tons in 2018, so it was fairly small, relatively speaking. We do have a new competitor that has converted a coated free sheet machine, as you're alluding to, and they are entering the market. And we know what you know relative to that. They publicly said it's going to be a swing machine, and they're going to swing back and forth between SBS and coated free sheet. So we'll have to kind of track that as that goes along.

I think the thing I would suggest, though, because we've gotten a few questions in on this as well as operating rates for SBS have been up actually year-to-date around 100%, and people look at that and say, "Well, what's going on?" We have 2 competitors that have publicly talked about the fact that they've got big outages in Q2 of this year. Steve just got done talking about that. We've got a very big outage in Q3. And so what ends up happening, we have to run and build the inventory in order to make through those outages, in order to service customers during that period of time. And so I think you can create some misinterpretation or some misreads of monthly production data. You really got to look at it even through a quarter or, even better, through a 6-month period of time because in order to take care of customers, you really end up having to operate your business in a run mode when you're actually producing and obviously you have some big outages and then you [relieve] some of that inventory. So that's how I would really ask you to think about that.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

Your next question comes from the line of Ghansham Panjabi from Baird.

--------------------------------------------------------------------------------

Matthew T. Krueger, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [33]

--------------------------------------------------------------------------------

This is actually Matt Krueger sitting in for Ghansham. I just wanted to touch base on volume, sort of my first question. So given the strong performance in Europe during the quarter, up mid-single digits, can you talk about some of the related offsets elsewhere across the portfolio by region or maybe by product line that yielded the flat overall organic volume performance during the first quarter?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [34]

--------------------------------------------------------------------------------

Well, I think, Matt, the first thing to remember is that Europe's about 10% of our volume, so it's a pretty small portion of our overall revenue basis. And then as Steve alluded to, the real reason, if you kind of look at that, is kind of the elimination of the internalization of the SBS tons, our converting volumes in North America were essentially flat.

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [35]

--------------------------------------------------------------------------------

And the only thing we've seen that -- at the market level, what we've chatted about before is some of the -- a little bit of the challenge is in making beer -- the big beer. We continue to see some modest erosion there on a year-over-year basis that kind of brought the total to flat. So it's somewhat consistent with what we've articulated before in terms of small areas where there's been some erosion yielding more flat converting volume for the quarter.

--------------------------------------------------------------------------------

Matthew T. Krueger, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [36]

--------------------------------------------------------------------------------

That's helpful. And then understanding that we talked a little bit about wood costs already and then the extended downtime in the third quarter, can you provide some added detail on why we're reiterating the full year guidance versus the free cash flow and a guide upwards? Are there any other kind of conservative assumptions baked into guidance? What are you expecting from overall [raws] versus just paper? Any puts and takes like that would be very helpful.

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [37]

--------------------------------------------------------------------------------

Well, here so again, if you kind of take a step back, we're 1 quarter into a 4-quarter game if you think about 2019, so we'll start with that. And wood costs remain stubbornly high. And yes, it's getting warmer outside. The days are getting longer. But in some of our baskets, like if you think of Texarkana and Monroe, at the end of last week, they got another 4 inches of rain that fell in there. And so it's going to take a while for those to completely dry out and our wood costs to kind of go back to where they were. Oil touched $70 a barrel here earlier this week. So there's a lot of variability that still goes in here. Steve's talked about this on our last call. I mean we've got true line of sight, the $60 million to $65 million of year-on-year inflation. And given that we're 1 quarter in, it seems to be a very prudent guide in terms of how that goes, and I won't look at it as conservative.

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [38]

--------------------------------------------------------------------------------

Yes, to Mike's point too -- and to Mike's point, the movement on cash flow was internally inventory-driven. That is us taking a view that we can take some inventory out of the system by year-end and so no EBITDA implications, no change to the metrics in our guide. The improvement in cash flow was inventory-driven.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

Your next question, coming from the line of Brian Maguire from Goldman Sachs.

--------------------------------------------------------------------------------

Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [40]

--------------------------------------------------------------------------------

Just a quick question about the sustainability and plastic substitution kind of conversation. The KeelClip looks like a pretty cool solution there, and it looks like that picture is pretty much 100% recyclable from what I can tell looking at it, which is obviously a pretty cool innovation. But as I understand it, in most every application or case, the paper-based packaging is going to be more expensive than the plastic that it's trying to replace. I'm just wondering, like how are those conversations with people going? Obviously, I think everyone -- sustainability is on everybody's mind, but is it a trade-off in terms of cost for that performance? Since you're having those conversations, should we think about these products coming in, there's a little bit of a lower price point than your average for the company? And are there kind of maybe some like introductory lower prices that might be necessary to help kind of spur the penetration here? Or just in general, kind of how are you kind of overcoming that cost difference between paper and plastic in these applications?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [41]

--------------------------------------------------------------------------------

So thanks, Brian, for the commentary on KeelClip. I appreciate that. I think the -- if you kind of think about what's happening in the retail space and with the big CPGs that are coming out with some pretty significant goals that they're putting out there and targets around sustainability and recyclability of their products, and what that's really being driven by is the end-use consumer who's kind of pushing and prodding them to make sure that the stuff that they're purchasing fits what their beliefs are relative to sustainability. Paper's got a great story to tell in that regard. It doesn't work for everything, but it works for a lot of things including some of what we're talking about here, and you have summarized it well. Paper is always -- paperboard is always going to be more expensive than shrink-wrap or plastic rings, but the sustainability story is better. And so what we've got is a positive end-use consumer pull-through that's actually creating some of that demand and that interest, which gives us a platform then to really show our end-use customers what we can do and how we can put together our innovative solutions to help them accomplish their objectives. And so, yes, I wouldn't characterize it that those are going in at lower prices than the rest of our materials because in many cases, they are proprietary and we have machinery solutions that go behind them in the case of KeelClip. And so we're trying to obviously get a good return on capital invested on those like the rest of our portfolio.

--------------------------------------------------------------------------------

Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [42]

--------------------------------------------------------------------------------

Okay. Yes, makes sense. Just to switch gears to sort of the input costs. We've seen a lot of them sort of deflate a little bit, and the level of inflation at least that we saw last year seems to be moderating. I'm thinking about OCC, freight, pulp subs, things like that. Is there a way for you to kind of update us on what's sort of embedded in the guidance at this point for a couple of those factors? I think freight, you had talked about that being up kind of 5% or 6% before and pulp subs and OCC being kind of flat with where they were a couple of months ago, but we know those are lower now. Just kind of update us on what you're expecting for those items.

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [43]

--------------------------------------------------------------------------------

Yes, Brian. It's Steve. I'd be glad to. Our assumption overall, as Mike mentioned, is still the $85 million of overall inflation for the year, line of sight to about $65 million of that at current rates, if you will. And secondary fiber at the latest rates would actually be a tailwind of about $10 million, but wood overall, hard and softwood, right now is operating at a rate that would be $35 million-plus for the year. So those both combined end up in that $20 million, $25 million range that we've talked. Logistics costs are coming in a little better than we articulated, in the $15 million to $20 million range, and then external paper that we buy is absolutely where we expected it to be. Some of the variability, as you referenced, is in the chemicals and energy area. Obviously, oil moving pretty aggressively here quite recently hasn't played out in inflation but has potential, hence, why we believe sitting here after Q1 that $85 million is still the right guide.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Your next question comes from the line of Debbie Jones from Deutsche Bank.

--------------------------------------------------------------------------------

Deborah Anne Jones, Deutsche Bank AG, Research Division - Director [45]

--------------------------------------------------------------------------------

My first question, I wanted to ask about European M&A and whether or not you've seen it kind of settle or big changes in that market, whether it be valuation or assets available for sale, and kind of your thoughts on the strategy there.

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [46]

--------------------------------------------------------------------------------

Debbie, I really wouldn't characterize there was any change. I mean it's like all regions. Valuations needed to adjust, as I've alluded to earlier. And obviously, that's in the process of occurring, but our pipeline remains very stolid. We remain in active dialogue with a number of potential prospects. And obviously, as we did this last quarter, those competed against buying our own stock back, and you saw what we did. But that doesn't mean that we're not committed to it. It's just that it becomes a timing and an allocation decision. And as we continue to find valuations that we find attractive and synergies that are real, we want to do those, particularly in the area that allows us to drive our SBS integration level up.

--------------------------------------------------------------------------------

Deborah Anne Jones, Deutsche Bank AG, Research Division - Director [47]

--------------------------------------------------------------------------------

Okay. And thanks for the clarity on the mill maintenance. My question on that, though, is -- I don't have a history of the days per quarter that you've done historically, but it just seemed a little surprising that you have so much in Q3. And so I just wanted to see if there's anything that changed there and then just if there's any way you can give kind of like the specific financial impact just in Q3 that you're expecting versus the prior year.

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [48]

--------------------------------------------------------------------------------

Yes. I'll handle the days, and then I'll have Steve kind of take you through the economics. Really, what we're doing this year that is a change -- we've always done our Macon outage, which is between, call it, approximately 10 days on both our machines there in Q3. This year, we're doing both of our machines in Texarkana in Q3. As Steve talked about in his prepared comments, we're doing also some -- in addition to the annual maintenance, we're doing some extensive work on the recovery boiler, certainly not to the extent that we did at Augusta last year, but meaningful in terms of what its impact will be in Q3 in terms of days down.

And then what I think you can expect out of both Augusta and Texarkana going forward here in 2020 and beyond is a more normalization of what you would see annual outages to be, having completed the big work that we want to do on our recovery boilers at both those mills. So it just manifests itself in Q3 this year because of that, Texarkana additional time. But again, we always have a fairly significant amount of time there because Macon is always in Q3.

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [49]

--------------------------------------------------------------------------------

And Debbie, as we mentioned earlier, the cumulative impact kind of Q2 to Q3 of that is about $20 million.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [51]

--------------------------------------------------------------------------------

Steve, just one on the guidance. Your 2Q guidance implies about a $5 million sequential decline in EBITDA. Obviously, normally, 1Q to 2Q, you're up, call it, $10 million to $15 million. Is that delta entirely because of the 16 days of additional maintenance sequentially? Or are there any other factors at work there?

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [52]

--------------------------------------------------------------------------------

Yes. The sequential, and you've said it well, Adam, you can see in our materials were up about 16 days quarter 1 to quarter 2, so that plays a role. We had very limited downtime in Q1. And overall, I think we're going to see inflation be at least at or even slightly higher than where we saw it in Q1 as we look through the realities of kind of wood not abating. It's actually potentially up even a little bit. So a little bit of a combination of inflation at or above where we were in Q1 and then the additional downtime Q1 to Q2, so that would be correct.

--------------------------------------------------------------------------------

Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [53]

--------------------------------------------------------------------------------

Just on your core volume outlook, just given the plastic substitution that you're talking about, do you expect an inflection in your core volume trends come next year compared to the flattish that they've been over the past few quarters and few years, for that matter? Or do you think you'll stay in that flattish range even with this plastic substitution benefit?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [54]

--------------------------------------------------------------------------------

It is a very good question, Adam. And I think as I alluded to -- I think it was Chip who asked the question on that, or maybe it was Mark. The way we're asking you to think about that right now is our new product development, that 100 basis point growth that we've consistently delivered for many years, should be able to be accretive and sort of feel like it's up 1% with core volume basically being flat. That's how we're looking at it right now. We'll have a couple more data points this year, so we'll be able to maybe put a finer point on that. But as we sit here today, that would be how we would guide.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

Your next question comes from the line of Steve Chercover from D.A. Davidson.

--------------------------------------------------------------------------------

Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [56]

--------------------------------------------------------------------------------

So yes, I just wanted to stay on the kind of sustainability theme as well, if I could. I just want to know how far ahead of North America is Europe when it comes to the shift from plastic packaging to paperboard.

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [57]

--------------------------------------------------------------------------------

I guess, Steve, how I would answer that is we historically see Europe as a bit of a harbinger for trends on packaging, and that's usually in the neighborhood of 12 to 18 months before we see some of those trends translate here in North America. It's not perfect, but it tends to be a pretty good rule of thumb. So that's why we kind of profiled the slide on Europe here to kind of show you some of the early reads and some of the things that we're seeing start to develop over there. And we'll see how that plays out in North America, but we've got interest in similar technology here. So we'll continue to keep you updated as the year grinds on.

--------------------------------------------------------------------------------

Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [58]

--------------------------------------------------------------------------------

Okay. And as my follow-on, some of your competitors in foodservice, and I'm kind of using a broad brush, suggest that they make the world a better place by reducing spoilage. So I'm just wondering, do you guys have solutions that help food stay fresh longer?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [59]

--------------------------------------------------------------------------------

As I mentioned in a previous answer, we're not suggesting that paperboard is for every packaging solution. It's got specific opportunities on things like the stuff that I profiled, getting out of the rings that aren't really related to trying to protect food or shrink wrap film, those types of things. Plastic plays a vital role, as they're saying, in terms of the protection of material, and we're certainly not trying to suggest otherwise. But there's an opportunity for us to expand the pie in terms of the addressable market for our products, and what we're trying to do is to make that pie as big as possible and grab the biggest share that we can.

--------------------------------------------------------------------------------

Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [60]

--------------------------------------------------------------------------------

Yes. As a reformed beer drinker, I'd say that KeelClip looks really cool because there's got to be some hygiene in the actual marketing elements as well.

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [61]

--------------------------------------------------------------------------------

Well, I -- and it is. Steve, you look at it from a merchandising point of view, it gives you a nice placard on the top. We've got optical liners on those cans so that every one of the brands is perfectly positioned. So if you think about an end-of-aisle display or even on the shelf, there are some pretty neat things you can do with our -- our team has done a nice job on that, and we're pretty excited about the prospects.

--------------------------------------------------------------------------------

Operator [62]

--------------------------------------------------------------------------------

Your next question comes from the line of Dan Rizzo from Jefferies.

--------------------------------------------------------------------------------

Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [63]

--------------------------------------------------------------------------------

Just to continue on the last topic. Would a less stringent, I guess, regulatory environment in the U.S., kind of delay the switch from plastic to paper? Or are customers kind of already moving in that direction regardless of, I don't know -- it's just again the regulatory environment here?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [64]

--------------------------------------------------------------------------------

I wouldn't say that the actual regulation is having an impact on it materially that I can see. It's really all about the end-use consumer pulling it through, Dan. I mean we've been able to recycle materials since I started in the business 30 years ago, but it's the last 18 months where that really seems to be of great importance to the end-use consumer, which in turn has been impacting the retailers and the CPGs in terms of some of the objectives that they're setting out there. So I think it's really more around consumer demand than anything else.

--------------------------------------------------------------------------------

Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [65]

--------------------------------------------------------------------------------

Okay. And then just one quick unrelated question. Could you just remind us when IP can redeem their joint venture interest?

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [66]

--------------------------------------------------------------------------------

Yes, Dan. It's Steve. Just for a reminder, our partnership with International Paper, their first opportunity where they have a put, as we've discussed, their first opportunity to begin to exit from the partnership is in January of 2020. And contractually, the actual contractual relationship is a metered exit, the $250 million of share equivalents every 6 months. And so kind of the metered approach would be roughly $500 million of share equivalents, which would take 2 to 3 years for a natural exit beginning as early as January of 2020.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

Your next question comes from the line of Mark Weintraub from Seaport Global.

--------------------------------------------------------------------------------

Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [68]

--------------------------------------------------------------------------------

One question. I hear a lot the foodservice business being in better shape than the folding carton side of things for SBS. Just I'd be interested in your color on that. And as to -- if that continues to be the case, is there the potential to get pricing in one part of the business, i.e. first, foodservice, at a different rate, let's say, than folding carton? Or is there too much crossover in production capabilities, et cetera, for that to really happen?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [69]

--------------------------------------------------------------------------------

Yes. Thanks, Mark. I'll take a shot at that. This is Mike. There is real strength on the foodservice side of the business. We've talked a little bit about that. As I mentioned, we make over 400,000 tons that go specifically into that market. And if you kind of look at what's happened to pricing on cup and plate versus general folding, in fact, in February, general folding went down $20 and your cup and plate did not. And so there is a differentiation in terms of what's occurring there on those grades of paperboard. And I would expect that as those -- as demand for that grade continues to be solid, we could expect that, that would continue to be the case. So that's, in fact, what we're actually seeing in the marketplace.

--------------------------------------------------------------------------------

Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [70]

--------------------------------------------------------------------------------

I don't think that historically, we've ever seen a situation where there's been an increase just, say, in foodservice and not the complete category. I mean is that -- first of all, is that accurate? And is that necessarily the way it has to be? Or is it -- or not necessarily?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [71]

--------------------------------------------------------------------------------

It's accurate relative to our experience since we've owned the assets. I would have to go back and do some work to answer your question completely, and we can do that now as a follow-up. I just don't know as I sit here today.

--------------------------------------------------------------------------------

Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [72]

--------------------------------------------------------------------------------

Okay. And then one quick one. KeelClip does look like a great product. And curious if you've been able to scale what the addressable market for something like a KeelClip could be in terms of tons if it were to roll out very successfully?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [73]

--------------------------------------------------------------------------------

Yes. We were actually having a little discussion on that this week. And I mean you think there's a lot of plastic rings out there, right? Obviously, it's not going to replace everything. There's going to be different solutions that are out there, but it could be meaningful. It could be 25,000 to 50,000 tons over time, depending on the application and quite a few machines that we manufacture as well because it's our machine and our packaging material that has to -- it's kind of a 2-part equation that goes together for our customers.

--------------------------------------------------------------------------------

Operator [74]

--------------------------------------------------------------------------------

Your next question comes from the line of Edlain Rodriguez from UBS.

--------------------------------------------------------------------------------

Sahas Apte, UBS Investment Bank, Research Division - Equity Research Associate [75]

--------------------------------------------------------------------------------

This is Sahas Apte on for Edlain. Just wondering, on Slide 10, is it possible to parse out how much Letica was in? Is it in the volume bucket or the performance bucket on this one?

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [76]

--------------------------------------------------------------------------------

The core economics for Letica were in the volume mix. So the acquired EBITDA was in volume/mix. The synergies that we would capture from internalizing or improving upon that business would be in performance.

--------------------------------------------------------------------------------

Sahas Apte, UBS Investment Bank, Research Division - Equity Research Associate [77]

--------------------------------------------------------------------------------

Okay. And then how much is remaining on the authorized share repurchase program?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [78]

--------------------------------------------------------------------------------

Well, we have the $500 million that we gained approval for plus the $30 million, so we've got $500 million-plus because we're still working through the prior approvals. So we're -- just think of it in the $0.5 billion range.

--------------------------------------------------------------------------------

Operator [79]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [80]

--------------------------------------------------------------------------------

I'll make it quick. With the progress that you're seeing in your -- recognizing it's relatively smaller in terms of your overall revenue, are you seeing any kind of competitive response to you either from your paperboard peers in Europe or maybe the plastic companies in Europe because they're now losing some share maybe coming a little bit more competitive on pricing or anything else relative to their offerings? And then secondly, in Texarkana, you obviously spent a little bit more time -- or we spent some time talking about what you're doing there in terms of the recovery boiler. When Texarkana comes back, will it be able to do additional things that will run differently than what you've been seeing to date? Or is it just, hey, for the next few years, you won't have a big recovery boiler outage there?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [81]

--------------------------------------------------------------------------------

Thanks, George. I can handle those. I think in Europe, packaging in general has always been a very competitive marketplace, and we don't expect that to change. So we compete with other paperboard people, we compete with other plastic packaging people for the ability and the right to service customers, and that's not going to change. What we have to do is come up with innovation, like the one we're profiling here, that's unique and different and differentiates ourselves. And when we do that, we tend to be rewarded by getting the nod versus someone else. We have a little bit of a tailwind for us right now, George, relative to the preference on sustainability for paperboard, so that's helping us. But we've still got to earn it, and we're really focused on doing that and expect that we'll continue to make progress here, as we've alluded to, over the course of 2019 and into '20.

In regards to Texarkana, the big thing we're doing there is driving our reliability up. As we talked about when we did the Augusta outage, there were just investments that needed to be made in these 2 mills. We knew it when we did the diligence on it. We're making them. As I've talked about in the past, the recovery boiler tends to be the heart of the mill, and you want to have reliability that's consistent and very capable. And at the end of this, we're going to wind up with a mill that's got incredibly high reliability, as we're seeing here in Augusta, and also, it doesn't really require significant maintenance back into the recovery boiler for the next decade or so. So we're excited about that.

--------------------------------------------------------------------------------

Operator [82]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [83]

--------------------------------------------------------------------------------

Yes, I've got just a couple of quick follow-ups. One, I wondered, Steve, if you could just update us on the status of the tax shield, the cadence of the burn-off. And then secondly, on this -- the lock-up expiring on IP, can you give us some sense of whether you or we may know before year-end what IP's intent is?

--------------------------------------------------------------------------------

Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [84]

--------------------------------------------------------------------------------

Mark, it's Steve. I'll touch on it, and then Mike can add. We're still -- we don't believe we'll be a material U.S. cash taxpayer until 2021, so think of us as being limited, modest, in kind of the $35 million to $50 million range for 2019 and '20. And of course, we don't have a point of view with regards to when IP will bring forward their perspective relative to the exit.

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [85]

--------------------------------------------------------------------------------

So there's no kind of point at which they have to let you know like 3 months, 6 months ahead of time what they might do?

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [86]

--------------------------------------------------------------------------------

No. They've got the ability to kind of inform us with the put here at the end of the year if that's their desire. And obviously, we'll continue to have dialogue with them at a periodic basis, but they really want us to focus on the same thing all our stakeholders do, making good investments back in the business, trying to drive our integration levels up and, obviously, create shareholder value. So that's what we're focused on. When they do -- if and when they do decide, as you've seen, Mark, we've got the balance sheet in good spot. And between now and then, if there's a dislocation in the stock, we'll continue to execute on specific buybacks if it makes sense for us to do it relative to other capital allocation priorities. So that's how we're thinking about it.

--------------------------------------------------------------------------------

Operator [87]

--------------------------------------------------------------------------------

There are no questions at this time. Please continue.

--------------------------------------------------------------------------------

Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [88]

--------------------------------------------------------------------------------

Thank you for joining us on our earnings call. We look forward to speaking with you again in July. Have a great day.

--------------------------------------------------------------------------------

Operator [89]

--------------------------------------------------------------------------------

This concludes today's conference call. You may now disconnect.