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

Q2 2019 Graphic Packaging Holding Co Earnings Call

Marietta Jul 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Graphic Packaging Holding Co earnings conference call or presentation Tuesday, July 23, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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

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Conference Call Participants

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* 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

* Arun Shankar Viswanathan

RBC Capital Markets, LLC, Research Division - 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

* Edlain S. Rodriguez

UBS Investment Bank, Research Division - Director and Equity Research Associate, Chemicals

* John Rider

Stephens Inc., Research Division - Associate

* John Plimpton Babcock

BofA Merrill Lynch, Research Division - Associate

* Mark Adam Weintraub

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

* Mark William Wilde

BMO Capital Markets Equity Research - Senior Analyst

* Matthew T. Krueger

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

* Steven Pierre Chercover

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

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Presentation

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Operator [1]

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Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Graphic Packaging quarterly earnings call. (Operator Instructions)

I would now like to turn the call over to Mr. Alex Ovshey, Vice President of Investor Relations. Please go ahead.

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

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Thanks, Michelle. Good morning and welcome to Graphic Packaging Holding Company's conference call to discuss our second quarter 2019 results. Speaking on the call will be Mike Doss, the company's President and CEO; and Steve Scherger, Executive Vice President and CFO. To help you follow along with today's call, we have provided a slide presentation, which can be accessed by clicking on the Webcast 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

(technical difficulty)

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Operator [3]

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Our conference will resume shortly.

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Alex Ovshey, Graphic Packaging Holding Company - VP of IR [4]

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Undertakes no obligation to update such statements except as required by law. Mike, I'll turn it over to you.

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

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Thank you, Alex. Good morning, and thank you for joining us to discuss our second quarter 2019 results. We reported strong results in the quarter as our adjusted EBITDA margin increased 160 basis points year-over-year to 17.2%. Adjusted EBITDA of $267 million was ahead of our expectations driven by strong execution on pricing, performance, growth initiatives and synergies. We recorded $31 million of year-over-year improvement in adjusted EBITDA. Pricing improved by $40 million during the quarter, reflecting the benefits of pricing initiatives. Importantly, our pricing to commodity input cost relationship was a positive $26 million in the quarter and $41 million year-to-date. Overall, we operated well in the quarter, generating $22 million in performance improvements.

These benefits were partially offset by commodity input cost inflation, specifically increased wood as well as labor and benefit inflation and unfavorable foreign exchange. The elevated wood costs continue to be driven by wet weather in the U.S. Southeast and Gulf State regions. As I mentioned, we generated $40 million of positive pricing during the quarter. We continue to expect 2019 pricing of approximately $110 million. We are pleased to report that our commercial teams have been successful in customer negotiations to reduce our pricing lag to 6 months compared to 8 months previously. This reduction is an important milestone as it provides the opportunity to adjust pricing 2 times per year on average to better reflect market conditions.

In Q2, we repurchased $18 million of shares at values we estimate to be below the intrinsic value of Graphic Packaging. Over the last 3 quarters, we have repurchased $198 million of shares, successfully reducing our share count by a meaningful 5%. Since the inception of our share repurchase program in February of 2015, we have successfully reduced our share count by 10%.

Let me briefly discuss our current 2019 financial guidance and the Artistic Carton Company acquisition we announced this morning. We expect 2019 adjusted EBITDA will be in the range of $1.01 billion to $1.03 billion, up $15 million compared to the midpoint of our previous guidance. The increase reflects continued strong execution in a more favorable pricing-to-commodity input cost environment. We continue to expect 2019 cash flow will be approximately $525 million compared to $469 million in 2018.

Shifting to the Artistic Carton acquisition. The business includes 1 CRB mill located in White Pigeon, Michigan, with annual production capacity of approximately 70,000 tons; and 2 converting facilities located in Auburn, Indiana and Elgin, Illinois. The business generated $63 million in revenue during the 12-month period ended June 30, 2019. We expect to generate approximately $10 million in annualized EBITDA, including anticipated synergies over the next 12 to 18 months. The acquisition will provide compelling optimization and growth opportunities for our paperboard mill and converting platforms in North America. Moreover, the acquisition will drive converting end-market diversification and enhance our converting platform. We expect to deliver significant synergies driven by paperboard integration, mill and converting manufacturing optimization and supply chain efficiencies. We expect to complete the transaction in the third quarter of 2019.

Now let me provide more detail on key operational trends for the second quarter. Volume in our global paperboard packaging business was up modestly in the second quarter, driven by acquisitions. Encouragingly, we continued to see the benefits from the consumer shift away from plastics into our customized paperboard solutions. Moreover, several new customer wins positioned the business for 100 basis points of organic volume growth in the second half of 2019.

Let me now briefly discuss our new product development efforts. As we highlighted last quarter, customer interest in the KeelClip beverage packaging solution remains very high. We are actively building new packaging machinery for large customers that we expect will drive KeelClip demand over the next several years. In the prepared food categories, our proprietary pressed paperboard bowls are winning market share from plastic trays. According to the Nielsen data, the prepared food categories continue to perform well and customers are actively innovating across the breakfast, entree and meal categories. Customers are also increasingly choosing the SBS paperboard trays over plastic trays as paperboard solutions are viewed as a more sustainable offering. Moreover, customers are incorporating Graphic Packaging's proprietary microwave cooking solutions for superior consumer experiences (inaudible) over numerous new product launches across multiple categories in the quarter [according 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, which we completed in Q4 of 2018. The AF&PA reported Q2 2019 operating rates 97% for CRB and 92% for SBS. Graphic Packaging CUK operating rate was over 95%. 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 3 weeks. Since the completion of the combination of the SBS and foodservice assets in early 2018, we have successfully increased our SBS integration rate from 20% to 40%.

Shifting to performance. Continued emphasis on improvement initiatives, variable cost and operating efficiencies benefits from capital projects and execution on synergies drove strong performance in the quarter. We operated well and generated $22 million of net performance.

Moving on to costs. We incurred elevated wood input costs and higher external paper costs resulting in $14 million of net commodity input cost inflation during the quarter. The impact from the tariffs enacted by the United States in 2018 has had a limited inflationary impact on our cost structure year-to-date.

Let me now focus on how we are executing on our strategy for integrating the SBS and foodservice converting assets. The addition of the SBS and foodservice assets in early 2018 has enabled us to optimize mill production across all 3 paperboard grades. And as a result, we are driving meaningful efficiencies for the company. We are also executing on growth opportunities tied to positive trends in the foodservice and the shift into 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 level of confidence in our ability to deliver $75 million in acquisition-related synergies by the end of 2020.

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

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [6]

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Thanks, Mike, and good morning. We reported second quarter earnings of $0.22 per diluted share, up compared to $0.16 in the second quarter 2018. Second quarter 2019 net income was impacted by $5.8 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 second quarter was $69.6 million or $0.24 per diluted share. This compares to second quarter 2018 adjusted net income of $54.5 million or $0.18 per diluted share.

Focusing on second quarter net sales, revenue increased 3% driven primarily by $40 million of higher pricing and $16 million of volume related to acquisitions. These benefits were partially offset by $14 million of unfavorable foreign exchange.

Turning to second quarter adjusted EBITDA. The $31 million increase to $267 million was driven by $40 million of positive pricing and $22 million of performance. These benefits were partially offset by $14 million of commodity input cost inflation, primarily wood; $12 million of other inflation, primarily labor and benefits; $3 million of unfavorable foreign exchange; and $1 million of unfavorable volume mix. We ended the second quarter with over $1.4 billion of global liquidity and $3 billion of net debt. Total net debt decreased $121 million during the quarter.

In the second quarter, we invested $78 million in capital, repurchased $18 million of shares, paid $22 million in dividends, and made a $6 million distribution to our GPIP Partner. Second quarter pro forma net leverage ratio was 2.91x adjusted EBITDA compared with 3.13x at the end of Q1. We remain committed to our long-term net leverage target of 2.5 to 3x and expect to be well into this range at year-end, reflecting our strong cash flow generation.

Turning to full year 2019 guidance. As Mike referenced, we now expect our full year adjusted EBITDA will be in the range of $1.01 billion to $1.03 billion, up $15 million compared to the midpoint of our previous guidance. The increase reflects a more favorable pricing to commodity input cost relationship. We continue to expect positive 2019 pricing of approximately $110 million. We anticipate commodity input cost inflation of $70 million compared to our previous outlook of $85 million. The reduction reflects more favorable recycled fiber, freight and energy input cost partially offset by higher-than-expected wood cost. We expect third quarter adjusted EBITDA will be in the $235 million to $245 million range. The key driver of the sequential decline in adjusted EBITDA from Q2 to Q3 is related to the timing of our annual maintenance outage schedule. Specifically, we have an extended scheduled maintenance outage planned at our Texarkana SBS mill. In addition to the routine annual work we will perform at the mill, we will replace the bottom tube section of their covered boiler. We expect this additional work will result in improved safety and reliability of the mill.

Turning to cash flow, we continue to expect cash flow to be approximately $525 million in 2019. The remainder of our guidance is contained on the last page of the presentation on our website. Thanks for your time this morning.

And I'll turn the call back to Mike. Mike?

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

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We are encouraged by our strong results in the first half of 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 are well positioned to drive benefits through our growth, productivity and synergy initiatives that we anticipate will be in excess of our labor-invested 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 our stakeholders in 2019 and beyond.

And I will now turn the call back to the operator for questions.

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Questions and Answers

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Operator [1]

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

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [2]

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This is actually John Babcock on the line for George. Just wanted to start out, you talked a bit about this earlier, but could you elaborate on the new customer wins and how the shift from plastics to paperboard solutions is impacting your volumes? And then also -- let me just add, just also what gives you confidence in your volume outlook for the second half?

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

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So in terms of our new customer wins, as we talked about earlier this year, we're really seeing that kind of translate into wins on the foodservice part of the business, specifically transitions out of polystyrene into paper cups, trays, clamshells, those types of products as well as continued acceleration on what I would characterize as our beverage business. We talked about KeelClip in here and moved away from shrink wrap film in Europe and other areas. So we've got a high degree of confidence in our 100 bps that we outlined on the second half of the year. And our business, being 95% food and beverage, tends to hold up pretty stable during really any type of economy, and we see that here in the second half of this year. So that's all contained in our guide.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [4]

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Okay. And then also, it looks like backlogs are still quite strong in CUK and CRB, but held back a little bit in SBS. Could you talk about the current market dynamics in these rates?

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

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Sure. Happy to do that. So as you know, operating rates are solid in both CUK and CRB. On the SBS side, they are down a little bit in the 92% range, and that's really driven by factors in new entrant that's come into the market and that's now fully contained in the actual numbers that the AF&PA is posting. And as we saw in the quarter, one of our competitors announced that they were actually going to take capacity out. So if you look at kind of the net-net of both of those things as it kind of plays out here into Q4 and to 2020, we'd expect operating rates to be moving up a little bit on a net-net basis with the result of those 2 moves.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [6]

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Okay. And then last question before I turn it over, just with regards to the acquisition of Artistic Carton. Can you talk about the logistical and other benefits you see from this transaction and how the CRB mill ultimately fits into your existing point network? And then also, it looks like this mill is at the upper end of the cost curve in CRBs. So what opportunities are there to drive efficiencies out of this facility?

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

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All right, so you got a number of questions there. I'm going to answer them here in order. In terms of what we're excited about in terms of the Artistic acquisition, we really see good customer diversification on the converting side of the business. They're in a number of segments that we're not in. And we've talked in the past about the need and our goal to continue to diversify our product portfolio and mix. They're doing things on the retail side of the business. They're also in certain industrial markets that we find interesting. So we think that's going to be a big opportunity for us. And in regards to synergies on the CRB side, we've got a reasonably sizable CRB business and we really see supply chain efficiencies being the biggest opportunity there where we can leverage some of the things we do and drive some synergies.

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Operator [8]

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Your next question comes from Mark Wilde from BMO Capital Markets.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [9]

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I wondered, just going back to John's questions around Artistic, we could add another one on there. Just talk a little bit about the timing on the synergies, but also the use of capital for this acquisition versus, say, growing the foodservice business or growing the European carton business, which -- both of which I would've guessed would be a little higher priorities.

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [10]

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Yes. So I think, Mark, the way we look at it is expectations around multiples are still pretty high in this space. And as we've talked about, we have to look at that and look through those to make sure that we find opportunities that create value over the long term for our shareholders. And this is a good example of one that is unique and we think the valuation is good for us. And it moves us into some verticals that we're not in. You are right that from a priority standpoint, anything that we can do to drive our SBS integration up is going to be prioritized for those reasons. But we have to make sure that we get the valuations right on those kind of deals as well. Europe, we're still interested in driving towards that $1 billion platform on the converting side that we discussed with you in the past. But that market -- well, our business is holding up pretty well because we're so indexed to both convenience and the beverage side of the business. We're going to be a little bit more cautious there as we look at that and probably prioritize North America specifically, anything that you can drive our integration levels up on the SBS side ahead of that.

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [11]

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Yes. Mark, it's Steve. I think one of the things too, it's relatively modest overall allocations of capital and it's one that we can see very clear line of sight to the kind of pre- and post-multiples that we aspire to when we take on a decision to apply capital to an acquisition.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [12]

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Okay. And then just synergies and the timing of synergies?

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [13]

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On this one, as we mentioned, as we look out to 2020, we would expect the majority of that $10 million of EBITDA, which is a post-synergy number, would be available to us for the majority of 2020. So that's a fair number as we look out. Obviously, we'll get some very modest improvement this year dependent upon close. Think of that as maybe a quarter. Typically, we spend those early months making sure that we understand the business well and then work hard to operate and drive those efficiencies. In this case, we would expect through 2020 as the primary line of sight to that $10 million.

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

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Okay. And then for -- just for my follow-on, I just was struck when I looked at the slide deck. You're still buying 100 million pounds of polyethylene and I'm just curious about where you're at in terms of coming up with alternative coatings for the paper cup and the foodservice products to really make them kind of more easily recyclable rather than having that polyethylene coating, which complicates the issue.

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

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It does. Thanks for that question. It is a strategic focus for us relative to our new product innovation side. And as I've commented on in the past, it is top priority for our foodservice business. We've got numerous different trial materials that we're working with customers that are bio-based that would reduce that footprint. The thing about low-density polyethylene, as you know, Mark, is it's pretty cost effective and the barrier properties are high. And so we're up against a pretty optimized specification. But to your point, it's one of those things from a sustainability standpoint that we believe consumers ultimately will help hold that through the marketplace as we come up with these new options and innovations. And over the next 12 to 24 months, we expect to make progress on that 100 million pounds. The other thing that I'd mention to you that we're working on is we're working with our customers around the collection of those materials and the ability to get them back to our mills and others to be able to use because the fiber's really good there. And we're probably a little behind in the U.S., where certainly Europe and parts of Asia are in that regard. And that's an opportunity for us as well.

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Operator [16]

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Your next question comes from Mark Connelly with Stephens Inc.

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John Rider, Stephens Inc., Research Division - Associate [17]

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This is actually John Rider on for Mark. So our first question is, so should we assume that the reduction in the price pass-through from 8 to 6 months represented the majority of your response to addressing the price cost gap? Or are there other significant actions that you're taking to address this in the future?

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

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So John, that was a significant undertaking for us and multiyear over the last couple of years. So we believe that 6 months is where we're going to wind up on that.

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John Rider, Stephens Inc., Research Division - Associate [19]

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Okay. And so just as a follow-up to that. So are there other ways that you can mitigate the risk of cost inflation?

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [20]

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Yes. John, it's Steve. As we've talked before, I think in addition to compressing the time horizon, which has been a critical initiative for the last couple of years for us, we're also taking several other actions around pricing. So looking at ways to make sure that we're addressing any areas of potential leakage, for example, like freight cost, pass-throughs and the like. So it's really been a multidimensional approach, which has allowed us to commit to the kind of pricing improvement year-over-year. Last year's $80 million, this year is $110 million. It's a combination of those negotiations and the compression of time lags as well as other initiatives to lock down areas where you might have price leakage, either during negotiations or in the normal course of the business.

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John Rider, Stephens Inc., Research Division - Associate [21]

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Great. Okay. And our second question is, so if you guys could just talk a bit about mill productivity. We saw some good improvement here last quarter and we know you had unusually high wood cost but also low OCC. If you could just help us put your overall productivity effort into perspective.

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [22]

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Sure. Happy to do that, John. So really, what you're seeing is a lot of the benefit from the investments that we made in 2016 and 2017, specifically into our CUK mills making in West Monroe, with the curtain coaters and the pressing section that we put into West Monroe. That's all coming kind of through in terms of productivity right now. On a year-over-year basis, we do see productivity levels up pretty substantially there.

In regards to your question as it relates to OCC and wood cost, we expect wood cost to remain elevated here in 2019. While the weather is a little better in the Southeast and the Gulf States, we're behind in terms of actual building our stockpiles for wood that we need going into the rainy season. So you'll see a lot of effort by ourselves and I would assume others to build those piles back here while we can because once we get into Q4, of course, we'd expect more normalization of wet weather patterns, which is the historic patterns in those regions.

So in regards to OCC, you see what we see in terms of what that looks like, that they are down. It is a commodity. We'd expect it to move up and down as respect to supply and demand. And right now, demand is down a little bit. On a global basis, I think I saw the most recent AF&PA data and exports were down 3.5% in June as an example. So that's kind of how we're thinking about it. But net-net, our fiber costs are up year-on-year and it's driven primarily by wood, offset by secondary fiber to a degree.

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [23]

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And the combination of those things, John, are in the revised $70 million guide, some natural benefits from recycled fiber, chemicals, freight, partially offset by a continuation of inflation on wood, as Mike mentioned.

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Operator [24]

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Your next question comes from Chip Dillon from Vertical Research.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [25]

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First question is just looking at -- just one last one on sort of pricing. I know you, I believe, still have some pricing tied to costs, and we've seen not only OCC come down, but more recently some of the white -- the pulp substitute grades come down as well pretty sharply. And is that going to create any kind of price giveback in some of your contracts or the material amount that we'll see or notice in early 2020, let's say, or at any point in the future?

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [26]

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Yes. Chip, it's Steve. Those costs would be taken into consideration in our cost models, but those would also be offset by other inflationary dynamics. So if you think about overall we still experience inflation net in the business in total and so our cost models, where they apply, would still have some modest inflation in them. Yes, if you are just purely on the CRB side as a customer, you may get some benefits. They'll be offset elsewhere or cost models that might apply, for example, on the virgin side, CUK and SBS. Overall, as we look out into 2020, we'll talk about it later and in the future. We have line of sight now into the kind of pricing that we would expect in 2020. That will be something we'll talk about later. Currently, it's a net positive, but that will be something we'll talk about in Q3, Q4.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [27]

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Okay. And I guess I have kind of a follow-up, would be a broad one. Looking at the water market, one of the can companies has talked about the fact that there's more plastic water bottles single-serve than there are -- there's the use of beverage cans in total for everything else. And I do notice, not very often, an aluminum can with water -- distilled water in it, but I probably notice as much, if not more, sort of an SBS-type package with water in it. And I didn't know if you think this is something that's more kind of a niche situation or because the cost differential is so great. You might also want to talk about whether -- where an SBS water package compares to an aluminum can versus the PET or the plastic.

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [28]

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Yes. I mean an SBS package is going to be substantially higher than the aluminum can in terms of total cost. We're not seeing a large amount of growth in that particular vertical as it relates to water and SBS. We've read the same types of announcements that you're referring to around water being in aluminum cans. And I think that's probably more likely area that we could get some pickup in that, because if they ended up putting it in a paperboard package as an example, that would be something that we currently do for those end-use customers and probably the more likely area we participate in that kind of a trend.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [29]

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You mean the beverage carrier?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [30]

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Yes, that's correct.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [31]

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To pour the individual cans, got you.

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Operator [32]

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Your next question comes from Anthony Pettinari from Citi.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [33]

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Just following up on the closing of the lag from 8 months to 6 months. Is that on all of your boxboard grades or just the legacy CRB and CUK? The goal to shrink those lags for a number of years now, it seems like you made really significant progress this quarter. Is there something about the market environment or a large contract renewal? Or is there any kind of color you can give us on what allowed you to move those lags so meaningfully this past quarter after years of trying to do it?

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

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So Anthony, it's an average of all our paperboard grades and all our packaging contracts, if you will, to 6 months that aggregates out to that movement. It has been a strategic focus for us for the last couple of years and I'll tell you that the inflation that we experienced in 2017 and 2018 was a big part of that impetus as we went into renewals with customers that we had to shorten those lags. And so it was a strategic focus in those negotiations and we ended up where we did here and we made progress on it.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [35]

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Okay. That's helpful. And then on sustainability, are you seeing the pace of sustainability-driven substitution in the paperboard? Is that moving faster in Europe than it is in the U.S. or has maybe some of the low-hanging fruit, maybe around polystyrene, already been picked? I'm just wondering if you could compare the pace and substitution and the market opportunity and sustainability in Europe and then what learnings there are for the U.S. market.

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [36]

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Yes. Thanks for that question. We've got a pretty good sized business in Europe, as you know, and one of the things we really like about operating in Europe is the packaging trends tend to be 12 to 18 months ahead of what we see here in North America. And I would tell you that the activity there around the elimination of single-use plastics is -- continues to be very, very high. And so we would see and expect that those trends would continue to translate here and the things that we'll see in North America that we're already seeing and things that we'd expect to see with our global customers, many of them operate in Europe and so they operate in the U.S. as well. And as you've seen, Anthony, they're putting out targets for sustainability goals that they've enacted into multiyear goals that translate into the reduction usage of certain materials over specific periods of time. So I expect that activity to remain quite hot.

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [37]

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And then Anthony, to Mike's point, in Europe, we're seeing probably a little more assertive shift for secondary packaging like in beverages into paperboard because of a long history of those packages being in other substrates, film-based substrates. Whereas, as Mike was also mentioning, in the U.S. or North America, there's an awful long runway for conversion of primary packages for cups like we were talking in trade that have more proximity to the end product. Those moving are probably commensurate with what we're seeing in Europe.

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Operator [38]

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Next question comes from Ghansham Panjabi from Baird.

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Matthew T. Krueger, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [39]

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This is actually Matt Krueger sitting in for Ghansham. Just wanted to ask, how do you intend to manage the execution risk associated with the more active than average maintenance schedule during the third quarter of 2019? And are there any unique actions that you're taking from an inventory management or operational perspective that we should know about?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [40]

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Yes. Thanks, Matt, for the question. The answer is we have built inventories on both our CUK and SBS. You can see that on a year-over-year basis, those are up 5% to 6% in terms of those grades. So we've got the material we need to take care of customers. We plan for these things in many, many quarters in advance to make sure we got the board manufactured and prepositioned so that we can serve these customers.

In terms of the downtime that we're actually taking, this is a, what I'll call the usual or the normal annual outage in Macon. So we do this each and every year. This one actually is slightly less complicated because we're not installing a curtain coater like we've done in the last couple of outages that we've done in Macon. And then in Texarkana, we're actually doing the lower tube work that we talked about, which is in line with what we did with our Augusta outage in Q4 of last year but significantly less extensive. So we've got the same vendor that's doing that work for us that did an excellent job in Q4 of last year, and we expect to be able to manage that outage accordingly. So we've got the inventory, we know where it is and it's positioned in the right spots. And we've got good project management skills to take care of both of those outages. And I think the other thing I'd add on that since you ask that question is, that is why sometimes you see a little bit of dislocation in terms of what we actually produce on an individual month-date basis versus how it plays through because we actually [happened] with 2 SBS mills. We have to build that inventory in order to run our business and take care of customers.

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Matthew T. Krueger, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [41]

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That makes a lot of sense and that's helpful. And then as you negotiated contracts to reduce the pricing lags during the quarter and then prior to that, what do you have to give up, if anything, to customers on the flip side to kind of shrink that pricing gap, particularly given that your customers generally have kind of a 1-year pricing model with their own retail customer base?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [42]

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Yes. So I'm not going to get into the individual pricing components because it's wide ranged and variable depending on the actual contract, but I would just say it's part of the normal negotiation we have with them. They have things that they want, we have things that we need and that's where we wound up.

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Operator [43]

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Your next question comes from Brian Maguire of Goldman Sachs.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [44]

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Just a multipart question on volumes, and this is probably going to be hard to answer directly, but hoping you could give some color on how much of the 100 basis points is organic volume acceleration you're expecting in 2Q. How much of that do you think is directly tied to the sustainability trend or the shift out of plastics versus just normal end market growth or market share gains? And any reason to think that, that ends at the end of this year and doesn't continue until at least the first half of next year as you annualize those contracts? I guess what I'm getting at, is there any kind of like large infill of volume upfront on some of those contracts? Or should we think about it just kind of taking a year to annualize? And just last one, tied to volume is have you seen any customer destocking or activity along those lines either like late in 2Q or so far in 3Q?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [45]

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Sure. Let me take a cut at that. So in terms of our visibility out, I don't want to go out further than a year because it's just very difficult for us to have visibility beyond that. But in terms of if you think about what we see relative to that 100 basis points of growth, I'd say there's a high correlation to the sustainability aspect of that. And really, if you look back, Brian, over the last few years, we haven't seen a lot of real organic growth, as you know. And so I believe it's got a high correlation to that and the types of products that we're selling tend to be the ones that I've talked about, the conversions into paper cups, the trays, the clamshells, the beverage packages out of shrink film and high cone rings and that kind of stuff. So highly correlated in that regard. And can you repeat the second part of your question, please?

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [46]

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Yes. I was just asking, I guess interested in that volume growth in the second half. I know in the copy space, you've got a new customer in particular. I just wondered if there's some inventory build happening there, some infill that would make the 1% less of a more normalized number for that business on a run rate basis. And then have you seen any destocking separately late in 2Q or so far in 3Q?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [47]

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I can't speak to any major destocking that we experienced in Q2 or Q3 to this point. Our volume, as we entered into Q3, is consistent with what we saw in Q2 with the acceleration of some of the organic growth that we talked about already. So don't see a lot of that, Brian.

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [48]

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Yes. I think to Mike's point, we haven't seen, Brian, a shift in kind of the underlying pull from our customers if you think about it as core volume, which has kind of been that flat to -- flattish that we've seen for several years offset by our new product development activity. To Mike's point, this is mostly driven by actual decisions to convert from other substrates into paperboard-based solutions.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [49]

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Okay. Got it. And just to shift gears to the Artistic Carton acquisition. Any way to give a rough cut at the purchase price for those assets? And there's obviously some consolidation already in CRB. Any expected DOJ issues, particularly really to the mill? And then just other thoughts within CRB. I know there's one of the 3 other remaining players in that market kind of exploring some strategic options for their assets. Any interest, or do you think it would even be possible to get something done along those lines?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [50]

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Brian, just with regards to the valuation, we haven't disclosed the purchase price but you can just expect that it fits the categories that we've done before in terms of pre-acquisition multiple and post. This will be a 5, 6x transaction on a post. I think that can give you a sense for where we are transacting relative to the multiple. Very, very consistent with where we have acquired businesses in the past.

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [51]

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And then just to build on the second part of your question around some of the assets that may be for sale on the marketplace. I think the way I would answer that is, look, we routinely look at a wide range of capital allocation decisions, investing in our business, making tuck-under acquisitions, returning cash to shareholders. And we've done all 3 of those things year-to-date here in 2019, so we'll continue to look at things that make sense for us and evaluate opportunities. What we won't do though is speculate on what we would or wouldn't do in the marketplace before we get it.

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Operator [52]

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Your next question comes from Adam Josephson from KeyBanc.

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

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Just a 2-part one, Steve, just on your -- forgive me if I missed this. On the commodity cost basket, I know you went into the year saying you saw there would be about $85 million of inflation. What are your assumptions now along those lines just considering what happened in the first 2 quarters? So what has the $85 million come down by relative to the $15 million guidance increase?

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [54]

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Yes. It is that, Adam, when we look at the change. The $85 million we've moved to $70 million. As we mentioned before at Q1, we had line of sight to about $60 million to $65 million of known inflation. That's still generally the case. We've seen some puts and takes, so we've seen a little lower inflation across recycled fiber, chemicals, as we've mentioned in freight, but it's been more than offset in terms of just those cores by the continuation of wood. So think of the $15 million reduction as primarily the net impact of freight chemicals, recycled fiber, $85 million going to $70 million. And that is the, in essence, the $15 million increase in our EBITDA guide.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [55]

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Right. Got it. That makes sense. And just on a related matter, so last year, obviously you and other producers experienced significant cost inflation, which you responded to by raising prices. Now your costs are -- well, everyone's cost are falling. Do you have reason to think that prices would follow suit just as they went up after costs rose because, obviously there's a clear relationship over time between prices and costs?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [56]

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Look, there's actually a clear relationship around operating rates, Adam, if you take a look at that on a historical basis. And the operating rates, as I mentioned, on 2 of the 3 grades are 95%-plus. And on the third one, it's down a little bit, but there's some changes that are going to happen in terms of mill structure. And you're both -- some capacity is going to go away as some capacity comes in. So I think overall we see a pretty balanced operating environment for the 3 paperboard grades.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [57]

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If I could just -- Steve, one last one on cash taxes, if you don't mind. Is your expectation still that come 2021, your cash taxes will approximate or closely approximate your book taxes? Or could it be longer than that until that happens?

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [58]

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I think it will be -- it will start to come in under our current structure in 2021. So there'll be some modest uptick in '21 and more full in '22. It probably wouldn't [veer] all the way up to our 25% cash tax rate, it'd probably be a couple hundred basis points below that if you're doing long-range modeling.

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Operator [59]

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Your next question will come from Steve Chercover from D.A. Davidson.

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

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So I guess this somehow factors into the guidance. I noticed that the Texarkana, I guess, is going to take 4 days longer than you anticipated in Q1, but your total lost production actually declines by 15 days to 134. So I would have thought that would be more of a benefit to you guys and I'm just wondering how -- if there's anything that might be associated with the maintenance has impacted your full year EBITDA guidance.

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

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No. I wouldn't really say that. I think what happens here, Steve, as you know, as we go into the year with a set of plans that we'd work as it gets closer to the outage to continue to fine-tune, and of course we're always trying to find ways to use less downtime to accomplish what we need to in any particular outage. And so a couple of them, we're able to do faster. And Texarkana, we actually got a few days, to your point, that we've actually added on. But net-net, we're down from where we thought we were going to be and that's kind of the normal process that we use for planning.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [62]

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Sure. And are there any start-up expenses associated with the new product launches that should drive your second half volume growth up by 1%?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [63]

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Nothing that isn't in the guide.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [64]

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Okay. And last, real easy one, I suspect, but I mean clearly would -- despite better weather in the Southeast, it's going to be an ongoing headwind. Does it make you reconsider your procurement going forward, perhaps carrying higher inventories?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [65]

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Yes. We've been spending some time talking about that. I think there are some strategies there that we'll look to investigate in terms of having a little bit more inventory, particularly as we go into the wetter weather season. First thing we've got to be able to do is build it back, and that's what we're going to do here in Q3. And that's why we expect Q3 to be elevated as well because we have to pull from a wider basin, in some cases, ship further to get into our mills to build those reserves back so that we can operate efficiently and effectively during the wet season.

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Operator [66]

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Next question comes from Arun Viswanathan from RBC Capital Markets.

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [67]

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Arun?

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Arun Shankar Viswanathan, RBC Capital Markets, LLC, Research Division - Analyst [68]

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Sorry about that, guys. I'm here. Sorry about that. So I just wanted to understand, going back to the commodity cost and pricing situation. You did give up a little bit of a price -- in SBS. You were able to offset that with CUK. The commodity costs are now a little bit lower. And the Q2 performance was quite strong. So I guess, just to confirm, is there an element of conservatism, I guess, in the commodity cost outlook? And if so, is that because of the wood side and the recycled paper side? Or is it chemicals and energy? Or anything -- any detail you can provide on that?

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [69]

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Yes. Arun, it's Steve. Overall, we believe that the $70 million guide is the appropriate one. We've seen well over $30 million year-to-date and a lot of it is, as we've talked quite a bit here, around wood. We haven't seen wood step back yet. As Mike said, we have to rebuild inventory. That may keep some pressure up much longer than we would've anticipated earlier. So I would just characterize it as we have a basket of costs. As you know, a couple of billion dollars worth of buy. And the net of it, as we look through all of that, is the $70 million. Wood is playing a real role there.

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Arun Shankar Viswanathan, RBC Capital Markets, LLC, Research Division - Analyst [70]

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Okay. And then on the volume side, congratulations on getting the wins. I think that's encouraging. And just, I guess wanted to get your thoughts on just overall end markets. The beverage markets are relatively robust, at least on the can side. It looks like there is some growth in foodservice. So just curious to get your thoughts and if at some point, if you start to think that there could be maybe 1 or 2 points of structural organic growth that you should see going forward, or is this still kind of a flat expectation as the most reasonable base case?

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

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I think the base case remains. We expect flat volumes relative to what we already have. What we're going to be able to break out a little bit, as you know, we've always done around 100 bps of new product development work. And that went, in many cases, over the last few years to buttress up some secular flow decline in certain categories like carbonated soft drink or cereal. So what we're really saying is, we're inflecting a little bit here in being able to bring that new product development back to 100 bps of organic growth. And so that's changed.

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Operator [72]

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Your next question comes from Mark Weintraub from Seaport Global.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [73]

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On the pricing lags, congrats getting it down to 6 from 8 months. I'm curious, as a consequence of those successful negotiations, was there any change in the makeup of cost push versus ties to pricing indexes?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [74]

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Not meaningful.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [75]

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Okay. And so is it fair to say that CRB is still more cost-push driven and SBS is still primarily price index and I guess CUK -- and the coated beverage more in the middle?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [76]

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That would be a fair statement.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [77]

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Okay. Super. And then also I recognize it's just optics, but congrats on getting that positive cash from operations first time in the last quarters. I assume that's a consequence of the way you've rewritten contracts on factoring, is that correct? And is there more change to come in that regard? Or are we not done with that?

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [78]

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Yes. Mark, thanks for raising that and we appreciate it. Yes. Those were changes in the contractual language associated with our accounts receivable program. We had -- it was down in the investing line and we've been able to address that effectively in Q2. And so on a go-forward basis, you'll see that be more representative of the cash flows of the business from an operating perspective. For the remainder of this year, Q1, we had not completed the majority of the work that we have now completed, so there'll be a little bit of a hangover in Q1. And as you roll into next year, it will be all in relative to that. We continue to provide you with the reconciliation as well on where we are on free cash flow, which is $66 million year-to-date or $33 million last year. So we're seeing net on an adjusted basis, up $33 million, but thank you for that note in terms of how that's now being accounted forward. It is a change the resulted in the accounting change.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [79]

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Great. And one last (inaudible) -- and I apologize if it's just my not having not unearthed it properly, but that $6 million -- well, $5.8 million nonrecurring, I saw some kind of vague-ish language about what it was. Can you provide a little bit more in rate specifics? Or I may have just missed it, I apologize.

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [80]

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No, it's just that in the normal course of business-related activities, a couple of them SG&A related, a couple of them associated with our recent acquisitions in terms of synergy capture, and those were the primary. There was really nothing unusual in that figure for the quarter.

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Operator [81]

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Your next question comes from Daniel Rizzo from Jefferies.

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Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [82]

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Just one quick question. You mentioned that one of the reasons for doing the acquisition was because of some interesting industrial end markets. I was wondering exactly what they were, like what you're looking at that seems to be good and if there's more room for additional acquisitions within that market.

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [83]

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Yes, thanks, Dan. I mean there's some things they're doing relative to filtration, both air and automotive categories that we're not in, in retail to include things like retail boxes that we're not largely in right now. So we find that to be interesting. And as I've talked about in the past, we've got good market shares in some of the traditional folding carton categories. And finding different options for us or different verticals that we can grow into is something that we're pretty excited about. And so we're really glad to have this acquisition and existing customer relationships that now we can build upon.

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Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [84]

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Okay. And then -- and just one other. So in the past, with the price hikes you enacted, the goal was to recover the higher costs that have been incurred, I think between 2015 and 2017 or thereabouts. With everything that's occurred and with -- where wood is and what other costs are doing with your price like you've already announced, will you have achieved that goal by the end of this year?

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [85]

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Dan, it's Steve. Now as we've talked, what we're really working to overcome that occurred in 2017 and '18 is about $125 million worth of price cost dislocation. We're making significant progress on that this year. And as we look out over a 2- to 3-year time horizon, we would expect full recovery. So our intent of recovering it holistically remains. It will be a 2- to 3-year return to provide -- to cover all $125 million.

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Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [86]

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And finally, that would suggest that the additional price hike might be necessary?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [87]

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Yes. So we're not going to talk about forward pricing actions other than to just say that our intent is to continue to recover that inflation.

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Operator [88]

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Your next question will come from Edlain Rodriguez from UBS.

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Edlain S. Rodriguez, UBS Investment Bank, Research Division - Director and Equity Research Associate, Chemicals [89]

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Just one quick one on the price lag reduction. Again, very positive if you believe that the boxboard market is well positioned for higher prices going forward because otherwise you will have to give up some prices. So as of now, do we think that the market is tight enough to be constructive on prices?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [90]

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So just a clarification there, Edlain. I understand what you're saying around the timing if there was a reduction. I guess it would flow through. But I think the more relevant fact and one of the things that we've really talked to our investors around is that we want to make sure that we're dealing with inflation in the year that it occurs. And now that we have, on average, 2 openers that allow us to be able to do that as opposed to dragging some of that into the next year. Up or down, it's a more relevant picture for how the business is performing and it's tighter. So we view that as quite positive in that regard. And in regard to the operating rates as I've mentioned, it would go up the AF&PA data. We've got a couple of those operating rates that are north of 95% and 1 that's a little below that with some actions that are going to happen later on this year that in our opinion will drive that one up as we head into 2020. And that's our view.

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Edlain S. Rodriguez, UBS Investment Bank, Research Division - Director and Equity Research Associate, Chemicals [91]

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That makes sense. And one quick one on volume. Can you remind us again what was the organic volume growth this quarter?

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [92]

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Edlain, it was flat. Our organic was flat. The modest growth was acquisition-based as we expected.

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Operator [93]

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Mark Wilde, your line is open.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [94]

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Steve, I just wanted to chase down that organic growth a little bit further. So for the first half, how much organic growth do you have?

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [95]

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First half overall, it's basically flat as well. We were down very, very slightly in Q1. Organically a flat year, so it's literally at 0 to minus 0.5 points if you kind of look at it organically. And that's the pivot that we're expecting, Mark, in the second half towards organic growth of about 100 basis points. So that's kind of first half to second half.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [96]

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Okay. So just you've talked I think pretty widely about one big cup conversion that's going on. That sounds to me like that's a pretty big chunk of the overall organic growth in the second half. Would that be fair?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [97]

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It's certainly a component of it, Mark. And as you now, there are always things that are up and things that are down, but the net-net positive of it gives us a lot of confidence to be able to make the guide be 100 bps of growth on our -- of organic growth.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [98]

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Okay. And if I could, Mike, I think most of where you're picking up like foodservice, at least in cups, is in hot cups, coffee cups. Is there anything to suggest that maybe you could do the same thing in cold cups or in other niches?

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [99]

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We're certainly working on that. You are correct, the majority of our gains to this point have been on the hot cup side of the business. But cold cup is still prevalent to polystyrene as a big option and these tend to be larger cups as well. And so we're working with several of our customers on options that would provide them innovative solutions to be able to use paper and paperboard as an option to polystyrene foam.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [100]

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Okay. All right. And then just finally, and I know we want to be careful about this on a public conference call, but the trade paper over the last several weeks has been pointing to a little bit of pricing weakness, both in SBS and in CRB. I wonder if we could just get your perspective on that.

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [101]

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I can only work off the numbers and what we're seeing, Mark. The numbers, as you see, are very solid on a couple of the grades and then a little lower than that on SBS. And again, I can't really comment on what the trade -- that particular trade paper does in terms of their process and who they talk to. But if you look at some of the things that they reported on, I mean we were down they said 30 days in Kalamazoo and that just wasn't the case as an example. And so when you kind of look at what they say and how it kind of comes through, they talk to certain people and that's what gets reported. But when we look through it and really look at the actual results and the numbers that come out through the AF&PA and others, I think it tells a pretty balanced and -- story.

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Stephen R. Scherger, Graphic Packaging Holding Company - Executive VP & CFO [102]

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Yes, Mark, to that point -- and that's one of the things we conveyed to you here today was that was our CUK operating rate, which was [25%-plus]. So reiterating that because there's some commingled information in there. We'll provide it to you in terms of our operating rates with the CUK, 95%-plus; CRB, 97%. And obviously, we're working through, as Mike said a couple times, this little bit of volume in, volume out that's taking place on SBS which will play itself out here in this Q3, Q4.

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Operator [103]

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We have now reached the end of our Q&A session. I will turn the call back over to Mike.

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Michael P. Doss, Graphic Packaging Holding Company - President, CEO & Director [104]

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Thank you for joining us on our second quarter call. We look forward to talking to you again in October.

Have a great day.

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Operator [105]

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This concludes today's conference call.

You may now disconnect.